Leap Wireless International (LEAP)

We determine our future capital and operating requirements and liquidity based, in large part, upon our projected financial and operating performance, and we regularly review and update these projections due to changes in general economic conditions, our current and projected financial and operating results, the competitive landscape and other factors. In evaluating our liquidity and managing our financial resources, we plan to maintain what we consider to be at least a reasonable surplus of unrestricted cash, cash equivalents and short-term investments to address variations in working capital, unanticipated operating or capital requirements, and significant changes in our financial and operating performance. If cash generated from operations were to be adversely impacted by substantial changes in our projected financial and operating performance (for example, as a result of unexpected effects associated with the current economic downturn, changes in general economic conditions, higher interest rates, increased competition in our markets, slower-than-anticipated growth or customer acceptance of our products or services, increased churn or other factors), we believe that we could manage our capital expenditures and other business expenses, to the extent we deemed necessary, to match our capital requirements to our available liquidity. Our projections regarding future capital and operating requirements and liquidity are based upon current operating, financial and competitive information and projections regarding our business and its financial performance. There are a number of risks and uncertainties (including the risks to our business described above and others set forth in this report in Part II — Item 1A. under the heading entitled “Risk Factors”) that could cause our financial and operating results and capital requirements to differ materially from our projections and that could cause our liquidity to differ materially from the assessment set forth above.

 

We plan to expand our network footprint by launching Cricket service in new markets and improving coverage in our existing markets. We and Denali Operations intend to launch new markets covering approximately 25 million additional POPs by the middle of 2009 (measured on a cumulative basis beginning January 2009). As part of these expansion plans, during the three months ended March 31, 2009, we and Denali Operations launched new markets in Chicago and Philadelphia covering approximately 16.7 million additional POPs. In addition, we also previously identified up to approximately 16 million additional POPs that we could elect to cover with Cricket service in the next 18 to 24 months. We currently expect to make a determination with respect to any launch of these additional POPs by the middle of 2009. We intend to fund the costs required to build out and launch any new markets associated with these 16 million additional POPs with cash generated from operations. The pace and timing of any such build-out and launch activities will depend upon the performance of our business and our available cash resources.

 

In addition, we plan to continue to improve our network coverage and capacity in many of our existing markets, allowing us to offer our customers an improved service area. We have substantially completed the first phase of this program, which called for us to deploy approximately 600 new cell sites in our existing markets. In the second phase of this program, we plan to deploy up to an additional 600 cell sites in our existing markets by the end of 2010.

 

Our business operations and expansion efforts require significant expenditures. Our operating expenses for the year ended December 31, 2008 and for the three months ended March 31, 2009 were $1,912.0 million and $591.6 million, respectively. In addition, we and our consolidated joint ventures made approximately $795.7 million and $201.8 million in capital expenditures, including related capitalized interest costs, during the year ended December 31, 2008 and the three months ended March 31, 2009, respectively, primarily to support the launch of new markets, the expansion and improvement of our existing wireless networks and the deployment of EvDO technology. Capital expenditures for 2009, excluding capitalized interest costs, are expected to be between $625 million to $725 million, which include capital expenditures to support the launch of new markets, the on-going growth and development of markets that have been in commercial operation for one year or more and the further improvement of network coverage in our existing markets. As described above, we believe that our existing unrestricted cash, cash equivalents and short-term investments, together with cash generated from operations, provide us with sufficient liquidity to meet the future operating and capital requirements for our current business operations and our current business expansion efforts.

 

In addition to our current business expansion efforts described above, we may also pursue other activities to build our business, which could include (without limitation) the acquisition of additional spectrum through private transactions or FCC auctions, entering into partnerships with others to launch and operate additional markets or to reduce operating costs in existing markets, the acquisition of other wireless communications companies or

complementary businesses or the deployment of next-generation network technology over the longer term. If we were to pursue any of these activities at a significant level, we would likely need to re-direct capital otherwise available for our current business operations and expansion efforts or raise additional funding. In addition, in order to enhance our liquidity and to provide us with additional flexibility to make acquisitions and pursue business opportunities, we may raise additional capital in the future. Any additional capital that we raise may be significant and could consist of debt, convertible debt or equity financing from public and/or private capital markets. We do not intend to pursue any of these other business expansion activities at a significant level unless we believe we have sufficient liquidity to support the operating and capital requirements for our current business operations, our current business expansion efforts and any such other activities.

 

To provide flexibility with respect to any future capital raising alternatives, we have filed a universal shelf registration statement with the SEC to register various debt, equity and other securities, including debt securities, common stock, preferred 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.

 

Our total outstanding indebtedness under our Credit Agreement was $875.3 million as of March 31, 2009. Outstanding term loan borrowings under our Credit Agreement must be repaid in 22 quarterly payments of $2.25 million each (which commenced on March 31, 2007) followed by four quarterly payments of $211.5 million (which commence on September 30, 2012). The term loan under our Credit Agreement bears interest at the London Interbank Offered Rate, or LIBOR, plus 3.50% (subject to a LIBOR floor of 3.0% per annum) or the bank base rate plus 2.50%, as selected by us. The Credit Agreement also includes a $200 million revolving credit facility, which was undrawn as of March 31, 2009 and which expires in June 2011. In addition to our Credit Agreement, we also had $1,650 million in unsecured senior indebtedness outstanding as of March 31, 2009, which included $1,100 million of 9.375% senior notes due 2014, $250 million of 4.5% convertible senior notes due 2014 and $300 million of 10.0% senior notes due 2015.

 

The Credit Agreement and the indentures governing Cricket’s senior notes contain covenants that restrict the ability of Leap, Cricket and the subsidiary guarantors to take certain actions, including incurring additional indebtedness beyond specified thresholds. In addition, under certain circumstances we are required to use some or all of the proceeds we receive from incurring indebtedness beyond defined levels to pay down outstanding borrowings under our Credit Agreement. Our Credit Agreement also contains financial covenants with respect to a maximum consolidated senior secured leverage ratio and, if a revolving credit loan or uncollateralized letter of credit is outstanding or requested, with respect to a minimum consolidated interest coverage ratio, a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio. Based upon our current projected financial performance, we expect that we could borrow all or a substantial portion of the $200 million commitment available under the revolving credit facility until it expires in June 2011. If our financial and operating results were significantly less than what we currently project, the financial covenants in the Credit Agreement could restrict or prevent us from borrowing under the revolving credit facility for one or more quarters. However, as noted above, we do not generally rely upon the revolving credit facility as a source of liquidity in planning for our future capital and operating requirements.

 

Although our significant outstanding indebtedness results in certain risks to our business that could materially affect our financial condition and performance, we believe that these risks are manageable and that we are taking appropriate actions to monitor and address them. For example, in connection with our financial planning process and capital raising activities, we seek to maintain an appropriate balance between our debt and equity capitalization and we review our business plans and forecasts, including projected trends in interest rates, to monitor our ability to service our debt and to comply with the financial and other covenants in our Credit Agreement and the indentures governing Cricket’s senior notes. In addition, as the new markets that we have launched over the past few years continue to develop and our existing markets mature, we expect that increased cash flows from such new and existing markets will ultimately result in improvements in our consolidated leverage ratio and the other ratios underlying our financial covenants. Our $1,650 million of senior notes and convertible senior notes bear interest at a fixed rate and we have entered into interest rate swap agreements covering $355 million of outstanding debt under our term loan. Due to the fixed rate on our senior notes and convertible senior notes and our interest rate swaps, approximately 78.5% of our total indebtedness accrues interest at a fixed rate. In light of the actions described

above, our expected cash flows from operations, and our ability to manage our capital expenditures and other business expenses as necessary to match our capital requirements to our available liquidity, management believes that it has the ability to effectively manage our levels of indebtedness and address the risks to our business and financial condition related to our indebtedness.

 

grow. In addition, from time to time we may also generate liquidity through capital markets transactions. We generated $483.7 million of net cash from financing activities during the year ended December 31, 2008, which included proceeds from our issuances of unsecured senior notes and convertible senior notes in June 2008. We also have a $200 million revolving credit facility which was undrawn as of December 31, 2008, and which we do not generally rely upon as a source of liquidity in planning for our future capital and operating requirements.

 

We believe that our existing unrestricted cash, cash equivalents and short-term investments, together with cash generated from operations, provide us with sufficient liquidity to meet the future operating and capital requirements for our current business operations and our current business expansion efforts. These current business expansion efforts, which are described further below, include our plans to expand our network footprint, expand and enhance network coverage and capacity in many of our existing markets and expand the availability of our Cricket Broadband service.

 

We determine our future capital and operating requirements and liquidity based, in large part, upon our projected financial performance, and we regularly review and update these projections due to changes in general economic conditions, our current and projected operating and financial results, the competitive landscape and other factors. In evaluating our liquidity and managing our financial resources, we plan to maintain what we consider to be at least a reasonable surplus of unrestricted cash, cash equivalents and short-term investments to address variations in working capital, unanticipated operating or capital requirements, and significant changes in our financial performance. If cash generated from operations were to be adversely impacted by substantial changes in our projected operating performance (for example, as a result of unexpected effects associated with the current economic downturn, changes in general economic conditions, higher interest rates, increased competition in our markets, slower-than-anticipated growth or customer acceptance of our products or services, increased churn or other factors), we believe that we could defer or significantly reduce our capital expenditures and other business expenses, to the extent we deemed necessary, to match our capital requirements to our available liquidity. Our projections regarding future capital and operating requirements and liquidity are based upon current operating, financial and competitive information and projections regarding our business and its financial performance. There are a number of risks and uncertainties (including the risks to our business described above and others set forth in Part I — Item 1A. of our 2008 Form 10-K under the heading entitled “Risk Factors”) that could cause our financial and operating results and capital requirements to differ materially from our projections and that could cause our liquidity to differ materially from the assessment set forth above.

 

We plan to expand our network footprint by launching Cricket service in new markets and increasing and enhancing coverage in our existing markets. In 2008, we and Denali Operations launched new markets in Oklahoma City, southern Texas, Las Vegas, St. Louis and the greater Milwaukee area covering approximately 11 million additional POPs. We and Denali Operations intend to launch markets covering approximately 25 million additional POPs by the middle of 2009 (which includes the Chicago market launched by Denali Operations in February 2009). We and Denali Operations also previously identified up to approximately 16 million additional POPs that we could elect to cover with Cricket service by the end of 2010. We currently expect to make a determination with respect to the launch of these additional POPs by the middle of 2009. We intend to fund the costs required to build out and launch any new markets associated with these 16 million additional POPs with cash generated from operations. The pace and timing of any such build-out and launch activities will depend upon the performance of our business and the amount of cash generated by our operations.

 

In addition, we plan to continue to expand and enhance our network coverage and capacity in many of our existing markets, allowing us to offer our customers an improved service area. We have substantially completed the first phase of this program, which called for us to deploy approximately 600 new cell sites in our existing markets. In the second phase of this program, we currently plan to deploy up to an additional 600 cell sites in our existing markets by the end of 2010.

 

We also plan to expand the availability of Cricket Broadband, our mobile broadband product offering. As of December 31, 2008, our Cricket Broadband service was available to approximately 67.2 million covered POPs, and we intend to make the service available in new Cricket markets that we and Denali Operations launch.

 

Our business operations and expansion efforts require significant expenditures. Our operating expenses for the year ended December 31, 2008 were $1.91 billion. In addition, we and our consolidated joint ventures made

approximately $795.7 million in capital expenditures during the year ended December 31, 2008, including related capitalized interest, primarily to support the launch of new markets, the expansion and improvement of our and their existing wireless networks and the deployment of EvDO technology. Capital expenditures for 2009 are expected to be between $625 million to $725 million, excluding capitalized interest, which include capital expenditures to support the launch of new markets, the on-going growth and development of markets that have been in commercial operation for one year or more and the further expansion and enhancement of network coverage in our existing markets. As described above, we believe that our existing unrestricted cash, cash equivalents and short-term investments, together with cash generated from operations, provide us with sufficient liquidity to meet the future operating and capital requirements for our current business operations and our current business expansion efforts.

 

In addition to our current business expansion efforts described above, we may also pursue other activities to build our business, which could include (without limitation) the acquisition of additional spectrum through private transactions or FCC auctions, entering into partnerships with others to launch and operate additional markets or reduce existing operating costs, or the acquisition of other wireless communications companies or complementary businesses. If we were to pursue any of these activities at a significant level, we would likely need to re-direct capital otherwise available for our current business operations and expansion efforts or raise additional funding. We do not intend to pursue any of these other activities at a significant level unless we believe we have sufficient liquidity to support the operating and capital requirements for our current business operations, expansion efforts and any such other activities. To provide flexibility with respect to any future capital raising alternatives, we intend to file a universal shelf registration statement with the SEC to register various debt, equity and other securities, including debt securities, common stock, preferred stock, depository shares, rights and warrants. The securities under this registration statement would be able to 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.

 

Our total outstanding indebtedness under our Credit Agreement was $877.5 million as of December 31, 2008. Outstanding term loan borrowings under our Credit Agreement must be repaid in 22 quarterly payments of $2.25 million each (which commenced on March 31, 2007) followed by four quarterly payments of $211.5 million (which commence on September 30, 2012). The term loan under our Credit Agreement bears interest at LIBOR plus 3.50% (subject to a LIBOR floor of 3.0% per annum) or the bank base rate plus 2.50%, as selected by us. The Credit Agreement also includes a $200 million revolving credit facility, which was undrawn as of December 31, 2008 and which expires in June 2011. In addition to our Credit Agreement, we also had $1,650 million in unsecured senior indebtedness outstanding as of December 31, 2008, which included $1,100 million of 9.375% senior notes due 2014, $250 million of 4.5% convertible senior notes due 2014 and $300 million of 10.0% senior notes due 2015.

 

The Credit Agreement and the indentures governing Cricket’s senior notes contain covenants that restrict the ability of Leap, Cricket and the subsidiary guarantors to take certain actions, including incurring additional indebtedness beyond specified thresholds. In addition, under certain circumstances we are required to use some or all of the proceeds we receive from incurring indebtedness beyond defined levels to pay down outstanding borrowings under our Credit Agreement. Our Credit Agreement also contains financial covenants with respect to a maximum consolidated senior secured leverage ratio and, if a revolving credit loan or uncollateralized letter of credit is outstanding or requested, with respect to a minimum consolidated interest coverage ratio, a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio. Based upon our current projected financial performance, we expect that we could borrow all or a substantial portion of the $200 million commitment available under the revolving credit facility until it expires in June 2011. If our financial and operating results were significantly less than what we currently project, the financial covenants in the Credit Agreement could restrict or prevent us from borrowing under the revolving credit facility for one or more quarters. However, as noted above, we do not generally rely upon the revolving credit facility as a source of liquidity in planning for our future capital and operating requirements.

 

Although our significant outstanding indebtedness results in certain risks to our business that could materially affect our financial condition and performance, we believe that these risks are manageable and that we are taking appropriate actions to monitor and address them. For example, in connection with our financial planning process and capital raising activities, we seek to maintain an appropriate balance between our debt and equity capitalization and we review our business plans and forecasts, including projected trends in interest rates, to monitor our ability to service our debt and to comply with the financial and other covenants in our Credit Agreement and the indentures

governing Cricket’s senior notes. In addition, as the new markets that we have launched over the past few years continue to develop and our existing markets mature, we expect that increased cash flows from such new and existing markets will ultimately result in improvements in our consolidated leverage ratio and the other ratios underlying our financial covenants. Our $1,650 million of senior notes and convertible senior notes bear interest at a fixed rate and we have entered into interest rate swap agreements covering $355 million of outstanding debt under our term loan. Due to the fixed rate on our senior notes and convertible senior notes and our interest rate swaps, approximately 78.4% of our total indebtedness accrues interest at a fixed rate. In light of the actions described above, our expected cash flows from operations, and our ability to defer or reduce our investments in business expansion efforts or other activities as necessary to match our capital requirements to our available liquidity, management believes that it has the ability to effectively manage our levels of indebtedness and address the risks to our business and financial condition related to our indebtedness.

 

 

We are a wireless communications carrier that offers digital wireless services in the U.S. under the “Cricket^®” brand. Our Cricket service offerings provide customers with unlimited wireless services for a flat rate without requiring a fixed-term contract or a credit check.

 

Cricket service is offered by Cricket, a wholly owned subsidiary of Leap, and is also offered in Oregon by LCW Wireless Operations and in the upper Midwest by Denali Operations. Cricket owns an indirect 73.3% non-controlling interest in LCW Operations through a 73.3% non-controlling interest in LCW Wireless, and owns an indirect non-controlling interest in Denali Operations through an 82.5% non-controlling interest in Denali. LCW Wireless and Denali are designated entities under FCC regulations. We consolidate our interests in LCW Wireless and Denali in accordance with FIN 46(R) because these entities are variable interest entities and we will absorb a majority of their expected losses.

 

At December 31, 2008, Cricket service was offered in 30 states and had approximately 3.8 million customers. As of December 31, 2008, we, LCW License (a wholly owned subsidiary of LCW Operations), and Denali License Sub (an indirect wholly owned subsidiary of Denali) owned wireless licenses covering an aggregate of approximately 186.7 million POPs (adjusted to eliminate duplication from overlapping licenses). The combined network footprint in our operating markets covered approximately 67.2 million POPs as of December 31, 2008, which includes incremental POPs attributed to ongoing footprint expansion in existing markets. The licenses we and Denali purchased in Auction #66, together with the existing licenses we own, provide 20 MHz of coverage and the opportunity to offer enhanced data services in almost all markets in which we currently operate or are building out, assuming Denali License Sub were to make available to us certain of its spectrum.

 

We plan to expand our network footprint by launching Cricket service in new markets and increasing and enhancing coverage in our existing markets. In 2008, we and Denali Operations launched new markets in Oklahoma City, southern Texas, Las Vegas, St. Louis and the greater Milwaukee area covering approximately 11 million additional POPs. We and Denali Operations intend to launch markets covering approximately 25 million additional POPs by the middle of 2009 (which includes the Chicago market launched by Denali Operations in February 2009). We and Denali Operations also previously identified up to approximately 16 million additional POPs that we could elect to cover with Cricket service by the end of 2010. We currently expect to make a determination with respect to the launch of these additional POPs by the middle of 2009. We intend to fund the costs required to build out and launch any new markets associated with these 16 million additional POPs with cash generated from operations. The pace and timing of any such build-out and launch activities will depend upon the performance of our business and the amount of cash generated by our operations. We also plan to continue to expand and enhance our network coverage and capacity in many of our existing markets, allowing us to offer our customers an improved service area. In addition to these expansion plans, we and Denali License Sub hold licenses in other markets that are suitable for Cricket service, and we and Denali Operations may develop some of the licenses covering these additional POPs through partnerships with others.

 

Our Cricket service offerings are based on providing unlimited wireless services to customers, and the value of unlimited wireless services is the foundation of our business. Our primary Cricket service is Cricket Wireless, which offers customers unlimited wireless voice and data services for a flat monthly rate. Our most popular Cricket Wireless rate plan combines unlimited local and U.S. long distance service from any Cricket service area with unlimited use of multiple calling features and messaging services. We also offer Cricket Broadband, our unlimited mobile broadband service, which allows customers to access the internet through their computers for one low, flat rate with no long-term commitments or credit checks. As of December 31, 2008, our Cricket Broadband service was available to approximately 67.2 million covered POPs, and we intend to make the service available in new Cricket markets that we and Denali Operations launch. In October 2008, we began an introductory launch of Cricket

PAYGo^tm, our unlimited prepaid wireless service, in select markets. Cricket PAYGo is a daily pay-as-you-go service designed for customers who prefer the flexibility and control offered by traditional prepaid services but who are seeking greater value for their dollar. We expect to continue to broaden our voice and data product and service offerings in 2009 and beyond.

 

We believe that our business model is scalable and can be expanded successfully into adjacent and new markets because we offer a differentiated service and an attractive value proposition to our customers at costs significantly lower than most of our competitors, and accordingly we continue to enhance our current market clusters and expand our business into new geographic markets. In addition to our current business expansion efforts, we may also pursue other activities to build our business, which could include (without limitation) the acquisition of additional spectrum through private transactions or FCC auctions, entering into partnerships with others to launch and operate additional markets or reduce existing operating costs, or the acquisition of other wireless communications companies or complementary businesses. We also expect to continue to look for opportunities to optimize the value of our spectrum portfolio. Because some of the licenses that we and Denali License Sub hold include large regional areas covering both rural and metropolitan communities, we and Denali may seek to partner with others, sell some of this spectrum or pursue alternative products or services to utilize or benefit from the spectrum not otherwise used for Cricket service.

 

Our customer activity is influenced by seasonal effects related to traditional retail selling periods and other factors that arise from our target customer base. Based on historical results, we generally expect new sales activity to be highest in the first and fourth quarters for markets in operation for one year or longer, and customer turnover, or churn, to be highest in the third quarter and lowest in the first quarter. However, sales activity and churn can be strongly affected by the launch of new markets, promotional activity, economic conditions and competitive actions, any of which have the ability to reduce or outweigh certain seasonal effects. From time to time, we offer programs to help promote customer activity for our wireless services. For example, since the second quarter of 2008 we have increased our use of a program which allows existing customers to activate an additional line of voice service on a previously activated Cricket handset not currently in service. Customers accepting this offer receive a free month of service on the additional line of service after paying an activation fee. We believe that this kind of program and other promotions provide important long-term benefits to us by extending the period of time over which customers use our handsets and wireless services.

 

Our principal sources of liquidity are our existing unrestricted cash, cash equivalents and short-term investments and cash generated from operations. From time to time, we may also generate additional liquidity through capital markets transactions. We also have a $200 million revolving credit facility under our Credit Agreement which was undrawn as of December 31, 2008, and which we do not generally rely upon as a source of liquidity in planning for our future capital and operating requirements. See “Liquidity and Capital Resources” below.

 

Among the most significant factors affecting our financial condition and performance from period to period are our new market expansions and growth in customers, the impacts of which are reflected in our revenues and operating expenses. Throughout 2006, 2007 and 2008, we and our joint ventures continued expanding existing market footprints and expanded into 30 new markets, increasing the number of potential customers covered by our networks from approximately 27.7 million covered POPs as of December 31, 2005, to approximately 48.0 million covered POPs as of December 31, 2006, to approximately 53.2 million covered POPs as of December 31, 2007 and to approximately 67.2 million covered POPs as of December 31, 2008. 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 and to 3.84 million customers as of December 31, 2008. 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. During 2006 and 2007, we introduced several higher-priced, higher-value service plans which helped increase average revenue per user per month as a result of customer acceptance of the plans. During 2008, we experienced slightly lower average revenue per user per month due to customer acceptance of our lower-priced rate plans, decreased customer acceptance of optional add-on services, and the successful expansion of our Cricket Broadband service.

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. We also incurred substantial additional indebtedness to finance the costs of our business expansion and acquisitions of additional wireless licenses in 2006, 2007 and 2008. 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. Also, in September 2007, we changed our tax accounting method for amortizing wireless licenses, contributing substantially to our income tax expense of $38.6 million for the year ended December 31, 2008 and $37.4 million for the year ended December 31, 2007, as compared to our income tax expense of $9.3 million for the year ended December 31, 2006.

 

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 $24.4 million for fiscal 2006, a net loss of $75.9 million for fiscal 2007, and a net loss of $147.8 million for the year ended December 31, 2008. 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.

 

We expect that we will continue to build out and launch new markets and pursue other expansion activities for the next several years. We intend to be disciplined as we pursue these expansion efforts and to remain focused on our position as a low-cost leader in wireless telecommunications. We expect to achieve increased revenues and incur higher operating expenses as our existing business grows and as we build out and after we launch service in new markets. Large-scale construction projects for the build-out of our new markets will require significant capital expenditures and may suffer cost overruns. Any such significant capital expenditures or increased operating expenses will decrease OIBDA and free cash flow for the periods in which we incur such costs. However, we are willing to incur such expenditures because we expect our expansion activities will be beneficial to our business and create additional value for our stockholders.

 

 

Company
Overview

 

We are a wireless communications carrier that offers digital
wireless services in the U.S. under the
“Cricket^®”

brand. Our Cricket service offerings provide customers with
unlimited wireless services for a flat rate without requiring a
fixed-term contract or a credit check.

 

Cricket service is offered by Cricket, a wholly owned subsidiary
of Leap, and is also offered in Oregon by LCW Wireless
Operations and in the upper Midwest by Denali Operations.
Cricket owns an indirect 73.3% non-controlling interest in LCW
Operations through a 73.3% non-controlling interest in LCW
Wireless, and owns an indirect non-controlling interest in
Denali Operations through an 82.5% non-controlling interest in
Denali. LCW Wireless and Denali are designated entities under
FCC regulations. We consolidate our interests in LCW Wireless
and Denali in accordance with FIN 46(R) because these
entities are variable interest entities and we will absorb a
majority of their expected losses.

 

At December 31, 2008, Cricket service was offered in
30 states and had approximately 3.8 million customers.
As of December 31, 2008, we, LCW License (a wholly owned
subsidiary of LCW Operations), and Denali License Sub (an
indirect wholly owned subsidiary of Denali) owned wireless
licenses covering an aggregate of approximately
186.7 million POPs (adjusted to eliminate duplication from
overlapping licenses). The combined network footprint in our
operating markets covered approximately 67.2 million POPs
as of December 31, 2008, which includes incremental POPs
attributed to ongoing footprint expansion in existing markets.
The licenses we and Denali purchased in Auction #66,
together with the existing licenses we own, provide 20 MHz
of coverage and the opportunity to offer enhanced data services
in almost all markets in which we currently operate or are
building out, assuming Denali License Sub were to make available
to us certain of its spectrum.

 

We plan to expand our network footprint by launching Cricket
service in new markets and increasing and enhancing coverage in
our existing markets. In 2008, we and Denali Operations launched
new markets in Oklahoma City, southern Texas, Las Vegas,
St. Louis and the greater Milwaukee area covering
approximately 11 million additional POPs. We and Denali
Operations intend to launch markets covering approximately
25 million additional POPs by the middle of 2009 (which
includes the Chicago market launched by Denali Operations in
February 2009). We and Denali Operations also previously
identified up to approximately 16 million additional POPs
that we could elect to cover with Cricket service by the end of
2010. We currently expect to make a determination with respect
to the launch of these additional POPs by the middle of 2009. We
intend to fund the costs required to build out and launch any
new markets associated with these 16 million additional
POPs with cash generated from operations. The pace and timing of
any such build-out and launch activities will depend upon the
performance of our business and the amount of cash generated by
our operations. We also plan to continue to expand and enhance
our network coverage and capacity in many of our existing
markets, allowing us to offer our customers an improved service
area. In addition to these expansion plans, we and Denali
License Sub hold licenses in other markets that are suitable for
Cricket service, and we and Denali Operations may develop some
of the licenses covering these additional POPs through
partnerships with others.

 

Our Cricket service offerings are based on providing unlimited
wireless services to customers, and the value of unlimited
wireless services is the foundation of our business. Our primary
Cricket service is Cricket Wireless, which offers customers
unlimited wireless voice and data services for a flat monthly
rate. Our most popular Cricket Wireless rate plan combines
unlimited local and U.S. long distance service from any
Cricket service area with unlimited use of multiple calling
features and messaging services. We also offer Cricket
Broadband, our unlimited mobile broadband service, which allows
customers to access the internet through their computers for one
low, flat rate with no long-term commitments or credit checks.
As of December 31, 2008, our Cricket Broadband service was
available to approximately 67.2 million covered POPs, and
we intend to make the service available in new Cricket markets
that we and Denali Operations launch. In October 2008, we began
an introductory launch of Cricket

PAYGo^tm,

our unlimited prepaid wireless service, in select markets.
Cricket PAYGo is a daily pay-as-you-go service designed for
customers who prefer the flexibility and control offered by
traditional prepaid services but who are seeking greater value
for their dollar. We expect to continue to broaden our voice and
data product and service offerings in 2009 and beyond.

 

We believe that our business model is scalable and can be
expanded successfully into adjacent and new markets because we
offer a differentiated service and an attractive value
proposition to our customers at costs significantly lower than
most of our competitors, and accordingly we continue to enhance
our current market clusters and expand our business into new
geographic markets. In addition to our current business
expansion efforts, we may also pursue other activities to build
our business, which could include (without limitation) the
acquisition of additional spectrum through private transactions
or FCC auctions, entering into partnerships with others to
launch and operate additional markets or reduce existing
operating costs, or the acquisition of other wireless
communications companies or complementary businesses. We also
expect to continue to look for opportunities to optimize the
value of our spectrum portfolio. Because some of the licenses
that we and Denali License Sub hold include large regional areas
covering both rural and metropolitan communities, we and Denali
may seek to partner with others, sell some of this spectrum or
pursue alternative products or services to utilize or benefit
from the spectrum not otherwise used for Cricket service.

 

Our customer activity is influenced by seasonal effects related
to traditional retail selling periods and other factors that
arise from our target customer base. Based on historical
results, we generally expect new sales activity to be highest in
the first and fourth quarters for markets in operation for one
year or longer, and customer turnover, or churn, to be highest
in the third quarter and lowest in the first quarter. However,
sales activity and churn can be strongly affected by the launch
of new markets, promotional activity, economic conditions and
competitive actions, any of which have the ability to reduce or
outweigh certain seasonal effects. From time to time, we offer
programs to help promote customer activity for our wireless
services. For example, since the second quarter of 2008 we have
increased our use of a program which allows existing customers
to activate an additional line of voice service on a previously
activated Cricket handset not currently in service. Customers
accepting this offer receive a free month of service on the
additional line of service after paying an activation fee. We
believe that this kind of program and other promotions provide
important long-term benefits to us by extending the period of
time over which customers use our handsets and wireless services.

 

Our principal sources of liquidity are our existing unrestricted
cash, cash equivalents and short-term investments and cash
generated from operations. From time to time, we may also
generate additional liquidity through capital markets
transactions. We also have a $200 million revolving credit
facility under our Credit Agreement which was undrawn as of
December 31, 2008, and which we do not generally rely upon
as a source of liquidity in planning for our future capital and
operating requirements. See “Liquidity and Capital
Resources” below.

 

Among the most significant factors affecting our financial
condition and performance from period to period are our new
market expansions and growth in customers, the impacts of which
are reflected in our revenues and operating expenses. Throughout
2006, 2007 and 2008, we and our joint ventures continued
expanding existing market footprints and expanded into 30 new
markets, increasing the number of potential customers covered by
our networks from approximately 27.7 million covered POPs
as of December 31, 2005, to approximately 48.0 million
covered POPs as of December 31, 2006, to approximately
53.2 million covered POPs as of December 31, 2007 and
to approximately 67.2 million covered POPs as of
December 31, 2008. 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 and to 3.84 million customers as of
December 31, 2008. 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. During
2006 and 2007, we introduced several higher-priced, higher-value
service plans which helped increase average revenue per user per
month as a result of customer acceptance of the plans. During
2008, we experienced slightly lower average revenue per user per
month due to customer acceptance of our lower-priced rate plans,
decreased customer acceptance of optional add-on services, and
the successful expansion of our Cricket Broadband service.

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. We also incurred substantial additional
indebtedness to finance the costs of our business expansion and
acquisitions of additional wireless licenses in 2006, 2007 and
2008. 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. Also, in September 2007, we
changed our tax accounting method for amortizing wireless
licenses, contributing substantially to our income tax expense
of $38.6 million for the year ended December 31, 2008
and $37.4 million for the year ended December 31,
2007, as compared to our income tax expense of $9.3 million
for the year ended December 31, 2006.

 

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 $24.4 million for fiscal 2006, a net loss of
$75.9 million for fiscal 2007, and a net loss of
$147.8 million for the year ended December 31, 2008.
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.

 

We expect that we will continue to build out and launch new
markets and pursue other expansion activities for the next
several years. We intend to be disciplined as we pursue these
expansion efforts and to remain focused on our position as a
low-cost leader in wireless telecommunications. We expect to
achieve increased revenues and incur higher operating expenses
as our existing business grows and as we build out and after we
launch service in new markets. Large-scale construction projects
for the build-out of our new markets will require significant
capital expenditures and may suffer cost overruns. Any such
significant capital expenditures or increased operating expenses
will decrease OIBDA and free cash flow for the periods in which
we incur such costs. However, we are willing to incur such
expenditures because we expect our expansion activities will be
beneficial to our business and create additional value for our
stockholders.

 

 

Company
Overview

 

We are a wireless communications carrier that offers digital
wireless services in the U.S. under the
“Cricket^®”

brand. Our Cricket service offerings provide customers with
unlimited wireless services for a flat rate without requiring a
fixed-term contract or a credit check.

 

Cricket service is offered by Cricket, a wholly owned subsidiary
of Leap, and is also offered in Oregon by LCW Wireless
Operations and in the upper Midwest by Denali Operations.
Cricket owns an indirect 73.3% non-controlling interest in LCW
Operations through a 73.3% non-controlling interest in LCW
Wireless, and owns an indirect non-controlling interest in
Denali Operations through an 82.5% non-controlling interest in
Denali. LCW Wireless and Denali are designated entities under
FCC regulations. We consolidate our interests in LCW Wireless
and Denali in accordance with FIN 46(R) because these
entities are variable interest entities and we will absorb a
majority of their expected losses.

 

At December 31, 2008, Cricket service was offered in
30 states and had approximately 3.8 million customers.
As of December 31, 2008, we, LCW License (a wholly owned
subsidiary of LCW Operations), and Denali License Sub (an
indirect wholly owned subsidiary of Denali) owned wireless
licenses covering an aggregate of approximately
186.7 million POPs (adjusted to eliminate duplication from
overlapping licenses). The combined network footprint in our
operating markets covered approximately 67.2 million POPs
as of December 31, 2008, which includes incremental POPs
attributed to ongoing footprint expansion in existing markets.
The licenses we and Denali purchased in Auction #66,
together with the existing licenses we own, provide 20 MHz
of coverage and the opportunity to offer enhanced data services
in almost all markets in which we currently operate or are
building out, assuming Denali License Sub were to make available
to us certain of its spectrum.

 

We plan to expand our network footprint by launching Cricket
service in new markets and increasing and enhancing coverage in
our existing markets. In 2008, we and Denali Operations launched
new markets in Oklahoma City, southern Texas, Las Vegas,
St. Louis and the greater Milwaukee area covering
approximately 11 million additional POPs. We and Denali
Operations intend to launch markets covering approximately
25 million additional POPs by the middle of 2009 (which
includes the Chicago market launched by Denali Operations in
February 2009). We and Denali Operations also previously
identified up to approximately 16 million additional POPs
that we could elect to cover with Cricket service by the end of
2010. We currently expect to make a determination with respect
to the launch of these additional POPs by the middle of 2009. We
intend to fund the costs required to build out and launch any
new markets associated with these 16 million additional
POPs with cash generated from operations. The pace and timing of
any such build-out and launch activities will depend upon the
performance of our business and the amount of cash generated by
our operations. We also plan to continue to expand and enhance
our network coverage and capacity in many of our existing
markets, allowing us to offer our customers an improved service
area. In addition to these expansion plans, we and Denali
License Sub hold licenses in other markets that are suitable for
Cricket service, and we and Denali Operations may develop some
of the licenses covering these additional POPs through
partnerships with others.

 

Our Cricket service offerings are based on providing unlimited
wireless services to customers, and the value of unlimited
wireless services is the foundation of our business. Our primary
Cricket service is Cricket Wireless, which offers customers
unlimited wireless voice and data services for a flat monthly
rate. Our most popular Cricket Wireless rate plan combines
unlimited local and U.S. long distance service from any
Cricket service area with unlimited use of multiple calling
features and messaging services. We also offer Cricket
Broadband, our unlimited mobile broadband service, which allows
customers to access the internet through their computers for one
low, flat rate with no long-term commitments or credit checks.
As of December 31, 2008, our Cricket Broadband service was
available to approximately 67.2 million covered POPs, and
we intend to make the service available in new Cricket markets
that we and Denali Operations launch. In October 2008, we began
an introductory launch of Cricket

PAYGo^tm,

our unlimited prepaid wireless service, in select markets.
Cricket PAYGo is a daily pay-as-you-go service designed for
customers who prefer the flexibility and control offered by
traditional prepaid services but who are seeking greater value
for their dollar. We expect to continue to broaden our voice and
data product and service offerings in 2009 and beyond.

 

We believe that our business model is scalable and can be
expanded successfully into adjacent and new markets because we
offer a differentiated service and an attractive value
proposition to our customers at costs significantly lower than
most of our competitors, and accordingly we continue to enhance
our current market clusters and expand our business into new
geographic markets. In addition to our current business
expansion efforts, we may also pursue other activities to build
our business, which could include (without limitation) the
acquisition of additional spectrum through private transactions
or FCC auctions, entering into partnerships with others to
launch and operate additional markets or reduce existing
operating costs, or the acquisition of other wireless
communications companies or complementary businesses. We also
expect to continue to look for opportunities to optimize the
value of our spectrum portfolio. Because some of the licenses
that we and Denali License Sub hold include large regional areas
covering both rural and metropolitan communities, we and Denali
may seek to partner with others, sell some of this spectrum or
pursue alternative products or services to utilize or benefit
from the spectrum not otherwise used for Cricket service.

 

Our customer activity is influenced by seasonal effects related
to traditional retail selling periods and other factors that
arise from our target customer base. Based on historical
results, we generally expect new sales activity to be highest in
the first and fourth quarters for markets in operation for one
year or longer, and customer turnover, or churn, to be highest
in the third quarter and lowest in the first quarter. However,
sales activity and churn can be strongly affected by the launch
of new markets, promotional activity, economic conditions and
competitive actions, any of which have the ability to reduce or
outweigh certain seasonal effects. From time to time, we offer
programs to help promote customer activity for our wireless
services. For example, since the second quarter of 2008 we have
increased our use of a program which allows existing customers
to activate an additional line of voice service on a previously
activated Cricket handset not currently in service. Customers
accepting this offer receive a free month of service on the
additional line of service after paying an activation fee. We
believe that this kind of program and other promotions provide
important long-term benefits to us by extending the period of
time over which customers use our handsets and wireless services.

 

Our principal sources of liquidity are our existing unrestricted
cash, cash equivalents and short-term investments and cash
generated from operations. From time to time, we may also
generate additional liquidity through capital markets
transactions. We also have a $200 million revolving credit
facility under our Credit Agreement which was undrawn as of
December 31, 2008, and which we do not generally rely upon
as a source of liquidity in planning for our future capital and
operating requirements. See “Liquidity and Capital
Resources” below.

 

Among the most significant factors affecting our financial
condition and performance from period to period are our new
market expansions and growth in customers, the impacts of which
are reflected in our revenues and operating expenses. Throughout
2006, 2007 and 2008, we and our joint ventures continued
expanding existing market footprints and expanded into 30 new
markets, increasing the number of potential customers covered by
our networks from approximately 27.7 million covered POPs
as of December 31, 2005, to approximately 48.0 million
covered POPs as of December 31, 2006, to approximately
53.2 million covered POPs as of December 31, 2007 and
to approximately 67.2 million covered POPs as of
December 31, 2008. 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 and to 3.84 million customers as of
December 31, 2008. 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. During
2006 and 2007, we introduced several higher-priced, higher-value
service plans which helped increase average revenue per user per
month as a result of customer acceptance of the plans. During
2008, we experienced slightly lower average revenue per user per
month due to customer acceptance of our lower-priced rate plans,
decreased customer acceptance of optional add-on services, and
the successful expansion of our Cricket Broadband service.

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. We also incurred substantial additional
indebtedness to finance the costs of our business expansion and
acquisitions of additional wireless licenses in 2006, 2007 and
2008. 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. Also, in September 2007, we
changed our tax accounting method for amortizing wireless
licenses, contributing substantially to our income tax expense
of $38.6 million for the year ended December 31, 2008
and $37.4 million for the year ended December 31,
2007, as compared to our income tax expense of $9.3 million
for the year ended December 31, 2006.

 

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 $24.4 million for fiscal 2006, a net loss of
$75.9 million for fiscal 2007, and a net loss of
$147.8 million for the year ended December 31, 2008.
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.

 

We expect that we will continue to build out and launch new
markets and pursue other expansion activities for the next
several years. We intend to be disciplined as we pursue these
expansion efforts and to remain focused on our position as a
low-cost leader in wireless telecommunications. We expect to
achieve increased revenues and incur higher operating expenses
as our existing business grows and as we build out and after we
launch service in new markets. Large-scale construction projects
for the build-out of our new markets will require significant
capital expenditures and may suffer cost overruns. Any such
significant capital expenditures or increased operating expenses
will decrease OIBDA and free cash flow for the periods in which
we incur such costs. However, we are willing to incur such
expenditures because we expect our expansion activities will be
beneficial to our business and create additional value for our
stockholders.

 

 

Company
Overview

 

We are a wireless communications carrier that offers digital
wireless services in the U.S. under the
“Cricket^®”

brand. Our Cricket service offerings provide customers with
unlimited wireless services for a flat rate without requiring a
fixed-term contract or a credit check.

 

Cricket service is offered by Cricket, a wholly owned subsidiary
of Leap, and is also offered in Oregon by LCW Wireless
Operations and in the upper Midwest by Denali Operations.
Cricket owns an indirect 73.3% non-controlling interest in LCW
Operations through a 73.3% non-controlling interest in LCW
Wireless, and owns an indirect non-controlling interest in
Denali Operations through an 82.5% non-controlling interest in
Denali. LCW Wireless and Denali are designated entities under
FCC regulations. We consolidate our interests in LCW Wireless
and Denali in accordance with FIN 46(R) because these
entities are variable interest entities and we will absorb a
majority of their expected losses.

 

At December 31, 2008, Cricket service was offered in
30 states and had approximately 3.8 million customers.
As of December 31, 2008, we, LCW License (a wholly owned
subsidiary of LCW Operations), and Denali License Sub (an
indirect wholly owned subsidiary of Denali) owned wireless
licenses covering an aggregate of approximately
186.7 million POPs (adjusted to eliminate duplication from
overlapping licenses). The combined network footprint in our
operating markets covered approximately 67.2 million POPs
as of December 31, 2008, which includes incremental POPs
attributed to ongoing footprint expansion in existing markets.
The licenses we and Denali purchased in Auction #66,
together with the existing licenses we own, provide 20 MHz
of coverage and the opportunity to offer enhanced data services
in almost all markets in which we currently operate or are
building out, assuming Denali License Sub were to make available
to us certain of its spectrum.

 

We plan to expand our network footprint by launching Cricket
service in new markets and increasing and enhancing coverage in
our existing markets. In 2008, we and Denali Operations launched
new markets in Oklahoma City, southern Texas, Las Vegas,
St. Louis and the greater Milwaukee area covering
approximately 11 million additional POPs. We and Denali
Operations intend to launch markets covering approximately
25 million additional POPs by the middle of 2009 (which
includes the Chicago market launched by Denali Operations in
February 2009). We and Denali Operations also previously
identified up to approximately 16 million additional POPs
that we could elect to cover with Cricket service by the end of
2010. We currently expect to make a determination with respect
to the launch of these additional POPs by the middle of 2009. We
intend to fund the costs required to build out and launch any
new markets associated with these 16 million additional
POPs with cash generated from operations. The pace and timing of
any such build-out and launch activities will depend upon the
performance of our business and the amount of cash generated by
our operations. We also plan to continue to expand and enhance
our network coverage and capacity in many of our existing
markets, allowing us to offer our customers an improved service
area. In addition to these expansion plans, we and Denali
License Sub hold licenses in other markets that are suitable for
Cricket service, and we and Denali Operations may develop some
of the licenses covering these additional POPs through
partnerships with others.

 

Our Cricket service offerings are based on providing unlimited
wireless services to customers, and the value of unlimited
wireless services is the foundation of our business. Our primary
Cricket service is Cricket Wireless, which offers customers
unlimited wireless voice and data services for a flat monthly
rate. Our most popular Cricket Wireless rate plan combines
unlimited local and U.S. long distance service from any
Cricket service area with unlimited use of multiple calling
features and messaging services. We also offer Cricket
Broadband, our unlimited mobile broadband service, which allows
customers to access the internet through their computers for one
low, flat rate with no long-term commitments or credit checks.
As of December 31, 2008, our Cricket Broadband service was
available to approximately 67.2 million covered POPs, and
we intend to make the service available in new Cricket markets
that we and Denali Operations launch. In October 2008, we began
an introductory launch of Cricket

PAYGo^tm,

our unlimited prepaid wireless service, in select markets.
Cricket PAYGo is a daily pay-as-you-go service designed for
customers who prefer the flexibility and control offered by
traditional prepaid services but who are seeking greater value
for their dollar. We expect to continue to broaden our voice and
data product and service offerings in 2009 and beyond.

 

We believe that our business model is scalable and can be
expanded successfully into adjacent and new markets because we
offer a differentiated service and an attractive value
proposition to our customers at costs significantly lower than
most of our competitors, and accordingly we continue to enhance
our current market clusters and expand our business into new
geographic markets. In addition to our current business
expansion efforts, we may also pursue other activities to build
our business, which could include (without limitation) the
acquisition of additional spectrum through private transactions
or FCC auctions, entering into partnerships with others to
launch and operate additional markets or reduce existing
operating costs, or the acquisition of other wireless
communications companies or complementary businesses. We also
expect to continue to look for opportunities to optimize the
value of our spectrum portfolio. Because some of the licenses
that we and Denali License Sub hold include large regional areas
covering both rural and metropolitan communities, we and Denali
may seek to partner with others, sell some of this spectrum or
pursue alternative products or services to utilize or benefit
from the spectrum not otherwise used for Cricket service.

 

Our customer activity is influenced by seasonal effects related
to traditional retail selling periods and other factors that
arise from our target customer base. Based on historical
results, we generally expect new sales activity to be highest in
the first and fourth quarters for markets in operation for one
year or longer, and customer turnover, or churn, to be highest
in the third quarter and lowest in the first quarter. However,
sales activity and churn can be strongly affected by the launch
of new markets, promotional activity, economic conditions and
competitive actions, any of which have the ability to reduce or
outweigh certain seasonal effects. From time to time, we offer
programs to help promote customer activity for our wireless
services. For example, since the second quarter of 2008 we have
increased our use of a program which allows existing customers
to activate an additional line of voice service on a previously
activated Cricket handset not currently in service. Customers
accepting this offer receive a free month of service on the
additional line of service after paying an activation fee. We
believe that this kind of program and other promotions provide
important long-term benefits to us by extending the period of
time over which customers use our handsets and wireless services.

 

Our principal sources of liquidity are our existing unrestricted
cash, cash equivalents and short-term investments and cash
generated from operations. From time to time, we may also
generate additional liquidity through capital markets
transactions. We also have a $200 million revolving credit
facility under our Credit Agreement which was undrawn as of
December 31, 2008, and which we do not generally rely upon
as a source of liquidity in planning for our future capital and
operating requirements. See “Liquidity and Capital
Resources” below.

 

Among the most significant factors affecting our financial
condition and performance from period to period are our new
market expansions and growth in customers, the impacts of which
are reflected in our revenues and operating expenses. Throughout
2006, 2007 and 2008, we and our joint ventures continued
expanding existing market footprints and expanded into 30 new
markets, increasing the number of potential customers covered by
our networks from approximately 27.7 million covered POPs
as of December 31, 2005, to approximately 48.0 million
covered POPs as of December 31, 2006, to approximately
53.2 million covered POPs as of December 31, 2007 and
to approximately 67.2 million covered POPs as of
December 31, 2008. 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 and to 3.84 million customers as of
December 31, 2008. 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. During
2006 and 2007, we introduced several higher-priced, higher-value
service plans which helped increase average revenue per user per
month as a result of customer acceptance of the plans. During
2008, we experienced slightly lower average revenue per user per
month due to customer acceptance of our lower-priced rate plans,
decreased customer acceptance of optional add-on services, and
the successful expansion of our Cricket Broadband service.

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. We also incurred substantial additional
indebtedness to finance the costs of our business expansion and
acquisitions of additional wireless licenses in 2006, 2007 and
2008. 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. Also, in September 2007, we
changed our tax accounting method for amortizing wireless
licenses, contributing substantially to our income tax expense
of $38.6 million for the year ended December 31, 2008
and $37.4 million for the year ended December 31,
2007, as compared to our income tax expense of $9.3 million
for the year ended December 31, 2006.

 

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 $24.4 million for fiscal 2006, a net loss of
$75.9 million for fiscal 2007, and a net loss of
$147.8 million for the year ended December 31, 2008.
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.

 

We expect that we will continue to build out and launch new
markets and pursue other expansion activities for the next
several years. We intend to be disciplined as we pursue these
expansion efforts and to remain focused on our position as a
low-cost leader in wireless telecommunications. We expect to
achieve increased revenues and incur higher operating expenses
as our existing business grows and as we build out and after we
launch service in new markets. Large-scale construction projects
for the build-out of our new markets will require significant
capital expenditures and may suffer cost overruns. Any such
significant capital expenditures or increased operating expenses
will decrease OIBDA and free cash flow for the periods in which
we incur such costs. However, we are willing to incur such
expenditures because we expect our expansion activities will be
beneficial to our business and create additional value for our
stockholders.

 

 

Company
Overview

 

We are a wireless communications carrier that offers digital
wireless services in the U.S. under the
“Cricket^®”

brand. Our Cricket service offerings provide customers with
unlimited wireless services for a flat rate without requiring a
fixed-term contract or a credit check.

 

Cricket service is offered by Cricket, a wholly owned subsidiary
of Leap, and is also offered in Oregon by LCW Wireless
Operations and in the upper Midwest by Denali Operations.
Cricket owns an indirect 73.3% non-controlling interest in LCW
Operations through a 73.3% non-controlling interest in LCW
Wireless, and owns an indirect non-controlling interest in
Denali Operations through an 82.5% non-controlling interest in
Denali. LCW Wireless and Denali are designated entities under
FCC regulations. We consolidate our interests in LCW Wireless
and Denali in accordance with FIN 46(R) because these
entities are variable interest entities and we will absorb a
majority of their expected losses.

 

At December 31, 2008, Cricket service was offered in
30 states and had approximately 3.8 million customers.
As of December 31, 2008, we, LCW License (a wholly owned
subsidiary of LCW Operations), and Denali License Sub (an
indirect wholly owned subsidiary of Denali) owned wireless
licenses covering an aggregate of approximately
186.7 million POPs (adjusted to eliminate duplication from
overlapping licenses). The combined network footprint in our
operating markets covered approximately 67.2 million POPs
as of December 31, 2008, which includes incremental POPs
attributed to ongoing footprint expansion in existing markets.
The licenses we and Denali purchased in Auction #66,
together with the existing licenses we own, provide 20 MHz
of coverage and the opportunity to offer enhanced data services
in almost all markets in which we currently operate or are
building out, assuming Denali License Sub were to make available
to us certain of its spectrum.

 

We plan to expand our network footprint by launching Cricket
service in new markets and increasing and enhancing coverage in
our existing markets. In 2008, we and Denali Operations launched
new markets in Oklahoma City, southern Texas, Las Vegas,
St. Louis and the greater Milwaukee area covering
approximately 11 million additional POPs. We and Denali
Operations intend to launch markets covering approximately
25 million additional POPs by the middle of 2009 (which
includes the Chicago market launched by Denali Operations in
February 2009). We and Denali Operations also previously
identified up to approximately 16 million additional POPs
that we could elect to cover with Cricket service by the end of
2010. We currently expect to make a determination with respect
to the launch of these additional POPs by the middle of 2009. We
intend to fund the costs required to build out and launch any
new markets associated with these 16 million additional
POPs with cash generated from operations. The pace and timing of
any such build-out and launch activities will depend upon the
performance of our business and the amount of cash generated by
our operations. We also plan to continue to expand and enhance
our network coverage and capacity in many of our existing
markets, allowing us to offer our customers an improved service
area. In addition to these expansion plans, we and Denali
License Sub hold licenses in other markets that are suitable for
Cricket service, and we and Denali Operations may develop some
of the licenses covering these additional POPs through
partnerships with others.

 

Our Cricket service offerings are based on providing unlimited
wireless services to customers, and the value of unlimited
wireless services is the foundation of our business. Our primary
Cricket service is Cricket Wireless, which offers customers
unlimited wireless voice and data services for a flat monthly
rate. Our most popular Cricket Wireless rate plan combines
unlimited local and U.S. long distance service from any
Cricket service area with unlimited use of multiple calling
features and messaging services. We also offer Cricket
Broadband, our unlimited mobile broadband service, which allows
customers to access the internet through their computers for one
low, flat rate with no long-term commitments or credit checks.
As of December 31, 2008, our Cricket Broadband service was
available to approximately 67.2 million covered POPs, and
we intend to make the service available in new Cricket markets
that we and Denali Operations launch. In October 2008, we began
an introductory launch of Cricket

PAYGo^tm,

our unlimited prepaid wireless service, in select markets.
Cricket PAYGo is a daily pay-as-you-go service designed for
customers who prefer the flexibility and control offered by
traditional prepaid services but who are seeking greater value
for their dollar. We expect to continue to broaden our voice and
data product and service offerings in 2009 and beyond.

 

We believe that our business model is scalable and can be
expanded successfully into adjacent and new markets because we
offer a differentiated service and an attractive value
proposition to our customers at costs significantly lower than
most of our competitors, and accordingly we continue to enhance
our current market clusters and expand our business into new
geographic markets. In addition to our current business
expansion efforts, we may also pursue other activities to build
our business, which could include (without limitation) the
acquisition of additional spectrum through private transactions
or FCC auctions, entering into partnerships with others to
launch and operate additional markets or reduce existing
operating costs, or the acquisition of other wireless
communications companies or complementary businesses. We also
expect to continue to look for opportunities to optimize the
value of our spectrum portfolio. Because some of the licenses
that we and Denali License Sub hold include large regional areas
covering both rural and metropolitan communities, we and Denali
may seek to partner with others, sell some of this spectrum or
pursue alternative products or services to utilize or benefit
from the spectrum not otherwise used for Cricket service.

 

Our customer activity is influenced by seasonal effects related
to traditional retail selling periods and other factors that
arise from our target customer base. Based on historical
results, we generally expect new sales activity to be highest in
the first and fourth quarters for markets in operation for one
year or longer, and customer turnover, or churn, to be highest
in the third quarter and lowest in the first quarter. However,
sales activity and churn can be strongly affected by the launch
of new markets, promotional activity, economic conditions and
competitive actions, any of which have the ability to reduce or
outweigh certain seasonal effects. From time to time, we offer
programs to help promote customer activity for our wireless
services. For example, since the second quarter of 2008 we have
increased our use of a program which allows existing customers
to activate an additional line of voice service on a previously
activated Cricket handset not currently in service. Customers
accepting this offer receive a free month of service on the
additional line of service after paying an activation fee. We
believe that this kind of program and other promotions provide
important long-term benefits to us by extending the period of
time over which customers use our handsets and wireless services.

 

Our principal sources of liquidity are our existing unrestricted
cash, cash equivalents and short-term investments and cash
generated from operations. From time to time, we may also
generate additional liquidity through capital markets
transactions. We also have a $200 million revolving credit
facility under our Credit Agreement which was undrawn as of
December 31, 2008, and which we do not generally rely upon
as a source of liquidity in planning for our future capital and
operating requirements. See “Liquidity and Capital
Resources” below.

 

Among the most significant factors affecting our financial
condition and performance from period to period are our new
market expansions and growth in customers, the impacts of which
are reflected in our revenues and operating expenses. Throughout
2006, 2007 and 2008, we and our joint ventures continued
expanding existing market footprints and expanded into 30 new
markets, increasing the number of potential customers covered by
our networks from approximately 27.7 million covered POPs
as of December 31, 2005, to approximately 48.0 million
covered POPs as of December 31, 2006, to approximately
53.2 million covered POPs as of December 31, 2007 and
to approximately 67.2 million covered POPs as of
December 31, 2008. 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 and to 3.84 million customers as of
December 31, 2008. 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. During
2006 and 2007, we introduced several higher-priced, higher-value
service plans which helped increase average revenue per user per
month as a result of customer acceptance of the plans. During
2008, we experienced slightly lower average revenue per user per
month due to customer acceptance of our lower-priced rate plans,
decreased customer acceptance of optional add-on services, and
the successful expansion of our Cricket Broadband service.

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. We also incurred substantial additional
indebtedness to finance the costs of our business expansion and
acquisitions of additional wireless licenses in 2006, 2007 and
2008. 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. Also, in September 2007, we
changed our tax accounting method for amortizing wireless
licenses, contributing substantially to our income tax expense
of $38.6 million for the year ended December 31, 2008
and $37.4 million for the year ended December 31,
2007, as compared to our income tax expense of $9.3 million
for the year ended December 31, 2006.

 

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 $24.4 million for fiscal 2006, a net loss of
$75.9 million for fiscal 2007, and a net loss of
$147.8 million for the year ended December 31, 2008.
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.

 

We expect that we will continue to build out and launch new
markets and pursue other expansion activities for the next
several years. We intend to be disciplined as we pursue these
expansion efforts and to remain focused on our position as a
low-cost leader in wireless telecommunications. We expect to
achieve increased revenues and incur higher operating expenses
as our existing business grows and as we build out and after we
launch service in new markets. Large-scale construction projects
for the build-out of our new markets will require significant
capital expenditures and may suffer cost overruns. Any such
significant capital expenditures or increased operating expenses
will decrease OIBDA and free cash flow for the periods in which
we incur such costs. However, we are willing to incur such
expenditures because we expect our expansion activities will be
beneficial to our business and create additional value for our
stockholders.

 

 

We are a wireless communications carrier that offers digital
wireless services in the U.S. under the
“Cricket^®”

brand. Our Cricket service offerings provide customers with
unlimited wireless services for a flat rate without requiring a
fixed-term contract or a credit check.

 

Cricket service is offered by Cricket, a wholly owned subsidiary
of Leap, and is also offered in Oregon by LCW Wireless
Operations and in the upper Midwest by Denali Operations.
Cricket owns an indirect 73.3% non-controlling interest in LCW
Operations through a 73.3% non-controlling interest in LCW
Wireless, and owns an indirect non-controlling interest in
Denali Operations through an 82.5% non-controlling interest in
Denali. LCW Wireless and Denali are designated entities under
FCC regulations. We consolidate our interests in LCW Wireless
and Denali in accordance with FIN 46(R) because these
entities are variable interest entities and we will absorb a
majority of their expected losses.

 

At December 31, 2008, Cricket service was offered in
30 states and had approximately 3.8 million customers.
As of December 31, 2008, we, LCW License (a wholly owned
subsidiary of LCW Operations), and Denali License Sub (an
indirect wholly owned subsidiary of Denali) owned wireless
licenses covering an aggregate of approximately
186.7 million POPs (adjusted to eliminate duplication from
overlapping licenses). The combined network footprint in our
operating markets covered approximately 67.2 million POPs
as of December 31, 2008, which includes incremental POPs
attributed to ongoing footprint expansion in existing markets.
The licenses we and Denali purchased in Auction #66,
together with the existing licenses we own, provide 20 MHz
of coverage and the opportunity to offer enhanced data services
in almost all markets in which we currently operate or are
building out, assuming Denali License Sub were to make available
to us certain of its spectrum.

 

We plan to expand our network footprint by launching Cricket
service in new markets and increasing and enhancing coverage in
our existing markets. In 2008, we and Denali Operations launched
new markets in Oklahoma City, southern Texas, Las Vegas,
St. Louis and the greater Milwaukee area covering
approximately 11 million additional POPs. We and Denali
Operations intend to launch markets covering approximately
25 million additional POPs by the middle of 2009 (which
includes the Chicago market launched by Denali Operations in
February 2009). We and Denali Operations also previously
identified up to approximately 16 million additional POPs
that we could elect to cover with Cricket service by the end of
2010. We currently expect to make a determination with respect
to the launch of these additional POPs by the middle of 2009. We
intend to fund the costs required to build out and launch any
new markets associated with these 16 million additional
POPs with cash generated from operations. The pace and timing of
any such build-out and launch activities will depend upon the
performance of our business and the amount of cash generated by
our operations. We also plan to continue to expand and enhance
our network coverage and capacity in many of our existing
markets, allowing us to offer our customers an improved service
area. In addition to these expansion plans, we and Denali
License Sub hold licenses in other markets that are suitable for
Cricket service, and we and Denali Operations may develop some
of the licenses covering these additional POPs through
partnerships with others.

 

Our Cricket service offerings are based on providing unlimited
wireless services to customers, and the value of unlimited
wireless services is the foundation of our business. Our primary
Cricket service is Cricket Wireless, which offers customers
unlimited wireless voice and data services for a flat monthly
rate. Our most popular Cricket Wireless rate plan combines
unlimited local and U.S. long distance service from any
Cricket service area with unlimited use of multiple calling
features and messaging services. We also offer Cricket
Broadband, our unlimited mobile broadband service, which allows
customers to access the internet through their computers for one
low, flat rate with no long-term commitments or credit checks.
As of December 31, 2008, our Cricket Broadband service was
available to approximately 67.2 million covered POPs, and
we intend to make the service available in new Cricket markets
that we and Denali Operations launch. In October 2008, we began
an introductory launch of Cricket

PAYGo^tm,

our unlimited prepaid wireless service, in select markets.
Cricket PAYGo is a daily pay-as-you-go service designed for
customers who prefer the flexibility and control offered by
traditional prepaid services but who are seeking greater value
for their dollar. We expect to continue to broaden our voice and
data product and service offerings in 2009 and beyond.

 

We believe that our business model is scalable and can be
expanded successfully into adjacent and new markets because we
offer a differentiated service and an attractive value
proposition to our customers at costs significantly lower than
most of our competitors, and accordingly we continue to enhance
our current market clusters and expand our business into new
geographic markets. In addition to our current business
expansion efforts, we may also pursue other activities to build
our business, which could include (without limitation) the
acquisition of additional spectrum through private transactions
or FCC auctions, entering into partnerships with others to
launch and operate additional markets or reduce existing
operating costs, or the acquisition of other wireless
communications companies or complementary businesses. We also
expect to continue to look for opportunities to optimize the
value of our spectrum portfolio. Because some of the licenses
that we and Denali License Sub hold include large regional areas
covering both rural and metropolitan communities, we and Denali
may seek to partner with others, sell some of this spectrum or
pursue alternative products or services to utilize or benefit
from the spectrum not otherwise used for Cricket service.

 

Our customer activity is influenced by seasonal effects related
to traditional retail selling periods and other factors that
arise from our target customer base. Based on historical
results, we generally expect new sales activity to be highest in
the first and fourth quarters for markets in operation for one
year or longer, and customer turnover, or churn, to be highest
in the third quarter and lowest in the first quarter. However,
sales activity and churn can be strongly affected by the launch
of new markets, promotional activity, economic conditions and
competitive actions, any of which have the ability to reduce or
outweigh certain seasonal effects. From time to time, we offer
programs to help promote customer activity for our wireless
services. For example, since the second quarter of 2008 we have
increased our use of a program which allows existing customers
to activate an additional line of voice service on a previously
activated Cricket handset not currently in service. Customers
accepting this offer receive a free month of service on the
additional line of service after paying an activation fee. We
believe that this kind of program and other promotions provide
important long-term benefits to us by extending the period of
time over which customers use our handsets and wireless services.

 

Our principal sources of liquidity are our existing unrestricted
cash, cash equivalents and short-term investments and cash
generated from operations. From time to time, we may also
generate additional liquidity through capital markets
transactions. We also have a $200 million revolving credit
facility under our Credit Agreement which was undrawn as of
December 31, 2008, and which we do not generally rely upon
as a source of liquidity in planning for our future capital and
operating requirements. See “Liquidity and Capital
Resources” below.

 

Among the most significant factors affecting our financial
condition and performance from period to period are our new
market expansions and growth in customers, the impacts of which
are reflected in our revenues and operating expenses. Throughout
2006, 2007 and 2008, we and our joint ventures continued
expanding existing market footprints and expanded into 30 new
markets, increasing the number of potential customers covered by
our networks from approximately 27.7 million covered POPs
as of December 31, 2005, to approximately 48.0 million
covered POPs as of December 31, 2006, to approximately
53.2 million covered POPs as of December 31, 2007 and
to approximately 67.2 million covered POPs as of
December 31, 2008. 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 and to 3.84 million customers as of
December 31, 2008. 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. During
2006 and 2007, we introduced several higher-priced, higher-value
service plans which helped increase average revenue per user per
month as a result of customer acceptance of the plans. During
2008, we experienced slightly lower average revenue per user per
month due to customer acceptance of our lower-priced rate plans,
decreased customer acceptance of optional add-on services, and
the successful expansion of our Cricket Broadband service.

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. We also incurred substantial additional
indebtedness to finance the costs of our business expansion and
acquisitions of additional wireless licenses in 2006, 2007 and
2008. 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. Also, in September 2007, we
changed our tax accounting method for amortizing wireless
licenses, contributing substantially to our income tax expense
of $38.6 million for the year ended December 31, 2008
and $37.4 million for the year ended December 31,
2007, as compared to our income tax expense of $9.3 million
for the year ended December 31, 2006.

 

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 $24.4 million for fiscal 2006, a net loss of
$75.9 million for fiscal 2007, and a net loss of
$147.8 million for the year ended December 31, 2008.
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.

 

We expect that we will continue to build out and launch new
markets and pursue other expansion activities for the next
several years. We intend to be disciplined as we pursue these
expansion efforts and to remain focused on our position as a
low-cost leader in wireless telecommunications. We expect to
achieve increased revenues and incur higher operating expenses
as our existing business grows and as we build out and after we
launch service in new markets. Large-scale construction projects
for the build-out of our new markets will require significant
capital expenditures and may suffer cost overruns. Any such
significant capital expenditures or increased operating expenses
will decrease OIBDA and free cash flow for the periods in which
we incur such costs. However, we are willing to incur such
expenditures because we expect our expansion activities will be
beneficial to our business and create additional value for our
stockholders.

 

 

We are a wireless communications carrier that offers digital
wireless services in the U.S. under the
“Cricket^®”

brand. Our Cricket service offerings provide customers with
unlimited wireless services for a flat rate without requiring a
fixed-term contract or a credit check.

 

Cricket service is offered by Cricket, a wholly owned subsidiary
of Leap, and is also offered in Oregon by LCW Wireless
Operations and in the upper Midwest by Denali Operations.
Cricket owns an indirect 73.3% non-controlling interest in LCW
Operations through a 73.3% non-controlling interest in LCW
Wireless, and owns an indirect non-controlling interest in
Denali Operations through an 82.5% non-controlling interest in
Denali. LCW Wireless and Denali are designated entities under
FCC regulations. We consolidate our interests in LCW Wireless
and Denali in accordance with FIN 46(R) because these
entities are variable interest entities and we will absorb a
majority of their expected losses.

 

At December 31, 2008, Cricket service was offered in
30 states and had approximately 3.8 million customers.
As of December 31, 2008, we, LCW License (a wholly owned
subsidiary of LCW Operations), and Denali License Sub (an
indirect wholly owned subsidiary of Denali) owned wireless
licenses covering an aggregate of approximately
186.7 million POPs (adjusted to eliminate duplication from
overlapping licenses). The combined network footprint in our
operating markets covered approximately 67.2 million POPs
as of December 31, 2008, which includes incremental POPs
attributed to ongoing footprint expansion in existing markets.
The licenses we and Denali purchased in Auction #66,
together with the existing licenses we own, provide 20 MHz
of coverage and the opportunity to offer enhanced data services
in almost all markets in which we currently operate or are
building out, assuming Denali License Sub were to make available
to us certain of its spectrum.

 

We plan to expand our network footprint by launching Cricket
service in new markets and increasing and enhancing coverage in
our existing markets. In 2008, we and Denali Operations launched
new markets in Oklahoma City, southern Texas, Las Vegas,
St. Louis and the greater Milwaukee area covering
approximately 11 million additional POPs. We and Denali
Operations intend to launch markets covering approximately
25 million additional POPs by the middle of 2009 (which
includes the Chicago market launched by Denali Operations in
February 2009). We and Denali Operations also previously
identified up to approximately 16 million additional POPs
that we could elect to cover with Cricket service by the end of
2010. We currently expect to make a determination with respect
to the launch of these additional POPs by the middle of 2009. We
intend to fund the costs required to build out and launch any
new markets associated with these 16 million additional
POPs with cash generated from operations. The pace and timing of
any such build-out and launch activities will depend upon the
performance of our business and the amount of cash generated by
our operations. We also plan to continue to expand and enhance
our network coverage and capacity in many of our existing
markets, allowing us to offer our customers an improved service
area. In addition to these expansion plans, we and Denali
License Sub hold licenses in other markets that are suitable for
Cricket service, and we and Denali Operations may develop some
of the licenses covering these additional POPs through
partnerships with others.

 

Our Cricket service offerings are based on providing unlimited
wireless services to customers, and the value of unlimited
wireless services is the foundation of our business. Our primary
Cricket service is Cricket Wireless, which offers customers
unlimited wireless voice and data services for a flat monthly
rate. Our most popular Cricket Wireless rate plan combines
unlimited local and U.S. long distance service from any
Cricket service area with unlimited use of multiple calling
features and messaging services. We also offer Cricket
Broadband, our unlimited mobile broadband service, which allows
customers to access the internet through their computers for one
low, flat rate with no long-term commitments or credit checks.
As of December 31, 2008, our Cricket Broadband service was
available to approximately 67.2 million covered POPs, and
we intend to make the service available in new Cricket markets
that we and Denali Operations launch. In October 2008, we began
an introductory launch of Cricket

PAYGo^tm,

our unlimited prepaid wireless service, in select markets.
Cricket PAYGo is a daily pay-as-you-go service designed for
customers who prefer the flexibility and control offered by
traditional prepaid services but who are seeking greater value
for their dollar. We expect to continue to broaden our voice and
data product and service offerings in 2009 and beyond.

 

We believe that our business model is scalable and can be
expanded successfully into adjacent and new markets because we
offer a differentiated service and an attractive value
proposition to our customers at costs significantly lower than
most of our competitors, and accordingly we continue to enhance
our current market clusters and expand our business into new
geographic markets. In addition to our current business
expansion efforts, we may also pursue other activities to build
our business, which could include (without limitation) the
acquisition of additional spectrum through private transactions
or FCC auctions, entering into partnerships with others to
launch and operate additional markets or reduce existing
operating costs, or the acquisition of other wireless
communications companies or complementary businesses. We also
expect to continue to look for opportunities to optimize the
value of our spectrum portfolio. Because some of the licenses
that we and Denali License Sub hold include large regional areas
covering both rural and metropolitan communities, we and Denali
may seek to partner with others, sell some of this spectrum or
pursue alternative products or services to utilize or benefit
from the spectrum not otherwise used for Cricket service.

 

Our customer activity is influenced by seasonal effects related
to traditional retail selling periods and other factors that
arise from our target customer base. Based on historical
results, we generally expect new sales activity to be highest in
the first and fourth quarters for markets in operation for one
year or longer, and customer turnover, or churn, to be highest
in the third quarter and lowest in the first quarter. However,
sales activity and churn can be strongly affected by the launch
of new markets, promotional activity, economic conditions and
competitive actions, any of which have the ability to reduce or
outweigh certain seasonal effects. From time to time, we offer
programs to help promote customer activity for our wireless
services. For example, since the second quarter of 2008 we have
increased our use of a program which allows existing customers
to activate an additional line of voice service on a previously
activated Cricket handset not currently in service. Customers
accepting this offer receive a free month of service on the
additional line of service after paying an activation fee. We
believe that this kind of program and other promotions provide
important long-term benefits to us by extending the period of
time over which customers use our handsets and wireless services.

 

Our principal sources of liquidity are our existing unrestricted
cash, cash equivalents and short-term investments and cash
generated from operations. From time to time, we may also
generate additional liquidity through capital markets
transactions. We also have a $200 million revolving credit
facility under our Credit Agreement which was undrawn as of
December 31, 2008, and which we do not generally rely upon
as a source of liquidity in planning for our future capital and
operating requirements. See “Liquidity and Capital
Resources” below.

 

Among the most significant factors affecting our financial
condition and performance from period to period are our new
market expansions and growth in customers, the impacts of which
are reflected in our revenues and operating expenses. Throughout
2006, 2007 and 2008, we and our joint ventures continued
expanding existing market footprints and expanded into 30 new
markets, increasing the number of potential customers covered by
our networks from approximately 27.7 million covered POPs
as of December 31, 2005, to approximately 48.0 million
covered POPs as of December 31, 2006, to approximately
53.2 million covered POPs as of December 31, 2007 and
to approximately 67.2 million covered POPs as of
December 31, 2008. 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 and to 3.84 million customers as of
December 31, 2008. 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. During
2006 and 2007, we introduced several higher-priced, higher-value
service plans which helped increase average revenue per user per
month as a result of customer acceptance of the plans. During
2008, we experienced slightly lower average revenue per user per
month due to customer acceptance of our lower-priced rate plans,
decreased customer acceptance of optional add-on services, and
the successful expansion of our Cricket Broadband service.

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. We also incurred substantial additional
indebtedness to finance the costs of our business expansion and
acquisitions of additional wireless licenses in 2006, 2007 and
2008. 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. Also, in September 2007, we
changed our tax accounting method for amortizing wireless
licenses, contributing substantially to our income tax expense
of $38.6 million for the year ended December 31, 2008
and $37.4 million for the year ended December 31,
2007, as compared to our income tax expense of $9.3 million
for the year ended December 31, 2006.

 

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 $24.4 million for fiscal 2006, a net loss of
$75.9 million for fiscal 2007, and a net loss of
$147.8 million for the year ended December 31, 2008.
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.

 

We expect that we will continue to build out and launch new
markets and pursue other expansion activities for the next
several years. We intend to be disciplined as we pursue these
expansion efforts and to remain focused on our position as a
low-cost leader in wireless telecommunications. We expect to
achieve increased revenues and incur higher operating expenses
as our existing business grows and as we build out and after we
launch service in new markets. Large-scale construction projects
for the build-out of our new markets will require significant
capital expenditures and may suffer cost overruns. Any such
significant capital expenditures or increased operating expenses
will decrease OIBDA and free cash flow for the periods in which
we incur such costs. However, we are willing to incur such
expenditures because we expect our expansion activities will be
beneficial to our business and create additional value for our
stockholders.

 

 

We are a wireless communications carrier that offers digital
wireless services in the U.S. under the
“Cricket^®”

brand. Our Cricket service offerings provide customers with
unlimited wireless services for a flat rate without requiring a
fixed-term contract or a credit check.

 

Cricket service is offered by Cricket, a wholly owned subsidiary
of Leap, and is also offered in Oregon by LCW Wireless
Operations and in the upper Midwest by Denali Operations.
Cricket owns an indirect 73.3% non-controlling interest in LCW
Operations through a 73.3% non-controlling interest in LCW
Wireless, and owns an indirect non-controlling interest in
Denali Operations through an 82.5% non-controlling interest in
Denali. LCW Wireless and Denali are designated entities under
FCC regulations. We consolidate our interests in LCW Wireless
and Denali in accordance with FIN 46(R) because these
entities are variable interest entities and we will absorb a
majority of their expected losses.

 

At December 31, 2008, Cricket service was offered in
30 states and had approximately 3.8 million customers.
As of December 31, 2008, we, LCW License (a wholly owned
subsidiary of LCW Operations), and Denali License Sub (an
indirect wholly owned subsidiary of Denali) owned wireless
licenses covering an aggregate of approximately
186.7 million POPs (adjusted to eliminate duplication from
overlapping licenses). The combined network footprint in our
operating markets covered approximately 67.2 million POPs
as of December 31, 2008, which includes incremental POPs
attributed to ongoing footprint expansion in existing markets.
The licenses we and Denali purchased in Auction #66,
together with the existing licenses we own, provide 20 MHz
of coverage and the opportunity to offer enhanced data services
in almost all markets in which we currently operate or are
building out, assuming Denali License Sub were to make available
to us certain of its spectrum.

 

We plan to expand our network footprint by launching Cricket
service in new markets and increasing and enhancing coverage in
our existing markets. In 2008, we and Denali Operations launched
new markets in Oklahoma City, southern Texas, Las Vegas,
St. Louis and the greater Milwaukee area covering
approximately 11 million additional POPs. We and Denali
Operations intend to launch markets covering approximately
25 million additional POPs by the middle of 2009 (which
includes the Chicago market launched by Denali Operations in
February 2009). We and Denali Operations also previously
identified up to approximately 16 million additional POPs
that we could elect to cover with Cricket service by the end of
2010. We currently expect to make a determination with respect
to the launch of these additional POPs by the middle of 2009. We
intend to fund the costs required to build out and launch any
new markets associated with these 16 million additional
POPs with cash generated from operations. The pace and timing of
any such build-out and launch activities will depend upon the
performance of our business and the amount of cash generated by
our operations. We also plan to continue to expand and enhance
our network coverage and capacity in many of our existing
markets, allowing us to offer our customers an improved service
area. In addition to these expansion plans, we and Denali
License Sub hold licenses in other markets that are suitable for
Cricket service, and we and Denali Operations may develop some
of the licenses covering these additional POPs through
partnerships with others.

 

Our Cricket service offerings are based on providing unlimited
wireless services to customers, and the value of unlimited
wireless services is the foundation of our business. Our primary
Cricket service is Cricket Wireless, which offers customers
unlimited wireless voice and data services for a flat monthly
rate. Our most popular Cricket Wireless rate plan combines
unlimited local and U.S. long distance service from any
Cricket service area with unlimited use of multiple calling
features and messaging services. We also offer Cricket
Broadband, our unlimited mobile broadband service, which allows
customers to access the internet through their computers for one
low, flat rate with no long-term commitments or credit checks.
As of December 31, 2008, our Cricket Broadband service was
available to approximately 67.2 million covered POPs, and
we intend to make the service available in new Cricket markets
that we and Denali Operations launch. In October 2008, we began
an introductory launch of Cricket

PAYGo^tm,

our unlimited prepaid wireless service, in select markets.
Cricket PAYGo is a daily pay-as-you-go service designed for
customers who prefer the flexibility and control offered by
traditional prepaid services but who are seeking greater value
for their dollar. We expect to continue to broaden our voice and
data product and service offerings in 2009 and beyond.

 

We believe that our business model is scalable and can be
expanded successfully into adjacent and new markets because we
offer a differentiated service and an attractive value
proposition to our customers at costs significantly lower than
most of our competitors, and accordingly we continue to enhance
our current market clusters and expand our business into new
geographic markets. In addition to our current business
expansion efforts, we may also pursue other activities to build
our business, which could include (without limitation) the
acquisition of additional spectrum through private transactions
or FCC auctions, entering into partnerships with others to
launch and operate additional markets or reduce existing
operating costs, or the acquisition of other wireless
communications companies or complementary businesses. We also
expect to continue to look for opportunities to optimize the
value of our spectrum portfolio. Because some of the licenses
that we and Denali License Sub hold include large regional areas
covering both rural and metropolitan communities, we and Denali
may seek to partner with others, sell some of this spectrum or
pursue alternative products or services to utilize or benefit
from the spectrum not otherwise used for Cricket service.

 

Our customer activity is influenced by seasonal effects related
to traditional retail selling periods and other factors that
arise from our target customer base. Based on historical
results, we generally expect new sales activity to be highest in
the first and fourth quarters for markets in operation for one
year or longer, and customer turnover, or churn, to be highest
in the third quarter and lowest in the first quarter. However,
sales activity and churn can be strongly affected by the launch
of new markets, promotional activity, economic conditions and
competitive actions, any of which have the ability to reduce or
outweigh certain seasonal effects. From time to time, we offer
programs to help promote customer activity for our wireless
services. For example, since the second quarter of 2008 we have
increased our use of a program which allows existing customers
to activate an additional line of voice service on a previously
activated Cricket handset not currently in service. Customers
accepting this offer receive a free month of service on the
additional line of service after paying an activation fee. We
believe that this kind of program and other promotions provide
important long-term benefits to us by extending the period of
time over which customers use our handsets and wireless services.

 

Our principal sources of liquidity are our existing unrestricted
cash, cash equivalents and short-term investments and cash
generated from operations. From time to time, we may also
generate additional liquidity through capital markets
transactions. We also have a $200 million revolving credit
facility under our Credit Agreement which was undrawn as of
December 31, 2008, and which we do not generally rely upon
as a source of liquidity in planning for our future capital and
operating requirements. See “Liquidity and Capital
Resources” below.

 

Among the most significant factors affecting our financial
condition and performance from period to period are our new
market expansions and growth in customers, the impacts of which
are reflected in our revenues and operating expenses. Throughout
2006, 2007 and 2008, we and our joint ventures continued
expanding existing market footprints and expanded into 30 new
markets, increasing the number of potential customers covered by
our networks from approximately 27.7 million covered POPs
as of December 31, 2005, to approximately 48.0 million
covered POPs as of December 31, 2006, to approximately
53.2 million covered POPs as of December 31, 2007 and
to approximately 67.2 million covered POPs as of
December 31, 2008. 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 and to 3.84 million customers as of
December 31, 2008. 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. During
2006 and 2007, we introduced several higher-priced, higher-value
service plans which helped increase average revenue per user per
month as a result of customer acceptance of the plans. During
2008, we experienced slightly lower average revenue per user per
month due to customer acceptance of our lower-priced rate plans,
decreased customer acceptance of optional add-on services, and
the successful expansion of our Cricket Broadband service.

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. We also incurred substantial additional
indebtedness to finance the costs of our business expansion and
acquisitions of additional wireless licenses in 2006, 2007 and
2008. 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. Also, in September 2007, we
changed our tax accounting method for amortizing wireless
licenses, contributing substantially to our income tax expense
of $38.6 million for the year ended December 31, 2008
and $37.4 million for the year ended December 31,
2007, as compared to our income tax expense of $9.3 million
for the year ended December 31, 2006.

 

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 $24.4 million for fiscal 2006, a net loss of
$75.9 million for fiscal 2007, and a net loss of
$147.8 million for the year ended December 31, 2008.
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.

 

We expect that we will continue to build out and launch new
markets and pursue other expansion activities for the next
several years. We intend to be disciplined as we pursue these
expansion efforts and to remain focused on our position as a
low-cost leader in wireless telecommunications. We expect to
achieve increased revenues and incur higher operating expenses
as our existing business grows and as we build out and after we
launch service in new markets. Large-scale construction projects
for the build-out of our new markets will require significant
capital expenditures and may suffer cost overruns. Any such
significant capital expenditures or increased operating expenses
will decrease OIBDA and free cash flow for the periods in which
we incur such costs. However, we are willing to incur such
expenditures because we expect our expansion activities will be
beneficial to our business and create additional value for our
stockholders.

 

 

We are a wireless communications carrier that offers digital
wireless services in the U.S. under the
“Cricket^®”

brand. Our Cricket service offerings provide customers with
unlimited wireless services for a flat rate without requiring a
fixed-term contract or a credit check.

 

Cricket service is offered by Cricket, a wholly owned subsidiary
of Leap, and is also offered in Oregon by LCW Wireless
Operations and in the upper Midwest by Denali Operations.
Cricket owns an indirect 73.3% non-controlling interest in LCW
Operations through a 73.3% non-controlling interest in LCW
Wireless, and owns an indirect non-controlling interest in
Denali Operations through an 82.5% non-controlling interest in
Denali. LCW Wireless and Denali are designated entities under
FCC regulations. We consolidate our interests in LCW Wireless
and Denali in accordance with FIN 46(R) because these
entities are variable interest entities and we will absorb a
majority of their expected losses.

 

At December 31, 2008, Cricket service was offered in
30 states and had approximately 3.8 million customers.
As of December 31, 2008, we, LCW License (a wholly owned
subsidiary of LCW Operations), and Denali License Sub (an
indirect wholly owned subsidiary of Denali) owned wireless
licenses covering an aggregate of approximately
186.7 million POPs (adjusted to eliminate duplication from
overlapping licenses). The combined network footprint in our
operating markets covered approximately 67.2 million POPs
as of December 31, 2008, which includes incremental POPs
attributed to ongoing footprint expansion in existing markets.
The licenses we and Denali purchased in Auction #66,
together with the existing licenses we own, provide 20 MHz
of coverage and the opportunity to offer enhanced data services
in almost all markets in which we currently operate or are
building out, assuming Denali License Sub were to make available
to us certain of its spectrum.

 

We plan to expand our network footprint by launching Cricket
service in new markets and increasing and enhancing coverage in
our existing markets. In 2008, we and Denali Operations launched
new markets in Oklahoma City, southern Texas, Las Vegas,
St. Louis and the greater Milwaukee area covering
approximately 11 million additional POPs. We and Denali
Operations intend to launch markets covering approximately
25 million additional POPs by the middle of 2009 (which
includes the Chicago market launched by Denali Operations in
February 2009). We and Denali Operations also previously
identified up to approximately 16 million additional POPs
that we could elect to cover with Cricket service by the end of
2010. We currently expect to make a determination with respect
to the launch of these additional POPs by the middle of 2009. We
intend to fund the costs required to build out and launch any
new markets associated with these 16 million additional
POPs with cash generated from operations. The pace and timing of
any such build-out and launch activities will depend upon the
performance of our business and the amount of cash generated by
our operations. We also plan to continue to expand and enhance
our network coverage and capacity in many of our existing
markets, allowing us to offer our customers an improved service
area. In addition to these expansion plans, we and Denali
License Sub hold licenses in other markets that are suitable for
Cricket service, and we and Denali Operations may develop some
of the licenses covering these additional POPs through
partnerships with others.

 

Our Cricket service offerings are based on providing unlimited
wireless services to customers, and the value of unlimited
wireless services is the foundation of our business. Our primary
Cricket service is Cricket Wireless, which offers customers
unlimited wireless voice and data services for a flat monthly
rate. Our most popular Cricket Wireless rate plan combines
unlimited local and U.S. long distance service from any
Cricket service area with unlimited use of multiple calling
features and messaging services. We also offer Cricket
Broadband, our unlimited mobile broadband service, which allows
customers to access the internet through their computers for one
low, flat rate with no long-term commitments or credit checks.
As of December 31, 2008, our Cricket Broadband service was
available to approximately 67.2 million covered POPs, and
we intend to make the service available in new Cricket markets
that we and Denali Operations launch. In October 2008, we began
an introductory launch of Cricket

PAYGo^tm,

our unlimited prepaid wireless service, in select markets.
Cricket PAYGo is a daily pay-as-you-go service designed for
customers who prefer the flexibility and control offered by
traditional prepaid services but who are seeking greater value
for their dollar. We expect to continue to broaden our voice and
data product and service offerings in 2009 and beyond.

 

We believe that our business model is scalable and can be
expanded successfully into adjacent and new markets because we
offer a differentiated service and an attractive value
proposition to our customers at costs significantly lower than
most of our competitors, and accordingly we continue to enhance
our current market clusters and expand our business into new
geographic markets. In addition to our current business
expansion efforts, we may also pursue other activities to build
our business, which could include (without limitation) the
acquisition of additional spectrum through private transactions
or FCC auctions, entering into partnerships with others to
launch and operate additional markets or reduce existing
operating costs, or the acquisition of other wireless
communications companies or complementary businesses. We also
expect to continue to look for opportunities to optimize the
value of our spectrum portfolio. Because some of the licenses
that we and Denali License Sub hold include large regional areas
covering both rural and metropolitan communities, we and Denali
may seek to partner with others, sell some of this spectrum or
pursue alternative products or services to utilize or benefit
from the spectrum not otherwise used for Cricket service.

 

Our customer activity is influenced by seasonal effects related
to traditional retail selling periods and other factors that
arise from our target customer base. Based on historical
results, we generally expect new sales activity to be highest in
the first and fourth quarters for markets in operation for one
year or longer, and customer turnover, or churn, to be highest
in the third quarter and lowest in the first quarter. However,
sales activity and churn can be strongly affected by the launch
of new markets, promotional activity, economic conditions and
competitive actions, any of which have the ability to reduce or
outweigh certain seasonal effects. From time to time, we offer
programs to help promote customer activity for our wireless
services. For example, since the second quarter of 2008 we have
increased our use of a program which allows existing customers
to activate an additional line of voice service on a previously
activated Cricket handset not currently in service. Customers
accepting this offer receive a free month of service on the
additional line of service after paying an activation fee. We
believe that this kind of program and other promotions provide
important long-term benefits to us by extending the period of
time over which customers use our handsets and wireless services.

 

Our principal sources of liquidity are our existing unrestricted
cash, cash equivalents and short-term investments and cash
generated from operations. From time to time, we may also
generate additional liquidity through capital markets
transactions. We also have a $200 million revolving credit
facility under our Credit Agreement which was undrawn as of
December 31, 2008, and which we do not generally rely upon
as a source of liquidity in planning for our future capital and
operating requirements. See “Liquidity and Capital
Resources” below.

 

Among the most significant factors affecting our financial
condition and performance from period to period are our new
market expansions and growth in customers, the impacts of which
are reflected in our revenues and operating expenses. Throughout
2006, 2007 and 2008, we and our joint ventures continued
expanding existing market footprints and expanded into 30 new
markets, increasing the number of potential customers covered by
our networks from approximately 27.7 million covered POPs
as of December 31, 2005, to approximately 48.0 million
covered POPs as of December 31, 2006, to approximately
53.2 million covered POPs as of December 31, 2007 and
to approximately 67.2 million covered POPs as of
December 31, 2008. 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 and to 3.84 million customers as of
December 31, 2008. 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. During
2006 and 2007, we introduced several higher-priced, higher-value
service plans which helped increase average revenue per user per
month as a result of customer acceptance of the plans. During
2008, we experienced slightly lower average revenue per user per
month due to customer acceptance of our lower-priced rate plans,
decreased customer acceptance of optional add-on services, and
the successful expansion of our Cricket Broadband service.

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. We also incurred substantial additional
indebtedness to finance the costs of our business expansion and
acquisitions of additional wireless licenses in 2006, 2007 and
2008. 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. Also, in September 2007, we
changed our tax accounting method for amortizing wireless
licenses, contributing substantially to our income tax expense
of $38.6 million for the year ended December 31, 2008
and $37.4 million for the year ended December 31,
2007, as compared to our income tax expense of $9.3 million
for the year ended December 31, 2006.

 

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 $24.4 million for fiscal 2006, a net loss of
$75.9 million for fiscal 2007, and a net loss of
$147.8 million for the year ended December 31, 2008.
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.

 

We expect that we will continue to build out and launch new
markets and pursue other expansion activities for the next
several years. We intend to be disciplined as we pursue these
expansion efforts and to remain focused on our position as a
low-cost leader in wireless telecommunications. We expect to
achieve increased revenues and incur higher operating expenses
as our existing business grows and as we build out and after we
launch service in new markets. Large-scale construction projects
for the build-out of our new markets will require significant
capital expenditures and may suffer cost overruns. Any such
significant capital expenditures or increased operating expenses
will decrease OIBDA and free cash flow for the periods in which
we incur such costs. However, we are willing to incur such
expenditures because we expect our expansion activities will be
beneficial to our business and create additional value for our
stockholders.

 

 

Our principal sources of liquidity are our existing unrestricted cash, cash equivalents and short-term investments and cash generated from operations. We had a total of $595.9 million in unrestricted cash, cash equivalents and short-term investments as of December 31, 2008. We generated $350.6 million of net cash from operating activities during the year ended December 31, 2008, and we expect that cash from operations will continue to be a significant and increasing source of liquidity as our markets mature and our business continues to grow. In addition, from time to time we may also generate liquidity through capital markets transactions. We generated $483.7 million of net cash from financing activities during the year ended December 31, 2008, which included proceeds from our issuances of unsecured senior notes and convertible senior notes in June 2008. We also have a $200 million revolving credit facility which was undrawn as of December 31, 2008, and which we do not generally rely upon as a source of liquidity in planning for our future capital and operating requirements.

 

We believe that our existing unrestricted cash, cash equivalents and short-term investments, together with cash generated from operations, provide us with sufficient liquidity to meet the future operating and capital requirements for our current business operations and our current business expansion efforts. These current business expansion efforts, which are described further below, include our plans to expand our network footprint, expand and enhance network coverage and capacity in many of our existing markets and expand the availability of our Cricket Broadband service.

 

We determine our future capital and operating requirements and liquidity based, in large part, upon our projected financial performance, and we regularly review and update these projections due to changes in general economic conditions, our current and projected operating and financial results, the competitive landscape and other factors. In evaluating our liquidity and managing our financial resources, we plan to maintain what we consider to be at least a reasonable surplus of unrestricted cash, cash equivalents and short-term investments to address variations in working capital, unanticipated operating or capital requirements, and significant changes in our financial performance. If cash generated from operations were to be adversely impacted by substantial changes in our projected operating performance (for example, as a result of unexpected effects associated with the current economic downturn, changes in general economic conditions, higher interest rates, increased competition in our markets, slower-than-anticipated growth or customer acceptance of our products or services, increased churn or other factors), we believe that we could defer or significantly reduce our capital expenditures and other business expenses, to the extent we deemed necessary, to match our capital requirements to our available liquidity. Our projections regarding future capital and operating requirements and liquidity are based upon current operating, financial and competitive information and projections regarding our business and its financial performance. There are a number of risks and uncertainties (including the risks to our business described above and others set forth in this report in Part I — Item 1A. under the heading entitled “Risk Factors”) that could cause our financial and operating results and capital requirements to differ materially from our projections and that could cause our liquidity to differ materially from the assessment set forth above.

 

We plan to expand our network footprint by launching Cricket service in new markets and increasing and enhancing coverage in our existing markets. In 2008, we and Denali Operations launched new markets in Oklahoma City, southern Texas, Las Vegas, St. Louis and the greater Milwaukee area covering approximately 11 million additional POPs. We and Denali Operations intend to launch markets covering approximately 25 million additional POPs by the middle of 2009 (which includes the Chicago market launched by Denali Operations in February 2009). We and Denali Operations also previously identified up to approximately 16 million additional POPs that we could elect to cover with Cricket service by the end of 2010. We currently expect to make a determination with respect to the launch of these additional POPs by the middle of 2009. We intend to fund the costs required to build out and launch any new markets associated with these 16 million additional POPs with cash generated from operations. The pace and timing of any such build-out and launch activities will depend upon the performance of our business and the amount of cash generated by our operations.

 

In addition, we plan to continue to expand and enhance our network coverage and capacity in many of our existing markets, allowing us to offer our customers an improved service area. We have substantially completed the first phase of this program, which called for us to deploy approximately 600 new cell sites in our existing markets. In

the second phase of this program, we currently plan to deploy up to an additional 600 cell sites in our existing markets by the end of 2010.

 

We also plan to expand the availability of Cricket Broadband, our mobile broadband product offering. As of December 31, 2008, our Cricket Broadband service was available to approximately 67.2 million covered POPs, and we intend to make the service available in new Cricket markets that we and Denali Operations launch.

 

Our business operations and expansion efforts require significant expenditures. Our operating expenses for the year ended December 31, 2008 were $1.91 billion. In addition, we and our consolidated joint ventures made approximately $795.7 million in capital expenditures during the year ended December 31, 2008, including related capitalized interest, primarily to support the launch of new markets, the expansion and improvement of our and their existing wireless networks and the deployment of EvDO technology. Capital expenditures for 2009 are expected to be between $625 million to $725 million, excluding capitalized interest, which include capital expenditures to support the launch of new markets, the on-going growth and development of markets that have been in commercial operation for one year or more and the further expansion and enhancement of network coverage in our existing markets. As described above, we believe that our existing unrestricted cash, cash equivalents and short-term investments, together with cash generated from operations, provide us with sufficient liquidity to meet the future operating and capital requirements for our current business operations and our current business expansion efforts.

 

In addition to our current business expansion efforts described above, we may also pursue other activities to build our business, which could include (without limitation) the acquisition of additional spectrum through private transactions or FCC auctions, entering into partnerships with others to launch and operate additional markets or reduce existing operating costs, or the acquisition of other wireless communications companies or complementary businesses. If we were to pursue any of these activities at a significant level, we would likely need to re-direct capital otherwise available for our current business operations and expansion efforts or raise additional funding. We do not intend to pursue any of these other activities at a significant level unless we believe we have sufficient liquidity to support the operating and capital requirements for our current business operations, expansion efforts and any such other activities. To provide flexibility with respect to any future capital raising alternatives, we intend to file a universal shelf registration statement with the SEC to register various debt, equity and other securities, including debt securities, common stock, preferred stock, depository shares, rights and warrants. The securities under this registration statement would be able to 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.

 

Our total outstanding indebtedness under our Credit Agreement was $877.5 million as of December 31, 2008. Outstanding term loan borrowings under our Credit Agreement must be repaid in 22 quarterly payments of $2.25 million each (which commenced on March 31, 2007) followed by four quarterly payments of $211.5 million (which commence on September 30, 2012). The term loan under our Credit Agreement bears interest at LIBOR plus 3.50% (subject to a LIBOR floor of 3.0% per annum) or the bank base rate plus 2.50%, as selected by us. The Credit Agreement also includes a $200 million revolving credit facility, which was undrawn as of December 31, 2008 and which expires in June 2011. In addition to our Credit Agreement, we also had $1,650 million in unsecured senior indebtedness outstanding as of December 31, 2008, which included $1,100 million of 9.375% senior notes due 2014, $250 million of 4.5% convertible senior notes due 2014 and $300 million of 10.0% senior notes due 2015.

 

The Credit Agreement and the indentures governing Cricket’s senior notes contain covenants that restrict the ability of Leap, Cricket and the subsidiary guarantors to take certain actions, including incurring additional indebtedness beyond specified thresholds. In addition, under certain circumstances we are required to use some or all of the proceeds we receive from incurring indebtedness beyond defined levels to pay down outstanding borrowings under our Credit Agreement. Our Credit Agreement also contains financial covenants with respect to a maximum consolidated senior secured leverage ratio and, if a revolving credit loan or uncollateralized letter of credit is outstanding or requested, with respect to a minimum consolidated interest coverage ratio, a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio. Based upon our current projected financial performance, we expect that we could borrow all or a substantial portion of the $200 million commitment available under the revolving credit facility until it expires in June 2011. If our financial and operating results were significantly less than what we currently project, the financial covenants in the Credit Agreement could restrict or prevent us from borrowing under the revolving credit facility for one or more quarters. However, as noted

above, we do not generally rely upon the revolving credit facility as a source of liquidity in planning for our future capital and operating requirements.

 

Although our significant outstanding indebtedness results in certain risks to our business that could materially affect our financial condition and performance, we believe that these risks are manageable and that we are taking appropriate actions to monitor and address them. For example, in connection with our financial planning process and capital raising activities, we seek to maintain an appropriate balance between our debt and equity capitalization and we review our business plans and forecasts, including projected trends in interest rates, to monitor our ability to service our debt and to comply with the financial and other covenants in our Credit Agreement and the indentures governing Cricket’s senior notes. In addition, as the new markets that we have launched over the past few years continue to develop and our existing markets mature, we expect that increased cash flows from such new and existing markets will ultimately result in improvements in our consolidated leverage ratio and the other ratios underlying our financial covenants. Our $1,650 million of senior notes and convertible senior notes bear interest at a fixed rate and we have entered into interest rate swap agreements covering $355 million of outstanding debt under our term loan. Due to the fixed rate on our senior notes and convertible senior notes and our interest rate swaps, approximately 78.4% of our total indebtedness accrues interest at a fixed rate. In light of the actions described above, our expected cash flows from operations, and our ability to defer or reduce our investments in business expansion efforts or other activities as necessary to match our capital requirements to our available liquidity, management believes that it has the ability to effectively manage our levels of indebtedness and address the risks to our business and financial condition related to our indebtedness.

 

 

Our principal sources of liquidity are our existing unrestricted
cash, cash equivalents and short-term investments and cash
generated from operations. We had a total of $595.9 million
in unrestricted cash, cash equivalents and short-term
investments as of December 31, 2008. We generated
$350.6 million of net cash from operating activities during
the year ended December 31, 2008, and we expect that cash
from operations will continue to be a significant and increasing
source of liquidity as our markets mature and our business
continues to grow. In addition, from time to time we may also
generate liquidity through capital markets transactions. We
generated $483.7 million of net cash from financing
activities during the year ended December 31, 2008, which
included proceeds from our issuances of unsecured senior notes
and convertible senior notes in June 2008. We also have a
$200 million revolving credit facility which was undrawn as
of December 31, 2008, and which we do not generally rely
upon as a source of liquidity in planning for our future capital
and operating requirements.

 

We believe that our existing unrestricted cash, cash equivalents
and short-term investments, together with cash generated from
operations, provide us with sufficient liquidity to meet the
future operating and capital requirements for our current
business operations and our current business expansion efforts.
These current business expansion efforts, which are described
further below, include our plans to expand our network
footprint, expand and enhance network coverage and capacity in
many of our existing markets and expand the availability of our
Cricket Broadband service.

 

We determine our future capital and operating requirements and
liquidity based, in large part, upon our projected financial
performance, and we regularly review and update these
projections due to changes in general economic conditions, our
current and projected operating and financial results, the
competitive landscape and other factors. In evaluating our
liquidity and managing our financial resources, we plan to
maintain what we consider to be at least a reasonable surplus of
unrestricted cash, cash equivalents and short-term investments
to address variations in working capital, unanticipated
operating or capital requirements, and significant changes in
our financial performance. If cash generated from operations
were to be adversely impacted by substantial changes in our
projected operating performance (for example, as a result of
unexpected effects associated with the current economic
downturn, changes in general economic conditions, higher
interest rates, increased competition in our markets,
slower-than-anticipated growth or customer acceptance of our
products or services, increased churn or other factors), we
believe that we could defer or significantly reduce our capital
expenditures and other business expenses, to the extent we
deemed necessary, to match our capital requirements to our
available liquidity. Our projections regarding future capital
and operating requirements and liquidity are based upon current
operating, financial and competitive information and projections
regarding our business and its financial performance. There are
a number of risks and uncertainties (including the risks to our
business described above and others set forth in this report in
Part I — Item 1A. under the heading entitled
“Risk Factors”) that could cause our financial and
operating results and capital requirements to differ materially
from our projections and that could cause our liquidity to
differ materially from the assessment set forth above.

 

We plan to expand our network footprint by launching Cricket
service in new markets and increasing and enhancing coverage in
our existing markets. In 2008, we and Denali Operations launched
new markets in Oklahoma City, southern Texas, Las Vegas,
St. Louis and the greater Milwaukee area covering
approximately 11 million additional POPs. We and Denali
Operations intend to launch markets covering approximately
25 million additional POPs by the middle of 2009 (which
includes the Chicago market launched by Denali Operations in
February 2009). We and Denali Operations also previously
identified up to approximately 16 million additional POPs
that we could elect to cover with Cricket service by the end of
2010. We currently expect to make a determination with respect
to the launch of these additional POPs by the middle of 2009. We
intend to fund the costs required to build out and launch any
new markets associated with these 16 million additional
POPs with cash generated from operations. The pace and timing of
any such build-out and launch activities will depend upon the
performance of our business and the amount of cash generated by
our operations.

 

In addition, we plan to continue to expand and enhance our
network coverage and capacity in many of our existing markets,
allowing us to offer our customers an improved service area. We
have substantially completed the first phase of this program,
which called for us to deploy approximately 600 new cell sites
in our existing markets. In

the second phase of this program, we currently plan to deploy up
to an additional 600 cell sites in our existing markets by the
end of 2010.

 

We also plan to expand the availability of Cricket Broadband,
our mobile broadband product offering. As of December 31,
2008, our Cricket Broadband service was available to
approximately 67.2 million covered POPs, and we intend to
make the service available in new Cricket markets that we and
Denali Operations launch.

 

Our business operations and expansion efforts require
significant expenditures. Our operating expenses for the year
ended December 31, 2008 were $1.91 billion. In
addition, we and our consolidated joint ventures made
approximately $795.7 million in capital expenditures during
the year ended December 31, 2008, including related
capitalized interest, primarily to support the launch of new
markets, the expansion and improvement of our and their existing
wireless networks and the deployment of EvDO technology. Capital
expenditures for 2009 are expected to be between
$625 million to $725 million, excluding capitalized
interest, which include capital expenditures to support the
launch of new markets, the on-going growth and development of
markets that have been in commercial operation for one year or
more and the further expansion and enhancement of network
coverage in our existing markets. As described above, we believe
that our existing unrestricted cash, cash equivalents and
short-term investments, together with cash generated from
operations, provide us with sufficient liquidity to meet the
future operating and capital requirements for our current
business operations and our current business expansion efforts.

 

In addition to our current business expansion efforts described
above, we may also pursue other activities to build our
business, which could include (without limitation) the
acquisition of additional spectrum through private transactions
or FCC auctions, entering into partnerships with others to
launch and operate additional markets or reduce existing
operating costs, or the acquisition of other wireless
communications companies or complementary businesses. If we were
to pursue any of these activities at a significant level, we
would likely need to re-direct capital otherwise available for
our current business operations and expansion efforts or raise
additional funding. We do not intend to pursue any of these
other activities at a significant level unless we believe we
have sufficient liquidity to support the operating and capital
requirements for our current business operations, expansion
efforts and any such other activities. To provide flexibility
with respect to any future capital raising alternatives, we
intend to file a universal shelf registration statement with the
SEC to register various debt, equity and other securities,
including debt securities, common stock, preferred stock,
depository shares, rights and warrants. The securities under
this registration statement would be able to 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.

 

Our total outstanding indebtedness under our Credit Agreement
was $877.5 million as of December 31, 2008.
Outstanding term loan borrowings under our Credit Agreement must
be repaid in 22 quarterly payments of $2.25 million each
(which commenced on March 31, 2007) followed by four
quarterly payments of $211.5 million (which commence on
September 30, 2012). The term loan under our Credit
Agreement bears interest at LIBOR plus 3.50% (subject to a LIBOR
floor of 3.0% per annum) or the bank base rate plus 2.50%, as
selected by us. The Credit Agreement also includes a
$200 million revolving credit facility, which was undrawn
as of December 31, 2008 and which expires in June 2011. In
addition to our Credit Agreement, we also had
$1,650 million in unsecured senior indebtedness outstanding
as of December 31, 2008, which included $1,100 million
of 9.375% senior notes due 2014, $250 million of 4.5%
convertible senior notes due 2014 and $300 million of
10.0% senior notes due 2015.

 

The Credit Agreement and the indentures governing Cricket’s
senior notes contain covenants that restrict the ability of
Leap, Cricket and the subsidiary guarantors to take certain
actions, including incurring additional indebtedness beyond
specified thresholds. In addition, under certain circumstances
we are required to use some or all of the proceeds we receive
from incurring indebtedness beyond defined levels to pay down
outstanding borrowings under our Credit Agreement. Our Credit
Agreement also contains financial covenants with respect to a
maximum consolidated senior secured leverage ratio and, if a
revolving credit loan or uncollateralized letter of credit is
outstanding or requested, with respect to a minimum consolidated
interest coverage ratio, a maximum consolidated leverage ratio
and a minimum consolidated fixed charge coverage ratio. Based
upon our current projected financial performance, we expect that
we could borrow all or a substantial portion of the
$200 million commitment available under the revolving
credit facility until it expires in June 2011. If our financial
and operating results were significantly less than what we
currently project, the financial covenants in the Credit
Agreement could restrict or prevent us from borrowing under the
revolving credit facility for one or more quarters. However, as
noted

above, we do not generally rely upon the revolving credit
facility as a source of liquidity in planning for our future
capital and operating requirements.

 

Although our significant outstanding indebtedness results in
certain risks to our business that could materially affect our
financial condition and performance, we believe that these risks
are manageable and that we are taking appropriate actions to
monitor and address them. For example, in connection with our
financial planning process and capital raising activities, we
seek to maintain an appropriate balance between our debt and
equity capitalization and we review our business plans and
forecasts, including projected trends in interest rates, to
monitor our ability to service our debt and to comply with the
financial and other covenants in our Credit Agreement and the
indentures governing Cricket’s senior notes. In addition,
as the new markets that we have launched over the past few years
continue to develop and our existing markets mature, we expect
that increased cash flows from such new and existing markets
will ultimately result in improvements in our consolidated
leverage ratio and the other ratios underlying our financial
covenants. Our $1,650 million of senior notes and
convertible senior notes bear interest at a fixed rate and we
have entered into interest rate swap agreements covering
$355 million of outstanding debt under our term loan. Due
to the fixed rate on our senior notes and convertible senior
notes and our interest rate swaps, approximately 78.4% of our
total indebtedness accrues interest at a fixed rate. In light of
the actions described above, our expected cash flows from
operations, and our ability to defer or reduce our investments
in business expansion efforts or other activities as necessary
to match our capital requirements to our available liquidity,
management believes that it has the ability to effectively
manage our levels of indebtedness and address the risks to our
business and financial condition related to our indebtedness.

 

 

Our principal sources of liquidity are our existing unrestricted
cash, cash equivalents and short-term investments and cash
generated from operations. We had a total of $595.9 million
in unrestricted cash, cash equivalents and short-term
investments as of December 31, 2008. We generated
$350.6 million of net cash from operating activities during
the year ended December 31, 2008, and we expect that cash
from operations will continue to be a significant and increasing
source of liquidity as our markets mature and our business
continues to grow. In addition, from time to time we may also
generate liquidity through capital markets transactions. We
generated $483.7 million of net cash from financing
activities during the year ended December 31, 2008, which
included proceeds from our issuances of unsecured senior notes
and convertible senior notes in June 2008. We also have a
$200 million revolving credit facility which was undrawn as
of December 31, 2008, and which we do not generally rely
upon as a source of liquidity in planning for our future capital
and operating requirements.

 

We believe that our existing unrestricted cash, cash equivalents
and short-term investments, together with cash generated from
operations, provide us with sufficient liquidity to meet the
future operating and capital requirements for our current
business operations and our current business expansion efforts.
These current business expansion efforts, which are described
further below, include our plans to expand our network
footprint, expand and enhance network coverage and capacity in
many of our existing markets and expand the availability of our
Cricket Broadband service.

 

We determine our future capital and operating requirements and
liquidity based, in large part, upon our projected financial
performance, and we regularly review and update these
projections due to changes in general economic conditions, our
current and projected operating and financial results, the
competitive landscape and other factors. In evaluating our
liquidity and managing our financial resources, we plan to
maintain what we consider to be at least a reasonable surplus of
unrestricted cash, cash equivalents and short-term investments
to address variations in working capital, unanticipated
operating or capital requirements, and significant changes in
our financial performance. If cash generated from operations
were to be adversely impacted by substantial changes in our
projected operating performance (for example, as a result of
unexpected effects associated with the current economic
downturn, changes in general economic conditions, higher
interest rates, increased competition in our markets,
slower-than-anticipated growth or customer acceptance of our
products or services, increased churn or other factors), we
believe that we could defer or significantly reduce our capital
expenditures and other business expenses, to the extent we
deemed necessary, to match our capital requirements to our
available liquidity. Our projections regarding future capital
and operating requirements and liquidity are based upon current
operating, financial and competitive information and projections
regarding our business and its financial performance. There are
a number of risks and uncertainties (including the risks to our
business described above and others set forth in this report in
Part I — Item 1A. under the heading entitled
“Risk Factors”) that could cause our financial and
operating results and capital requirements to differ materially
from our projections and that could cause our liquidity to
differ materially from the assessment set forth above.

 

We plan to expand our network footprint by launching Cricket
service in new markets and increasing and enhancing coverage in
our existing markets. In 2008, we and Denali Operations launched
new markets in Oklahoma City, southern Texas, Las Vegas,
St. Louis and the greater Milwaukee area covering
approximately 11 million additional POPs. We and Denali
Operations intend to launch markets covering approximately
25 million additional POPs by the middle of 2009 (which
includes the Chicago market launched by Denali Operations in
February 2009). We and Denali Operations also previously
identified up to approximately 16 million additional POPs
that we could elect to cover with Cricket service by the end of
2010. We currently expect to make a determination with respect
to the launch of these additional POPs by the middle of 2009. We
intend to fund the costs required to build out and launch any
new markets associated with these 16 million additional
POPs with cash generated from operations. The pace and timing of
any such build-out and launch activities will depend upon the
performance of our business and the amount of cash generated by
our operations.

 

In addition, we plan to continue to expand and enhance our
network coverage and capacity in many of our existing markets,
allowing us to offer our customers an improved service area. We
have substantially completed the first phase of this program,
which called for us to deploy approximately 600 new cell sites
in our existing markets. In

the second phase of this program, we currently plan to deploy up
to an additional 600 cell sites in our existing markets by the
end of 2010.

 

We also plan to expand the availability of Cricket Broadband,
our mobile broadband product offering. As of December 31,
2008, our Cricket Broadband service was available to
approximately 67.2 million covered POPs, and we intend to
make the service available in new Cricket markets that we and
Denali Operations launch.

 

Our business operations and expansion efforts require
significant expenditures. Our operating expenses for the year
ended December 31, 2008 were $1.91 billion. In
addition, we and our consolidated joint ventures made
approximately $795.7 million in capital expenditures during
the year ended December 31, 2008, including related
capitalized interest, primarily to support the launch of new
markets, the expansion and improvement of our and their existing
wireless networks and the deployment of EvDO technology. Capital
expenditures for 2009 are expected to be between
$625 million to $725 million, excluding capitalized
interest, which include capital expenditures to support the
launch of new markets, the on-going growth and development of
markets that have been in commercial operation for one year or
more and the further expansion and enhancement of network
coverage in our existing markets. As described above, we believe
that our existing unrestricted cash, cash equivalents and
short-term investments, together with cash generated from
operations, provide us with sufficient liquidity to meet the
future operating and capital requirements for our current
business operations and our current business expansion efforts.

 

In addition to our current business expansion efforts described
above, we may also pursue other activities to build our
business, which could include (without limitation) the
acquisition of additional spectrum through private transactions
or FCC auctions, entering into partnerships with others to
launch and operate additional markets or reduce existing
operating costs, or the acquisition of other wireless
communications companies or complementary businesses. If we were
to pursue any of these activities at a significant level, we
would likely need to re-direct capital otherwise available for
our current business operations and expansion efforts or raise
additional funding. We do not intend to pursue any of these
other activities at a significant level unless we believe we
have sufficient liquidity to support the operating and capital
requirements for our current business operations, expansion
efforts and any such other activities. To provide flexibility
with respect to any future capital raising alternatives, we
intend to file a universal shelf registration statement with the
SEC to register various debt, equity and other securities,
including debt securities, common stock, preferred stock,
depository shares, rights and warrants. The securities under
this registration statement would be able to 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.

 

Our total outstanding indebtedness under our Credit Agreement
was $877.5 million as of December 31, 2008.
Outstanding term loan borrowings under our Credit Agreement must
be repaid in 22 quarterly payments of $2.25 million each
(which commenced on March 31, 2007) followed by four
quarterly payments of $211.5 million (which commence on
September 30, 2012). The term loan under our Credit
Agreement bears interest at LIBOR plus 3.50% (subject to a LIBOR
floor of 3.0% per annum) or the bank base rate plus 2.50%, as
selected by us. The Credit Agreement also includes a
$200 million revolving credit facility, which was undrawn
as of December 31, 2008 and which expires in June 2011. In
addition to our Credit Agreement, we also had
$1,650 million in unsecured senior indebtedness outstanding
as of December 31, 2008, which included $1,100 million
of 9.375% senior notes due 2014, $250 million of 4.5%
convertible senior notes due 2014 and $300 million of
10.0% senior notes due 2015.

 

The Credit Agreement and the indentures governing Cricket’s
senior notes contain covenants that restrict the ability of
Leap, Cricket and the subsidiary guarantors to take certain
actions, including incurring additional indebtedness beyond
specified thresholds. In addition, under certain circumstances
we are required to use some or all of the proceeds we receive
from incurring indebtedness beyond defined levels to pay down
outstanding borrowings under our Credit Agreement. Our Credit
Agreement also contains financial covenants with respect to a
maximum consolidated senior secured leverage ratio and, if a
revolving credit loan or uncollateralized letter of credit is
outstanding or requested, with respect to a minimum consolidated
interest coverage ratio, a maximum consolidated leverage ratio
and a minimum consolidated fixed charge coverage ratio. Based
upon our current projected financial performance, we expect that
we could borrow all or a substantial portion of the
$200 million commitment available under the revolving
credit facility until it expires in June 2011. If our financial
and operating results were significantly less than what we
currently project, the financial covenants in the Credit
Agreement could restrict or prevent us from borrowing under the
revolving credit facility for one or more quarters. However, as
noted

above, we do not generally rely upon the revolving credit
facility as a source of liquidity in planning for our future
capital and operating requirements.

 

Although our significant outstanding indebtedness results in
certain risks to our business that could materially affect our
financial condition and performance, we believe that these risks
are manageable and that we are taking appropriate actions to
monitor and address them. For example, in connection with our
financial planning process and capital raising activities, we
seek to maintain an appropriate balance between our debt and
equity capitalization and we review our business plans and
forecasts, including projected trends in interest rates, to
monitor our ability to service our debt and to comply with the
financial and other covenants in our Credit Agreement and the
indentures governing Cricket’s senior notes. In addition,
as the new markets that we have launched over the past few years
continue to develop and our existing markets mature, we expect
that increased cash flows from such new and existing markets
will ultimately result in improvements in our consolidated
leverage ratio and the other ratios underlying our financial
covenants. Our $1,650 million of senior notes and
convertible senior notes bear interest at a fixed rate and we
have entered into interest rate swap agreements covering
$355 million of outstanding debt under our term loan. Due
to the fixed rate on our senior notes and convertible senior
notes and our interest rate swaps, approximately 78.4% of our
total indebtedness accrues interest at a fixed rate. In light of
the actions described above, our expected cash flows from
operations, and our ability to defer or reduce our investments
in business expansion efforts or other activities as necessary
to match our capital requirements to our available liquidity,
management believes that it has the ability to effectively
manage our levels of indebtedness and address the risks to our
business and financial condition related to our indebtedness.

 

 

Our principal sources of liquidity are our existing unrestricted
cash, cash equivalents and short-term investments and cash
generated from operations. We had a total of $595.9 million
in unrestricted cash, cash equivalents and short-term
investments as of December 31, 2008. We generated
$350.6 million of net cash from operating activities during
the year ended December 31, 2008, and we expect that cash
from operations will continue to be a significant and increasing
source of liquidity as our markets mature and our business
continues to grow. In addition, from time to time we may also
generate liquidity through capital markets transactions. We
generated $483.7 million of net cash from financing
activities during the year ended December 31, 2008, which
included proceeds from our issuances of unsecured senior notes
and convertible senior notes in June 2008. We also have a
$200 million revolving credit facility which was undrawn as
of December 31, 2008, and which we do not generally rely
upon as a source of liquidity in planning for our future capital
and operating requirements.

 

We believe that our existing unrestricted cash, cash equivalents
and short-term investments, together with cash generated from
operations, provide us with sufficient liquidity to meet the
future operating and capital requirements for our current
business operations and our current business expansion efforts.
These current business expansion efforts, which are described
further below, include our plans to expand our network
footprint, expand and enhance network coverage and capacity in
many of our existing markets and expand the availability of our
Cricket Broadband service.

 

We determine our future capital and operating requirements and
liquidity based, in large part, upon our projected financial
performance, and we regularly review and update these
projections due to changes in general economic conditions, our
current and projected operating and financial results, the
competitive landscape and other factors. In evaluating our
liquidity and managing our financial resources, we plan to
maintain what we consider to be at least a reasonable surplus of
unrestricted cash, cash equivalents and short-term investments
to address variations in working capital, unanticipated
operating or capital requirements, and significant changes in
our financial performance. If cash generated from operations
were to be adversely impacted by substantial changes in our
projected operating performance (for example, as a result of
unexpected effects associated with the current economic
downturn, changes in general economic conditions, higher
interest rates, increased competition in our markets,
slower-than-anticipated growth or customer acceptance of our
products or services, increased churn or other factors), we
believe that we could defer or significantly reduce our capital
expenditures and other business expenses, to the extent we
deemed necessary, to match our capital requirements to our
available liquidity. Our projections regarding future capital
and operating requirements and liquidity are based upon current
operating, financial and competitive information and projections
regarding our business and its financial performance. There are
a number of risks and uncertainties (including the risks to our
business described above and others set forth in this report in
Part I — Item 1A. under the heading entitled
“Risk Factors”) that could cause our financial and
operating results and capital requirements to differ materially
from our projections and that could cause our liquidity to
differ materially from the assessment set forth above.

 

We plan to expand our network footprint by launching Cricket
service in new markets and increasing and enhancing coverage in
our existing markets. In 2008, we and Denali Operations launched
new markets in Oklahoma City, southern Texas, Las Vegas,
St. Louis and the greater Milwaukee area covering
approximately 11 million additional POPs. We and Denali
Operations intend to launch markets covering approximately
25 million additional POPs by the middle of 2009 (which
includes the Chicago market launched by Denali Operations in
February 2009). We and Denali Operations also previously
identified up to approximately 16 million additional POPs
that we could elect to cover with Cricket service by the end of
2010. We currently expect to make a determination with respect
to the launch of these additional POPs by the middle of 2009. We
intend to fund the costs required to build out and launch any
new markets associated with these 16 million additional
POPs with cash generated from operations. The pace and timing of
any such build-out and launch activities will depend upon the
performance of our business and the amount of cash generated by
our operations.

 

In addition, we plan to continue to expand and enhance our
network coverage and capacity in many of our existing markets,
allowing us to offer our customers an improved service area. We
have substantially completed the first phase of this program,
which called for us to deploy approximately 600 new cell sites
in our existing markets. In

the second phase of this program, we currently plan to deploy up
to an additional 600 cell sites in our existing markets by the
end of 2010.

 

We also plan to expand the availability of Cricket Broadband,
our mobile broadband product offering. As of December 31,
2008, our Cricket Broadband service was available to
approximately 67.2 million covered POPs, and we intend to
make the service available in new Cricket markets that we and
Denali Operations launch.

 

Our business operations and expansion efforts require
significant expenditures. Our operating expenses for the year
ended December 31, 2008 were $1.91 billion. In
addition, we and our consolidated joint ventures made
approximately $795.7 million in capital expenditures during
the year ended December 31, 2008, including related
capitalized interest, primarily to support the launch of new
markets, the expansion and improvement of our and their existing
wireless networks and the deployment of EvDO technology. Capital
expenditures for 2009 are expected to be between
$625 million to $725 million, excluding capitalized
interest, which include capital expenditures to support the
launch of new markets, the on-going growth and development of
markets that have been in commercial operation for one year or
more and the further expansion and enhancement of network
coverage in our existing markets. As described above, we believe
that our existing unrestricted cash, cash equivalents and
short-term investments, together with cash generated from
operations, provide us with sufficient liquidity to meet the
future operating and capital requirements for our current
business operations and our current business expansion efforts.

 

In addition to our current business expansion efforts described
above, we may also pursue other activities to build our
business, which could include (without limitation) the
acquisition of additional spectrum through private transactions
or FCC auctions, entering into partnerships with others to
launch and operate additional markets or reduce existing
operating costs, or the acquisition of other wireless
communications companies or complementary businesses. If we were
to pursue any of these activities at a significant level, we
would likely need to re-direct capital otherwise available for
our current business operations and expansion efforts or raise
additional funding. We do not intend to pursue any of these
other activities at a significant level unless we believe we
have sufficient liquidity to support the operating and capital
requirements for our current business operations, expansion
efforts and any such other activities. To provide flexibility
with respect to any future capital raising alternatives, we
intend to file a universal shelf registration statement with the
SEC to register various debt, equity and other securities,
including debt securities, common stock, preferred stock,
depository shares, rights and warrants. The securities under
this registration statement would be able to 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.

 

Our total outstanding indebtedness under our Credit Agreement
was $877.5 million as of December 31, 2008.
Outstanding term loan borrowings under our Credit Agreement must
be repaid in 22 quarterly payments of $2.25 million each
(which commenced on March 31, 2007) followed by four
quarterly payments of $211.5 million (which commence on
September 30, 2012). The term loan under our Credit
Agreement bears interest at LIBOR plus 3.50% (subject to a LIBOR
floor of 3.0% per annum) or the bank base rate plus 2.50%, as
selected by us. The Credit Agreement also includes a
$200 million revolving credit facility, which was undrawn
as of December 31, 2008 and which expires in June 2011. In
addition to our Credit Agreement, we also had
$1,650 million in unsecured senior indebtedness outstanding
as of December 31, 2008, which included $1,100 million
of 9.375% senior notes due 2014, $250 million of 4.5%
convertible senior notes due 2014 and $300 million of
10.0% senior notes due 2015.

 

The Credit Agreement and the indentures governing Cricket’s
senior notes contain covenants that restrict the ability of
Leap, Cricket and the subsidiary guarantors to take certain
actions, including incurring additional indebtedness beyond
specified thresholds. In addition, under certain circumstances
we are required to use some or all of the proceeds we receive
from incurring indebtedness beyond defined levels to pay down
outstanding borrowings under our Credit Agreement. Our Credit
Agreement also contains financial covenants with respect to a
maximum consolidated senior secured leverage ratio and, if a
revolving credit loan or uncollateralized letter of credit is
outstanding or requested, with respect to a minimum consolidated
interest coverage ratio, a maximum consolidated leverage ratio
and a minimum consolidated fixed charge coverage ratio. Based
upon our current projected financial performance, we expect that
we could borrow all or a substantial portion of the
$200 million commitment available under the revolving
credit facility until it expires in June 2011. If our financial
and operating results were significantly less than what we
currently project, the financial covenants in the Credit
Agreement could restrict or prevent us from borrowing under the
revolving credit facility for one or more quarters. However, as
noted

above, we do not generally rely upon the revolving credit
facility as a source of liquidity in planning for our future
capital and operating requirements.

 

Although our significant outstanding indebtedness results in
certain risks to our business that could materially affect our
financial condition and performance, we believe that these risks
are manageable and that we are taking appropriate actions to
monitor and address them. For example, in connection with our
financial planning process and capital raising activities, we
seek to maintain an appropriate balance between our debt and
equity capitalization and we review our business plans and
forecasts, including projected trends in interest rates, to
monitor our ability to service our debt and to comply with the
financial and other covenants in our Credit Agreement and the
indentures governing Cricket’s senior notes. In addition,
as the new markets that we have launched over the past few years
continue to develop and our existing markets mature, we expect
that increased cash flows from such new and existing markets
will ultimately result in improvements in our consolidated
leverage ratio and the other ratios underlying our financial
covenants. Our $1,650 million of senior notes and
convertible senior notes bear interest at a fixed rate and we
have entered into interest rate swap agreements covering
$355 million of outstanding debt under our term loan. Due
to the fixed rate on our senior notes and convertible senior
notes and our interest rate swaps, approximately 78.4% of our
total indebtedness accrues interest at a fixed rate. In light of
the actions described above, our expected cash flows from
operations, and our ability to defer or reduce our investments
in business expansion efforts or other activities as necessary
to match our capital requirements to our available liquidity,
management believes that it has the ability to effectively
manage our levels of indebtedness and address the risks to our
business and financial condition related to our indebtedness.

 

 

Our principal sources of liquidity are our existing unrestricted
cash, cash equivalents and short-term investments and cash
generated from operations. We had a total of $595.9 million
in unrestricted cash, cash equivalents and short-term
investments as of December 31, 2008. We generated
$350.6 million of net cash from operating activities during
the year ended December 31, 2008, and we expect that cash
from operations will continue to be a significant and increasing
source of liquidity as our markets mature and our business
continues to grow. In addition, from time to time we may also
generate liquidity through capital markets transactions. We
generated $483.7 million of net cash from financing
activities during the year ended December 31, 2008, which
included proceeds from our issuances of unsecured senior notes
and convertible senior notes in June 2008. We also have a
$200 million revolving credit facility which was undrawn as
of December 31, 2008, and which we do not generally rely
upon as a source of liquidity in planning for our future capital
and operating requirements.

 

We believe that our existing unrestricted cash, cash equivalents
and short-term investments, together with cash generated from
operations, provide us with sufficient liquidity to meet the
future operating and capital requirements for our current
business operations and our current business expansion efforts.
These current business expansion efforts, which are described
further below, include our plans to expand our network
footprint, expand and enhance network coverage and capacity in
many of our existing markets and expand the availability of our
Cricket Broadband service.

 

We determine our future capital and operating requirements and
liquidity based, in large part, upon our projected financial
performance, and we regularly review and update these
projections due to changes in general economic conditions, our
current and projected operating and financial results, the
competitive landscape and other factors. In evaluating our
liquidity and managing our financial resources, we plan to
maintain what we consider to be at least a reasonable surplus of
unrestricted cash, cash equivalents and short-term investments
to address variations in working capital, unanticipated
operating or capital requirements, and significant changes in
our financial performance. If cash generated from operations
were to be adversely impacted by substantial changes in our
projected operating performance (for example, as a result of
unexpected effects associated with the current economic
downturn, changes in general economic conditions, higher
interest rates, increased competition in our markets,
slower-than-anticipated growth or customer acceptance of our
products or services, increased churn or other factors), we
believe that we could defer or significantly reduce our capital
expenditures and other business expenses, to the extent we
deemed necessary, to match our capital requirements to our
available liquidity. Our projections regarding future capital
and operating requirements and liquidity are based upon current
operating, financial and competitive information and projections
regarding our business and its financial performance. There are
a number of risks and uncertainties (including the risks to our
business described above and others set forth in this report in
Part I — Item 1A. under the heading entitled
“Risk Factors”) that could cause our financial and
operating results and capital requirements to differ materially
from our projections and that could cause our liquidity to
differ materially from the assessment set forth above.

 

We plan to expand our network footprint by launching Cricket
service in new markets and increasing and enhancing coverage in
our existing markets. In 2008, we and Denali Operations launched
new markets in Oklahoma City, southern Texas, Las Vegas,
St. Louis and the greater Milwaukee area covering
approximately 11 million additional POPs. We and Denali
Operations intend to launch markets covering approximately
25 million additional POPs by the middle of 2009 (which
includes the Chicago market launched by Denali Operations in
February 2009). We and Denali Operations also previously
identified up to approximately 16 million additional POPs
that we could elect to cover with Cricket service by the end of
2010. We currently expect to make a determination with respect
to the launch of these additional POPs by the middle of 2009. We
intend to fund the costs required to build out and launch any
new markets associated with these 16 million additional
POPs with cash generated from operations. The pace and timing of
any such build-out and launch activities will depend upon the
performance of our business and the amount of cash generated by
our operations.

 

In addition, we plan to continue to expand and enhance our
network coverage and capacity in many of our existing markets,
allowing us to offer our customers an improved service area. We
have substantially completed the first phase of this program,
which called for us to deploy approximately 600 new cell sites
in our existing markets. In

the second phase of this program, we currently plan to deploy up
to an additional 600 cell sites in our existing markets by the
end of 2010.

 

We also plan to expand the availability of Cricket Broadband,
our mobile broadband product offering. As of December 31,
2008, our Cricket Broadband service was available to
approximately 67.2 million covered POPs, and we intend to
make the service available in new Cricket markets that we and
Denali Operations launch.

 

Our business operations and expansion efforts require
significant expenditures. Our operating expenses for the year
ended December 31, 2008 were $1.91 billion. In
addition, we and our consolidated joint ventures made
approximately $795.7 million in capital expenditures during
the year ended December 31, 2008, including related
capitalized interest, primarily to support the launch of new
markets, the expansion and improvement of our and their existing
wireless networks and the deployment of EvDO technology. Capital
expenditures for 2009 are expected to be between
$625 million to $725 million, excluding capitalized
interest, which include capital expenditures to support the
launch of new markets, the on-going growth and development of
markets that have been in commercial operation for one year or
more and the further expansion and enhancement of network
coverage in our existing markets. As described above, we believe
that our existing unrestricted cash, cash equivalents and
short-term investments, together with cash generated from
operations, provide us with sufficient liquidity to meet the
future operating and capital requirements for our current
business operations and our current business expansion efforts.

 

In addition to our current business expansion efforts described
above, we may also pursue other activities to build our
business, which could include (without limitation) the
acquisition of additional spectrum through private transactions
or FCC auctions, entering into partnerships with others to
launch and operate additional markets or reduce existing
operating costs, or the acquisition of other wireless
communications companies or complementary businesses. If we were
to pursue any of these activities at a significant level, we
would likely need to re-direct capital otherwise available for
our current business operations and expansion efforts or raise
additional funding. We do not intend to pursue any of these
other activities at a significant level unless we believe we
have sufficient liquidity to support the operating and capital
requirements for our current business operations, expansion
efforts and any such other activities. To provide flexibility
with respect to any future capital raising alternatives, we
intend to file a universal shelf registration statement with the
SEC to register various debt, equity and other securities,
including debt securities, common stock, preferred stock,
depository shares, rights and warrants. The securities under
this registration statement would be able to 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.

 

Our total outstanding indebtedness under our Credit Agreement
was $877.5 million as of December 31, 2008.
Outstanding term loan borrowings under our Credit Agreement must
be repaid in 22 quarterly payments of $2.25 million each
(which commenced on March 31, 2007) followed by four
quarterly payments of $211.5 million (which commence on
September 30, 2012). The term loan under our Credit
Agreement bears interest at LIBOR plus 3.50% (subject to a LIBOR
floor of 3.0% per annum) or the bank base rate plus 2.50%, as
selected by us. The Credit Agreement also includes a
$200 million revolving credit facility, which was undrawn
as of December 31, 2008 and which expires in June 2011. In
addition to our Credit Agreement, we also had
$1,650 million in unsecured senior indebtedness outstanding
as of December 31, 2008, which included $1,100 million
of 9.375% senior notes due 2014, $250 million of 4.5%
convertible senior notes due 2014 and $300 million of
10.0% senior notes due 2015.

 

The Credit Agreement and the indentures governing Cricket’s
senior notes contain covenants that restrict the ability of
Leap, Cricket and the subsidiary guarantors to take certain
actions, including incurring additional indebtedness beyond
specified thresholds. In addition, under certain circumstances
we are required to use some or all of the proceeds we receive
from incurring indebtedness beyond defined levels to pay down
outstanding borrowings under our Credit Agreement. Our Credit
Agreement also contains financial covenants with respect to a
maximum consolidated senior secured leverage ratio and, if a
revolving credit loan or uncollateralized letter of credit is
outstanding or requested, with respect to a minimum consolidated
interest coverage ratio, a maximum consolidated leverage ratio
and a minimum consolidated fixed charge coverage ratio. Based
upon our current projected financial performance, we expect that
we could borrow all or a substantial portion of the
$200 million commitment available under the revolving
credit facility until it expires in June 2011. If our financial
and operating results were significantly less than what we
currently project, the financial covenants in the Credit
Agreement could restrict or prevent us from borrowing under the
revolving credit facility for one or more quarters. However, as
noted

above, we do not generally rely upon the revolving credit
facility as a source of liquidity in planning for our future
capital and operating requirements.

 

Although our significant outstanding indebtedness results in
certain risks to our business that could materially affect our
financial condition and performance, we believe that these risks
are manageable and that we are taking appropriate actions to
monitor and address them. For example, in connection with our
financial planning process and capital raising activities, we
seek to maintain an appropriate balance between our debt and
equity capitalization and we review our business plans and
forecasts, including projected trends in interest rates, to
monitor our ability to service our debt and to comply with the
financial and other covenants in our Credit Agreement and the
indentures governing Cricket’s senior notes. In addition,
as the new markets that we have launched over the past few years
continue to develop and our existing markets mature, we expect
that increased cash flows from such new and existing markets
will ultimately result in improvements in our consolidated
leverage ratio and the other ratios underlying our financial
covenants. Our $1,650 million of senior notes and
convertible senior notes bear interest at a fixed rate and we
have entered into interest rate swap agreements covering
$355 million of outstanding debt under our term loan. Due
to the fixed rate on our senior notes and convertible senior
notes and our interest rate swaps, approximately 78.4% of our
total indebtedness accrues interest at a fixed rate. In light of
the actions described above, our expected cash flows from
operations, and our ability to defer or reduce our investments
in business expansion efforts or other activities as necessary
to match our capital requirements to our available liquidity,
management believes that it has the ability to effectively
manage our levels of indebtedness and address the risks to our
business and financial condition related to our indebtedness.