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© 2012. All rights reserved. This document may not be reproduced or re‐disseminated in whole or in part without prior written permission from CFRA.

CFRA COMPANY RISK DASHBOARD

Leap Wireless International, Inc. (LEAP)

Company Overview

Ticker: LEAP

Industry: Communication Services

Leap Wireless International, Inc. (Leap) is a wireless communications carrier that offers digital wireless services in the United States under the Cricket brand. Leap’s Cricket service offerings provide customers with unlimited wireless services for a flat rate with‐out 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 by LCW Wire‐less Operations, LLC (LCW Operations), Denali Spec‐trum Operations, LLC (Denali Operations), and STX Wireless Operations, LLC (STX Operations). It controls STX Operations through a 75.75% controlling interest in its parent company, STX Wireless, LLC (STX Wire‐less). On March 30, 2010, it acquired an additional 23.9% interest in LCW Wireless from CSM Wireless, LLC (CSM). On August 25, 2010, it acquired the re‐maining 5.4% of the interests in LCW Wireless.

Risk Metrics

Earnings Quality (QuickScore)

3

Cash Flow Quality (QuickScore)

3

Governance (GRId) Average

# of Pending Class Actions

0

M&A Activity N/A

Company Risk Highlights

CFRA’s Risk Dashboard provides multiple views of a company’s risk. Each risk metric should be evaluated only within the framework of the methodology ap‐plied. For example, the earnings quality risk metric (QuickScore) is not comparable to the company’s sustainability score (IVA). Please note that as metrics are derived from various research groups, we do our best to include the most recent update. Also note that research for global companies is based on their ADR.

Updated: December 28, 2011

Financial Risks

Revenue growth has accelerated in the last four quarters, with revenues up 26.6% in 3Q11. However, a slight increase in the level of accounts receivable may indicate that collection risk has increased.

Accounts receivable as measured in days (DSO) rose to 10 days, which represents at least a thirteen-quarter high and contrasts with a range of 4 to 7 days in the prior twelve quarters. For a company in the telecom space, an increase in DSO could signal higher collection risk that may lead to higher bad debt charges in future periods.

Question for Management:

What is the primary reason for the faster growth in accounts receivable relative to revenues in 3Q11? Has collection risk increased?

Deferred revenue measured in days (DSDR) increased slightly to 17 days in 3Q11 from 16 days in the prior year and is now close to the thirteen-quarter high of 18 days. CFRA is typically concerned when DSDR declines significantly as it may signal upcoming pressure on future revenue growth.

Inventory trend is not concerning as the current level represents a four year low for the third quarter. Inventory measured in days (DSI) was just 14 days as of 3Q11 versus 17 days in the prior year and 20 days two years ago. Had DSI increased significantly, we would have raised concern regarding possi-ble future margin pressure from increased promotional activities or impairment charges.

Although LEAP has not been profitable, CFFO has been positive and actually increased in the latest quarter. In addition, we see no risk of near-term liquidity pressure as LEAP has no current debt, has remained free cash flow positive, and had $800.0 million in cash and short term investments as of 3Q11.

Medium

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CFRA COMPANY RISK DASHBOARD: LEAP WIRELESS INTERNATIONAL, INC. (LEAP)


Key Risk Indicators

Risk Highlights

3 Year Peak Market Cap 18.9

5 Year Peak Market Cap 95.9

Debt Coverage Ratio 0.2

Altman Z‐Score 0.4

CFRA Peer Group

Clearwire (CLWR) N/A

U.S. Cellular Corp. (USM) N/A

Metro PCS Communications (PCS) N/A 0

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120

29‐Dec‐06 29‐Jun‐07 29‐Dec‐07 29‐Jun‐08 29‐Dec‐08 29‐Jun‐09 29‐Dec‐09 29‐Jun‐10 29‐Dec‐10 29‐Jun‐11

LEAP PCS USM CLWR

5 Year Market Cap


0.00

20.00

40.00

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120.00

0

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10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

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29‐Dec‐06 29‐Jun‐07 29‐Dec‐07 29‐Jun‐08 29‐Dec‐08 29‐Jun‐09 29‐Dec‐09 29‐Jun‐10 29‐Dec‐10 29‐Jun‐11

Volume Closing Price

5 Year Price and Volume SAMPLE



Financial Risk Indicators

Earnings QuickScore (QS)


Cash Flow QuickScore

Earnings QS Class Action Risk Cash Flow QS Class Action Risk

Earnings QS Peer Comparison Cash Flow QS Peer Comparison

0

1

2

3

3Q112Q111Q114Q103Q102Q101Q104Q093Q092Q091Q094Q083Q08

Earnings Class Action Risk

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2

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3Q112Q111Q114Q103Q102Q101Q104Q093Q092Q091Q094Q083Q08

Earnings QS Industry Average

Peer Group Average

3/10 Earnings QS

Average Risk

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10

3Q112Q111Q114Q103Q102Q101Q104Q093Q092Q091Q094Q083Q08

LEAP CLWR PCS USM

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3Q112Q111Q114Q103Q102Q101Q104Q093Q092Q091Q094Q083Q08

Earnings Class Action Risk

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2

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3Q112Q111Q114Q103Q102Q101Q104Q093Q092Q091Q094Q083Q08

Earnings QS Industry Average

Peer Group Average

3/10 Earnings QS

Average Risk

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2

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6

8

10

3Q112Q111Q114Q103Q102Q101Q104Q093Q092Q091Q094Q083Q08

LEAP CLWR PCS USM

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Earnings Quality Metrics


3Q11 2Q11 1Q11 4Q10 3Q10 2Q10 1Q10 4Q09 3Q09 2Q09 1Q09 4Q08 3Q08 Revenue Growth Q/Q 0.3% ‐2.4% 10.1% 17.4% ‐4.8% ‐3.1% 9.1% 0.3% 1.7% 13.1% 4.4% 4.5%

Revenue Growth Y/Y 26.6% 20.0% 19.2% 18.1% 0.5% 6.0% 11.4% 15.4% 20.6% 25.8% 25.3% 20.7% 21.2%

Gross margin 22.5% 25.8% 24.0% 24.3% 31.2% 37.2% 32.2% 31.7% 33.5% 36.0% 33.2% 34.8% 33.8%

SG&A/Revenue 21.4% 23.5% 26.3% 27.9% 31.2% 29.2% 31.2% 30.6% 33.1% 31.4% 34.0% 33.9% 33.2%

R&D/Revenue ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐

D&A/Revenue ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐

D&A/Average PP&E ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐

Operating Margin 1.0% 2.3% ‐2.2% ‐3.6% ‐ 7.9% 1.0% 1.0% 0.4% 4.6% ‐0.7% 0.8% 0.5%

Effective Tax Rate ‐14.4% ‐20.3% ‐14.2% ‐16.7% 0.9% ‐179.9% ‐20.8% ‐21.2% ‐16.6% ‐27.4% ‐16.9% ‐18.7% ‐25.8%

Net Margin ‐9.0% ‐8.5% ‐12.3% ‐35.2% ‐88.9% ‐2.8% ‐10.4% ‐10.3% ‐10.7% ‐10.5% ‐8.5% ‐10.5% ‐9.8%

DSO 10 7 6 7 6 6 4 7 4 4 4 5 7

DSI 14 16 17 18 17 11 11 24 20 19 24 27 30

DSP 25 25 30 35 34 24 17 40 26 36 43 54 48

DSDR 17 16 16 16 16 15 16 18 15 15 15 15 13

Soft Assets/Revenue 13.9% 16.4% 13.2% 12.3% 14.2% 12.2% 14.2% 13.0% 12.1% 11.9% 6.1% 10.1% 6.5%

Soft Liab/Revenue 60.0% 51.2% 51.9% 51.1% 63.6% 55.0% 57.6% 55.4% 58.2% 55.5% 56.3% 55.0% 62.0%

ADA/Receivables ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐

PP&E/Total Assets 37.6% 38.7% 41.8% 42.1% 41.8% 39.5% 39.8% 39.4% 38.9% 37.9% 38.7% 36.4% 32.6%

Intang./Total Assets 38.8% 39.0% 42.2% 42.0% 40.3% 37.0% 37.0% 36.1% 36.2% 35.8% 38.0% 37.0% 36.6%

Debt/Equity 466.0% 424.0% 347.0% 312.0% 250.0% 169.0% 168.0% 162.0% 159.0% 154.0% 163.0% 160.0% 155.0%

CapEx/D&A ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐

Free Cash Flow 63.0 ‐64.0 ‐23.0 ‐124.0 17.0 22.0 ‐15.0 ‐34.0 ‐103.0 ‐210.0 ‐104.0 ‐192.0 ‐102.0

Free Cash Flow TTM ‐ ‐ ‐ ‐189.9 20.1 132.1 ‐10.9 ‐292.6 ‐451.6 ‐450.9 ‐450.2 ‐523.8 ‐523.1

CFFO 166.5 29.6 72.0 ‐14.0 121.8 110.9 93.6 89.5 51.1 43.8 100.0 79.4 89.7

TTM CFFO ‐ TTM OI 358.0 775.0 819.0 818.0 835.0 285.0 267.0 280.0 270.0 308.0 295.0 ‐ ‐

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DSO Comparison


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3Q112Q111Q114Q103Q102Q101Q104Q093Q092Q091Q094Q083Q08

LEAP CLWR PCS USM

DSI Comparison

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35

3Q112Q111Q114Q103Q102Q101Q104Q093Q092Q091Q094Q083Q08

LEAP CLWR PCS USM

Operating and Gross Margins

‐10.0%

‐5.0%

0.0%

5.0%

10.0%

15.0%

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25.0%

30.0%

35.0%

40.0%

3Q112Q111Q114Q103Q102Q101Q104Q093Q092Q091Q094Q083Q08

Gross margin Operating margin

PP&E and Intangibles as % of Total Assets

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

3Q112Q111Q114Q103Q102Q101Q104Q093Q092Q091Q094Q083Q08

PP&E/Total Assets Intang./Total Assets

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Risk assessment checklist


Allowance for doubtful accounts and provi-sions for bad debts

If disclosed, a decline in the related bad debt expense relative to sales

Significant decline in allowance for doubtful accounts relative to gross accounts receivable

Inventory accounting and analysis Large increases in obsolescence reserves

Changes in handset inventory accounting policies

Rising inventory levels relative to cost of handset sales

Depreciation of property plant and equipment (PP&E)

Depreciation consistently lower than capital expenditures

Footnote disclosure of change in depreciable lives of PP&E

Longer depreciable lives for PP&E than competitors

Decline in depreciation expense relative to gross PP&E

Capitalized interest Increase in interest capitalization as a percentage of capital expenditures

Change in capitalized interest as a percentage of total interest costs

Capitalized operating costs Increase in capital expenditures relative to revenue

Declines in operating costs relative to revenue

Stock based compensation Decrease in expected volatility assumption, expected life of option assumption of risk free rate assumption

Increase in stock-based compensation relative to cash compensation expense

Restructuring and other special charges Recurring and/or significan special charges, adjust to previous one-time charges, inclusion of operating costs in restructuring charges

Accelerating the recognition of revenue Growth in accounts receivable and/or declines in deferred revenue. Change in revenue recognition disclosure

Busines combinations - Risks related to pur-chase accounting

A significant reduction in the acquired company's tangible assets if you are able to obtain historical financials of the target company

Large purchase price adjustments which increase the amount of goodwill recorded

Goodwill accounting for a higher portion of the purchase price allocation versus other acquisition in the industry

Presentation of non-GAAP operating metrics Change in definition of key operating (non-GAAP) metrics

Lack of definition for key operating (non-GAAP) metrics

Unusual volatility in operating (non-GAAP) metric

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Class Action Risk

Securities Class Action(s)


Case ID Case Name Federal Court Filing Date Settlement Date

Leap Wireless International, Inc. (LEAP) USDC - California (Southern) Nov 27, 2007 Oct 4, 2010 ($13,750,000)

Named Defendants: Leap Wireless International, Inc., S. Douglas Hutcheson - CEO and Acting CFO, Grant A. Burton - VP, Chief Accounting Officer and Controller, Amin. I. Khalifa - Executive Vice President and CFO

The Complaint alleges as follows: During the Class Period, defendants made materially false and misleading statements regarding the Company's business and prospects to artificially inflate the value of Leap stock. Specifically, throughout the Class Period, the defendants made material misrepresentations and omissions of fact regarding the Company's revenues beginning in fiscal year 2004 and continuing through the second quarter of fiscal 2007. The Company reported revenues of $826 million for fis-cal year 2004; $914.7 million for fiscal year 2005; $1.136 billion for fiscal year 2006; $389.4 million for the first quarter of fiscal year 2007; and, $393.2 million for the second quarter of fiscal 2007. As a result of the defendants' misrepresentations, Leap stock traded at artificially inflated prices during the class period, trading as high as $99.00 in July 2007.

The Company shocked the market on November 9, 2007 when it announced, "it will restate its financial statements for fiscal years 2004, 2005 and 2006 and for the first and second quarters of 2007 to correct for errors in previously reported service revenues, equipment revenues, and operating expenses." As a result, on November 9, 2007, Leap's common stock closed at $36.72 per share, declining 37% from the previous trading day's close of $58.10, on very heavy trading volume of 11,377,500 shares, over six times the prior trading days' volume, and representing a loss of market capitalization of over $240 million.

07.2245

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© 2012. All rights reserved. This document may not be repro‐

Governance Risk Updated: December 28, 2011

Board Structure

Factor Impact

87.50% of the board is independent and was elected by shareholders (GRId Question ID: 10)

The chairman of the board is an independent director (GRId Question ID: 14)

100.00% of the nomination committee is independent (GRId Question ID: 19)

100.00% of the compensation committee is independent (GRId Question ID: 25)

100.00% of the audit committee is independent (GRId Question ID: 31)

The CEO does not serve on an excessive number of outside boards (GRId Question ID: 37)

0.00 non-executive(s) serve on an excessive number of outside boards (GRId Question ID: 38)

All directors attended at least 75% of the board meetings or had a valid excuse for absences (GRId Question ID: 45)

The company discloses board/governance guidelines (GRId Question ID: 46)

Outside directors met without management present (GRId Question ID: 47)

0.00 director(s) received withhold/against votes of 50% or greater at the last annual meeting (GRId Question ID: 49)

0.00% of directors were involved in material RPTs (GRId Question ID: 50)

There are no directors involved in RPTs (GRId Question ID: 51)

The company has a plurality vote standard without a director resignation policy (GRId Question ID: 52)

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Executive Compensation Risk Updated: December 28, 2011

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CFRA research is delivered by Institutional Shareholder Services Inc. (“ISS”). ISS is a indirect wholly-owned subsidiary of MSCI Inc. (“MSCI”). MSCI is a pub-licly traded company on the NYSE (Ticker: MSCI). As such, MSCI is not generally aware of who its stockholders are at any given point in time. ISS has, how-ever, established policies and procedures to restrict the involvement of any of MSCI’s non-employee stockholders, their affiliates and board members in the con-tent of ISS' analyses. Neither MSCI’s non-employee stockholders, their affiliates nor MSCI’s non-management board members are informed of the contents of any of ISS analyses prior to their publication or dissemination.

The issuer that is the subject of this analysis may be a client of CFRA, ISS, ICS, or another MSCI subsidiary, or the parent of, or affiliated with, a client of CFRA, ISS, ICS, or another MSCI subsidiary.

This analysis has not been submitted to, nor received approval from, the United States Securities and Exchange Commission or any other regulatory body. While ISS exercised due care in compiling this analysis, it makes no warranty, express or implied, regarding the accuracy, completeness or usefulness of this information and assumes no liability with respect to the consequences of relying on this information for investment or other purposes. In particular, the research provided is not intended to constitute an offer, solicitation or advice to buy or sell securities.

This issuer may have purchased self-assessment tools and publications from ISS Corporate Services, Inc. ("ICS"), a wholly-owned subsidiary of Institutional Shareholder Services Inc. ("ISS"), or ICS may have provided advisory or analytical services to the issuer in connection with the proxies described in this report. No employee of ICS played a role in the

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