Leap Wireless International Inc.’s stock took a major hit this morning. The flat-rate wireless carrier, which until recently had been courted by MetroPCS Communications Inc. with an unsolicited $5.1 billion merger bid, released preliminary financial results for the third quarter and announced it will have to restate its financial reports for much of the past four years to correct accounting errors.
Leap’s stock slid 33% to $38.90 following news that the restated financials would result in a net reduction of around $20 million in service revenues and an additional $20 million in operating income. The stock has steadily declined from a high of $85 in early September. The company’s value also took a hit last week when MetroPCS dropped its proposal to merge with Leap.
“As a result of the pending restatements, the company’s previously issued financial statements for the periods from fiscal year 2004 through the second quarter of 2007 should not be relied upon,” the company wrote, adding that the errors are not attributable to any misconduct by Leap employees.
Leap said the accounting errors were due to mistakenly counting disconnected customers’ monthly bills as revenue for the month following the cancellation. The company said the errors “resulted in an understatement of revenue in 2004 and 2005 and an overstatement of revenue in subsequent periods.”
Leap is one of a large and growing number of companies that have had to restate earnings for various reasons.
The company reported 36,484 net customer additions during the third quarter and customer churn of 5.2%. The carrier’s un-audited adjusted operating income is expected to reach between $94 million and $98 million for the quarter.
The company forecast net customer additions to reach 70,000 to 130,000 during the fourth quarter and expects churn to be around 4.4% to 4.7%.
Wall Street punishes Leap for earnings restatements
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