Leap Wireless International Form 8-K
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 8-K

Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 25, 2001

Leap Wireless International, Inc.
(Exact name of registrant as specified in its charter)

         
Delaware
(State or Other Jurisdiction
of Incorporation)
  0-29752
(Commission File Number)
  33-0811062
(I.R.S. Employer Identification No.)
10307 Pacific Center Court, San Diego, California
(Address of Principal Executive Offices)
      92121
(Zip Code)

Registrant’s telephone number, including area code: (858) 882-6000

 


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Item 5. Other Events.
SIGNATURE


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     This Current Report on Form 8-K is filed by Leap Wireless International, Inc., a Delaware corporation (“Leap” or the “Company”), in connection with the matters described herein.

Item 5. Other Events.

     On July 25, 2001, Leap announced its financial and certain other operational results for the quarter ended June 30, 2001 as set forth below.

     The Company reported that as of June 30, 2001, customers of the Company’s Cricket service grew to over 472,000, compared to the just over 339,000 customers reported as of March 31, 2001.

     Cricket operational highlights from the second quarter of 2001 included:

    Leap launched an additional six market areas — Spokane, Washington; Fort Smith, Arkansas; Columbus and Macon, Georgia; Hickory, North Carolina; and Pittsburgh, Pennsylvania — bringing the total potential customers covered by Cricket service in markets across the United States to approximately 12.3 million (1998 POPs) at the end of the quarter. Subsequent to the end of the quarter, Leap also launched Cricket service in Fayetteville, Arkansas.
 
    Average revenue per user per month (ARPU) across all of Leap’s operational markets rose to approximately $36, up from the approximately $35 reported for the first quarter of 2001.
 
    Overall cost per gross customer addition (CPGA) was approximately $245.

     Key financial performance measures for the second quarter ended June 30, 2001 were as follows:

    Total operating revenues for Leap’s U.S. operations for the second quarter were $47.8 million, an increase of $11 million over the $36.8 million reported for the first quarter of 2001. Service revenue rose to $39.5 million, an increase of 54 percent over that reported for the first quarter of 2001.
 
    Consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) was negative $56.6 million, compared to the negative $48.1 million reported for the first quarter of 2001.
 
    Leap’s consolidated net loss for the quarter was $128.5 million or $3.91 per share, compared to a net loss of $114.4 million or $3.88 per share in the prior quarter. Of the $3.91 net loss per share reported in the second quarter, $0.52 was the result of Leap’s share of losses for Pegaso Telecomunicaciones S.A., de C.V. (“PEGASO”), the Mexican wireless company that Leap co-founded, recognized under the equity method of accounting.
 
    Leap’s total cash and cash equivalents, investments, and deposits on pending wireless license acquisitions as of June 30, 2001 were $593.4 million.
 
    The book value of wireless licenses at the end of the second quarter rose to $681.5 million, an increase of $408.1 million over what was reported at the end of the first quarter of 2001 and reflecting the completion of several spectrum acquisitions.

 


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    Leap’s property and equipment, net of depreciation, rose to $686.5 million in the second quarter, an increase of $178.5 million over that reported at March 31, 2001.

     Other Highlights:

    New Services — In May 2001, Leap introduced its Telephone Entertainment Network, a company initiative focused on turning wireless communications into an entertainment and information medium. During the quarter, Leap launched Slice, the first channel to debut on the Telephone Entertainment Network, in Chattanooga and Nashville, Tenn., and further expanded this service in July 2001 to include Albuquerque, N.M. Marketed as Your Personal Telephone Entertainment Channel, Slice is designed to deliver short, crisp “voice clips” directly to the customer’s wireless phone. With Slice service, customers hear entertaining, short clips of local news and events, sports, weather, traffic and more before their calls connect. Leap intersperses short advertisements and promotions that can save customers money with these fun, fresh “slices” of information. With a simple press of a button, customers can get more information by voice or text on selected voice clips.
 
    Spectrum — During the second quarter of 2001, Leap completed the acquisition of 40 new wireless licenses totaling approximately 14.2 million potential customers (1998 POPs), bringing the total potential customers covered by the licenses that Leap owns to approximately 49.8 million. In total, Leap now owns or has rights to acquire 72.7 million potential customers (1998 POPs) in 36 states. This number includes licenses covering 22.4 million potential customers (1998 POPs) on which Leap was the high bidder in FCC Auction #35 that ended in January 2001. It is unclear when or whether the FCC will transfer these licenses to Leap because of a June 22, 2001 U.S. Court of Appeals opinion stating that the FCC violated the United States Bankruptcy Code in canceling NextWave’s licenses (which were then auctioned in Auction #35). The 22 licenses that Leap won in Auction #35 were all NextWave licenses that the FCC reclaimed.
 
    International Operations — PEGASO grew its customer base to approximately 729,000 at the end of the second quarter. As of March 31, 2001, PEGASO had launched service in 13 markets with networks covering nearly 30 million potential customers across Mexico. Leap has chosen to invest an additional $29 million into the Mexican wireless carrier to support the future growth and working capital needs of Pegaso. Other shareholders of Pegaso have also agreed to contribute additional amounts such that Leap’s percentage ownership in Pegaso remains unchanged.

 


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LEAP WIRELESS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)

                     
        June 30,   December 31,
        2001   2000
       
 
        (Unaudited)        
Assets
               
Cash and cash equivalents
  $ 381,522     $ 338,878  
Restricted cash equivalents
          13,575  
Short-term investments
    118,791       199,106  
Inventories
    28,487       9,032  
Notes receivable, net
    33,284       138,907  
Other current assets
    9,577       12,746  
 
   
     
 
   
Total current assets
    571,661       712,244  
Property and equipment, net
    686,451       430,193  
Investment in unconsolidated wireless operating company
    788       34,691  
Wireless licenses, net
    681,487       265,635  
Goodwill and other intangible assets, net
    47,431       30,297  
Restricted investments
    53,323       51,896  
Deposits for wireless licenses
    87,699       91,772  
Other assets
    156,144       30,679  
 
   
     
 
   
Total assets
  $ 2,284,984     $ 1,647,407  
 
   
     
 
Liabilities and Stockholders’ Equity
               
Accounts payable and accrued liabilities
  $ 57,219     $ 58,735  
Other current liabilities
    132,018       65,690  
 
   
     
 
   
Total current liabilities
    189,237       124,425  
Long-term debt
    1,408,371       897,878  
Other long-term liabilities
    107,012       41,846  
 
   
     
 
   
Total liabilities
    1,704,620       1,064,149  
 
   
     
 
Stockholders’ equity:
               
 
Preferred stock
           
 
Common stock
    3       3  
 
Additional paid-in capital
    1,131,657       893,401  
 
Unearned stock-based compensation
    (7,776 )     (10,019 )
 
Accumulated deficit
    (545,813 )     (302,898 )
 
Accumulated other comprehensive income
    2,293       2,771  
 
   
     
 
   
Total stockholders’ equity
    580,364       583,258  
 
   
     
 
   
Total liabilities and stockholders’ equity
  $ 2,284,984     $ 1,647,407  
 
   
     
 

 


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LEAP WIRELESS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In Thousands, Except Per Share Data)

                                         
            Three Months Ended   Six Months Ended
           
 
            June 30,
           
            2001   2000   2001   2000
           
 
 
 
Revenues:
                               
   
Service revenues
  $ 39,554     $ 16,828     $ 65,209     $ 26,246  
   
Equipment revenues
    8,292       1,696       19,390       2,269  
 
   
     
     
     
 
       
Total revenues
    47,846       18,524       84,599       28,515  
 
   
     
     
     
 
Operating expenses:
                               
   
Cost of service
    (17,480 )     (5,981 )     (29,706 )     (8,764 )
   
Cost of equipment
    (32,497 )     (12,720 )     (63,435 )     (25,968 )
   
Selling and marketing
    (21,786 )     (4,941 )     (38,801 )     (11,617 )
   
General and administrative
    (32,715 )     (26,957 )     (57,401 )     (42,384 )
   
Depreciation and amortization
    (20,511 )     (8,436 )     (35,298 )     (13,678 )
 
   
     
     
     
 
       
Total operating expenses
    (124,989 )     (59,035 )     (224,641 )     (102,411 )
 
   
     
     
     
 
   
Operating loss
    (77,143 )     (40,511 )     (140,042 )     (73,896 )
Equity in net loss of investments in and loan receivable from unconsolidated wireless operating companies
    (17,116 )     (17,169 )     (43,298 )     (46,752 )
Interest income
    7,874       12,313       18,773       17,004  
Interest expense
    (41,840 )     (36,311 )     (79,451 )     (52,471 )
Foreign currency transaction gains (losses)
    (40 )     10,322       (1,275 )     11,721  
Gain on sale of subsidiary
          313,432             313,432  
Gain on issuance of stock by unconsolidated wireless operating company
          25,734             25,734  
Other income, net
          1,313       3,576       1,948  
 
   
     
     
     
 
       
Income (loss) before income taxes and extraordinary items
    (128,265 )     269,123       (241,717 )     196,720  
Income taxes
    (265 )     (34,548 )     (1,198 )     (34,548 )
 
   
     
     
     
 
Income (loss) before extraordinary items
    (128,530 )     234,575       (242,915 )     162,172  
Extraordinary losses on early extinguishment of debt
          (315 )           (4,737 )
 
   
     
     
     
 
       
Net income (loss)
  $ (128,530 )   $ 234,260     $ (242,915 )   $ 157,435  
 
   
     
     
     
 
Basic net income (loss) per common share:
                               
     
Income (loss) before extraordinary items
  $ (3.91 )   $ 9.18     $ (7.79 )   $ 6.77  
     
Extraordinary loss
          (0.01 )           (0.20 )
 
   
     
     
     
 
 
Net income (loss)
  $ (3.91 )   $ 9.17     $ (7.79 )   $ 6.57  
 
   
     
     
     
 
Diluted net income (loss) per common share:
                               
     
Income (loss) before extraordinary items
  $ (3.91 )   $ 7.21     $ (7.79 )   $ 5.19  
     
Extraordinary loss
    -—       (0.01 )           (0.15 )
 
   
     
     
     
 
 
Net income (loss)
  $ (3.91 )   $ 7.20     $ (7.79 )   $ 5.04  
 
   
     
     
     
 
Shares used in per share calculations:
                               
 
Basic
    32,882       25,536       31,181       23,967  
 
   
     
     
     
 
 
Diluted
    32,882       32,519       31,181       31,227  
 
   
     
     
     
 

 


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LEAP WIRELESS INTERNATIONAL, INC.
SELECTED SEGMENT DATA
(UNAUDITED)
(In Thousands)

                                 
    As of and for the   As of and for the
    Three Months Ended   Six Months Ended
   
 
    June 30,
   
    2001   2000   2001   2000
   
 
 
 
    (Unaudited)   (Unaudited)
United States:
                               
Revenues
  $ 47,846     $ 5,642     $ 84,599     $ 9,841  
EBITDA
    (45,779 )     (11,038 )     (86,796 )     (19,875 )
Operating loss
    (66,004 )     (14,131 )     (121,362 )     (28,637 )
Capital expenditures
    (191,884 )     (48,203 )     (277,921 )     (84,089 )
Purchase of wireless licenses
    (403,631 )           (410,345 )     (73,154 )
Total assets
    1,783,273       673,713       1,783,273       673,713  
Mexico(1):
                               
Revenues
    37,324       19,035       58,198       23,687  
EBITDA
    (39,234 )     (53,188 )     (140,315 )     (101,670 )
Operating loss
    (56,279 )     (62,776 )     (170,149 )     (116,285 )
Capital expenditures
    (64,701 )     (21,361 )     (163,834 )     (87,428 )
Total assets
    933,631       622,083       933,631       622,083  


(1)   The results of the Mexico segment are for the three and six months ended March 31, 2001 and 2000, a three-month reporting lag. The results of the Mexico segment for the three months ended March 31, 2001 are pro forma, and exclude cumulative adjustments reducing revenues by $17.4 million and reducing cost of revenues by $4.2 million related to Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements”.

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SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

         
Date: July 25, 2001   LEAP WIRELESS INTERNATIONAL, INC.  
         
    By:   /s/ THOMAS D. WILLARDSON
       
        Thomas D. Willardson
Senior Vice President, Finance and Treasurer