Edgar Filing: LEAP WIRELESS INTERNATIONAL INC

Leap Wireless International, Inc February 11, 2002

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): February 11, 2002

Leap Wireless International, Inc.

(Exact name of registrant as specified in its charter)


Delaware	0-29752	33-0811062




(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(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

TABLE OF CONTENTS


Item 5. Other Events.
CONDENSED CONSOLIDATED BALANCE SHEETS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SUPPLEMENTARY DISCLOSURES OPERATIONAL METRICS
SUPPLEMENTARY DISCLOSURES 40 MARKET PLAN
SIGNATURE

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 February 11, 2002, Leap announced its financial and certain other operational results for the quarter and fiscal year ended December 31, 2001, as set forth below.

The Company reported that it ended fiscal year 2001 with 1.119 million Cricket customers, up from the more than 724,000 customers reported as of September 30, 2001. Leap reported net additions of more than 394,000 customers during the quarter.

Cricket operational highlights from the fourth quarter of 2001 included:

	•		Leap launched an additional 14 markets during the fourth quarter, bringing to 39 the total markets launched at the end of the year. Subsequent to the end of the quarter, Leap launched Cricket service in Buffalo, New York, completing the launch of all markets in its 40 Market Plan. Total potential customers covered by Cricket networks now stand at 25.2 million (2001 POPs).

	•		Billed average revenue per user per month (ARPU) across all of Leap’s operational markets rose to approximately $38, compared to the approximately $37 reported for the third quarter of 2001.

	•		Overall cost per gross customer addition (CPGA), including pre-launch marketing expenses, was approximately $246 for the quarter. CPGA for the entire fiscal year was $241.

	•		Overall cash cost per user (CCU) declined by approximately 10 percent.

Leap also reported the following results for its 10 “one-year or older” markets for the fourth quarter of 2001:

	•		Combined churn was 3.6 percent.

	•		Penetration of the 8.2 million potential customers (2001 POPs) covered by Cricket networks in these markets was 7.1 percent.

	•		Aggregate earnings before interest, taxes, depreciation, amortization and marketing (EBITDAM) margin, based on service revenue, was over 50 percent, at the market level.

	•		Aggregate earnings before interest, taxes, depreciation and amortization (EBITDA) margin, based on service revenue, was negative for the fourth quarter, at the market level, reflecting customer acquisition costs associated with increased sales during the holiday season.

	•		Aggregate average minutes of use for these markets was approximately 1,150 minutes per month, consistent with historical customer usage patterns.

Key consolidated financial performance measures for the fourth fiscal quarter of 2001 were as follows:

•

Total operating revenues for Leap’s U.S. operations were $103.9 million, an increase of more than $37 million over the $66.7 million reported for the previous quarter. Service revenue rose to $93.5 million, an increase of $36.3 million over that reported for the third fiscal quarter of 2001.

	•		Consolidated EBITDA loss, excluding a $136.3 million gain on the sale of wireless licenses, was $119.0 million, an increase from the loss of $85.3 million reported for the previous quarter. Cricket’s continued rapid growth during the fourth quarter was a primary factor in the increase in the consolidated EBITDA loss during the quarter.

	•		Leap’s consolidated net loss for the fourth quarter was $79.6 million, or $2.17 per share, compared to a net loss of $160.7 million or $4.43 per share, in the prior quarter. Leap’s consolidated net loss, adjusted to eliminate the gain on the sale of a portion of its wireless licenses in the Salt Lake City and Provo, Utah Basic Trading Areas, was $215.9 million or $5.88 per share.

	•		Leap’s total cash and cash equivalents, unrestricted investments, and deposits on Auction #35 as of December 31, 2001 were $411.1 million.

	•		Leap’s property and equipment, net of depreciation, rose to $1,112.3 million at December 31, 2001, an increase of $682.1 million over that reported at December 31, 2000.

Forward-Looking Statements

Except for the historical information contained herein, this report contains “forward-looking statements” reflecting management’s current forecast of certain aspects of Leap’s future. Some forward-looking statements can be identified by forward-looking words such as “believe,” “think,” “may,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “seek,” “plan,” “expect,” “should,” “would” and similar expressions. This report is based on current information, which Leap has assessed but which by its nature is dynamic and subject to rapid and even abrupt changes. Leap’s actual results could differ materially from those stated or implied by such forward-looking statements due to risks and uncertainties associated with Leap’s business. Factors that could cause actual results to differ include, but are not limited to: changes in the economic conditions of the various markets Leap’s subsidiaries serve which could adversely affect the market for wireless services; Leap’s ability to access capital markets; a failure to meet the operational, financial or other covenants contained in Leap’s credit facilities; Leap’s failure to obtain the amendments to the credit facilities which Leap has requested; Leap’s ability to rollout networks in accordance with its plans, including receiving equipment and backhaul and interconnection facilities on schedule from third parties; failure of network systems to perform according to expectations; the effect of competition; the acceptance of Leap’s product offering by its target customers; Leap’s ability to retain customers; Leap’s ability to maintain its cost, market penetration and pricing structure in the face of competition; technological challenges in developing wireless information services and customer acceptance of such services if developed; Leap’s ability to integrate the businesses and technologies it acquires; rulings by courts or the FCC adversely affecting Leap’s rights to own and/or operate certain wireless licenses or impacting its rights and obligations to acquire the licenses on which Leap was the high bidder in Auction #35; the impacts on the global and domestic economies and the financial markets of recent terrorist activities, the ensuing declaration of war on terrorism and the continued threat of terrorist activity and other acts of war or hostility; and other factors detailed in the section entitled “Risk Factors” included in Leap’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2001 and in Leap’s other SEC filings. The forward-looking statements should be considered in the context of these risk factors. Investors and prospective investors are cautioned not to place undue reliance on such forward-looking statements. Leap undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

In addition, EBITDA and EBITDAM are financial measures used in the financial community, and ARPU, CPGA, CCU and churn are metrics used in the wireless telecommunications industry. None of these terms are measures of financial performance under generally accepted accounting principles in the United States.

Leap is a trademark of Leap Wireless International, Inc. Cricket is a registered trademark of Cricket Communications, Inc.

LEAP WIRELESS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)


			December 31,

			2001			2000

			(Unaudited)
Assets




Cash and cash equivalents			$	242,979		$	338,878




Short-term investments				81,105			199,106




Restricted short-term investments				27,628			28,129




Inventories				45,338			9,032




Notes receivable, net				33,284			138,907




Other current assets				22,044			12,746

		Total current assets		452,378			726,798




Property and equipment, net				1,112,284			430,193




Investment in unconsolidated wireless operating company				––			34,691




Wireless licenses, net				718,222			265,635




Goodwill and other intangible assets, net				43,613			30,297




Restricted investments				13,127			37,342




Deposits for wireless licenses				85,000			91,772




Other assets				26,271			30,679

		Total assets	$	2,450,895		$	1,647,407

Liabilities and Stockholders’ Equity




Accounts payable and accrued liabilities			$	147,695		$	58,735




Current portion of long-term debt				26,049			––




Other current liabilities				55,843			65,690

		Total current liabilities		229,587			124,425




Long-term debt				1,676,845			897,878




Other long-term liabilities				186,023			41,846

		Total liabilities		2,092,455			1,064,149

Stockholders’ equity:




	Preferred stock			––			––




	Common stock			4			3




	Additional paid-in capital			1,148,337			893,401




	Unearned stock-based compensation			(5,138	)		(10,019	)




	Accumulated deficit			(786,195	)		(302,898	)




	Accumulated other comprehensive income			1,432			2,771

		Total stockholders’ equity		358,440			583,258

		Total liabilities and stockholders’ equity	$	2,450,895		$	1,647,407

LEAP WIRELESS INTERNATIONAL, INC.

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


					Three Months Ended						Year Ended

					December 31,

					2001			2000			2001			2000

Revenues:




	Service revenues				$	93,468		$	9,057		$	215,917		$	40,599




	Equipment revenues					10,404			5,205			39,247			9,718

				Total revenues		103,872			14,262			255,164			50,317

Operating expenses:




	Cost of service					(37,507	)		(6,545	)		(94,510	)		(20,821	)




	Cost of equipment					(85,723	)		(24,038	)		(202,355	)		(54,883	)




	Selling and marketing					(44,240	)		(15,979	)		(115,222	)		(31,709	)




	General and administrative					(55,360	)		(28,195	)		(152,051	)		(85,640	)




	Depreciation and amortization					(50,385	)		(7,312	)		(119,177	)		(24,563	)

				Total operating expenses		(273,215	)		(82,069	)		(683,315	)		(217,616	)




Gain on sale of wireless licenses						136,258			––			143,633			––

	Operating loss					(33,085	)		(67,807	)		(284,518	)		(167,299	)




Equity in net loss of investments in and loans receivable from unconsolidated wireless operating companies						3,562			(6,623	)		(54,000	)		(78,624	)




Interest income						2,801			14,539			26,424			48,477




Interest expense						(54,358	)		(31,450	)		(178,067	)		(112,358	)




Foreign currency transaction gains (losses)						(118	)		867			(1,257	)		13,966




Gain on sale of subsidiary						––			––			––			313,432




Gain on issuance of stock by unconsolidated wireless operating company						––						––			32,602




Other income (expense), net						(163	)		(65	)		8,443			1,913

			Income (loss) before income taxes and extraordinary items			(81,361	)		(90,539	)		(482,975	)		52,109




Income taxes						1,721			(12,992	)		(322	)		(47,540	)

Income (loss) before extraordinary items						(79,640	)		(103,531	)		(483,297	)		4,569




Extraordinary loss on early extinguishment of debt						––			––			––			(4,737	)

			Net income (loss)		$	(79,640	)	$	(103,531	)	$	(483,297	)	$	(168	)

Basic net income (loss) per common share:




		Income (loss) before extraordinary items			$	(2.17	)	$	(3.82	)	$	(14.27	)	$	0.18




		Extraordinary loss				––			––			––			(0.19	)

Net income (loss)					$	(2.17	)	$	(3.82	)	$	(14.27	)	$	(0.01	)

Diluted net income (loss) per common share:




		Income (loss) before extraordinary items			$	(2.17	)	$	(3.82	)	$	(14.27	)	$	0.14




		Extraordinary loss				––			––			––			(0.15	)

Net income (loss)					$	(2.17	)	$	(3.82	)	$	(14.27	)	$	(0.01	)

Shares used in per share calculations:




	Basic					36,683			27,121			33,861			25,398

	Diluted					36,683			27,121			33,861			32,543

LEAP WIRELESS INTERNATIONAL, INC.

SUPPLEMENTARY DISCLOSURES
OPERATIONAL METRICS
(UNAUDITED)


		As of and for the Quarter Ended

		December 31,			September 30,			June 30,			March 31,
		2001			2001			2001			2001

Gross additions			473,372			301,189			179,883			163,929




Deactivations			78,724			48,792			47,026			17,364




Net additions			394,648			252,397			132,857			146,565




End of period customers			1,119,106			724,458			472,061			339,204




Weighted average customers			898,876			560,544			394,124			262,048




CPGA		$	246		$	243		$	245		$	214




	Equipment subsidy associated with customer gross additions (in 000s)	$	72,640		$	42,106		$	23,063		$	18,636




	Selling & marketing associated with customer gross additions (in 000s)	$	43,850		$	31,209		$	20,985		$	16,504




Covered POPs (2001 estimate in millions)			24.3			19.5			12.9			9.5




Penetration of covered POPs			4.2	%		3.7	%		3.7	%		3.6	%




Cumulative markets launched			39			25			20			14




Cumulative BTAs launched			47			28			23			17




Cell sites in service			2,186			1,562			1,132			753

LEAP WIRELESS INTERNATIONAL, INC.

SUPPLEMENTARY DISCLOSURES
40 MARKET PLAN

Launched

as of

Licensed POPs

Covered POPs

State

Market

BTA

12/31/01

(2001 est.) (1)

Central Arkansas

Little Rock

971,470

413,673

Pine Bluff

154,091

64,331

Hot Springs

140,502

49,263

Fort Smith(2)

Fort Smith

330,029

112,735

Jonesboro

182,637

93,122

Northwest Arkansas(3)

Fayetteville

332,638

182,644

Phoenix(4)

Phoenix

3,539,920

2,951,523

Tucson

857,246

756,722

Modesto-Merced

Modesto

507,765

348,579

Merced

230,409

153,741

Visalia

503,948

352,844

Denver(5)

Denver/Boulder

2,759,099

2,279,310

North Colorado(6)

Ft. Collins

256,324

213,919

Greeley

184,429

145,495

Pueblo

316,376

127,964

Columbus

366,390

182,420

Macon

668,632

229,179

Boise

596,255

369,827

Wichita

660,794

512,300

Kalamazoo and Battle

Kalamazoo

379,353

181,103

Creek

Battle Creek

241,424

78,530

Flint

508,496

319,481

Jackson

205,759

112,377

Charlotte(7)

Charlotte

2,107,435

1,025,864

Triad Area

Greensboro/

1,469,394

625,148

Winston-Salem

Hickory(8)

Hickory

345,317

97,216

LEAP WIRELESS INTERNATIONAL, INC.

SUPPLEMENTARY DISCLOSURES
40 MARKET PLAN (cont.)

Launched

as of

Licensed POPs

Covered POPs

State

Market

BTA

12/31/01

(2001 est.) (1)

Lincoln(9)

Lincoln

349,510

197,370

Omaha(10)

Omaha

998,073

567,720

Albuquerque(4) (11)

Albuquerque

842,451

646,759

Santa Fe(12)

Santa Fe

222,016

91,743

Reno-Sparks and

Reno

601,268

351,108

Carson City

Buffalo

1,212,839

962,820

Syracuse

780,393

513,720

Dayton

Dayton/Springfield

1,221,056

858,783

Toledo

789,824

510,564

Sandusky

139,491

74,070

Tulsa

958,093

627,841

Eugene(13)

Eugene

325,831

246,192

Salem(14)

Salem

534,999

249,958

Pittsburgh

2,469,722

2,264,798

Chattanooga(4)

Chattanooga

572,258

327,581

Knoxville

1,130,516

484,568

Memphis

1,565,645

976,263

Middle Tennessee(4)

Nashville

1,785,651

1,017,184

Clarksville

268,476

120,806

Wasatch Front

Salt Lake City/Ogden

1,652,234

1,372,417

Provo

384,722

328,395

Spokane

751,212

469,888

Total

38,372,412

25,239,858

(1)		Information relating to population and potential customers is based on 2001 population estimates provided by Easy Analytic Software, Inc. (EASI).




(2)		“Sister City” calling plan available with Northwest Arkansas market.




(3)		“Sister City” calling plan available with Fort Smith market.




(4)		Slice market.




(5)		“Sister City” calling plan available with Northern Colorado market.

(6)		“Sister City” calling plan available with Denver market.




(7)		“Sister City” calling plan available with Hickory market.




(8)		“Sister City” calling plan available with Charlotte market.




(9)		“Sister City” calling plan available with Omaha market.




(10)		“Sister City” calling plan available with Lincoln market.




(11)		“Sister City” calling plan available with Santa Fe market.




(12)		“Sister City” calling plan available with Albuquerque market.




(13)		“Sister City” calling plan available with Salem market.




(14)		“Sister City” calling plan available with Eugene market.

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: February 11, 2002	LEAP WIRELESS INTERNATIONAL, INC.









	By:	/s/ THOMAS D. WILLARDSON

		Thomas D. Willardson Senior Vice President, Finance and Treasurer

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