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


Form 8-K/A
(Amendment No. 1)

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

Date of Report (Date of earliest event reported): October 24, 2001

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

         
Delaware
 
0-29752
 
33-0811062
(State or Other Jurisdiction
 
(Commission File Number)
 
(I.R.S. Employer Identification No.)
of Incorporation)
 
 
 
 
     
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 Amendment No. 1 to Current Report on Form 8-K/A is filed by Leap Wireless International, Inc., a Delaware corporation (“Leap” or the “Company”), to correct the following information contained in the supplementary disclosures included in the Company’s Form 8-K dated October 24, 2001 reporting results for the third quarter of fiscal year 2001:

       (a)    The entry in the column headed “Launched as of 9/30/01” in the Supplementary Disclosures, 40 Market Plan table, with respect to Salem, Oregon, which was launched 10/18/01; and
 
       (b)    The “Licensed POPs (2001 est.)” reported in the Supplementary Disclosures, 40 Market Plan table, replacing 1998 POP estimates with 2001 POP estimates.

Item 5. Other Events.

     On October 24, 2001, Leap announced its financial and certain other operational results for the quarter ended September 30, 2001 as set forth below.

     The Company reported that during the quarter, it added more than one quarter million net new customers to its Cricket service, bringing the total customers using Cricket service to more than 724,000 at the end of the third fiscal quarter of 2001, representing a 90% quarter-over-quarter increase in net additions. Leap ended the quarter with service offered in 25 markets across the country.

     Cricket operational highlights from the third quarter of 2001 included:

          Leap launched an additional five markets — Phoenix, Arizona; Fayetteville, Arkansas; Denver, Colorado; Boise, Idaho; and Dayton, Ohio—bringing the total potential customers covered by Cricket service to approximately 19.5 million (2001 POPs) at the end of the quarter. After the end of the quarter, Leap launched Cricket service in Omaha, Nebraska and Salem, Oregon and expects to launch service in its Reno, Nevada and Toledo, Ohio markets on October 25, 2001.
 
          Billed average revenue per user per month (ARPU) across all of Leap’s operational markets rose to approximately $37, compared to the approximately $36 reported for the second quarter of 2001.
 
          Overall cost per gross customer addition (CPGA), including pre-launch marketing expenses, was approximately $243.

     Key financial performance measures for the third fiscal quarter were as follows:

          Total operating revenues for Leap’s U.S. operations were $66.7 million, an increase of $18.9 million over the $47.8 million reported for the previous quarter. Service revenue rose to $57.2 million, an increase of 45 percent over that reported for the second fiscal quarter of 2001.
 
          Consolidated operating loss before interest, taxes, depreciation and amortization (EBITDA), was $85.3 million, an increase from the EBITDA loss of $56.6 million reported for the previous quarter. Cricket’s rapid growth during the third quarter was the primary factor in the increase in the consolidated EBITDA loss during the third quarter.
 
          Leap’s consolidated net loss was $160.7 million, or $4.43 per share, compared to a net loss of $128.5 million, or $3.91 per share, in the prior quarter, also largely as a result of Cricket’s rapid growth during the third quarter. Of the $4.43 net loss per share reported in the third quarter, $0.39 was the result of Leap’s share of losses for Pegaso Telecomunicaciones, S.A. de C.V. (“Pegaso”), the Mexican wireless company in which Leap has a 20% stake, recognized under the equity method of accounting.

 


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          Leap’s total cash and cash equivalents, investments, and deposits on pending wireless license acquisitions as of September 30, 2001 were $430.7 million.
 
          Leap’s property and equipment, net of depreciation, rose to $858.3 million at September 30, 2001, an increase of $171.8 million over that reported at June 30, 2001.

Other Highlights:

          Slice Milestones — During the third quarter, Leap expanded both the markets served and the content provided by Slice, the first product offered by its subsidiary, the Telephone Entertainment Network, Inc. Slice service delivers short “voice clips” of local news and events, movie reviews, sports, weather, traffic, bargains and more directly to customers’ wireless phones before their local calls connect. During the third quarter, Leap launched Slice in two new markets, Phoenix, Arizona and Albuquerque, New Mexico, bringing the total markets in which this service is offered to four, including Chattanooga and Nashville, Tennessee, where Slice was launched in the second quarter of 2001. Leap has signed an agreement between the Telephone Entertainment Network and Metro Networks, a wholly-owned subsidiary of Westwood One, which is a leading provider of content and information. Under the agreement, Westwood One provides Leap with feeds of regularly updated local and national content for its Slice customers, including news, traffic, weather and sports updates tailored to specific local markets. Leap has added advertisers using Slice service to promote their businesses, ending the quarter with a total of 62 advertisers, including major national brands as well as regional and local retail locations, in the four markets in which Slice is offered. During the third fiscal quarter, Leap also received its first subscriber based revenue from Slice, which is currently available to Cricket customers in the four markets in which Slice is offered for $2.95 per month after a 60-day free trial period. At the end of the third quarter, the average conversion rate of customers after their 60-day free trial was approximately 33 percent.
 
          Spectrum — During the third fiscal quarter, Leap, as part of its plan to maximize the value of its spectrum assets, announced that it signed an agreement to sell 15 MHz of its spectrum in Salt Lake City and Provo, Utah, to Cingular Wireless for $140 million in cash. Leap will retain 15 MHz of spectrum, which Leap believes is adequate for its needs in this market. In October, the Federal Communications Commission (FCC) approved the transfer of these licenses to Cingular Wireless and Leap expects this sale to close in the fourth quarter.
 
          International Operations — Pegaso reported that its customer base grew to more than 791,000 at the end of September 2001. During the third quarter, Leap invested an additional $10.5 million in Pegaso as part of the $29.4 million Leap committed to invest into the Mexican wireless carrier to support its future growth and working capital needs. This additional investment brings Leap’s total investment in Pegaso under this additional commitment to $20.5 million.

 


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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,” “may,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “seek,” “plan,” “expect,” “should,” “would” and similar expressions. This report is based on current information, which we have assessed but which by its nature is dynamic and subject to rapid and even abrupt changes. Our actual results could differ materially from those stated or implied by such forward-looking statements due to risks and uncertainties associated with our business. Factors that could cause actual results to differ include, but are not limited to: changes in the economic conditions of the various markets our subsidiaries serve which could adversely affect the market for wireless services; our ability to access capital markets; a failure to meet the operational, financial or other covenants contained in our credit facilities; our ability to rollout networks in accordance with our 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 our product offering by our target customers; our ability to retain customers; our ability to maintain our 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; our ability to integrate the businesses and technologies we acquire; rulings by courts or the FCC adversely affecting our rights to own and/or operate certain wireless licenses; and other factors detailed in the section entitled “Risk Factors” included in our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2001 and in our 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. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 


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LEAP WIRELESS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)

                     
        September 30,   December 31,
        2001   2000
       
 
        (Unaudited)        
Assets
               
Cash and cash equivalents
  $ 300,303     $ 338,878  
Restricted cash equivalents
          13,575  
Short-term investments
    42,189       199,106  
Inventories
    34,831       9,032  
Notes receivable, net
    33,284       138,907  
Other current assets
    15,833       12,746  
 
   
     
 
   
Total current assets
    426,440       712,244  
Property and equipment, net
    858,258       430,193  
Investment in unconsolidated wireless operating company
          34,691  
Wireless licenses, net
    687,634       265,635  
Goodwill and other intangible assets, net
    45,298       30,297  
Restricted investments
    54,182       51,896  
Deposits for wireless licenses
    85,000       91,772  
Other assets
    31,458       30,679  
 
   
     
 
   
Total assets
  $ 2,188,270     $ 1,647,407  
 
   
     
 
Liabilities and Stockholders’ Equity
               
Accounts payable and accrued liabilities
  $ 72,922     $ 58,735  
Other current liabilities
    103,234       65,690  
 
   
     
 
   
Total current liabilities
    176,156       124,425  
Long-term debt
    1,510,161       897,878  
Other long-term liabilities
    66,173       41,846  
 
   
     
 
   
Total liabilities
    1,752,490       1,064,149  
 
   
     
 
Stockholders’ equity:
               
 
Preferred stock
           
 
Common stock
    3       3  
 
Additional paid-in capital
    1,147,032       893,401  
 
Unearned stock-based compensation
    (6,201 )     (10,019 )
 
Accumulated deficit
    (706,555 )     (302,898 )
 
Accumulated other comprehensive income
    1,501       2,771  
 
   
     
 
   
Total stockholders’ equity
    435,780       583,258  
 
   
     
 
   
Total liabilities and stockholders’ equity
  $ 2,188,270     $ 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   Nine Months Ended
           
 
            September 30,
           
            2001   2000   2001   2000
           
 
 
 
Revenues:
                               
 
Service revenues
  $ 57,240     $ 5,296     $ 122,449     $ 31,542  
 
Equipment revenues
    9,453       2,244       28,843       4,513  
 
   
     
     
     
 
       
Total revenues
    66,693       7,540       151,292       36,055  
 
   
     
     
     
 
Operating expenses:
                               
 
Cost of service
    (27,297 )     (5,506 )     (57,003 )     (14,276 )
 
Cost of equipment
    (53,197 )     (4,883 )     (116,632 )     (30,845 )
 
Selling and marketing
    (32,181 )     (4,113 )     (70,982 )     (15,730 )
 
General and administrative
    (39,290 )     (15,061 )     (96,691 )     (57,445 )
 
Depreciation and amortization
    (33,494 )     (3,573 )     (68,792 )     (17,251 )
 
   
     
     
     
 
       
Total operating expenses
    (185,459 )     (33,136 )     (410,100 )     (135,547 )
 
   
     
     
     
 
 
Operating loss
    (118,766 )     (25,596 )     (258,808 )     (99,492 )
Equity in net loss of investments in and loan
receivable from unconsolidated wireless
operating companies
    (14,264 )     (25,249 )     (57,562 )     (72,001 )
Interest income
    4,850       16,934       23,623       33,938  
Interest expense
    (44,258 )     (28,437 )     (123,709 )     (80,908 )
Foreign currency transaction gains (losses)
    136       1,378       (1,139 )     13,099  
Minority interest
                      1,762  
Gain on sale of subsidiary
                      313,432  
Gain on issuance of stock by unconsolidated
wireless operating company
          6,898             32,602  
Other income, net
    12,405             15,981       216  
 
   
     
     
     
 
     
Income (loss) before income taxes and
extraordinary items
    (159,897 )     (54,072 )     (401,614 )     142,648  
Income taxes
    (845 )           (2,043 )     (34,548 )
 
   
     
     
     
 
Income (loss) before extraordinary items
    (160,742 )     (54,072 )     (403,657 )     108,100  
Extraordinary loss on early extinguishment of debt
                      (4,737 )
 
   
     
     
     
 
     
Net income (loss)
  $ (160,742 )   $ (54,072 )   $ (403,657 )   $ 103,363  
 
   
     
     
     
 
Basic net income (loss) per common share:
                               
   
Income (loss) before extraordinary items
  $ (4.43 )   $ (2.04 )   $ (12.27 )   $ 4.35  
   
Extraordinary loss
                      (0.19 )
 
   
     
     
     
 
Net income (loss)
  $ (4.43 )   $ (2.04 )   $ (12.27 )   $ 4.16  
 
   
     
     
     
 
Diluted net income (loss) per common share:
                               
   
Income (loss) before extraordinary items
  $ (4.43 )   $ (2.04 )   $ (12.27 )   $ 3.36  
   
Extraordinary loss
                      (0.15 )
 
   
     
     
     
 
Net income (loss)
  $ (4.43 )   $ (2.04 )   $ (12.27 )   $ 3.21  
 
   
     
     
     
 
Shares used in per share calculations:
                               
 
Basic
    36,310       26,524       32,909       24,826  
 
   
     
     
     
 
 
Diluted
    36,310       26,524       32,909       32,134  
 
   
     
     
     
 

 


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LEAP WIRELESS INTERNATIONAL, INC.

SUPPLEMENTARY DISCLOSURES
OPERATIONAL METRICS
(UNAUDITED)

                           
      As of and for the Quarter Ended
     
      September 30,   June 30,   March 31,
      2001   2001   2001
     
 
 
Gross additions
    301,189       179,883       163,929  
Deactivations
    48,792       47,026       17,364  
Net additions
    252,397       132,857       146,565  
End of period customers
    724,458       472,061       339,204  
Weighted average customers
    560,544       394,124       262,048  
CPGA
  $ 243     $ 245     $ 214  
 
Equipment subsidy associated with
customer gross additions (in 000s)
  $ 42,106     $ 23,063     $ 18,636  
 
Selling & marketing associated with
customer gross additions (in 000s)
  $ 31,209     $ 20,985     $ 16,504  
Covered POPs (2001 estimate in millions)
    19.5       12.9       9.5  
Penetration of covered POPs
    3.7 %     3.7 %     3.6 %
Cumulative markets launched
    25       20       14  
Cumulative BTAs launched
    28       23       17  
Cell sites in service
    1,562       1,132       753  

 


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LEAP WIRELESS INTERNATIONAL, INC.

SUPPLEMENTARY DISCLOSURES
40 MARKET PLAN

                             
            Launched as of   Licensed POPs   Covered POPs
State   Market   BTA   9/30/01   (2001 est.) (1)   (2001 est.) (1)

 
 
 
 
 
AR   Central Arkansas   Little Rock
Pine Bluff
Hot Springs
 
X

X
    971,470 154,091 140,502       413,673 64,331 49,263  
    Fort Smith   Fort Smith(2)  
X
    330,029       112,735  
    Jonesboro   Jonesboro  
 
    182,637       93,122  
    Northwest Arkansas   Fayetteville(3)  
X
    332,638       182,644  
AZ   Phoenix   Phoenix(4)  
X
    3,539,920       2,951,523  
    Tucson   Tucson  
X
    857,246       756,722  
CA   Modesto-Merced   Modesto
Merced
 
 
    507,765 230,409       348,579 153,741  
    Visalia   Visalia  
 
    503,948       352,844  
CO   Denver   Denver/Boulder  
X
    2,759,099       2,279,310  
    North Colorado   Ft. Collins
Greeley
 
 
    256,324 184,429       213,919 145,495  
    Pueblo   Pueblo  
X
    316,376       127,964  
GA   Columbus   Columbus  
X
    366,390       182,420  
    Macon   Macon  
X
    668,632       229,179  
ID   Boise   Boise  
X
    596,255       369,827  
KS   Wichita   Wichita  
X
    660,794       512,300  
MI   Kalamazoo and   Kalamazoo  
 
    379,353       181,103  
    Battle Creek   Battle Creek  
 
    241,424       78,530  
    Flint   Flint  
 
    508,496       319,481  
    Jackson   Jackson  
 
    205,759       112,377  
NC   Charlotte   Charlotte  
X
    2,107,435       1,025,864  
    Triad Area   Greensboro/
Winston-Salem
 
X
    1,469,394       625,148  
    Hickory   Hickory(5)  
X
    345,317       97,216  

 


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LEAP WIRELESS INTERNATIONAL, INC.

SUPPLEMENTARY DISCLOSURES
40 MARKET PLAN (cont.)

                             
            Launched as of   Licensed POPs   Covered POPs
State   Market   BTA   9/30/01   (2001 est.) (1)   (2001 est.) (1)

 
 
 
 
 
NE   Lincoln   Lincoln         349,510       197,370  
    Omaha   Omaha         998,073       567,720  
NM   Albuquerque   Albuquerque(4) (6)  
X
    842,451       646,759  
    Santa Fe   Santa Fe(7)  
X
    222,016       91,743  
NV   Reno-Sparks and   Reno  
 
    601,268       351,108  
    Carson City      
 
               
NY   Buffalo   Buffalo  
 
    1,212,839       962,820  
    Syracuse   Syracuse  
 
    780,393       513,720  
OH   Dayton   Dayton/Springfield  
X
    1,221,056       858,783  
    Toledo   Toledo
Sandusky
        789,824 139,491       510,564 74,070  
OK   Tulsa   Tulsa  
X
    958,093       627,841  
OR   Eugene   Eugene  
 
    325,831       246,192  
    Salem   Salem  
 
    534,999       249,958  
PA   Pittsburgh   Pittsburgh  
X
    2,469,722       2,264,798  
TN   Chattanooga   Chattanooga(4)  
X
    572,258       327,581  
    Knoxville   Knoxville  
X
    1,130,516       484,568  
    Memphis   Memphis  
X
    1,565,645       976,263  
    Middle Tennessee   Nashville(4)
Clarksville
 
X
X
    1,785,651 268,476       1,017,184 120,806  
UT   Wasatch Front   Salt Lake City/Ogden
Provo
 
X
X
    1,652,234 384,722       1,372,417 328,395  
WA   Spokane   Spokane  
X
    751,212       469,888  
   
 
 

   
     
 
Total   40   48  
28
  38,372,412     25,239,858  

 


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(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 Charlotte market.
(6)   “Sister City” calling plan available with Santa Fe market.
(7)   “Sister City” calling plan available with Albuquerque market.

###

 


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