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Monday October 11, 7:30 am Eastern Time
Company Press Release
SOURCE: Leap Wireless International, Inc.
Leap Wireless International Reports Results for Fourth Quarter And Fiscal Year 1999; Significant Milestones Achieved in Leap's First Year of Operation
SAN DIEGO, Oct. 11 /PRNewswire/ -- Wireless carrier Leap Wireless International, Inc. (Nasdaq: LWIN - news) today reported significant progress in network deployment and subscriber growth during its first year as an independent, publicly traded company. At the end of Leap's first fiscal year, international and domestic subscribers had grown to nearly 60,000 -- 42,000 in Chile, 12,400 in the United States and the balance in Mexico, primarily from its first market in Tijuana. Leap's proportionate share of the total subscriber base was 44,500 based on Leap's 100 percent ownership of Chilesat PCS, 28.6 percent ownership of PEGASO, and its 7.2 percent stake in Chase Telecommunications, Inc. (ChaseTel). Total subscriber growth in the fourth quarter was 17,500, representing a 68 percent increase over the previous quarter.
''This is only the beginning,'' said Harvey P. White, chairman and CEO of Leap. ''During this past year we have made significant progress towards our three major goals. We launched new wireless service through each of our operating companies. We strengthened our corporate and operational teams in all markets. We also increased shareholder value in the face of difficult financial markets for start-up telecommunications companies. I am very proud of what Leap has accomplished this past year,'' continued White. ''Through dedication and hard work, we have laid the foundation for a promising future. Although we have many challenges ahead that will keep us busy well into the next millennium, our performance this past year has positioned Leap for more success going forward.''
Leap led the effort to ensure that the necessary financial support was in place as its operating companies launched commercial service in the United States, Mexico and Chile in the past year. Leap believes its track record is especially significant given the financial turmoil in emerging markets at the time of Leap's spin-off from QUALCOMM Incorporated on September 23, 1998.
Domestically, Leap's operating company, ChaseTel, added 3,700 subscribers to its Chattanooga network during Leap's fourth quarter, closing the fiscal year with approximately 12,400 total subscribers and bringing ChaseTel's total penetration of the Chattanooga market to 4.0 percent. Leap's domestic service concept, Cricket(SM), was launched in Chattanooga, Tenn., in March 1999, using ChaseTel's infrastructure and licenses under an agreement that provides that ChaseTel controls the business until Leap's proposed acquisition of ChaseTel is complete. In late September, Leap filed and application with the FCC to approve the transfer of ChaseTel's licenses to Leap.
Construction of Nashville is underway and is expected to launch by early 2000. Subsequent to the end of the fiscal year, Leap announced that it had agreed to purchase over $660 million in infrastructure equipment and services from Lucent Technologies and Ericsson. Both Lucent and Ericsson have agreed to finance the sale of equipment and related services to Leap as well as additional working capital that Leap intends to use to develop wireless networks in various markets across the U.S. These agreements are part of Leap's strategy to work with multiple world-class vendors. The Ericsson financing agreement is subject to Ericsson obtaining the approval of its board of directors.
In total, Leap has licenses or rights to acquire licenses to offer Cricket service to approximately 24 million potential subscribers (1998 POPs). Leap plans to launch Cricket in numerous markets across the country, including cities such as Albuquerque, N.M., Dayton, Ohio, Greensboro, N.C., Little Rock, Ark., Nashville, Tenn., Salt Lake City, Utah, Spokane, Wash., Tucson, Ariz., Tulsa, Okla., and Wichita, Kans. In July, the FCC issued a Memorandum Opinion and Order that conditionally found that Leap was qualified to acquire and operate C- and F-Block PCS spectrum licenses. The Order also approved the transfer of wireless licenses in North Carolina and South Carolina to Leap and granted Leap's application to acquire the licenses in 36 additional U.S. markets in which it was the winning bidder in the recent FCC re-auction of PCS spectrum. As previously announced, another wireless company has filed an application for review of the FCC Memorandum Opinion and Order. Leap believes, however, that the FCC's July order will be affirmed. In early October the FCC issued the licenses Leap had won in the spectrum reauction.
In July, Leap appointed Susan G. Swenson as president of Leap and CEO of Cricket Communications, Inc., a Leap subsidiary. Swenson was also recently named COO of Leap. Swenson was previously president and CEO of Cellular One, the joint venture between Vodaphone AirTouch and AT&T Wireless, and previously held executive, operational and marketing positions at Pacific Bell and PacTel Cellular.
''I am very pleased with the performance of the Cricket service during its first two quarters of operation,'' said Swenson. ''We have demonstrated that Cricket can meet its cost objectives and deliver high-quality wireless service to the mass consumer market. Our mission now is to concentrate on deploying Cricket throughout our licensed markets. The signing of the infrastructure agreements with Lucent and Ericsson is a crucial step forward in meeting this goal.''
Internationally, Leap's Mexican joint venture, PEGASO, continued its march toward building a national system. In addition to its February launch of Tijuana, it launched service in Guadalajara in late August, 5 days before the end of the fiscal year, and in Monterrey immediately thereafter. Pegaso also made significant progress in the build-out of Mexico City. Subscriber growth continued to be strong in the fourth quarter, with PEGASO adding 2,700 customers primarily in Tijuana, bringing the total number of subscribers on its network to 5,500.
''We are very pleased with the progress we have made in Mexico,'' said Thomas J. Bernard, Leap's vice-chairman and president, international business division. ''PEGASO is committed to providing the best possible service to its subscribers, and the introduction of per-second billing during the launch of Guadalajara has had a positive impact in the marketplace. PEGASO has experienced rapid subscriber growth since launching in Guadalajara in late August and Monterrey in September. PEGASO's subscriber base should continue its rapid expansion with the upcoming addition of Mexico City.''
Leap's Chilean operations also made significant progress. Since acquiring full control of Chilesat PCS when Leap bought out its former 50 percent partner in April 1999, Leap has greatly enhanced the management team and expanded its network. Leap is now poised to aggressively grow the business. However, Chilesat added 11,400 subscribers in the fourth quarter raising its total subscriber base to 42,000 at the end of the fiscal year.
''With Chilesat, we have worked very hard this last quarter to re-build the foundation upon which we can grow our business,'' continued Bernard. ''We have strengthened our management team, making strategic new appointments to the positions of CEO, chief commercial officer, chief technical officer and chief information officer. In addition, we have re-energized our marketing efforts following our purchase of Telex-Chile's 50 percent stake in Chilesat and are in the process of adding capacity to our network. These efforts have begun to pay off, as evidenced by the increase in subscribers this quarter.''
In August 1999, Leap sold its wholly owned Australian subsidiary, OzPhone, Pty. Ltd., for $16.0 million. Leap had invested approximately $6.9 million in OzPhone prior to the sale. Leap concluded that it could achieve greater shareholder return through this sale than it could through years of continued investment in and development of OzPhone. Although OzPhone owned spectrum, it had not yet introduced service.
In September, subsequent to the fourth quarter, Leap announced that the board of directors of the Transworld Companies had voted to liquidate those companies and distribute the assets to the shareholders. The Transworld Companies are partially owned subsidiaries of Orrengrove Investments Ltd., a company in which Leap owns a minority, non-controlling indirect interest. The Transworld Companies, which have been seeking to establish a domestic long-distance business in Russia, faced a setback when a satellite they relied on failed in April 1999. The boards of the Transworld Companies had reviewed a series of alternate business plans, but the combination of the stresses on the Russian economy and the absence of a unique business opportunity led the boards to determine that the proposed plans could not meet minimum financial performance criteria necessary to pursue the long-distance business at this time.
In an unrelated development, Leap also announced it had ceased funding loans to Metrosvyaz, a company in which Leap holds a non-controlling minority interest, which is attempting to establish joint ventures in Russia to operate wireless telecommunications companies. Leap stopped funding loans because Metrosvyaz had not satisfied certain conditions to funding and is now in default under its loan agreement. A special audit conducted by Leap and its attorneys disclosed serious irregularities at Metrosvyaz, including unaccounted for funds and questionable contracts and payments. As a result, Leap has initiated arbitration under its agreements with Metrosvyaz seeking damages from Metrosvyaz and one of its directors.
As a result of the vote to liquidate the Transworld Companies and Leap's decision to cease funding Metrosvyaz, Leap wrote-off approximately $17.6 million and $9.6 million for Transworld and Metrosvyaz, respectively, in the fourth quarter. These actions reduced Leap's indirect investment in the Transworld Companies to the liquidation proceeds Leap expects to receive and wrote-off Leap's remaining investment balance in Metrosvyaz. Through holding companies, Leap indirectly owns 21 percent of the Transworld Companies and 35 percent of Metrosvyaz.
Operating revenues for Leap Wireless' consolidated and unconsolidated operating companies for the fourth quarter of fiscal 1999 rose to $5.9 million, a 47 percent increase from the prior quarter. Leap Wireless began fully consolidating Chilesat beginning in the fourth quarter of fiscal 1999, recognizing $3.9 million of these operating revenues in the consolidated financial statements. No revenues were reported prior to the fourth quarter. Cost of operating revenues and depreciation and amortization in fiscal 1999 primarily reflect the consolidation of Chilesat.
In Leap's first year of operations, general and administrative expenses was $24.2 million in fiscal 1999 (excluding $4.5 million of consolidated Chilesat expenses) compared to $23.9 million in fiscal 1998, an increase of less than 2 percent. General and administrative expenses (excluding consolidated Chilesat expenses) remained relatively flat, despite increased staffing as a result of Leap Wireless becoming a stand-alone entity.
Leap's share in the net loss of its unconsolidated operating companies was $100.3 million in fiscal 1999 compared to $23.1 million in fiscal 1998. The significant increase related primarily to the expenditures they incurred in launching their network services, including marketing and other expenses, and the amortization of their capitalized network costs. Equity in net loss of unconsolidated operating companies included a $16.9 million asset impairment charge in fiscal 1999 when the satellite the Transworld companies relied on failed in April 1999.
Leap's consolidated net loss for the fourth quarter of fiscal 1999 before the write-off of its Russian related investments was $47.4 million or $2.59 per share, compared to a net loss of $30.0 million in the same period in 1998. Leap's consolidated net loss for fiscal 1999 was $164.6 million or $9.19 per share, compared to $46.7 million or $2.65 per share in fiscal 1998. Per share net loss in fiscal 1998 and 1997 was calculated assuming that the 17.6 million shares of common stock issued by Leap upon its spin-off from QUALCOMM were outstanding during such periods. The results of Leap's foreign operating companies are as of and for the twelve months ended June 30, 1999, a two-month reporting lag.
About Leap Wireless International, Inc.
Leap Wireless International, Inc., headquartered in San Diego, California, is a wireless communications carrier that deploys, owns and operates wireless networks in domestic and international markets with strong growth potential. Through its operating companies, Leap has launched all-digital wireless service in the United States, Mexico and Chile. Leap is dedicated to bringing the benefits of reliable, cost-effective and high-quality voice and data services to domestic and emerging markets. For more information, please visit www.leapwireless.com.
This news release contains ''forward-looking statements,'' including statements regarding the roll-out plans of Leap's operating companies. Forward-looking statements, which are based upon certain assumptions and describe future plans, strategies and expectations of the Leap, are generally identifiable by use of the words ''believe,'' ''expect,'' ''intend,'' ''plan,'' ''anticipate,'' ''estimate,'' ''project'' or similar expressions. The ability of the Leap to predict actual results and other future events is inherently uncertain. Important factors which may cause actual results to differ materially from the forward-looking statements contained herein or in other public statements by the Company are described in the section entitled ''Risk Factors'' in the Leap's 1998 Annual Report on Form 10-K, and other documents on file with the Securities and Exchange Commission. Those factors most likely to cause actual results to differ include but are not limited to: uncertainties regarding the ability of Leap and its operating companies to raise sufficient capital for continued expansion and operation, and performance uncertainties and potential delays relating to the deployment of large scale construction projects.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited)
August 31,
1999 1998
ASSETS (Restated)
Cash and cash equivalents $26,215 $--
Accounts receivable, net 2,726 --
Inventories 5,410 --
Recoverable taxes 3,907 --
Other current assets 1,926 --
Total current assets 40,184 --
Property and equipment, net 116,947 --
Investments in and loans
receivable from
unconsolidated wireless
operating companies 94,429 150,914
Intangible assets, net 73,944 6,838
Deposits and other assets 9,827 --
Total assets $335,331 $157,752
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and
accrued liabilities $16,372 $5,789
Loans payable to banks 17,225 9,000
Total current liabilities 33,597 14,789
Long-term debt 221,812 --
Other long-term liabilities 8,504 --
Total liabilities 263,913 14,789
Minority interest in
consolidated subsidiary 518 --
Stockholders' equity:
Preferred stock --
authorized
10,000,000 shares
$.0001 par value, no
shares issued and
outstanding -- --
Common stock - authorized
75,000,000 shares;
$.0001 par value,
18,370,974 shares
issued and outstanding 2 --
Additional paid-in
capital 291,189 --
Former parent company's
investment -- 197,598
Accumulated deficit (216,896) (52,283)
Accumulated other
comprehensive loss (3,395) (2,352)
Total stockholders'
equity 70,900 142,963
Total liabilities and
stockholders' equity $335,331 $157,752
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
Year Ended August 31,
1999 1998 1997
(Restated) (Restated)
Operating revenues $3,907 $-- $--
Operating expenses:
Cost of operating revenues (3,810) -- --
Selling, general and
administrative expenses (28,745) (23,888) (1,361)
Depreciation and amortization (5,824) -- --
Total operating expenses (38,379) (23,888) (1,361)
Operating loss (34,472) (23,888) (1,361)
Equity in net loss of
unconsolidated wireless
operating companies (100,300) (23,118) (3,793)
Write-down of investments
in unconsolidated wireless
operating companies (27,242) -- --
Interest income 2,505 273 --
Interest expense and
amortization of discount
and facility fee (10,356) -- --
Foreign currency
transaction losses (7,211) -- --
Gain on sale of
wholly-owned subsidiary 9,097 -- --
Gain on issuance of stock
by unconsolidated wireless
operating company 3,609 -- --
Other income (expense), net (243) -- --
Net loss (164,613) (46,733) (5,154)
Basic and diluted net loss
per common share $(9.19) $(2.65) $(0.29)
Shares used to calculate basic
and diluted net loss per
common share 17,910 17,648 17,648
SOURCE: Leap Wireless International, Inc.
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