(LEAP LOGO)
EXHIBIT 99.1
Bock Communications, Inc. Leap contacts:
Stacee Lewis, Media Relations Kristin Atkins, Media Relations
714-540-1030 ext. 19 858-882-9105
slewis@bockpr.com katkins@leapwireless.com
Jim Seines, Investor Relations
858-882-6084
jseines@leapwireless.com
LEAP REPORTS RESULTS FOR SECOND FISCAL QUARTER OF 2004
~ Quarter-over-Quarter Improvements in Service Revenue and EBITDA Highlight
Underlying Strength of Business ~
SAN DIEGO - August 12, 2004 - Leap Wireless International, Inc., a leading
provider of innovative and value-driven wireless communications services, today
announced strong financial and operating results for the second quarter of 2004,
which continue to reflect broadly improved performance across the Company's
operations. Total consolidated revenues for the second quarter were $205.7
million, compared to the $185.6 million of total consolidated revenues reported
for the second quarter of 2003. Consolidated operating loss for the second
quarter was $15.0 million, compared to the $227.7 million of consolidated
operating loss reported for the second quarter of 2003. Consolidated net loss
for the second quarter was $18.1 million, compared to the $243.7 million of
consolidated net loss reported for the second quarter of 2003. Consolidated
earnings before interest, taxes, depreciation and amortization (EBITDA) for the
second quarter of 2004 were $61.7 million, compared to the consolidated EBITDA
loss of $155.4 million for the second quarter of 2003, which included charges of
$181.0 million relating to impairments of the Company's wireless licenses and
network assets. During the second quarter of 2004, Leap's Cricket operations
added approximately 9,000 net new subscribers to end the period with
approximately 1,547,000 total customers, and had a customer churn rate of 3.7%.
"The improvements in EBITDA performance we have reported to date highlight the
major strides we have taken to deliver significant reductions to our cost
structure while improving our top-line service revenue," said Bill Freeman,
chief executive officer of Leap. "The success of our business model is
underscored by the operating margins we have delivered through the further
improvement to our cash costs per user. The results of the second quarter show
that we will soon emerge from our restructuring as a strong, financially capable
company with one of the lowest cost structures in the industry and a
differentiated service offering that meets the needs
Leap Reports Results for Second Fiscal Quarter of 2004 Page 2 of 14
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of the value-conscious segments of the market. In addition, our strengthened
balance sheet will provide us with an excellent foundation for continuing to
build the business as we emerge from the restructuring with a significant cash
balance and leverage ratios among the lowest in the industry. I believe that the
results we are reporting today clearly illustrate that we have delivered on our
commitments by maintaining a strict focus on the basics and continuing to
execute well on a reasonable growth strategy. I am excited about the future of
our business as we prepare for the next stage in the Company's development."
Freeman continued, "With five years of experience since launching our Cricket
service, we have developed a deep understanding of the market segments we serve.
To maintain our position as a high-value, low-cost leader in the wireless
industry, we intend to remain firmly focused on the fundamentals. Over the
coming months, our plan is to build on our business by developing new services
that are designed to reinforce the core value of our Cricket(R) service and thus
contribute to the growth of our current markets as these services become
available to and are accepted by our customers. We also expect to carefully
evaluate strategic expansion opportunities that are complementary to our
business strategy."
Key operational and financial performance measures for the second quarter of
2004 were as follows:
- - Average revenue per user per month (ARPU), based on service revenue, was
$37.28, an improvement of $0.80 from the ARPU of $36.48 for the second
quarter of 2003.
- - Overall non-selling cash costs per user per month (CCU) for Leap's
consolidated business was $18.47, an improvement of $5.08 from the CCU of
$23.55 reported for the second quarter of 2003.
- - Cost per gross customer addition (CPGA) was $141, a notable improvement of
$53 from the CPGA of $194 reported for the second quarter of 2003.
- - Churn was 3.7%, an improvement from the churn of 4.6% reported for the second
quarter of 2003.
- - Average minutes of use per customer per month (MOU) was approximately 1,500,
compared to the approximately 1,300 reported for the second quarter of 2003.
Leap Reports Results for Second Fiscal Quarter of 2004 Page 3 of 14
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- - Cash paid for property and equipment (cash capital expenditures) was $14.3
million for the second quarter of 2004, bringing cash capital expenditures
for the first half of 2004 to $30.4 million. The cash capital expenditures
of $14.3 million reported for the second quarter of 2004 included a $4
million one-time benefit related to a cash settlement with a key equipment
vendor.
Upon the adoption of Emerging Issues Task Force (EITF) Issue No. 00-21,
"Accounting for Revenue Arrangements with Multiple Deliverables" on July 1,
2003, the Company began reporting activation fees as equipment revenue, which
reduced ARPU and CPGA by $1 and $24, respectively, for the three months ended
June 30, 2004, compared to the ARPU and CPGA results that would have been
reflected if EITF Issue No. 00-21 had not been adopted.
"The results of the second quarter reflect the principal benefits of the
Company's cost reduction efforts during the restructuring process and underscore
the financial and operational strength of our business," said Doug Hutcheson,
Leap's executive vice president and CFO. "While we expect to explore every
avenue available to us to improve our performance through further cost
reductions, we believe that the implementation of strategies that are designed
to increase customer growth and service revenue are important to the continued
improvement in our operating margins. In addition, we intend to take actions to
optimize our capital structure, to lower our cost of capital, and to provide the
Company with the financial flexibility that will support the measured, strategic
expansion of our business."
On August 5, 2004, Leap announced that the Federal Communications Commission
(FCC) issued an order approving the change of control of its wireless licenses,
clearing the way for the Company's emergence from Chapter 11. As a result of the
FCC's order and a concurrent settlement agreement with the FCC, on the effective
date of the Plan of Reorganization the Company will pay the FCC approximately
$36.7 million for unpaid principal and approximately $8.3 million of accrued
interest in connection with the reinstatement of the Company's FCC debt, and
approximately $278,000 of unjust enrichment penalties. The order and settlement
agreement also require the Company to repay approximately $40 million in
principal amounts that will remain outstanding on the effective date of the Plan
of Reorganization, plus accrued interest, to the FCC in installments scheduled
for April and July 2005. The Company also agreed in the settlement agreement to
use reasonable efforts to complete a debt offering on or prior to January 31,
2005 generating net proceeds sufficient to repay the $350 million of senior
secured
Leap Reports Results for Second Fiscal Quarter of 2004 Page 4 of 14
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pay-in-kind notes that the Company will issue upon its emergence from bankruptcy
and the Company's indebtedness to the FCC. The Company expects to emerge from
bankruptcy during the week of August 16, 2004.
As previously announced, the Company's confirmed Plan of Reorganization includes
the cancellation of all issued and outstanding common stock (which currently
trades on the OTC Bulletin Board under the symbol LWINQ), warrants and options.
The holders of Leap common stock, warrants and options will receive no
distributions under the Plan of Reorganization. On emergence, reorganized Leap
will issue 60 million shares of new common stock to two classes of the Company's
creditors. Holders of Cricket's senior secured vendor debt claims will receive,
on a pro rata basis, 96.5% of the issued and outstanding shares of new Leap
common stock on the effective date of the Plan of Reorganization as well as new
senior secured pay-in-kind notes with an aggregate face value of $350 million.
Reorganized Leap will issue the remaining 3.5% of its outstanding shares of new
Leap common stock to the Leap Creditor Trust for distribution to holders of
allowed Leap general unsecured claims on a pro rata basis, and will transfer
other assets to the Leap Creditor Trust as specified in the Plan of
Reorganization which are then to be liquidated, with the cash proceeds from such
liquidation to be distributed to the holders of allowed Leap general unsecured
claims. Leap expects that its new common stock will be quoted for trading on the
OTC Bulletin Board under a new ticker symbol. The Company anticipates that it
will apply for listing on the NASDAQ National Market System upon satisfaction of
the listing criteria established by NASDAQ, including a minimum number of round
lot shareholders.
In connection with its emergence from bankruptcy, the Company intends to adopt
fresh-start reporting, which will have a material effect on the Company's
condensed consolidated financial statements. As a result, the condensed
consolidated financial statements that the Company publishes for periods
following the effective date of the Plan of Reorganization will not be
comparable with those published before such date.
ABOUT LEAP
Leap, headquartered in San Diego, Calif., is a customer-focused company
providing innovative mobile wireless services that are targeted to meet the
needs of customers who are under-served by traditional communications companies.
With a commitment to predictability, simplicity and
Leap Reports Results for Second Fiscal Quarter of 2004 Page 5 of 14
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value as the foundation of our business, Leap pioneered Cricket(R) service, a
simple and affordable wireless alternative to traditional landline service.
Cricket(R) service offers customers unlimited anytime minutes within the
Cricket(R) calling area over a high-quality, all-digital CDMA network.
Cricket(R) service is available to customers in 39 markets in 20 states
stretching from New York to California. For more information, please visit
www.leapwireless.com.
NOTE REGARDING NON-GAAP FINANCIAL MEASURES
The information presented in this press release and in the attached financial
tables includes financial information prepared in accordance with generally
accepted accounting principles in the U.S., or GAAP, as well as other financial
measures that may be considered non-GAAP financial measures. Generally, a
non-GAAP financial measure, within the meaning of Securities and Exchange
Commission (SEC) Item 10 to Regulation S-K, is a numerical measure of a
company's financial performance that (a) excludes amounts, or is subject to
adjustments that have the effect of excluding amounts, that are included in the
comparable measure calculated and presented in accordance with GAAP in the
consolidated statement of operations or consolidated statement of cash flows; or
(b) includes amounts, or is subject to adjustments that have the effect of
including amounts, that are excluded from the comparable measure so calculated
and presented. As described more fully in the notes to the attached financial
tables, management supplements the information provided by financial statement
measures with several customer focused performance metrics that are widely used
in the telecommunications industry. EBITDA, CPGA, and CCU are non-GAAP financial
measures. Non-GAAP financial measures should be considered in addition to, but
not as a substitute for, the information prepared in accordance with GAAP.
Reconciliations of non-GAAP financial measures used in this release to the most
directly comparable GAAP financial measure can be found in the section entitled
"Notes to Condensed Consolidated Financial Statements" included toward the end
of this release.
Except for the historical information contained herein, this news release
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 news release 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:
Leap Reports Results for Second Fiscal Quarter of 2004 Page 6 of 14
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- - limitations on our ability to predict the future performance and actions of
Leap because we will have new stockholders and a new Board of Directors of
Leap if and when we emerge from bankruptcy, and they may implement changes in
the direction of our business that could cause actual results to differ
materially from those anticipated or implied in our forward-looking
statements;
- - our ability to successfully implement our Fifth Amended Joint Plan of
Reorganization dated as of July 30, 2003, including certain technical
amendments thereto, referred to herein as the Plan of Reorganization, which
has been confirmed by the United States Bankruptcy Court for the Southern
District of California, or the Bankruptcy Court;
- - our ability to continue as a going concern;
- - our ability to obtain Bankruptcy Court approval with respect to motions
prosecuted by us in our Chapter 11 cases from time to time;
- - risks associated with third parties seeking and obtaining Bankruptcy Court
approval to convert the Chapter 11 cases of Leap, Cricket and substantially
all of their subsidiaries to Chapter 7 cases if our Plan of Reorganization
does not become effective in a timely fashion;
- - the potential continuing adverse impacts of the Chapter 11 cases on the
liquidity or results of operations of Leap and Cricket and on our ability to
predict future customer growth and other key operating metrics;
- - our ability to attract and retain customers in an extremely competitive
marketplace;
- - our ability to attract, motivate and/or retain an experienced workforce;
- - changes in economic conditions that could adversely affect the market for
wireless services;
- - rulings or actions by courts or the FCC adversely affecting our rights to own
and/or operate certain wireless licenses;
- - failure of network systems to perform according to expectations;
- - global political unrest, including the threat or occurrence of war or acts of
terrorism; and
- - other factors detailed in the section entitled "Risk Factors" included in our
Quarterly Report on Form 10-Q for the three months ended June 30, 2004 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.
Leap and the Leap logo design are trademarks of Leap Wireless International,
Inc. Cricket and Comfortable Wireless are registered trademarks of Cricket
Communications, Inc. Cricket +1, Cricket +2, Cricket Unlimited and Cricket Multi
Value Plan are trademarks of Cricket Communications, Inc.
Leap Reports Results for Second Fiscal Quarter of 2004 Page 7 of 14
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LEAP WIRELESS INTERNATIONAL, INC.
(DEBTORS-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS)
JUNE 30, DECEMBER 31,
2004 2003
------------ ------------
ASSETS
Cash and cash equivalents ....................................... $ 138,581 $ 84,070
Short-term investments .......................................... 83,748 65,811
Restricted cash, cash equivalents and short-term investments .... 44,462 55,954
Funds distributed to Leap Creditor Trust ........................ 68,790 67,800
Inventories ..................................................... 31,219 17,680
Other current assets ............................................ 38,335 39,145
------------ ------------
Total current assets .......................................... 405,135 330,460
Property and equipment, net ..................................... 698,644 817,075
Wireless licenses, net .......................................... 561,630 560,056
Other assets .................................................... 53,946 49,252
------------ ------------
Total assets .................................................. $ 1,719,355 $ 1,756,843
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable and accrued liabilities ........................ $ 61,795 $ 64,485
Debt in default(1) .............................................. 74,779 74,112
Other current liabilities ....................................... 61,282 54,923
------------ ------------
Total current liabilities not subject to compromise ........... 197,856 193,520
Other long-term liabilities ..................................... 60,355 55,157
------------ ------------
Total liabilities not subject to compromise ................... 258,211 248,677
Liabilities subject to compromise(2) ............................ 2,401,438 2,401,522
Stockholders' deficit:
Preferred stock -- authorized 10,000,000 shares; $.0001 par
value, no shares issued and outstanding ....................... -- --
Common stock -- authorized 300,000,000 shares; $.0001 par
value, 58,704,224 issued and outstanding at June 30, 2004
and December 31, 2003 ......................................... 6 6
Additional paid-in capital ..................................... 1,155,237 1,156,410
Unearned stock-based compensation .............................. (72) (421)
Accumulated deficit ............................................ (2,094,606 (2,048,431)
Accumulated other comprehensive loss ........................... (859) (920)
------------ ------------
Total stockholders' deficit ................................... (940,294) (893,356)
------------ ------------
Total liabilities and stockholders' deficit ................... $ 1,719,355 $ 1,756,843
============ ============
Leap Reports Results for Second Fiscal Quarter of 2004 Page 8 of 14
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LEAP WIRELESS INTERNATIONAL, INC.
(DEBTORS-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Revenues:
Service revenues ............................ $ 172,025 $ 162,415 $ 341,076 $ 323,063
Equipment revenues .......................... 33,676 23,229 71,447 46,428
---------- ---------- ---------- ----------
Total revenues ............................. 205,701 185,644 412,523 369,491
Operating expenses:
Cost of service (exclusive of items shown
separately below) .......................... (47,827) (53,321) (95,827) (106,069)
Cost of equipment ........................... (40,635) (41,366) (84,390) (83,806)
Selling and marketing ....................... (21,939) (22,478) (45,192) (43,743)
General and administrative .................. (33,922) (40,569) (72,532) (87,983)
Depreciation and amortization ............... (76,026) (74,537) (151,487) (151,152)
Impairment of indefinite-lived intangible
assets ..................................... -- (171,140) -- (171,140)
Impairment of long-lived assets and related
charges .................................... (360) (9,913) (360) (18,638)
---------- ---------- ---------- ----------
Total operating expenses ................... (220,709) (413,324) (449,788) (662,531)
Gains on sale of wireless licenses ........... -- -- -- 1,472
---------- ---------- ---------- ----------
Operating loss .............................. (15,008) (227,680) (37,265) (291,568)
Interest income .............................. -- 85 -- 779
Interest expense (contractual interest expense
was $67.2 million and $61.8 million for the
three months ended June 30, 2004 and 2003,
respectively, and $133.6 million and $122.7
million for the six months ended June 30,
2004 and 2003, respectively) ................ (1,908) (11,804) (3,731) (79,951)
Other income (expense), net .................. (615) 100 (596) (168)
---------- ---------- ---------- ----------
Loss before reorganization items and income
taxes ....................................... (17,531) (239,299) (41,592) (370,908)
Reorganization items, net(3) ................. 1,313 (2,368) (712) (2,368)
---------- ---------- ---------- ----------
Loss before income taxes ..................... (16,218) (241,667) (42,304) (373,276)
Income taxes ................................. (1,927) (2,052) (3,871) (3,981)
---------- ---------- ---------- ----------
Net loss ................................... $ (18,145) $ (243,719) $ (46,175) $ (377,257)
========== ========== ========== ==========
Other comprehensive loss:
Unrealized holding gains (losses) on
investments, net ............................ (204) 211 61 85
---------- ---------- ---------- ----------
Comprehensive loss ........................ $ (18,349) $ (243,508) $ (46,114) $ (377,172)
========== ========== ========== ==========
Basic and diluted net loss per common share .. $ (0.31) $ (4.16) $ (.79) $ (6.44)
========== ========== ========== ==========
Shares used in per share calculations:
Basic and diluted ........................... 58,622 58,595 58,621 58,595
========== ========== ========== ==========
Leap Reports Results for Second Fiscal Quarter of 2004 Page 9 of 14
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LEAP WIRELESS INTERNATIONAL, INC.
(DEBTORS-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Operating activities:
Net cash provided by operating activities .. $ 49,175 $ 54,031 $ 89,935 $ 83,212
---------- ---------- ---------- ----------
Investing activities:
Purchase of property and equipment ............ (14,261) (14,733) (30,418) (18,955)
Net proceeds from sales of wireless licenses .. -- -- -- 1,472
Purchase of investments ....................... (37,118) (33,789) (70,769) (56,229)
Sale and maturity of investments .............. 34,943 29,737 51,793 54,991
Restricted cash, cash equivalents and
short-term investments, net .................. 11,370 14,037 13,970 13,756
---------- ---------- ---------- ----------
Net cash used in investing activities ...... (5,066) (4,748) (35,424) (4,965)
---------- ---------- ---------- ----------
Financing activities:
Repayment of long-term debt ................... -- -- -- (4,365)
Issuance of common stock ...................... -- 50 -- 50
---------- ---------- ---------- ----------
Net cash provided by (used in) financing
activities ................................ -- 50 -- (4,315)
---------- ---------- ---------- ----------
Net increase in cash and cash equivalents ...... 44,109 49,333 54,511 73,932
Cash and cash equivalents at beginning of period 94,472 125,459 84,070 100,860
---------- ---------- ---------- ----------
Cash and cash equivalents at end of period ..... $ 138,581 $ 174,792 $ 138,581 $ 174,792
========== ========== ========== ==========
SCHEDULE OF SELECTED OPERATING METRICS
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
2004 2003
---------- ----------
Gross additions ..................................................... 180,128 152,872
Net additions ....................................................... 9,133 (53,770)
End of period customers ............................................. 1,547,364 1,459,707
Churn(4) ............................................................ 3.7% 4.6%
ARPU(5)(7) .......................................................... $ 37.28 $ 36.48
CPGA(6)(7) .......................................................... $ 141 $ 194
CCU(8) .............................................................. $ 18.47 $ 23.55
Average minutes of use per customer per month ....................... 1,500 1,300
Consolidated EBITDA (in thousands)(9) ............................... $ 61,716 $ (155,411)
Cash capital expenditures for property and equipment (in thousands) . $ 14,261 $ 14,733
Leap Reports Results for Second Fiscal Quarter of 2004 Page 10 of 14
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Debt in Default:
Debt in default subject to compromise is summarized as follows (unaudited)
(in thousands):
JUNE 30, DECEMBER 31,
2004 2003
---------- ------------
12.5% Senior Notes .................... $ 224,623 $ 224,623
14.5% Senior Discount Notes ........... 504,393 504,393
Senior secured vendor credit facilities 1,618,284 1,618,284
Note payable to GLH ................... 8,649 8,643
Qualcomm term loan .................... 1,541 1,541
---------- ----------
$2,357,490 $2,357,484
========== ==========
Amounts presented for the Senior Notes, the note payable to GLH and the
Qualcomm term loan include principal and interest accrued through the
Petition Date. Amounts presented for the Senior Discount Notes include
accreted principal and interest accrued through the Petition Date. Amounts
presented for the senior secured vendor credit facilities include
principal, interest and fees accrued through the Petition Date.
Debt in default not subject to compromise at June 30, 2004 consisted
entirely of debt obligations to the FCC of $74.8 million (net of a $1.9
million discount) incurred as part of the purchase price for wireless
licenses. The original terms of the notes include interest rates generally
ranging from 6.25% to 7.0% per annum (9.75% per annum on the note
associated with the Denver license) and quarterly principal and interest
payments until maturity through July 2007. The notes were discounted using
management's best estimate of the prevailing market interest rate at the
time of purchase of the wireless licenses ranging from 9.75% to 10.75% per
annum.
The Company has classified the principal and interest balances outstanding
under its U.S. government financing as a short-term obligation in the
condensed consolidated balance sheets as of June 30, 2004 and December 31,
2003 as a result of the Company's Chapter 11 filings, which constituted an
event of default of the underlying notes. Payments of principal and
interest under the Company's U.S. government financing are generally
stayed during the pendency of the Chapter 11 proceedings.
(2) Liabilities subject to compromise refer to liabilities of the Company
incurred prior to the Petition Date that are with unrelated parties.
Substantially all of the Company's pre-petition liabilities, other than
principal and accrued interest payable to the FCC, have been classified as
liabilities subject to compromise in the condensed consolidated balance
sheets. Adjustments to the liabilities subject to compromise may result
from negotiations, actions of the Bankruptcy Court, rejection of executory
contracts including leases, implementation of the Plan of Reorganization,
or other events.
The following table summarizes the components of liabilities subject to
compromise in the Company's condensed consolidated balance sheets
(unaudited) (in thousands):
Leap Reports Results for Second Fiscal Quarter of 2004 Page 11 of 14
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JUNE 30, DECEMBER 31,
2004 2003
---------- ------------
Accounts payable and accrued liabilities $ 18,482 $ 18,590
Debt in default subject to compromise ... 2,357,490 2,357,484
Other current liabilities ............... 15,582 15,675
Other long-term liabilities ............. 9,884 9,773
---------- ----------
Total liabilities subject to compromise $2,401,438 $2,401,522
========== ==========
(3) Reorganization items represent amounts incurred by the Company as a direct
result of the Chapter 11 filings and are presented separately in the
condensed consolidated statements of operations.
The following table summarizes the components of reorganization items, net
in the Company's condensed consolidated statements of operations
(unaudited) (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ---------------------
2004 2003 2004 2003
-------- -------- -------- --------
Professional fees ............... $ (1,726) $ (4,521) $ (3,936) $ (4,521)
Gain on settlement of liabilities 2,483 1,467 2,500 1,467
Adjustment of liabilities to
allowed amounts ................. -- -- (360) --
Post-petition interest income ... 556 686 1,084 686
-------- -------- -------- --------
Total reorganization items, net $ 1,313 $ (2,368) $ (712) $ (2,368)
======== ======== ======== ========
DEFINITION OF TERMS AND RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(4) Churn, an industry metric that measures customer turnover, is calculated
as the net number of customers that disconnect from our service divided by
the weighted average number of customers divided by the number of months
during the period being measured. Customers who do not pay their first
monthly bill are deducted from our gross customer additions; as a result,
these customers are not included in churn. Management uses churn to
measure our retention of customers, to measure changes in customer
retention over time, and to help evaluate how changes in our business
affect customer retention. In addition, churn provides management with a
useful measure to compare our customer turnover activity to that of other
wireless communications providers. We believe investors use churn
primarily as a tool to track changes in our customer retention over time
and to compare our customer retention to that of other wireless providers.
(5) ARPU is an industry metric that measures service revenue divided by the
weighted average number of customers, divided by the number of months
during the period being measured. Management uses ARPU to identify average
revenue per customer, to track changes in average customer revenues over
time, to help evaluate how changes in our business, including changes in
our service offerings and fees, affect average revenue per customer, and
to forecast future service revenue. In addition, ARPU
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provides management with a useful measure to compare our subscriber
revenue to that of other wireless communications providers. We believe
investors use ARPU primarily as a tool to track changes in our average
revenue per customer and to compare our per customer service revenues to
those of other wireless providers.
(6) CPGA is an industry metric that represents selling and marketing costs and
the gain or loss on sale of handsets (generally defined as cost of
equipment less equipment revenue), excluding costs unrelated to initial
customer acquisition, divided by the total number of gross new customer
additions during the period being measured. Costs unrelated to initial
customer acquisition include the revenues and costs associated with the
sale of handsets to existing customers as well as costs associated with
handset replacements and repairs (other than warranty costs which are the
responsibility of the handset manufacturers). We deduct customers who do
not pay their first monthly bill from our gross customer additions, which
tends to increase CPGA because we incur the costs associated with this
customer without receiving the benefit of a gross customer addition.
Management uses CPGA to measure the efficiency of our customer acquisition
efforts, to track changes in our average cost of acquiring new subscribers
over time, and to help evaluate how changes in our sales and distribution
strategies affect the cost-efficiency of our customer acquisition efforts.
In addition, CPGA provides management with a useful measure to compare our
per customer acquisition costs with those of other wireless communications
providers. We believe investors use CPGA primarily as a tool to track
changes in our average cost of acquiring new customers and to compare our
per customer acquisition costs to those of other wireless providers.
The following table reconciles total costs used in the calculation of CPGA
to selling and marketing expense, which we consider to be the most
directly comparable GAAP financial measure to CPGA (in thousands, except
gross customer additions and CPGA):
THREE MONTHS ENDED,
JUNE 30,
-------------------------
2004 2003
---------- ----------
Selling and marketing expense ............ $ 21,939 $ 22,478
Plus cost of equipment .................. 40,635 41,366
Less equipment revenue .................. (33,676) (23,229)
Less net loss on equipment transactions
unrelated to initial customer acquisition (3,453) (10,985)
---------- ----------
Total costs used in the calculation of
CPGA .................................. $25,445 $ 29,630
Gross customer additions ................. 180,128 152,872
---------- ----------
CPGA ..................................... $ 141 $ 194
========== ==========
(7) The Company adopted Emerging Issues Task Force (EITF) Issue No. 00-21,
"Accounting for Revenue Arrangements with Multiple Deliverables" on July
1, 2003. Prior to the adoption of EITF Issue No. 00-21, activation fees
were included in ARPU as service revenue and deferred over the estimated
customer relationship period. Upon the adoption of EITF Issue No. 00-21,
we began reporting activation fees as equipment revenue, which reduced
ARPU and CPGA by $1 and $24, respectively, for the three
Leap Reports Results for Second Fiscal Quarter of 2004 Page 13 of 14
(LEAP LOGO)
months ended June 30, 2004, compared to the ARPU and CPGA results that
would have been reflected if EITF Issue No. 00-21 had not been adopted.
(8) CCU is an industry metric that measures cost of service, general and
administrative costs, gain or loss on sale of handsets to existing
customers and costs associated with handset replacements and repairs
(other than warranty costs which are the responsibility of the handset
manufacturers), divided by the weighted average number of customers,
divided by the number of months during the period being measured. CCU does
not include any depreciation and amortization expense. Management uses CCU
as a tool to evaluate the non-selling cash expenses associated with
ongoing business operations on a per customer basis, to track changes in
these non-selling cash costs over time, and to help evaluate how changes
in our business operations affect non-selling cash costs per customer. In
addition, CCU provides management with a useful measure to compare our
non-selling cash costs per customer with those of other wireless
communications providers. We believe investors use CCU primarily as a tool
to track changes in our non-selling cash costs over time and to compare
our non-selling cash costs to those of other wireless providers.
The following table reconciles total costs used in the calculation of CCU
to cost of service, which we consider to be the most directly comparable
GAAP financial measure to CCU (in thousands, except weighted-average
number of customers and CCU):
THREE MONTHS ENDED
JUNE 30,
------------------------
2004 2003
---------- ----------
Cost of service ................................ $ 47,827 $ 53,321
Plus general and administrative expense ....... 33,922 40,569
Plus net loss on equipment transactions
unrelated to initial customer acquisition ..... 3,453 10,985
---------- ----------
Total costs used in the calculation of CCU .. $ 85,202 $ 104,875
Weighted-average number of customers ........... 1,537,957 1,484,248
---------- ----------
CCU ............................................ $ 18.47 $ 23.55
========== ==========
(9) Consolidated EBITDA represents net income (loss) before income taxes,
interest expense, interest income, depreciation, and amortization. We
present consolidated EBITDA as a supplemental performance measure because
management believes it facilitates operating performance comparisons from
period to period and company to company by backing out potential
differences caused by variations in capital structures (affecting interest
expense), tax positions (such as the impact on periods or companies of
changes in effective tax rates or net operating losses) and the age and
book depreciation of fixed assets (affecting relative depreciation
expenses). While depreciation and amortization are considered operating
costs under generally accepted accounting principles, these expenses
primarily represent the non-cash current period allocation of costs
associated with long-lived assets acquired or constructed in prior
periods. Because consolidated EBITDA facilitates internal comparisons of
our historical operating performance, management also uses consolidated
EBITDA for business planning purposes and in measuring our performance
relative to that of our
Leap Reports Results for Second Fiscal Quarter of 2004 Page 14 of 14
(LEAP LOGO)
competitors. Also, a substantial portion of the bonuses paid to our
employees under the Company's bonus plan is based on the Company's
achieving consolidated EBITDA targets. In addition, we believe that
consolidated EBITDA and similar measures are widely used by investors,
financial analysts and credit rating agencies as a measure of our
financial performance over time and to compare our financial performance
with that of other companies in our industry. Consolidated EBITDA has
limitations as an analytical tool, and you should not consider it in
isolation or as a substitute for analysis of our results as reported under
GAAP. Some of these limitations are:
- it does not reflect our expenditures for capital expenditures;
- although it does not include depreciation and amortization, the assets
being depreciated and amortized will often have to be replaced in the
future, and consolidated EBITDA does not reflect cash requirements for
such replacements;
- it does not reflect the interest expense necessary to service interest
or principal payments on current or future indebtedness;
- it does not reflect expenses incurred for the payment of income taxes
and other taxes; and
- other companies, including companies in our industry, may calculate
this measure differently than we do, limiting its usefulness as a
comparative measure.
Management compensates for these limitations by relying on our GAAP
results and using consolidated EBITDA only supplementally.
The reconciliation of consolidated EBITDA to net loss, the most directly
comparable GAAP financial measure, is provided below (in thousands):
THREE MONTHS ENDED,
JUNE 30,
-------------------------
2004 2003
---------- ----------
Consolidated net loss ...................... $ (18,145) $ (243,719)
Plus income taxes ........................ 1,927 2,052
Plus interest expense .................... 1,908 11,804
Less interest income ..................... -- (85)
Plus depreciation and amortization ....... 76,026 74,537
---------- ----------
Consolidated EBITDA ........................ $ 61,716 $ (155,411)
========== ==========
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