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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K/A
(AMENDMENT NO. 1)
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER 0-29752
LEAP WIRELESS INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0811062
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10307 PACIFIC CENTER COURT, SAN DIEGO, CA 92121
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(858) 882-6000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.0001 PAR VALUE
(TITLE OF CLASS)
PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 1, 2001, the aggregate market value of the registrant's voting
stock held by non-affiliates of the registrant was approximately $901,992,839,
based on the closing price of Leap's Common Stock on the Nasdaq National Market
on March 1, 2001, of $31.38 per share.
As of March 1, 2001, 30,040,580 shares of registrant's Common Stock $.0001
par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Information required to be furnished pursuant to Part III of this Form 10-K
will be set forth in, and is incorporated by reference to, the Registrant's
definitive Proxy Statement for the annual meeting of stockholders to be held
April 19, 2001, which definitive Proxy Statement will be filed by the Registrant
not later than 120 days after the close of the fiscal year ended December 31,
2000.
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This Amendment No. 1 to the registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000 is being filed to amend Item 14(a) to add
the audited financial statements of Pegaso Telecomunicaciones, S.A. de C.V. in
accordance with Rule 3-09 of Regulation S-X.
PART III
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
1. FINANCIAL STATEMENTS:
Pegaso Telecomunicaciones, S.A. de C.V.
Report of Independent Accountants
Consolidated Balance Sheets at December 31, 2000 and 1999
Consolidated Statements of Income for the years ended December 31,
2000 and 1999 and for the period from June 24, 1998 (date of
inception) to December 31, 1998
Consolidated Statements of Cash Flows for the years ended December
31, 2000 and 1999 and for the period from June 24, 1998 (date of
inception) to December 31, 1998
Consolidated Statements of Stockholders' Equity for the period from
June 24, 1998 (date of inception) to December 31, 1998, and for the
years ended December 31, 1999 and 2000
Notes to the Consolidated Financial Statements
The financial statements of Leap listed below are set forth in Item 8 of
Leap's Annual Report on Form 10-K for the year ended December 31, 2000
Report of Independent Accountants
Consolidated Balance Sheets at December 31, 2000 and 1999
Consolidated Statements of Operations for the year ended December 31,
2000, for the period from September 1, 1999 to December 31, 1999 and
for each of the two years in the period ended August 31, 1999
Consolidated Statements of Cash Flows for the year ended December 31,
2000, for the period from September 1, 1999 to December 31, 1999 and
for each of the two years in the period ended August 31, 1999
Consolidated Statements of Stockholders' Equity for the year ended
December 31, 2000, for the period from September 1, 1999 to December
31, 1999 and for each of the two years in the period ended August 31,
1999
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES:
Report of Independent Accountants on Financial Statement Schedule
Schedule I -- Condensed Financial Information at December 31, 2000 and
1999, and for the year ended December 31, 2000, for the period from
September 1, 1999 to December 31, 1999 and for each of the two years in
the period ended August 31, 1999
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements
or notes thereto.
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3. EXHIBITS:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
2.1(1) Share Purchase Agreement, dated as of June 2, 2000 among
Endesa S.A., Leap Wireless International, Inc. and
Inversiones Leap Wireless Chile, S.A.
3.1(2) Amended and Restated Certificate of Incorporation of the
Registrant.
3.1.1(3) Certificate of Amendment of Amended and Restated Certificate
of Incorporation of the Registrant.
3.2(2) Amended and Restated Bylaws of the Registrant.
3.3(4) Form of Certificate of Designation of Series A Junior
Participating Preferred Stock of Registrant.
4.1(2) Form of Common Stock Certificate.
4.2(5) Letter, dated as of May 5, 1999, from Qualcomm Incorporated
to the Registrant.
4.2.1(6) Superceding Warrant, dated as of August 9, 1999, issued to
Qualcomm Incorporated.
4.2.2(6) Form of Voting Agreement, dated as of August 9, 1999,
between the Registrant and various officers and directors of
Qualcomm Incorporated.
4.2.3(6) Amended and Restated Agreement Concerning Share Ownership,
dated as of August 4, 1999, between the Registrant and
Qualcomm Incorporated.
4.3(4) Rights Agreement, dated as of September 14, 1998, between
the Registrant and Harris Trust Company of California.
4.3.1(1) First Amendment to Rights Agreement, dated as of February 8,
2000, between Leap Wireless International, Inc. and Harris
Trust Company of California.
4.3.2(1) Second Amendment to Rights Agreement, dated as of March 30,
2000, between Leap Wireless International, Inc. and Harris
Trust Company of California.
4.4(7) Warrant Agreement, dated as of February 23, 2000, by and
between the Registrant and State Street Bank and Trust
Company (including Form of Warrant Certificate).
4.5(7) Warrant Registration Rights Agreement, dated as of February
23, 2000, by and between the Registrant and Morgan Stanley &
Co. Incorporated.
4.6(7) Trust Indenture, dated as of February 23, 2000, by and among
the Registrant, Cricket Communications Holdings, Inc. and
State Street Bank and Trust Company (including Forms of
Notes).
4.6.1(8) Supplemental Indenture, dated as of June 13, 2000, by and
among Cricket Merger Sub, Inc., the Registrant, Cricket
Communications Holdings, Inc. and State Street Bank and
Trust Company.
4.7(7) Pledge Agreement, dated as of February 23, 2000, by and
between the Registrant and State Street Bank and Trust
Company.
4.8(7) Registration Rights Agreement, dated February 23, 2000, by
and among the Registrant, Cricket Communications Holdings,
Inc. and Morgan Stanley & Co. Incorporated.
10.1(9) Separation and Distribution Agreement, dated as of September
23, 1998, between Qualcomm Incorporated and the Registrant.
10.1.1(6) First Amendment to Separation and Distribution Agreement,
dated as of August 6, 1999, between the Registrant and
Qualcomm Incorporated.
10.2(9) Credit Agreement, dated as of September 23, 1998, between
Qualcomm Incorporated and the Registrant.
10.3(9) Tax Matters Agreement, dated as of September 23, 1998,
between Qualcomm Incorporated and the Registrant.
10.4(9) Interim Services Agreement, dated as of September 23, 1998,
between Qualcomm Incorporated and the Registrant.
10.5(9) Master Agreement Regarding Equipment Procurement, dated as
of September 23, 1998, between Qualcomm Incorporated and the
Registrant.
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.5.1(6) First Amendment to Master Agreement Regarding Equipment
Procurement, dated as of August 6, 1999, between the
Registrant and Qualcomm Incorporated.
10.6(9) Employee Benefits Agreement, dated as of September 23, 1998,
between Qualcomm Incorporated and the Registrant.
10.7(9) Conversion Agreement, dated as of September 23, 1998,
between Qualcomm Incorporated and the Registrant.
10.8(9) Assignment and Assumption Agreement, dated as of September
23, 1998, between Qualcomm Incorporated and the Registrant.
10.9(10) 1998 Stock Option Plan, as amended through April 13, 1999.
10.9.1(2) Form of non-qualified/incentive stock option under the 1998
Stock Option Plan.
10.9.2(2) Form of non-qualified stock option under the 1998 Stock
Option Plan granted to Qualcomm Incorporated option holders
in connection with the distribution of the Registrant's
common stock.
10.10(2) Form of the Registrant's 1998 Non-Employee Directors' Stock
Option Plan.
10.10.1(2) Form of non-qualified stock option under the 1998
Non-Employee Directors' Stock Option Plan.
10.11(2) Form of the Registrant's Employee Stock Purchase Plan.
10.12(2) Assignment and Assumption of Lease dated August 11, 1998
between Qualcomm Incorporated and Vaxa International, Inc.
10.13(2) Form of Indemnity Agreement to be entered into between the
Registrant and its directors and officers.
10.14(11) Asset Purchase Agreement, dated December 24, 1998, by and
among Chase Telecommunications Holdings, Inc., Anthony
Chase, Richard McDugald and the Registrant.
10.15(12) Stock Purchase Agreement, dated April 12, 1999, by and among
Inversiones Leap Chile S.A., Telex -- Chile S.A., and
Chilesat S.A.
10.16(10) Novation and Assumption of Payment Obligation Agreement,
dated May 11, 1999, by and among Chilesat Telefonia Personal
S.A., Inversiones Leap Chile S.A. and Chilesat S.A. (In
Spanish and accompanied by a translation in English).
10.17(6) Cricket Communications, Inc. 1999 Stock Option Plan (now
known as Cricket Communications Holdings, Inc.).
10.17.1(7) Amendment No. 1 to 1999 Stock Option Plan of Cricket
Communications, Inc. (now known as Cricket Communications
Holdings, Inc.).
10.17.2(6) Form of non-qualified/incentive stock option under the
Cricket Communications, Inc. 1999 Stock Option Plan (now
known as Cricket Communications Holdings, Inc.).
10.18(6) Employment offer letter to Susan G. Swenson from Registrant,
dated July 9, 1999.
10.19(14) System Equipment Purchase Agreement, effective as of
September 20, 1999, by and between Cricket Communications,
Inc. and Ericsson Wireless Communications Inc. (including
exhibits thereto). Portions of this exhibit (indicated by
asterisks) have been omitted pursuant to a request for
confidential treatment pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
10.19.1* Amendment #1 to System Equipment Purchase Agreement,
effective as of November 28, 2000, by and between Cricket
Communications, Inc. and Ericsson Wireless Communications
Inc. (including exhibits thereto). Portions of this exhibit
(indicated by asterisks) have been omitted pursuant to a
request for confidential treatment pursuant to Rule 24b-2
under the Securities Exchange Act of 1934.
10.19.2* Form of Amendment # to System Equipment Purchase Agreement,
by and between Cricket Communications, Inc. and Ericsson
Wireless Communications Inc. (including exhibits thereto).
Portions of this exhibit (indicated by asterisks) have been
omitted pursuant to a request for confidential treatment
pursuant to Rule 24b-2 under the Securities Exchange Act of
1934.
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.19.3* Schedule to Form of Amendment # to System Equipment
Purchase Agreement.
10.20(13) Second Amended and Restated Deferred Payment Agreement,
dated October 12, 1999, among Chilesat Telefonia Personal
S.A., Inversiones Leap Chile S.A., and Qualcomm
Incorporated, as Vendor, Administrative Agent and Collateral
Agent Subsidiaries of the Registrant.
10.21(15) Executive Officer Deferred Stock Plan.
10.22(3) 2000 Stock Option Plan.
10.22.1* Form of non-qualified/incentive stock option under the 2000
Stock Option Plan.
10.23(13) Amended and Restated System Equipment Purchase Agreement,
entered into as of June 30, 2000, by and between Cricket
Communications, Inc. and Lucent Technologies Inc. (including
exhibits thereto). Portions of this exhibit (indicated by
asterisks) have been omitted pursuant to a request for
confidential treatment pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
10.24(8) System Equipment Purchase Agreement, effective as of August
28, 2000, by and between Cricket Communications, Inc. and
Nortel Networks Inc. (including exhibits thereto). Portions
of this exhibit (indicated by asterisks) have been omitted
pursuant to a request for confidential treatment pursuant to
Rule 24b-2 under the Securities Exchange Act of 1934.
10.25(8) Credit Agreement, dated as of August 28, 2000, among Cricket
Communications Holdings, Inc., Cricket Communications, Inc.,
the lenders party thereto and Nortel Networks Inc., as
Administrative Agent (including exhibits thereto). Portions
of this exhibit (indicated by asterisks) have been omitted
pursuant to a request for confidential treatment pursuant to
Rule 24b-2 under the Securities Exchange Act of 1934.
10.25.1(8) First Amendment, dated as of October 20, 2000, to the Credit
Agreement, dated as of August 28, 2000, among Cricket
Communications Holdings, Inc., Cricket Communications, Inc.,
the lenders party thereto and Nortel Networks Inc., as
Administrative Agent (including exhibits thereto).
10.26(13) Credit Agreement, dated as of September 20, 1999, as Amended
and Restated as of October 20, 2000, among Cricket
Communications Holdings, Inc., Cricket Communications, Inc,
the Lenders party thereto and Lucent Technologies Inc., as
Administrative Agent (including exhibits thereto). Portions
of this exhibit (indicated by asterisks) have been omitted
pursuant to a request for confidential treatment pursuant to
Rule 24b-2 under the Securities Exchange Act of 1934.
10.27(8) Credit Agreement, dated as of October 20, 2000, among
Cricket Communications Holdings, Inc., Cricket
Communications, Inc., the lenders party thereto and Ericsson
Credit AB, as Administrative Agent (including exhibits
thereto). Portions of this exhibit (indicated by asterisks)
have been omitted pursuant to a request for confidential
treatment pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934.
10.28* Agreement for Purchase and Sale of Licenses, entered into as
of November 3, 2000, by and among the Registrant, MVI Corp.,
Century Personal Access Network, Inc., Wisconsin RSA #7,
Limited Partnership and CenturyTel, Inc.
10.29(16) Common Stock Purchase Agreement, dated as of December 20,
2000, by and between the Registrant and Acqua Wellington
North American Equities Fund, Ltd.
10.29.1(17) First Amendment to Common Stock Purchase Agreement, entered
into as of January 11, 2001, by and between the Registrant
and Acqua Wellington North American Equities Fund, Ltd.
10.30* Loan Agreement, dated as of January 22, 2001, by and among
the Registrant, Qualcomm Incorporated, the other lenders
from time to time party thereto, Citibank, N.A., as
Administrative Agent, and Citibank, N.A., as Collateral
Agent.
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.31* Pledge Agreement, dated as of January 22, 2001, between the
Registrant and Citibank, N.A., as the Collateral Agent.
21.1* Subsidiaries of the Registrant.
23.1* Consent of PricewaterhouseCoopers LLP, independent
accountants.
23.2 Consent of PricewaterhouseCoopers, independent accountants.
---------------
* Previously filed.
(1) Filed as an exhibit to Leap's Quarterly Report on Form 10-Q for the quarter
ended May 31, 2000, as filed with the SEC on July 17, 2000, and
incorporated herein by reference.
(2) Filed as an exhibit to Leap's Registration Statement on Form 10, as amended
(File No. 0-29752), and incorporated herein by reference.
(3) Filed as an exhibit to Leap's Current Report on Form 8-K dated September
28, 2000, and incorporated herein by reference.
(4) Filed as an exhibit to Leap's Current Report on Form 8-K dated September
14, 1998, and incorporated herein by reference.
(5) Filed as an exhibit to Leap's Quarterly Report on Form 10-Q for the quarter
ended February 28, 1999, as filed with the SEC on April 14, 1999, and
incorporated herein by reference.
(6) Filed as an exhibit to Leap's Post-Effective Amendment No. 2 to
Registration Statement on Form S-1 (File No. 333-64459) dated August 10,
1999, and incorporated herein by reference.
(7) Filed as an exhibit to Leap's Quarterly Report on Form 10-Q for the quarter
ended February 29, 2000, as filed with the SEC on April 14, 2000, and
incorporated herein by reference.
(8) Filed as an exhibit to Leap's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000, and incorporated herein by reference.
(9) Filed as an exhibit to Leap's Amendment No. 1 to Registration Statement on
Form S-1 (File No. 333-64459) dated October 13, 1998, and incorporated
herein by reference.
(10) Filed as an exhibit to Leap's Quarterly Report on Form 10-Q for the quarter
ended May 31, 1999, as filed with the SEC on July 15, 1999, and
incorporated herein by reference.
(11) Filed as an exhibit to Leap's Quarterly Report on Form 10-Q for the quarter
ended November 30, 1998, as filed with the SEC on January 14, 1999, and
incorporated herein by reference.
(12) Filed as an exhibit to Leap's Current Report on Form 8-K dated May 4, 1999,
and incorporated herein by reference.
(13) Filed as an exhibit to Leap's Annual Report on Form 10-K for the fiscal
year ended August 31, 1999, as filed with the SEC on October 20, 1999, as
amended, and incorporated herein by reference.
(14) Filed as an exhibit to Leap's Amendment No. 1 to Annual Report on Form
10-K/A for the fiscal year ended August 31, 1999, as filed with the SEC on
December 13, 1999, and incorporated herein by reference.
(15) Filed as an exhibit to Leap's Registration Statement on Form S-8 (File No.
333-94389) dated January 11, 2000, and incorporated herein by reference.
(16) Filed as an exhibit to Leap's Current Report on Form 8-K dated December 20,
2000, and incorporated herein by reference.
(17) Filed as an exhibit to Leap's Current Report on Form 8-K dated January 11,
2001, as amended by Amendment No. 1 thereto, and incorporated herein by
reference.
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(B) REPORTS ON FORM 8-K
(1) Current Report on Form 8-K, dated September 28, 2000 filed with the SEC
on October 10, 2000. Items 5 and 7 reported, relating to the Special Meeting of
Stockholders held on September 28, 2000.
(2) Current Report on Form 8-K, dated December 20, 2000 filed with the SEC
on December 21, 2000. Items 5 and 7 reported, relating to Leap having entered
into a common stock purchase agreement with Acqua Wellington North American
Equities Fund, Ltd.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
June 27, 2001 LEAP WIRELESS INTERNATIONAL, INC.
By: /s/ HARVEY P. WHITE
------------------------------------
Harvey P. White,
Chief Executive Officer and Director
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Pegaso Telecomunicaciones, S.A. de C.V.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of cash flows and of stockholders'
equity present fairly, in all material respects, the financial position of
Pegaso Telecomunicaciones, S.A. de C.V. and its subsidiaries at December 31,
2000 and 1999, and the results of their operations, their cash flows and the
changes in their stockholders' equity for the years ended December 31, 2000 and
1999 and for the period from June 24, 1998 (date of inception) to December 31,
1998, in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers
Guillermo Pineda M.
Mexico City,
January 30, 2001
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PEGASO TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(THOUSANDS OF U.S. DOLLARS)
DECEMBER 31,
----------------------
2000 1999
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 12,964 $ 12,138
Recoverable value added tax............................... 27,129 21,298
Clients................................................... 12,617 3,401
Other accounts receivable................................. 4,781 2,115
Inventories............................................... 23,224 1,615
Prepaid advertising....................................... 7,181 4,821
Other advance payments.................................... 50,108 955
--------- ---------
Total current assets................................... 138,004 46,343
Property, furniture and telecommunications
equipment -- net.......................................... 426,229 305,850
Public telecommunications network concessions -- net........ 223,819 237,380
Underwriting commissions and fees........................... 14,024 --
--------- ---------
Total assets........................................... $ 802,076 $ 589,573
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bridge loan............................................... $ 263,148 $ 94,430
Suppliers................................................. 15,522 20,831
Vendor financing of equipment............................. 89,045 40,933
Accounts payable for equipment............................ 4,757 24,103
Notes payable to affiliated company....................... 7,116 5,505
Other accounts payable and accrued expenses............... 73,107 30,740
--------- ---------
Total current liabilities.............................. 452,695 216,542
--------- ---------
Long-term liabilities:
Bank loans................................................ 132,509 88,951
Vendor financing of equipment............................. 197,710 109,024
--------- ---------
Total long-term liabilities............................ 330,219 197,975
--------- ---------
Total liabilities...................................... 782,914 414,517
--------- ---------
Commitments and contingencies
Stockholders' equity:
Capital stock............................................. 545,506 350,000
Accumulated deficit....................................... (538,097) (188,691)
Accumulated other comprehensive income.................... 11,753 13,747
--------- ---------
19,162 175,056
--------- ---------
Total liabilities and stockholders' equity............. $ 802,076 $ 589,573
========= =========
The accompanying notes are an integral part of these financial statements.
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PEGASO TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(THOUSANDS OF U.S. DOLLARS)
PERIOD FROM
JUNE 24,
1998
(DATE OF
YEAR ENDED DECEMBER 31, INCEPTION) TO
------------------------ DECEMBER 31,
2000 1999 1998
---------- ---------- -------------
Revenues:
Services............................................... $ 78,455 $ 3,917 $ --
Sales of handsets and accessories...................... 15,705 3,965 --
--------- --------- --------
94,160 7,882 --
--------- --------- --------
Costs and operating expenses:
Cost of services....................................... (24,280) (5,543) --
Cost of sales of handsets and accessories.............. (134,269) (25,139) --
Selling, administrative and general expenses........... (175,324) (102,953) (30,090)
Depreciation and amortization.......................... (48,096) (17,712) (78)
--------- --------- --------
(381,969) (151,347) (30,168)
--------- --------- --------
Operating loss........................................... (287,809) (143,465) (30,168)
Interest (expense) income................................ (58,512) (15,197) 1,194
Foreign currency exchange gain (loss) -- net............. (5,995) 994 --
Other income............................................. 2,910 899 441
Foreign currency exchange loss on remeasurement of
financial statements................................... -- -- (2,474)
--------- --------- --------
Loss before income tax................................... (349,406) (156,769) (31,007)
Provision for:
Income tax............................................. -- (419) (321)
Employees' statutory profit sharing.................... -- (175) --
--------- --------- --------
Net loss for the period........................ (349,406) (157,363) (31,328)
Other comprehensive income:
Foreign currency translation adjustment................ (1,994) 13,747 --
--------- --------- --------
Comprehensive loss............................. $(351,400) $(143,616) $(31,328)
========= ========= ========
The accompanying notes are an integral part of these financial statements.
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PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(THOUSANDS OF U.S. DOLLARS)
PERIOD FROM
JUNE 24,
1998
YEAR ENDED (DATE OF
DECEMBER 31, INCEPTION) TO
---------------------- DECEMBER 31,
2000 1999 1998
--------- --------- -------------
Cash flows from operating activities:
Net loss for the period.............................. $(349,406) $(157,363) $ (31,328)
--------- --------- ---------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization..................... 48,096 17,712 78
Other provisions and interest no paid............. 47,850 4,412 --
Foreign exchange loss on remeasurement of
financial statements............................ -- -- 2,474
Changes in assets and liabilities:
Recoverable value added tax..................... (6,016) (11,040) (9,443)
Clients......................................... (9,348) (3,356) --
Other accounts receivable....................... (2,710) (1,727) (341)
Inventories..................................... (21,884) -- --
Prepaid advertising............................. (2,415) (4,013) (67)
Other current assets............................ -- 229 (217)
Other accounts payable and accrued expenses..... 72,788 49,145 5,753
--------- --------- ---------
Total adjustments............................... 126,361 51,362 (1,763)
--------- --------- ---------
Net cash used in operating activities........ (223,045) (106,001) (33,091)
--------- --------- ---------
Cash flows from investing activities:
Acquisition of property, furniture and
telecommunications equipment...................... (69,827) (38,356) (77)
Public telecommunications network concessions........ -- -- (233,530)
--------- --------- ---------
Net cash used in investing activities........ (69,827) (38,356) (233,607)
--------- --------- ---------
Cash flows from financing activities:
Bank loans........................................... 140,000 90,000 --
Capital stock increase............................... 195,506 50,000 300,000
Interest paid Qualcomm............................... (24,671) -- --
Interest paid Alcatel................................ (19,132) -- --
--------- --------- ---------
Net cash provided by financing activities.... 291,703 140,000 300,000
--------- --------- ---------
Effect of exchange rate fluctuations on cash........... 1,995 (13,818) (2,989)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents... 826 (18,175) 30,313
Cash and cash equivalents at beginning of period....... 12,138 30,313 --
--------- --------- ---------
Cash and cash equivalents at end of period............. $ 12,964 $ 12,138 $ 30,313
========= ========= =========
Supplemental disclosures of cash flow information:
Income tax paid...................................... $ -- $ 536 $ --
Interest paid........................................ 43,803 8,922 14
Prepaid advertising contracted with notes payable.... 500 420 5,941
Property, furniture and telecommunications equipment
acquired through financing........................ 134,775 121,054 132,297
Inventories acquired through financing............... -- 1,609 --
The accompanying notes are an integral part of these financial statements.
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PEGASO TELECOMUNICACIONES, S. A. DE C. V.
STATEMENT OF STOCKHOLDERS' EQUITY
(THOUSANDS OF U.S. DOLLARS)
ACCUMULATED
OTHER
CAPITAL ACCUMULATED COMPREHENSIVE
STOCK DEFICIT INCOME TOTAL
-------- ----------- ----------------- ---------
Issuance of stock at inception on June 24,
1998...................................... $ 11 $ -- $ -- $ 11
Additional capital stock issued on June 30
and September 28, 1998................. 299,989 -- -- 299,989
Loss for the period....................... -- (31,328) -- (31,328)
-------- --------- ------- ---------
Balances at December 31, 1998............... 300,000 (31,328) -- 268,672
Capital stock increase.................... 50,000 -- -- 50,000
Loss for the period....................... -- (157,363) -- (157,363)
Foreign currency translation adjustment... -- -- 13,747 13,747
-------- --------- ------- ---------
Balances at December 31, 1999............... 350,000 (188,691) 13,747 175,056
Capital stock increase.................... 195,506 -- -- 195,506
Loss for the period....................... -- (349,406) -- (349,406)
Foreign currency translation adjustment... -- -- (1,994) (1,994)
-------- --------- ------- ---------
Balances at December 31, 2000............... $545,506 $(538,097) $11,753 $ 19,162
======== ========= ======= =========
The accompanying notes are an integral part of these financial statements.
12
14
PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 2000
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
NOTE 1 -- OPERATIONS OF THE COMPANY AND SUBSIDIARIES:
Pegaso Telecomunicaciones, S. A. de C. V. (Telecomunicaciones), a Mexican
holding company, was incorporated on June 24, 1998, for a duration of 99 years.
At December 31, 2000, the stockholders of Telecomunicaciones were Mr. Alejandro
Burillo Azcarraga ("Mr. Burillo") and related parties, Sprint Mexico, Inc., a
subsidiary of Sprint Corporation ("Sprint"), Leap PCS Mexico, Inc. a subsidiary
of Leap Wireless International, Inc. ("Leap") and certain investment funds.
At December 31, 2000, Telecomunicaciones and its subsidiaries
(collectively, the "Company") held 100% of the capital stock of the following
Mexican subsidiaries:
SUBSIDIARY ACTIVITY
---------- --------
Pegaso Comunicaciones y Sistemas, S. A. de C. V. Holds the concessions and the
(Comunicaciones y Sistemas) telecommunications equipment for wireless
telephone services provided by PCS.
Pegaso PCS, S. A. de C. V. (PCS) Provides wireless telephone services to the
general public through an agency agreement with
Comunicaciones y Sistemas.
Pegaso Recursos Humanos, S. A. de C. V. Provides administrative services to the
(Recursos Humanos) Company.
Pegaso Finanzas, S. A. de C. V Finance company.
Pegaso Finco I, S. A. de C. V Inactive.
The Company is engaged in providing nationwide mobile telephone services in
Mexico. Comunicaciones y Sistemas holds the concessions granted by the Mexican
Ministry of Communications (Secretaria de Comunicaciones y Transportes -- SCT).
The concessions include the rights to install, operate and exploit a
nationwide public telecommunications network for a period of up to 20 years,
with an option to extend the concessions at the end of the 20-year period. (See
Note 5).
The Company's development from inception has been financed with capital
contributions made by the stockholders (see Note 9) and different lines of
credit (see Notes 6, 7 and 8). Some lines of credit are secured by all Company
properties, rights and assets. The recoverability of the Company's investment is
dependent upon future events, including, but not limited to, the stability of
the Mexican economic environment, obtaining adequate financing for developing
and expanding its PCS network, and the achievement of a level of operating
revenues that is sufficient to support the Company's cost structure.
The Company launched wireless telecommunications services in Tijuana in
February 1999, Guadalajara in August 1999, Monterrey in September 1999, and
Mexico City in December 1999. In December 2000, the Company launched its service
in Ensenada, Nuevo Laredo, Reynosa, Toluca and Chapala. Prior to those dates,
the Company's business consisted of the installation and construction of its
network and other start-up activities.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying consolidated financial statements include the adjustment
and translation/remeasurement of the Mexican peso consolidated financial
statements prepared in conformity with accounting principles generally accepted
in Mexico. Such financial statements constitute a suitable basis for adjustment
and translation/remeasurement into U.S. dollars for purposes of expressing them
in conformity with accounting principles generally accepted in the United States
of America.
13
15
PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
The significant accounting policies, as adjusted, are shown below:
a. TRANSLATION:
As of January 1, 1999, Mexico is no longer considered a hyperinflationary
economy. Therefore, for the purposes of translating its Mexican peso financial
statements to U.S. dollars in accordance with Statement of Financial Accounting
Standard ("SFAS") No. 52, the Company changed the functional currency from the
U.S. dollar to the Mexican peso. Accordingly, monetary and non-monetary assets
and liabilities are translated into U.S. dollars at the exchange rate in effect
at the balance sheet date. Capital stock has been translated at historic
observed exchange rates. Revenues, expenses, gains and losses are translated at
the average exchange rate for the year. The net equity effects of translation
are recorded in the cumulative foreign currency translation adjustment account
as a part of accumulated other comprehensive income.
b. CONSOLIDATION:
The accompanying financial statements include the accounts of
Telecomunicaciones and its wholly-owned subsidiaries prepared in accordance with
accounting principles generally accepted in the United States of America. All
significant intercompany balances and transactions have been eliminated in the
consolidation.
c. CASH EQUIVALENTS:
Cash equivalents are recorded at cost, which approximates market value, and
include all investments purchased with original maturities of three months or
less.
d. INVENTORIES AND COST OF SALES:
Inventories are initially recorded at average cost and subsequently
adjusted by an estimation for realization. The resulting amounts are not in
excess of market value.
Cost of sales is recorded following the average cost method.
e. ADVERTISING COSTS:
Advertising costs are expensed as incurred. Prepaid media advertising,
including television airtime, magazine and other print media, is deferred and
recorded as a current asset, and expensed when the advertising airtime or space
is used.
f. PROPERTY, FURNITURE AND TELECOMMUNICATIONS EQUIPMENT:
Property, furniture and telecommunications equipment are recorded at cost.
Depreciation is calculated by the straight-line method, based on the
estimated useful lives of said items, ranging from four to twenty years.
Leasehold improvements are capitalized at cost and are amortized using the
straight-line method over a period no longer than the contract period.
g. PUBLIC TELECOMMUNICATIONS NETWORK CONCESSIONS:
The public telecommunications network concessions include the cost of the
radio-electric frequency band concession and other related costs, and are
recorded at cost.
Amortization is calculated by the straight-line method, over the concession
period, which is 20 years.
14
16
PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
h. INCOME TAXES:
Current income tax is the amount of income tax expected to be payable for
the current period. A deferred tax asset or liability is computed for both the
expected future impact of differences between the financial statement and tax
basis of assets and liabilities and for the expected future tax benefit to be
derived from tax loss carryforwards. A valuation allowance is established for
deferred tax assets not expected to be realized.
i. CAPITALIZED INTEREST COST:
Property, furniture and telecommunications equipment, as well as the public
telecommunications network concessions, include the capitalization of the
interest costs, related to their acquisition.
j. REVENUE RECOGNITION:
The Company's revenue recognition policies are in compliance with
Securities and Exchange Commission Staff Accounting Bulletin No. 101 "Revenue
Recognition in Financial Statements". Revenues from prepaid airtime, calling
party pays, roaming and interconnection fees and postpaid services, are
recognized as revenue when the service is provided.
The revenue and related expenses associated with the sale of handsets are
recognized when the products are delivered and accepted by customers, as this is
considered to be a separate earning process from the sale of wireless services.
k. IMPAIRMENT OF LONG-LIVED ASSETS:
The Company evaluates potential impairment losses on long-lived assets by
assessing whether the unamortized carrying amount can be recovered over the
remaining life of the assets through undiscounted future expected cash flows
generated by the assets and without interest charges. If the sum of the expected
future undiscounted cash flow is less than the carrying amount of the assets, a
loss is recognized for the difference between the fair value and carrying value
of the assets. Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. No impairment losses have been recorded by the Company.
l. CONCENTRATIONS OF CREDIT RISK:
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents and
trade accounts receivable.
The Company maintains its cash and cash equivalents at various major
financial institutions, and are principally invested in short-term time deposits
and money market accounts.
Concentration of credit risk with respect to trade accounts receivable is
limited due to the large number of customers throughout Mexico. The Company
maintains allowances for doubtful accounts based on the expected collectibility
of all receivables.
m. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair value of the Company's financial instruments has been
determined using available market information and appropriate valuation
methodologies. The carrying value of cash and cash equivalents, accounts
receivable and accounts payable approximate their fair values because of the
short-term maturity of these instruments. The Company's bank loans and other
debt are subject to interest at variable rates, and as a result, the book value
of such liabilities approximates their fair values.
15
17
PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
N. NEW ACCOUNTING REQUIREMENTS:
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" which
was subsequently amended by SFAS No. 137 and SFAS No. 138. SFAS No. 133, as
amended, is effective for fiscal years beginning after June 15, 2000. The
Statement requires an entity to recognize all derivatives as either assets or
liabilities in the balance sheet and to measure those instruments at fair value.
The Company does not currently utilize derivative instruments and, consequently,
this statement is not expected to have a material impact on the Company.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," a
replacement of SFAS No. 125, "Accounting for Transfer and Servicing of Financial
Assets and Extinguishments of Liabilities." This Statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001. The Company will assess the impact of this
standard on securitization transactions that are entered into subsequent to the
effective date of the standard.
NOTE 3 -- BALANCES AND TRANSACTIONS WITH AFFILIATED COMPANIES AND OTHER RELATED
PARTIES:
Accounts payable to affiliated companies are as follows:
DECEMBER 31,
----------------
2000 1999
------ ------
Leap Wireless International, Inc. and subsidiaries......... $2,839 $5,085
Sprint Spectrum L. P. ..................................... 4,277 --
Grupo Televisa, S. A. and subsidiaries(1).................. -- 420
------ ------
$7,116 $5,505
====== ======
---------------
(1) Grupo Televisa, S. A., ceased being an affiliated company on July 13, 2000.
Following is a summary of the main transactions with affiliated companies
and other related parties:
DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
Revenues:
International roaming from Sprint................... $ 629 $ -- $ --
Expenses:
Equipment purchases from Qualcomm(1)................ -- -- 80,100
Interest on advances from stockholders.............. -- -- 1,697
Professional services(2)............................ 28,759 39,564 586
Advertising services................................ 4,915 4,100 6,256
Rent payments to stockholders(3).................... 1,669 1,776 40
Royalties to Sprint(4).............................. 2,441 -- --
Management services to Sprint(4).................... 4,335 -- --
---------------
(1) Qualcomm Incorporated ("Qualcomm") ceased being an affiliated company on
September 23, 1998.
(2) Provided by Leap Wireless Mexico, S. A. de C. V., a subsidiary of Leap
Wireless International, Inc.; represents mainly advisory services paid in
connection with the Company's organization, start-up activities and
supervision of the design and implementation of the network. These services
are subcontracted to GTE Data Services Mexico, S. A. de C. V.
16
18
PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
(3) Includes $228 paid to Grupo Televisa, S.A. and subsidiaries for the lease of
two offices, the lease agreements for which expire in May and September
2003. Grupo Televisa S.A. ceased being an affiliated company on July 13,
2000. This also includes $170 paid directly to Mr. Alejandro Burillo
Azcarraga for the lease of two offices, and to the following entities in
which he has an interest: $695 to Participacion Activa en Empresas, S.A. de
C.V. and $576 to Palmas Plaza.
(4) Royalties and services as per the agreements described in Note 11.
NOTE 4 -- PROPERTY, FURNITURE AND TELECOMMUNICATIONS EQUIPMENT:
DECEMBER 31, ANNUAL
-------------------- DEPRECIATION RATE
2000 1999 (%)
-------- -------- -----------------
Telecommunications equipment.......................... $408,257 $282,901 25,10,8 and 5
Furniture and equipment............................... 6,420 6,633 10
Computer equipment.................................... 20,884 16,311 30
Transportation equipment.............................. 2,261 1,439 25
Leasehold improvements................................ 6,362 2,999 20
Maintenance equipment................................. 478 141 10
-------- --------
444,662 310,424
Accumulated depreciation.............................. (42,418) (7,798)
-------- --------
402,244 302,626
Land.................................................. 91 90
Telecommunications equipment in the process of
installation........................................ 23,894 3,134
-------- --------
$426,229 $305,850
======== ========
Telecommunications equipment includes capitalized financing costs of
$15,766 and $12,889 as of December 31, 2000 and 1999, respectively.
NOTE 5 -- PUBLIC TELECOMMUNICATIONS NETWORK CONCESSIONS:
On October 7, 1998, the Company obtained the concessions to frequency bands
of the radio-electric spectrum to provide nationwide wireless fixed and
inducement access telecommunications services. Balances are as follows:
DECEMBER 31,
--------------------
2000 1999
-------- --------
Cost of concession (includes $1,278 of capitalized
interest at December 31, 2000 and 1999,
respectively)........................................ $246,407 $247,700
Accumulated amortization............................... (22,588) (10,320)
-------- --------
$223,819 $237,380
======== ========
Concessions include the rights to provide the following services:
- Fixed or mobile wireless telephone service.
- Transmission or reception of signals, images, voice, sounds or
information of any nature through the network, and additional services
authorized by the SCT.
- Access to data networks, videos, audio and videoconferences.
17
19
PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
NOTE 6 -- BRIDGE LOAN:
On May 27, 1999, the Company entered into a Bridge Loan Agreement with
Citibank N.A. acting as administrative agent, Societe Generale acting as
syndication agent, ABN AMRO Bank N.V. acting as documentation agent and Qualcomm
Incorporated ("Qualcomm") acting as guarantor.
Under this agreement, the Company may borrow principal amounts of up to
US$100 million and $15 million for credit facility to finance interest payments
at varying interest rates. The weighted average interest rate was 12.60% in 1999
and 11.02% in 2000.
The agreement contains certain covenants, including, but not limited to, a
restriction on the payment of dividends and the sale of fixed assets.
On the same date, Qualcomm and Citibank N.A entered into a Guaranty
Agreement ("Qualcomm Guaranty") under which Qualcomm guarantees the timely
payment in full when due of all the Company's obligations under the Bridge Loan
Agreement.
To induce Qualcomm to enter into the Bridge Loan Agreement and to issue the
Qualcomm Guaranty:
1. The Company entered into a Stock Option Agreement with Qualcomm,
dated May 27, 1999, under which Qualcomm was granted an option to subscribe
and purchase up to 353,585 limited voting series N treasury shares of the
Company's capital stock, with no par value. The option may be exercised at
any time or from time to time on or after the earlier of (x) the date on
which any and all amounts under the Bridge Loan Agreement are paid in full
and (y) the scheduled maturity date of the Bridge Loan which is currently
June 15, 2001. The exercise price of the option is US$0.01.
In the event Qualcomm exercises the option, the number of shares to be
subscribed will be determined based on the internal rate of return (as
defined) on the cash flows paid to the lenders, provided that if the
internal rate of return is greater than or equal to 20%, then the number of
shares to be subscribed will be zero.
2. Leap entered into a counter-guaranty providing for a guarantee by
Leap of 33% of the Company's obligations under the Bridge Loan Agreement.
3. Mr. Burillo entered into a counter-guaranty providing for a
guarantee by Mr. Burillo of 15% of the Company's obligations under the
Bridge Loan Agreement.
In addition, as a condition for Leap and Mr. Burillo to issue the
above-mentioned counter-guaranties, the Company entered into a Stock Option
Agreement with each of them, dated on May 27, 1999, under which Leap and Mr.
Burillo were granted an option to subscribe and purchase up to 243,090 and
110,495, respectively, limited voting series N treasury shares of the Company's
capital stock, with no par value. The terms of these contracts are similar to
those in the Stock Option Agreement entered into by the Company and Qualcomm
mentioned above. Additionally, an Irrevocable Administration and Guarantee Trust
agreement was signed by Leap and Mr. Burillo as trustors, Qualcomm as
beneficiary, and Banco INVEX, S.A., Institucion de Banca Multiple (INVEX) as
trustee. Under this agreement, INVEX may exercise the options on behalf of
Qualcomm to execute the counter-guarantee.
On February 8, 2000, the Bridge Loan Agreement was amended, and the total
borrowing amount was increased to $175 million and $15 million for a credit
facility to finance interest payments. The applicable interest rates were
increased by approximately 1%.
On November 17, 2000, a new amendment to the Bridge Loan Agreement was
signed to increase the borrowing amount to US$300 million and $15 million for a
credit facility to finance interest payments and to
18
20
PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
extend the original maturity date from November 28, 2000 to June 15, 2001. As a
consequence of this amendment the Stock Option Agreements mentioned in points 1,
2 and 3 above were amended, and additional options were granted to Qualcomm,
Leap and Mr. Burillo for 254,645, 175,068 and 79,577 shares, respectively.
As of December 31, 2000 and 1999, $263.1 million and $94.4 million,
respectively, was outstanding under the Bridge Loan Agreement. Interest expense
in 2000 and 1999 amounted to $26.3 million and $3.7 million, respectively.
NOTE 7 -- QUALCOMM'S FINANCING COMMITMENT AGREEMENTS:
On December 22, 1999, Qualcomm and the Company signed an agreement under
which Qualcomm committed to the underwriting of a $250 million term loan
facility upon the Company's request, subject to certain conditions. The proceeds
of the term loan facility may only be used by the Company for capital
expenditures, working capital and operating expenses.
On April 26, 2000, the Company paid Qualcomm $13.4 million corresponding to
commissions and other fees under this agreement. As of December 31, 2000, the
Company recognized $5.0 million as commitment fees which are being amortized
over the commitment period. Amortization charged to income in 2000 amounted to
$3.3 million. The remaining $8.4 million was recorded as prepaid expenses in
non-current assets, and the Company expects to amortize it once a term loan
facility transaction is closed with Qualcomm or to expense it if the Company
obtains such resources from other parties.
Under the same agreement, Qualcomm committed to the underwriting of a
high-yield bond offering of $250 million upon the Company's request. The
proceeds of the offering may only be used by the Company for capital
expenditures, working capital and operating expenses. Under this agreement, the
Company must pay commissions and other fees of $23.8 million in the event the
high-yield bond transaction is closed with Qualcomm. Qualcomm's commitments are
subject to conditions, including: (1) the continuing validity of the Company's
licenses, (2) the negotiation of amendments to the existing vendor credit
facilities and the consent of the lenders under those facilities, and (3) the
absence of any event or circumstance that has or could reasonably be expected to
have a material adverse effect on the Company's financial condition.
On November 17, 2000, Qualcomm confirmed that both of these commitments
will be effective through June 15, 2001.
NOTE 8 -- VENDOR FINANCING AND BANK LINES:
The Company has entered into certain agreements for the acquisition of
telecommunications equipment, services and installation consultancy. These
commitments will be financed through vendor financing contracts, which are
summarized as follows:
EQUIPMENT SUPPLIER FINANCING AGENT CREDIT LINE
------------------ --------------- -----------
Qualcomm.......................................... Qualcomm loan managed by ABN $310,000(1)
AMRO Bank N.V.
Alcatel........................................... Syndicated loan managed by $287,500(2)
Citibank International, Plc.
---------------
(1) Qualcomm credit line
19
21
PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
The Qualcomm credit line is up to $310 million, available as shown below:
CREDIT AVAILABILITY AUTHORIZED LINE
------ ------------ ---------------
(MILLIONS)
Loan 1.......................... From the date of authorization to
December 31, 2000 $200
Loan 2.......................... From January 1, 2001 to December 31, 2002 90
Additional loan................. From the date of authorization to
December 31, 2002 20
----
$310
====
This loan facility is subject to interest at the LIBOR plus 4.5
points. Interest is to be paid at various intervals ranging from monthly to
biannually, depending upon the type of loan under which the amount has been
disbursed. Interest expense amounted to $135, $15,319 and $21,578 in 1998,
1999 and 2000, respectively.
Under our vendor financing facilities with Alcatel and Qualcomm, some
of our borrowings are initially classified as short-term debt until they
are rolled over into a long-term facility.
As of December 31, 2000, $197.7 million was outstanding under this
line of credit and as of December 31, 1999, $109 million was outstanding,
which is shown in the consolidated balance sheet as long-term vendor
financing of equipment. The short-term vendor financing of equipment,
interest and commitment balances shown in the consolidated balance sheet
includes liabilities of $89.0 million and $40.9 million as of December 31,
2000 and 1999, respectively, payable to Qualcomm Inc, Ericsson Wireless and
Ericsson Telecom (Mexico), S.A. de C.V., which are pending approval by
Qualcomm to be considered as part of the line of credit facilities.
Debt maturities for the five years subsequent to December 31, 2000,
are as follows:
DECEMBER 31, AMOUNT
------------ --------
2002...................................................... $ 21,275
2003...................................................... 50,182
2004...................................................... 80,591
2005...................................................... 45,662
--------
$197,710
========
The principal payments on loans managed by ABN AMRO BANK, N.V. will be
negotiated in good faith and must be agreed upon by both parties prior to
disbursement.
(2) Alcatel credit line
The Alcatel credit line is for up to $ 287.5 million, the availability
of which is as follows:
CREDIT AVAILABILITY AUTHORIZED LINE
------ ------------ ---------------
(MILLIONS)
Loan 1.......................... From the date of authorization to
December 31, 2000 $170.0
Loan 2.......................... From January 1, 2001 to December 31, 2002 100.0
Additional loan 1............... From the date of authorization to
December 31, 2000 10.0
Additional loan 2............... From January 1, 2001 to December 31, 2002 7.5
------
$287.5
======
20
22
PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
These loans bear interest at the Eurodollar rate plus 4.5 points per
year and to an adjustable margin (9.75%, 10.10% and 10.98% at December 31,
1998, 1999 and 2000, respectively). As of December 31, 2000, the interest
payable was $474. Interest expense amounted to $10.2 million in 1998, $4.8
million in 1999 and $13.3 million in 2000.
At December 31, 1999 and 2000, $88.9 million and $132.5 million,
respectively, was outstanding under this line of credit and is included in
long-term bank lines of credit. The Company has received an extension from
Alcatel to use the remaining unused portion of Loan 1, $37.5 million, up to
March 2001. The schedules of maturities on the outstanding amounts are as
shown below:
DECEMBER 31, AMOUNT
------------ --------
2002...................................................... $ 16,000
2003...................................................... 34,480
2004...................................................... 55,720
2005...................................................... 26,309
--------
$132,509
========
The LIBOR interest rate on a quarterly basis as of December 31, 1999
and 2000 was 6.00125% and 6.39875% respectively.
The Company has pledged all its properties, rights and assets to secure the
obligations derived from these vendor financing agreements. Additionally, on
June 18, 1999, the Company, as trustor, established an irrevocable
administration and guarantee trust with Citibank Mexico, S.A. de C.V., with
Grupo Financiero Citibank as representative of the beneficiaries of the
guarantees and as agent of the guarantees, and INVEX, as trustee. The purpose of
the trust agreement is to guarantee payment of obligations arising from the
vendor financing agreements signed with Qualcomm and Alcatel. The Company has
pledged its shares in Comunicaciones y Sistemas, PCS and Recursos Humanos to the
trust.
The lines of credit establish, among other things, the following
obligations and restrictions for the Company:
a. Disbursements from the lines of credit can be utilized only for the
acquisition of telecommunications equipment from Qualcomm and Alcatel.
b. The capital stock must be increased by two contributions of $50
million each by July 31, 1999 and August 31, 2000. Both contributions have
been made.
c. Neither dividend payments nor capital distributions should be made
during the loan periods.
NOTE 9 -- STOCKHOLDERS' EQUITY:
The Company was incorporated on June 24, 1998, with an initial capital
contribution of $11 for the subscription of 100,000 common shares with a par
value of one Mexican peso each.
On June 30, 1998, the Company exchanged the original 100,000 common shares
for 1,000 shares with no par value. On that same date, the Company received $1
from its stockholders in exchange for the issuance of 200 common shares with no
par value.
On September 28, 1998, Telecomunicaciones received $299,988 in exchange for
the issuance of 7,499,388 Series A, Class II shares, 7,199,412 Series B, Class
II shares, and 15,300,000 Series N Class II shares.
21
23
PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
On July 27 and 30, 1999, the Company received $50,000 in exchange for the
issuance of 5,000,000 common Series N shares with no par value.
At December 31, 1999, the authorized capital stock was composed of
35,000,000 no-par-value shares.
On April 26, 2000, the Company received $145,506 in exchange for the
issuance of 7,561,547 series II-N and 2,152,977 Series II-B shares with no par
value. This contribution was made by Sprint Mexico Inc, a subsidiary of a U.S.
telecommunications corporation.
On August 30, 2000, the Company received $50,000 in exchange for the
issuance of 5,000,000 Series II-N shares with no par value. This contribution
was made by Mr. Alejandro Burillo Azcarraga.
As of December 31, 2000, the Company's authorized capital stock was
represented by 50,930,984 shares with no par value. The Company's issued and
outstanding capital stock as of December 31, 2000 consisted of:
NUMBER OF
SHARES AMOUNT
---------- --------
Class I (fixed minimum portion)
Series A shares.................................... 612 $ 6
Series B shares.................................... 588 6
Class II (variable portion)
Series A shares.................................... 7,499,388 74,994
Series B shares.................................... 7,199,412 87,065
Series N shares.................................... 35,014,524 383,435
---------- --------
49,714,524 $545,506
========== ========
Series N Class II shares have limited voting rights.
In the event of a capital stock reduction, the portion of capital stock
exceeding contributions made is subject to income tax, payable by the Company,
equivalent to 53.85% of such excess.
As of December 31, 2000, the Company has lost more than two thirds of its
capital stock. This is a legal cause of dissolution, which any interested party
may request be declared by the courts.
NOTE 10 -- INCOME TAX, ASSET TAX AND EMPLOYEES' STATUTORY PROFIT SHARING:
Telecomunicaciones and its subsidiaries pay income tax and asset tax on an
individual company basis.
For the years ended December 31, 2000 and 1999, Telecomunicaciones
generated a net tax loss of $6,649 and $5,176, respectively, and two of its
subsidiaries generated a combined net tax loss of $389,274 and $110,392,
respectively. The other subsidiary, Recursos Humanos, had a net taxable loss of
$1,174 and a net tax income of $1,756 for the years ended December 31, 1999 and
2000. Therefore, for the periods ended December 31, 1999 and 1998, Recursos
Humanos recognized a tax provision of $419 and $321 respectively, as shown in
the consolidated financial statements.
22
24
PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
Tax loss carryforwards can be inflation indexed by applying factors derived
from the NCPI from the date on which losses arise through the date of their
utilization. Those restated tax loss carry-forwards can be offset against future
taxable income, and expire as follows:
EXPIRATION YEAR AMOUNT
--------------- --------
2008................................................... $ 17,891
2009................................................... 130,404
2010................................................... 397,097
--------
$545,392
========
Taxable income differs from accounting income due to permanent differences
excluded by law from the determination of tax results, mainly the tax effect of
inflation and recurring timing differences.
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities are as follows:
DECEMBER 31,
--------------------------------
2000 1999 1998
--------- -------- -------
Inventories........................................ $ (8,128) $ (565) $ --
Fixed assets....................................... (4,695) (10,867) --
Concession......................................... (22,750) (3,838) --
Preoperating expenses.............................. 6,490 4,960 4,660
Other temporary items.............................. 2,164 (836) (8,692)
Tax loss carryforwards............................. 190,887 70,955 4,546
Valuation allowance................................ (163,968) (59,809) (514)
--------- -------- -------
$ -- $ -- $ --
========= ======== =======
The statutory IT rates for 2000 and 1999 were 35%. The following items
represent the principal differences between income taxes computed at the
statutory tax rate and the Company's provision for income taxes for the periods
ended December 31, 2000 and 1999:
DECEMBER 31,
------------------------
2000 1999 1998
---- ---- ----
Tax at statutory rate....................................... (35)% (35)% (34)%
Foreign exchange loss on remeasurement of financial
statements................................................ -- -- 3%
Permanent items, including inflationary effects............. (5)% 6% 7%
Interest and consultancy fees............................... -- (3)% (5)%
Preoperating expenses....................................... -- -- 15%
Other temporary items....................................... (1)% (1)% --
Amortization of concession.................................. (3)% (7)% --
Valuation allowance......................................... 44% 40% 15%
--- --- ---
Effective IT rate........................................... -- -- 1%
=== === ===
Asset tax is determined by applying the rate of 1.8% to the net amount of
certain assets and liabilities, and is payable only when asset tax exceeds
income tax. The Company will not be subject to the payment of asset tax until
the year 2002, because the Mexican Tax Law states that start-up companies are
not subject to asset tax payment during the first four years from the date of
incorporation.
23
25
PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
Employees' Statutory Profit Sharing is determined at the rate of 10% on the
taxable income of each company, on a basis similar to income tax. For the period
ended December 31, 1999, one of the Company's subsidiaries, Pegaso Recursos
Humanos generated employees' statutory profit sharing amounting to $175. For the
year ended December 31, 2000, the Company generated no taxable income subject to
the payment of employees' statutory profit sharing.
NOTE 11 -- AGREEMENTS WITH SPRINT:
In April 2000, the Company entered into various service and
technology-related agreements with Sprint.
Under these agreements, Sprint has, among others:
- granted the Company the exclusive right to obtain licenses to use in
Mexico the technology used by Sprint to provide wireless telephone
services in the United States;
- granted the Company the exclusive right to use Sprint business know-how
in Mexico;
- agreed to make reasonable efforts to allow the Company to purchase goods
from its suppliers under its enterprise contracts;
- agreed to provide services requested by the Company from time to time,
including:
-- network operations
-- marketing
-- product development
-- subscriber equipment and handset logistics
-- customer care
-- revenue operations, and
-- information technology; and
- agreed not to provide these services to any other party in Mexico in
connection with wireless telephone services.
Under the technology access and service agreement, the Company has agreed
to pay a royalty equal to a percentage of its annual net service revenues plus a
percentage of its annual EBITDA (in each case, as defined in the agreement) on a
monthly basis, as set forth in the table below:
PERCENTAGE OF ANNUAL PERCENTAGE OF
YEAR NET SERVICE REVENUE ANNUAL EBITDA
---- -------------------- -------------
2000....................................... 4.50% --
2001....................................... 3.75% 0.50%
2002....................................... 3.00% 0.75%
2003....................................... 2.50% 1.25%
2004....................................... 2.50% 1.50%
2005 and later............................. 2.25% 2.25%
The technology access and service agreement contemplates that Sprint may
propose to restructure the royalty rate after the third anniversary of the
agreement. If the Company is unable to agree on a restructured
24
26
PEGASO TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
(AMOUNTS EXPRESSED IN THOUSANDS OF U.S. DOLLARS)
royalty rate and Sprint notifies the Company that it is unwilling to continue
the agreement under the current rate structure, then either party may terminate
the agreement.
The technology access and service provisioning agreement has a 10 year term
and will automatically be renewed for three successive 10 year renewal periods
(for a maximum of 40 years, including the initial term), unless it is terminated
or, at least one year prior to the commencement of any renewal period, either
party notifies the other that it does not wish to renew the agreement.
NOTE 12 -- COMMITMENT AND CONTINGENCIES:
a. The Company leases offices and other spaces related to its business
under operating lease agreements expiring through 2006. Annual minimum lease
payments under these leases are as follows:
YEAR AMOUNT
---- -------
2001....................................................... $ 3,570
2002....................................................... 3,309
2003....................................................... 2,819
2004....................................................... 1,403
2005....................................................... 560
2006....................................................... 156
-------
$11,817
=======
Additionally, the Company has site operating leases for the network at an
annual cost of approximately $4,695 payable on a monthly, bimonthly and
quarterly basis. These lease contracts are renewable generally on an annual
basis.
Lease payments charged to income in 2000, 1999 and 1998 amounted to
$15,891, $13,430 and $824, respectively.
b. The Company is committed to purchase 50% of its handsets from Kyocera
under the existing handset supply agreement for a period of five years starting
February 15, 1999. The handsets must contain and utilize Qualcomm's Application
Specific Integrated Circuits, known as the Q-Chip. In addition, the Company has
agreed with Qualcomm and Ericsson to use the "cdmaOne" and the "multi-carrier
mode" of the ITU proposed third generation CDMA standard exclusively as the
primary technology for its wireless telecommunications.
c. The company issued purchase orders for the acquisition of
telecommunications equipment, services and installation consultancy to be
received in 2001 for an amount of $37,595.
These purchases are expected to be financed through the vendor financing
facilities described in Note 8.
25
27
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Leap Wireless International, Inc.:
Our audits of the consolidated financial statements referred to in our report
dated February 28, 2001 appearing in this Annual Report on Form 10-K of Leap
Wireless International, Inc. also included an audit of the financial statement
schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PricewaterhouseCoopers LLP
San Diego, California
February 28, 2001
26
28
SCHEDULE I
PAGE 1 OF 4
LEAP WIRELESS INTERNATIONAL, INC.
CONDENSED INFORMATION AS TO THE
FINANCIAL CONDITION OF THE REGISTRANT
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
-----------------------
2000 1999
---------- ---------
ASSETS
Cash and cash equivalents................................... $ 106,504 $ 35,713
Restricted cash equivalents and short-term investments...... 13,575 20,550
Short-term investments...................................... 16,237 --
Other current assets........................................ 1,631 3,684
---------- ---------
Total current assets.............................. 137,947 59,947
Property and equipment, net................................. 5,763 2,467
Investments in and loans receivable from subsidiaries....... 705,455 118,506
Intangible assets, net...................................... 28,907 18,920
Restricted investments...................................... 51,896 --
Deposits and other assets................................... 114,040 2,496
---------- ---------
Total assets...................................... $1,044,008 $ 202,336
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities.................... $ 8,618 $ 3,810
Other current liabilities................................... 12,319 --
---------- ---------
Total current liabilities......................... 20,937 3,810
Long-term debt.............................................. 438,143 187,570
Other long-term liabilities................................. 1,670 64
---------- ---------
Total liabilities................................. 460,750 191,444
---------- ---------
Stockholders' equity:
Preferred stock -- authorized 10,000,000 shares; $.0001
par value, no shares issued and outstanding............ -- --
Common stock -- authorized 300,000,000 shares; $.0001
value, 28,348,694 and 20,039,556 shares issued and
outstanding at December 31, 2000 and 1999
respectively........................................... 3 2
Additional paid-in capital................................ 893,401 292,933
Unearned stock-based compensation......................... (10,019) --
Accumulated deficit....................................... (302,898) (277,720)
Accumulated other comprehensive income (loss)............. 2,771 (4,323)
---------- ---------
Total stockholders' equity........................ 583,258 10,892
---------- ---------
Total liabilities and stockholders' equity........ $1,044,008 $ 202,336
========== =========
See accompanying notes to condensed financial statements.
29
SCHEDULE I
PAGE 2 OF 4
LEAP WIRELESS INTERNATIONAL, INC.
CONDENSED INFORMATION AS TO THE RESULTS OF OPERATIONS OF THE REGISTRANT
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PERIOD FROM
SEPTEMBER 1,
YEAR ENDED 1999 TO YEAR ENDED AUGUST 31,
DECEMBER 31, DECEMBER 31, ----------------------
2000 1999 1999 1998
------------ ------------ ---------- ---------
Operating expenses:
Selling, general and administrative expenses... $(35,233) $ (4,883) $ (17,004) $ (9,292)
Depreciation and amortization.................. (815) (212) (563) --
-------- -------- --------- --------
Total operating expenses............... (36,048) (5,095) (17,567) (9,292)
-------- -------- --------- --------
Operating loss................................. (36,048) (5,095) (17,567) (9,292)
Equity in net loss of and write-down of
investments in and loan receivable from
subsidiaries................................... 110,229 (62,351) (150,897) (38,284)
Interest income.................................. 23,490 1,022 960 843
Interest expense................................. (81,622) (6,196) (6,102) --
Foreign currency transaction gains, net.......... 361 -- -- --
Gain on sale of wholly-owned subsidiaries........ (4,484) -- 9,097 --
Other income (expense), net...................... 2,021 (3,226) (104) --
-------- -------- --------- --------
Income (loss) before income taxes and
extraordinary items............................ 13,947 (75,846) (164,613) (46,733)
Income taxes..................................... (9,693) -- -- --
-------- -------- --------- --------
Income (loss) before extraordinary items......... 4,254 (75,846) (164,613) (46,733)
Extraordinary loss on early extinguishment of
debt........................................... (4,422) -- -- --
-------- -------- --------- --------
Net loss....................................... $ (168) $(75,846) $(164,613) $(46,733)
======== ======== ========= ========
Basic net income (loss) per common share:
Income (loss) before extraordinary items....... $ 0.16 $ (4.01) $ (9.19) $ (2.65)
Extraordinary loss............................. (0.17) -- -- --
-------- -------- --------- --------
Net loss.................................... $ (0.01) $ (4.01) $ (9.19) $ (2.65)
======== ======== ========= ========
Diluted net income (loss) per common share:
Income (loss) before extraordinary items....... $ 0.13 $ (4.01) $ (9.19) $ (2.65)
Extraordinary loss............................. (0.14) -- -- --
-------- -------- --------- --------
Net loss.................................... $ (0.01) $ (4.01) $ (9.19) $ (2.65)
======== ======== ========= ========
Shares used in per share calculations:
Basic.......................................... 25,398 18,928 17,910 17,648
======== ======== ========= ========
Diluted........................................ 32,543 18,928 17,910 17,648
======== ======== ========= ========
See accompanying notes to condensed financial statements.
30
SCHEDULE I
PAGE 3 OF 4
LEAP WIRELESS INTERNATIONAL, INC.
CONDENSED INFORMATION AS TO THE
CASH FLOWS OF THE REGISTRANT
(IN THOUSANDS)
PERIOD FROM
YEAR ENDED SEPTEMBER 1, 1999 YEAR ENDED AUGUST 31,
DECEMBER 31, TO DECEMBER 31, ---------------------
2000 1999 1999 1998
------------ ----------------- --------- ---------
Net cash used in operating activities........ $(128,328) $ (5,620) $ (17,286) $ (9,322)
--------- -------- --------- ---------
Investing activities:
Purchase of property and equipment......... (1,944) (50) (3,182) --
Investments in and loans to subsidiaries... (400,536) (18,990) (186,707) (140,234)
Acquisitions, net of cash acquired......... (4,475) -- -- (564)
Purchase of wireless licenses.............. (14,934) -- -- --
Net proceeds from disposal of
subsidiaries............................ 4,311 -- 16,024 --
Purchases of investments................... (125,657) -- -- --
Sale and maturity of investments........... 104,410 -- -- --
Restricted cash equivalents and
investments, net........................ (44,921) (20,500) -- --
--------- -------- --------- ---------
Net cash used in investing
activities....................... (483,746) (39,540) (173,865) (140,798)
--------- -------- --------- ---------
Financing activities:
Proceeds from issuance of senior and senior
discount notes.......................... 550,102 -- -- --
Proceeds from loans payable to banks and
long-term debt.......................... 31,022 61,650 128,584 --
Repayment of loans payable to banks and
long-term debt.......................... (226,708) -- (17,500) --
Issuance of common stock................... 341,949 1,721 2,301 --
Payment of debt financing costs............ (13,500) -- -- --
Former parent company's investment......... -- -- 95,268 150,120
--------- -------- --------- ---------
Net cash provided by financing
activities....................... 682,865 63,371 208,653 150,120
--------- -------- --------- ---------
Net increase in cash and cash equivalents.... 70,791 18,211 17,502 --
Cash and cash equivalents at beginning of
period..................................... 35,713 17,502 -- --
--------- -------- --------- ---------
Cash and cash equivalents at end of period... $ 106,504 $ 35,713 $ 17,502 $ --
========= ======== ========= =========
See accompanying notes to condensed financial statements.
31
SCHEDULE I
PAGE 4 OF 4
LEAP WIRELESS INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
Leap Wireless International, Inc. ("Leap"), a Delaware corporation, is the
parent company of all Leap subsidiaries. The accompanying condensed financial
statements reflect the financial position, results of operations and
comprehensive loss and cash flows of Leap on a separate basis. All subsidiaries
of Leap are reflected as investments accounted for under the equity method of
accounting.
No cash dividends were paid to Leap by its subsidiaries during the year
ended December 31, 2000, the period from September 1, 1999 to December 31, 1999
or the years ended August 31, 1999 and 1998.
For accounting policies and other information, see the Notes to
Consolidated Financial Statements included in this Annual Report on Form 10-K.