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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2003

OR

For the transition period from                 to                .

Commission File Number 0-29752

Leap Wireless International, Inc.

(858) 882-6000
(Registrant’s telephone number, including area code)

Not applicable
(Former name, former address and former fiscal year, if changed since last reported)

     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 12 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 ninety days. Yes [X] No [   ]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [   ] No [X]

     The number of shares of registrant’s common stock outstanding on November 17, 2003 was 58,704,224.

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LEAP WIRELESS INTERNATIONAL, INC.

QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended September 30, 2003

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PART I
FINANCIAL INFORMATION

Item 1. Financial Statements

LEAP WIRELESS INTERNATIONAL, INC.
(DEBTORS-IN-POSSESSION)

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

See accompanying notes to condensed consolidated financial statements.

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LEAP WIRELESS INTERNATIONAL, INC.
(DEBTORS-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share data)

See accompanying notes to condensed consolidated financial statements.

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LEAP WIRELESS INTERNATIONAL, INC.
(DEBTORS-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)

See accompanying notes to condensed consolidated financial statements.

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LEAP WIRELESS INTERNATIONAL, INC.
(DEBTORS-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. The Company and Nature of Business

     Leap Wireless International, Inc., a Delaware corporation, together with its wholly owned subsidiaries (the “Company”), is a wireless communications carrier that offers digital wireless service in the United States under the brand “Cricket®.” Leap Wireless International, Inc. (“Leap”) conducts operations through its subsidiaries. Leap has no independent operations or sources of operating revenue other than through dividends, if any, from its operating subsidiaries. Cricket service is operated by the Company’s wholly owned subsidiary, Cricket Communications, Inc. (“Cricket”), a wholly owned subsidiary of Cricket Communications Holdings, Inc. (“Cricket Communications Holdings”). Cricket and the related subsidiaries of Leap and Cricket that hold assets that are used in the Cricket business or that hold assets pledged under Cricket’s senior secured vendor credit facilities are collectively referred to herein as the “Cricket companies.” As of September 30, 2003, the Company provided wireless service in 39 markets.

Note 2. Proceedings Under Chapter 11 of the Bankruptcy Code

     On April 13, 2003 (the “Petition Date”), Leap, Cricket and substantially all of their subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code (“Chapter 11”) in the United States Bankruptcy Court for the Southern District of California (the “Bankruptcy Court”) (jointly administered as Case Nos. 03-03470-All to 03-03535-All). These entities comprise substantially all of the operations of the Company. Each of the debtors continues to manage its properties and operate its business as a “debtor-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with Sections 1107(a) and 1108 of Chapter 11.

     The Company’s Chapter 11 filings raise substantial doubt about its ability to continue as a going concern.

Confirmation of Fifth Amended Joint Plan of Reorganization

     On July 30, 2003, the debtors filed their Fifth Amended Joint Plan of Reorganization (the “Plan”) and the accompanying disclosure statement (the “Disclosure Statement”) with the Bankruptcy Court. The Plan was the product of vigorous negotiations between the Company, the informal committee of Cricket’s senior secured vendor debtholders (the “Cricket Informal Creditors’ Committee”), the Official Unsecured Creditors’ Committee at Leap (the “Leap Official Creditors’ Committee”) and an informal committee of Leap’s noteholders (prior to the formation of the Leap Official Creditors’ Committee). Each of the Cricket Informal Creditors’ Committee and the Leap Official Creditors’ Committee recommended to the creditors it represents that they vote in favor of approval of the Plan. On July 31, 2003, after notice and prior hearings, the Bankruptcy Court approved the Disclosure Statement, and the debtors then mailed the Disclosure Statement and the Plan to the creditors entitled to vote on the Plan. The deadline to vote on the Plan was September 8, 2003. The Company received sufficient affirmative votes from creditors to confirm the Plan, subject to the approval of the Bankruptcy Court at the confirmation hearing, which began on September 30, 2003.

     On October 21, 2003, the debtors and the Cricket Informal Creditors’ Committee agreed pursuant to Section 8.05(e) of the Plan to establish a reserve at Cricket in the amount of $70.1 million to satisfy (1) allowed administrative claims, including an estimated $55 million of cure payments in connection with accepted contracts and leases, and (2) allowed priority claims against the Cricket companies through the effective date of the Plan.

     On October 22, 2003, the Bankruptcy Court entered an order confirming the Plan. Upon satisfaction of the conditions precedent to effectiveness of the Plan, including receipt of all required regulatory approvals from the Federal Communications Commission (“FCC”) for the transfer of wireless licenses associated with the change of control that will occur upon the Company’s emergence from bankruptcy (such approval to be in form and substance reasonably acceptable to the Cricket Informal Creditors’ Committee), the debtors will emerge from Chapter 11. However, there can be no assurance that the conditions precedent to effectiveness of the Plan will be satisfied or that the Plan will become effective on a timely basis.

     The Company expects that it will take several months to obtain FCC approval for the change of control of licenses that will occur when the Company emerges from bankruptcy. The approval process may be delayed if one or more third parties file objections to the Company’s application for FCC approval. If the FCC determines

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that the Company will no longer be qualified to hold C-block and F-block licenses under applicable FCC rules or that the Company will otherwise not be entitled to the benefits afforded to a “small business” or “very small business” then, upon emergence from bankruptcy: (1) the Company may forfeit its right to continue to own its C-block and F-block licenses for which it has not then met the FCC’s minimum coverage requirements; (2) the Company’s $76.7 million of indebtedness to the FCC may become immediately due and payable; and/or (3) the Company may be required to pay approximately $4 million of unjust enrichment penalties. The Company expects that the FCC will approve the proposed transfer of control of its wireless licenses. However, there can be no assurance that the FCC will grant such approval or will determine that the Company remains qualified to hold C-block and F-block licenses upon its emergence from bankruptcy or that it will otherwise avoid “unjust enrichment” penalties.

     The Plan implements a comprehensive financial restructuring that significantly reduces the debtors’ outstanding indebtedness. In connection with the Plan, the debtors’ current long-term debt will be reduced from more than $2.3 billion to approximately $427 million as of the effective date of the Plan. Following is a summary of the material terms of the Plan.

     As of November 3, 2003 (the “Initial Distribution Date”) and regardless of whether or not the Plan becomes effective:

	•		Holders of allowed general unsecured claims against Leap, including the holders of Leap’s 12.5% senior notes and 14.5% senior discount notes, received, on a pro rata basis, beneficial interests in a creditor trust (the “Leap Creditor Trust”). The initial trustee for the beneficiaries of the Leap Creditor Trust will be U.S. Bank National Association.
	•		The Leap Creditor Trust received a cash distribution in the amount of $67.8 million, consisting of substantially all of Leap’s unrestricted cash, less a reserve for administrative claims, priority claims and other expenses in an aggregate amount of approximately $16 million (which amount was agreed upon by the debtors and the Leap Official Creditors’ Committee prior to the Initial Distribution Date).
	•		Holders of Leap’s 12.5% senior notes received or will promptly receive an aggregate of approximately $200,000 in cash previously pledged to secure payments of interest to such noteholders. On or shortly after May 7, 2003, approximately $14.1 million of restricted cash that secured Leap’s obligations under its senior notes was distributed to the noteholders, as permitted by an order of the Bankruptcy Court.
	•		The Plan implemented, as of the Initial Distribution Date, the settlements and releases of all intercompany claims among the debtors, as well as the settlements and releases by the debtors, their estates, the holders of Leap general unsecured claims and the current and former holders of Cricket’s senior secured vendor debt (and the administrative agents under such facilities) of all litigation claims that have been or may be asserted or filed by, through or in the name or right of any debtor, including any and all derivative claims, (1) arising out of or related to transfers of cash or property from Leap to non-Leap debtors or for the benefit of the current or former holders of Cricket’s senior secured vendor debt or the administrative agents, or (2) arising out of or related to the failure to transfer cash or property from Leap to any non-Leap debtor or for the benefit of the current or former holders of Cricket’s senior secured vendor debt or the administrative agents. These releases are set forth in Section 5.05 of the Plan.

     On the effective date of the Plan:

	•		All of the outstanding shares of Leap common stock, warrants and options will be cancelled. The holders of Leap common stock, warrants and options will not receive any distributions under the Plan.
	•		Reorganized Leap will issue and contribute to reorganized Cricket Communications Holdings 96.5% of the issued and outstanding shares of new Leap common stock as of the effective date. Reorganized Cricket Communications Holdings will contribute all of this new Leap common stock to reorganized Cricket for immediate distribution to holders of Cricket’s senior secured vendor debt claims.
	•		As noted above, the holders of Cricket’s senior secured vendor debt claims will receive from reorganized Cricket, on a pro rata basis, 96.5% of the issued and outstanding shares of new Leap common stock as of the effective date, as well as new senior secured notes with an aggregate face value of $350 million.
	•		Reorganized Leap will issue and transfer (as applicable) to the Leap Creditor Trust: (1) 3.5% of the issued and outstanding shares of new Leap common stock as of the effective date, for distribution to holders of allowed Leap general unsecured claims, on a pro rata basis; and (2) other assets specified in the Plan which are to be liquidated by the Leap Creditor Trust with the cash proceeds thereof distributed to the holders of allowed Leap general unsecured claims. These assets include a note receivable of $35.0 million that is currently in dispute with Endesa S.A. (“Endesa”) (Note 7), nine wireless licenses, Leap’s equity interest in IAT Communications, Inc., certain causes of action and avoidance actions and

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			reimbursement of cash deposits previously made by Leap for contracts that will be assumed by reorganized Leap in connection with the bankruptcy proceedings.
	•		The executory contracts and unexpired leases that are being assumed by the reorganized debtors in connection with the Plan generally will be assumed as of the effective date. Reorganized Cricket will pay all cure amounts associated with such contracts and leases. The Company estimates that the cure amount payments will be approximately $55 million in the aggregate.
	•		The holders of general unsecured claims against Cricket will receive de minimus or no distributions in respect of their claims. Holders of general unsecured claims against the other subsidiaries of Leap and Cricket will receive no distributions under the Plan.

     Also on the effective date of the Plan, Leap, Cricket and their subsidiaries will undertake certain restructuring transactions intended to streamline their corporate structure. As a result, (1) reorganized Cricket Communications Holdings will merge into reorganized Cricket, (2) reorganized Cricket will own 100% of the issued and outstanding shares of each of the reorganized wireless license holding companies and the reorganized property holding companies and (3) reorganized Leap will own 100% of the issued and outstanding shares of reorganized Cricket and each of Leap’s other reorganized subsidiaries.

     Following the effective date of the Plan, after satisfaction of all allowed administrative claims and allowed priority claims against Leap, any remaining cash held in reserve by Leap will be distributed to the Leap Creditor Trust. If any Leap Creditor Trust assets are converted to cash after the Initial Distribution Date but prior to the effective date of the Plan, the cash proceeds will be transferred to the Leap Creditor Trust as soon as practicable upon such monetization, even though the effective date under the Plan has not yet occurred.

     If the Plan does not become effective by October 22, 2004, the anniversary of the confirmation of the Plan, and if the debtors elect and notify the Bankruptcy Court, then the confirmation order will be vacated, no additional distributions will be made under the Plan, and the debtors and the holders of all claims against the debtors will be restored to their status as of the day immediately preceding the confirmation of the Plan, except: (1) the holders of claims against Leap will be allowed to retain all assets distributed to them prior to the notice to the Bankruptcy Court; (2) the Leap Creditor Trust will retain its right to receive a distribution equal in value to the 3.5% of new Leap common stock it was to receive under the Plan; and (3) the debtors and their creditors shall be entitled to the benefit of the settlements and releases of intercompany claims and certain litigation claims contemplated by the Plan. If the Plan does not become effective, Cricket’s senior secured vendor creditors may seek to foreclose on the assets of the Cricket companies that have been pledged to secure the obligations under such facilities (with any such foreclosure subject to approval of the Bankruptcy Court), and Leap and its subsidiaries may be forced to liquidate under the applicable provisions of the United States Bankruptcy Code.

     The foregoing summary does not purport to be complete and is qualified in its entirety by reference to the petitions and the motions, pleadings and papers on file with the Bankruptcy Court, including the Plan and the accompanying Disclosure Statement, which were filed as Exhibits 2.1 and 2.2, respectively, to Leap’s Current Report on Form 8-K dated July 30, 2003. The Disclosure Statement also includes detailed information about the Plan.

Other Events

     As a result of the existing events of default under Cricket’s senior secured vendor credit facilities with Lucent Technologies, Inc. (“Lucent”), Nortel Networks, Inc. (“Nortel”), and Ericsson Credit AB and an affiliate (“Ericsson”), the credit facility lenders terminated their commitments under those agreements and the indebtedness under these facilities was accelerated. Substantially all of the indebtedness originally issued under the senior secured credit facilities has been resold to institutional investors by Lucent, Nortel, Ericsson and their transferees. As noted above, under the Plan, amounts owed under the credit facilities will be satisfied in full by payment to the holders of claims under such facilities of 96.5% of the outstanding shares of new Leap common stock as of the effective date and the issuance to such holders of new Cricket senior secured notes with an aggregate face value of $350 million. In addition, subsequent to the end of the third quarter, Cricket assumed its equipment purchase agreements with each of Lucent, Nortel and Ericsson, reached settlement agreements with these suppliers concerning amounts owed under such agreements, and paid approximately $22.3 million to satisfy the settlement amounts.

     In August 2002, Leap issued 21,020,431 shares of common stock to MCG PCS, Inc. (“MCG”) pursuant to a binding arbitration award. The Company’s issuance of these shares caused an “ownership change” as defined under Internal Revenue Code Section 382. Accordingly, the Company’s ability to utilize its net operating loss and capital loss carryforwards is subject to an annual

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limitation. Under the Plan, there will be an additional ownership change in connection with the Company’s emergence from bankruptcy, which may further limit its ability to utilize its net operating loss and capital loss carryforwards. The Plan contemplates a significant reduction of the Company’s outstanding indebtedness and, as a result, the Company expects to realize a significant amount of cancellation of indebtedness income. Although the Company should not be required to recognize such cancellation of indebtedness income for tax purposes, the Company will be required to reduce its net operating loss and capital loss carryforwards by the amount of such excluded income. In addition, under certain circumstances, the Company may be required to reduce the tax bases of its assets by a portion of the excluded income. The Plan further contemplates the merger of certain subsidiaries and the transfer of the stock of certain Leap subsidiaries to Cricket. Management of the Company believes that these mergers and transfers will occur pursuant to tax-deferred transactions.

Note 3. Basis of Presentation

Interim Financial Statements

     The accompanying interim condensed consolidated financial statements have been prepared by the Company without audit, in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes required by accounting principles generally accepted in the United States of America for a complete set of financial statements. These condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2002 filed with the Securities and Exchange Commission on April 15, 2003, and amended on April 16, 2003. In the opinion of management, the unaudited financial information for the interim periods presented reflects all adjustments necessary for a fair presentation. These adjustments are of a normal and recurring nature except for those adjustments described in this Note. The interim condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year.

Principles of Consolidation

     The condensed consolidated financial statements include the accounts of Leap and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements. The Company has continued to present the financial statements of Leap and its wholly owned subsidiaries on a consolidated basis while in bankruptcy because Leap and each of its subsidiaries that has filed for bankruptcy continues to manage its properties and operate its business as a debtor-in-possession; management expects, and the Plan contemplates, that Leap will remain the ultimate parent of each of its subsidiaries (subject to any merger among subsidiaries); Leap has the power to elect or cause the election of the board of directors of each of its subsidiaries during the course of the bankruptcy; and, except for assets to be transferred to the Leap Creditor Trust, management expects that Leap and its subsidiaries will retain substantially all of their assets through the date of the Company’s emergence from bankruptcy.

Accounting Under Chapter 11

     As of the Petition Date, the Company implemented American Institute of Certified Public Accountants’ Statement of Position (“SOP”) 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code.” SOP 90-7 requires that the Company’s pre-petition liabilities that are subject to compromise be reported separately on the balance sheet at an estimate of the amount that will ultimately be allowed by the Bankruptcy Court. SOP 90-7 also requires separate reporting of certain expenses, realized gains and losses and provisions for losses related to the Chapter 11 filings as reorganization items. In addition, the Company ceased accruing interest and amortizing debt discounts and debt issuance costs for pre-petition debt that is subject to compromise, which include its senior notes, senior discount notes, senior secured vendor credit facilities, note payable and Qualcomm Incorporated term loan.

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