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UNITED STATES

FORM 10-Q

(Mark One)

	x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2004

OR

	o	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.

(858) 882-6000

Not applicable

     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 o

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

      The number of shares of registrant’s common stock outstanding on August 6, 2004 was 58,704,224.

LEAP WIRELESS INTERNATIONAL, INC

QUARTERLY REPORT ON FORM 10-Q

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PART I

Item 1. Financial Statements

LEAP WIRELESS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes to condensed consolidated financial statements.

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LEAP WIRELESS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to condensed consolidated financial statements.

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LEAP WIRELESS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to condensed consolidated financial statements.

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LEAP WIRELESS INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

      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 Cricket’s wireless communications 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 June 30, 2004, the Company provided wireless service in 39 markets.

      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-A11 to 03-03535-A11). 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, combined with its cumulative net losses, raise substantial doubt about its ability to continue as a going concern.

Plan of Reorganization

      On October 22, 2003, the Bankruptcy Court entered an order confirming the Company’s Fifth Amended Joint Plan of Reorganization, including certain technical amendments thereto (the “Plan of Reorganization”). Upon satisfaction of the conditions precedent to effectiveness of the Plan of Reorganization, the Company will emerge from Chapter 11. On August 5, 2004, the Company received all required regulatory approvals from the Federal Communications Commission (the “FCC”) for the transfer of wireless licenses associated with the change of control that will occur upon the Company’s emergence from bankruptcy. The Company expects, but cannot guarantee, that it will satisfy the remaining conditions to the effectiveness of its Plan of Reorganization and emerge from Chapter 11 in the very near future.

      In its order approving the change of control of the Company’s wireless licenses, the FCC denied Leap’s request for a waiver of certain FCC regulations relating to Leap’s status as a “small business” or “very small business,” and determined that Leap would not be a “small business” or “very small business” following its emergence from bankruptcy. As a result of the FCC’s order, and a concurrent settlement agreement between Cricket and certain license subsidiaries and the FCC, the Company is required to pay to the FCC on the effective date of the Plan of Reorganization approximately $36.7 million for unpaid principal and approximately $8.3 million of accrued interest in connection with the reinstatement of the Company’s FCC debt, and approximately $278,000 of unjust enrichment penalties. The order and settlement agreement also require the applicable license subsidiaries to repay approximately $40 million in principal amounts that will remain outstanding on the effective date of the Plan of Reorganization, plus accrued interest, to the FCC in installments scheduled for April and July 2005. The Company also agreed in the settlement agreement to use reasonable efforts to complete a debt offering on or prior to January 31, 2005 generating net proceeds sufficient to repay the $350 million of senior secured pay-in-kind notes that the Company will issue upon its emergence

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      The Plan of Reorganization implements a comprehensive financial reorganization that will significantly reduce the Company’s total outstanding indebtedness. In connection with the Plan of Reorganization, the Company’s current long-term debt will be reduced from a book value of more than $2.4 billion to an initial principal amount of approximately $390 million, consisting of the $350 million of senior secured pay-in-kind notes to be issued on the effective date of the Plan of Reorganization and approximately $40 million of remaining indebtedness to the FCC (net of repayment of $45 million of principal and interest to the FCC on the effective date of the Plan of Reorganization). Following is a summary of the material actions that will occur as of the effective date of the Plan of Reorganization:

	•	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 of Reorganization. Leap will issue 60 million shares of new Leap common stock to two classes of the Company’s creditors, the members of which will become Leap’s new shareholders.
	•	The holders of Cricket’s senior secured vendor debt claims will receive, on a pro rata basis, 96.5% of the issued and outstanding shares of new Leap common stock as well as new senior secured pay-in-kind notes with an aggregate face value of $350.0 million.
	•	Reorganized Leap will issue 3.5% of its outstanding shares of new Leap common stock to the Leap Creditor Trust for distribution to holders of allowed Leap general unsecured claims on a pro rata basis; and will transfer other assets as specified in the Plan of Reorganization which are to be liquidated by the Leap Creditor Trust, with the cash proceeds from such liquidation to be distributed to the holders of allowed Leap general unsecured claims. These other assets include a note receivable of $35.0 million that is currently in dispute with Endesa, S.A. (“Endesa”) ( Note 7), nine wireless licenses with a book value of approximately $1.1 million at June 30, 2004, Leap’s equity interest in IAT Communications, Inc. which had no carrying value at June 30, 2004, certain causes of action, and approximately $2.3 million of reimbursement from Cricket for cash deposits previously made by Leap in connection with contracts that will be assumed by Leap in the bankruptcy proceedings. As of June 30, 2004, Leap also had transferred $68.8 million of funds to the Leap Creditor Trust to be distributed to holders of allowed Leap general unsecured claims.
	•	Certain executory contracts and unexpired leases will be assumed by the reorganized debtors. Reorganized Cricket will pay all cure amounts associated with such contracts and leases.
	•	The holders of general unsecured claims against Cricket will receive de minimus or no distributions in respect of their claims and holders of general unsecured claims against the other subsidiaries of Leap and Cricket will receive no distributions under the Plan of Reorganization.
	•	All of the debtors’ pre-petition indebtedness, other than indebtedness owed to the FCC, will be cancelled in full, including approximately $1.6 billion net book value of debt outstanding under Cricket’s senior secured vendor credit facilities and approximately $739.2 million net book value of debt outstanding under Leap’s 12.5% senior notes (“Senior Notes”), 14.5% senior discount notes (“Senior Discount Notes”), the note payable to GLH, Inc. (“GLH”) and the Qualcomm Incorporated (“Qualcomm”) term loan.
	•	The Company is required to pay to the FCC approximately $36.7 million for unpaid principal and approximately $8.3 million of accrued interest in connection with the reinstatement of the Company’s FCC debt, and approximately $278,000 of unjust enrichment penalties.

      Also on the effective date of the Plan of Reorganization, Leap, Cricket and their subsidiaries will implement certain restructuring transactions intended to streamline their corporate structure. As a result, Cricket will own 100% of the issued and outstanding shares of each of the reorganized wireless license holding

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      Any cash held in reserve by Leap immediately prior to the effective date of the Plan of Reorganization that remains following satisfaction of all allowed administrative claims and allowed priority claims against Leap, will be distributed to the Leap Creditor Trust.

      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 of Reorganization 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, as amended by Amendment No. 1 thereto. The Disclosure Statement also includes detailed information about the Plan of Reorganization.

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, as of the Petition Date the Company ceased accruing interest and amortizing debt discounts and debt issuance costs for pre-petition debt that is subject to compromise, which included its Senior Notes, Senior Discount Notes, senior secured vendor credit facilities, the note payable to GLH and the Qualcomm term loan.

      In connection with its emergence from bankruptcy, the Company intends to adopt the fresh-start reporting provisions of SOP 90-7. In accordance with SOP 90-7, fresh-start reporting should be applied when the reorganization value of the Company is less than the sum of all allowed claims and post-petition liabilities and holders of old common shares receive less than fifty percent of new voting shares. Under SOP 90-7, reorganization value represents the fair value of the entity before considering liabilities and approximates the amount a willing buyer would pay for the assets of the entity immediately after the reorganization. In accordance with fresh start reporting, the Company’s reorganization value will be allocated to the fair value of its ass