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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

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 September 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.

(Exact name of registrant as specified in its charter)
     
Delaware
   33-0811062
(State or other jurisdiction of
incorporation or organization)		   (I.R.S. Employer
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)

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 90 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

      Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes x          No o

      The number of shares of registrant’s common stock outstanding on November 15, 2004 was 60,000,000.

LEAP WIRELESS INTERNATIONAL, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended September 30, 2004

TABLE OF CONTENTS

             
Page
 PART I — FINANCIAL INFORMATION
   Financial Statements     1  
   Management’s Discussion and Analysis of Financial Condition and Results of Operations     21  
   Quantitative and Qualitative Disclosures About Market Risk     39  
   Controls and Procedures     39  
 PART II — OTHER INFORMATION
   Legal Proceedings     40  
   Unregistered Sales of Equity Securities and Use of Proceeds     42  
   Defaults Upon Senior Securities     43  
   Submission of Matters to a Vote of Security Holders     44  
   Other Information     44  
   Exhibits     44  
 EXHIBIT 10.2
 EXHIBIT 10.3
 EXHIBIT 10.4
 EXHIBIT 31.1
 EXHIBIT 31.2
 EXHIBIT 32

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

LEAP WIRELESS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands)
                     
Successor Predecessor
Company Company
September 30, December 31,
2004 2003
Assets
                
Cash and cash equivalents
  $ 138,582     $ 84,070  
Short-term investments
    99,991       65,811  
Restricted cash, cash equivalents and short-term investments
    37,295       55,954  
Funds distributed to Leap Creditor Trust (Note 1)
    —       67,800  
Inventories
    33,286       17,680  
Other current assets
    33,656       39,145  
     
     
 
   
Total current assets
    342,810       330,460  
Property and equipment, net
    579,640       817,075  
Wireless licenses, net
    652,664       560,056  
Goodwill and other intangible assets, net
    494,289       —  
Other assets
    15,038       49,252  
     
     
 
   
Total assets
  $ 2,084,441     $ 1,756,843  
     
     
 
Liabilities and Stockholders’ Equity (Deficit)
                
Accounts payable and accrued liabilities
  $ 95,963     $ 64,485  
Current maturities of long-term debt (Note 6)
    40,586       74,112  
Other current liabilities
    76,709       54,923  
     
     
 
   
Total current liabilities
    213,258       193,520  
Long-term debt (Note 6)
    372,192       —  
Other long-term liabilities
    22,945       55,157  
     
     
 
   
Total liabilities
    608,395       248,677  
Liabilities subject to compromise (Note 5)
    —       2,401,522  
Commitments and contingencies (Notes 1 and 8) 
                
Stockholders’ equity (deficit):
               
 
Predecessor Company and Successor Company preferred stock — authorized 10,000,000 shares, $.0001 par value; no shares issued and outstanding
    —       —  
 
Predecessor Company common stock — authorized 300,000,000 shares, $.0001 par value; 58,704,224 shares issued and outstanding
    —       6  
 
Successor Company common stock — authorized 160,000,000 shares, $.0001 par value; 60,000,000 shares issued and outstanding
    6       —  
 
Additional paid-in capital
    1,478,392       1,156,410  
 
Unearned stock-based compensation
    —       (421 )
 
Accumulated deficit
    (2,572 )     (2,048,431 )
 
Accumulated other comprehensive income (loss)
    220       (920 )
     
     
 
   
Total stockholders’ equity (deficit)
    1,476,046       (893,356 )
     
     
 
   
Total liabilities and stockholders’ equity (deficit)
  $ 2,084,441     $ 1,756,843  
     
     
 

See accompanying notes to condensed consolidated financial statements.

1

Table of Contents

LEAP WIRELESS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(In thousands, except per share data)
                             
Successor
Company Predecessor Company
Two Months One Month Three Months
Ended Ended Ended
September 30, July 31, September 30,
2004 2004 2003
Revenues:
                       
 
Service revenues
  $ 112,084     $ 57,375     $ 160,849  
 
Equipment revenues
    24,502       11,749       32,034  
     
     
     
 
   
Total revenues
    136,586       69,124       192,883  
     
     
     
 
Operating expenses:
                       
 
Cost of service (exclusive of items shown separately below)
    (32,333 )     (18,161 )     (47,849 )
 
Cost of equipment
    (31,383 )     (12,770 )     (49,188 )
 
Selling and marketing
    (16,769 )     (6,805 )     (21,610 )
 
General and administrative
    (21,673 )     (8,982 )     (38,723 )
 
Depreciation and amortization
    (29,546 )     (26,007 )     (74,903 )
 
Impairment of long-lived assets and related charges
    —       (266 )     (4,083 )
     
     
     
 
   
Total operating expenses
    (131,704 )     (72,991 )     (236,356 )
Gains on sale of wireless licenses
    —       532       3,117  
     
     
     
 
 
Operating income (loss)
    4,882       (3,335 )     (40,356 )
Interest income
    278       —       —  
Interest expense (contractual interest expense was $22.7 million for the one month ended July 31, 2004 and $62.0 million for the three months ended September 30, 2003)
    (5,545 )     (464 )     (2,356 )
Other income (expense), net
    153       303       (19 )
     
     
     
 
Loss before reorganization items and income taxes
    (232 )     (3,496 )     (42,731 )
Reorganization items, net
    —       958,228       (2,595 )
     
     
     
 
Income (loss) before income taxes
    (232 )     954,732       (45,326 )
Income taxes
    (2,340 )     (295 )     (2,091 )
     
     
     
 
   
Net income (loss)
  $ (2,572 )   $ 954,437     $ (47,417 )
     
     
     
 
Other comprehensive income (loss):
                       
 
Unrealized holding gains on investments, net
    220       —       140  
     
     
     
 
   
Comprehensive income (loss)
  $ (2,352 )   $ 954,437     $ (47,277 )
     
     
     
 
Basic and diluted net income (loss) per common share
  $ (0.04 )   $ 16.28     $ (0.81 )
     
     
     
 
Shares used in per share calculations:
                       
 
Basic and diluted
    60,000       58,631       58,704  
     
     
     
 

See accompanying notes to condensed consolidated financial statements.

2

Table of Contents

LEAP WIRELESS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(In thousands, except per share data)
                             
Successor
Company Predecessor Company
Two Months Seven Months Nine Months
Ended Ended Ended
September 30, July 31, September 30,
2004 2004 2003
Revenues:
                       
 
Service revenues
  $ 112,084     $ 398,451     $ 483,912  
 
Equipment revenues
    24,502       83,196       78,462  
     
     
     
 
   
Total revenues
    136,586       481,647       562,374  
     
     
     
 
Operating expenses:
                       
 
Cost of service (exclusive of items shown separately below)
    (32,333 )     (113,988 )     (153,918 )
 
Cost of equipment
    (31,383 )     (97,160 )     (132,994 )
 
Selling and marketing
    (16,769 )     (51,997 )     (65,353 )
 
General and administrative
    (21,673 )     (81,514 )     (126,706 )
 
Depreciation and amortization
    (29,546 )     (177,494 )     (226,055 )
 
Impairment of indefinite-lived intangible assets
    —       —       (171,140 )
 
Impairment of long-lived assets and related charges
    —       (626 )     (22,721 )
     
     
     
 
   
Total operating expenses
    (131,704 )     (522,779 )     (898,887 )
Gains on sale of wireless licenses
    —       532       4,589  
     
     
     
 
 
Operating income (loss)
    4,882       (40,600 )     (331,924 )
Interest income
    278       —       779  
Interest expense (contractual interest expense was $156.3 million for the seven months ended July 31, 2004 and $184.7 million for the nine months ended September 30, 2003)
    (5,545 )     (4,195 )     (82,307 )
Other income (expense), net
    153       (293 )     (187 )
     
     
     
 
Loss before reorganization items and income taxes
    (232 )     (45,088 )     (413,639 )
Reorganization items, net
    —       957,516       (4,963 )
     
     
     
 
Income (loss) before income taxes
    (232 )     912,428       (418,602 )
Income taxes
    (2,340 )     (4,166 )     (6,072 )
     
     
     
 
   
Net income (loss)
  $ (2,572 )   $ 908,262     $ (424,674 )
     
     
     
 
Other comprehensive income (loss):
                       
 
Unrealized holding gains on investments, net
    220       —       225  
     
     
     
 
   
Comprehensive income (loss)
  $ (2,352 )   $ 908,262     $ (424,449 )
     
     
     
 
Basic and diluted net income (loss) per common share
  $ (0.04 )   $ 15.49     $ (7.23 )
     
     
     
 
Shares used in per share calculations:
                       
 
Basic and diluted
    60,000       58,623       58,704  
     
     
     
 

See accompanying notes to condensed consolidated financial statements.

3

Table of Contents

LEAP WIRELESS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)
(In thousands)
                             
Successor
Company Predecessor Company
Two Months Seven Months Nine Months
Ended Ended Ended
September 30, July 31, September 30,
2004 2004 2003
Operating activities:
                       
   
Net cash provided by operating activities
  $ 27,090     $ 119,142     $ 105,235  
     
     
     
 
Investing activities:
                       
 
Purchase of property and equipment
    (10,392 )     (33,412 )     (27,279 )
 
Net proceeds from sales of wireless licenses
    —       2,000       4,722  
 
Purchase of investments
    (12,798 )     (87,201 )     (111,183 )
 
Sale and maturity of investments
    7,300       58,333       79,197  
 
Restricted cash, cash equivalents and short-term investments, net
    11,367       9,810       13,734