<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
COMMISSION FILE NUMBER
000-30761
UBIQUITEL INC.
(Exact name of Co-Registrant as specified in its charter)
DELAWARE 23-3017909
(State of incorporation) (I.R.S. Employer Identification No.)
1 BALA PLAZA, SUITE 402, BALA CYNWYD, PA 19004
(Address of principal executive office) (Zip code)
Co-Registrant's telephone number: (610) 660-9510
Commission File Number
333-39950
UbiquiTel Operating Company
(Exact name of Co-Registrant as specified in its charter)
DELAWARE 23-3024747
(State of incorporation) (I.R.S. Employer Identification No.)
1 BALA PLAZA, SUITE 402, BALA CYNWYD, PA 19004
(Address of principal executive office) (Zip code)
Co-Registrant's telephone number: (610) 660-9510
Indicate by check mark whether each of the Co-Registrants (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 [ ]
There were 63,543,604 shares of common stock, $.0005 par value, of UbiquiTel
Inc. outstanding at October 30, 2000.
There were 1,000 shares of common stock, $.01 par value, of UbiquiTel
Operating Company outstanding at October 30, 2000.
1
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UBIQUITEL INC. AND SUBSIDIARIES
FORM 10-Q - QUARTER ENDED SEPTEMBER 30, 2000
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2000 (unaudited) and
December 31, 1999 (audited)............................................................................4
Consolidated Statements of Operations for the three and nine
months ended September 30, 2000 (unaudited)............................................................5
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2000 (unaudited).........................................................................6
Notes to the Consolidated Financial Statements.........................................................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................................................13
Item 3. Quantitative and Qualitative Disclosure About Market Risk.............................................20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.....................................................................................20
Item 2. Changes in Securities and Use of Proceeds.............................................................21
Item 3. Defaults Upon Senior Securities.......................................................................21
Item 4. Submission of Matters to a Vote of Security Holders...................................................21
Item 5. Other Information.....................................................................................21
Item 6. Exhibits and Reports on Form 8-K......................................................................21
Signatures...................................................................................................... 22
</TABLE>
2
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Explanatory Note:
The Consolidated Financial Statements included herein are that of UbiquiTel
Inc. ("UbiquiTel"). The Co-Registrants are UbiquiTel and UbiquiTel Operating
Company ("Operating Company"), which is a wholly-owned subsidiary of
UbiquiTel and the issuer of 14% Senior Subordinated Discount Notes due 2010
(the "Notes"). UbiquiTel has provided a full, unconditional, joint and
several guaranty of Operating Company's obligations under the Notes.
UbiquiTel has no operations separate from its investment in Operating
Company. No separate financial statements and other disclosures concerning
Operating Company other than narrative disclosures and financial information
set forth in Note 9 to the Consolidated Financial Statements have been
presented herein because management has determined that such information is
not material to investors. As used herein and except as the context otherwise
may require, the "Company," "we," "us," "our" or "UbiquiTel" means,
collectively UbiquiTel, Operating Company and all of their consolidated
subsidiaries.
3
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UBIQUITEL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
-------------------- --------------------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 187,052,402 $ 23,959,190
Accounts receivable, net of allowance for doubtful accounts.................. 1,075,980 -
Inventory.................................................................... 158,475 -
Prepaid expenses and other assets............................................ 454,833 35,636
-------------------- --------------------
Total current assets.................................................... 188,741,690 23,994,826
PROPERTY AND EQUIPMENT, NET .................................................... 23,986,089 -
CONSTRUCTION IN PROGRESS........................................................ 56,058,086 4,085,942
RESTRICTED CASH................................................................. 75,000,000 -
DEFERRED FINANCING COSTS, NET................................................... 12,533,371 2,110,642
INTANGIBLE ASSETS, NET.......................................................... 15,908,077 -
OTHER ASSETS.................................................................... 404,105 -
-------------------- --------------------
Total assets $ 372,631,418 $ 30,191,410
-------------------- --------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses........................................ $ 14,916,723 $ 4,460,635
Due to shareholders.......................................................... - 1,663,441
Accrued interest............................................................. 102,812 10,521
Dividends payable............................................................ - 9,030
Current installments of capital leases....................................... 79,903 -
-------------------- --------------------
Total current liabilities............................................... 15,099,438 6,143,627
-------------------- --------------------
LONG-TERM DEBT.................................................................. 222,115,165 5,811,869
CAPITAL LEASE OBLIGATIONS, NON CURRENT.......................................... 152,410 -
-------------------- --------------------
Total long-term liabilities............................................. 222,267,575 5,811,869
-------------------- --------------------
Total liabilities......................................... 237,367,013 11,955,496
-------------------- --------------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE WARRANTS............................................................. 570,023 2,758,154
-------------------- --------------------
STOCKHOLDERS' EQUITY:
Series A convertible preferred stock, par value, $0.001 per share; 90,000,000
shares authorized at December 31, 1999, eliminated in June, 2000;
17,008,500 issued and outstanding at December 31, 1999.................... - 17,009
Series B convertible preferred stock, par value, $0.001 per share; 35,000,000
shares authorized at December 31, 1999, eliminated in June, 2000; 0 shares
issued and outstanding at December 31, 1999............................... - -
Preferred stock, par value, $0.001 per share; 10,000,000 shares authorized; 0
shares issued and outstanding at September 30, 2000 and December 31, 1999. - -
100,000,000 shares of voting common stock, par value, $0.0005 authorized;
63,543,604 and 6,834,000 shares issued and outstanding at September 30,
2000 and December 31, 1999, respectively.................................. 31,772 3,417
32,000,000 shares of nonvoting common stock, par value, $0.0005 authorized at
December 31, 1999, eliminated in June, 2000; 32,000,000 shares issued and
outstanding at December 31, 1999.......................................... - 16,000
Additional paid-in-capital................................................... 167,427,470 17,428,425
Accumulated deficit.......................................................... (32,764,860) (1,987,091)
-------------------- --------------------
Total stockholders' equity.............................................. 134,694,382 15,477,760
-------------------- --------------------
Total liabilities and stockholders' equity................ $ 372,631,418 $ 30,191,410
-------------------- --------------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
4
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 2000
----------------------- ------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
REVENUES:
Service revenue..................................................... $ 2,939,518 $ 5,078,044
Product sales....................................................... 311,402 473,241
----------------------- ------------------------
Total revenue................................................... 3,250,920 5,551,285
COSTS AND EXPENSES:
Cost of service and operations...................................... 3,076,947 5,113,535
Cost of products sold............................................... 648,415 923,354
Selling and marketing............................................... 1,250,045 1,831,527
General and administrative expenses excluding non-cash compensation
charges........................................................... 1,879,447 3,868,358
Non-cash compensation for general and administrative matters........ 122,850 368,550
Depreciation and amortization..................................... 994,972 1,814,870
----------------------- ------------------------
Total costs and expenses........................................ 7,972,676 13,920,194
OPERATING LOSS......................................................... (4,721,756) (8,368,909)
INTEREST INCOME........................................................ 4,782,798 8,446,040
INTEREST EXPENSE....................................................... (7,647,167) (16,256,554)
----------------------- ------------------------
LOSS BEFORE EXTRAORDINARY ITEM AND PREFERRED STOCK DIVIDENDS........... (7,586,125) (16,179,423)
LESS: PREFERRED STOCK DIVIDENDS PLUS ACCRETION......................... - (10,380,668)
----------------------- ------------------------
LOSS BEFORE EXTRAORDINARY ITEM......................................... (7,586,125) (26,560,091)
EXTRAORDINARY ITEM-EARLY EXTINGUISHMENT OF DEBT........................ - (4,217,677)
----------------------- ------------------------
NET LOSS............................................................... $ (7,586,125) $ (30,777,768)
======================= ========================
BASIC AND FULLY DILUTED NET LOSS PER SHARE OF COMMON STOCK:
Loss before extraordinary item...................................... $ (0.12) $ (0.50)
Extraordinary item.................................................. - (0.08)
----------------------- ------------------------
Net Loss............................................................ $ (0.12) $ (0.58)
======================= ========================
BASIC AND FULLY DILUTED WEIGHTED-AVERAGE OUTSTANDING COMMON SHARES..... 63,492,734 52,940,726
======================= ========================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
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UBIQUITEL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 2000
------------------------
(UNAUDITED)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss before extraordinary item and preferred stock dividends....................... $ (16,179,423)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of deferred financing costs........................................ 1,560,831
Amortization of intangible assets............................................... 706,453
Depreciation.................................................................... 1,108,417
Interest accrued on senior debt................................................. 10,063,554
Non-cash compensation from stock options granted to employees................... 368,550
Changes in operating assets and liabilities exclusive of acquisition and capital
expenditures:
Accounts receivable............................................................. (612,611)
Inventory....................................................................... (158,475)
Prepaid expenses and other assets............................................... (774,963)
Accounts payable and accrued expenses........................................... 563,343
------------------------
Net cash used in operating activities....................................... (3,354,324)
------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................ (50,100,021)
Purchase of Spokane market...................................................... (35,506,694)
Change in restricted cash....................................................... (75,000,000)
------------------------
Net cash used in investing activities....................................... (160,606,715)
------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of senior subordinated notes and detachable warrants..... 152,277,000
Repayment of long-term debt..................................................... (8,000,000)
Drawings under senior secured credit facility................................... 75,000,000
Financing costs................................................................. (12,937,032)
Capital lease payments.......................................................... (32,266)
Proceeds from issuance of convertible preferred stock subsequently converted to
common stock................................................................... 25,000,000
Preferred dividend payment...................................................... (1,007,684)
Warrants exercised.............................................................. 24,891
Proceeds from issuance of common stock.......................................... 106,240,000
Offering costs.................................................................. (9,510,658)
------------------------
Net cash provided by financing activities................................... 327,054,251
------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS.......................................... 163,093,212
CASH AND CASH EQUIVALENTS, beginning of period..................................... 23,959,190
------------------------
CASH AND CASH EQUIVALENTS, end of period........................................... $ 187,052,402
========================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.......................................................... $ 5,653,265
Cash paid for income taxes...................................................... -
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Network assets acquired but not paid............................................ 13,395,516
Extraordinary item-early extinguishment of debt................................. 4,217,677
Preferred stock accretion....................................................... 9,372,628
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE>
UBIQUITEL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION OF UNAUDITED INTERIM FINANCIAL INFORMATION
The consolidated financial information as of September 30, 2000 and for the
three months and nine months ended September 30, 2000 is unaudited, but have
been prepared in accordance with generally accepted accounting principles for
interim financial information and Article 10 of Regulation S-X. Accordingly,
they do not include all the information and footnotes required by generally
accepted accounting principles. In the opinion of management, the interim
data includes all adjustments, consisting only of normal recurring
adjustments, that are considered necessary for fair presentation of the
Company's financial position at September 30, 2000, and the Company's
operations for the three months and nine months ended September 30, 2000 and
cash flows for the nine months ended September 30, 2000. Operating results
for the three months and nine months ended September 30, 2000 are not
necessarily indicative of results that may be expected for the entire year.
This financial information should be read in conjunction with the audited
financial statements and notes thereto for the years ended December 31, 1999
of UbiquiTel and the Spokane District (wholly owned by Sprint Spectrum L.P.
through April 15, 2000), the predecessor of UbiquiTel, which are included in
UbiquiTel's Registration Statement on Form S-1 (Registration No. 333-32236),
as filed with and declared effective by the Securities and Exchange
Commission on June 7, 2000.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires us to make estimates and assumptions. These
estimates and assumptions affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements. These assumptions also affect the reported
amounts of revenue and expenses during the reporting periods. Actual results
could differ from those estimates and assumptions.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998 and June 1999, the Financial Standards Board ("FASB"), issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities
and SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133." These
statements require companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending
on the use of the derivative and whether it qualifies for hedging accounting.
SFAS No. 133 will be effective for UbiquiTel on January 1, 2001. Management
believes that the adoption of these statements will not have a significant
impact on the Company's financial results.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB101"), "Revenue Recognition in Financial
Statements." SAB101 summarizes certain of the staff's interpretations in
applying generally accepted accounting principles to revenue recognition. The
provisions of SAB101 are effective for UbiquiTel's fourth quarter of this
year. Management believes that the adoption of SAB101 will not have a
significant impact on the Company's financial statements.
7
<PAGE>
2. ORGANIZATION AND NATURE OF BUSINESS
The Company was formed for the purpose of becoming the exclusive provider of
Sprint Personal Communications Services ("PCS") in certain defined midsize
and smaller markets in the West and Midwestern United States.
In October 1998, UbiquiTel L.L.C. (a Washington State Limited Liability
Company), whose sole member was The Walter Group entered into an agreement
with Sprint PCS for no consideration given for the exclusive rights to market
Sprint's 100% digital, 100% PCS products and services to the approximately
1.0 million residents in the Reno/Tahoe Nevada market. UbiquiTel L.L.C. had
no financial transactions from its inception (August 24, 1998) to September
29, 1999. On September 29, 1999, UbiquiTel Inc. (formerly "UbiquiTel
Holdings, Inc."), a Delaware Corporation, was incorporated. On November 1,
1999, common stock was issued to a group of five shareholders referred to as
"the Founders" including The Walter Group. In November 1999, UbiquiTel L.L.C.
assigned all of its material contracts including the rights to the Sprint PCS
agreements to UbiquiTel Inc. On December 28, 1999, UbiquiTel Inc. amended its
agreement with Sprint PCS to expand the Company's markets to the Northern
California, Spokane/Montana, Southern Idaho/Utah/Nevada and Southern
Indiana/Kentucky markets, which together with the Reno/Tahoe markets contain
approximately 7.7 million residents.
On November 9, 1999, Operating Company (a Delaware Corporation, formerly a
Delaware limited liability company), was formed to serve as the operating
company for UbiquiTel. Also, on March 17, 2000, UbiquiTel Leasing Company, (a
Delaware Corporation) was formed to serve as the leasing company for
UbiquiTel.
UbiquiTel Inc. was in the development stage from September 29, 1999 through
June 30, 2000. This stage was characterized by significant expenditures for
the design and construction of the wireless network and no significant
operating revenue.
3. BASIC AND DILUTED NET LOSS PER SHARE
UbiquiTel computes net loss per common share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128") and
SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS
128 and SAB 98, basic and diluted net loss per common share is computed by
dividing the net loss available to common shareholders for the period by the
weighted average number of shares of common stock. No conversion of common
stock equivalents has been assumed in the calculations since the effect would
be anti-dilutive. Accordingly, the number of weighted average shares
outstanding as well as the amount of net loss per share are the same for
basic and diluted per share calculations for the period reflected in the
accompanying financial statement.
The following summarizes the securities outstanding, which are excluded from
the loss per share calculation, as amounts would have an anti-dilutive effect.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 2000
------------------------- ------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Stock Options....................... 4,440,600 4,440,600
Warrants............................ 4,813,987 4,813,987
------------------------- ------------------------
Total............................... 9,254,587 9,254,587
========================= ========================
</TABLE>
8
<PAGE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------------- ------------------------
(UNAUDITED)
<S> <C> <C>
Network Equipment..................... $ 23,668,407 $ -
Vehicles.............................. 287,855 -
Furniture & Office Equipment.......... 1,138,244 -
------------------------- ------------------------
25,094,506 -
Accumulated Depreciation.............. (1,108,417) -
------------------------- ------------------------
Subtotal....................... 23,986,089 -
Construction in Progress.............. 56,058,086 4,085,942
------------------------- ------------------------
Total.......................... $ 80,044,175 $ 4,085,942
========================= ========================
</TABLE>
5. LONG-TERM DEBT
Long-term debt outstanding as of December 31, 1999 and September 30, 2000
(unaudited) is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------------- ------------------------
(UNAUDITED)
<S> <C> <C>
12% Senior Subordinated Note.............................. $ - $ 8,000,000
Less: Discount......................................... - (2,188,131)
14% Senior Subordinated Discount Notes (See Note 9)....... 300,000,000 -
Less: Discount......................................... (163,614,222) -
Add: Amortization of Discount.......................... 10,729,387 -
Senior Secured Credit Facility............................ 75,000,000 -
------------------------- ------------------------
Long-term debt.................................... $ 222,115,165 $ 5,811,869
------------------------- ------------------------
</TABLE>
On November 12, 1999, the Company signed a commitment letter for a Purchase
Agreement with BET Associates, which included an $8.0 million senior
subordinated note. The Purchase Agreement was finalized and executed on
December 28, 1999. The note bore stated interest at 12% payable quarterly and
matured on December 28, 2007. BET Associates also received a warrant to
purchase 4,978,150 shares of voting common stock at a par value of $0.0005
per share and an exercise price of $0.005 per share with an exercise period
of ten years. Of the $8.0 million in proceeds received under the purchase
agreement, approximately $2.2 million was allocated to the detachable
warrants based on the fair value of the warrants on the date of issuance as
determined using the Black-Scholes Model. On April 11, 2000, following the
finalization and execution of the senior subordinated discount note, the
notes were prepaid as required by the Note Agreement with a prepayment
premium of 1% and interest earned from April 1, 2000 to the repayment date.
On December 29, 1999 (the "facility effective date"), the Company finalized
and executed a $25.0 million Senior Secured Credit Agreement (the
"Facility"), with Paribas, as Administrative Agent, and certain banks and
other financial institutions party thereto. No amount was drawn under this
Facility. On February 22, 2000, Operating Company received a commitment
letter from Paribas, as Administrative Agent, and certain banks and other
financial institutions party thereto for a $250.0 million senior secured
credit facility. UbiquiTel has guaranteed the credit facility which was
finalized and executed on March 31, 2000 and replaces the previous $25.0
million facility. The credit facility consists of a revolving loan of up to
$55.0 million, a term loan A of $120.0 million and a term loan B of $75.0
million.
9
<PAGE>
The revolving loan and term loan A will mature in October 2007 and the term
loan B will mature in October 2008. The revolving loans are required to be
repaid beginning in February 2002, in eighteen quarterly consecutive
installments. The term loans A and B are required to be repaid beginning in
June 2004 in fourteen and eighteen consecutive quarterly installments,
respectively. The amount of each of the quarterly consecutive installments
increases incrementally in accordance with the credit facility agreement. The
amount that can be borrowed and outstanding under the revolving loans reduces
in eight quarterly reductions of approximately $6.9 million beginning with
December 2005.
Operating Company may borrow funds as either a base rate loan with an
interest rate of prime plus 2.00% for the revolving loans and term loan A and
prime plus 2.50% for term loan B or a Eurodollar Loan with an interest rate
of the London Interbank Offered Rate, commonly referred to as LIBOR, plus
4.25% for the revolving loans and term loan A and plus 3.75% for term loan B.
In addition, an unused credit facility fee ranging from 0.75% to 1.375% will
be charged quarterly on the average unused portion of the facility.
Initial borrowings of $75.0 million under the term loan B were made on April
11, 2000. This amount was funded into an escrow account that is controlled by
Paribas and will not be released until specified conditions have been
satisfied. These conditions include, among others, evidence that the Company
has used all of the proceeds from the sale of the Notes and from UbiquiTel's
initial public offering of its common stock to pay fees and expenses in
connection with those offerings, to fund the build-out of the Company's PCS
network or for other general corporate and working capital purposes.
Additional borrowings are subject to these escrow arrangements and will not
be provided until the initial borrowings of $75.0 million have been released.
In conjunction with the closing of this facility, the Company incurred
financing fees of approximately $7.1 million which are being amortized over
the term of the credit facility. Deferred financing fees of approximately
$1.7 million relating to the old credit facility have been expensed during
the nine month period ended September 30, 2000 (unaudited) as an
extraordinary item.
On April 11, 2000, Operating Company issued 14% Senior Subordinated Discount
Notes. See Note 9 for additional information.
6. STOCK OPTION PLAN
The Company adopted an incentive stock option plan in 1999, which provides
for the granting of non-qualified stock options to purchase shares of the
Company's common stock to officers and key employees. The Company applied APB
No. 25, "Accounting for stock issued to employees" and related
interpretations in accounting for its employee stock options.
In 1999, the Company granted an aggregate of 650,000 non-qualified options to
three employees pursuant to its 2000 Stock Equity Incentive Plan. These
options have an exercise price of $0.50 per share and vest over four years.
Following the resignation of one of the employees during the nine month
period ended September 30, 2000, 200,000 non-qualified options were
forfeited. Donald A. Harris, President and CEO, pursuant to his employment
agreement dated November 29, 1999, was granted an option to purchase
2,550,000 shares of the Company's common stock which is not subject to the
Company's equity incentive plan.
In January 2000, the Company issued an aggregate of 320,000 non-qualified
options to employees pursuant to its 2000 Stock Equity Incentive Plan.
260,000 of these options had an exercise price that was approximately $7.50
less per share than the fair market value of the common stock on the date of
grant. Accordingly, the Company will recognize compensation expense of
approximately $2.0 million over the 48-month vesting period for these options.
10
<PAGE>
During the three months and nine months ended September 30, 2000 (unaudited),
the Company amortized approximately $123,000 and $369,000 of this expense,
respectively. The remaining 60,000 options had an exercise price equal to the
initial public offering price of $8.00 per share. The total options
outstanding at the end of the period were 4,440,600.
In February 2000, the board of directors approved the 2000 Equity Incentive
Plan (the "Plan"). The purpose of the Plan is to attract, retain and reward
key employees and non-employee directors. A committee consisting of members
from the board of directors administers the Plan. The committee may grant
stock options, stock appreciation rights and other equity-based awards to
eligible persons, as defined in the Plan. The plan authorized up to 4,080,000
shares of common stock for issuance under the Plan and does not include
awards paid in cash. During the three and nine month periods ended September
30, 2000, the committee granted 389,100 and 1,440,600 options to employees
respectively. The options with the exception of the 260,000 options discussed
above were granted with an exercise price equal to the fair value of the
stock using the Black-Scholes Model which up to and including June 7, 2000
was the initial public offering price of $8.00 per share.
7. INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS 109 requires an asset and liability approach which
requires the recognition of deferred tax assets and deferred tax liabilities
for the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities. Valuation
allowances will be established when necessary to reduce deferred tax assets
to the amount expected to be realized.
No benefit for federal income tax has been recorded for the nine months ended
September 30, 2000, as the net deferred tax asset is fully reserved because
of the uncertainties regarding the Company's ability to utilize the asset in
future years.
8. STOCKHOLDERS' EQUITY
On June 7, 2000, UbiquiTel completed the initial public offering of its
common stock ("IPO"). A total of 13,280,000 shares of common stock (including
780,000 shares of common stock upon exercise of a portion of the
underwriters' overallotment option effective on July 6, 2000) were sold to
the public at a price of $8.00 per share. UbiquiTel received net proceeds of
approximately $96.7 million after underwriting discounts and offering
expenses of $9.5 million. Concurrently with the IPO, all of the shares of
UbiquiTel's preferred stock were converted into shares of UbiquiTel's common
stock on a two-for-one basis.
9. WHOLLY-OWNED OPERATING SUBSIDIARY SUMMARIZED FINANCIAL INFORMATION
On April 11, 2000, Operating Company issued 14% Senior Subordinated Discount
Notes with a maturity value of $300.0 million and Warrants to purchase
3,579,000 shares of common stock of UbiquiTel at an exercise price of $11.37
per share under Section 4(2) of the Securities Act of 1933. In August 2000,
the notes and warrants were registered with the SEC. The Notes were issued at
a discount and generated approximately $152.3 million in gross proceeds. The
value assigned from the proceeds to the warrants was approximately $15.9
million. The proceeds have been and will be used to partially fund capital
expenditures relating to the network build-out, operating losses, working
capital, the acquisition of the Sprint PCS Spokane, Washington assets,
repayment of the $8.0 million 12% Senior Subordinated Note and the related
prepayment fee and other general corporate purposes. The Notes have a
ten-year maturity and will accrete in value until April 15, 2005 at an
interest rate of 14%. Interest will become
11
<PAGE>
payable semiannually beginning on October 15, 2005. Up to 35% of the Notes
will be redeemable on or prior to April 15, 2003 from net proceeds of one or
more public equity offerings, other than the IPO. Any remaining Notes will be
redeemable on or after April 15, 2005.
The indenture governing the Notes contains customary covenants, including
covenants limiting indebtedness, dividends and distributions on, and
redemptions and repurchases of, capital stock and other similar payments, the
acquisition and disposition of assets, and transactions with affiliates or
related persons. The indenture governing the Notes provides for customary
events of default, including cross defaults, judgment defaults and events of
bankruptcy.
UbiquiTel has unconditionally guaranteed Operating Company's obligations
under the Notes. UbiquiTel has no operations separate from its investment in
Operating Company. Separate financial statements and other disclosures
related to Operating Company as issuer of the debt are not provided because
management has determined that such information is not material to investors.
The summarized financial information of Operating Company as of December 31,
1999 and September 30, 2000 (unaudited) and for the three months ended
September 30, 2000, and for the nine months ended September 30, 2000
(unaudited) is presented below:
<TABLE>
<CAPTION>
Summarized balance sheet data SEPTEMBER 30, 2000 DECEMBER 31, 1999
--------------------- ----------------------
(Unaudited)
<S> <C> <C>
Assets:
Cash and other current assets................................ $ 188,741,690 $ 23,994,826
Property and equipment, net.................................. 23,986,089 --
Construction in progress..................................... 56,058,086 4,085,942
Other assets................................................. 16,312,182 --
Restricted cash.............................................. 75,000,000 --
Deferred financing costs..................................... 12,533,371 2,110,642
--------------------- ----------------------
Total assets............................................. $ 372,631,418 $ 30,191,410
--------------------- ----------------------
Liabilities and Equity:
Accounts payable and accrued expenses........................ $ 14,916,723 $ 4,256,994
Due to related parties....................................... -- 813,441
Accrued interest............................................. 102,812 10,521
Current installment of capital leases........................ 79,903 --
Advances from parent......................................... 155,946,966 19,584,045
Long-term debts and leases................................... 222,267,575 5,811,869
--------------------- ----------------------
Total liabilities........................................ 393,313,979 30,476,870
Equity and Accumulated Deficit............................... (20,682,561) (285,460)
--------------------- ----------------------
Total liabilities and equity............................. $ 372,631,418 $ 30,191,410
===================== ======================
</TABLE>
<TABLE>
<CAPTION>
Three Months Nine Months
Ended ended
Summarized statement of operations data September 30, 2000 September 30, 2000
--------------------- ----------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues.......................................................... $ 3,250,920 $ 5,551,285
Costs and expenses, including non-cash compensation charges....... (7,972,676) (13,920,194)
Interest (expense) income......................................... (2,864,369) (7,810,514)
Extraordinary item--loss on early extinguishment of debt........... -- (4,217,677)
--------------------- ----------------------
Net loss.......................................................... $ (7,586,125) $ (20,397,100)
===================== ======================
</TABLE>
10. ACQUISITION OF SPOKANE MARKET
In January 2000, the Company signed an agreement to purchase from Sprint PCS
the Spokane, Washington market's PCS networks and related assets and
subscribers for approximately $35.5 million. The Company closed this
12
<PAGE>
transaction on April 15, 2000. The acquisition was accounted for under the
Purchase method of accounting. At September 30, 2000, the allocation of the
purchase price for this acquisition is preliminary and is subject to further
refinement based upon the completion of final valuation studies. The
operating results of the acquired business have been included in the
Consolidated Statement of Operations from the date of acquisition.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
This quarterly report on Form 10-Q includes forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially
from the results anticipated in these forward-looking statements. Investors
are referred to the documents filed by UbiquiTel with the Securities and
Exchange Commission, specifically the most recent filings which identify
important risk factors that could cause actual results to differ from those
contained in the forward looking statements, including potential fluctuations
in quarterly results, dependence on new product development, rapid technology
and market change and risks related to the build-out of our PCS network as
well as future growth and rapid expansion. These and other applicable risks
are described under the caption "Risk Factors" in UbiquiTel's Registration
Statement on Form S-1 (Registration No. 333-32236), as filed with and
declared effective by the Securities and Exchange Commission on June 7, 2000.
Until June 30, 2000 we were a development stage company and intend to
significantly expand our operations. Accordingly, we do not believe the
discussion and analysis of our historical financial condition and results of
operations set forth below are indicative nor should they be relied upon as
an indicator of our future performance.
OVERVIEW
In October 1998, a limited liability company whose sole member was The Walter
Group, entered into a management agreement with Sprint PCS whereby it became
the Sprint PCS affiliate with the exclusive right to provide 100% digital,
100% PCS services under the Sprint and Sprint PCS brand names in the
Reno/Tahoe market. The limited liability company subsequently changed its
name to UbiquiTel L.L.C. In November 1999, UbiquiTel L.L.C. assigned the
management and related agreements to UbiquiTel, Inc. UbiquiTel L.L.C. had no
operations or financial transactions prior to the assignment of these
agreements to UbiquiTel Inc.
In December 1999, we amended our management agreement with Sprint PCS to
expand to markets to include a total of 7.7 million residents in the western
and Midwestern United States.
In March 2000, Operating Company entered into a new $250.0 million credit
facility.
In April 2000, we completed a sale of 300,000 units consisting of the Notes
and warrants to purchase, in the aggregate, 3,579,000 shares of UbiquiTel's
common stock. We received gross proceeds of approximately $152.3 million from
the sale of the units.
In April 2000, we acquired Sprint PCS' Spokane, Washington PCS network and
related assets for $35.5 million cash. We acquired switching equipment,
transmitting and receiving equipment at 41 radio communications sites,
ancillary equipment, prepaid expenses, goodwill and customer lists. The
Spokane market did not launch operations until December 16, 1996, and had no
significant revenues until 1997. We also acquired from Sprint certain network
equipment in Logan, UT and Las Vegas, NV.
In June 2000, UbiquiTel sold 12,500,000 shares of its common stock in its
initial public offering. In July 2000, UbiquiTel sold an additional 780,000
shares of its common stock upon exercise of a portion of the underwriters'
overallotment option. We received gross proceeds of approximately $106.2
million from the offering, including
13
<PAGE>
the exercise of the overallotment option.
We have commenced operations in our Reno/Tahoe market, which together with
the Spokane, Washington market, cover approximately 850,000 residents. On
September 30, 2000 we had approximately 11,200 subscribers. We expect to
cover approximately 55% of the resident population in our markets by the end
of 2001.
Until June 30, 2000, we were a development stage company with very limited
operations and revenues, significant losses and substantial capital
requirements. From our inception on September 29, 1999 through September 30,
2000, we have incurred losses of approximately $32.8 million. We expect to
continue to incur significant operating losses and to generate significant
negative cash flow from operating activities until at least 2003 while we
develop and construct our PCS network and build our customer base. Through
September 30, 2000, we incurred approximately $82.2 million of capital
expenditures, inclusive of approximately $18.4 million worth of network
equipment acquired as part of Spokane market purchase.
As a Sprint PCS affiliate, we do not own the licenses to operate our network
and instead, we pay Sprint PCS for the use of its licenses. Under our
management agreement with Sprint PCS, Sprint PCS is entitled to receive 8.0%
of all collected revenue from Sprint PCS subscribers based in our markets and
fees from wireless service providers other than Sprint PCS when their
subscribers roam into our network. We are entitled to 100% of revenues
collected from the sale of handsets and accessories, on roaming revenues
received when Sprint PCS customers from a different territory make a wireless
call on our PCS network, and on roaming revenues from non-Sprint PCS
customers. We are responsible for building, owning and managing the portion
of the Sprint PCS Network located in our markets under the Sprint and Sprint
PCS brand names. Sprint PCS paid approximately $90.0 million for the PCS
licenses in our markets and will incur additional expenses for microwave
clearing. Our results of operations are dependent on Sprint PCS' network and,
to a lesser extent, on the networks of our affiliates.
As a Sprint PCS affiliate, we will purchase a full suite of support services
from Sprint PCS. Initially, the charges for these services will be lower than
if we provided these services ourselves. In addition, we expect that, by
using these established services, our capital expenditures and demands on our
management's time in connection with support services will be lower than if
we developed and provided the services ourselves. We will have access to
these services during the term of our Sprint PCS management agreement unless
Sprint PCS provides us at least nine months advance notice of its intention
to terminate any particular service. Because of the economic benefits to us,
we will initially purchase: customer billing and collections; customer care;
subscriber activation including credit verification; handset logistics;
network operations control center monitoring; national platform
interconnectivity; voice mail; directory assistance and operator services;
long distance; and roaming clearinghouse services. If Sprint PCS terminates
any of these services or increases the amount it charges us for any of these
services, our operating costs may increase and our operations may be
interrupted or restricted.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
Customer Additions
As of September 30, 2000, the Company provided personal communication
services to approximately 11,200 customers resulting from the acquisition of
Spokane market from Sprint on April 15, 2000 and subsequent activations in
that market.
14
<PAGE>
Revenues
- SUBSCRIBER REVENUE. Subscriber revenue during the quarter ended
September 30, 2000 was approximately $1.8 million. This consists of
monthly recurring service charges and monthly non-recurring charges for
local, long distance, travel and roaming airtime usage in excess of the
pre-subscribed usage plan received from Sprint PCS subscribers based in
our territory. Our customers' charges are dependent on their rate
plans, based on the number of minutes included in their plan. These
plans generally reflect the terms of national plans offered by Sprint
PCS and are issued from month-to-month.
- SPRINT PCS TRAVEL REVENUE. Sprint PCS travel revenue is generated on a
per-minute rate when a Sprint PCS subscriber based outside our markets
uses our portion of the Sprint PCS network. During the quarter ended
September 30, 2000, we generated approximately $997,000 in Travel
revenue from our networks in Auburn/Grass Valley, CA, Spokane, WA, Las
Vegas, NV, and Logan, UT.
- NON-SPRINT PCS ROAMING REVENUE. Non-Sprint PCS roaming revenue is
generated when a non-Sprint PCS subscriber uses our portion of the
Sprint PCS network. We earned approximately $104,000 in non-Sprint
roaming revenue during the quarter.
During the quarter ended September 30, 2000, our average monthly revenue per
user including travel and roaming revenues, was approximately $93, and
without roaming and travel revenues was approximately $58.
- PRODUCT SALES REVENUE. Product sales revenue is generated from the sale
of handsets and accessories. We record and retain 100% of the revenue
from the sale of handsets and accessories, net of an allowance for
returns, as product sales revenue. The amount recorded during the
quarter ended September 30, 2000 for product sales totaled
approximately $311,000.
Cost of Service and operations
- NETWORK OPERATIONS EXPENSES. Expenses totaling approximately $2.3
million incurred during the quarter ended September 30, 2000 related to
network operations which includes radio communications site lease
costs, utilities, network control maintenance, network control site
leases, engineering personnel, transport facilities, interconnect
charges.
- ROAMING AND TRAVEL EXPENSES. We pay Sprint PCS travel fees on a
per-minute rate when our customers use the Sprint PCS network outside
our market. Pursuant to our affiliation agreement, Sprint PCS can
change this rate. We pay roaming fees to other wireless providers when
our customers use their network. During the quarter ended September 30,
2000, we paid a total of approximately $473,000 in roaming and travel
fees.
- OPERATING EXPENSES. Other operating expenses totaling approximately
$294,000 were incurred during the quarter ended September 30, 2000. The
fees we pay to Sprint PCS for the use of their support services,
including billing and collections services and customer care are also
included in this expense category.
Cost of Products Sold
The cost of products sold totaled approximately $648,000 during the quarter
ended September 30, 2000. This includes the cost of handsets and accessories.
The cost of handsets exceeds the retail sales price because we subsidize the
cost of handsets, consistent with industry practice.
15
<PAGE>
Selling and Marketing
Selling expenses relate to our distribution channels, sales representatives,
sales support personnel, our retail stores, advertising programs and residual
commissions. We incurred expenses of approximately $1,250,000 during the
three month period ended September 30, 2000. At September 30, 2000, there
were approximately 54 employees performing sales and marketing functions.
General and Administrative
We incurred general and administrative expenses (excluding non-cash expenses)
totaling approximately $1.9 million during the quarter ended September 30,
2000. General and administrative expenses include our corporate executive
payroll, compensation and benefits, insurance and facilities, information
technology and local market finance and administration expenses. This also
includes the fees we pay to Sprint for management support.
Noncash Compensation for General and Administrative Matters
During the quarter ended September 30, 2000, non-cash compensation for
general and administrative matters totaled approximately $123,000. The
Company applies the provisions of APB Opinion No. 25 and related
interpretations in accounting for its stock option plan. Unearned stock
option compensation is recorded for the difference between the exercise price
and the fair market value of the Company's stock at the date of grant and is
recognized as noncash stock option compensation expense in the period in
which the related services are rendered.
Depreciation and Amortization
Depreciation and amortization expense for the three months ended September
30, 2000 totaled approximately $995,000. We depreciate our property and
equipment using the straight-line method over five to ten years. Amortization
of intangible assets is over 2 to 20 years.
Interest Income
For the three months ended September 30, 2000, interest income was
approximately $4.8 million. This was generated from cash proceeds from our
private equity sales, the initial public offering, senior subordinated
discount notes and drawings under the senior secured credit facility. The
proceeds were invested in short-term liquid investments. As capital
expenditures are made to complete the build-out of our network, decreasing
cash balances may result in lower interest income for the remainder of 2000.
Interest Expense
Interest expense totaled approximately $7.6 million during the three months
ended September 30, 2000. We accrue interest at a rate of 14% per annum on
our senior subordinated discount notes through April 15, 2005 and will pay
interest semiannually in cash thereafter. Interest on our senior credit
facility was accrued at prime rate plus specified margin until May 2000 and
was subsequently rolled under the reserve adjusted London interbank offered
rate, based on monthly contracts.
Interest expense also included the amortized amount of deferred financing
fees relating to our senior credit facility and senior subordinated discount
notes. We expect our interest expense to increase in the future as we borrow
under our senior credit facility to fund our network build-out and operating
losses.
16
<PAGE>
Net Loss
For the three months ended September 30, 2000, the net loss was approximately
$7.6 million.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
Our operating results for the nine months ended September 30, 2000 consist
largely of revenues generated in the six months ended September 30, 2000 and
operating expenses associated with those revenues. Our activities in the
first quarter were generally limited to network build-out, raising capital
and development of various operating functions for the Company.
Revenues
- SUBSCRIBER REVENUE. Subscriber revenue for the nine months ended
September 30, 2000 was approximately $3.2 million. This consists of
monthly recurring service charges and monthly non-recurring charges for
local, long distance, travel and roaming airtime usage in excess of the
pre-subscribed usage plan received from Sprint PCS subscribers based in
our territory.
- SPRINT PCS TRAVEL REVENUE. Sprint PCS travel revenue is generated on a
per-minute rate when a Sprint PCS subscriber based outside our markets
uses our portion of the Sprint PCS network. During the nine months
ended September 30, 2000, we generated approximately $1,758,000 in
travel revenue from our networks in Auburn/Grass valley, CA, Spokane,
WA, Las Vegas, NV, and Logan, UT.
- NON-SPRINT PCS ROAMING REVENUE. Non-Sprint PCS roaming revenue is
generated when a non-Sprint PCS subscriber uses our portion of the
Sprint PCS network. We earned approximately $120,000 in non-Sprint
roaming revenue during the nine months ended September 30, 2000.
- PRODUCT SALES REVENUE. Product sales revenue is generated from the sale
of handsets and accessories. We record and retain 100% of the revenue
from the sale of handsets and accessories, net of an allowance for
returns, as product sales revenue. The amount recorded during the nine
months ended September 30, 2000 for product sales totaled approximately
$473,000.
Cost of Service and operations
- NETWORK OPERATIONS EXPENSES. Network operating expenses totaling
approximately $3.8 million were incurred during the nine months ended
September 30, 2000. These included radio communications site lease
costs, utilities, network control maintenance, network control site
leases, engineering personnel, transport facilities, interconnect
charges. The payroll and other expenses associated with network
build-out were also included in network operating expenses.
- ROAMING AND TRAVEL EXPENSES. During the nine months ended September 30,
2000, we paid a total of approximately $838,000 in roaming and travel
fees.
- OPERATING EXPENSES. Other operating expenses totaling approximately
$468,000 were incurred during the nine months ended September 30, 2000.
The fees we pay to Sprint PCS for the use of their support services,
including billing and collections services, customer care and
subscriber activation are also included in this expense category.
17
<PAGE>
Cost of Products Sold
The cost of products sold totaled approximately $923,000 during the nine
months ended September 30, 2000. This includes the cost of handsets and
accessories. The cost of handsets exceeds the retail sales price because we
subsidize the cost of handsets, consistent with industry practice.
Selling and Marketing
Selling expenses relate to our distribution channels, sales representatives,
sales support personnel, our retail stores, advertising programs and residual
commissions. We incurred expenses of approximately $1,832,000 during the nine
month period ended September 30, 2000.
General and Administrative
We incurred general and administrative expenses (excluding non-cash expenses)
totaling approximately $3.9 million during the nine months ended September
30, 2000. General and administrative expenses include our corporate executive
payroll, compensation and benefits, insurance and facilities, information
technology and local market finance and administration expenses. This also
includes the fees we pay to Sprint for management support.
Noncash Compensation for General and Administrative Matters
During the nine months ended September 30, 2000, non-cash compensation for
general and administrative matters totaled approximately $369,000. The
Company applies the provisions of APB Opinion No. 25 and related
interpretations in accounting for its stock option plan. Unearned stock
option compensation is recorded for the difference between the exercise price
and the fair market value of the Company's stock at the date of grant and is
recognized as noncash stock option compensation expense in the period in
which the related services are rendered.
Depreciation and Amortization
Depreciation and amortization expense for the nine months ended September 30,
2000 totaled approximately $1.8 million. We depreciate our property and
equipment using the straight-line method over five to ten years. Amortization
of intangible assets is over 2 to 20 years.
Interest Income
For the nine months ended September 30, 2000, interest income was
approximately $8.4 million. This was generated from cash proceeds from our
private equity sales, the initial public offering, senior subordinated
discount notes and drawings under the senior secured credit facility. The
proceeds were invested in liquid accounts waiting to be deployed. As capital
expenditures are made to complete the build-out of our network, decreasing
cash balances may result in lower interest income for the remainder of 2000.
Interest Expense
Interest expense totaled approximately $16.3 million during the nine months
ended September 30, 2000. We accrue interest at a rate of 14% per annum on
our senior subordinated discount notes through April 15, 2005 and will pay
interest semiannually in cash thereafter. Interest on our senior credit
facility accrued at prime rate plus specified margin through May 2000 and was
subsequently rolled under the reserve adjusted London interbank offered rate,
based on monthly contracts. Interest expense also included the amortized
amount of deferred financing fees relating to our senior credit facility and
senior subordinated discount notes.
18
<PAGE>
Net Loss
For the nine months ended September 30, 2000, the net loss was approximately
$30.8 million, including $10.4 million in payment of preferred stock
dividends plus accretion and a $4.2 million extraordinary expense.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, our activities have consisted principally of raising
capital, consummating and supporting our agreements with Sprint PCS,
developing the initial design of our PCS network and adding to our management
team. We have relied on the proceeds from equity and debt financing, rather
than revenues, as our primary sources of capital. Specifically, operations
during this development phase have been funded through equity infusions of
$148.2 million in the form of preferred stock and initial public offering and
the proceeds of senior subordinated discount notes of $152.3 million. Cash
interest on the senior subordinated discount notes will become payable on
October 15, 2005.
Completion of our PCS network will require substantial capital. Our build-out
plan includes the installation of 3 switches and over 500 radio
communications sites by the end of 2001. In addition, we will develop
approximately 20 company-owned Sprint PCS stores and associated
administrative systems within the same time period. As of September 30,2000,
we have completed the construction of two retail stores in Spokane, WA. We
also have 57 radio communications sites currently generating revenues as of
September 30, 2000.
On March 31, 2000, we signed a new senior secured credit agreement with
Paribas. The new senior credit facility consists of a revolving loan of up to
$55.0 million, a term loan A of $120.0 million and a term loan B of $75.0
million. Concurrently with the closing of our senior subordinated discount
notes, we borrowed $75.0 million of term loans, which were funded into an
escrow account. These borrowings under the credit facility at September 30,
2000, bear interest at LIBOR plus 4.25%. The escrow account will remain the
property of our lenders and will not be released to us if an event of default
has occurred under the credit agreement. Additionally, the escrow account
will not be released to us until specified conditions have been satisfied.
These conditions include, among others, evidence that we have used all of the
proceeds from our sale of senior subordinated discount notes and from
UbiquiTel's initial public offering to pay fees and expenses in connection
with these offerings, to fund the build-out of our network or for other
general corporate and working capital purposes. Additional borrowings under
our senior credit facility must be placed into escrow until the conditions to
release our initial borrowing of $75.0 million have been satisfied. Our
senior credit facility contains financial and other covenants customary for
the wireless industry, and is secured by a first priority lien on our assets
and a pledge by UbiquiTel of the capital stock in Operating Company.
Scheduled amortization payments of principal for the term loans under the
senior credit facility begin on June 30, 2004.
As of September 30, 2000, we had approximately $187.1 million in cash and
cash equivalents, and an additional $75.0 million in an escrow account
subject to release pending satisfaction of certain conditions under our
senior credit facility. Working capital was approximately $173.6 million.
Net cash used by operating activities was approximately $3.4 million for the
nine months ended September 30, 2000. This was primarily attributable to the
operating loss of approximately $16.2 million being partly offset by noncash
items of approximately $13.8 and cash used for working capital of
approximately $983,000.
Net cash used in investing activities was approximately $160.6 million during
the nine months ended September 30, 2000. The expenditures were related
primarily to the purchase of the Spokane market for approximately $35.5
million and payment of $50.1 million for equipment needed in the construction
of our portion of the Sprint PCS
19
<PAGE>
Network. Cash used in investing activities also included an investment of $75
million of restricted cash in short-term securities.
Net cash provided by financing activities was approximately $327.1 million,
consisting primarily of the preferred stock issued of $25.0 million, proceeds
of $152.3 million from the senior subordinated discount notes, $75.0 million
drawing under the senior credit facility and the $106.2 million proceed from
the initial public offering. The proceeds were reduced by financing costs and
IPO costs of approximately $22.4 million, preferred dividend payment of
approximately $1.0 million and the repayment of the $8.0 million term loan.
As part of our management agreement, Sprint PCS requires us to build-out
portions of our network by various dates including December 31, 2000, March
31, 2001, September 30, 2001 and June 1, 2005. We believe we have sufficient
funds available through cash, investments and future advancements under our
senior credit facility to fund capital expenditures, including the completion
of our build-out, working capital requirements and operating losses through
2003. The actual funds required to build-out our portion of the Sprint PCS
network and to fund operating losses and working capital needs may vary
materially from our estimates, and additional funds could be required.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
For the quarter ended September 30, 2000, we did not experience any material
change in market risk exposures that affect the quantitative and qualitative
disclosures presented in UbiquiTel's Registration Statement on Form S-1
(Registration No. 333-32236), as filed with and declared effective by the
Securities and Exchange Commission on June 7, 2000 except as noted below.
The Company's senior credit facility is subject to market risk and interest
rate changes. At the Company's option, the term loans under the credit
facility bear interest at either LIBOR plus a specified margin or prime plus
a specified margin. The outstanding principal balance on the credit facility
is approximately $75.0 million at September 30, 2000. Considering this total
outstanding balance of approximately $75.0 million at September 30, 2000, a
1% change in interest rate would result in an increase in pre-tax losses of
approximately $750,000 per year.
Inflation
Management believes that inflation has not had, and will not have, a material
adverse effect on our results of operations.
Seasonality
Our business is seasonal because the wireless industry is heavily dependent
on fourth quarter results. Among other things, the industry relies on
significantly higher customer additions and handset sales in the fourth
quarter as compared to the other three fiscal quarters. The factors
contributing to this trend include the increasing use of retail distribution,
which is dependent on year-end holiday shopping, the timing of new product
and service offerings, competitive pricing pressures and aggressive marketing
and promotions during the holiday season.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
20
<PAGE>
Item 2. Changes in Securities and Use of Proceeds
(c) Reference is made to Note 6 of the Consolidated Financial Statements
included herein for a description of stock options granted to our employees
to purchase shares of UbiquiTel's common stock during the three month period
ended September 30, 2000. The issuances of such securities were deemed to be
exempt from registration under the Securities Act of 1933 in reliance upon
Section 4(2) or in reliance upon Rule 701 promulgated thereunder, in each
case as transactions not involving a public offering.
(d) On June 7, 2000, UbiquiTel completed a public offering of its common
stock. An aggregate of 13,280,000 shares (including 780,000 shares upon
exercise of a portion of the underwriters' overallotment option on July 7,
2000) were sold to the public at a price of $8.00 per share. The offering was
effected pursuant to a Registration Statement on Form S-1 (Registration No.
333-32236), which was declared effective by the Securities and Exchange
Commission on June 7, 2000. Donaldson Lufkin & Jenrette, Banc of America
Securities LLC and DLJDIRECT Inc. were the managing underwriters for the
offering.
Of the approximately $106.2 million in aggregate proceeds received by us in
the offering, (i) approximately $6.6 million was paid to underwriters in
connection with the underwriting discount, and (ii) approximately $2.9
million was paid in connection with offering expenses, printing fees, filing
fees and legal fees. The proceeds have been and will be used to partially
fund the construction of our network and general corporate purposes,
including working capital and the funding of operating losses. Pending such
uses, we have invested the proceeds in short-term, interest bearing,
investment-grade securities.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
None.
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
21
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
CO-REGISTRANTS:
UBIQUITEL INC.
UBIQUITEL OPERATING COMPANY
By: /s/ DONALD A. HARRIS
--------------------------------------------
Donald A. Harris
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
By: /s/ PETER LUCAS
--------------------------------------------
Peter Lucas
Interim Chief Financial Officer
(Principal Financial and Accounting Officer)
November 13, 2000
22
