UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) |
|
|
ý |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2001
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to ___________.
NEXTEL PARTNERS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware |
|
91-1930918 |
(State or Other Jurisdiction of Incorporation or Organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
4500 Carillon
Point, Kirkland, Washington 98033
(425) 576-3600
(Address of principal executive offices, zip code and telephone number, including area code)
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 ý No o.
Indicate the number of shares outstanding of each of issuers classes of common stock as of the latest practicable date:
Outstanding Title of Class |
Number of Shares on November 1, 2001 |
Class A Common Stock |
165,464,615 shares |
Class B Common Stock |
79,056,228 shares |
NEXTEL PARTNERS, INC.
INDEX
PART I - FINANCIAL INFORMATION
NEXTEL
PARTNERS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(dollars in thousands)
|
|
September 30, |
|
December 31, |
|
||
|
|
2001 |
|
2000 |
|
||
ASSETS |
|
(unaudited) |
|
|
|
||
CURRENT ASSETS |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
230,673 |
|
$ |
493,552 |
|
Short-term investments |
|
232,730 |
|
434,794 |
|
||
Accounts receivable, net of allowance $3,643 and $1,398, respectively |
|
74,518 |
|
34,912 |
|
||
Subscriber equipment inventory |
|
3,938 |
|
3,146 |
|
||
Other current assets |
|
11,708 |
|
17,522 |
|
||
Total current assets |
|
553,567 |
|
983,926 |
|
||
|
|
|
|
|
|
||
PROPERTY, PLANT AND EQUIPMENT, at cost |
|
905,467 |
|
583,956 |
|
||
Less - accumulated depreciation |
|
(101,050 |
) |
(51,254 |
) |
||
Property, plant and equipment, net |
|
804,417 |
|
532,702 |
|
||
|
|
|
|
|
|
||
OTHER NON-CURRENT ASSETS: |
|
|
|
|
|
||
FCC operating licenses, net of accumulated amortization of $7,268 and $3,608,respectively |
|
279,719 |
|
245,295 |
|
||
Debt issuance costs, net of accumulated amortization of $8,097 and $5,376 respectively and other assets |
|
26,886 |
|
28,961 |
|
||
Receivable from officer |
|
2,200 |
|
2,200 |
|
||
Total non-current assets |
|
308,805 |
|
276,456 |
|
||
|
|
|
|
|
|
||
TOTAL ASSETS |
|
$ |
1,666,789 |
|
$ |
1,793,084 |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
||
CURRENT LIABILITIES |
|
|
|
|
|
||
Accounts payable |
|
$ |
86,152 |
|
$ |
78,805 |
|
Accrued expenses |
|
35,465 |
|
39,518 |
|
||
Due to Nextel |
|
2,558 |
|
2,100 |
|
||
Total current liabilities |
|
124,175 |
|
120,423 |
|
||
|
|
|
|
|
|
||
LONG-TERM OBLIGATIONS |
|
|
|
|
|
||
Credit facility - term B and C |
|
325,000 |
|
325,000 |
|
||
14% Senior discount notes due 2009 |
|
379,361 |
|
342,684 |
|
||
11% Senior notes due 2010 |
|
400,000 |
|
400,000 |
|
||
Other long-term liabilities |
|
17,532 |
|
7,245 |
|
||
Total long-term obligations |
|
1,121,893 |
|
1,074,929 |
|
||
|
|
|
|
|
|
||
Total liabilities |
|
1,246,068 |
|
1,195,352 |
|
||
|
|
|
|
|
|
||
COMMITMENTS AND CONTINGENCIES (See Notes) |
|
|
|
|
|
||
|
|
|
|
|
|
||
REDEEMABLE PREFERRED STOCK, Series B redeemable 2010, par value $.001 per share, 12% cumulative annual dividend; 13,110,000 shares issued and outstanding |
|
30,098 |
|
27,517 |
|
||
|
|
|
|
|
|
||
STOCKHOLDERS' EQUITY |
|
|
|
|
|
||
Common stock, Class A, par value $.001 per share, 165,464,615 and 165,015,002 shares, respectively, issued and outstanding, and paid-in capital |
|
865,657 |
|
864,706 |
|
||
Common stock, Class B, par value $.001 per share convertible, 79,056,228 shares issued and outstanding, and paid-in capital |
|
163,312 |
|
163,312 |
|
||
Accumulated deficit |
|
(617,909 |
) |
(405,773 |
) |
||
Subscriptions receivable from stockholders |
|
- |
|
(7,411 |
) |
||
Deferred compensation |
|
(20,437 |
) |
(44,619 |
) |
||
Total stockholders' equity |
|
390,623 |
|
570,215 |
|
||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
|
$ |
1,666,789 |
|
$ |
1,793,084 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
NEXTEL PARTNERS, INC. AND
SUBSIDIARIES
Consolidated Statements of
Operations
(dollars in thousands, except for share and per share amounts)
|
|
|
|
For the three months ended |
|
For the nine months ended |
|
|||||||||||
|
|
|
|
September 30, |
|
September 30, |
|
|||||||||||
|
|
|
|
2001 |
|
2000 |
|
2001 |
|
2000 |
|
|||||||
|
|
|
|
(unaudited) |
|
(unaudited) |
|
|||||||||||
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Service revenues |
|
|
|
|
|
|
|
|
|
|
|
|||||||
(Received from Nextel WIP $16,425, $7,481, $40,478, and $16,311, respectively.) |
|
$ |
101,593 |
|
$ |
38,698 |
|
$ |
247,588 |
|
$ |
78,814 |
|
|||||
Equipment revenues |
|
|
|
3,532 |
|
1,806 |
|
9,016 |
|
3,703 |
|
|||||||
Total revenues |
|
|
|
105,125 |
|
40,504 |
|
256,604 |
|
82,517 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Cost of service revenues |
|
|
|
|
|
|
|
|
|
|
|
|||||||
(Paid to Nextel WIP $17,000, $6,427, $41,185 and $12,797, respectively.) |
|
53,250 |
|
23,465 |
|
133,287 |
|
51,898 |
|
|||||||||
Cost of equipment revenues |
|
|
|
15,784 |
|
8,386 |
|
40,300 |
|
17,995 |
|
|||||||
|
|
|
|
56,195 |
|
32,265 |
|
149,049 |
|
80,779 |
|
|||||||
Selling, general and administrative (Exclusive of stock based compensation expense shown below.) (Paid to Nextel WIP $1,126, $1,034, $3,301, and $2,598, respectively.) |
|
|
|
|
|
|
|
|
|
|||||||||
Stock based compensation |
|
|
|
7,776 |
|
17,546 |
|
23,393 |
|
52,599 |
|
|||||||
Depreciation and amortization |
|
|
|
19,456 |
|
7,983 |
|
53,642 |
|
20,547 |
|
|||||||
Total operating expenses |
|
|
|
152,461 |
|
89,645 |
|
399,671 |
|
223,818 |
|
|||||||
LOSS FROM OPERATIONS |
|
|
|
(47,336 |
) |
(49,141 |
) |
(143,067 |
) |
(141,301 |
) |
|||||||
Interest expense, net |
|
|
|
(32,053 |
) |
(27,329 |
) |
(93,506 |
) |
(70,925 |
) |
|||||||
Interest income |
|
|
|
6,177 |
|
17,761 |
|
28,805 |
|
45,838 |
|
|||||||
LOSS BEFORE INCOME TAX PROVISION |
|
|
|
(73,212 |
) |
(58,709 |
) |
(207,768 |
) |
(166,388 |
) |
|||||||
Income tax provision |
|
|
|
- |
|
- |
|
- |
|
- |
|
|||||||
LOSS BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE |
|
|
|
(73,212 |
) |
(58,709 |
) |
(207,768 |
) |
(166,388 |
) |
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Extraordinary item -- loss on early retirement of debt, net of $0 income tax |
|
|
|
- |
|
- |
|
- |
|
(23,485 |
) |
|||||||
Cumulative effect of change in accounting principle, net of $0 income tax |
|
|
|
- |
|
- |
|
(1,787 |
) |
- |
|
|||||||
NET LOSS |
|
|
|
(73,212 |
) |
(58,709 |
) |
(209,555 |
) |
(189,873 |
) |
|||||||
Manditorily redeemable preferred stock dividends |
|
|
|
(896 |
) |
(794 |
) |
(2,581 |
) |
(4,848 |
) |
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
LOSS ATTRIBUT-ABLE TO COMMON STOCKHOLDERS |
|
|
|
$ |
(74,108 |
) |
$ |
(59,503 |
) |
$ |
(212,136 |
) |
$ |
(194,721 |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS, BASIC AND DILUTED: |
|
|
|
|
|
|
|
|
|
|
|
|||||||
Loss before extraordinary item and cumulative effect of change in accounting principle |
|
|
|
$ |
(0.30 |
) |
$ |
(0.25 |
) |
$ |
(0.86 |
) |
$ |
(0.89 |
) |
|||
Extraordinary item |
|
|
|
- |
|
- |
|
- |
|
(0.12 |
) |
|||||||
Cumulative effect of change in accounting principle |
|
|
|
- |
|
- |
|
(0.01 |
) |
- |
|
|||||||
|
|
|
|
$ |
(0.30 |
) |
$ |
(0.25 |
) |
$ |
(0.87 |
) |
$ |
(1.01 |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Weighted average number of shares outstanding |
|
|
|
244,396,300 |
|
237,881,189 |
|
244,328,946 |
|
191,916,970 |
|
|||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
NEXTEL PARTNERS,
INC. AND SUBSIDIARIES
Consolidated Statement of Changes in
Stockholders' Equity
(dollars in thousands)
For the Nine Months Ended September 30, 2001
|
|
|
|
|
|
Class A |
|
Class B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
|
|
|
|
|
Common Stock and |
|
Common Stock and |
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
|
Preferred Stock |
|
Paid-In Capital |
|
Paid-In Capital |
|
Warrants |
|
Paid-In |
|
Accumulated |
|
Subscriptions |
|
Deferred |
|
|
|
|||||||||||||||||||||||
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Outstanding |
|
Capital |
|
Deficit |
|
Receivable |
|
Compensation |
|
Totals |
|
|||||||||||||||||
BALANCE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
December 31, 1999 |
|
216,727,272 |
|
$ |
36 |
|
9,593,328 |
|
$ |
145,420 |
|
- |
|
$ |
- |
|
$ |
3,847 |
|
$ |
357,028 |
|
$ |
(134,966 |
) |
$ |
(83,048 |
) |
(117,701 |
) |
$ |
170,616 |
|
|||||||||
Initial public offering conversion to common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Series A preferred stock |
|
(125,834,646 |
) |
(21 |
) |
125,834,646 |
|
208,163 |
|
- |
|
- |
|
- |
|
(208,142 |
) |
- |
|
- |
|
- |
|
- |
|
|||||||||||||||||
Series C preferred stock |
|
(64,672,626 |
) |
(11 |
) |
- |
|
- |
|
64,672,626 |
|
110,742 |
|
- |
|
(110,731 |
) |
- |
|
- |
|
- |
|
- |
|
|||||||||||||||||
Series D preferred stock |
|
(13,110,000 |
) |
(2 |
) |
- |
|
- |
|
13,110,000 |
|
22,266 |
|
- |
|
(22,264 |
) |
- |
|
- |
|
- |
|
- |
|
|||||||||||||||||
Series B preferred stock reclassed |
|
(13,110,000 |
) |
(2 |
) |
- |
|
- |
|
- |
|
- |
|
- |
|
(21,848 |
) |
- |
|
- |
|
- |
|
(21,850 |
) |
|||||||||||||||||
Series B redeemable preferred stock dividend |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(5,667 |
) |
- |
|
- |
|
(5,667 |
) |
|||||||||||||||||
Initial public offering stock issued |
|
- |
|
- |
|
27,025,000 |
|
540,500 |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
540,500 |
|
|||||||||||||||||
Net loss |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(265,140 |
) |
- |
|
- |
|
(265,140 |
) |
|||||||||||||||||
Equity issuance costs |
|
- |
|
- |
|
- |
|
(31,223 |
) |
- |
|
(5,957 |
) |
- |
|
5,957 |
|
- |
|
- |
|
- |
|
(31,223 |
) |
|||||||||||||||||
Deferred compensation - options forfeited |
|
- |
|
- |
|
- |
|
(2,938 |
) |
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
2,938 |
|
- |
|
|||||||||||||||||
Vesting of deferred compensation |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
70,144 |
|
70,144 |
|
|||||||||||||||||
Subscription receivable from stockholders |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
75,637 |
|
- |
|
75,637 |
|
|||||||||||||||||
Warrants exercised by stockholders |
|
- |
|
- |
|
2,434,260 |
|
3,851 |
|
- |
|
- |
|
(3,847 |
) |
- |
|
- |
|
- |
|
- |
|
4 |
|
|||||||||||||||||
Class B common stock issued |
|
- |
|
- |
|
- |
|
- |
|
1,273,602 |
|
36,261 |
|
- |
|
- |
|
- |
|
- |
|
- |
|
36,261 |
|
|||||||||||||||||
Stock options exercised |
|
- |
|
- |
|
85,000 |
|
142 |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
142 |
|
|||||||||||||||||
Stock issued for employee stock purchase plan |
|
- |
|
- |
|
42,768 |
|
791 |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
791 |
|
|||||||||||||||||
BALANCE |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
December 31, 2000 |
|
- |
|
- |
|
165,015,002 |
|
864,706 |
|
79,056,228 |
|
163,312 |
|
- |
|
- |
|
(405,773 |
) |
(7,411 |
) |
(44,619 |
) |
570,215 |
|
|||||||||||||||||
Series B redeemable preferred stock dividend |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(2,581 |
) |
- |
|
- |
|
(2,581 |
) |
|||||||||||||||||
Net loss |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(209,555 |
) |
- |
|
- |
|
(209,555 |
) |
|||||||||||||||||
Deferred compensation - options forfeited |
|
- |
|
- |
|
- |
|
(789 |
) |
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
789 |
|
- |
|
|||||||||||||||||
Vesting of deferred compensation |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
23,393 |
|
23,393 |
|
|||||||||||||||||
Subscription receivable from stockholders |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
7,411 |
|
- |
|
7,411 |
|
|||||||||||||||||
Stock options exercised |
|
- |
|
- |
|
300,700 |
|
531 |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
531 |
|
|||||||||||||||||
Stock issued for employee stock purchase plan |
|
- |
|
- |
|
148,913 |
|
1,209 |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
|
|
1,209 |
|
|||||||||||||||||
BALANCE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
September 30, 2001 (unaudited) |
|
- |
|
$ |
- |
|
165,464,615 |
|
$ |
865,657 |
|
79,056,228 |
|
$ |
163,312 |
|
$ |
- |
|
$ |
- |
|
$ |
(617,909 |
) |
$ |
- |
|
$ |
(20,437 |
) |
$ |
390,623 |
|
||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
NEXTEL PARTNERS,
INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(dollars in thousands)
|
|
For the Nine Months Ended |
|
||||
|
|
September 30, |
|
||||
|
|
2001 |
|
2000 |
|
||
|
|
(unaudited) |
|
||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
||
Net loss |
|
$ |
(209,555 |
) |
$ |
(189,873 |
) |
Adjustments to reconcile net loss to net cash used in operating activities |
|
|
|
|
|
||
Cumulative effect of change in accounting principle |
|
1,787 |
|
- |
|
||
Depreciation and amortization |
|
53,642 |
|
20,547 |
|
||
Amortization of debt issuance costs |
|
2,721 |
|
2,369 |
|
||
Interest accretion for senior discount notes |
|
32,363 |
|
31,949 |
|
||
Extraordinary loss on retirement of debt |
|
- |
|
23,485 |
|
||
Fair value adjustments of hedges |
|
5,956 |
|
- |
|
||
Stock based compensation |
|
23,393 |
|
52,599 |
|
||
Gain on deferred sale-leaseback |
|
(492 |
) |
(205 |
) |
||
Loss on disposal of assets |
|
2 |
|
- |
|
||
Change in current assets and liabilities: |
|
|
|
|
|
||
Accounts receivable, net |
|
(39,606 |
) |
(18,629 |
) |
||
Subscriber equipment inventory |
|
(792 |
) |
(4,424 |
) |
||
Other current assets |
|
5,762 |
|
(3,295 |
) |
||
Accounts payable, accrued expenses and other liabilities |
|
(3,498 |
) |
(9,528 |
) |
||
Operating advances due to Nextel WIP |
|
458 |
|
2,545 |
|
||
Net cash used in operating activities |
|
(127,859 |
) |
(92,460 |
) |
||
|
|
|
|
|
|
||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
||
Capital expenditures |
|
(316,602 |
) |
(172,779 |
) |
||
Proceeds from sale of assets |
|
7,689 |
|
8,067 |
|
||
FCC licenses |
|
(36,722 |
) |
(24,561 |
) |
||
Proceeds from sale (purchase) of short-term investments |
|
202,064 |
|
(439,777 |
) |
||
Net cash used in investing activities |
|
(143,571 |
) |
(629,050 |
) |
||
|
|
|
|
|
|
||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
||
Proceeds from sale of common stock |
|
- |
|
540,500 |
|
||
Proceeds from borrowings |
|
- |
|
400,000 |
|
||
Payment to redeem 14% senior discount notes |
|
- |
|
(191,233 |
) |
||
Exercise warrants |
|
- |
|
4 |
|
||
Stock Options Exercised |
|
531 |
|
139 |
|
||
Proceeds from stock issued for employee stock purchase plan |
|
1,209 |
|
- |
|
||
Restricted cash transfer |
|
- |
|
175,000 |
|
||
Proceeds from equity contributions |
|
7,411 |
|
62,838 |
|
||
|
|
|
|
|
|
||
Equity costs |
|
- |
|
(31,203 |
) |
||
Debt issuance costs |
|
(600 |
) |
(9,292 |
) |
||
Net cash provided by financing activities |
|
8,551 |
|
946,753 |
|
||
|
|
|
|
|
|
||
NET INCREASE IN CASH AND CASH EQUIVALENTS |
|
(262,879 |
) |
225,243 |
|
||
|
|
|
|
|
|
||
CASH AND CASH EQUIVALENTS, beginning of period |
|
493,552 |
|
154,273 |
|
||
|
|
|
|
|
|
||
CASH AND CASH EQUIVALENTS, end of period |
|
$ |
230,673 |
|
$ |
379,516 |
|
|
|
|
|
|
|
||
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS |
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
Capitalized interest on accretion of senior discount notes |
|
$ |
4,314 |
|
$ |
6,665 |
|
Accretion of redeemable preferred stock dividends |
|
$ |
2,581 |
|
$ |
4,848 |
|
CASH PAID FOR INTEREST, net of capitalized amount |
|
$ |
63,555 |
|
$ |
34,831 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
NEXTEL PARTNERS, INC.
Notes to Consolidated Financial
Statements (Unaudited)
Our interim financial statements for the three-month and nine-month periods ended September 30, 2001 and 2000 have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes contained in our annual report on Form 10-K for the year ended December 31, 2000 filed with the Securities and Exchange Commission on March 28, 2001.
The financial information included herein reflects all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for the fair presentation of the results of the interim periods. The Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2000 have been restated to reflect the impact of Staff Accounting Bulletin 101 (SAB 101), Revenue Recognition in Financial Statements. The results of operations for the three- and nine-month periods ended September 30, 2001 are not necessarily indicative of the results to be expected for the full year.
Nextel Partners provides a wide array of digital wireless communications services throughout the United States, primarily to business users, utilizing frequencies licensed by the Federal Communications Commission ("FCC"). Our operations are primarily conducted by Nextel Partners Operating Corporation (OPCO), our wholly owned subsidiary. Substantially all of our assets, liabilities, operating losses and cash flows are within OPCO and our other wholly owned subsidiaries.
Our digital network (Nextel digital mobile network) has been developed with advanced mobile communication systems employing digital technology with a multi-site configuration permitting frequency reuse utilizing digital technology developed by Motorola, Inc. (such technology is referred to as the integrated Digital Enhanced Network or iDEN). In January 1999, we entered into a joint venture agreement with Nextel WIP Corp. ("Nextel WIP"), a wholly owned subsidiary of Nextel Communications, Inc. (" Nextel"). The Nextel relationship was created to accelerate the build-out of the Nextel digital mobile network by granting us the exclusive right to offer wireless communications services under the Nextel brand in selected mid-sized and smaller markets. Various operating agreements entered into by our subsidiaries and Nextel WIP (see Note 7) provide for support services to be provided by Nextel WIP, as required.
We believe that the geographic and industry diversity of our customer base minimizes the risk of incurring material losses due to concentration of credit risk.
We are a party to certain equipment purchase agreements with Motorola (see Note 7). For the foreseeable future we expect that we will need to rely on Motorola for the manufacture of a substantial portion of the infrastructure equipment necessary to construct and make operational our digital mobile network as well as for the provision of digital mobile telephone handsets and accessories.
As previously discussed, we are reliant on Nextel WIP for the provision of certain services. For the foreseeable future, we will need to rely on Nextel WIP for the provision of these services, as we will not have the infrastructure to support those services.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The consolidated financial statements include the accounts of Nextel Partners, Inc. and our wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
As presented, basic and diluted loss per share are equal since common equivalent shares are excluded from the calculation of diluted earnings per share as their effects are antidilutive due to our net losses. For the three and nine months ended September 30, 2001 and 2000, approximately 8.2 million and 5.0 million shares, respectively, of our Class A common stock subject to stock options were excluded from the calculation of common equivalent shares, as their effects are antidilutive.
The basic and diluted net loss per share for the three and nine months ended September 30, 2001 and 2000 is computed based on the weighted average number of shares outstanding. The weighted average number of shares outstanding for the nine months ended September 30, 2000 does not represent a complete reporting period since our initial public offering was consummated on February 25, 2000. In addition, net loss attributable to common stockholders increased by the amount of the accrued dividend on our Series B redeemable preferred stock.
The following table presents capital expenditures including the amounts that were accrued or financed and adjustments for non-cash capitalized interest:
|
|
For the Nine Months Ended September 30, |
|
||||
|
|
2001 |
|
2000 |
|
||
|
|
(in thousands) |
|
||||
Capital expenditures |
|
$ |
313,988 |
|
$ |
196,115 |
|
Capitalized interest |
|
7,737 |
|
9,377 |
|
||
Non-cash capitalized interest |
|
(2,952 |
) |
(4,370 |
) |
||
Accrued capital expenditures and adjustments |
|
(2,171 |
) |
(28,343 |
) |
||
Capital expenditures (reported) |
|
$ |
316,602 |
|
$ |
172,779 |
|
On October 13, 1999, we signed a Letter of Agreement with Nextel and some of its subsidiaries and Spectrasite Holdings, Inc. ("Spectrasite") and some of its subsidiaries to transfer specified telecommunication towers and related assets to Spectrasite for cash. Subsequently, we leased space on the telecommunication towers from Spectrasite pursuant to a master lease agreement. In 2001, we have entered into similar agreements with other companies. For the three months ended September 30, 2001 and 2000, we received cash proceeds of approximately $2.3 million and $1.7 million, respectively, and for the nine months ended September 30, 2001 and 2000, we received cash proceeds of approximately $7.7 million and $8.1 million, respectively, for the assets sold to Spectrasite and other such companies. These sale-leaseback transactions are accounted for as real estate lease agreements and normal sales-leasebacks. Any gain recognized on the sale of assets is deferred and amortized over the life of the lease.
FCC operating licenses are recorded at historical cost and are amortized using the straight-line method based on estimated useful lives of 40 years. Our FCC licenses and the requirements to maintain the licenses are similar to other licenses granted by the FCC, including Personal Communications Services (PCS) and cellular licenses, in that they are subject to renewal after the initial 10-year term. Historically, the renewal process associated with these FCC licenses has been perfunctory. The accounting for these licenses has historically not been constrained by the renewal and operational requirements. Amortization begins with the commencement of service to customers in a particular market. Amortization expense of approximately $1.3 million and $0.8 million was recorded for the three months ended September 30, 2001 and 2000, respectively, and approximately $3.7 million and $1.7 million was recorded for the nine months ended September 30, 2001 and 2000, respectively.
We use derivative financial instruments consisting of interest rate swap and interest rate protection agreements in the management of our interest rate exposure. In April 1999 and 2000, we entered into interest rate swap agreements for $60 million and $50 million, respectively, to partially hedge interest rate exposure with respect to our $325 million term loans. These interest rate swap agreements have the effect of converting certain of our variable rate obligations to fixed rate obligations. Prior to January 1, 2001, amounts paid or received under the interest rate swap agreements were accrued as interest rates changed and were recognized over the life of the swap agreements as an adjustment to interest expense. The fair value of the swap agreements was not recognized in the consolidated financial statements since the swap agreements met the criteria for hedge accounting prior to adoption of SFAS 133.
On January 1, 2001, we adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), as amended by SFAS No. 138. These statements establish accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded on the balance sheet as either an asset or liability measured at fair value. The statements require that changes in the derivatives fair value be recognized currently in earnings unless specific hedge accounting criteria are met. If hedge accounting criteria are met, the changes in a derivatives fair value (for a cash flow hedge) are deferred in stockholders equity as a component of comprehensive income. These deferred gains and losses are recognized as income in the period in which the hedge item and hedging instrument are settled. The ineffective portions of hedge returns are recognized as earnings. In accordance with SFAS 133, these swap agreements have been designated as ineffective cash flow hedges. Initial adoption resulted in the recording of an additional liability of $1.8 million, with the offset recorded as a cumulative effect of change in accounting principle. The hedges are included in other long-term liabilities on the balance sheet. For the three months ended September 30, 2001, we recorded a non-cash, non-operating charge of $3.9 million related to the market value of interest rate swap agreements. For the nine months ended September 30, 2001, we recorded a non-cash, non-operating charge of $7.7 million related to the market value of interest rate swap agreements, of which $1.8 million has been reflected as a cumulative effect of change in accounting principle, and the remainder has been reflected in interest expense.
We will not use financial instruments for trading or other speculative purposes, nor will we be a party to any leveraged derivative instrument. The use of derivative financial instruments is monitored through regular communication with senior management. We will be exposed to credit loss in the event of nonperformance by the counterparties. This credit risk is minimized by dealing with a group of major financial institutions with which we have other financial relationships. We do not anticipate nonperformance by these counterparties.
In December 1999, the Securities and Exchange Commission issued SAB 101, effective January 1, 2000, which gives guidance on the conditions that must be met before revenue is recognized. During December 2000 we changed our revenue recognition policy for activation fees (included in service revenues) and equipment (phones) revenues in accordance with SAB 101. Under this new policy, our activation fees and phone revenues are deferred and recognized over three years, the expected life of the customer relationship. The decision to defer these revenues is based on the conclusion that the service contract and the phone revenue are multiple element arrangements or earnings processes that should not be separated. In other words, the service contract is essential to the functionality of the phone. Concurrently, the related costs for the phone equipment are deferred to the extent of deferred revenues, resulting in no change to EBITDA or net loss. The direct and incremental phone costs in excess of revenues generated from phone sales are expensed immediately as the amounts exceed our minimum contractual revenue.
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141 Business Combinations and SFAS No. 142 Goodwill and Other Intangible Assets. SFAS No. 141 requires business combinations initiated after September 30, 2001 to be accounted for using the purchase method of accounting and broadens the criteria for recording intangible assets separate from goodwill. Recorded goodwill and intangibles will be evaluated against this new criteria and may result in certain intangibles being subsumed into goodwill, or alternatively, amounts initially recorded as goodwill may be separately identified and recognized apart from goodwill. SFAS No. 142 requires the use of a nonamortization approach to account for purchased goodwill and certain intangibles. Under a nonamortization approach, goodwill and certain intangibles will not be amortized into results of operations, but instead would be reviewed for impairment and written down and charged to results of operations only in the periods in which the recorded value of goodwill and certain intangibles exceeds fair value. We are in the process of evaluating the financial statement impact of the adoption of SFAS Nos. 141 and 142.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," (effective for us on January 1, 2003). SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of long-lived assets and the associated asset retirement costs. We are in the process of evaluating the financial statement impact of the adoption of SFAS No. 143.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (effective for us on January 1, 2002.) This Statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and other related accounting guidance. We are in the process of evaluating the financial statement impact of the adoption of SFAS No. 144.
|
|
September 30, |
|
December 31, |
|
||
|
|
2001 |
|
2000 |
|
||
|
|
(in thousands) |
|
||||
Building and improvements |
|
$ |
3,487 |
|
$ |
2,774 |
|
Equipment |
|
654,080 |
|
443,043 |
|
||
Furniture and Fixtures |
|
27,401 |
|
21,641 |
|
||
Less - accumulated depreciation |
|
(101,050 |
) |
(51,254 |
) |
||
Subtotal |
|
583,918 |
|
416,204 |
|
||
Construction in progress |
|
220,499 |
|
116,498 |
|
||
Total property and equipment |
|
$ |
804,417 |
|
$ |
532,702 |
|
|
|
September 30, |
|
December 31, |
|
||
|
|
2001 |
|
2000 |
|
||
|
|
(in thousands) |
|
||||
14% Senior Redeemable Discount Notes due 2009, net of unamortized discount of $140.6 million at September 30, 2001 and $177.3 million at December 31, 2000 |
|
$ |
379,361 |
|
$ |
342,684 |
|
11% Senior Notes due 2010, interest payable semiannually in cash and in arrears |
|
400,000 |
|
400,000 |
|
||
Bank Credit FacilityTerm B Loan, interest at Companys option, calculated on Administrative Agents alternate base rate or reserve adjusted London Interbank Offered Rate (LIBOR) |
|
175,000 |
|
175,000 |
|
||
Bank Credit FacilityTerm C Loan, interest at Companys option, calculated on Administrative Agents alternate base rate or reserve adjusted LIBOR |
|
150,000 |
|
150,000 |
|
||
|
|
|
|
|
|
||
Total longterm debt |
|
$ |
1,104,361 |
|
$ |
1,067,684 |
|
All of the debt instruments noted above have certain financial covenants. As of September 20, 2001, we were in compliance with applicable covenants.
The FCC issues Specialized Mobile Radio (SMR) licenses on both a site-specific and wide-area basis. Each license enables SMR carriers to provide service either on a site-specific basis, in specific 800 MHz Economic Areas or 900 MHz Metropolitan Trading Areas in the United States. Currently, SMR licenses are issued for a period of ten years and are subject to certain construction and operational requirements.
In November 2000 the application to transfer ownership of the option territory licenses acquired on September 27, 2000 from Nextel WIP to us was completed. The FCC granted approval of our change of control application on March 27, 2001, and on May 18, 2001 the option territory licenses were transferred from Nextel WIP to us.
The FCC has routinely granted license renewals providing the licensees have complied with applicable rules, policies and the Communications Act of 1934, as amended. We believe that we have met and will continue to meet all requirements necessary to secure the retention and renewal of our SMR licenses subsequent to the FCC-approved transfer of the licenses from Nextel WIP.
Pursuant to the equipment purchase agreements between ourselves and Motorola, and pursuant to purchase agreements between Nextel WIP and Motorola, Motorola provides the iDEN infrastructure and subscriber handset equipment to us throughout our markets with Motorola. We expect to rely on Motorola for the manufacture of a substantial portion of the equipment necessary to construct our portion of the Nextel digital mobile network and handset equipment for the foreseeable future. The Equipment Purchase Agreements govern our rights and obligations regarding purchases of system infrastructure equipment manufactured by Motorola and others.
For the three months ended September 30, 2001 and 2000, we purchased approximately $50.9 million and $34.9 million, respectively, and $145.3 million and $96.2 million for the nine months ended September 30, 2001 and 2000, respectively, of infrastructure and other equipment, handsets, warranties and services from Motorola.
We and Nextel WIP entered into a joint venture agreement dated January 29, 1999. The joint venture agreement defines the relationships, rights and obligations between the parties.
We and Nextel WIP also entered into a roaming agreement which provides that each party pays the other monthly roaming fees in an amount based on the actual system minutes generated by the respective subscribers of each home service provider operating as authorized roamers in the remote service providers territory. For the three months ended September 30, 2001 and 2000, we earned approximately $16.4 million and $7.5 million, respectively, and for the nine months ended September 30, 2001 and 2000 we earned $40.5 million and $16.3 million, respectively, from Nextel customers roaming on our system, which amounts are included in service revenues.
During the first nine months of 2001 and 2000, recorded as part of cost of service revenues, we paid Nextel WIP $41.2 million and $12.8 million, respectively, for various services, including specified telecommunications switching services, charges for our customers roaming on Nextel's system and other support costs. For the three months ended September 30, 2001 and 2000 we paid Nextel WIP approximately $17.0 million and $6.4 million, respectively, for such services.
Under our transition services agreement with Nextel WIP, certain telemarketing, customer care, fulfillment, activations and billing functions are made available by Nextel WIP to OPCO. For the three months ended September 30, 2001 and 2000, we were charged approximately $706,000 and $694,000, respectively, by Nextel WIP for these services and $2.3 million and $1.8 million, respectively, for the nine months ended September 30, 2001 and 2000. Nextel WIP also provides us access to certain back office and information systems platforms on an ongoing basis. We pay to Nextel a fee, based on Nextels cost, for these services. For the three months ended September 30, 2001 and 2000 we were charged approximately $420,000 and $340,000, respectively, and for the nine months ended September 30, 2001 and 2000 we were charged approximately $1.0 million and $771,000, respectively, by Nextel WIP for these services. Both the transition and back office information services are included in selling, general and administrative expenses.
Some statements and information contained in this Managements Discussion and Analysis of Financial Condition and Results of Operations are not historical facts but are forward-looking statements. For a discussion of important factors that could cause results to differ materially from the forward-looking statements, including, but not limited to, factors associated with the build-out of our portion of the Nextel digital mobile network, actions of regulatory authorities and competitors and other factors, see Risk Factors.
Please read the following discussion together with the consolidated financial statements and the related notes included elsewhere in this report.
We provide digital wireless communications services in mid-sized and tertiary markets throughout the United States. We hold licenses for wireless frequencies in 58 markets where over 51 million people, or Pops, live and work. We have the right to operate in 15 of the top 100 metropolitan statistical areas in the United States ranked by population and 55 of the top 200 metropolitan statistical areas. As of September 30, 2001, we had commercial operations in markets with total Pops of approximately 42.5 million and the ability to offer service to, or cover, approximately 29.3 million Pops. These operational markets are in Alabama, Arkansas, Central Illinois, Florida, Georgia, Hawaii, Idaho, Indiana, Iowa, Kentucky, Louisiana, Minnesota, Mississippi, Nebraska, New York, Pennsylvania, Tennessee, Texas, Virginia and Wisconsin.
As of September 30, 2001, we had approximately 434,200 digital subscribers. Our subscriber base grew 151.9% compared to September 30, 2000, when we had an ending subscriber count of approximately 172,400.
In June 2000 we introduced Nextel Wireless Web service in select markets, and by the end of 2000 we offered this data service in all of our launched markets. Wireless Web service provides Internet-ready subscriber handsets with wireless Internet services, including web-based applications and content. As of September 30, 2001, we had approximately 183,000 data subscribers.
Due to the continued development, build-out and enhancement of our portion of the Nextel digital mobile network, we expect to continue to experience negative operating margins. In addition, we anticipate costs such as site rentals, telecommunications expenses, network equipment costs and other capital expenses to increase. Sales and marketing expenses and general and administrative costs are also expected to increase with the commercialization of service in new markets.
The following tables present selected consolidated financial data derived from unaudited financial statements for the three and nine months ended September 30, 2001 and 2000. In addition, operating data for the same periods are presented.
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||||||
|
|
2001 |
|
2000 |
|
2001 |
|
2000 |
|
||||||||
|
|
(unaudited) |
|
(unaudited) |
|
||||||||||||
|
|
(dollars in thousands except for per share data) |
|
||||||||||||||
Consolidated Statements of Operations Data: |
|
|
|
|
|
|
|
|
|
||||||||
Operating revenues: |
|
|
|
|
|
|
|
|
|
||||||||
Service revenues |
|
$ |
101,593 |
|
$ |
38,698 |
|
$ |
247,588 |
|
$ |
78,814 |
|
||||
Equipment revenues |
|
3,532 |
|
1,806 |
|
9,016 |
|
3,703 |
|
||||||||
Total revenues |
|
105,125 |
|
40,504 |
|
256,604 |
|
82,517 |
|
||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
||||||||
Cost of service revenues |
|
53,250 |
|
23,465 |
|
133,287 |
|
51,898 |
|
||||||||
Cost of equipment revenues |
|
15,784 |
|
8,386 |
|
40,300 |
|
17,995 |
|
||||||||
Selling, general and administrative |
|
56,195 |
|
32,265 |
|
149,049 |
|
80,779 |
|
||||||||
EBITDA(2) |
|
(20,104 |
) |
(23,612 |
) |
(66,032 |
) |
(68,155 |
) |
||||||||
Stock-based compensation |
|
7,776 |
|
17,546 |
|
23,393 |
|
52,599 |
|
||||||||
Depreciation and amortization |
|
19,456 |
|
7,983 |
|
53,642 |
|
20,547 |
|
||||||||
Total operating expenses |
|
152,461 |
|
89,645 |
|
399,671 |
|
223,818 |
|
||||||||
Operating income (loss) |
|
(47,336 |
) |
(49,141 |
) |
(143,067 |
) |
(141,301 |
) |
||||||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
||||||||
Interest expense, net |
|
(32,053 |
) |
(27,329 |
) |
(93,506 |
) |
(70,925 |
) |
||||||||
Interest income |
|
6,177 |
|
17,761 |
|
28,805 |
|
45,838 |
|
||||||||
Total other (expense) |
|
(25,876 |
) |
(9,568 |
) |
(64,701 |
) |
(25,087 |
) |
||||||||
Loss before income tax provision |
|
(73,212 |
) |
(58,709 |
) |
(207,768 |
) |
(166,388 |
) |
||||||||
Income tax provision |
|
|
|
|
|
|
|
|
|
||||||||
Loss before extraordinary item and cumulative effect of change in accounting principle |
|
(73,212 |
) |
(58,709 |
) |
(207,768 |
) |
(166,388 |
) |
||||||||
Extraordinary item -- loss on early retirement of debt, net of $0 income tax |
|
|
|
|
|
|
|
(23,485 |
) |
||||||||
Cumulative effect of change in accounting principle, net of $0 income tax |
|
|
|
|
|
(1,787 |
) |
|
|
||||||||
Net loss |
|
(73,212 |
) |
(58,709 |
) |
(209,555 |
) |
(189,873 |
) |
||||||||
Mandatorily redeemable preferred stock dividends |
|
(896 |
) |
(794 |
) |
(2,581 |
) |
(4,848 |
) |
||||||||
Loss attributable to common stockholders |
|
$ |
(74,108 |
) |
$ |
(59,503 |
) |
$ |
(212,136 |
) |
$ |
(194,721 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||||||
Loss per share attributable to common stockholders, basic and diluted: |
|
|
|
|
|
|
|
|
|
||||||||
Loss before extraordinary item and cumulative effect of change in accounting principle attributable to common stockholders |
|
$ |
(0.30 |
) |
$ |
(0.25 |
) |
$ |
(0.86 |
) |
$ |
(0.89 |
) |
||||
Extraordinary item -- loss on early retirement of debt |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
(0.12 |
) |
||||
Cumulative effect of change in accounting principle |
|
$ |
|
|
$ |
|
|
$ |
(0.01 |
) |
$ |
|
|
||||
Net loss per share attributable to common stockholders |
|
$ |
(0.30 |
) |
$ |
(0.25 |
) |
$ |
(0.87 |
) |
$ |
(1.01 |
) |
||||
|
|
September 30, |
|
December 31, |
|
||
|
|
2001 |
|
2000 |
|
||
|
|
(unaudited) |
|
||||
|
|
(dollars in thousands) |
|
||||
Consolidated Balance Sheet Data: |
|
|
|
|
|
||
Cash and cash equivalents and shortterm investments(1) |
|
$ |
463,403 |
|
$ |
928,346 |
|
Plant, property and equipment, net |
|
804,417 |
|
532,702 |
|
||
FCC operating licenses, net |
|
279,719 |
|
245,295 |
|
||
Total assets |
|
1,666,789 |
|
1,793,084 |
|
||
Current liabilities |
|
124,175 |
|
120,423 |
|
||
Longterm debt |
|
1,104,361 |
|
1,067,684 |
|
||
Series B redeemable preferred stock |
|
30,098 |
|
27,517 |
|
||
Total stockholders' equity |
|
390,623 |
|
570,215 |
|
||
|
|
Nine Months Ended September 30, |
|
||||
|
|
2001 |
|
2000 |
|
||
|
|
(unaudited) |
|
||||
|
|
(dollars in thousands) |
|
||||
Other Data: |
|
|
|
|
|
||
Covered Pops (end of period) (millions) |
|
29.3 |
|
20.6 |
|
||
Subscribers (end of period) |
|
434,200 |
|
172,400 |
|
||
EBITDA as adjusted(2) |
|
$ |
(66,032 |
) |
$ |
(68,155 |
) |
Capital expenditures(3) |
|
$ |
313,988 |
|
$ |
196,115 |
|
____________________
(1) Short-term investments include marketable securities and corporate commercial paper with original purchase maturities greater than three months.
(2) EBITDA as adjusted represents net loss before interest expense, interest income, depreciation, amortization, stock-based compensation expense and loss from disposal of assets. EBITDA is commonly used to analyze companies on the basis of operating performance, leverage and liquidity. While EBITDA as adjusted should not be construed as a substitute for operating income or a better measure of liquidity than cash flow from operating activities, which are determined in accordance with generally accepted accounting principles, we have presented EBITDA as adjusted to provide additional information with respect to our ability to meet future debt service, capital expenditure and working capital requirements. EBITDA as adjusted is not a measure determined under generally accepted accounting principles. Also, EBITDA as adjusted as calculated above may not be comparable to similarly titled measures reported by other companies
(3) Capital expenditures are exclusive of capitalized interest but include accrued or financed capital. Capital expenditures are required to purchase network equipment, such as switching and radio transmission equipment. Capital expenditures also include purchases of other equipment used for administrative purposes, such as office equipment, computers and telephone systems.
Our primary sources of revenues are service revenues and equipment revenues. Service revenues increased 162.5% to $101.6 million for the three months ended September 30, 2001 as compared to $38.7 million recognized during the three months ended September 30, 2000 (restated for SAB 101). Our service revenues consist of charges for airtime usage and monthly network access fees from providing integrated wireless services within our territory, particularly mobile telephone and two-way radio dispatch services. Service revenues also include roaming revenues related to the use by Nextel subscribers of our portion of the Nextel digital mobile network. Roaming revenues for the third quarter of 2001 accounted for approximately 16.2% of our service revenues, as compared to 19.1% for the third quarter of 2000.
In December 2000 we changed our revenue recognition policy for activation fees (included in service revenues) and equipment (phones) revenues in accordance with the Securities and Exchange Commission Staff Accounting Bulletin 101 (SAB 101), Revenue Recognition in Financial Statements. This change in our revenue recognition policy became effective January 1, 2000, and accordingly, quarterly results for the three months ended September 30, 2000 have been restated. Under this new policy, our activation fees and phone revenues are deferred and recognized over three years, the expected life of the customer relationship. Concurrently, the related costs for the phone equipment are deferred to the extent of deferred revenues, resulting in no change to EBITDA or net loss. The direct and incremental phone costs in excess of revenues generated from phone sales are expensed immediately as the amounts exceed our minimum contractual revenue.
The following table shows results for the three months ended September 30, 2001 and 2000 without the impact of SAB 101.
|
|
Pre-SAB 101 |
|
||||
|
|
For the Three Months Ended |
|
||||
|
|
September 30, |
|
September 30, |
|
||
|
|
2001 |
|
2000 |
|
||
|
|
(in thousands) |
|
||||
Revenues: |
|
|
|
|
|
||
Service revenues |
|
$ |
102,280 |
|
$ |
39,081 |
|
Equipment revenues |
|
5,560 |
|
6,036 |
|
||
Total revenues |
|
$ |
107,840 |
|
$ |
45,117 |
|
Operating expenses: |
|
|
|
|
|
||
Cost of equipment revenues |
|
$ |
18,499 |
|
$ |
12,999 |
|
|
|
|
|
|
|
||
EBITDA |
|
$ |
(20,104 |
) |
$ |
(23,612 |
) |
Equipment revenues reported for the third quarter of 2001 were $3.5 million as compared to $1.8 million reported for the third quarter of 2000, representing an increase of $1.7 million, or 95.6%. Without adjusting for the impact of SAB 101, equipment revenues would have decreased 7.9% from the third quarter of 2000 to the third quarter of 2001 to $5.6 million. Our equipment revenues consist of revenues received for wireless telephones and accessories purchased by our subscribers.
Total revenues increased 159.5% to $105.1 million during the third quarter of 2001 as compared to $40.5 million generated in the third quarter of 2000 restated for SAB 101. This growth in revenues was due to acquiring additional subscribers as a result of launching our services in new markets along with increased revenues of approximately $41.1 million, or 72.2%, from existing markets. The following table sets forth those markets launched during 2001:
Markets |
|
Market Launch |
Mankato, MN |
|
3rd Quarter 2001 |
Roanoke/Lynchburg/Charlottesville, VA |
|
2nd Quarter 2001 |
Green Bay/Fond du Lac/Appleton/Sheboygan, WI |
|
2nd Quarter 2001 |
Eau Claire/La Crosse, WI |
|
2nd Quarter 2001 |
Rochester, MN |
|
2nd Quarter 2001 |
Duluth, MN |
|
2nd Quarter 2001 |
Hattiesburg/Jackson, MS |
|
2nd Quarter 2001 |
Evansville/Owensboro KY/IN |
|
1st Quarter 2001 |
Laredo, TX |
|
1st Quarter 2001 |
Little Rock, AR |
|
1st Quarter 2001 |
Fayetteville-Springdale/Ft. Smith/Pine Bluff, AR |
|
1st Quarter 2001 |
Abilene, TX |
|
1st Quarter 2001 |
Terre Haute, IN |
|
1st Quarter 2001 |
Columbus, GA/AL |
|
1st Quarter 2001 |
Dothan/Auburn/Opelika, AL |
|
1st Quarter 2001 |
Albany, GA |
|
1st Quarter 2001 |
Average revenue per unit, or ARPU, is an industry term that measures total service revenues per month from our subscribers divided by the average number of digital subscriber units in commercial service for that month. Our ARPU remained constant at $72 for the quarter ended September 30, 2001 as compared to $72 for the quarter ended September 30, 2000. The following table sets forth our recent revenues and ARPU:
|
|
Revenues |
|
||||||||||||
|
|
(Dollar amounts in thousands, except for ARPU) |
|
||||||||||||
|
|
For the Three Months Ended September 30, 2001 |
|
% of Consolidated Revenues |
|
For the Three Months Ended September 30, 2000 |
|
% of Consolidated Revenues |
|
||||||
Service and roaming revenues |
|
$ |
101,593 |
|
97 |
% |
|
$ |
38,698 |
|
96 |
% |
|
||
Equipment revenues |
|
3,532 |
|
3 |
% |
|
1,806 |
|
4 |
% |
|
||||
Total revenues |
|
$ |
105,125 |
|
100 |
% |
|
$ |
40,504 |
|
100 |
% |
|
||
ARPU (1) |
|
$ |
72 |
|
|
|
$ |
72 |
|
|
|
||||
____________________
(1) ARPU was not adjusted for SAB 101 and does not include roaming revenues generated from the use by Nextel subscribers of our portion of the Nextel digital mobile network.
Cost of service revenues consists primarily of network operating costs composed of site rental fees for cell sites and switches, utilities, maintenance and interconnect charges. It also includes the amounts we must pay Nextel WIP when our customers roam onto Nextels portion of the Nextel digital mobile network. These expenses depend mainly on the number of operating cell sites, total minutes of use and mix of minutes of use between interconnect and Nextel Direct Connect services.
For the third quarter of 2001, our cost of service revenues was $53.3 million as compared to $23.5 million for the same period in 2000, representing an increase of 126.9%. The increase in costs was primarily the result of bringing on-air approximately 1,324 additional cell sites during the period from September 30, 2000 to September 30, 2001 for a total of 2,556 operating cell sites as of September 30, 2001, as well as an increase in airtime usage. Increased airtime usage resulted from the growth in number of subscribers from 2000 along with the increased minutes of use per subscriber. We expect cost of service revenues to increase as we place more cell sites in service and the usage of minutes increases as our subscriber base grows.
Cost of equipment revenues includes the cost of the subscriber wireless handsets and accessories sold by us. Our cost of equipment revenues reported for the third quarter of 2001 was $15.8 million. Without the effect of SAB 101, our cost of equipment revenues for the third quarter of 2001 would have been $18.5 million compared to $13.0 million for the same period in 2000, representing an increase of 42.3%. The increase in costs was related mostly to the growth in number of subscribers. As part of our business plan, we often offer our equipment at a discount or as part of a promotion. As a result, the difference between equipment revenues and cost of equipment revenues was a loss of $12.3 million for the third quarter of 2001, compared to a loss of $6.6 million for the same period in 2000. Net equipment margin for the third quarter of 2001, without SAB 101, would have been a loss of $12.9 million as compared to $7.0 million for the same period in 2000. We expect to continue to employ these discounts and promotions in an effort to grow our number of subscribers. Therefore, for the foreseeable future, we expect that cost of equipment revenues will continue to exceed our equipment revenues.
Selling, general and administrative expenses consist of sales and marketing expenses, customer care services and general and administrative costs. For the third quarter of 2001 these costs were $56.2 million as compared to $32.3 million for the same period in 2000, representing an increase of 74.2%.
Sales and marketing expenses relate to salaries for sales representatives and sales support personnel, and costs associated with indirect distribution channels, marketing and advertising programs. These expenses increased as a result of:
increased sales and marketing activities to launch markets and grow our subscriber base;
our hiring of
additional sales and marketing employees to accommodate the growth in new and
existing markets;
and
higher expenses related to higher sales from the indirect distribution channel.
General and administrative costs relate to corporate personnel overhead including tax, legal, planning, human resources, information technology, treasury, accounting and our customer care center operations. Our general and administrative costs increased as a result of our:
hiring employees for our functional departments and offices to support the growth of the new and existing markets;
increasing
staffing and operating our customer care and fulfillment service center in Las
Vegas, NV to support the
growing subscriber base; and
hiring employees to maintain and support systems.
For the three months ended September 30, 2001 and 2000, we recorded stock-based compensation expense associated with our restricted stock purchase plan and employee stock options granted during 1999 of $7.8 million and $17.5 million, respectively. This is a non-cash expense. Prior to our initial public offering, grants were considered compensatory and accounted for on a basis similar to that used for stock appreciation rights. At our initial public offering (February 25, 2000), the intrinsic value of the options and restricted stock was recorded and is being amortized over the remaining vesting periods.
For the third quarter of 2001, our depreciation and amortization expense was $19.5 million as compared to $8.0 million for the same period in 2000, representing an increase of 143.7%. The $11.5 million increase related primarily to depreciating the wireless network assets for the 1,324 additional cell sites placed in service from September 30, 2000 to September 30, 2001, along with the costs related to furniture and equipment purchased to set up new offices and amortizing additional FCC-licensed radio spectrum associated with the new markets launched.
Interest expense, net of capitalized interest, increased from $27.3 million for the third quarter of 2000 to $32.1 million for the same period in 2001, representing an increase of 17.3%. The increase was due to the interest accretion on the 14% senior discount notes and the non-cash fair market value adjustments of our hedges.
For the third quarter of 2001, interest income was $6.2 million, compared to $17.8 million for the same period in 2000, representing a decrease of 65.2%. This decrease was due to a reduction in our cash balance because of additional spending related to the network build-out and a decline in interest rates on our short-term investments.
For the third quarter of 2001 we had losses attributable to common stockholders of approximately $74.1 million as compared to a loss of $59.5 million for the same period in 2000, representing an increase of 24.5%. Expenses for 2001 increased in all categories as we launched new markets, added subscriber usage to the network, hired staff for functional departments and offices, and increased marketing and sales activities for the newly launched markets. We anticipate reporting net losses for the foreseeable future as we grow and expand to meet the requirements of the business.
Service revenues increased 214.1% to $247.6 million for the nine months ended September 30, 2001 as compared to $78.8 million recognized during the nine months ended September 30, 2000 (restated for SAB 101). Roaming revenues for the first nine months of 2001 accounted for approximately 16.2% of our service revenues, as compared to 20.4% for the first nine months of 2000.
The following table shows results for the nine months ended September 30, 2001 and 2000 without the impact of SAB 101.
|
|
Pre-SAB 101 |
|
||||
|
|
For the Nine Months Ended |
|
||||
|
|
September 30, 2001 |
|
September 30, 2000 |
|
||
|
|
|