** **

**UNITED STATES****SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,DC 20549**

 

**FORM 10-Q**

 

**QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended March 31, 2003**

 

**Commission File Number**

**000-30761**

 

**UbiquiTel Inc.**

(Exact name ofCo-Registrant as specified in its charter)

 

| **Delaware**                                                      |   | **23-3017909**                        |
|-------------------------------------------------------------------|--------|---------------------------------------|
| (State of  incorporation)                                         |   | (I.R.S. Employer  Identification No.) |
|                                                              |   |                                  |
| **One West Elm Street, Suite 400,  Conshohocken, PA**             |   | **19428**                             |
| (Address of principal  executive office)                          |   | (Zip code)                            |
|                                                              |   |                                  |
| Co-Registrant’s  telephone number:  **(610)  832-3300** |

 

**Commission File Number**

**333-39950**

 

**UbiquiTel Operating Company**

(Exactname of Co-Registrant as specified in its charter)

 

| **Delaware**                                                    |   | **23-3024747**                       |
|-----------------------------------------------------------------|--------|--------------------------------------|
| (State of incorporation)                                        |   | (I.R.S. Employer Identification No.) |
|                                                            |   |                                 |
| **One West Elm Street, Suite 400, Conshohocken, PA**            |   | **19428**                            |
| (Address of principal executive office)                         |   | (Zip code)                           |
|                                                            |   |                                 |
| Co-Registrant’s telephone number:  **(610) 832-3300** |

 

Indicate by check mark whether eachof the co-registrants (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that each co-registrant was required tofile such reports), and (2) has been subject to such filing requirements forthe past 90 days.

Yes ý        No o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act).

Yes o        No ý

 

There were 81,590,534 shares of common stock, $0.0005 par value, of UbiquiTel Inc. outstanding at May 12,2003.

 

There were 1,000 shares of common stock, $0.01 par value, of UbiquiTelOperating Company outstanding at May 12, 2003, all of which were owned byUbiquiTel Inc.

 

 

----

 

**UbiquiTel Inc. and Subsidiaries**

 

**Form 10-Q for the Quarter Ended March 31, 2003**

 

**INDEX**

 

PARTI.   FINANCIAL INFORMATION

 
| Item 1.                                      | Financial Statements                                                                        |
|----------------------------------------------|---------------------------------------------------------------------------------------------|
|                                         | Consolidated Balance Sheets  as of March 31, 2003 and December 31, 2002                     |
|                                         | Consolidated  Statements of Operations for the three months ended March 31, 2003 and 2002   |
|                                         | Consolidated  Statements of Cash Flows for the three months ended March 31, 2003 and 2002   |
|                                         | Notes to  Consolidated Financial Statements                                                 |
|                                         |                                                                                        |
| Item  2.                                     | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |
|                                         |                                                                                        |
|                                         |                                                                                        |
| Item  3.                                     | Quantitative  and Qualitative Disclosures About Market Risk                                 |
|                                         |                                                                                        |
| Item 4.                                      | Controls and Procedures                                                                     |
|                                         |                                                                                        |
| PART  II.   OTHER INFORMATION |
|                                         |                                                                                        |
| Item 1.                                      | Legal Proceedings                                                                           |
|                                         |                                                                                        |
| Item  2.                                     | Changes  in Securities and Use of Proceeds                                                  |
|                                         |                                                                                        |
| Item 3.                                      | Defaults Upon  Senior Securities                                                            |
|                                         |                                                                                        |
| Item  4.                                     | Submission  of Matters to a Vote of Security Holders                                        |
|                                         |                                                                                        |
| Item 5.                                      | Other Information                                                                           |
|                                         |                                                                                        |
| Item 6.                                      | Exhibits and  Reports on Form 8-K                                                           |
|                                         |                                                                                        |
| Signatures                                   |
|                                         |
| Certifications                               |

 

2

----

 

**ExplanatoryNote:**

 

The Consolidated Financial Statements included herein are that ofUbiquiTel Inc. (“UbiquiTel”).  TheCo-Registrants are UbiquiTel and UbiquiTel Operating Company (“OperatingCompany”), which is a wholly-owned subsidiary of UbiquiTel and the issuer of14% senior subordinated discount notes due 2010, 14% senior discount notes due2010 and 14% Series B senior discount notes due 2008 (collectively, the“Notes”).  UbiquiTel has provided afull, unconditional, joint and several guaranty of Operating Company’sobligations under the Notes.  UbiquiTelhas no operations separate from its investment in Operating Company.  Pursuant to Rule 12h-5 of the SecuritiesExchange Act, no separate financial statements and other disclosures concerningOperating Company other than narrative disclosures set forth in Note 6 to theConsolidated Financial Statements have been presented herein. As used hereinand except as the context otherwise may require, the “Company,” “we,” “us,”“our” or “UbiquiTel” means, collectively UbiquiTel, Operating Company and allof their consolidated subsidiaries.

 

3

----

 

**PART I.FINANCIAL INFORMATION**

 

**Item 1.  Financial Statements**

 

**UbiquiTelInc. and Subsidiaries**

**Consolidated Balance Sheets**

**(Unaudited)**

**(InThousands, Except Per Share Data)**

 
|                                                                                                                                                                         |   | **March 31, 2003** |    | **December 31, 2002** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|---------|-----------------------|--------|
| **ASSETS**                                                                                                                                                                   |   |               |    |                  |   |
| CURRENT ASSETS:                                                                                                                                                              |   |               |    |                  |   |
| Cash and cash equivalents                                                                                                                                                    |   | $                  | 54,242  |                  | $      | 73,481 |   |
| Restricted cash                                                                                                                                                              |   | 2,414              |    | 2,408                 |   |
| Accounts receivable, net of allowance for doubtful  accounts of $3,113 atMarch 31,  2003 and $4,343 at December 31, 2002                                                     |   | 15,878             |    | 21,762                |   |
| Inventory                                                                                                                                                                    |   | 2,632              |    | 2,751                 |   |
| Prepaid expenses and other assets                                                                                                                                            |   | 15,040             |    | 15,380                |   |
| Income tax receivable                                                                                                                                                        |   | 8,817              |    | 8,784                 |   |
| Total current assets                                                                                                                                                         |   | 99,023             |    | 124,566               |   |
| PROPERTY AND EQUIPMENT, NET                                                                                                                                                  |   | 273,161            |    | 275,588               |   |
| CONSTRUCTION IN PROGRESS                                                                                                                                                     |   | 5,971              |    | 8,117                 |   |
| DEFERRED FINANCING COSTS, NET                                                                                                                                                |   | 10,293             |    | 12,717                |   |
| GOODWILL                                                                                                                                                                     |   | 38,138             |    | 38,138                |   |
| INTANGIBLE ASSETS, NET                                                                                                                                                       |   | —             |    | 2,753                 |   |
| OTHER INTANGIBLES, NET                                                                                                                                                       |   | 72,097             |    | 73,174                |   |
| OTHER LONG-TERM ASSETS                                                                                                                                                       |   | 3,766              |    | 3,774                 |   |
| Total assets                                                                                                                                                                 |   | $                  | 502,449 |                  | $      | 538,827 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                               |   |               |    |                  |   |
| CURRENT LIABILITIES:                                                                                                                                                         |   |               |    |                  |   |
| Accounts payable                                                                                                                                                             |   | $                  | 11,692  |                  | $      | 11,209 |   |
| Accrued expenses                                                                                                                                                             |   | 25,061             |    | 23,681                |   |
| Accrued compensation and benefits                                                                                                                                            |   | 1,712              |    | 2,547                 |   |
| Deferred revenue                                                                                                                                                             |   | 10,141             |    | 9,252                 |   |
| Interest payable                                                                                                                                                             |   | 1,785              |    | 1,923                 |   |
| Current portion of long-term debt                                                                                                                                            |   | 594                |    | 683                   |   |
| Other                                                                                                                                                                        |   | 7,488              |    | 7,379                 |   |
| Total current liabilities                                                                                                                                                    |   | 58,473             |    | 56,674                |   |
| LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, EXCLUDING  CURRENT MATURITIES                                                                                                  |   | 398,689            |    | 457,038               |   |
| OTHER LONG-TERM LIABILITIES                                                                                                                                                  |   | 3,518              |    | 3,506                 |   |
| Total long-term liabilities                                                                                                                                                  |   | 402,207            |    | 460,544               |   |
| Total liabilities                                                                                                                                                            |   | 460,680            |    | 517,218               |   |
| COMMITMENTS AND CONTINGENCIES                                                                                                                                                |   |               |    |                  |   |
| STOCKHOLDERS’ EQUITY:                                                                                                                                                   |   |               |    |                  |   |
| Preferred stock, par value $0.001 per share; 10,000  shares authorized; 0 shares issued andoutstanding at March 31, 2003 and December 31, 2002                               |   | —             |    | —                |   |
| Common stock, par value $0.0005 per share; 240,000  shares authorized; 81,591 and 81,432shares  issued and outstanding at March 31, 2003 and December 31, 2002, respectively |   | 41                 |    | 41                    |   |
| Additional paid-in-capital                                                                                                                                                   |   | 299,195            |    | 295,236               |   |
| Accumulated deficit                                                                                                                                                          |   | (257,467           | )       | (273,668              | )      |
| Total stockholders’ equity                                                                                                                                              |   | 41,769             |    | 21,609                |   |
| Total liabilities and stockholders’ equity                                                                                                                              |   | $                  | 502,449 |                  | $      | 538,827 |   |

 

*Theaccompanying notes are an integral part of these consolidated financialstatements.*

 

4

----

 

**UbiquiTelInc. and Subsidiaries**

**ConsolidatedStatements of Operations**

**(Unaudited)**

**(InThousands, Except Per Share Data)**

 
|                                                                                  |   | **Three Months Ended****March 31, 2003** |   | **Three Months Ended****March 31, 2002** |   |
|---------------------------------------------------------------------------------------|--------|------------------------------------------|--------|------------------------------------------|--------|
| REVENUES:                                                                             |   |                                     |   |                                     |   |
| Service revenue                                                                       |   | $                                        | 56,244 |                                     | $      | 43,550 |   |
| Equipment revenue                                                                     |   | 2,239                                    |   | 2,535                                    |   |
| Total revenues                                                                        |   | 58,483                                   |   | 46,085                                   |   |
| COSTS AND EXPENSES:                                                                   |   |                                     |   |                                     |   |
| Cost of service and operations (exclusive of  depreciation as shownseparately  below) |   | 29,401                                   |   | 29,637                                   |   |
| Cost of products sold                                                                 |   | 9,301                                    |   | 9,619                                    |   |
| Selling and marketing                                                                 |   | 12,081                                   |   | 12,446                                   |   |
| General and administrative expenses excluding non-cashcompensation charges            |   | 7,474                                    |   | 6,068                                    |   |
| Non-cash compensation for general and administrative  matters                         |   | 94                                       |   | 94                                       |   |
| Depreciation and amortization                                                         |   | 13,048                                   |   | 10,356                                   |   |
| Total costs and expenses                                                              |   | 71,399                                   |   | 68,220                                   |   |
| OPERATING LOSS                                                                        |   | (12,916                                  | )      | (22,135                                  | )      |
| INTEREST INCOME                                                                       |   | 193                                      |   | 471                                      |   |
| INTEREST EXPENSE                                                                      |   | (10,127                                  | )      | (10,911                                  | )      |
| GAIN ON TROUBLED DEBT RESTRUCTURING                                                   |   | 39,018                                   |   | —                                   |   |
| INCOME (LOSS) BEFORE INCOME TAXES                                                     |   | 16,168                                   |   | (32,575                                  | )      |
| INCOME TAX BENEFIT                                                                    |   | 33                                       |   | 2,830                                    |   |
| NET INCOME (LOSS)                                                                     |   | $                                        | 16,201 |                                     | $      | (29,745 | ) |
|                                                                                  |   |                                     |   |                                     |   |
| NET INCOME (LOSS) PER SHARE:                                                          |   |                                     |   |                                     |   |
| BASIC                                                                                 |   | $                                        | 0.20   |                                     | $      | (0.37 | ) |
| DILUTED                                                                               |   | $                                        | 0.18   |                                     | $      | (0.37 | ) |
|                                                                                  |   |                                     |   |                                     |   |
| WEIGHTED AVERAGE SHARES OUTSTANDING:                                                  |   |                                     |   |                                     |   |
| BASIC                                                                                 |   | 81,541                                   |   | 81,116                                   |   |
| DILUTED                                                                               |   | 90,891                                   |   | 81,116                                   |   |

* *

*Theaccompanying notes are an integral part of these consolidated financialstatements*.

 

5

----

 

**UbiquiTelInc. and Subsidiaries**

**ConsolidatedStatements of Cash Flows**

**(Unaudited)**

**(InThousands)**

 
|                                                                                                |   | **Three Months Ended****March 31, 2003** |   | **Three Months Ended********March 31, 2002** |   |
|-----------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------|----------------------------------------------|--------|
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                               |   |                                     |   |                                         |   |
| Net income (loss)                                                                                   |   | $                                        | 16,201 |                                         | $      | (29,745 | ) |
| Adjustments to reconcile net income (loss) to net cash  provided by (used in) operating activities: |   |                                     |   |                                         |   |
| Amortization of deferred financing costs                                                            |   | 854                                      |   | 863                                          |   |
| Amortization of intangible assets                                                                   |   | 3,830                                    |   | 2,495                                        |   |
| Depreciation                                                                                        |   | 9,218                                    |   | 7,861                                        |   |
| Interest accrued on discount notes                                                                  |   | 5,885                                    |   | 6,452                                        |   |
| Non-cash compensation from stock options granted to  employees                                      |   | 94                                       |   | 94                                           |   |
| Deferred income taxes                                                                               |   | —                                   |   | (768                                         | )      |
| Gain on troubled debt restructuring                                                                 |   | (39,018                                  | )      | —                                       |   |
| Changes in operating assets and liabilities exclusive  of acquisitions and capital expenditures:    |   |                                     |   |                                         |   |
| Accounts receivable                                                                                 |   | 5,884                                    |   | 5                                            |   |
| Inventory                                                                                           |   | 119                                      |   | 2,574                                        |   |
| Prepaid expenses and other assets                                                                   |   | 348                                      |   | 1,299                                        |   |
| Income tax receivable                                                                               |   | (33                                      | )      | —                                       |   |
| Accounts payable and accrued expenses                                                               |   | 696                                      |   | 6,022                                        |   |
| Net cash provided by (used in) operating activities                                                 |   | 4,078                                    |   | (2,848                                       | )      |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                               |   |                                     |   |                                         |   |
| Capital expenditures                                                                                |   | (4,645                                   | )      | (21,104                                      | )      |
| Change in restricted cash                                                                           |   | (6                                       | )      | (22                                          | )      |
| Net cash used in investing activities                                                               |   | (4,651                                   | )      | (21,126                                      | )      |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                               |   |                                     |   |                                         |   |
| Repayments under senior secured credit facility                                                     |   | (15,000                                  | )      | —                                       |   |
| Proceeds from issuance of senior unsecured Series B  discount notes                                 |   | 9,636                                    |   | —                                       |   |
| Cash payments for amount of senior subordinated  discount notes exchanged                           |   | (9,636                                   | )      | —                                       |   |
| Financing costs                                                                                     |   | (3,500                                   | )      | —                                       |   |
| Proceeds from issuance of common stock                                                              |   | 32                                       |   | —                                       |   |
| Repayment of capital lease obligations and other long-term  liabilities                             |   | (198                                     | )      | (203                                         | )      |
| Net cash used in financing activities                                                               |   | (18,666                                  | )      | (203                                         | )      |
| NET DECREASE IN CASH AND CASH EQUIVALENTS                                                           |   | (19,239                                  | )      | (24,177                                      | )      |
| CASH AND CASH EQUIVALENTS, beginning of period                                                      |   | 73,481                                   |   | 124,744                                      |   |
| CASH AND CASH EQUIVALENTS, end of period                                                            |   | $                                        | 54,242 |                                         | $      | 100,567 |   |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                                   |   |                                     |   |                                         |   |
| Cash paid for interest                                                                              |   | $                                        | 3,388  |                                         | $      | 3,402 |   |
| Cash paid for taxes                                                                                 |   | 228                                      |   | —                                       |   |
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND  FINANCING ACTIVITIES:                            |   |                                     |   |                                         |   |
| Network assets acquired but not yet paid                                                            |   | —                                   |   | 2,000                                        |   |

 

*The accompanying notes are anintegral part of these consolidated financial statements.*

 

6

----

 

**UbiquiTelInc. and Subsidiaries**

**Notes toConsolidated Financial Statements**

**(Unaudited)**

 

**1.     SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

 

**Basis of Presentation of UnauditedInterim Financial Information**

 

The consolidated financial information as of March 31,2003 and for the three months ended March 31, 2003 and 2002 is unaudited, buthas been prepared in accordance with generally accepted accounting principlesfor interim financial information and Article 10 of Regulation S-X.  Accordingly, they do not include all theinformation and footnotes required by generally accepted accountingprinciples.  In the opinion ofmanagement, the interim data includes all adjustments, consisting only ofnormal recurring adjustments, that are considered necessary for a fairpresentation of the Company’s interim results. Operating results for the three months ended March 31, 2003 are notnecessarily indicative of results that may be expected for the entireyear.  This financial information shouldbe read in conjunction with the audited financial statements and notes theretofor the year ended December 31, 2002 of UbiquiTel which are included in its andOperating Company’s Joint Annual Report on Form 10-K for the year endedDecember 31, 2002.

 

**Principles of Consolidation and Useof Estimates**

 

                The accompanyingfinancial statements include the accounts of UbiquiTel Inc. and itssubsidiaries (see Note 2).  Allsignificant intercompany balances and transactions have been eliminated.

 

The preparation of financial statements in conformitywith generally accepted accounting principles requires management to makeestimates and assumptions.  Theseestimates and assumptions affect the reported amounts of assets and liabilitiesand disclosure of contingent assets and liabilities at the date of thefinancial statements.  These assumptionsalso affect the reported amounts of revenue and expenses during the reportingperiods.  Actual results could differfrom those estimates and assumptions.

 

**Stock-Based Compensation**

 

At March 31, 2003, UbiquiTel had two stock-basedemployee compensation plans, an employee stock purchase plan and an equityincentive plan.  The Company accountsfor those plans in accordance with Accounting Principles Board (“APB”) OpinionNo. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and relatedinterpretations. Based on the additional disclosure requirements of Statementof Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-BasedCompensation—Transition and Disclosure—an amendment of FASB Statement No. 123”(“SFAS No. 148”), the following table illustrates the effect on net income andearnings per share if the Company had applied the fair value recognitionprovisions of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFASNo. 123”).

 

|                                                                                                                  |   | **Three Months Ended March 31,**              |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                                                                                  |   | **2003**                                      |   | **2002** |   |
|                                                                                                                  |   | **(In Thousands, Except Per Share  Amounts)** |   |
| Net income (loss), as reported                                                                                        |   | $                                             | 16,201 |   | $ | (29,745 | ) |
| Add: stock-based employee compensation included in  reported net income (loss), net of related tax                    |   | 94                                            |   | 94378 |   |
| Deduct: total stock-based employee compensation expense  determined under fair value-based method, net of related tax |   | (608                                          | )      | (666 | ) |
| Pro forma net income (loss)                                                                                           |   | $                                             | 15,687 |   | $ | (30,317 | ) |
|                                                                                                                  |   |                                          |   |   |   |
| Basic net income (loss) per share:                                                                                    |   |                                          |   |   |   |
| As reported                                                                                                           |   | $                                             | 0.20   |   | $ | (0.37 | ) |
| Pro forma                                                                                                             |   | $                                             | 0.19   |   | $ | (0.37 | ) |
|                                                                                                                  |   |                                          |   |   |   |
| Diluted net income (loss) per share:                                                                                  |   |                                          |   |   |   |
| As reported                                                                                                           |   | $                                             | 0.18   |   | $ | (0.37 | ) |
| Pro forma                                                                                                             |   | $                                             | 0.17   |   | $ | (0.37 | ) |

 

7

----

 

**Intangible Assets**

 

Intangibleassets represented the estimated value of acquired subscriber bases for VIAWireless and the Spokane market at the dates of acquisition.  Intangible assets were $0 and $2.8 million,net of accumulated amortization expense of $19.1 million and $16.3 million asof March 31, 2003 and December 31, 2002, respectively, and were amortized on astraight-line basis over a period of 20 months to five years. The VIA Wirelessand Spokane market subscriber bases acquired were initially being amortizedover 36 months and 60 months, respectively, which represented the estimated averagelives of a subscriber in these respective markets. Effective April 1, 2002,however, the Company changed the amortization periods of the VIA Wireless andSpokane market subscriber bases to 20 months and 33 months, respectively,resulting from higher customer turnover in these markets. As of March 31, 2003,the VIA Wireless subscriber base was fully amortized and as of December 31,2002, the Spokane market subscriber base was fully amortized. Amortizationexpense for intangible assets was approximately $2.8 million and $1.4 millionfor the three months ended March 31, 2003 and 2002, respectively.

 

**Otherintangible assets were $72.1 million and $73.2 million, net of accumulatedamortization expense of $7.0 million and $5.9 million as of March 31, 2003 andDecember 31, 2002, respectively.  Otherintangible assets represent the estimated value of VIA Wireless’ Sprint PCSmanagement agreement.  Amortizationexpense for other intangible assets was approximately $1.1 million and $1.1million for the three months ended March 31, 2003 and 2002, respectively.**

** **

**Estimatedfuture amortization expense of intangible assets for the next five years atMarch 31, 2003 is as follows:**

 
| **Years Ending December 31,** |   | **(In Thousands)** |   |
|-------------------------------|--------|--------------------|--------|
|                          |   |               |   |
| 2003                          |   | $                  | 3,228  |   |
| 2004                          |   | 4,304              |   |
| 2005                          |   | 4,304              |   |
| 2006                          |   | 4,304              |   |
| 2007                          |   | 4,304              |   |
|                               |        |                    |        |  |

 

**Recent Accounting Pronouncements**

 

In April 2003, the Financial Accounting StandardsBoard (“FASB”) issued SFAS No. 149, “Amendment of Statement 133 on DerivativeInstruments and Hedging Activities” (“SFAS No. 149”).  SFAS No. 149 amends and clarifies the accounting guidance onderivative instruments (including certain derivative instruments embedded inother contracts) and hedging activities that fall within the scope of SFAS No.133, “Accounting for Derivative Instruments and Hedging Activities.”  SFAS No. 149 also amends certain otherexisting pronouncements, which will result in more consistent reporting ofcontracts that are derivatives in their entirety or that contain embedded derivativesthat warrant separate accounting.  ThisStatement is effective for contracts entered into or modified after June 30,2003, with certain exceptions, and for hedging relationships designated afterJune 30, 2003.  The Company has not yetdetermined the impact this issue will have on the Company’s financial position,results of operations or cash flows.

 

8

----

 

In January 2003, the FASB issued FASB InterpretationNo. 46, “Consolidation of Variable Interest Entities—An Interpretation ofAccounting Research Bulletin (ARB) No. 51” (“FIN 46”). This interpretationclarifies how to identify variable interest entities and how a company shouldassess its interests in a variable interest entity to decide whether toconsolidate the entity. FIN 46 applies to variable interest entities createdafter January 31, 2003, in which a company obtains an interest after that date.Also, FIN 46 applies in the first fiscal quarter or interim period beginningafter June 15, 2003, to variable interest entities in which a company holds avariable interest that it acquired before February 1, 2003. The Company doesnot have any ownership in variable interest entities.

 

In November 2002, the FASB issued FASB InterpretationNo. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees,Including Indirect Guarantees of Indebtedness of Others.” This interpretationexpands the disclosures to be made by a guarantor about its obligations undercertain guarantees and requires that, at the inception of a guarantee, a guarantorrecognize a liability for the fair value of the obligation undertaken inissuing the guarantee. The disclosure requirements are effectiveimmediately.  As disclosed in Note 6 tothe Consolidated Financial Statements, UbiquiTel has fully and unconditionallyguaranteed Operating Company’s obligations under its 14% senior subordinateddiscount notes, 14% senior discount notes and 14% Series B senior discountnotes. The initial recognition and measurement provisions of thisinterpretation are effective for guarantees issued or modified after December31, 2002. The adoption of the initial recognition and measurement provisions ofthis interpretation did not have a material effect on the Company’s financialposition, results of operations or cash flows.

 

In November 2002,the Emerging Issues Task Force (“EITF”) issued EITF Issue No. 02-16,“Accounting by a Customer (Including a Reseller) for Certain ConsiderationReceived from a Vendor” (“EITF 02-16”). Among other items, EITF 02-16 requiresthat consideration received from a vendor be presumed to be a reduction of thecost of the vendor’s products or services. This presumption can be overcome ifthe consideration can be shown to represent either a payment for assets orservices delivered to the vendor or a reimbursement of costs incurred by thereseller to sell the vendor’s products. This treatment is effective forarrangements entered into or modified on or after January 1, 2003. The adoptionof EITF 02-16 did not have a material effect on the Company’s financialposition, results of operations or cash flows.

 

In November 2002,the EITF issued EITF Issue No. 00-21, “Accounting for Multiple-Element RevenueArrangements” (“EITF 00-21”). EITF 00-21 addresses the determination of whetheran arrangement involving more than one deliverable contains more than one unitof accounting and how the related revenues should be measured and allocated tothe separate units of accounting, i.e., the delivery or performance of multipleproducts, services, and/or rights to use assets. In applying this guidance,separate contracts with the same party, entered into at or near the same time,will be presumed to be a package, and the consideration will be measured andallocated to the separate units based on their relative fair values. EITF 00-21will apply to revenue arrangements entered into after June 30, 2003; however,upon adoption, the EITF allows the guidance to be applied on a retroactivebasis, with the change, if any, reported as a cumulative effect of accountingchange in the consolidated statements of operations. The Company will adoptthis new accounting guidance effective July 1, 2003 and has not yet determinedthe impact this issue will have on the Company’s financial position, results ofoperations or cash flows.

 

In June 2002, the FASB issued SFAS No. 146,“Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS No.146”).  SFAS No. 146 provides newguidance on the recognition of costs associated with exit or disposalactivities.  The Statement requires companiesto recognize costs associated with exit or disposal activities when they areincurred rather than at the date of commitment to an exit or disposal plan.SFAS No. 146 supercedes previous accounting guidance provided by EITF Issue No.94-3, “Liability Recognition for Certain Employee Termination Benefits andOther Costs to Exit an Activity (including Certain Costs Incurred in aRestructuring)” (“EITF 94-3”). EITF 94-3 required recognition of costs at thedate of commitment to an exit or disposal plan. SFAS No. 146 is to be appliedprospectively to exit or disposal activities initiated after December 31,

 

9

----

 

2002.  The adoption of SFAS No.146 did not have a material impact on the Company’s financial position, resultsof operations or cash flows.

 

In April 2002, theFASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64,Amendment of FASB Statement No. 13, and Technical Corrections” (“SFAS No.145”). Among other things, this Statement rescinds FASB Statement No. 4,“Reporting Gains and Losses from Extinguishment of Debt,” which required allgains and losses from extinguishment of debt to be aggregated and, if material,classified as an extraordinary item, net of related income tax effect. As aresult, the criteria in APB Opinion No. 30, “Reporting the Results ofOperations—Reporting the Effects of Disposal of a Segment of a Business, andExtraordinary, Unusual and Infrequently Occurring Events and Transactions,”will now be used to classify those gains and losses. The Company’s adoption ofSFAS No. 145 on January 1, 2003 did not have a material impact on the Company’sfinancial position, results of operations or cash flows.

 

In June 2001, theFASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations”(“SFAS No. 143”).  This Statementrequires entities to record the fair value of a liability for an assetretirement obligation in the period in which it is incurred and capitalize thatamount as part of the book value of the long-lived asset. Over time, theliability is accreted to its present value each period, and the capitalizedcost is depreciated over the useful life of the related asset. Upon settlementof the liability, an entity either settles the obligation for its recorded amountor incurs a gain or loss upon settlement. This Statement is effective forfinancial statements for fiscal years beginning after June 15, 2002.

 

The Company’s network is primarily located on leased property and theCompany has certain legal obligations, principally related to its tower leases,which fall within the scope of SFAS No. 143. These legal obligationsprimarily include certain obligations to remediate leased land on which theCompany’s tower assets are located. In conjunction with the adoption of SFASNo. 143 effective January 1, 2003, the Company did not record assetretirement obligations for network infrastructure assets subject to theprovisions of this Statement as the fair value of the obligations could notreasonably be estimated. The Company has very limited experience in removingtower assets, many of which are co-located, and in remediating leased land. Inaddition, the Company does not intend to remove tower assets from their currentlocations. Based on the Company’s history and current industry trends, it isnot probable that any sites will be removed in the foreseeable future andrequire remediation. Therefore, sufficient information to estimate a range ofpotential settlement dates is not available. In accordance with SFAS No. 143,the Company did not recognize a liability as of January 1, 2003 and will notrecognize a liability until such information becomes known.

 

**Reclassifications**

 

Certain prior year amounts have beenreclassified to conform with current year presentation.

 

**2. ORGANIZATION, NATURE OF BUSINESSAND LIQUIDITY**

 

**Organization and Nature of Business**

 

UbiquiTel Inc. and Subsidiaries (“UbiquiTel” or the “Company”) wasformed for the purpose of becoming the exclusive provider of Sprint PersonalCommunications Services (“PCS”) in certain defined midsize markets in thewestern and midwestern United States.

 

In October 1998, UbiquiTel L.L.C. (a Washington state limitedliability company), whose sole member was The Walter Group, entered into anagreement with Sprint PCS for no consideration given for the exclusive rightsto market Sprint’s 100% digital, 100% PCS products and services to theapproximately one million residents in the Reno/Tahoe, Nevada market.UbiquiTel L.L.C. had no financial transactions from its inception (August 24,1998) to

 

10

----

 

September 29, 1999. On September 29, 1999,UbiquiTel Inc. (formerly “UbiquiTel Holdings, Inc.”) was incorporatedin Delaware. On November 1, 1999, the Company entered into a founders’ agreementand issued common stock to a group of five shareholders including The WalterGroup. In November 1999, UbiquiTel L.L.C. assigned all of its materialcontracts, including the rights to the Sprint PCS agreements, to UbiquiTel. OnDecember 28, 1999, UbiquiTel amended its agreement with Sprint PCS toexpand the Company’s markets to the northern California, Spokane/Montana,southern Idaho/Utah/Nevada and southern Indiana/Kentucky markets, whichtogether with the Reno/Tahoe markets, contain approximately 7.7 millionresidents.

 

On November 9, 1999, UbiquiTel Operating Company(a Delaware corporation, formerly a Delaware limited liability company)(“Operating Company”), was formed to serve as the operating company forUbiquiTel Inc. Also, on March 17, 2000, UbiquiTel Leasing Company (aDelaware corporation) was formed to serve as the leasing company forUbiquiTel Inc.

 

On February 22,2001, UbiquiTel entered into a merger agreement for the acquisition of VIAWireless LLC, a California limited liability company and PCS affiliate ofSprint (“VIA Wireless”). Upon the closing of the merger agreement, as amendedand restated, on August 13, 2001, VIA Wireless became a wholly owned subsidiaryof UbiquiTel through a series of mergers and related transactions. VIA Wirelesswas the exclusive provider of Sprint PCS digital wireless services to thecentral valley of California, which covers approximately 3.4 million licensedresidents. On February 21, 2001, inconnection with the acquisition, UbiquiTel amended its agreement with SprintPCS to expand its markets to include the six VIA Wireless basic trading areas(BTAs) included under VIA Wireless’ former affiliation agreement with SprintPCS, including Bakersfield, Fresno, Merced, Modesto, Stockton and Visalia,California, which went into effect at the closing of the acquisition.  On December 31, 2001, through a series ofmergers, certain corporate members of VIA Wireless merged into the soleremaining member, VIA Holding Inc., which had become a wholly owned subsidiaryof Operating Company effective immediately after the acquisition of VIAWireless in August 2001.

 

The consolidated financial statements contain the financial informationof UbiquiTel Inc. and its subsidiaries, UbiquiTel Operating Company,UbiquiTel Leasing Company, VIA Holding Inc., VIA Wireless LLC and VIA Building,LLC.

 

**Liquidity**

 

**Through March 31, 2003, theCompany has principally relied on the proceeds from equity and debt financings,and to a lesser extent revenues, as the primary sources of capital. Completionof the Company’s PCS network has required substantial capital and as of March31, 2003, the Company had an accumulated deficit of $257.5 million.**

 

At March 31, 2003, the Company had approximately $56.7million in cash, cash equivalents and restricted cash, working capital wasapproximately $40.6 million and the Company’s unused revolving line of creditwas approximately $50.0 million. Management believes that working capital andcash availability under the Company’s senior secured credit facility areexpected to be sufficient to fund cash flow requirements for capitalexpenditures, operating activities and debt service requirements through atleast March 31, 2004 and into the foreseeable future.

 

While managementdoes not anticipate the need to raise additional capital to meet the Company’soperating or capital expenditure requirements in the foreseeable future, theCompany’s funding status is dependent on a number of factors influencingprojections of operating cash flows, including those related to gross newcustomer additions, customer turnover, revenues, marketing costs, bad debtexpense and roaming revenue.  Shouldactual results differ significantly from these assumptions, the Company’sliquidity position could be adversely affected and the Company could be in aposition that would require it to raise additional capital which may not beavailable or may not be available on acceptable terms.

 

11

----

 

Inaddition, Operating Company’s ability to borrow funds under the senior securedcredit facility’s $50.0 million revolving line of credit is subject tocontinued compliance with restrictive covenants under the senior secured creditfacility (see Note 5) and will be restricted unless the cash balance (as definedin the credit facility) is less than $25.0 million at the time of borrowing.The Company presently is in compliance with all financial and operationalcovenants relating to the senior secured credit facility; however, there isuncertainty as to the Company’s ability to continue to comply with suchfinancial and operating covenants in the future. Should the Company determinethat it may not be able to meet, or has not met, covenant requirements, theCompany would seek modifications to, or waivers of, its covenant requirements;however, receipt of such modifications or waivers is not guaranteed.

 

If the Company’sbusiness does not generate the results required by the covenants in the seniorsecured credit facility, its ability to make borrowings under the revolvingline of credit could be restricted or terminated and the credit facility couldbe declared in default.  Additionally,if the Company fails to make an interest or principal payment when due on anyof the Company’s senior secured credit facility, senior discount notes, SeriesB senior discount notes and senior subordinated discount notes, it couldtrigger cross-default provisions on the other long-term debt agreements.  If the Company’s long-term debt agreementsare declared in default, the creditors under these agreements may demandimmediate payment of the outstanding indebtedness.

 

**3. BASIC AND DILUTED NET INCOME(LOSS) PER SHARE**

 

The Company computes net income (loss) per common share in accordancewith SFAS No. 128, “Earnings per Share” (“SFAS No. 128”).  Under the provisions of SFAS No. 128,basic net income (loss) per common share is computed by dividing the net income(loss) available to common shareholders for the period by the weighted averagenumber of shares of common stock outstanding.  In accordance with SFAS No. 128,incremental potential common shares from stock options are excluded in thecalculation of diluted loss per share when the effect would be antidilutive.  Accordingly, the number of weighted averageshares outstanding as well as the amount of net loss per share are the same forbasic and diluted per share calculations for the three month period ended March31, 2002, reflected in the accompanying financial statements.

 

The calculations for basic and diluted net income(loss) per share were as follows:

 

|                                                |   | **Three Months Ended March 31,**              |   |
|-----------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                |   | **2003**                                      |   | **2002** |   |
|                                                |   | **(In Thousands, Except Per Share  Amounts)** |   |
| Basic                                               |   |                                          |   |   |   |
| Net income (loss)                                   |   | $                                             | 16,201 |   | $ | (29,745 | ) |
| Average common shares outstanding                   |   | 81,541                                        |   | 81,116 |   |
| Basic                                               |   | $                                             | 0.20   |   | $ | (0.37 | ) |
|                                                |   |                                          |   |   |   |
| Diluted                                             |   |                                          |   |   |   |
| Net income (loss)                                   |   | $                                             | 16,201 |   | $ | (29,745 | ) |
| Average common shares outstanding                   |   | 81,541                                        |   | 81,116 |   |
| Effect of:                                          |   |                                          |   |   |   |
| Dilutive options                                    |   | —                                        |   | — |   |
| Dilutive securities                                 |   | 9,350                                         |   | — |   |
| Average common shares outstanding assuming dilution |   | 90,891                                        |   | 81,116 |   |
| Diluted                                             |   | $                                             | 0.18   |   | $ | (0.37 | ) |

 

The following table summarizes the securitiesoutstanding, which are excluded from the income (loss) per share calculation, when amounts wouldhave an antidilutive effect.

 

12

----

 

|          |   | **Three Months Ended March 31,** |   |
|---------------|--------|----------------------------------|--------|
|          |   | **2003**                         |   | **2002** |   |
| Stock options |   | 5,335,800                        |   | 4,611,000 |   |
| Warrants      |   | 13,301,183                       |   | 3,665,183 |   |
| Total         |   | 18,636,983                       |   | 8,276,183 |   |

 

**4. PROPERTY AND EQUIPMENT**

 

Property and equipment consisted of the following (in thousands): 

 

|                           |   | **March 31, 2003** |    | **December 31, 2002** |   |
|--------------------------------|--------|--------------------|---------|-----------------------|--------|
| Network equipment              |   | $                  | 316,971 |                  | $      | 310,709 |   |
| Vehicles                       |   | 1,253              |    | 1,268                 |   |
| Furniture and office equipment |   | 11,396             |    | 10,855                |   |
| Leasehold improvements         |   | 3,730              |    | 3,727                 |   |
| Land                           |   | 130                |    | 130                   |   |
| Buildings                      |   | 4,670              |    | 4,670                 |   |
|                           |   | 338,150            |    | 331,359               |   |
| Accumulated depreciation       |   | (64,989            | )       | (55,771               | )      |
| Property and equipment, net    |   | $                  | 273,161 |                  | $      | 275,588 |   |

 

Depreciation expense was approximately $9.2 million and $7.9 million forthe three months ended March 31, 2003 and 2002, respectively.

 

**5.     LONG-TERMDEBT AND CAPITAL LEASE OBLIGATIONS**

 

Long-term debt and capital lease obligations outstanding as ofMarch 31, 2003 and December 31, 2002 were as follows (in thousands):

 

|                                                                              |   | **March 31, 2003** |    | **December 31, 2002** |   |
|-----------------------------------------------------------------------------------|--------|--------------------|---------|-----------------------|--------|
| Senior subordinated discount notes                                                |   | $                  | 107,280 |                  | $      | 300,000 |   |
| Less: Discount                                                                    |   | (25,886            | )       | (79,865               | )      |
| Less: Detachable warrants                                                         |   | (4,016             | )       | (11,631               | )      |
| Senior secured credit facility                                                    |   | 230,000            |    | 245,000               |   |
| Senior discount notes                                                             |   | 48,180             |    | —                |   |
| Less: Discount                                                                    |   | (11,623            | )       | —                |   |
| Series B senior discount notes                                                    |   | 12,848             |    | —                |   |
| Less: Discount                                                                    |   | (3,092             | )       | —                |   |
| Less: Detachable warrants                                                         |   | (3,775             | )       | —                |   |
| Capital lease obligations                                                         |   | 419                |    | 564                   |   |
| Building mortgage and other long-term liabilities                                 |   | 3,599              |    | 3,653                 |   |
| Subtotal                                                                          |   | 353,934            |    | 457,721               |   |
| Future cash flows associated with seniordiscount notes for interest and other     |   | 45,349             |    | —                |   |
| Total long-term debt and capital lease obligations                                |   | 399,283            |    | 457,721               |   |
| Less: Current maturities                                                          |   | 594                |    | 683                   |   |
| Total long-term debt and capital lease obligations,  excluding current maturities |   | $                  | 398,689 |                  | $      | 457,038 |   |

 

The interest rates for the senior secured credit facility ranged from4.8% to 6.2% during the three months ended March 31, 2003.

 

13

----

 

On April 11, 2000, Operating Company issued 14% senior subordinateddiscount notes. See Note 6 for additional information.

 

On March 31, 2000, Operating Company entered into a$250.0 million senior secured credit facility with Paribas, as administrativeagent, and certain banks and other financial institutions as parties thereto,which was guaranteed by UbiquiTel.  Thecredit facility consisted of a revolving loan of up to $55.0 million, a termloan A of $120.0 million and a term loan B of $75.0 million. The Company’sobligations under the credit agreement are secured by all of the Company’sassets.

 

On March 1, 2001, Operating Company and Paribas and the other lendersunder the senior secured credit facility entered into a second amendment andconsent to the credit agreement, whereby the lenders increased the $250.0million credit facility by $50.0 million to $300.0 million, and approvedUbiquiTel’s acquisition of VIA Wireless, including Operating Company’ssubordinated bridge financing of up to $25.0 million to VIA Wireless pending theclosing of the transaction.  Theadditional borrowing increased the term loan B to $125.0 million. The Companyfully drew down the term loans according to a mandatory draw down scheduleduring the years ended December 31, 2002, 2001 and 2000. In conjunction with the closing inMarch 2000, the increase of this facility in March 2001, an amendmentexecuted in July 2002 and an amendment executed in February 2003, the Companyincurred financing fees of approximately $11.6 million which are beingamortized over the term of the credit facility.

 

The revolving loan and term loan A will mature in October 2007 and theterm loan B will mature in October 2008. The term loans A and B are required to be repaid beginning in June 2004in fourteen and eighteen consecutive quarterly installments, respectively. Theamount of each of the quarterly consecutive installments increasesincrementally in accordance with the credit facility agreement.  The amount that can be borrowed and outstandingunder the revolving loan reduces in seven quarterly reductions of approximately$6.9 million beginning in December 2005 and a final reduction ofapproximately $1.9 million in September 2007. Effective March 1, 2003,Operating Company can voluntarily prepay the term loans without a prepaymentpremium.

 

Operating Company may borrow funds as either a base rate loan with aninterest rate of prime plus 2.00% for the revolving loan and term loan A andprime plus 2.50% for term loan B or a Eurodollar Loan with an interest rate ofthe London interbank offered rate, commonly referred to as LIBOR, plus 3.25%for the revolving loan and term loan A and plus 4.25% for term loan B.  In addition, an unused credit facility feeof 0.75% will be charged quarterly on the average unused portion of the facility.

 

VIA Wireless had a mortgage in the amount of $3.9 million on the dateof acquisition.  The mortgage relates toa building and land that were purchased by VIA Wireless and had a balance ofapproximately $3.6 million at March 31, 2003. The mortgage carries a fixedinterest rate of 6.99% and is payable in monthly installments of approximately$37,000.  The mortgage is due to berepaid in full by April 2015.

 

On July 17, 2002, the Company entered into anamendment to its senior secured credit facility. The amendment primarilyadjusted certain financial covenants, provided for new financial covenantsregarding minimum cash balances and minimum consolidated EBITDA (each asdefined in the credit facility), and imposed additional conditions on theavailability of drawings under the revolving line of credit. Beginningwith the three months ended September 30, 2002, the Company must meet thefollowing financial and operating covenants: minimum levels for subscribers,revenues, cash balances and network coverage, and maximum capital spendinglimits; and also must achieve financial ratios including total debt to adjustedEBITDA and senior debt to adjusted EBITDA (each as defined in the creditfacility). Beginning with the three months ending June 30, 2004, the Companyalso must achieve minimum EBITDA and meet additional financial ratios includinginterest coverage to EBITDA, total debt to EBITDA and senior debt to EBITDA(each as defined in the credit facility), among other restrictions. Beginningwith the three months ending March 31, 2006, the Company also must maintain afixed charge coverage ratio (as defined in the credit facility). As of March 31, 2003, the Company was incompliance with all financial and

 

14

----

 

operational covenants associated with its senior secured creditfacility, 14% senior subordinated discount notes, 14% senior discount notes and14% Series B senior discount notes.

 

In February 2003, Operating Company consummatedcertain transactions which reduced its long-term debt outstanding and relatedfuture minimum annual principal payments due on the amounts outstanding underthe senior secured credit facility and the 14% senior subordinated discountnotes.  See Note 6 for additionalinformation.  The Company accounted forthese transactions in accordance with SFAS No. 15, “Accounting by Debtorsand Creditors for Troubled Debt Restructurings” (“SFAS No. 15”), and EITF IssueNo. 02-04, “Determining Whether a Debtor’s Modification or Exchange of DebtInstruments Is Within the Scope of FASB Statement No. 15” (“EITF 02-04”).Also in February 2003, Operating Company and the lenders under the seniorsecured credit facility amended the credit facility to gain the lenders’consent to the transactions described above, which terms included a $15.0million partial prepayment against the outstanding $245.0 million principalbalance of term loans as of December 31, 2002 and the reduction of the unused$55.0 million revolving line of credit to $50.0 million.

 

In April 2003, Operating Company purchased a portion of its aggregateprincipal amount of outstanding 14% senior subordinated discount notes andissued additional 14% Series B senior discount notes and detachablewarrants.  See Note 7 for additionalinformation.

 

**6.**** WHOLLY-OWNEDOPERATING SUBSIDIARY AND DEBT RESTRUCTURING**

 

On April 11, 2000, Operating Company issued 14% seniorsubordinated discount notes (the “Existing Notes”) with a maturity value of$300.0 million and warrants to purchase 3,579,000 shares of common stock ofUbiquiTel at an exercise price of $11.37 per share under Section 4(2) of theSecurities Act of 1933.  In August 2000,the Existing Notes and warrants were registered with the Securities andExchange Commission.  The Existing Noteswere issued at a discount and generated approximately $152.3 million in grossproceeds.  The value assigned from theproceeds to the warrants was approximately $15.9 million.  The proceeds have been used to fund capitalexpenditures relating to the network build-out and operating losses. TheExisting Notes have a ten-year maturity and will accrete in value untilApril 15, 2005 at an interest rate of 14%.  Interest will become payable semiannually beginning onOctober 15, 2005.  The ExistingNotes that remain outstanding will be redeemable on or after April 15,2005.

 

The indenture governing theExisting Notes contains customary covenants, including covenants limitingindebtedness, dividends and distributions on, and redemptions and repurchasesof, capital stock and other similar payments, the acquisition and dispositionof assets, and transactions with affiliates or related persons.  The indenture governing the Existing Notesprovides for customary events of default, including cross defaults, judgmentdefaults and events of bankruptcy.

 

UbiquiTel has fully and unconditionally guaranteedOperating Company’s obligations under the Existing Notes. UbiquiTel has noindependent assets or operations separate from its investment in OperatingCompany.

 

In February 2003, Operating Company consummatedcertain transactions which reduced its long-term debt outstanding and relatedfuture minimum annual principal payments due under the senior secured creditfacility and the Existing Notes. Operating Company consummated a privateplacement exchange of $48.2 million aggregate principal amount of its new 14%senior discount notes due May 15, 2010 (“New Notes”) and $9.6 million in cashfor $192.7 million aggregate principal amount of its outstanding Existing Notesdue April 15, 2010.  Additionally,Operating Company consummated a related new financing, in a private placementoffering, of $12.8 million aggregate principal amount of Series B seniordiscount notes due 2008 (“Series B Notes”) in which Operating Company receivedcash proceeds of $9.6 million to fund the cash portion of the exchange. Underthe new financing, the Company issued detachable warrants to purchase up toapproximately 9.6 million shares of its common stock at an exercise price of$0.01 per share.  The Company wrote offapproximately $2.9 million in deferred financing 

 

15

----

 

fees related to the original issuance of the Existing Notes and theCompany incurred estimated fees and expenses of approximately $3.8 million inconnection with the issuance of the New Notes, which reduced the gain resultingfrom the private placement exchange, and the Company incurred estimatedexpenses of approximately $0.4 million in connection with the issuance of theSeries B Notes. The Company recognized a gain of $39.0 million as a result ofthe private placement exchange.

 

Three directors of the Company or their affiliatesparticipated in the private placement offering for consideration ofapproximately $3.3 million, and were issued approximately $4.4 millionaggregate principal amount of Series B Notes and approximately 3.3 milliondetachable warrants. The warrants received by the directors are not exercisableand will not become exercisable at the exercise price of $0.01 per share unlessthe Company obtains shareholder approval of the issuance of the shares issuableupon exercise of the warrants in accordance with Nasdaq Marketplace Rule4350(i)(1)(A) on or before September 30, 2003. If such shareholder approval isnot obtained on or before September 30, 2003, the warrants will becomeexercisable as of September 30, 2003 at an exercise price of $0.29 per share,which was equal to the fair market value of the common stock on the date thatthe purchase agreement was entered into, rather than $0.01 per share, and theinterest rate on the Series B Notes held by the directors will be increased to15% from 14% as of September 30, 2003.

 

As a condition to these transactions, OperatingCompany’s senior lenders required Operating Company to prepay $15.0 million ofits outstanding term loans under its senior secured credit facility, therebyreducing the outstanding term loans under the senior secured credit facility to$230.0 million. In addition, the $55.0 million unused revolving line of creditwas permanently reduced by $5.0 million to $50.0 million.

 

The Company has followed the provisions of SFAS No. 15and EITF 02-04 in recording these transactions.  These provisions require that the carrying value of the New Notesbe recorded at the total future cash payments (principal and interest)specified by the New Notes; therefore, the New Notes were classified on theCompany’s balance sheet as long-term liabilities and were valued at $81.9million as of the transaction date.  Asa result, no interest expense related to the New Notes will be recognized infuture periods.

 

The followingtable presents the aggregate gain recognized in the transactions (in thousands,except per share data):

 
| Principal amount of senior subordinated discount notes  exchanged        |   | $       | 192,720 |   |
|--------------------------------------------------------------------------|--------|---------|---------|--------|
| Unamortized discount on senior subordinated discount  notes              |   | (48,214 | )       |
| Unamortized discount on detachable warrants                              |   | (7,306  | )       |
| Unamortized deferred financing costs                                     |   | (2,859  | )       |
| Carrying value of debt exchanged                                         |   | 134,341 |    |
| Maximum future cash principal payments for senior  discount notes issued |   | (48,180 | )       |
| Maximum future cash interest payments for senior  discount notes issued  |   | (33,726 | )       |
| Cash payments for amount of debt exchanged                               |   | (9,636  | )       |
| Estimated direct expenses of exchange transaction                        |   | (3,781  | )       |
| Aggregate gain from exchange transaction                                 |   | $       | 39,018  |   |
| Aggregate gain per share - Basic                                         |   | $       | 0.48    |   |
| Aggregate gain per share - Diluted                                       |   | $       | 0.43    |   |

 

No related income tax effect is reflected on the gainfrom the exchange, as the Company expects to utilize a portion of its netoperating loss carryforwards to offset any resulting taxable income.  Prior to the exchange, the net operatingloss carryforwards expected to be utilized had a corresponding valuationallowance applied to reduce their carrying value to zero.

 

As a result of these transactions, the Company reducedoverall debt by approximately $146.7 million aggregate principal amount ($113.8million aggregate accreted value) and cash interest requirements byapproximately $9.7 million in 2005 and approximately $19.3 million beginning in2006, providing cumulative

 

16

----

 

savings of approximately $243.0 million.

 

The New Notes havesubstantially the same terms as the Existing Notes, except they rank senior inright of payment to the Existing Notes, they mature on May 15, 2010, 30 daysafter the maturity of the Existing Notes, and they are not subject to theblocking rights of Operating Company’s senior lenders in the event of defaultwith respect to the debt under Operating Company’s senior secured creditfacility.  Like the Existing Notes, theNew Notes will accrete in value until April 15, 2005 and interest thereon willbecome payable semiannually beginning on October 15, 2005. The New Notes are redeemableand are governed by an indenture substantially the same as the indenturegoverning the Existing Notes, except that the indenture for the New Notescontains, among other things, a “basket” permitting up to $10 million ofrestricted payments. UbiquiTel has fully and unconditionally guaranteedOperating Company’s obligations under the New Notes.

 

The Series B Notes rank pari passu in right of paymentto the New Notes and senior to the Existing Notes and contain customarycovenants and terms.  The Series B Notesmature in 2008 and, like the New Notes, are not subject to the blocking rightsof Operating Company’s senior lenders in the event of default with respect tothe debt under Operating Company’s senior secured credit facility.  Like the Existing Notes and New Notes, theSeries B Notes will accrete in value until April 15, 2005 and interest thereonwill become payable semiannually beginning on October 15, 2005. UbiquiTel hasfully and unconditionally guaranteed Operating Company’s obligations under theSeries B Notes.

 

In April 2003, Operating Company purchased a portionof its aggregate principal amount of outstanding Existing Notes and issuedadditional Series B Notes and detachable warrants.  See Note 7 for additional information.

 

**7. SUBSEQUENT EVENTS**

 

In a series ofseparate transactions subsequent to March 31, 2003, Operating Companyreceived cash proceeds of $0.7 million, which were used by OperatingCompany to fund open market purchases of $5.0 million aggregate principalamount of Existing Notes, and issued approximately $0.9 million aggregateprincipal amount of additional Series B Notes. Under these privateplacement sales, the Company issued detachable warrants to purchase up toapproximately 0.7 million shares of its common stock at an exercise priceof $0.01 per share.  In connection withthese transactions, the Company will record a gain of approximately $2.9million during the three months ended June 30, 2003.

 

Three directors ofUbiquiTel or their affiliates participated in the private placement sales forconsideration of approximately $0.2 million, and were issued approximately $0.3million aggregate principal amount of Series B Notes and approximately 0.2million detachable warrants. These warrants and Series B Notes held by thedirectors or their affiliates are subject to the same adjustments with regardto exercise price and interest rate, respectively, as the warrants and Series BNotes acquired by them in February 2003 unless shareholder approval of theissuance of the shares issuable upon exercise of the warrants is obtained on orbefore September 30, 2003. For further information, see Note 6 above.

 

17

----

 

**ITEM 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

 

**Forward-Looking Statements**

 

This Joint Quarterly Report on Form 10-Q includesforward-looking statements that involve known and unknown risks, uncertaintiesand other factors.  Our actual resultscould differ materially from the results anticipated in these forward-lookingstatements.  Investors are referred tothe documents filed by UbiquiTel with the Securities and Exchange Commission,specifically the most recent filings which identify important risk factors thatcould cause actual results to differ from those contained in the forward-lookingstatements, including, but not limited to:

 

•                                          UbiquiTel’sdependence on its affiliation with Sprint PCS;

 

•                                          thecompetitiveness of and changes in Sprint’s pricing plans, products andservices;

 

•                                          increasedcompetition in UbiquiTel’s markets;

 

•                                          rates ofpenetration in the wireless industry;

 

•                                          the potentialto experience a high rate of customer turnover;

 

•                                          Sprint PCS’credit policies;

 

•                                          customerquality;

 

•                                          changes inSprint’s fee structure with UbiquiTel;

 

•                                          UbiquiTel’sreliance on the timeliness, accuracy and sufficiency of financial and otherdata and information received from Sprint;

 

•                                          the abilityof Sprint PCS to provide back office, customer care and other services;

 

•                                          anticipatedfuture losses;

 

•                                          UbiquiTel’sdebt level;

 

•                                          UbiquiTel’sability to satisfy the conditions under the recent amendment to its seniorsecured credit facility;

 

•                                          adequacy ofbad debt and other reserves;

 

•                                          themarketability, liquidity and price volatility of UbiquiTel’s common stock;

 

•                                          UbiquiTel’sability to manage anticipated growth and rapid expansion;

 

•                                          changes inpopulation;

 

•                                          changes oradvances in technology; and

 

•                                          general economic and business conditions.

 

18

----

 

These and other applicable risks are described underthe caption “Business3⁄4Risk Factors” andelsewhere in UbiquiTel’s and Operating Company’s Joint Annual Report on Form10-K for the fiscal year ended December 31, 2002 filed with the Securities andExchange Commission, and under the caption “Liquidity and CapitalResources—Factors That May Affect Operating Results and Liquidity” andelsewhere in this Item 2. We assume no obligation to publicly update or reviseany forward-looking statement made in this report, whether as a result of newinformation, future events, changes in assumptions or otherwise, after the dateof this report.  All written or oralforward-looking statements attributable to us are expressly qualified in theirentirety by these cautionary statements.

 

### **Overview**

 

InOctober 1998, UbiquiTel L.L.C., a limited liability company whose solemember was The Walter Group, entered into a management agreement with SprintPCS whereby it became the PCS affiliate of Sprint with the exclusive right toprovide 100% digital, 100% PCS services under the Sprint and Sprint PCS brandnames in the Reno/Tahoe market. In November 1999, UbiquiTel L.L.C.assigned the management and related agreements to UbiquiTel Inc. UbiquiTelL.L.C. had no operations or financial transactions prior to the assignment ofthese agreements to UbiquiTel. In December 1999, we expanded ourmanagement agreement with Sprint PCS to include additional markets in thewestern and midwestern United States for markets under the agreement with atotal of 7.7 million residents.

 

UntilJune 30, 2000, we were a development stage company with very limitedoperations and revenues, significant losses and substantial capitalrequirements. In April 2000, we acquired Sprint PCS’ Spokane, WashingtonPCS network and related assets for $35.5 million in cash. We completed ourinitial public offering of common stock in 2000 in which we sold 13,280,000shares for gross proceeds of approximately $106.2 million. We launched ourmarkets during the period November 2000 through June 2001.

 

In February 2001,we entered into a merger agreement to acquire another PCS affiliate of Sprint,VIA Wireless LLC, the exclusive Sprint PCS provider to the central valley ofCalifornia market. We completed the mergers and related transactions in August2001, issuing 16.4 million shares of common stock to the former VIA Wirelessowners, assuming approximately $80.1 of debt and incurring estimatedtransaction costs of approximately $10.7 million. In October 2001, we sold VIAWireless’ California PCS licenses to VoiceStream Wireless for $50.0 million incash, resulting in net debt assumed in the VIA Wireless acquisition of $30.1million. Concurrently with the acquisition, we amended our Sprint PCSmanagement agreement to include the central valley of California market with atotal of 3.4 million residents, bringing our licensed resident population underthe agreement to approximately 11.1 million.

 

As ofMarch 31, 2003, we had approximately 274,200 subscribers. As ofMarch 31, 2003, our network covered approximately 7.8 million residentswhich represents approximately 70% of the licensed population in our markets.

 

From our inceptionon September 29, 1999 through March 31, 2003, we have incurred lossesof approximately $257.5 million. We expect to continue to incur net lossesthrough at least 2005. From our inception through March 31, 2003, we haveused approximately $351.2 million in cash for operating activities andcapital expenditures, exclusive of approximately $79.6 million worth ofnetwork equipment acquired as part of the Spokane market and VIA Wirelesspurchases. We also expect to continue to use cash for operating activities andcapital expenditures through at least 2003. At March 31, 2003, we hadapproximately $56.7 million of cash, cash equivalents and restricted cashand an unused revolving line of credit of approximately $50.0 million. Webelieve we have sufficient cash and cash equivalents to fund capitalexpenditures, including the completion of our build-out, working capitalrequirements and operating losses until we generate positive cash flow.

 

As a PCS affiliateof Sprint, we do not own the licenses to operate our network and instead paySprint PCS 

 

19

----

 

for the use of its licenses. Under our management agreement with SprintPCS, Sprint PCS is entitled to receive 8.0% of all collected revenue fromSprint PCS subscribers based in our markets and fees from wireless serviceproviders other than Sprint PCS when their subscribers roam into our network.We are entitled to 100% of revenues collected from the sale of handsets andaccessories from our stores and on roaming revenues received when Sprint PCScustomers from a different territory make a wireless call on our PCS network.We are responsible for building, owning and managing the portion of the SprintPCS network located in our markets under the Sprint and Sprint PCS brand names.Our results of operations are dependent on Sprint PCS’ network and, to a lesserextent, on the networks of other affiliates of Sprint PCS.

 

As a PCS affiliateof Sprint, we purchase a full suite of support services from Sprint PCS. Wehave access to these services during the term of our management agreementunless Sprint PCS provides us at least nine months’ advance notice of itsintention to terminate any particular service. We are purchasing customerbilling and collections, customer care, subscriber activation including creditverification, handset logistics, network operations control center monitoring,national platform interconnectivity, voice mail, directory assistance andoperator services, long distance and roaming clearinghouse services. If SprintPCS significantly increases the amount it charges us for any of these servicesor requires us to purchase additional services, our operating expenses willincrease and our operating income and available cash would be reduced. IfSprint PCS terminates any of these services, our operations may be interruptedor restricted.

 

**Critical Accounting Policies**

 

We rely on the use of estimates and make assumptionsthat impact our financial condition and results. These estimates andassumptions are based on historical results and trends as well as our forecastsas to how these might change in the future. Some of the most criticalaccounting policies that might materially impact our results include:

 

***Revenue Recognition:***

 

We recognize revenues when services have been renderedor products have been delivered, the price to the buyer is fixed anddeterminable, and collectibility is reasonably assured. We record service revenues,consisting of subscriber revenues, Sprint PCS travel revenues and non-SprintPCS roaming revenues, and equipment revenues consisting of sales of handsetsand accessories. Subscriber revenues consist of monthly recurring servicecharges and monthly non-recurring charges for local, long distance, travel androaming airtime usage in excess of the pre-subscribed usage plan received fromour subscribers, and cancellation and late fee revenues less reductions forbilling adjustments and credits. Our revenue recognition policies areconsistent with the guidance in Staff Accounting Bulletin No. 101,“Revenue Recognition in Financial Statements,” promulgated by the Securitiesand Exchange Commission.

 

We recognize service revenue from our subscribers asthey use the service. We pro-rate access revenue over the billing period andrecord airtime usage in excess of the pre-subscribed usage plan. Oursubscribers pay an activation fee to us when they initiate service. We deferactivation fee revenue and direct customer activation costs on a straight-linebasis over the average life of our subscribers, which is estimated to be30 months. Direct customer activation costs in excess of activation feerevenue are recognized immediately.  Forthe three months ended March 31, 2003 and 2002, we recognizedapproximately $1.1 million and $0.5 million, respectively, of activation feerevenue. We have deferred approximately $6.7 million and $6.4 million ofactivation fee revenue and related costs as of March 31, 2003 and December31, 2002, respectively, to future periods.

 

We record Sprint PCS travel revenue on a per-minuterate when a Sprint PCS subscriber based outside our markets uses our network.We earned approximately $10.3 million and $9.5 million of Sprint PCS travel revenuefor the three months ended March 31, 2003 and 2002, respectively. Werecord non-Sprint PCS roaming revenue when a non-Sprint PCS subscriber uses ournetwork. We earned approximately $2.9 million and $0.6 million of

 

20

----

 

non-Sprint PCS roaming revenue for the three months endedMarch 31, 2003 and 2002, respectively.

 

Equipment revenue consists of proceeds from sales ofhandsets and accessories which are recorded at the time of sale. Revenues fromsales of handsets and accessories represent a separate earnings process fromservice revenues because sales of handsets and accessories do not requirecustomers to subscribe to wireless services. We account for rebates, discountsand other sales incentives as a reduction to revenue.

 

We participate in the Sprint national and regionaldistribution programs in which national retailers such as Radio Shack, Best Buyand Circuit City sell Sprint PCS products and services. In order to facilitatethe sale of Sprint PCS products and services, national retailers purchasewireless handsets from Sprint for resale and receive compensation from Sprintfor Sprint PCS products and services sold. For industry competitive reasons,Sprint subsidizes the price of these handsets by selling the handsets at aprice below cost. Under our Sprint PCS agreements, when a national retailersells a handset purchased from Sprint to a subscriber in our markets, we areobligated to reimburse Sprint for the handset subsidy. We do not receive any revenuesfrom sales of handsets and accessories by national retailers. For a newsubscriber activation and a handset upgrade to an existing subscriber, weinclude these handset subsidy charges in cost of products sold in theconsolidated statements of operations. Handset subsidy charges included in costof products sold for the three months ended March 31, 2003 and 2002 were $3.9million and $2.9 million, respectively.

 

***Revenue and Cost Data Provided by Sprint PCS:***

 

We place substantial reliance on the timeliness,accuracy and sufficiency of certain revenue, accounts receivable and cost dataprovided by Sprint which we use in the preparation of our financial statementsand financial disclosures. The data provided by Sprint is the primary sourcefor our recognition of service revenue and a significant portion of our sellingand marketing and cost of service and operations expenses. At times, we havebeen invoiced by Sprint for charges that we believe to be contractuallyincorrect. We review all charges from Sprint and dispute certain of thesecharges based upon our interpretation of our agreements with Sprint PCS and areattempting to work with Sprint to improve the process. When Sprint does notnotify us timely for charges that we have incurred or when we are invoiced forcharges that we believe to be incorrect, we record estimates primarily based onour historical trends and our estimate for the amount which we believe we willremit to Sprint after the disputed item or items have been settled.

 

***Valuation of Accounts Receivable and Inventories:***

 

Reserve for Doubtful Accounts - Estimates are used indetermining our allowance for bad debt and are based both on our historicalcollection experience, current trends and credit policy and on a percentage ofour accounts receivables by aging category. In determining these percentages,we look at historical write-offs of our receivables and our history is limited.We also look at current trends in the credit quality of our customer base andchanges in the credit policies. Under the Sprint PCS service plans, customerswho do not meet certain credit criteria can nevertheless select any planoffered subject to an account spending limit, referred to as ASL, to controlcredit exposure. Account spending limits range from $125 to $200 depending onthe credit quality of the customer. Prior to May 2001, all of these customerswere required to make a deposit ranging from $125 to $200 that could becredited against future billings. During the period from May 2001 to February2002, the deposit requirement was eliminated on all credit classes (“NDASL”).We re-implemented deposit requirements for all new sub-prime subscribers on theClear Pay program in late February 2002. If these estimates are insufficientfor any reason, our operating income and available cash would be reduced.

 

Reserve for Obsolete/Excess Inventory - We record areserve for obsolete or excess handset and accessories inventory for models andaccessories that are no longer manufactured, for defective models andaccessories that have been returned by customers and second generation handsetsand accessories. With the migration to the third 

 

21

----

 

generation (“1XRTT”) network in the third quarter of 2002, we havediscontinued purchasing second generation handsets and accessories.  If the estimate of obsolete inventory isunderstated, our operating income would be reduced.

 

***Long-Lived Assets and Goodwill:***

 

Effective January1, 2002, we adopted Statement of Financial Accounting Standards (“SFAS”) No.144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFASNo. 144”), and SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No.142”). SFAS No. 144 requires that long-lived assets be reviewed for impairmentwhenever events or changes in circumstances indicate that the carrying amountof an asset may not be recoverable. Recoverability is assessed based on thefuture cash flows expected to result from the use of the asset and its eventualdisposition. If the sum of the undiscounted cash flows is less than thecarrying value of the asset, an impairment loss is recognized. Any impairmentloss, if indicated, is measured as the amount by which the carrying amount ofthe asset exceeds the fair value of the asset. SFAS No. 142 requires thatgoodwill and certain intangible assets resulting from business combinationsentered into prior to June 30, 2001 no longer be amortized, but instead bereviewed for recoverability, and that annual tests for impairment of goodwilland intangible assets that have indefinite useful lives be performed. SFASNo. 142 also requires interim tests when an event has occurred that morelikely than not has reduced the fair value of such assets.  We will assess on an annual basis the fairvalues of the reporting unit housing the goodwill and intangibles and, ifnecessary, assess on an annual basis for any impairment. Any write-offs wouldresult in a charge to earnings and a reduction in equity in the period taken.As of October 31, 2002, we completed our annual impairment review anddetermined that no impairment charge was required.  Managementdoes not believe that any significant changes have occurred since year end andthus no write-offs have been made. Management will continue to monitor anytriggering events and perform re-evaluations, as necessary.

 

Purchase price accounting requires extensive use ofaccounting estimates and judgments to allocate the purchase price to the fairmarket value of the assets and liabilities purchased. In our recording of thepurchase of VIA Wireless, we engaged a nationally recognized valuation expertto assist us in determining the fair value of these assets and liabilities.Included in the asset valuation for this purchase was the valuation of threeintangible assets: the VIA Wireless subscriber base, the right to be theexclusive provider of Sprint PCS services in the markets in which VIA Wirelessoperated and the California PCS licenses subsequently sold to VoiceStreamWireless. For the subscriber base a useful life of 20 months has beenassigned effective April 1, 2002. For the period from the date ofacquisition (August 13, 2001) to March 31, 2002, the subscriber basewas amortized using a useful life of 36 months. As of March 31, 2003, theVIA Wireless subscriber base was fully amortized. For the right to provideservice under the Sprint PCS management agreement, a useful life of18 years has been assigned. In April 2000, we acquired the Spokane,Washington market from Sprint PCS. Included in the asset valuation for thispurchase was the Sprint PCS customer base for this market. For the subscriberbase a useful life of 33 months has been assigned effective April 1,2002. For the period from the date of acquisition in April 2000 toMarch 31, 2002, the subscriber base was amortized using a useful life of60 months. As of December 31, 2002, the Spokane market subscriber base wasfully amortized. VIA Wireless’ Sprint PCS management agreement will beamortized over its estimated useful life of 18 years.

 

***Income Taxes:***

 

As part of the process of preparing our consolidatedfinancial statements, we are required to estimate our taxes in each of thejurisdictions of operation.  Thisprocess involves management estimating the actual current tax expense togetherwith assessing temporary differences resulting from differing treatment ofitems for tax and accounting purposes. These differences result in deferred taxassets and liabilities, which are included within the consolidated balancesheets.  We then must assess thelikelihood that the deferred tax assets will be recovered from future taxableincome and, to the extent recovery is not likely, we must establish a valuationallowance. Future 

 

22

----

 

taxable income depends on the ability to generate income in excess ofallowable deductions.  To the extent weestablish a valuation allowance or increase this allowance in a period, anexpense is recorded within the tax provision in the consolidated statement ofoperations.  Significant managementjudgment is required in determining our provision for income taxes, deferredtax assets and liabilities and any valuation allowance recorded against netdeferred tax assets. In the event that actual results differ from theseestimates or we adjust these estimates in future periods, we may need toestablish a valuation allowance that could materially impact our financialcondition and results of operations.

 

**RecentAccounting Pronouncements**

 

In April 2003, the Financial Accounting StandardsBoard (“FASB”) issued SFAS No. 149, “Amendment of Statement 133 on DerivativeInstruments and Hedging Activities” (“SFAS No. 149”).  SFAS No. 149 amends and clarifies the accounting guidance onderivative instruments (including certain derivative instruments embedded inother contracts) and hedging activities that fall within the scope of SFAS No.133, “Accounting for Derivative Instruments and Hedging Activities.”  SFAS No. 149 also amends certain otherexisting pronouncements, which will result in more consistent reporting ofcontracts that are derivatives in their entirety or that contain embeddedderivatives that warrant separate accounting. This Statement is effective for contracts entered into or modified afterJune 30, 2003, with certain exceptions, and for hedging relationshipsdesignated after June 30, 2003.  We havenot yet determined the impact this issue will have on our financial position,results of operations or cash flows.

 

In January 2003, the FASB issued FASB InterpretationNo. 46, “Consolidation of Variable Interest Entities—An Interpretation ofAccounting Research Bulletin (ARB) No. 51” (“FIN 46”). This interpretationclarifies how to identify variable interest entities and how a company shouldassess its interests in a variable interest entity to decide whether toconsolidate the entity. FIN 46 applies to variable interest entities createdafter January 31, 2003, in which a company obtains an interest after that date.Also, FIN 46 applies in the first fiscal quarter or interim period beginning afterJune 15, 2003, to variable interest entities in which a company holds avariable interest that it acquired before February 1, 2003. We do not have anyownership in variable interest entities.

 

In November 2002, the FASB issued FASB InterpretationNo. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees,Including Indirect Guarantees of Indebtedness of Others.” This interpretationexpands the disclosures to be made by a guarantor about its obligations undercertain guarantees and requires that, at the inception of a guarantee, aguarantor recognize a liability for the fair value of the obligation undertakenin issuing the guarantee. The disclosure requirements are effectiveimmediately.  As disclosed in Note 5 tothe Consolidated Financial Statements, UbiquiTel has fully and unconditionallyguaranteed Operating Company’s obligations under its 14% senior subordinateddiscount notes, 14% senior discount notes and 14% Series B senior discountnotes. The initial recognition and measurement provisions of thisinterpretation are effective for guarantees issued or modified after December31, 2002. The adoption of the initial recognition and measurement provisions ofthis interpretation did not have a material effect on our financial position,results of operations or cash flows.

 

In November 2002,the Emerging Issues Task Force (“EITF”) issued EITF Issue No. 02-16,“Accounting by a Customer (Including a Reseller) for Certain ConsiderationReceived from a Vendor” (“EITF 02-16”). Among other items, EITF 02-16 requiresthat consideration received from a vendor be presumed to be a reduction of thecost of the vendor’s products or services. This presumption can be overcome ifthe consideration can be shown to represent either a payment for assets or servicesdelivered to the vendor or a reimbursement of costs incurred by the reseller tosell the vendor’s products. This treatment is effective for arrangementsentered into or modified on or after January 1, 2003. The adoption of EITF02-16 did not have a material effect on our financial position, results ofoperations or cash flows.

 

In November 2002,the EITF issued EITF Issue No. 00-21, “Accounting for Multiple-Element RevenueArrangements” (“EITF 00-21”). EITF 00-21 addresses the determination of whetheran arrangement involving more 

 

23

----

 

than one deliverable contains more than one unit of accounting and howthe related revenues should be measured and allocated to the separate units ofaccounting, i.e., the delivery or performance of multiple products, services,and/or rights to use assets. In applying this guidance, separate contracts withthe same party, entered into at or near the same time, will be presumed to be apackage, and the consideration will be measured and allocated to the separateunits based on their relative fair values. EITF 00-21 will apply to revenuearrangements entered into after June 30, 2003; however, upon adoption, the EITFallows the guidance to be applied on a retroactive basis, with the change, ifany, reported as a cumulative effect of accounting change in the consolidatedstatements of operations. We will adopt this new accounting guidance effectiveJuly 1, 2003 and have not yet determined the impact this issue will have on ourfinancial position, results of operations or cash flows.

 

In June 2002, the FASB issued SFAS No. 146,“Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS No.146”).  SFAS No. 146 provides newguidance on the recognition of costs associated with exit or disposalactivities.  The Statement requirescompanies to recognize costs associated with exit or disposal activities whenthey are incurred rather than at the date of commitment to an exit or disposalplan. SFAS No. 146 supercedes previous accounting guidance provided by EITFIssue No. 94-3, “Liability Recognition for Certain Employee TerminationBenefits and Other Costs to Exit an Activity (including Certain Costs Incurredin a Restructuring)” (“EITF 94-3”). EITF 94-3 required recognition of costs atthe date of commitment to an exit or disposal plan. SFAS No. 146 is to beapplied prospectively to exit or disposal activities initiated after December31, 2002.  Our adoption of SFAS No. 146did not have a material impact on our financial position, results of operationsor cash flows.

 

In April 2002, theFASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64,Amendment of FASB Statement No. 13, and Technical Corrections” (“SFAS No.145”). Among other things, this Statement rescinds FASB Statement No. 4,“Reporting Gains and Losses from Extinguishment of Debt,” which required allgains and losses from extinguishment of debt to be aggregated and, if material,classified as an extraordinary item, net of related income tax effect. As aresult, the criteria in APB Opinion No. 30, “Reporting the Results ofOperations—Reporting the Effects of Disposal of a Segment of a Business, andExtraordinary, Unusual and Infrequently Occurring Events and Transactions,”will now be used to classify those gains and losses. Our adoption of SFAS No.145 on January 1, 2003 did not have a material impact on our financialposition, results of operations or cash flows.

 

In June 2001, theFASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations”(“SFAS No. 143”).  This Statementrequires entities to record the fair value of a liability for an assetretirement obligation in the period in which it is incurred and capitalize thatamount as part of the book value of the long-lived asset. Over time, theliability is accreted to its present value each period, and the capitalizedcost is depreciated over the useful life of the related asset. Upon settlementof the liability, an entity either settles the obligation for its recordedamount or incurs a gain or loss upon settlement. This Statement is effectivefor financial statements for fiscal years beginning after June 15, 2002.

 

Our network isprimarily located on leased property and we have certain legal obligations,principally related to our tower leases, which fall within the scope of SFASNo. 143. These legal obligations primarily include certain obligations toremediate leased land on which our tower assets are located. In conjunctionwith the adoption of SFAS No. 143 effective January 1, 2003, we didnot record asset retirement obligations for network infrastructure assetssubject to the provisions of this Statement as the fair value of theobligations could not reasonably be estimated. We have very limited experiencein removing tower assets, many of which are co-located, and in remediatingleased land. In addition, we do not intend to remove tower assets from theircurrent locations. Based on our history and current industry trends, it is notprobable that any sites will be removed in the foreseeable future and requireremediation. Therefore, sufficient information to estimate a range of potentialsettlement dates is not available. In accordance with SFAS No. 143, we didnot recognize a liability as of January 1, 2003 and will not recognize a liabilityuntil such information becomes known.

 

24

----

 

**Resultsof Operations**

 

### ***Analysis of the three months ended March 31, 2003compared to the three months ended March 31, 2002***

 

We provide certain financial measures that arecalculated in accordance with accounting principles generally accepted in theUnited States (GAAP) and adjustments to GAAP (non-GAAP) to assess our financialperformance.  In addition, we usecertain non-financial terms that are not measures of financial performanceunder GAAP.  Terms such as customeradditions and churn are terms used in the wireless communicationsindustry.  The non-GAAP financialmeasures of average revenue per user, cost per gross addition and cash cost peruser reflect standard measures of liquidity, profitability or performance.  The non-financial terms and the non-GAAPmeasures reflect wireless communications industry conventions and are commonlyused by the investment community for comparability purposes.  The non-GAAP measures included in thisfiling are reconciled in “—Reconciliation of non-GAAP financial measures.”

 

***Customer Net Additions***

 

As of March 31, 2003, we provided personalcommunications services to approximately 274,200 customers compared toapproximately 202,100 customers as of March 31, 2002.  During the three months ended March 31, 2003, we added 17,200 netadditions compared to 23,100 net additions for the prior period.  The decrease in net customers acquired wasattributable to tighter credit policies.

# ** **

# ***Churn***

 

Churn is the monthly rate of customer turnoverexpressed as the percentage of customers of the beginning customer base thatboth voluntarily and involuntarily discontinued service during the period.  Churn is computed by dividing the number ofcustomers that discontinued service during the month, net of 30 day returns, bythe beginning customer base for the period. Churn for the three months ended March 31, 2003 was approximately 3.4%compared to 4.3% for the three months ended March 31, 2002.  The decrease in churn was primarily theresult of an improvement in the credit quality of the overall customer base. AtMarch 31, 2003, the overall mix of our customer base was 72% prime, 18%sub-prime with deposits and 10% sub-prime without deposits. At March 31, 2002,the overall mix of our customer base was 62% prime, 4% sub-prime with depositsand 34% sub-prime without deposits.

 

***Average Revenue Per User (ARPU)***

 

Average revenueper user (ARPU) summarizes the average monthly service revenue per customer,excluding roaming revenue. ARPU is computed by dividing subscriber revenue bythe average subscribers for the period. During the three months ended March 31,2003 and 2002, our ARPU was approximately $54 and $58, respectively. Thedecrease in ARPU primarily resulted from a decrease in overage chargesattributable to a higher mix of customers on large anytime minutes rate plansand lower cancellation fees resulting from lower customer churn.

 

***Cash Cost Per User (CCPU)***

 

Cash cost per usersummarizes the average monthly cash costs to provide digital wireless mobilitycommunications services per customer. CCPU is computed by dividing the sum of cost of service and operationsand general and administrative expenses by the average subscribers for theperiod.  During the three months endedMarch 31, 2003 and 2002, our CCPU was approximately $46 and $62,respectively.  The decrease in CCPUprimarily resulted from decreases in network operating, Sprint PCS travel andbad debt expense on a per subscriber basis. The decrease in network operating expense reflects the continuingbenefits of scale resulting from the 

 

25

----

 

increase in the subscriber base and a reduction in interconnectionrates, the decrease in Sprint PCS travel expense was primarily due to thereduction in the reciprocal roaming rate with Sprint PCS from $0.10 per minuteduring 2002 to $0.058 per minute effective January 1, 2003, and the decrease inbad debt expense was primarily attributable to the improvement in the creditquality of our subscriber base, tighter credit policies, the re-instatement ofdeposits in late February 2002, and higher recoveries of previously written-offcustomer account balances.

 

***Cost Per Gross Addition (CPGA)***

 

Cost per grossaddition (CPGA) summarizes the average cost to acquire new customers during theperiod. CPGA is computed by adding the income statement components of sellingand marketing and the cost of products sold, and reducing that amount by theequipment revenue recorded.  That netamount is then divided by the gross customers acquired during the period.  CPGA was approximately $432 for the threemonths ended March 31, 2003 compared to approximately $413 for the three monthsended March 31, 2002. The increase in CPGA primarily resulted from an increasein handset subsidies and handset upgrade costs that were incurred during thethree months ended March 31, 2003 as compared to the three months ended March31, 2002.

 

***Revenues***

 

•                  *SubscriberRevenue*.  Subscriber revenueduring the three months ended March 31, 2003 and 2002 was approximately $43.1million and $33.5 million, respectively. Subscriber revenue consists of monthlyrecurring service charges and monthly non-recurring charges for local, longdistance, travel and roaming airtime usage in excess of the pre-subscribedusage plan received from our subscribers and cancellation and late fee revenuesless reductions for billing adjustments and billing corrections.  Our customers’ charges are dependent ontheir rate plans, based on the number of minutes and data usage included intheir plans. These plans generally reflect the terms of national plans offeredby Sprint PCS. The increase in subscriber revenue was primarily attributable tothe increase in our subscriber base.

 

•                  *Sprint PCS Travel Revenue*.  Travel revenue is generated on a per-minuterate when a Sprint PCS subscriber based outside our markets uses ournetwork.  An additional long distancerate per minute is generated when that customer initiates a call from ournetwork to call outside the local calling area. The travel and long distancerates for 2002 were $0.10 per minute and approximately $0.02 per minute,respectively. Effective January 1, 2003, the travel rate per minute and thelong distance rate per minute were reduced to approximately $0.058 per minuteand $0.015 per minute, respectively.

 

During the threemonths ended March 31, 2003, our network captured approximately 143.8million of system travel minutes with approximately 65% of those minutesgenerating long distance charges which resulted in approximately$10.3 million in travel revenue. During the three months ended March 31,2002, our network captured approximately 90.5 million of system travelminutes with approximately 68% of those minutes generating long distancecharges which resulted in approximately $9.5 million in travel revenue.The increase in travel and long distance minutes of use represented$5.5 million of travel revenue, offset by a $4.3 million reduction totravel revenue due to the decrease in the reciprocal Sprint PCS travel rate anda $0.4 million reduction of long distance rate per minute.

 

•                  *Non-SprintPCS Roaming Revenue*. Non-Sprint PCS roaming revenue is generated when a non-Sprint PCSsubscriber uses our portion of the Sprint PCS network.  We earned approximately $2.9 million innon-Sprint PCS roaming revenue during the three months ended March 31, 2003compared to approximately $0.6 million during the three months ended March 31,2002.  Non-Sprint PCS roaming minutesincreased from 1.7 million during the three months ended March 31, 2002 to 19.6million during the three months ended March 31, 2003. The increase in roamingminutes represented a $5.7 million increase in revenue, and the

 

26

----

 

decrease in theaverage non-Sprint PCS roaming revenue rate we receive from other carriersrepresented a $3.4 million reduction of roaming revenue.

 

•                  *EquipmentRevenue*.  Equipment revenueis generated from the sale of handsets and accessories and is recorded at thetime of sale. We record and retain 100% of the revenue from the sale ofhandsets and accessories, net of rebates, discounts and other sales incentives,as equipment revenue.  The amountsrecorded during the three months ended March 31, 2003 and 2002 from equipmentrevenue totaled approximately $2.2 million and $2.5 million, respectively, andthe decrease was primarily due to a decrease in gross customer additions and anincrease in equipment promotions and discounts in order to acquire more customers.

 

***Cost of Service and Operations***

 

•                  *NetworkOperations Expenses*.  Networkoperations expenses include radio communications site lease costs, utilities,network control maintenance, network control site leases, engineeringpersonnel, transport facilities and interconnect charges, and totaledapproximately $16.4 million during the three months ended March 31,2003 compared to approximately $13.6 million during the three months endedMarch 31, 2002. The increase in network operations expenses was primarilyattributable to the increase in cell site rent and interconnect charges.  The number of active cell sites increasedfrom 794 at March 31, 2002 to 837 at March 31, 2003.

 

•                  *Sprint PCS Travel Expense*. We pay SprintPCS travel fees on a per-minute rate when our customers use the Sprint PCSnetwork outside our markets and incur additional long distance fees when ourcustomer calls long distance originating in a Sprint PCS or PCS affiliate ofSprint territory. During the three months ended March 31, 2003, our customersgenerated approximately 83.7 million of travel minutes with approximately65% of those minutes generating long distance charges which resulted inapproximately $6.1 million in travel fees. During the three months endedMarch 31, 2002, our customers generated approximately 43.6 million oftravel minutes with approximately 68% of those minutes generating long distancecharges which resulted in approximately $4.7 million in travel fees. Theincrease in travel expense was attributable to the 40.1 million minutes ofuse increase from the three months ended March 31, 2002 to the three monthsended March 31, 2003, which accounted for approximately $4.2 millionin additional expense, offset by positive variances of approximately$2.6 million resulting from the changes in the reciprocal rate receivedfrom Sprint PCS and $0.2 million attributable to the reduction of the longdistance rate per minute. As discussed above, the per minute rate we pay SprintPCS when customers from our markets roam onto Sprint PCS’ or another Sprint PCSaffiliate’s network and the long distance rate per minute of use both decreasedin 2003 as compared to 2002. For 2003, we expect an increase in travel feesresulting from increasing subscriber levels in our markets to be partially offsetby the lower per minute travel and long distance rates paid to Sprint PCS.

 

•                  *Non-Sprint PCS Roaming Expense*. We payroaming fees to other wireless providers when our customers use their network.During the three months ended March 31, 2003, our customers generatedapproximately 1.7 million of roaming minutes resulting in approximately$0.5 million in roaming fees. During the three months ended March 31,2002, our customers generated approximately 1.7 million of roaming minutesresulting in approximately $0.8 million in roaming fees. The decrease inroaming expense of $0.3 million was attributable to a decrease in the averagenon-Sprint PCS roaming revenue rate paid to other carriers.

 

•                  *Bad Debt Expense.*  Bad debt expense during the three monthsended March 31, 2003 and 2002 was approximately $1.1 million and approximately$6.4 million, respectively.  Thedecrease in bad debt expense was primarily attributable to the improvement inthe credit quality of our customer base, tighter credit policies, the re-instatementof deposits in late February 2002, and higher recoveries of previouslywritten-off customer account balances.

 

27

----

 

•                  *OperatingExpenses. *Operating expensesduring the three months ended March 31, 2003 and 2002 were approximately $5.3million and $4.1 million, respectively. Operating expenses included fees wepaid to Sprint PCS for the use of their support services, including billing andcollections services and customer care. The increase in operating expenses wasprimarily attributable to the increase in our subscriber base, in addition toincreases in fees charged by Sprint for their services.

 

***Cost of Products Sold***

 

The cost ofproducts sold included the costs of handsets and accessories and totaledapproximately $9.3 million and $9.6 million during the three months ended March31, 2003 and 2002, respectively.  Thecost of handsets normally exceeds the sales price because we subsidize the costof handsets to subscribers, consistent with industry practice. The decrease incost of products sold was primarily attributable to the decrease in gross salesduring the three months ended March 31, 2003 as compared to the three monthsended March 31, 2002. Handset subsidies on units sold by third parties totaledapproximately $3.9 million and $2.9 million for the three months endedMarch 31, 2003 and 2002, respectively.

 

***Selling and Marketing***

 

Selling expensesrelate to our distribution channels, sales representatives, sales supportpersonnel, retail stores, advertising programs and commissions.  We incurred expenses of approximately $12.1million and $12.4 million during the three months ended March 31, 2003 and2002, respectively.  The decrease inselling and marketing expenses was primarily attributable to a decrease ingross customer additions and lower advertising costs.

 

***General and Administrative***

 

We incurredgeneral and administrative expenses (excluding non-cash expenses) totalingapproximately $7.4 million and $6.1 million during the three months ended March31, 2003 and 2002, respectively. General and administrative expenses included approximately $3.6 millionand $2.2 million of management fee expense (defined as 8% of collectedrevenues) paid to Sprint PCS during the three months ended March 31, 2003 and2002, respectively. The increase in general and administrative expenses wasprimarily attributable to the increase in management fee expense resulting fromthe increase in our subscriber base.

 

***Non-Cash Compensation for General and Administrative Matters***

 

During the threemonths ended March 31, 2003 and 2002, non-cash compensation for general andadministrative matters totaled approximately $0.1 million and $0.1 million,respectively.  We apply the provisionsof Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued toEmployees,” and related interpretations in accounting for our equity incentiveplan.  Unearned stock optioncompensation is recorded for the difference between the exercise price and thefair market value of our stock at the date of grant and is recognized asnon-cash stock option compensation expense in the period in which the relatedservices are rendered.

 

***Depreciation and Amortization***

 

Depreciation andamortization expense for the three months ended March 31, 2003 and 2002 totaledapproximately $13.0 million and $10.4 million, respectively.  We depreciate our property and equipmentusing the straight-line method over four to 10 years.  A building acquired as part of the VIAWireless acquisition is being depreciated using the straight-line method over30 years. Amortization of intangible assets with finite useful lives is over 20months to 18 years.  The increase indepreciation and amortization expense was primarily due to the increase innetwork equipment additions from March 31, 2002 through March 31, 2003 and thereduction in 

 

28

----

 

estimated useful life of the VIA Wireless subscriber base from 36months to 30 months effective April 1, 2002. As of March 31, 2003, the VIAWireless subscriber base was fully amortized.

 

***Interest Income***

 

For the threemonths ended March 31, 2003 and 2002, interest income was approximately $0.2million and $0.5 million, respectively. The interest income was generated from cash, cash equivalents andrestricted cash balances.  The decreasein interest income was primarily due to lower levels of cash, cash equivalentsand restricted cash combined with lower interest rates during the three monthsended March 31, 2003 than during the three months ended March 31, 2002.

 

***Interest Expense***

 

Interest expensetotaled approximately $10.1 million during the three months ended March 31,2003. We accrue interest at a rate of 14% per annum on our senior subordinateddiscount notes due 2010 and 14% per annum on our Series B senior discount notesdue 2008.  Interest on our seniorsecured credit facility was accrued at the London interbank offered rate, basedon contracts ranging from 30 to 180 days. During the three months ended March31, 2002, interest expense was approximately $10.9 million. The decrease ininterest expense was primarily due to lower debt levels during the three monthsended March 31, 2003 than during the three months ended March 31, 2002 asa result of the debt-for-debt exchange offer consummated in February 2003.

 

Interest expensealso included the amortized amount of deferred financing fees relating to oursenior secured credit facility, senior subordinated discount notes and Series Bsenior discount notes.

 

***Gain on Troubled Debt Restructuring***

 

InFebruary 2003, Operating Company consummated its private placementexchange of $48.2 million aggregate principal amount of its new 14% seniordiscount notes due May 15, 2010 (“New Notes”) and $9.6 million in cash for $192.7 millionaggregate principal amount of its outstanding 14% senior subordinated discountnotes due April 15, 2010 (“Existing Notes”). Additionally, OperatingCompany consummated a related new financing, in a private placement offering,of $12.8 million aggregate principal amount of 14% Series B seniordiscount notes due 2008 (“Series B Notes”) in which Operating Companyreceived cash proceeds of $9.6 million to fund the cash portion of theexchange. Under the new financing, UbiquiTel issued detachable warrants topurchase up to approximately 9.6 million shares of its common stock at anexercise price of $0.01 per share. We wrote off approximately $2.9 millionin deferred financing fees related to the original issuance of the ExistingNotes and we incurred estimated fees and expenses of approximately$3.8 million in connection with the issuance of the New Notes, whichreduced the gain resulting from the exchange offer, and we incurred estimatedexpenses of approximately $0.4 million in connection with the issuance ofthe Series B Notes.

 

We have followedthe provisions of SFAS No. 15, “Accounting by Debtors and Creditors forTroubled Debt Restructurings” (“SFAS No. 15”), and EITF IssueNo. 02-04, “Determining Whether a Debtor’s Modification or Exchange ofDebt Instruments Is Within the Scope of FASB Statement 15” (“EITF 02-04”), inrecording these transactions. These provisions require that the carrying valueof the New Notes be recorded at the total future cash payments (principal andinterest) specified by the New Notes; therefore, the New Notes were classifiedon our balance sheet as long-term liabilities and were valued at$81.9 million on the transaction date. As a result, no interest expenserelated to the New Notes will be recognized in future periods. The followingtable presents the aggregate gain recognized in the transactions (in thousands,except per share data):

 

29

----

 
| Principal amount of senior subordinated discount notes  exchanged        |   | $       | 192,720 |   |
|--------------------------------------------------------------------------|--------|---------|---------|--------|
| Unamortized discount on senior subordinated discount  notes              |   | (48,214 | )       |
| Unamortized discount on detachable warrants                              |   | (7,306  | )       |
| Unamortized deferred financing costs                                     |   | (2,859  | )       |
| Carrying value of debt exchanged                                         |   | 134,341 |    |
| Maximum future cash principal payments for senior  discount notes issued |   | (48,180 | )       |
| Maximum future cash interest payments for senior  discount notes issued  |   | (33,726 | )       |
| Cash payments for amount of debt exchanged                               |   | (9,636  | )       |
| Estimated direct expenses of exchange transaction                        |   | (3,781  | )       |
| Aggregate gain from exchange transaction                                 |   | $       | 39,018  |   |
| Aggregate gain per share - Basic                                         |   | $       | 0.48    |   |
| Aggregate gain per share - Diluted                                       |   | $       | 0.43    |   |

 

***Income Taxes***

 

For the three months ended March 31, 2003 and 2002, werecognized income tax benefits of $33,000 and $2.8 million, respectively.Approximately $2.0 million of the tax benefit recorded during the three monthsended March 31, 2002 is expected to be monetized in the first half of 2003because we carried back 2002 net operating losses from our wholly owned VIAHolding subsidiary to realize a federal income tax refund for taxes that hadbeen previously paid by one of the acquired VIA Wireless member companies.  The remaining $0.8 million tax benefitrecorded during the three months ended March 31, 2002 was due to consolidatednet operating loss carryforwards that reduced the net deferred tax liability onour consolidated balance sheet.

 

***Net Income (Loss)***

 

For the threemonths ended March 31, 2003, our net income was approximately $16.2 million andfor the three months ended March 31, 2002, our net loss was approximately $29.7million. The net income for the three months ended March 31, 2003 was primarilyattributable to the recognition of a $39.0 million gain resulting from thedebt-for-debt exchange offer consummated in February 2003.

 

**Liquidity and Capital Resources**

 

From inception toJune 30, 2000, the period during which we were a development-stage company, ouractivities consisted principally of raising capital, consummating andsupporting our agreements with Sprint PCS, developing the initial design of ourPCS network and adding to our management team. Through March 31, 2003, we haveprincipally relied on the proceeds from equity and debt financings, and to alesser extent revenues, as our primary sources of capital.  During late 2001, we moved from aconstruction and build-out phase to an operational phase.

 

Completion of ourPCS network required substantial capital, of which approximately $253.0 millionhas been incurred through March 31, 2003. Although we have substantiallycompleted our network coverage build-out, our business could require additionalcapital expenditures of up to approximately $30 million annually formaintenance, capacity enhancements and coverage improvements, including up toapproximately $10 million in the aggregate to comply with the minimumbuild-out requirements of our management agreement with Sprint PCS. As of March31, 2003, we had 34 retail stores in operation in our markets.

 

As of March 31, 2003, we had approximately $56.7 million in cash, cashequivalents, and restricted cash and an unused revolving line of credit ofapproximately $50.0 million.  Cash andcash equivalents and cash availability under our senior secured creditfacility, combined with cash flow from operations, are expected to besufficient to fund any operating losses and working capital, to meet capitalexpenditure needs and to service debt requirements through March 31, 2004and into the foreseeable future. Due to a number of factors, including the 

 

30

----

 

rapidly changing wireless industry, general economic uncertainty, lowerthan expected new subscriber additions, continuing higher rates of customerturnover than anticipated, the recent change to the reciprocal travel rate withSprint PCS taking effect in 2003, and potential changes to the roaming rates,we may attain positive cash flow from operations less capital expenditures ayear or two later than originally projected, which was 2004.

 

Net cash provided by operating activities wasapproximately $4.1 million and net cash used in operating activities wasapproximately $2.8 million for the three months ended March 31, 2003 and 2002,respectively.  The increase in cashprovided by operating activities was primarily due to a lower operating loss.

 

Net cash used ininvesting activities was approximately $4.7 million and $21.1 million for thethree months ended March 31, 2003 and 2002, respectively.  The decrease was due to lower capitalexpenditures for coverage expansion and 3G upgrades.

 

Net cash used infinancing activities for the three months ended March 31, 2003 wasapproximately $18.7 million, consisting primarily of a $15.0 million repaymentunder the senior secured credit facility, $3.5 million in financing costsdirectly associated with the issuance of the Series B Notes and thedebt-for-debt exchange offer consummated in February 2003 and $0.2 million ofcapital lease and other long-term debt payments. For the three months endedMarch 31, 2002, net cash used in financing activities was approximately $0.2million, consisting primarily of capital lease and other long-term debtpayments.

 

***Liquidity***

 

At March 31, 2003, we had approximately$56.7 million of cash, cash equivalents and restricted cash and an unusedrevolving line of credit of approximately $50.0 million. The availabilityof the revolving credit line is subject to continued compliance withrestrictive covenants under our senior secured credit facility; however, thereis uncertainty as to our ability to continue to comply with such covenants in thefuture. Through March 31, 2003, we have used proceeds from our initial publicoffering of equity, our senior subordinated discount notes, borrowings from oursenior secured credit facility, and to a lesser extent revenues, to fundcapital expenditures, operating losses, working capital and cash interest needswhile we built out our PCS network and acquired customers. We believe ourfinancial position will be sufficient to meet the cash requirements of thebusiness including: capital expenditures, operating losses, cash interest,required amortization of principal under our senior secured credit facility andworking capital needs. Our projections contain significant assumptionsincluding projections for gross new customer additions, ARPU, churn, CPGA, CCPU,bad debt expense and roaming revenue. Should actual results differsignificantly from these assumptions, our liquidity position could be adverselyaffected and we could be in a position that would require us to raiseadditional capital which may not be available or may not be available onacceptable terms.

 

On February 26, 2003, we consummated threetransactions that have reduced our total debt by approximately$146.7 million and cash interest requirements by approximately$9.7 million in 2005 and approximately $19.3 million annuallybeginning in 2006, providing cumulative savings of approximately$243.0 million. We completed a private placement exchange offer of$48.2 million aggregate principal amount of Operating Company’s New Notesand $9.6 million in cash for $192.7 million aggregate principalamount of Operating Company’s outstanding Existing Notes, and we also completedin a private placement a related new financing of $12.8 million aggregateprincipal amount of Operating Company’s Series B Notes in which wereceived cash proceeds of $9.6 million to fund the cash portion of theexchange. We issued detachable warrants with the Series B Notes topurchase up to approximately 9.6 million shares of UbiquiTel common stock.In connection with the exchange, UbiquiTel and the lenders under our seniorsecured credit facility amended the credit facility to gain the lenders’consent to the exchange offer, which terms included a $15.0 millionpartial prepayment against our outstanding $245.0 million principal balanceof term loans and the reduction of the unused $55.0 million revolving lineof credit to $50.0 million as of February 26, 2003. In a series ofseparate transactions subsequent to March 31, 2003,

 

31

----

 

Operating Company received cash proceeds of $0.7 million, which wereused by Operating Company to fund open market purchases of $5.0 millionaggregate principal amount of Existing Notes, and issued approximately$0.9 million aggregate principal amount of additional Series B Notes.Under these private placement sales, UbiquiTel issued detachable warrants topurchase up to approximately 0.7 million shares of its common stock at anexercise price of $0.01 per share. We may from time to time continue to purchaseExisting Notes that remain outstanding in the open market, in privatelynegotiated transactions or otherwise in accordance with applicable law.

 

***Factors That May Affect Operating Results and Liquidity***

 

In addition to the risk factors referred to in the“Forward-Looking Statements” section of this Item 2, the following risk factorscould materially and adversely affect our liquidity and our future operatingresults and could cause actual events to differ materially from those predictedin forward-looking statements related to our business.

 

We may not be ableto sustain our growth or obtain sufficient revenue to achieve and sustainprofitability. If the current trend of slower net customer growth worsens, itwill lengthen the amount of time it will take for us to attain a sufficientnumber of customers to achieve positive cash flow from operations less capitalexpenditures, which in turn will have a negative effect on liquidity andcapital resources. For the three months ended March 31, 2003, we usedapproximately $0.6 million in cash for operating activities and capitalexpenditures. Our business projections reflect continuing growth in oursubscriber base and a reduction and eventual elimination of operating lossesand negative cash flows as the cash flow generated by the growing subscriberbase exceeds costs incurred to acquire new customers. If we acquire more newcustomers than we project, the upfront costs to acquire those customers(including the handset subsidy, commissions and promotional expenses) may resultin greater cash used in the near term but provide greater cash flows in laterperiods. In addition, if there is a slowdown in new subscriber growth in ourmarkets or the wireless industry generally, we may acquire fewer new customers,which would result in lower cash needs in the near term but provide lower cashflows in later periods.

 

We re-instated thedeposit requirement for new sub-prime credit customers in lateFebruary 2002 in connection with the Sprint PCS Clear Pay program. There-instatement of deposits had a significant impact on gross customer additionsduring the last five weeks of the three months ended March 31, 2002 andduring the remainder of 2002. While deposits for Clear Pay customers provide uswith protection against bad debt expense for sub-prime customers, it has andmay continue to deter some people with sub-prime credit from becomingsubscribers. As a result, our gross additions may decline. As of March 31,2003, 28% of our approximate 274,200 subscribers had a credit rating placingthem in the sub-prime category, of which 18% had deposits. If the depositrequirement for new sub-prime credit customers continues to deter somepotential customers with sub-prime credit from becoming subscribers, we mayacquire fewer new customers, which would result in lower operating losses inthe near term but provide lower cash flows in later periods.

 

The Sprint PCSreciprocal travel rate was reduced from $0.10 per minute in 2002 to $0.058 perminute in 2003, and there can be no assurance that it will not be reducedfurther in future years. We are paid a fee from Sprint PCS for every minutethat a Sprint PCS subscriber based outside of our markets uses our network; werefer to such fees as travel revenue. Similarly, we pay a fee to Sprint forevery minute that our customers use the Sprint PCS network outside of ourmarkets; we refer to such fees as travel expense. Under our original agreementwith Sprint PCS, the reciprocal travel rate exchanged for customers who roaminto the other party’s or another PCS affiliate’s network, was established at$0.20 per minute. The travel rate was reduced from the original $0.20 perminute of use to $0.15 per minute of use beginning June 1, 2001, and to$0.12 per minute of use beginning October 1, 2001. The rate was reduced to$0.10 per minute for 2002. With a travel-in to travel-out ratio ofapproximately 1.9 to one during the three months ended March 31, 2003 and anexpected continued favorable net travel position in the next few years, thelower travel rate has increased our operating losses and could further increaseour expected operating losses and reduce our liquidity projections during thenext two or three years. We project that growth in our customer base willresult in a ratio of travel revenue to travel expense approaching one to one inthe long-term,

 

32

----

 

minimizing the net earnings and the operating loss impact of anysubstantial reduction in the travel rate during those later years.

 

We place substantial reliance on the timeliness, accuracy andsufficiency of revenue and cost data and information generated by Sprint forthe compilation of our financial statements and other financial disclosures,including substantial portions of our revenues, expenses and accountsreceivable. As part of our agreements, we outsource several functions to Sprintincluding billing, customer care, national network operations support,inventory logistics support, long distance transport and national retailersales support. The data provided by Sprint is the primary source for ourrecognition of service revenue and a significant portion of our selling andmarketing and cost of service and operations expenses. In certain cases, thedata is provided at a level of detail that is not adequate for us to verify foraccuracy back to the originating source. We rely on Sprint to have designedadequate internal controls with respect to the processes established to providethis data. Because of this reliance, we are dependent on Sprint to periodicallyevaluate the effectiveness of these controls and report any significantdeficiencies and weaknesses in the design or operation of these controls thatcould have a material impact on our financial statements and disclosures.Sprint provides an annual evaluation of these controls to us by engaging itsindependent auditors to provide a “Report on Controls Placed in Operation andTests of Operating Effectiveness for Affiliates” under guidance provided inStatement of Auditing Standards No. 70 (“SAS 70”). There can be noassurance that the SAS 70 procedures will identify all weaknesses that might bematerial to us. Although we are not presently aware of any material errorsaffecting us, errors that are not reconciled on a timely basis by Sprint couldcause us to misstate our revenues or expenses and could result in out-of-periodadjustments that may materially adversely affect our financial results andcould have a material adverse effect on our business, financial condition,results of operations and cash flows. Additionally, if we or any other PCSaffiliate of Sprint find significant errors in information provided by Sprintwhich causes a restatement of financial statements or otherwise affects us,investors and the investment community may lose confidence in us. In lateFebruary 2003, iPCS, Inc., a PCS affiliate of Sprint, filed forbankruptcy protection under Chapter 11 of the federal bankruptcy code andconcurrently brought an adversarial action against Sprint alleging, among otherthings, that Sprint had failed to remit certain amounts owed to iPCS under itsagreements with Sprint. Should Sprint fail to deliver timely, accurate andsufficient information, this could lead to a greater degree of uncertainty inour business and financial planning and may lead to adverse short-termdecisions. In addition, the failure of Sprint to remit current or futureamounts owing to PCS affiliates of Sprint, including us, could lead to actionson the part of us or other PCS affiliates of Sprint to enforce rights under theSprint agreements and other remedies available under applicable law.

 

Our ability toborrow funds under our senior secured credit facility’s $50.0 millionrevolving line of credit will be restricted unless our cash balance (as definedin the credit facility) is less than $25.0 million at the time ofborrowing and could be terminated due to our failure to maintain or comply withthe restrictive financial and operating covenants contained in the agreementgoverning the senior secured credit facility as described in Note 5 to theConsolidated Financial Statements. We are currently in compliance with allfinancial and operational covenants relating to the senior secured creditfacility; however, there is uncertainty as to our ability to continue to complywith such covenants in the future. If we are unable to operate our businesswithin the covenants specified in the senior secured credit facility, ourability to obtain future amendments to the covenants in the senior securedcredit facility is not guaranteed and our ability to make borrowings under therevolving line of credit required to operate our business could be restrictedor terminated. Such a restriction or termination would have a material adverseeffect on our liquidity.

 

Variable interestrates may increase substantially. At March 31, 2003, we had$230.0 million outstanding under our senior secured credit facility. Therate of interest on the facility is presently based on a margin above theLondon interbank offered rate (LIBOR). Our weighted average borrowing rate onvariable rate borrowings was 5.6% for the three months ended March 31,2003. Increases in a market interest rate substantially above our estimates mayresult in unanticipated cash interest costs.

 

33

----

 

We may not be ableto access the credit markets for additional capital if the liquidity discussedabove is insufficient for the cash needs of our business. We frequentlyevaluate options for additional financings to supplement our liquidity positionand maintain maximum financial flexibility. However, if the assumptions used inour projections are incorrect, we may be unable to raise additional capital.

 

***Capital Resources***

 

The ExistingNotes, the New Notes and the Series B Notes will require cash payments ofinterest beginning on October 15, 2005.

 

As ofMarch 31, 2003, our senior secured credit facility provided for a$50.0 million revolving loan, a term loan A of $112.7 million and aterm loan B of $117.3 million. The term loans A and B, all of which wereoutstanding as of March 31, 2003, are required to be repaid beginning inJune 2004 in fourteen and eighteen consecutive quarterly installments,respectively. The revolving loan and term loan A will mature inOctober 2007 and the term loan B will mature in October 2008. Thecommitment fee on unused borrowings is 0.75%, payable quarterly. Ourobligations under the credit agreement are secured by all of our assets. Thesenior secured credit facility is subject to certain restrictive covenantsincluding the timing of availability for borrowing under the $50.0 millionrevolving line of credit, maintaining certain financial ratios, attainingdefined subscriber growth goals, network covered population goals and minimumquarterly service revenues, and limiting annual capital expenditures.

 

As ofMarch 31, 2003, we were in compliance with all financial and operationalcovenants associated with our senior secured credit facility, Existing Notes,New Notes and Series B Notes.

 

***Reconciliation of non-GAAP financial measures***

 

We utilize certainfinancial measures that are not calculated in accordance with accountingprinciples generally accepted in the United States, or GAAP, to assess ourfinancial performance. A non-GAAP financial measure is defined as a numericalmeasure of a company’s financial performance that (a) excludes amounts, oris subject to adjustments that have the effect of excluding amounts, that areincluded in the comparable measure calculated and presented in accordance withGAAP in the statement of income or statement of cash flows; or(b) includes amounts, or is subject to adjustments that have the effect ofincluding amounts, that are excluded from the comparable measure so calculatedand presented. The non-GAAP financial measures discussed in “—Results ofOperations” are average revenue per user (ARPU), cost per gross addition (CPGA)and cash cost per user (CCPU). Descriptions of these non-GAAP financialmeasures are provided where the particular measures are discussed in “—Resultsof Operations—Analysis of the three months ended March 31, 2003 comparedto the three months ended March 31, 2002,” and the following tables reconcilethe non-GAAP financial measures with our consolidated financial statementspresented in accordance with GAAP.

 
|                            |   | **Three  Months Ended March 31,** |       |
|---------------------------------|--------|-----------------------------------|------------|
|                            |   | **2003**                          |       | **2002** |   |
| Average revenue per user (ARPU) |   |                              | ** ** |   | ** ** |
| Service revenue                 |   | $                                 | 56,244,000 |   | $ | 43,550,000 |   |
| Less: Travel revenue            |   | (10,299,000                       | )          | (9,505,000 | ) |
| Less: Roaming revenue           |   | (2,874,000                        | )          | (550,000 | ) |
| Subscriber revenue              |   | $                                 | 43,071,000 |   | $ | 33,495,000 |   |
|                            |   |                              |       |   |   |
| Average subscribers             |   | 264,927                           |       | 192,264 |   |
|                            |   |                              |       |   |   |
| ARPU                            |   | $                                 | 54         |   | $ | 58 |   |

 

34

----

 

We believe ARPU,which calculates the average monthly service revenue per customer, excludingroaming revenue, is a useful measure to assist in evaluating our past andforecasting our future subscriber revenue. In addition, it provides a gauge tocompare our service revenue to that of other wireless communications providers,although other wireless communications providers may include or exclude certainitems from their calculations which may make the comparison less meaningful.

 
|                                      |   | **Three  Months Ended March 31,** |       |
|-------------------------------------------|--------|-----------------------------------|------------|
|                                      |   | **2003**                          |       | **2002** |   |
| Cash Cost per  User (CCPU)                |   |                              |       |   |   |
| Cost of service  and operations           |   | $                                 | 29,401,000 |   | $ | 29,637,000 |   |
| Add: General and  administrative expenses |   | 7,474,000                         |       | 6,068,000 |   |
| Total cash costs                          |   | $                                 | 36,875,000 |   | $ | 35,705,000 |   |
|                                      |   |                              |       |   |   |
| Average  subscribers                      |   | 264,927                           |       | 192,264 |   |
|                                      |   |                              |       |   |   |
| CCPU                                      |   | $                                 | 46         |   | $ | 62 |   |

 

We believe CCPU,which measures the average monthly cash costs to provide digital wirelessmobility communications services per customer, is a useful measure used tocompare our cash cost of operations per customer to that of other wirelesscommunications providers, although other wireless communications providers mayinclude or exclude certain items from their calculations which may make thecomparison less meaningful.

 
|                           |   | **Three  Months Ended March 31,** |       |
|--------------------------------|--------|-----------------------------------|------------|
|                           |   | **2003**                          |       | **2002** |   |
| Cost per gross addition (CPGA) |   |                              |       |   |   |
| Selling and marketing          |   | $                                 | 12,081,000 |   | $ | 12,446,000 |   |
| Add: Cost of products sold     |   | 9,301,000                         |       | 9,619,000 |   |
| Less: Equipment revenue        |   | (2,239,000                        | )          | (2,535,000 | ) |
| CPGA costs                     |   | $                                 | 19,143,000 |   | $ | 19,530,000 |   |
|                           |   |                              |       |   |   |
| Gross additions                |   | 44,300                            |       | 47,300 |   |
|                           |   |                              |       |   |   |
| CPGA                           |   | $                                 | 432        |   | $ | 413 |   |

 

We believe CPGA,which measures the average cost to acquire new customers during the period, isa useful measure used to compare our average cost to acquire a new subscriberto that of other wireless communication providers, although other wirelesscommunications providers may include or exclude certain items from theircalculations which may make the comparison less meaningful.

 

***Contractual Obligations***

 

We are obligated to make future payments under variouscontracts we have entered into, including amounts pursuant to the seniorsecured credit facility; noncancelable operating lease agreements for officespace, retail stores, land for radio communications sites, leased space onradio communications sites and office equipment; capital leases; the VIAWireless building mortgage and other long-term liabilities; the Existing Notes;the New Notes; and the Series B Notes. The following table lists our expected future minimum contractual cashobligations for the next five years and in the aggregate as of March 31, 2003(dollars in thousands):

 
|                                              |   |      |    | **Payments  due by period ending March 31:** |   |
|---------------------------------------------------|--------|-----------|---------|----------------------------------------------|--------|
| **Contractual obligation**                        |   | **Total** |    | **Less than****1 year**                      |   | **1-3 years** |   | **4-5 years** |   | **After 5  years** |   |
| Senior secured credit facility(1)                 |   | $         | 230,000 |                                         | $      | — |   | $ | 25,816 |   | $ | 107,959 |   | $ | 96,225 |   |
| Operating leases(2)                               |   | 69,779    |    | 16,160                                       |   | 28,046 |   | 12,785 |   | 12,788 |   |
| Capital leases                                    |   | 419       |    | 397                                          |   | 22 |   | — |   | — |   |
| Building mortgage and other long-term liabilities |   | 3,599     |    | 197                                          |   | 437 |   | 501 |   | 2,464 |   |
| Senior subordinated discount notes(1)             |   | 107,280   |    | —                                       |   | — |   | — |   | 107,280 |   |
| Senior discount notes(1)                          |   | 48,180    |    | —                                       |   | — |   | — |   | 48,180 |   |
| Series B senior discount notes(1)                 |   | 12,848    |    | —                                       |   | — |   | — |   | 12,848 |   |
|                                              |   |      |    |                                         |   |   |   |   |   |   |   |
|                                              |   | $         | 472,105 |                                         | $      | 16,754 |   | $ | 54,321 |   | $ | 121,245 |   | $ | 279,785 |   |

 

35

----

 

----

(1)                                  Totalrepayments, excluding interest payments, are based on borrowings outstanding asof March 31, 2003, and do not include projected borrowings under the seniorsecured credit facility.

 

(2)                                  Doesnot include payments due under renewals to the original lease term.

 

There are provisions in each of the agreementsgoverning the senior secured credit facility, the senior subordinated discountnotes, the senior discount notes and the Series B senior discount notes thatprovide for an acceleration of repayment upon an event of default, as definedin the respective agreements.

 

***Inflation***

 

We believe thatinflation has not had, and will not have, a material adverse effect on ourresults of operations.

 

***Seasonality***

 

Our business isseasonal because the wireless industry is heavily dependent on fourth quarterresults.  Among other things, theindustry relies on significantly higher customer additions and handset sales inthe fourth quarter as compared to the other three fiscal quarters.  The factors contributing to this trendinclude the increasing use of retail distribution, which is dependent onyear-end holiday shopping, the timing of new product and service offerings,competitive pricing pressures and aggressive marketing and promotions duringthe holiday season.  The increased levelof activity requires a greater use of our available financial resources duringthis period.

 

36

----

 

**ITEM 3.Quantitative and Qualitative Disclosures About Market Risk**

 

In the normal course of business, our operations areexposed to interest rate risk on our senior secured credit facility and anyfuture financing requirements. Our fixed rate debt consisted primarily of theaccreted carrying value of the Existing Notes ($81.4 million at March 31,2003) and the Series B Notes ($9.8 million at March 31, 2003).  Our New Notes also have a fixed interestrate, but because we have followed the provisions of SFAS No. 15 and EITF02-04, we will not recognize any interest expense with respect to the New Notesin future periods.  These provisionsrequire that the carrying value be recorded at the total future cash payments(principal and interest).  Therefore,these New Notes are carried on our balance sheet as long-term liabilitiesvalued at $81.9 million (see Note 6 to the Consolidated Financial Statements).Our variable rate debt consisted of borrowings made under the senior securedcredit facility ($230.0 million at March 31, 2003).

 

Our primary interest rate risk exposures related to(i) the interest rate on long-term borrowings; (ii) our ability to refinancethe Existing Notes, the New Notes and the Series B Notes at maturity at marketrates, if needed; and (iii) the impact of interest rate movements on ourability to meet interest expense requirements and financial covenants under ourdebt instruments.

 

We may decide, from time to time, to manage theinterest rate risk on our outstanding long-term debt through the use of fixedand variable rate debt and interest rate swaps. While we cannot predict our abilityto refinance existing debt or the impact interest rate movements will have onour existing debt, we continue to evaluate our interest rate risk on an ongoingbasis.

 

The following table presents the estimated futurebalances of outstanding long-term debt projected at the end of each period andfuture required annual principal payments for each period then ended based onour projected level of long-term indebtedness as of March 31, 2003(dollars in thousands):

 
|                               |   | **Years ending December 31,** |   |
|------------------------------------|--------|-------------------------------|--------|
|                               |   | **2003**                      |   | **2004** |   | **2005** |   | **2006** |   | **2007** |   |
|                               |   |                          |   |   |   |   |   |   |   |   |   |
| Senior subordinated discount notes |   | 90,154                        |   | 103,218 |   | 107,280 |   | 107,280 |   | 107,280 |   |
| Fixed interest rate                |   | 14.0                          | %      | 14.0 | % | 14.0 | % | 14.0 | % | 14.0 | % |
| Principal repayments               |   | —                        |   | — |   | — |   | — |   | — |   |
|                               |   |                          |   |   |   |   |   |   |   |   |   |
| Senior secured credit facility     |   | 230,000                       |   | 222,079 |   | 207,997 |   | 157,538 |   | 100,625 |   |
| Variable interest rate(1)          |   | 6.7                           | %      | 7.6 | % | 7.6 | % | 7.6 | % | 7.6 | % |
| Principal payments                 |   | 15,000                        |   | 7,921 |   | 14,082 |   | 50,459 |   | 56,913 |   |
|                               |   |                          |   |   |   |   |   |   |   |   |   |
| Senior discount notes(2)           |   | 48,180                        |   | 48,180 |   | 48,180 |   | 48,180 |   | 48,180 |   |
| Fixed interest rate                |   | 14.0                          | %      | 14.0 | % | 14.0 | % | 14.0 | % | 14.0 | % |
| Principal repayments               |   | —                        |   | — |   | — |   | — |   | — |   |
|                               |   |                          |   |   |   |   |   |   |   |   |   |
| Series B senior discount notes     |   | 10,793                        |   | 12,357 |   | 12,848 |   | 12,848 |   | 12,848 |   |
| Fixed interest rate                |   | 14.0                          | %      | 14.0 | % | 14.0 | % | 14.0 | % | 14.0 | % |
| Principal repayments               |   | —                        |   | — |   | — |   | — |   | — |   |

 

----

**(1)**                                  The interest rate on thesenior secured credit facility equals the London interbank offered rate (LIBOR)plus a weighted-average interest rate of 3.8%. LIBOR is assumed to equal 2.9%for 2003 and 3.8% for years 2004, 2005, 2006, and 2007. A 1.0% increase(decrease) in the variable interest rate would result in a $2.3 millionincrease (decrease) in the interest expense.

** **

(2)                                  Thesenior discount notes were issued at a discount in February 2003, but we havefollowed the provisions of SFAS No. 15 and EITF 02-04.  These provisions require that the carryingvalue be 

 

37

----

 

recorded at the totalfuture cash payments (principal and interest). Therefore, the notes are carried on our balance sheet as long-termliabilities valued at $81.9 million beginning February 26, 2003, which is thedate of the debt-for-debt exchange offer described in Note 6 to theConsolidated Financial Statements.  As aresult, no interest expense related to these notes will be recognized in futureperiods.

 

**ITEM 4. Controls and Procedures**

 

## **Evaluationof Disclosure Controls and Procedures**

 

Our Chief Executive Officerand Chief Financial Officer have evaluated the effectiveness of our disclosurecontrols and procedures (as defined in the Securities Exchange Act of 1934Rules 13a-14(c) and 15d-14(c)) as of an evaluation date within 90 days prior tothe filing date of this Quarterly Report on Form 10-Q.  Based on this evaluation, they haveconcluded that, as of the evaluation date, our disclosure controls andprocedures are reasonably designed to alert them on a timely basis to materialinformation relating to us required to be included in our reports filed orsubmitted under the Exchange Act.

 

We place reliance on Sprintto adequately design its internal controls with respect to the processesestablished to provide financial information and other information to us andthe other PCS affiliates of Sprint.  Toaddress this issue, Sprint engages its independent auditors to perform aperiodic evaluation of these controls and to provide a “Report on ControlsPlaced in Operation and Tests of Operating Effectiveness for Affiliates” underguidance provided in Statement of Auditing Standards No. 70. This report isprovided annually to us.

 

## **Changesin Internal Controls**

 

There were no significantchanges to our internal controls or, to our knowledge, in other factors thatcould significantly affect our internal controls, subsequent to the date of ourChief Executive Officer’s and Chief Financial Officer’s last evaluation of ourinternal controls, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 

## **Section906 Certifications**

 

Our Chief Executive Officer andChief Financial Officer have each signed the certifications required by Section906 of the Sarbanes-Oxley Act of 2002, which certifications accompany thisfiling as exhibits.

 

38

----

 

# **PART II.  OTHER INFORMATION**

 

# **Item 1. LegalProceedings**

 

Neither UbiquiTelnor Operating Company is a party to any pending legal proceedings that eitherUbiquiTel or Operating Company believes would, if adversely determined,individually or in the aggregate, have a material adverse effect on ourfinancial condition or results of operations.

 

**Item 2. Changes in Securities and Useof Proceeds**

 

None.

 

**Item 3. Defaults Upon SeniorSecurities**

 

None.

 

**Item 4. Submission of Matters to aVote of Security Holders**

 

None.

 

**Item 5. Other Information**

 

None.

 

**Item 6. Exhibits and Reports on Form****8-K**

 

**(a)****                                  Reportson Form 8-K**

 

Five reports on Form 8-K were filed during the quarterended March 31, 2003: 

 
| **Date**          |   | **Item  Reported On**                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|-------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| January 23, 2003  |   | Item 5. Other Events.  On January 23, 2003, UbiquiTel Inc. announced, among other  things, net subscriber additions of 22,400 for the fiscal quarter ended  December 31, 2002.                                                                                                                                                                                                                                                                                      |
|              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| January 23, 2003  |   | Item 5. Other Events. On January 23, 2003,  UbiquiTel Inc.’s wholly-owned subsidiary UbiquiTel Operating Company  announced, among other things, that UbiquiTel Operating Company intended to  offer, in a private placement, up to $56,250,000 aggregate principal amount  of its new 14% senior discount notes due May 15, 2010 for up to  $225,000,000 principal amount of its outstanding 14% senior subordinated  discount notes due April 15, 2010. |
|              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| February 14, 2003 |   | Item 5. Other Events. On February 14, 2003,  UbiquiTel Inc.’s wholly-owned subsidiary UbiquiTel Operating Company made an  announcement concerning its pending offer to exchange, in a private  placement, up to $56,250,000 aggregate principal amount of its new 14% senior  discount notes due May 15, 2010 for up to $225,000,000 principal amount of  its outstanding 14% senior subordinated discount notes due April 15, 2010.                                    |

 

39

----

 
| **Date**          |   | **Item  Reported On**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|-------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| February 24, 2003 |   | Item 5. Other Events. On February 24, 2003,  UbiquiTel Inc.’s wholly-owned subsidiary UbiquiTel Operating Company  announced, among other things, the successful results of its exchange offer,  with 84% of the offer subscribed and total debt reduction of $144.5 million  principal amount, as well as an amendment to the company’s senior secured  credit facility.  Exhibit 7.  Financial Statements and Exhibits. The amendment  to the senior secured credit facility was filed as an exhibit to the Form  8-K.                                                                                                                                                                                                                                                                                                     |
|              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| February 27, 2003 |   | Item 5. Other Events.  On February 27, 2003, UbiquiTel Inc.’s wholly-owned subsidiary  UbiquiTel Operating Company announced the closing of its private placement  exchange of $48.2 million aggregate principal amount of its new 14% senior  discount notes due May 15, 2010 and $9.6 million in cash for $192.7 million  aggregate principal amount of its outstanding 14% senior subordinated  discount notes due April 15, 2010 and the completion in a private placement  of the related new financing of $12.8 million aggregate principal amount of  14% Series B senior discount notes due 2008 in which the company received  cash proceeds of $9.6 million to fund the cash portion of the exchange and  UbiquiTel Inc. issued detachable warrants to purchase up to approximately 9.6  million shares of its common stock. |

 

**(b)****                                  Exhibits:**

 
| **Exhibit No.** |   | **Description**                                                                                                           |
|-----------------|--------|---------------------------------------------------------------------------------------------------------------------------|
| 99.1            |   | Certification Pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 9.06 of the Sarbanes-Oxley Act of 2002. |
|            |   |                                                                                                                      |
| 99.2            |   | Certification Pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 9.06 of the Sarbanes-Oxley Act of 2002. |

 

40

----

 

**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon 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/ JAMES J. VOLK                      |   |
|         |                                        | James J. Volk                                 |   |
|         |                                        | Chief Financial Officer                       |
|         |                                        | (Principal Financial  and Accounting Officer) |
|         |                                        |                                          |
|         |                                        |                                          |
| May 15, 2003 |                                        |                                          |   |
|              |                                             |                                               |  |  |

 

41

----

 

**CERTIFICATION****PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF2002**

 

I, Donald A. Harris, Chief Executive Officer of UbiquiTel Inc. andUbiquiTel Operating Company, certify that:

 

1.  I have reviewed this quarterly report onForm 10-Q of UbiquiTel Inc. and UbiquiTel Operating Company;

 

2.  Based on my knowledge, this quarterly reportdoes not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.  Based on my knowledge, the financial statements,and other financial information included in this quarterly report, fairlypresent in all material respects the financial condition, results of operationsand cash flows of the registrant as of, and for, the periods presented in thisquarterly report;

 

4.  The registrant’s other certifying officersand I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have:

 

a) designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared;

 

b) evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c) presented inthis quarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.  The registrant’s other certifying officersand I have disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

 

a) all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b) any fraud,whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

42

----

 

6.  The registrant’s other certifying officersand I have indicated in this quarterly report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
|                     | UBIQUITEL INC.                        |   |
|--------------------------|---------------------------------------|--------|
|                     |                                  |   |
|                     |                                  |   |
|                     | */s/  Donald A. Harris*               |   |
|                     | Donald A. Harris                      |   |
|                     | President and Chief Executive Officer |   |
|                     |                                  |   |   |
|                     |                                  |   |   |
|                     | UBIQUITEL OPERATING  COMPANY          |   |
|                     |                                  |   |   |
|                     |                                  |   |   |
|                     | */s/  Donald A. Harris*               |   |
|                     | Donald A. Harris                      |   |
|                     | President and Chief Executive Officer |
|                     |                                  |
|                     |                                  |
| Date:  May 15, 2003 |                                  |   |   |
|                          |                                       |        |  |  |  |

 

43

----

 

**CERTIFICATION PURSUANT TO SECTION 302 OF THESARBANES-OXLEY ACT OF 2002**

 

I, James J. Volk, Chief Financial Officer of UbiquiTel Inc. andUbiquiTel Operating Company, certify that:

 

1.  I have reviewed this quarterly report onForm 10-Q of UbiquiTel Inc. and UbiquiTel Operating Company;

 

2.  Based on my knowledge, this quarterly reportdoes not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.  Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this quarterly report;

 

4.  The registrant’s other certifying officersand I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have:

 

a) designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared;

 

b) evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c) presented inthis quarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.  The registrant’s other certifying officersand I have disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

 

a) all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b) any fraud,whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

44

----

 

6.  The registrant’s other certifying officersand I have indicated in this quarterly report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
|                     | UBIQUITEL INC.               |   |
|--------------------------|------------------------------|--------|
|                     |                         |   |
|                     |                         |   |
|                     | */s/  James J. Volk*         |   |
|                     | James J. Volk                |   |
|                     | Chief Financial Officer      |   |
|                     |                         |   |   |
|                     |                         |   |   |
|                     | UBIQUITEL OPERATING  COMPANY |   |
|                     |                         |   |   |
|                     |                         |   |   |
|                     | */s/  James J. Volk*         |   |
|                     | James J. Volk                |   |
|                     | Chief Financial Officer      |
|                     |                         |
|                     |                         |
| Date:  May 15, 2003 |                         |   |   |
|                          |                              |        |  |  |  |

 

45

----