** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

**FORM 10-Q**

 

**QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF**

**THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended June 30, 2002**

 

**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        Noo

 

There were 81,231,533 shares of common stock, $.0005 par value, of UbiquiTel Inc. outstanding at August 13,2002.

 

There were 1,000 shares of common stock, $.01 par value, of UbiquiTelOperating Company outstanding at August 13, 2002, all of which were owned byUbiquiTel Inc.

 

 

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**UbiquiTel Inc. and Subsidiaries**

 

**Form 10-Q for the Quarter Ended June 30, 2002**

 

**INDEX**

 
| PART I.    | FINANCIAL INFORMATION                                                                                        |
|------------|--------------------------------------------------------------------------------------------------------------|
|       |                                                                                                         |
| Item 1.    | Financial Statements                                                                                         |
|       | Consolidated Balance Sheets  as of June 30, 2002  (unaudited) and December 31, 2001                          |
|       | Consolidated  Statements of Operations for the three and six months ended June 30, 2002 and 2001 (unaudited) |
|       | Consolidated  Statements of Cash Flows for the six months ended June 30, 2002 and 2001 (unaudited)           |
|       | 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                                                  |
|       |                                                                                                         |
| 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 |

 

2

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**ExplanatoryNote:**

 

The Consolidated Financial Statements included hereinare that of UbiquiTel Inc. (“UbiquiTel”). The Co-Registrants are UbiquiTel and UbiquiTel Operating Company(“Operating Company”), which is a wholly-owned subsidiary of UbiquiTel and theissuer of 14% Senior Subordinated Discount Notes due 2010 (the “Notes”).  UbiquiTel has provided a full,unconditional, joint and several guaranty of Operating Company’s obligationsunder the Notes.  UbiquiTel has nooperations 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**

 

# **UbiquiTel Inc. and Subsidiaries**

# **ConsolidatedBalance Sheets**

# **(In Thousands, Except Per Share Data)**

 
|                                                                                                                                              |   | **June  30,  2002** |    | **December  31,  2001** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|---------|-------------------------|--------|
|                                                                                                                                              |   | **(Unaudited)**     |    |                    |   |
| **ASSETS**                                                                                                                                        |   |                |    |                    |   |
| CURRENT ASSETS:                                                                                                                                   |   |                |    |                    |   |
| Cash and cash equivalents                                                                                                                         |   | $                   | 103,127 |                    | $      | 124,744 |   |
| Restricted cash                                                                                                                                   |   | 5,228               |    | 5,183                   |   |
| Accounts receivable, net of allowance for doubtful  accounts of $4,514 at June 30, 2002 and $4,244 at December 31, 2001                           |   | 17,221              |    | 15,951                  |   |
| Inventory                                                                                                                                         |   | 2,180               |    | 4,691                   |   |
| Prepaid expenses and other assets                                                                                                                 |   | 7,558               |    | 9,032                   |   |
| Total current assets                                                                                                                              |   | 135,314             |    | 159,601                 |   |
| PROPERTY AND EQUIPMENT, NET                                                                                                                       |   | 278,637             |    | 260,957                 |   |
| CONSTRUCTION IN PROGRESS                                                                                                                          |   | 16,082              |    | 17,029                  |   |
| DEFERRED FINANCING COSTS, NET                                                                                                                     |   | 12,568              |    | 13,496                  |   |
| GOODWILL                                                                                                                                          |   | 38,834              |    | 39,994                  |   |
| INTANGIBLE ASSETS, NET                                                                                                                            |   | 85,686              |    | 93,060                  |   |
| OTHER LONG-TERM ASSETS                                                                                                                            |   | 6,848               |    | 4,293                   |   |
| Total assets                                                                                                                                      |   | $                   | 573,969 |                    | $      | 588,430 |   |
|                                                                                                                                              |   |                |    |                    |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                    |   |                |    |                    |   |
| CURRENT LIABILITIES:                                                                                                                              |   |                |    |                    |   |
| Accounts payable                                                                                                                                  |   | $                   | 15,320  |                    | $      | 11,156 |   |
| Accrued expenses                                                                                                                                  |   | 17,126              |    | 15,712                  |   |
| Accrued compensation and benefits                                                                                                                 |   | 1,655               |    | 3,468                   |   |
| Deferred revenue                                                                                                                                  |   | 7,275               |    | 5,456                   |   |
| Interest payable                                                                                                                                  |   | 1,958               |    | 1,942                   |   |
| Current portion of long-term debt                                                                                                                 |   | 827                 |    | 821                     |   |
| Other                                                                                                                                             |   | 8,863               |    | 7,496                   |   |
| Total current liabilities                                                                                                                         |   | 53,024              |    | 46,051                  |   |
| LONG-TERM DEBT                                                                                                                                    |   | 442,621             |    | 398,848                 |   |
| OTHER LONG-TERM LIABILITIES                                                                                                                       |   | 6,236               |    | 5,023                   |   |
| Total long-term liabilities                                                                                                                       |   | 448,857             |    | 403,871                 |   |
| Total liabilities                                                                                                                                 |   | 501,881             |    | 449,922                 |   |
| COMMITMENTS AND CONTINGENCIES                                                                                                                     |   |                |    |                    |   |
| STOCKHOLDERS’ EQUITY:                                                                                                                        |   |                |    |                    |   |
| Preferred stock, par value $0.001 per share; 10,000  shares authorized; 0 shares issued andoutstanding at June 30, 2002 and December 31, 2001     |   | —              |    | —                  |   |
| Common stock, par value $0.0005 per share; 240,000  shares authorized; 81,116 shares issuedand outstanding at June 30, 2002 and December 31, 2001 |   | 41                  |    | 41                      |   |
| Additional paid-in-capital                                                                                                                        |   | 294,937             |    | 294,748                 |   |
| Accumulated deficit                                                                                                                               |   | (222,890            | )       | (156,281                | )      |
| Total stockholders’ equity                                                                                                                   |   | 72,088              |    | 138,508                 |   |
| Total liabilities and stockholders’ equity                                                                                                   |   | $                   | 573,969 |                    | $      | 588,430 |   |

 

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

 

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**UbiquiTelInc. and Subsidiaries**

# **ConsolidatedStatements of Operations**

**(Unaudited)**

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

 
|                                                                                                   |   | **Three Months Ended  June 30,** |    | **Six Months Ended****June 30,** |   |
|--------------------------------------------------------------------------------------------------------|--------|----------------------------------|---------|----------------------------------|--------|
|                                                                                                   |   | **2002**                         |    | **2001**                         |   | **2002** |   | **2001** |   |
| REVENUES:                                                                                              |   |                             |    |                             |   |   |   |   |   |
| Service revenue                                                                                        |   | $                                | 51,806  |                             | $      | 9,376 |   | $ | 95,356 |   | $ | 15,204 |   |
| Revenue from sale of handsets                                                                          |   | 1,513                            |    | 1,699                            |   | 3,566 |   | 1,910 |   |
| Total revenue                                                                                          |   | 53,319                           |    | 11,075                           |   | 98,922 |   | 17,114 |   |
| COSTS AND EXPENSES:                                                                                    |   |                             |    |                             |   |   |   |   |   |
| Cost of service and operations (exclusive of depreciation and  amortization as shown separately below) |   | 36,405                           |    | 9,820                            |   | 66,042 |   | 16,555 |   |
| Cost of products sold                                                                                  |   | 7,147                            |    | 3,913                            |   | 15,910 |   | 4,945 |   |
| Selling and marketing                                                                                  |   | 13,033                           |    | 7,091                            |   | 25,853 |   | 10,365 |   |
| General and administrative expenses excluding non-cash compensation  charges                           |   | 6,498                            |    | 2,981                            |   | 12,566 |   | 5,959 |   |
| Non-cash compensation for general and administrative matters                                           |   | 95                               |    | 75                               |   | 189 |   | 198 |   |
| Depreciation and amortization                                                                          |   | 13,376                           |    | 4,240                            |   | 23,732 |   | 6,375 |   |
| Total costs and expenses                                                                               |   | 76,554                           |    | 28,120                           |   | 144,292 |   | 44,397 |   |
| OPERATING LOSS                                                                                         |   | (23,235                          | )       | (17,045                          | )      | (45,370 | ) | (27,283 | ) |
| INTEREST INCOME                                                                                        |   | 498                              |    | 2,928                            |   | 969 |   | 6,522 |   |
| INTEREST EXPENSE                                                                                       |   | (11,371                          | )       | (9,973                           | )      | (22,282 | ) | (17,393 | ) |
| OTHER INCOME                                                                                           |   | 74                               |    | —                           |   | 74 |   | — |   |
| LOSS BEFORE INCOME TAXES                                                                               |   | (34,034                          | )       | (24,090                          | )      | (66,609 | ) | (38,154 | ) |
| INCOME TAX EXPENSE                                                                                     |   | —                           |    | —                           |   | — |   | — |   |
| NET LOSS                                                                                               |   | $                                | (34,034 | )                                | $      | (24,090 | ) | $ | (66,609 | ) | $ | (38,154 | ) |
|                                                                                                   |   |                             |    |                             |   |   |   |   |   |
| BASIC AND FULLY DILUTED NET LOSS PER SHARE OF COMMON STOCK                                             |   | $                                | (0.42   | )                                | $      | (0.38 | ) | $ | (0.82 | ) | $ | (0.60 | ) |
| BASIC AND FULLY DILUTED WEIGHTED-AVERAGE OUTSTANDING COMMON SHARES                                     |   | 81,116                           |    | 64,018                           |   | 81,116 |   | 63,782 |   |

 

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

 

5

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# **UbiquiTel Inc. and Subsidiaries**

# **ConsolidatedStatements of Cash Flows**

**(Unaudited)**

**(InThousands)**

 
|                                                                                             |   | **Six Months Ended  June 30, 2002** |    | **Six Months Ended  June 30, 2001** |   |
|--------------------------------------------------------------------------------------------------|--------|-------------------------------------|---------|-------------------------------------|--------|
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                            |   |                                |    |                                |   |
| Net loss                                                                                         |   | $                                   | (66,609 | )                                   | $      | (38,154 | ) |
| Adjustments to reconcile net loss to net cash used in  operating activities:                     |   |                                |    |                                |   |
| Amortization of deferred financing costs                                                         |   | 1,727                               |    | 1,528                               |   |
| Amortization of intangible assets                                                                |   | 7,374                               |    | 816                                 |   |
| Depreciation                                                                                     |   | 16,358                              |    | 5,559                               |   |
| Interest accrued on senior debt                                                                  |   | 13,379                              |    | 11,683                              |   |
| Non-cash compensation from stock options granted to  employees                                   |   | 189                                 |    | 198                                 |   |
| Changes in operating assets and liabilities exclusive  of acquisitions and capital expenditures: |   |                                |    |                                |   |
| Accounts receivable                                                                              |   | (1,270                              | )       | (2,907                              | )      |
| Inventory                                                                                        |   | 2,511                               |    | (1,142                              | )      |
| Prepaid expenses and other assets                                                                |   | (1,081                              | )       | (1,448                              | )      |
| Accounts payable and accrued expenses                                                            |   | 10,838                              |    | 5,359                               |   |
| Net cash used in operating activities                                                            |   | (16,584                             | )       | (18,508                             | )      |
|                                                                                             |   |                                |    |                                |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                            |   |                                |    |                                |   |
| Capital expenditures                                                                             |   | (34,589                             | )       | (68,413                             | )      |
| Change in restricted cash                                                                        |   | (45                                 | )       | (80,000                             | )      |
| Cash advance to VIA Wireless                                                                     |   | —                              |    | (13,000                             | )      |
| Acquisition costs                                                                                |   | —                              |    | (4,925                              | )      |
| Net cash used in investing activities                                                            |   | (34,634                             | )       | (166,338                            | )      |
|                                                                                             |   |                                |    |                                |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                            |   |                                |    |                                |   |
| Drawings under senior secured credit facility                                                    |   | 30,000                              |    | 80,000                              |   |
| Long-term debt payments                                                                          |   | (399                                | )       | (132                                | )      |
| Proceeds from issuance of common stock                                                           |   | —                              |    | 12                                  |   |
| Net cash provided by financing activities                                                        |   | 29,601                              |    | 79,880                              |   |
|                                                                                             |   |                                |    |                                |   |
| NET DECREASE IN CASH AND CASH EQUIVALENTS                                                        |   | (21,617                             | )       | (104,966                            | )      |
| CASH AND CASH EQUIVALENTS, beginning of period                                                   |   | 124,744                             |    | 147,706                             |   |
| CASH AND CASH EQUIVALENTS, end of period                                                         |   | $                                   | 103,127 |                                | $      | 42,740 |   |
|                                                                                             |   |                                |    |                                |   |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                                |   |                                |    |                                |   |
| Cash paid for interest                                                                           |   | $                                   | 6,987   |                                | $      | 7,691 |   |
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND  FINANCING ACTIVITIES:                         |   |                                |    |                                |   |
| Network assets acquired but not yet paid                                                         |   | 1,500                               |    | 4,425                               |   |
| Warrants exercised                                                                               |   | —                              |    | 570                                 |   |
| Capital leases entered into                                                                      |   | —                              |    | 874                                 |   |

 

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

 

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# **UbiquiTel Inc. and Subsidiaries**

# **Notes toConsolidated Financial Statements**

**(Unaudited)**

 

**1.             SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

 

**Basis of Presentation of Unaudited Interim FinancialInformation**

 

The consolidated financial information as of June 30,2002 and for the three and six months ended June 30, 2002 and 2001 isunaudited, but has been prepared in accordance with generally acceptedaccounting principles for interim financial information and Article 10 ofRegulation S-X.  Accordingly, they donot include all the information and footnotes required by generally acceptedaccounting principles.  In the opinionof management, the interim data includes all adjustments, consisting only ofnormal recurring adjustments, that are considered necessary for fairpresentation of the Company’s interim results. Operating results for the threeand six months ended June 30, 2002 are not necessarily indicative of resultsthat may be expected for the entire year. This financial information should be read in conjunction with theaudited financial statements and notes thereto for the year ended December 31,2001 of UbiquiTel which are included in its Annual Report on Form 10-K for theyear ended December 31, 2001.

 

**Principles of Consolidation and Use of Estimates**

 

The accompanying financialstatements include the accounts of UbiquiTel Inc. and its subsidiaries (seeNote 2).  All significant intercompanybalances and transactions have been eliminated.

 

The preparation of financial statements in conformitywith generally accepted accounting principles requires us to make estimates andassumptions.  These estimates andassumptions affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements.  These assumptions alsoaffect the reported amounts of revenue and expenses during the reportingperiods.  Actual results could differfrom those estimates and assumptions.

 

**New Accounting Pronouncements**

 

In August 2001, the Financial Accounting StandardsBoard (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No.144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFASNo. 144”).  This Statement supersedesSFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and ForLong-Lived Assets to be Disposed Of” (“SFAS No. 121”), and the accounting andreporting provisions of Accounting Principles Board (“APB”) Opinion No. 30,“Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,Unusual and Infrequently Occurring Events and Transactions” (“APB No. 30”).However, certain provisions of SFAS No. 121 and APB No. 30 have beenmaintained.  The Company adopted SFASNo. 144 effective January 1, 2002.  Theadoption did not have a material effect on the Company’s results of operations,financial position or cash flows.

 

In June 2001, the FASB issued SFAS No. 143,“Accounting for Asset Retirement Obligations” (“SFAS No. 143”). This Statementestablishes common accounting practices relating to legal obligationsassociated with the retirement of tangible long-lived assets that result fromthe acquisition, construction, development or normal operation of a long-livedasset.  The Company will adopt SFAS No.143 on January 1, 2003.  The adoption isnot expected to have a material effect on the Company’s results of operations,financial position or cash flows.

 

In June 2001, the FASBissued SFAS No. 141, “Business Combinations” (“SFAS No. 141”), and SFAS No.142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”).  SFAS No. 141 requires all businesscombinations initiated after June 30, 2001 to be accounted for using thepurchase method of accounting.  SFAS No.142, which

 

7

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was adopted by the Company effective January1, 2002, requires that goodwill and certain intangible assets resulting frombusiness combinations entered into prior to June 30, 2001 no longer beamortized, but instead be reviewed for recoverability.  Any write-down of goodwill would be chargedto results of operations as a cumulative change in accounting principle uponadoption of the new accounting standard if the recorded value of goodwill andcertain intangibles exceeds its fair value. The adoption of SFAS No. 142 willreduce the amortization of goodwill by approximately $0.6 million for thetwelve months ending December 31, 2002; however, recoverability reviews mayresult in periodic write-downs subsequent to the date of adoption.

 

The following table presentsthe results of operations if goodwill were not amortized as of January 1, 2001:

 
|                                  |   | **Three Months Ended  June 30,** |    | **Six Months Ended  June 30,** |   |
|---------------------------------------|--------|----------------------------------|---------|--------------------------------|--------|
|                                  |   | **2002**                         |    | **2001**                       |   | **2002** |   | **2001** |   |
|                                  |   |                             |    |                           |   |   |   |   |   |
| Reported net loss                     |   | $                                | (34,034 | )                              | $      | (24,090 | ) | $ | (66,609 | ) | $ | (38,154 | ) |
| Add: Goodwill amortization            |   | —                           |    | 148                            |   | — |   | 297 |   |
| Adjusted net loss                     |   | $                                | (34,034 | )                              | $      | (23,942 | ) | $ | (66,609 | ) | $ | (37,857 | ) |
|                                  |   |                             |    |                           |   |   |   |   |   |
| Basic and diluted earnings per share: |   |                             |    |                           |   |   |   |   |   |
| Reported net loss per share           |   | $                                | (0.42   | )                              | $      | (0.38 | ) | $ | (0.82 | ) | $ | (0.60 | ) |
| Add: Goodwill amortization per share  |   | —                           |    | —                         |   | — |   | — |   |
| Adjusted net loss per share           |   | $                                | (0.42   | )                              | $      | (0.38 | ) | $ | (0.82 | ) | $ | (0.60 | ) |

 

**Reclassifications**

 

Certain prior year amountshave been reclassified to conform with current year presentation.

 

**2.             ORGANIZATIONAND NATURE OF BUSINESS**

 

UbiquiTel Inc. andSubsidiaries (“UbiquiTel” or the “Company”) was formed for the purpose ofbecoming the exclusive provider of Sprint Personal Communications Services(“PCS”) in certain defined midsize and smaller markets in the western andmidwestern United States.

 

In October 1998, UbiquiTelL.L.C. (a Washington state limited liability company), whose sole member wasThe Walter Group, entered into an agreement with Sprint PCS for noconsideration given for the exclusive rights to market Sprint’s 100% digital,100% PCS products and services to the approximately one million residentsin the Reno/Tahoe, Nevada market. UbiquiTel L.L.C. had no financialtransactions from its inception (August 24, 1998) to September 29,1999. On September 29, 1999, UbiquiTel Inc. (formerly “UbiquiTelHoldings, Inc.”) was incorporated in Delaware. On November 1, 1999,the Company entered into a founders’ agreement and issued common stock to agroup of five shareholders including The Walter Group. In November 1999,UbiquiTel L.L.C. assigned all of its material contracts, including the rightsto the Sprint PCS agreements, to UbiquiTel. On December 28, 1999,UbiquiTel amended its agreement with Sprint PCS to expand the Company’smarkets to include the northern California, Spokane/Montana, southernIdaho/Utah/Nevada and southern Indiana/Kentucky markets, which together withthe Reno/Tahoe markets, contain approximately 7.7 million residents.

 

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 for UbiquiTel Inc.

 

On February 22, 2001, UbiquiTel entered into a mergeragreement for the acquisition of VIA Wireless LLC, a California limitedliability company and PCS affiliate of Sprint (“VIA Wireless”). Upon theclosing of the merger

 

8

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agreement, as amended and restated, on August 13,2001, VIA Wireless became a wholly owned subsidiary of UbiquiTel through aseries of mergers and related transactions. In the transaction, shareholders ofthe members of VIA Wireless and certain employees of VIA Wireless received inthe aggregate 16,400,000 shares of UbiquiTel’s common stock, and UbiquiTelassumed approximately $80.1 million of debt and incurred transaction costs ofapproximately $11.0 million.  On October17, 2001, UbiquiTel sold the VIA Wireless California PCS licenses for $50.0million in cash, resulting in net debt assumed in the acquisition of $30.1million.  VIA Wireless was the exclusiveprovider of Sprint PCS digital wireless services to the central valley ofCalifornia, which covers approximately 3.4 million licensed residents. On February 21, 2001, in connection with theacquisition, UbiquiTel amended its agreement with Sprint PCS to expand itsmarkets to include the six VIA Wireless basic trading areas (BTAs) included underVIA Wireless’ former affiliation agreement with Sprint PCS, includingBakersfield, Fresno, Merced, Modesto, Stockton and Visalia, California, whichwent into effect at the closing of the acquisition.  On December 31, 2001, through a series of mergers, certaincorporate members of VIA Wireless merged into the sole remaining member, VIAHolding Inc., which had become a wholly owned subsidiary of Operating Companyeffective immediately after the acquisition of VIA Wireless in August 2001.

 

The consolidated financialstatements contain the financial information of UbiquiTel Inc. and itssubsidiaries, Operating Company, UbiquiTel Leasing Company, VIA Holding Inc.,VIA Wireless LLC and VIA Building, LLC.

 

**3.             BASIC ANDDILUTED NET LOSS PER SHARE**

 

The Company computes net loss per common share inaccordance with SFAS No. 128, “Earnings per Share” (“SFAS No. 128”).  Under the provisions of SFAS No. 128,basic and diluted net loss per common share is computed by dividing the netloss 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 sharesfrom stock options have been excluded in the calculation of diluted loss pershare since the effect would be antidilutive. Accordingly, the number of weighted average shares outstanding as wellas the amount of  net loss per share arethe same for basic and diluted per share calculations for the periods reflectedin the accompanying financial statements.

 

The following tablesummarizes the securities outstanding, which are excluded from the loss pershare calculation, as amounts would have an antidilutive effect.

 
|          |   | **Three Months Ended  June 30,** |   | **Six Months Ended  June 30,** |   |
|---------------|--------|----------------------------------|--------|--------------------------------|--------|
|          |   | **2002**                         |   | **2001**                       |   | **2002** |   | **2001** |   |
| Stock options |   | 5,571,000                        |   | 4,276,000                      |   | 5,571,000 |   | 4,276,000 |   |
| Warrants      |   | 3,665,183                        |   | 3,665,183                      |   | 3,665,183 |   | 3,665,183 |   |
| Total         |   | 9,236,183                        |   | 7,941,183                      |   | 9,236,183 |   | 7,941,183 |   |

 

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**4.             PROPERTYAND EQUIPMENT**

 

Property and equipment consistedof the following (in thousands): 

 

|                           |   | **June 30, 2002** |    | **December 31, 2001** |   |
|--------------------------------|--------|-------------------|---------|-----------------------|--------|
|                           |   |              |    |                  |   |
| Network equipment              |   | $                 | 296,445 |                  | $      | 264,165 |   |
| Vehicles                       |   | 1,198             |    | 938                   |   |
| Furniture and office equipment |   | 10,480            |    | 9,446                 |   |
| Leasehold improvements         |   | 3,403             |    | 2,941                 |   |
| Land                           |   | 130               |    | 130                   |   |
| Buildings                      |   | 4,670             |    | 4,670                 |   |
|                           |   | 316,326           |    | 282,290               |   |
| Accumulated depreciation       |   | (37,689           | )       | (21,333               | )      |
| Property and equipment, net    |   | $                 | 278,637 |                  | $      | 260,957 |   |

 

Depreciation expense wasapproximately $8.5 million and $3.8 million for the three months ended June 30,2002 and 2001, respectively, and approximately $16.4 million and $5.6 millionfor the six months ended June 30, 2002 and 2001, respectively.

 

**5.****                                      LONG-TERMDEBT**

 

Long-term debt outstanding as ofJune 30, 2002 and December 31, 2001 was as follows (in thousands): 

 

|                                               |   | **June 30,  2002** |       | **December 31,  2001** |       |
|----------------------------------------------------|--------|--------------------|------------|------------------------|------------|
|                                               |   |               | ** ** |                   | ** ** |
| 14% senior subordinated discount notes             |   | $                  | 300,000    |                   | $          | 300,000 |   |
| Less: Discount                                     |   | (94,167            | )          | (107,546               | )          |
| Less: Detachable warrants                          |   | (12,429            | )          | (13,228                | )          |
| Senior secured credit facility                     |   | 245,000            |       | 215,000                |       |
| Capital lease obligations                          |   | 859                |       | 1,148                  |       |
| Building mortgage and other long-term liabilities  |   | 4,185              |       | 4,295                  |       |
| Total long-term debt                               |   | 443,448            |       | 399,669                |       |
| Less: current maturities                           |   | 827                |       | 821                    |       |
| Total long-term debt, excluding current maturities |   | $                  | 442,621    |                   | $          | 398,848 |   |

 

The interest rates forthe senior secured credit facility ranged from 5.2% to 6.6% during the sixmonths ended June 30, 2002.

 

On April 11, 2000,Operating Company issued 14% senior subordinated discount notes. See Note 6 foradditional information.

 

On February 22,2000, Operating Company received a commitment letter from Paribas, asadministrative agent, and certain banks and other financial institutions asparties thereto for a $250.0 million senior secured credit facility.  UbiquiTel has guaranteed the credit facilitywhich was finalized and executed on March 31, 2000.  The credit facility consisted of a revolving loan of up to$55.0 million, a term loan A of $120.0 million and a term loan B of$75.0 million.

 

On March 1, 2001,Operating Company and Paribas and the other lenders under the senior creditfacility entered into a second amendment and consent to the credit agreement,whereby the lenders increased the $250.0 million credit facility by $50.0million to $300.0 million, and approved UbiquiTel’s acquisition of VIAWireless,

 

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including OperatingCompany’s subordinated bridge financing of up to $25.0 million to VIA Wirelesspending the closing of the transaction. See Note 7 for a description of the VIA Wireless acquisition.** **Theadditional borrowing increased the term loan B to $125.0 million.

 

The revolving loan andterm loan A will mature in October 2007 and the term loan B will mature in October2008.  The term loans A and B arerequired to be repaid beginning in June 2004 in fourteen and eighteenconsecutive quarterly installments, respectively. The amount of each of thequarterly consecutive installments increases incrementally in accordance withthe credit facility agreement.  Theamount that can be borrowed and outstanding under the revolving loan reduces ineight quarterly reductions of approximately $6.9 million beginning withDecember 2005.

 

In the event OperatingCompany voluntarily prepays any of the term loan B prior to March 1, 2003, itis required to pay a prepayment premium of 1% of the principal amount thenbeing repaid. After March 1, 2003, Operating Company’s voluntary prepayment ofthe term loan B will not be subject to a prepayment premium.

 

Operating Company mayborrow funds as either a base rate loan with an interest rate of prime plus2.00% for the revolving loan and term loan A and prime plus 2.50% for term loanB or a Eurodollar Loan with an interest rate of the London Interbank OfferedRate, commonly referred to as LIBOR, plus 4.25% for the revolving loan and termloan B and plus 3.25% for term loan A. In addition, an unused credit facility fee ranging from 0.75% to 1.375%will be charged quarterly on the average unused portion of the facility. Inconjunction with the closing of the credit facility in April 2000 and theincrease in the facility in March 2001, the Company incurred financing fees ofapproximately $9.9 million which are being amortized over the term of the creditfacility. In conjunction with the amendment of the credit facility in July2002, the Company incurred financing fees of approximately $1.3 million.

 

In August 2001, theCompany paid $69.6 million to the Rural Telephone Finance Cooperative to retireVIA Wireless’ outstanding senior credit facility and paid $5.8 million to theFederal Communications Commission in repayment of the outstanding notes of VIAWireless for the purchase of its FCC licenses for Fresno, Merced, Modesto, Stockton and Visalia, California, Johnstown,Pennsylvania, and Ada, Oklahoma.

 

VIA Wireless had amortgage in the amount of $3.9 million on the date of acquisition.  The mortgage relates to a building and landthat were purchased by VIA Wireless and had a balance of approximately $3.7million at June 30, 2002. Themortgage carries a fixed interest rate of 6.99% and is payable in monthlyinstallments of approximately $37,000. The mortgage is due to be repaid in full by April 2015.

 

OnJuly 17, 2002, the Company entered into an amendment to its senior creditagreement.  The amendment primarilyadjusted certain financial covenants, provided for new financial covenantsregarding minimum cash balances and minimum consolidated EBITDA (each as definedin the credit facility), and imposed additional conditions on the availabilityof drawings under the $55.0 million revolving line of credit. Beginningwith the three months ending 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 June 30, 2002, the Company believes it is incompliance with all financial and operational covenants associated with itssenior credit facility and senior subordinated discount notes.

 

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**6.             WHOLLY-OWNEDOPERATING SUBSIDIARY**

 

On April 11, 2000,Operating Company issued 14% senior subordinated discount notes (the “Notes”)with a maturity value of $300.0 million and warrants to purchase 3,579,000shares of common stock of UbiquiTel at an exercise price of $11.37 per shareunder Section 4(2) of the Securities Act of 1933.  In August 2000, the Notes and warrants were registered with theSecurities and Exchange Commission.  TheNotes were issued at a discount and generated approximately $152.3 million ingross proceeds.  The value assigned fromthe proceeds 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. The Noteshave a ten-year maturity and will accrete in value until April 15, 2005 atan interest rate of 14%.  Interest willbecome payable semiannually beginning on October 15, 2005.  Up to 35% of the Notes may be redeemable onor prior to April 15, 2003 from net proceeds of one or more public equityofferings, other than UbiquiTel’s initial public offering in June 2000.  Any remaining Notes will be redeemable on orafter April 15, 2005.

 

Theindenture governing the Notes contains customary covenants, including covenantslimiting indebtedness, dividends and distributions on, and redemptions andrepurchases of, capital stock and other similar payments, the

acquisition and disposition of assets, andtransactions with affiliates or related persons.  The indenture governing the Notes provides for customary eventsof default, including cross defaults, judgment defaults and events ofbankruptcy.

 

UbiquiTel has fully andunconditionally guaranteed Operating Company’s obligations under the Notes.UbiquiTel has no operations separate from its investment in Operating Company.

 

**7.             ACQUISITIONOF VIA WIRELESS LLC**

 

On February 22, 2001, UbiquiTelentered into a merger agreement for the acquisition of VIA Wireless, aprivately-held PCS affiliate of Sprint. Upon the closing of the merger agreement, as amended and restated, onAugust 13, 2001, VIA Wireless became a wholly owned subsidiary of UbiquiTelthrough a series of mergers and related transactions.  In the transaction, shareholders of the members of VIA Wirelessand certain employees of VIA Wireless received in the aggregate 16,400,000shares of UbiquiTel’s common stock valued at approximately $122.0 million, andUbiquiTel assumed approximately $80.1 million of debt and incurred transactioncosts of approximately $11.0 million. The total purchase price and transactioncosts were approximately $213.1 million. On October 17, 2001, UbiquiTel soldthe VIA Wireless California PCS licenses for $50.0 million in cash, resultingin net debt assumed in the acquisition of $30.1 million.  VIA Wireless was the exclusive provider ofSprint PCS digital wireless services to the central valley of California.  The acquisition has been accounted for as apurchase and accordingly the operating results of VIA Wireless and itssubsidiary have been included in the statement of operations from the date ofacquisition.

 

UbiquiTelhas obtained an independent valuation of certain assets of VIA Wireless toallocate the purchase price.  The resultof the valuation is as follows (in thousands):

 

| Net tangible assets             |   | $      | 68,480  |   |
|---------------------------------|--------|--------|---------|--------|
| Sprint PCS management agreement |   | 79,121 |    |
| Subscriber base acquired        |   | 13,950 |    |
| California PCS licenses         |   | 50,000 |    |
|                            |   | $      | 211,551 |   |

 

As a result of theacquisition, the Company allocated a portion of the purchase to goodwill in theamount of $27.9 million.  Because theCompany has adopted SFAS No. 142, this goodwill is not subject to amortization.  The subscriber base acquired was initiallybeing amortized over 36 months, which represented the estimated average life

 

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of a subscriber in thatmarket.  Effective April 1, 2002,however, the Company changed the amortization period to 20 months as a resultof an updated estimate of average subscriber life resulting from highercustomer turnover in this market.  TheSprint PCS management agreement is being amortized over 18 years, whichapproximates the remaining life of the initial term of the Sprint PCS agreementcovering the VIA Wireless service area.

 

Theunaudited pro forma financial information below presents the results ofoperations as if the acquisition had occurred as of January 1, 2001 and is not necessarilyindicative of future results or actual results that would have been achievedhad the acquisition occurred at January 1, 2001.

 

|                                         |   | **Three  Months Ended  June 30, 2001**     |   | **Six  Months Ended  June 30, 2001** |   |
|----------------------------------------------|--------|--------------------------------------------|--------|--------------------------------------|--------|
|                                         |   | **(In  thousands, except per share data)** |   |
| Total revenues                               |   | $                                          | 22,128 |                                 | $      | 38,544 |   |
| Operating loss                               |   | (22,368                                    | )      | (37,545                              | )      |
| Net loss                                     |   | (29,285                                    | )      | (48,885                              | )      |
| Net loss per common share, basic and diluted |   | $                                          | (0.36  | )                                    | $      | (0.61 | ) |

 

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**ITEM 2****.  Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

**Forward-Looking Statements**

 

This Quarterly Report onForm 10-Q includes forward-looking statements that involve known and unknownrisks, uncertainties and other factors. Our actual results could differ materially from the results anticipatedin these forward-looking statements.  Investors are referred to the documents filed by UbiquiTel with theSecurities and Exchange Commission, specifically the most recent filings whichidentify important risk factors that could cause actual results to differ fromthose contained in the forward-looking statements, including, but not limitedto:

 

•              UbiquiTel’s dependence on itsaffiliation with Sprint PCS;

 

•              the competitiveness of and changesin Sprint’s pricing plans, products and services;

 

•           Sprint PCS’ creditpolicies;

 

•              customer quality;

 

•              increasedcompetition in UbiquiTel’s markets;

 

•              thepotential to experience a high rate of customer turnover;

 

•              changes in Sprint’s fee structurewith UbiquiTel;

 

•              the ability of Sprint PCS toprovide back office, customer care and other services;

 

•              anticipated future losses;

 

•              adequacy of bad debt and otherreserves;

 

•              UbiquiTel’sdebt level;

 

•              rates of penetration in thewireless industry;

 

•              UbiquiTel’s ability to manageanticipated growth and rapid expansion;

 

•              changes in population;

 

•              changes or advances in technology;and

 

•              general economic and businessconditions.

 

These and otherapplicable risks are described under the caption “Business3⁄4RiskFactors” and elsewhere in UbiquiTel’s Annual Report on Form 10-K for the fiscalyear ended December 31, 2001 filed with the Securities and Exchange Commission,and under the caption “Liquidity and Capital Resources3⁄4FactorsThat May Affect Liquidity and Operating Results” and elsewhere in this Item 2.

 

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### ** **

### **Overview**

 

In October 1998, a limited liability companywhose sole member was The Walter Group, entered into a management agreementwith Sprint PCS whereby it became the PCS affiliate of Sprint with theexclusive right to provide 100% digital, 100% PCS services under the Sprint andSprint PCS brand names in the Reno/Tahoe market. The limited liability companysubsequently changed its name to UbiquiTel L.L.C. In November 1999,UbiquiTel L.L.C. assigned the management and related agreements toUbiquiTel Inc. UbiquiTel L.L.C. had no operations or financialtransactions prior to the assignment of these agreements to UbiquiTel. InDecember 1999, we expanded our management agreement with Sprint PCS toinclude additional markets in the western and midwestern United States formarkets under the agreement with a total of 7.7 million residents.

 

Until June 30, 2000, we were a development stagecompany with very limited operations and revenues, significant losses andsubstantial capital requirements. In 2000, Operating Company entered into a$250.0 million senior credit facility in March and sold 300,000 units inApril consisting of senior subordinated discount notes and warrants to purchasean aggregate of 3,579,000 shares of UbiquiTel common stock for gross proceedsof approximately $152.3 million. Additionally, we acquired Sprint PCS’Spokane, Washington PCS network and related assets for $35.5 million incash in April 2000. We completed our initial public offering of common stock in2000 in which we sold 12,500,000 shares in June and an additional 780,000shares upon exercise of a portion of the underwriters’ overallotment option inJuly for gross proceeds of approximately $106.2 million. In November 2000,we launched our Reno/Tahoe market and in December 2000, we launched ournorthern Utah market.

 

During the first half of 2001, we launched ourremaining markets with deployment dates in 2001, including northern California,Nevada, southern Idaho, southern Utah, southern Indiana and Kentucky. InFebruary 2001, we entered into a merger agreement to acquire another PCSaffiliate of Sprint, VIA Wireless LLC, the exclusive Sprint PCS provider to thecentral valley of California market. We completed the mergers and relatedtransactions in August 2001, issuing 16.4 million shares of common stock to theformer VIA Wireless owners, assuming approximately $80.1 of debt and incurringtransaction costs of approximately $11.0 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 senior credit facilityto increase our borrowing availability to $300.0 million and amended our SprintPCS management agreement to include the central valley of California marketwith a total of 3.4 million residents, bringing our licensed residentpopulation under the agreement to approximately 11.1 million.

 

As of June 30, 2002, we had approximately 217,800subscribers. As of June 30, 2002, our network covered approximately 7.4 millionresidents which represents approximately 67% of the licensed population in ourmarkets.

 

From our inception on September 29, 1999 throughJune 30, 2002, we have incurred losses of approximately $222.9 million. Weexpect to continue to incur significant operating losses and to generatesignificant negative cash flow from operating activities through at least 2003while we continue to build our customer base and construct our PCS network.Through June 30, 2002, we incurred approximately $239.8 million of capitalexpenditures, exclusive of approximately $79.6 million worth of networkequipment acquired as part of the Spokane market and VIA Wireless purchases.

 

As a PCS affiliate of Sprint, we do not own thelicenses to operate our network and instead pay Sprint PCS for the use of itslicenses. Under our management agreement with Sprint PCS, Sprint PCS isentitled to receive 8.0% of all collected revenue from Sprint PCS subscribersbased in our markets and fees from wireless service providers other than SprintPCS when their subscribers roam into our network. We are entitled to 100% ofrevenues collected from the sale of handsets and accessories from our storesand on roaming revenues received when Sprint PCS customers from a differentterritory make a wireless call on our PCS network. Because we are dependent onSprint to provide us certain revenue and expense information through thesettlement and invoicing processes under the

 

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management agreement and services agreement discussed below, we rely onSprint for the accuracy and timeliness of the information.  We are responsible for building, owning andmanaging the portion of the Sprint PCS network located in our markets under theSprint and Sprint PCS brand names. Sprint PCS invested approximately$90.0 million for the PCS licenses in our markets and incurred additionalexpenses for microwave clearing. Our results of operations are dependent onSprint PCS’ network and, to a lesser extent, on the networks of otheraffiliates of Sprint PCS.

 

As a PCS affiliate of Sprint, we purchase a full suiteof support services from Sprint PCS. We have access to these services duringthe term of our management agreement unless Sprint PCS provides us at leastnine months’ advance notice of its intention to terminate any particularservice. We are purchasing customer billing and collections, customer care,subscriber activation including credit verification, handset logistics, networkoperations control center monitoring, national platform interconnectivity,voice mail, directory assistance and operator services, long distance androaming clearinghouse services. If Sprint PCS significantly increases theamount it charges us for any of these services, our operating expenses willincrease and our operating income, earnings before interest, taxes,depreciation, amortization and non-cash compensation (EBITDA) and availablecash would be reduced.  If Sprint PCSterminates any of these services, our operations may be interrupted orrestricted.

 

**Critical Accounting Policies**

 

We rely on the use of estimates and make assumptions thatimpact our financial condition and results. These estimates and assumptions arebased on historical results and trends as well as our forecasts as to how thesemight change in the future. Some of the most critical accounting policies thatmight materially impact our results include:

 

***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. In May 2001, the deposit requirement waseliminated on certain, but not all, credit classes (“NDASL”). As a result, asignificant amount of our new customer additions have been under the NDASLprogram. The NDASL program has been replaced by the “Clear Pay Program,” whichre-instated the deposit requirement for the lowest credit class and featuredincreased back-office controls with respect to credit collection efforts. Were-implemented deposit requirements for all new sub-prime subscribers on theClear Pay program in late February 2002 and we believe that this policy willreduce our future bad debt exposure. If these estimates are insufficient forany reason, our operating income, EBITDA 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 a percentage of secondgeneration handsets and accessories. With the migration to a third generation (“1XRTT”) network, we will needto continue to monitor the depletion of our current inventory levels.  If we do not deplete the inventory that isnot capable of providing third generation services prior to our completerollout of 1XRTT, we may have to increase our reserve for any remainingobsolete or excess inventory due to lower realizable retail prices on thosehandsets.  If the estimate of obsolete inventoryis understated, operating income and EBITDA would be reduced.

 

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***Revenue Recognition:***

 

We record equipment revenue for the sale of handsetsand accessories to customers in our retail stores. We do not record equipmentrevenue on handsets and accessories purchased by our customers from nationalthird party retailers such as Radio Shack, Best Buy and Circuit City, ordirectly from Sprint PCS. Our customers pay an activation fee when theyinitiate service. We defer this activation fee along with related activationexpenses and record activation fee revenue and activation expense over theaverage life of our customers, which we estimate to be 30 months. We estimatethe average life of customers based on our historical monthly rate of customerturnover expressed as the percentage of customers of the beginning customerbase that both voluntarily and involuntarily disconnected service during themonth. We recognize service revenue from our customers as they use the service.Additionally, we provide a reduction of recorded revenue for billingadjustments and billing corrections.

 

***Goodwill and Intangible Assets:***

 

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 Wirelessoperates and the California PCS licenses subsequently sold to VoiceStreamWireless. For the subscriber base a useful life of 20 months has been assignedeffective April 1, 2002.  For the periodfrom the date of acquisition (August 13, 2001) to March 31, 2002, thesubscriber base was amortized using a useful life of 36 months.   For the right to provide service under theSprint PCS management agreement, a useful life of 18 years has been assigned.In April 2000, we acquired the Spokane, Washington market from Sprint PCS.  Included in the asset valuation for this purchasewas the Sprint PCS customer base for this market.  For the subscriber base a useful life of 33 months has beenassigned effective April 1, 2002.  Forthe period from the date of acquisition in April 2000 to March 31, 2002, thesubscriber base was amortized using a useful life of 60 months. Each intangibleasset will be amortized over its respective useful life.

 

Effective January 1, 2002, we adopted Statement ofFinancial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other IntangibleAssets” (“SFAS No. 142”), which requires that goodwill and certain intangibleassets resulting from business combinations entered into prior to June 30, 2001no longer be amortized, but instead be reviewed for recoverability. Anywrite-down of goodwill would be charged to results of operations as acumulative change in accounting principle upon adoption of the new accountingstandard if the recorded value of goodwill and certain intangibles exceeds itsfair value.   The adoption of SFAS No.142 will reduce the amortization of goodwill by approximately $0.6 million forthe twelve months ending December 31, 2002; however, recoverability reviews mayresult in periodic write-downs subsequent to the date of adoption. We willassess on an annual basis the fair values of the reporting units housing thegoodwill and intangibles and, if necessary, assess on an interim basis for anyimpairments.  Any write-offs wouldresult in a charge to earnings and a reduction in equity in the period taken.

 

**New Accounting Pronouncements**

 

In August 2001, the Financial Accounting StandardsBoard (“FASB”) issued SFAS No. 144, “Accounting for the Impairment or Disposalof Long-Lived Assets” (“SFAS No. 144”). This Statement supersedes SFAS No. 121, “Accounting for the Impairmentof Long-Lived Assets and For Long-Lived Assets to be Disposed Of” (“SFAS No.121”), and the accounting and reporting provisions of Accounting PrinciplesBoard (“APB”) Opinion No. 30, “Reporting the Effects of Disposal of a Segmentof a Business, and Extraordinary, Unusual and Infrequently Occurring Events andTransactions” (“APB No. 30”). However, certain provisions of  SFAS No. 121 and APB No. 30 have beenmaintained.  We adopted SFAS No. 144 effectiveJanuary 1, 2002.  The adoption did nothave a

 

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material effect on our results of operations, financial position orcash flows.

 

In June 2001, the FASB issued SFAS No. 143,  “Accounting for Asset RetirementObligations” (“SFAS No. 143”).  ThisStatement establishes common accounting practices relating to legal obligationsassociated with the retirement of tangible long-lived assets that result fromthe acquisition, construction, development or normal operation of a long-livedasset.  We will adopt SFAS No. 143 onJanuary 1, 2003.  The adoption is notexpected to have a material effect on our results of operations, financialposition or cash flows.

 

In June 2001, the FASB issued SFAS No. 141, “BusinessCombinations” (“SFAS No. 141”), and, as described above, SFAS No. 142.  SFAS No. 141 requires all businesscombinations initiated after June 30, 2001 to be accounted for using thepurchase method of accounting.

 

**Resultsof Operations**

 

***Analysis of the three months ended June 30, 2002 compared tothe three months ended June 30, 2001***

 

On August 13, 2001, we acquired another PCS affiliateof Sprint, VIA Wireless LLC, the exclusive Sprint PCS provider to the centralvalley of California market.  Thetransaction was accounted for as a purchase and accordingly the operatingresults of VIA Wireless have been included in the statement of operations fromthe date of acquisition.  We addedapproximately 50,500 subscribers as a result of the acquisition.

 

Terms such as customer additions, churn, averagerevenue per user and cost per gross addition are metrics used in the wirelesscommunications industry.  None of theseterms are measures of financial performance under generally accepted accountingprinciples in the United States.

 

***Customer Additions***

 

As of June 30, 2002, we provided personal communicationsservices to approximately 217,800 customers compared to approximately 41,600customers as of June 30, 2001.  Duringthe three months ended June 30, 2002, we added 15,700 net additions compared to19,700 net additions for the prior period. The decrease in net customers acquired was primarily due to an increasein the monthly rate of customer turnover, offset by an increase in grosscustomer additions.

 

***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 month.  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 June 30, 2002 was approximately 4.1%,compared to 2.8% for the three months ended June 30, 2001.  The increase in churn was primarily theresult of an increase in the amount of sub-prime credit quality customers weadded whose service was involuntarily discontinued during the period andcustomers acquired from VIA Wireless in August 2001.

 

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

 

An important operating metric in the wireless industryis average revenue per user (ARPU). ARPU summarizes the average monthly servicerevenue per customer, excluding roaming revenue. ARPU is computed by dividingsubscriber revenue by the average subscribers for the period. During the threemonths ended June 30, 2002 and 2001, our ARPU was approximately $58 and $56,respectively. The increase in ARPU primarily resulted from customers selectingrate plans with higher monthly recurring charges.

 

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

 

Cost per gross addition (CPGA) summarizes the averagecost to acquire new customers during the period. CPGA is computed by adding theincome statement components of selling and marketing and the cost of equipment,and reducing that amount by the equipment revenue recorded.  That net amount is then divided by the grosscustomers acquired during the period. CPGA was $456 for the three months ended June 30, 2002 compared to $421for the three months ended June 30, 2001. The increase in CPGA primarilyresulted from an increase in our commission payments for prime credit classcustomers, an increase in handset subsidies and handset upgrade costs that wererecorded during the three months ended June 30, 2002.

 

***Revenues***

 

•      *SubscriberRevenue*.  Subscriber revenueduring the three months ended June 30, 2002 and 2001 was approximately $36.5million and $4.9 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 Sprint PCS subscribers based in our markets andcancellation fees less reductions for billing adjustments and billingcorrections.  Our customers’ charges aredependent on their rate plans, based on the number of minutes included in theirplans. These plans generally reflect the terms of national plans offered bySprint PCS. The increase in subscriber revenue was primarily attributable tothe increase in our subscriber base for the three months ended June 30, 2002 ascompared to the three months ended June 30, 2001.

 

•      *Sprint PCSTravel Revenue*.  Sprint PCStravel revenue is generated on a per-minute rate when a Sprint PCS subscriberbased outside our markets uses our portion of the Sprint PCS network.  On April 27, 2001, Sprint PCS announced ithad reached an agreement in principle with certain Sprint PCS affiliates,including UbiquiTel, to reduce the reciprocal travel rate exchanged betweenSprint PCS and the affiliates.  The ratewas reduced from $0.20 per minute of use to $0.15 per minute beginning June 1,2001, and further reduced to $0.12 per minute beginning October 1, 2001.  The travel rate for 2002 is $0.10 perminute. For calendar year 2003 and beyond, the details of the agreement havenot yet been finalized. We expect that the reciprocal travel rate for 2003 willbe significantly less than the rate charged in 2002 and could be reduced infuture years.

 

During the threemonths ended June 30, 2002, we captured approximately 110.4 million systemtravel minutes generating approximately $14.2 million in travel revenue. Duringthe three months ended June 30, 2001, we captured approximately 19.6 millionsystem travel minutes generating approximately $4.3 million in travel revenuefrom markets where we had launched operations. The increase in Sprint PCS travel revenue was due to the increase intravel minutes of use from the prior period, offset by the decrease in thereciprocal Sprint PCS travel rate noted above. The increase in travel minutes of use represented $20.0 million oftravel revenue, and the decrease in the reciprocal Sprint PCS travel raterepresented a $10.1 million reduction of travel revenue.

 

•      *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 $1.1 million innon-Sprint PCS roaming revenue during the three months ended June 30, 2002compared to approximately $0.2 million during the three months ended June 30,2001.  The increase in non-Sprint PCSroaming revenue was attributable to an increase in non-Sprint PCS roamingminutes from 0.4 million during the three months ended June 30, 2001 to 5.3million during the three months ended June 30, 2002 resulting from thesignificant expansion of our network build-out, offset by a decrease in theaverage non-Sprint PCS roaming revenue rate we receive from other carriers.

 

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•      *ProductSales Revenue*.  Product salesrevenue is generated from the sale of handsets and accessories through ourretail stores. We record and retain 100% of the revenue from the sale ofhandsets and accessories, net of sales incentives and returns, as product salesrevenue.  The amounts recorded duringthe three months ended June 30, 2002 and 2001 for product sales totaledapproximately $1.5 million and $1.7 million, respectively, and the decrease wasprimarily due to an increase in equipment promotions and discounts, which werecorded as a reduction in product sales revenue, in order to acquire morecustomers during the three months ended June 30, 2002.

 

***Cost of Service and Operations***

 

•      *NetworkOperations Expenses*. Expenses totaling approximately $17.6 million were incurred during thethree months ended June 30, 2002 related to network operations which includedradio communications site lease costs, utilities, network control maintenance,network control site leases, engineering personnel, transport facilities andinterconnect charges as compared to approximately $7.5 million during the threemonths ended June 30, 2001.  Theincrease in network operations expenses was attributable to the significantexpansion of our network build-out and a one-time charge of $0.7 million duringthe three months ended June 30, 2002 to fully reserve our potential exposure inconnection with the uncertainty created by the recent Federal CommunicationsCommission decision regarding the ability of wireless carriers to collectaccess charges from long distance carriers for terminating calls on theirnetworks. The $0.7 million charge recorded to network operations expense isconsistent with the historical recording of terminating access fees withinoperations expenses along with other network-related settlements handled bySprint. As of June 30, 2002, our network supported approximately 217,800customers, 805 active cell sites and 5 switches. As of June 30, 2001, thenetwork supported 41,600 customers, 453 active cell sites and 4 switches.

 

•      *Roaming andTravel Expenses. *We paySprint PCS travel fees on a per-minute rate when our customers use the SprintPCS network outside our markets.  We payroaming fees to other wireless providers when our customers use their network.During the three months ended June 30, 2002, our customers generatedapproximately 57.6 million roaming and travel minutes resulting inapproximately $7.1 million in roaming and travel fees. During the three monthsended June 30, 2001, our customers generated approximately 5.9 million roamingand travel minutes resulting in approximately $1.5 million of roaming andtravel fees. The increase in minutes was attributable to the substantialincrease in our customer base.  Asdiscussed above, the per minute rate we pay Sprint PCS when customers from ourmarkets roam onto Sprint PCS’ or another affiliate’s network decreased during2001 and again for 2002. We expect the increase in travel fees resulting fromincreasing subscriber levels in our markets to be partially offset by the lowerper minute travel and long distance rates paid to Sprint PCS.  The increase in roaming and travel expensewas attributable to the increase in roaming and travel minutes of use fromapproximately 5.9 million during the three months ended June 30, 2001 toapproximately 57.6 million during the three months ended June 30, 2002, whichaccounted for $13.0 million in additional expense, offset by a positivevariance of $7.4 million resulting from the changes in the reciprocal ratereceived from Sprint PCS.

 

•      *Bad Debt Expense.*  Bad debt expense during the three monthsended June 30, 2002 and 2001 was approximately $7.3 million and $0.1 million,respectively.  The increase in bad debtexpense was primarily attributable to the no deposit Clear Pay program that wasin effect from May 2001 through late February 2002 and customers acquired fromVIA Wireless in August 2001.

 

•      *Operating Expenses. *Operating expenses during the three months ended June 30,2002 and 2001 were approximately $4.4 million and $0.9 million, respectively.Operating expenses included fees we paid to Sprint PCS for the use of theirsupport services, including billing and collections services and customer care.The increase in operating expenses was primarily attributable to the increasein our subscriber base.

 

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***Cost of Products Sold***

 

The cost ofproducts sold included the costs of handsets and accessories and totaledapproximately $7.1 million and $3.9 million during the three months ended June30, 2002 and 2001, respectively.  Thecost of handsets exceeds the retail sales price because we subsidize the costof handsets, consistent with industry practice. The increase in cost ofproducts sold was primarily attributable to the increase in gross customeradditions. Handset subsidies on units sold by third parties totaledapproximately $2.4 million and $1.3 million for the three months ended June 30,2002 and 2001, 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 $13.0million and $7.1 million during the three months ended June 30, 2002 and 2001,respectively.  The increase in sellingand marketing expenses was primarily attributable to an increase in grosscustomer additions.

 

***General and Administrative***

 

We incurredgeneral and administrative expenses (excluding non-cash expenses) totalingapproximately $6.5 million and $3.0 million during the three months ended June30, 2002 and 2001, respectively. General and administrative expenses included approximately $2.6 millionand $0.4 million of management fee expense (defined as 8% of collectedrevenues) paid to Sprint PCS during the three months ended June 30, 2002 and2001, respectively. The increase in general and administrative expenses wasprimarily attributable to increased compensation and benefits related to thegrowth in the number of employees and the increase in management fee expenseattributable to the increase in our subscriber base.

 

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

 

During the threemonths ended June 30, 2002 and 2001, non-cash compensation for general andadministrative matters totaled approximately $0.1 million and $0.1 million,respectively.  We apply the provisionsof APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and relatedinterpretations in accounting for our equity incentive plan.  Unearned stock option compensation isrecorded for the difference between the exercise price and the fair marketvalue of our stock at the date of grant and is recognized as non-cash stockoption compensation expense in the period in which the related services arerendered.

 

***Depreciation and Amortization***

 

Depreciation andamortization expense for the three months ended June 30, 2002 and 2001 totaledapproximately $13.4 million and $4.2 million, respectively.  We depreciate our property and equipmentusing the straight–line method over five 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 20 years.  The increase indepreciation and amortization expense was primarily due to the expansion of ournetwork build-out, depreciation expense resulting from the tangible assetsassociated with the VIA Wireless acquisition in August 2001, and increasedamortization from the subscriber base and Sprint PCS management agreementresulting from the VIA Wireless acquisition.

 

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***Interest Income***

 

For the threemonths ended June 30, 2002 and 2001, interest income was approximately $0.5million and $2.9 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 June 30, 2002 than during the three months ended June 30, 2001.

 

***Interest Expense***

 

Interest expensetotaled approximately $11.4 million during the three months ended June 30,2002. We accrue interest at a rate of 14% per annum on our senior subordinateddiscount notes through April 15, 2005 and will pay interest semiannuallyin cash thereafter.  Interest on oursenior credit facility was accrued at the London interbank offered rate, basedon contracts ranging from 30 to 180 days. During the three months ended June30, 2001, interest expense was approximately $10.0 million. The increase ininterest expense was primarily due to higher debt levels during the threemonths ended June 30, 2002 than during the three months ended June 30, 2001.

 

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

 

***Net Loss***

 

For the threemonths ended June 30, 2002 and 2001, our net loss was approximately $34.0million and $24.1 million, respectively.

 

***Analysis of the sixmonths ended June 30, 2002 compared to the six months ended June 30, 2001***

 

***Customer Additions***

 

During the six months ended June 30, 2002, we added38,800 net additions compared to 25,000 net additions for the priorperiod.  The increase in net customersacquired was primarily due to increasing our network coverage (covered POPs)from 3.6 million at June 30, 2001 to approximately 7.4 million at June 30,2002.

 

***Churn***

 

Churn for the sixmonths ended June 30, 2002 was approximately 4.2%, compared to 2.8% for the sixmonths ended June 30, 2001.  Theincrease in churn was primarily the result of an increase in the amount ofsub-prime credit quality customers we added whose service was involuntarilydiscontinued during the period and customers acquired from VIA Wireless inAugust 2001.

 

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

 

During the sixmonths ended June 30, 2002 and 2001, our ARPU was approximately $58 and $55,respectively. The increase in ARPU primarily resulted from customers selectingrate plans with higher monthly recurring charges.

 

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

 

CPGA was $433 forthe six months ended June 30, 2002 compared to $463 for the six months endedJune 30, 2001. The decrease in CPGA primarily resulted from the increase ingross customer additions for the six months ended June 30, 2002 compared to thesix months ended June 30, 2001, which reduced fixed costs on a per add basis.

 

***Revenues***

 

•      *SubscriberRevenue*.  Subscriber revenueduring the six months ended June 30, 2002 and 2001 was approximately $70.0million and $7.9 million, respectively. The increase in subscriber revenue wasprimarily attributable to the increase in our subscriber base for the sixmonths ended June 30, 2002 as compared to the six months ended June 30, 2001.

 

•      *Sprint PCSTravel Revenue*.  During thesix months ended June 30, 2002, we captured approximately 200.9 million systemtravel minutes generating approximately $23.7 million in travel revenue. Duringthe six months ended June 30, 2001, we captured approximately 33.0 millionsystem travel minutes generating approximately $7.0 million in travel revenuefrom markets where we had launched operations. The increase in Sprint PCS travel revenue was due to the increase intravel minutes of use from the prior period, offset by the decrease in thereciprocal Sprint PCS travel rate.  Theincrease in travel minutes of use represented $35.4 million of travel revenue,and the decrease in the reciprocal Sprint PCS travel rate represented a $18.7million reduction of travel revenue.

 

•      *Non-SprintPCS Roaming Revenue*.    Weearned approximately $1.7 million in non-Sprint PCS roaming revenue during thesix months ended June 30, 2002 compared to approximately $0.3 million duringthe six months ended June 30, 2001.  Theincrease in non-Sprint PCS roaming revenue was attributable to an increase innon-Sprint PCS roaming minutes from 0.8 million during the six months endedJune 30, 2001 to 7.0 million during the six months ended June 30, 2002resulting from the significant expansion of our network build-out, offset by adecrease in the average non-Sprint PCS roaming revenue rate we receive fromother carriers.

 

•      *ProductSales Revenue*.  The amountsrecorded during the six months ended June 30, 2002 and 2001 for product salestotaled approximately $3.5 million and $1.9 million, respectively, and theincrease was primarily due to an increase in gross additions, offset by anincrease in equipment promotions and discounts, which we record as a reductionin product sales revenue, in order to acquire more customers during the sixmonths ended June 30, 2002.

 

***Cost of Service and Operations***

 

•      *NetworkOperations Expenses*.  Networkoperations expenses during the six months ended June 30, 2002 and 2001 wereapproximately $31.2 million and $12.6 million, respectively.  The increase in network operations expenseswas attributable to the significant expansion of our network build-out and aone-time charge of $0.7 million during the three months ended June 30, 2002 tofully reserve our potential exposure in connection with the uncertainty createdby the recent FCC decision regarding the ability of wireless carriers tocollect access charges from long distance carriers for terminating calls ontheir networks.  As of June 30, 2002,our network supported approximately 217,800 customers, 805 active cell sitesand 5 switches.  As of June 30, 2001,the network supported 41,600 customers, 453 active cell sites and 4 switches.

 

•      *Roaming andTravel Expenses. *During thesix months ended June 30, 2002, our customers generated approximately 102.9million roaming and travel minutes resulting in approximately $12.6 million inroaming and travel fees. During the six months ended June 30, 2001, ourcustomers generated approximately 10.2

 

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million roamingand travel minutes resulting in approximately $2.5 million of roaming andtravel fees. The increase in minutes was attributable to the substantialincrease in our customer base.  Theincrease in roaming and travel expense was attributable to the increase inroaming and travel minutes of use from 10.2 million during the six months endedJune 30, 2001 to 102.9 million during the six months ended June 30, 2002, whichaccounted for $23.1 million in additional expense, offset by a positivevariance of $13.0 million resulting from the changes in the reciprocal ratereceived from Sprint PCS.

 

•      *Bad Debt Expense.*  Bad debt expense during the six months endedJune 30, 2002 and 2001 was approximately $13.7 million and $0.2 million,respectively.  The increase in bad debtexpense was primarily attributable to the no deposit Clear Pay program that wasin effect from May 2001 through late February 2002 and customers acquired fromVIA Wireless in August 2001.

 

•      *Operating Expenses. *Operating expenses during the six months ended June 30, 2002and 2001 were approximately $8.5 million and $1.4 million, respectively.Operating expenses included fees we paid to Sprint PCS for the use of theirsupport services, including billing and collections services and customer care.The increase in operating expenses was primarily attributable to the increasein our subscriber base.

 

***Cost of Products Sold***

 

The cost ofproducts sold included the costs of handsets and accessories and totaledapproximately $15.9 million and $4.9 million during the six months ended June30, 2002 and 2001, respectively.  Theincrease in cost of products sold was primarily attributable to the increase inour subscriber base and inventory reserves of approximately $1.2 million thatwere recorded during the three months ended March 31, 2002. Handset subsidieson units sold by third parties totaled approximately $5.2 million and $1.6million for the six months ended June 30, 2002 and 2001, respectively.

 

***Selling and Marketing***

 

We incurred expenses of approximately $25.8 millionand $10.4 million during the six months ended June 30, 2002 and 2001,respectively.  The increase in sellingand marketing expenses was primarily attributable to an increase in grosscustomer additions.

 

***General and Administrative***

 

We incurredgeneral and administrative expenses (excluding non-cash expenses) totalingapproximately $12.6 million and $6.0 million during the six months ended June30, 2002 and 2001, respectively. General and administrative expenses included approximately $4.8 millionand $0.6 million of management fee expense (defined as 8% of collected revenues)paid to Sprint PCS during the six months ended June 30, 2002 and 2001,respectively. The increase in general and administrative expenses was primarilyattributable to increased compensation and benefits related to the growth inthe number of employees and the increase in management fee expense attributableto the increase in our subscriber base.

 

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

 

During the six months ended June 30, 2002 and 2001,non-cash compensation for general and administrative matters totaledapproximately $0.2 million and $0.2 million, respectively.  We apply the provisions of APB No. 25,“Accounting for Stock Issued to Employees,” and related interpretations inaccounting for our equity incentive plan. Unearned stock option compensation is recorded for the differencebetween the exercise price and the fair market value of our stock at the dateof grant and is recognized as non-cash stock option compensation expense in theperiod in which the related services are rendered.

 

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***Depreciation and Amortization***

 

Depreciation and amortization expense for the sixmonths ended June 30, 2002 and 2001 totaled approximately $23.7 million and$6.4 million, respectively.

 

***Interest Income***

 

For the six monthsended June 30, 2002 and 2001, interest income was approximately $1.0 millionand $6.5 million, respectively.  Theinterest income was generated from cash, cash equivalents and restricted cashbalances.  The decrease in interestincome was primarily due to lower levels of cash, cash equivalents andrestricted cash combined with lower interest rates during the six months endedJune 30, 2002 than during the six months ended June 30, 2001.

 

***Interest Expense***

 

Interest expensetotaled approximately $22.3 million during the six months ended June 30, 2002.We accrue interest at a rate of 14% per annum on our senior subordinateddiscount notes through April 15, 2005 and will pay interest semiannuallyin cash thereafter.  Interest on our seniorcredit facility was accrued at the London interbank offered rate, based oncontracts ranging from 30 to 180 days. During the six months ended June 30,2001, interest expense was approximately $17.4 million. The increase ininterest expense was primarily due to higher debt levels during the six monthsended June 30, 2002 than during the six months ended June 30, 2001.

 

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

 

***Net Loss***

 

For the six monthsended June 30, 2002 and 2001, our net loss was approximately $66.6 million and$38.2 million, respectively.

 

**Liquidity and Capital Resources**

 

From inception to June 30, 2000, the period duringwhich we were a development-stage company, our activities consisted principallyof raising capital, consummating and supporting our agreements with Sprint PCS,developing the initial design of our PCS network and adding to our managementteam. Through June 30, 2002, we have principally relied on the proceeds fromequity and debt financings, and to a lesser extent revenues, as our primarysources of capital. During the three month period ended September 30, 2001, wemoved from a construction and build-out phase to an operational phase.

 

Completion of our PCS network required substantialcapital, of which approximately $239.8 million has been incurred through June30, 2002 and approximately $35.0 million in additional capital expenditures isexpected to be incurred to complete our required network build-out. Our build-outplan included the installation and/or acquisition of five switches and 805radio communications sites by June 30, 2002. As of June 30, 2002, we had 33retail stores in operation in our markets.

 

As of June 30, 2002, we had approximately $108.3 millionin cash, restricted cash and cash equivalents. Working capital was approximately $82.3 million. We believe we havesufficient funds available through cash, investments and future advancementsunder our senior credit facility to fund capital expenditures, including thecompletion of our required build-out, working capital requirements andoperating losses until we expect to be free

 

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cash flow positive in 2004.

 

Net cash used in operating activities wasapproximately $16.6 million and $18.5 million for the six months ended June 30,2002 and 2001, respectively.  Net cashused in operating activities for the six months ended June 30, 2002 and 2001was primarily attributable to the operating loss being partly offset bynon-cash items and cash used for working capital.

 

Net cash used in investing activities wasapproximately $34.6 million and $166.3 million for the six months ended June30, 2002 and 2001, respectively.  Forthe six months ended June 30, 2002, net cash used in investing activities wasprimarily related to capital expenditures. For the six months ended June 30,2001, net cash used in investing activities of approximately $166.3 million wasprimarily related to capital expenditures of approximately $68.4 million, anadvance to VIA Wireless of $13.0 million under the revolving credit and termloan agreement between Operating Company and VIA Wireless, and approximately$4.9 million in fees and expenses relating to the acquisition of VIA Wireless.  Also included in cash used in investingactivities for the prior period was an investment of $80.0 million ofrestricted cash in short-term securities.

 

Net cash provided by financing activities wasapproximately $29.6 million and $79.9 million for the six months ended June 30,2002 and 2001, respectively. The amounts consisted primarily of the fundingsunder our senior credit facility.

 

***Liquidity***

 

At June 30, 2002, we had approximately $108.3 millionof cash, restricted cash and cash equivalents, and  an unused bank revolving line of credit of $55.0 million.  To date, we have used proceeds from our 2000initial public offering of equity, the 2000 senior subordinated discount notes,borrowings from the senior credit facility, and to a lesser extent revenues, tofund capital expenditures, operating losses, working capital and cash interestneeds while 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 the senior credit facility and workingcapital needs. Our projections contain significant assumptions includingprojections for gross new customer additions, ARPU, churn, bad debt expense androaming revenue. We expect to be free cash flow positive in 2004.

 

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

 

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.

 

Since our initial public offering in June 2000,UbiquiTel’s common stock has been listed on the Nasdaq National Market. Werecently received notice from the Nasdaq National Market indicating that as ofJuly 23, 2002 the closing bid price of our common stock had fallen below a$1.00 for 30 consecutive trading days and that we would have 90 calendar days,or until October 21, 2002, to regain compliance with a minimum bid price of$1.00 if the bid price of our common stock closes at $1.00 per share or morefor a minimum of 10 consecutive trading days. Nasdaq further advised us that we may wish to consider transferring thelisting for our common stock to the Nasdaq SmallCap Market where it would beafforded an extended grace period through January 21, 2003 to satisfy theminimum bid price requirement, and may also be eligible for an additional 180day grace period thereafter.  If we wereto transfer the listing for our common stock to the SmallCap Market, it wouldbe eligible to transfer back to the Nasdaq National Market if, by July 18,2003, the closing bid price was $1.00 per share for 30 consecutive trading daysand we have maintained compliance with all other National Market listingrequirements.  We currently meet allcontinued listing requirements for the Nasdaq National Market with theexception of the $1.00 minimum bid price

 

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requirement. We will be evaluating our alternatives if the bid pricerequirement is not met during the 90-day period. If our common stock isdelisted from the Nasdaq National Market, we would be forced to list our commonstock on the Nasdaq SmallCap Market, the OTC Bulletin Board or some otherquotation medium, depending upon our ability to meet the specific listingrequirements of those quotation systems. If this happens, the marketability,liquidity and price of our common stock could be adversely affected.

 

We may not be able to sustain our growth or obtainsufficient revenue to achieve and sustain profitability. We incurred EBITDA(earnings before interest, taxes, depreciation and amortization) losses,excluding non-cash stock option compensation expense of approximately $0.2million, in the six months ended June 30, 2002 of approximately $21.5****million. Our business projections reflectcontinuing growth in our subscriber base and a reduction and eventualelimination of EBITDA losses as the cash flow generated by the growingsubscriber base exceeds costs incurred to acquire new customers. If we acquiremore new customers than we project, the upfront costs to acquire thosecustomers (including the handset subsidy, commissions and promotional expenses)may result in greater EBITDA losses in the near term but higher cash flows inlater periods. Conversely, if there is a slowdown in new subscriber growth inour markets or the wireless industry generally, we may acquire fewer newcustomers, which would result in lower EBITDA losses in the near term but lowercash flows in later periods.

 

We were able to re-instate the deposit requirement fornew sub-prime credit customers in late February 2002 in connection with theSprint PCS Clear Pay program. Sprint PCS made the required program changes toeffect the deposit requirement for sub-prime customers (which was present inall of our distribution channels until May 2001, when Sprint PCS introduced nodeposit account spending limits (NDASL)). The re-instatement of deposits had a significant impact on grosscustomer additions during the last five weeks of the three months ended March31, 2002 and during the three months ended June 30, 2002. While deposits forClear Pay customers provide us with protection against bad debt expense forsub-prime customers, it has and may continue to deter some people withsub-prime credit from becoming subscribers. As a result, our gross additions may decline.  As of June 30, 2002, 39% of our approximate 217,800 subscribershad a credit rating placing them in the sub-prime category.  If the deposit requirement for new sub-primecredit customers continues to deter some potential customers with sub-primecredit from becoming subscribers, we may acquire fewer new customers, whichwould result in lower EBITDA losses in the near term but lower cash flows inlater periods.

 

We expect toreceive a significantly lower roaming rate in 2003 and thereafter. We are paida fee from Sprint PCS for every minute that a Sprint PCS subscriber basedoutside of our markets uses our network; we refer to such fees as travelrevenue. Similarly, we pay a fee to Sprint for every minute that our customersuse the Sprint PCS network outside of our markets; we refer to such fees astravel expense. Under our original agreement with Sprint PCS, Sprint had theright to change the reciprocal travel rate exchanged for customers who roaminto the other party’s or another PCS affiliate’s network. In April 2001, we,along with other PCS affiliates of Sprint, and Sprint PCS reached an agreementin principle to reduce this reciprocal travel rate exchanged between Sprint PCSand us for customers who travel into the other party’s, or another PCSaffiliate’s, markets. The rate was reduced from $0.20 per minute of use to$0.15 per minute of use beginning June 1, 2001, and to $0.12 per minute of usebeginning October 1, 2001. The travel rate for calendar year 2002 is $0.10 perminute. For calendar year 2003 and beyond, the details of the agreement inprinciple have not yet been finalized. We expect that the reciprocal travelrate for 2003 will be significantly less than the rate charged in 2002 andcould be reduced in future years.  Whilea much lower travel rate would significantly reduce the travel revenue wereceive, it would also significantly reduce the travel expense we pay to SprintPCS. The ratio of travel-in minutes to travel-out minutes for the six monthsended June 30, 2002 was two to one. We project that by 2005, the growth in ourcustomer base will result in a ratio of revenue to expense approaching one toone, minimizing the net earnings and EBITDA impact of any substantial reductionin the travel rate.

 

Our ability to borrow funds under our senior creditfacility’s $55.0 million revolving line of credit will be restricted unless ourcash balance (as defined in the credit facility) is less than $25.0 million atthe time of borrowing

 

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and could be terminated due to our failure to maintain or comply withthe restrictive financial and operating covenants contained in the agreementgoverning the senior credit facility as described in Note 5 to the ConsolidatedFinancial Statements. We believe that we are currently in compliance, and willremain in compliance for the foreseeable future, with all financial andoperational covenants relating to the senior credit facility. If we are unableto operate our business within the covenants specified in the senior creditfacility, our ability to obtain future amendments to the covenants in thesenior credit facility is not guaranteed and our ability to make borrowingsunder the revolving line of credit required to operate our business could berestricted or terminated. Such a restriction or termination would have amaterial adverse effect on our liquidity.

 

Variable interest rates may increase substantially. AtJune 30, 2002, we had $245.0 million outstanding under our senior creditfacility. The rate of interest on the facility is presently based on a marginabove the London interbank offered rate (LIBOR). Our weighted average borrowingrate on variable rate borrowings was 5.94% for the six months ended June 30,2002. Increases in a market interest rate substantially above our estimates mayresult in unanticipated cash interest costs.

 

We may not be able to access the credit markets foradditional capital if the liquidity discussed above is insufficient for thecash needs of our business. We frequently evaluate options for additionalfinancings to supplement our liquidity position and maintain maximum financialflexibility. However, if the assumptions used in our projections are incorrect,we may be unable to raise additional capital.

 

***Capital Resources***

 

The senior subordinated discount notes due 2010 willrequire cash payments of interest beginning on October 15, 2005.

 

The $300.0 millionsenior credit facility provides for a $55.0 million revolving loan, a term loanA of $120.0 million and a term loan B of $125.0 million.  The term loans A and B, all of which wereoutstanding as of June 30, 2002, are required to be repaid beginning in June2004 in fourteen and eighteen consecutive quarterly installments,respectively.  The revolving loan andterm loan A will mature in October 2007 and the term loan B will mature inOctober 2008.  The commitment fee onunused borrowings is 1.375%, payable quarterly. Our obligations under thesenior credit agreement are secured by all of our assets. The senior creditfacility as previously described is subject to certain restrictive covenantsincluding the timing of availability for borrowing under the $55.0 millionrevolving line of credit, maintaining certain financial ratios, reachingdefined subscriber growth and network covered population goals, minimumquarterly service revenues and limiting annual capital expenditures.

 

As of June 30, 2002, management believes that we arein compliance with all financial and operational covenants associated with oursenior credit facility, senior subordinated discount notes and the Sprint PCSmanagement agreement.

 

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***Contractual Obligations***

 

We are obligated to make future payments under variouscontracts we have entered into, including amounts pursuant to the senior creditfacility; noncancelable operating lease agreements for office space, retailstores, cell sites and office equipment; capital leases; the VIA Wirelessbuilding mortgage and other long-term liabilities; and the senior subordinateddiscount notes.  Future minimumcontractual cash obligations for the next five years and in the aggregate atJune 30, 2002, are expected to be as follows (dollars in thousands):

 
|                                              |   |      |    |                  |   | **Payments due by period** |   |          |   |
|---------------------------------------------------|--------|-----------|---------|-----------------------|--------|----------------------------|--------|---------------|--------|
| **Contractual obligation**                        |   | **Total** |    | **Less than  1 year** |   | **1-3 years**              |   | **4-5 years** |   | **After 5  years** |   |
|                                              |   |      |    |                  |   |                       |   |          |   |   |   |
| Senior credit facility(1)                         |   | $         | 245,000 |                  | $      | —                     |   | $             | 14,688 |   | $ | 97,375 |   | $ | 132,937 |   |
|                                              |   |      |    |                  |   |                       |   |          |   |   |   |
| Operating leases(2)                               |   | 86,784    |    | 15,131                |   | 31,622                     |   | 23,250        |   | 16,781 |   |
|                                              |   |      |    |                  |   |                       |   |          |   |   |   |
| Capital leases                                    |   | 859       |    | 580                   |   | 279                        |   | —        |   | — |   |
|                                              |   |      |    |                  |   |                       |   |          |   |   |   |
| Building mortgage and other long-term liabilities |   | 4,185     |    | 247                   |   | 535                        |   | 613           |   | 2,790 |   |
|                                              |   |      |    |                  |   |                       |   |          |   |   |   |
| Senior discount notes                             |   | 300,000   |    | —                |   | —                     |   | —        |   | 300,000 |   |
|                                              |   |      |    |                  |   |                       |   |          |   |   |   |
|                                              |   | $         | 636,828 |                  | $      | 15,958                     |   | $             | 47,124 |   | $ | 121,238 |   | $ | 452,508 |   |

 

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(1)          Total repayments, excluding interestpayments, are based on borrowings outstanding as of June 30, 2002, notprojected borrowings under the senior credit facility.

(2)          Does not include payments due underrenewals to the original lease term.

 

There areprovisions in each of the agreements governing the senior credit facility, thesenior subordinated discount notes and the VIA Wireless building mortgage 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 historically has been heavily dependenton fourth quarter results.  Among otherthings, the industry relies on significantly higher customer additions andhandset sales in the fourth quarter as compared to the other three fiscalquarters.  The factors contributing tothis trend include the increasing use of retail distribution, which isdependent on the year-end holiday shopping season, the timing of new productand service offerings, competitive pricing pressures and aggressive marketingand promotions during the holiday season. The increased level of activity requires a greater use of our availablefinancial resources during this period.

 

**ITEM 3.****  Quantitative and QualitativeDisclosures About Market Risk**

 

In the normal course of business, our operations areexposed to interest rate risk on our senior credit facility and any futurefinancing requirements. Our fixed rate debt consists primarily of the accretedcarrying value of the senior subordinated discount notes ($205.8 million atJune 30, 2002).  Our variable rate debtconsists of borrowings made under the senior credit facility ($245.0 million atJune 30, 2002).  Our primary interestrate risk exposures relate to (i) the interest rate on senior credit facilityborrowings; (ii) our ability to refinance the senior subordinated discountnotes at maturity at market rates; and (iii) the impact of interest ratemovements on our ability to meet interest expense requirements and financialcovenants under our debt instruments.

 

29

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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 ourability to refinance existing debt or the impact interest rate movements willhave on our existing debt, we continue to evaluate our interest rate risk on anongoing basis.

 

The followingtable presents the estimated future balances of outstanding long-term debtprojected at the end of each period and future required annual principalpayments for each period then ended associated with the senior subordinateddiscount notes and our senior credit facility based on our projected level oflong-term indebtedness (dollars in thousands):

 
|                               |   | **Years ending December 31,** |   |
|------------------------------------|--------|-------------------------------|--------|
|                               |   |                          |   |   |   |   |   |   |   |   |   |
|                               |   | **2002**                      |   | **2003** |   | **2004** |   | **2005** |   | **2006** |   |
|                               |   |                          |   |   |   |   |   |   |   |   |   |
| Senior subordinated discount notes |   | 220,388                       |   | 252,380 |   | 289,119 |   | 300,000 |   | 300,000 |   |
| Fixed interest rate                |   | 14.0                          | %      | 14.0 | % | 14.0 | % | 14.0 | % | 14.0 | % |
| Principal repayments               |   | —                        |   | — |   | — |   | — |   | — |   |
|                               |   |                          |   |   |   |   |   |   |   |   |   |
| Senior credit facility             |   | 245,000                       |   | 245,000 |   | 236,937 |   | 222,437 |   | 169,187 |   |
| Variable interest rate (1)         |   | 6.3                           | %      | 8.1 | % | 9.0 | % | 9.0 | % | 9.0 | % |
| Principal payments                 |   | —                        |   | — |   | 8,063 |   | 14,500 |   | 53,250 |   |

 

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(1)           The interest rate on thesenior credit facility equals the London interbank offered rate (LIBOR) plus aweighted-average interest rate of 3.76%. LIBOR is assumed to equal 2.54% for2002, 4.34% for 2003, and 5.24% for years 2004, 2005 and 2006. A 1.0% increase(decrease) in the variable interest rate would result in a $2.5 millionincrease (decrease) in the interest expense.

 

30

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# **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**

 

UbiquiTel’s 2002Annual Meeting of Shareholders (the “Annual Meeting”) was held on May 30, 2002in Conshohocken, Pennsylvania to vote on the following matters:

 

•      the election of two Class II directors, each for athree-year term ending in 2005; and

 

•      approvalof UbiquiTel’s 2002 Employee Stock Purchase Plan.

 

Proxies for the Annual Meeting were solicited pursuantto Regulation 14A under the Securities Exchange Act of 1934, as amended, andthere was no solicitation in opposition to UbiquiTel’s solicitation.

 

The holders of record of an aggregate of 65,446,782shares of common stock were present either in person or by proxy, andconstituted a quorum for the transaction of business at the Annual Meeting.

 

All nominees for director were elected and theproposal submitted for shareholder approval was approved, with voting asdetailed below:

 

1.  The election of Matthew J. Boos and Eve M. Trkla as Class II directors,each for a three-year term ending in 2005:

 
| **Director Nominee** |   | **Votes For** |   | **Votes Against** |   |
|----------------------|--------|---------------|--------|-------------------|--------|
| Matthew J. Boos      |   | 65,147,500    |   | 299,282           |   |
| Eve M. Trkla         |   | 65,147,500    |   | 299,282           |   |

 

2. Approval of UbiquiTel’s 2002 Employee Stock Purchase Plan:

 
| **Votes For** |   | **Votes Against** |   | **Votes Abstained** |   |
|---------------|--------|-------------------|--------|---------------------|--------|
| 64,406,056    |   | 865,440           |   | 115,286             |   |

 

31

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**ITEM 5. Other Information**

 

None.

 

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

 

**(a)           Reports on Form 8-K**

 

One report on Form 8-K was filed during the quarterended June 30, 2002: 

 
| **Date**     |   | **Item Reported On**                                                                                                                                                                                                                                                                                     |
|--------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| May 15, 2002 |   | Item 4. Changes in Registrant’s Certifying  Accountant.  UbiquiTel reported that  it dismissed Arthur Andersen LLP as its independent public accountant and  appointed PricewaterhouseCoopers LLP to serve as its independent public  accountant for the fiscal year ending December 31, 2002. |

 

**(b)           Exhibits:**

** **
| **Exhibit  No.** |   | **Description** |
|------------------|--------|-----------------|
| *                | 10.36  |            | Fourth Amendment to Credit Agreement dated as of  July 17, 2002 among UbiquiTel Inc., UbiquiTel Operating Company, the  financial institutions party thereto from time to time and BNP Paribas as  agent.  (10.36) |
|             |   |            |
|             | 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. |

 

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| * | Incorporated by  reference to the exhibit shown in parentheses and filed with the Current Report  on Form 8-K of UbiquiTel Inc. dated July 18, 2002. |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------|

 

32

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**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) |
|            |                        |   |
| August 14, 2002 |                        |   |
|                 |                             |  |  |  |

 

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