QUARTERLY REPORT UNDER SECTION 13 0R 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1 TO Form 10-Q on
Form 10-Q/A
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2001
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from
______________ to _____________
Commission File Numbers 0-23232/1-14248
ARCH WIRELESS, INC.
(Exact name of Registrant as specified in its Charter)
DELAWARE 31-1358569
(State of incorporation) (I.R.S. Employer Identification No.)
1800 WEST PARK DRIVE, SUITE 250
WESTBOROUGH, MASSACHUSETTS 01581
(address of principal executive offices) (Zip Code)
(508) 870-6700
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months or for such shorter period that the Registrant was
required to file such reports, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 181,753,093 shares of the
Company's Common Stock ($.01 par value) and 681,497 shares of the Company's
Class B Common Stock ($.01 par value) were outstanding as of April 18, 2001.
ARCH WIRELESS, INC.
AMENDMENT No. 1 TO
QUARTERLY REPORT ON FORM 10-Q
EXPLANATORY NOTE
Following the delisting of the Company's Common Stock from the Nasdaq
National Market on April 30, 2001, the Company has determined that the Series C
Convertible Preferred Stock should be classified as temporary equity rather than
equity. This Form 10-Q/A is being filed to reflect that reclassification. The
consolidated financial statements and notes thereto filed herewith reflect no
other changes from the consolidated financial statements and notes thereto filed
with the Form 10-Q on May 3, 2001.
INDEX
PART I. FINANCIAL INFORMATION Page
--------------------- ----
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets as of March 31, 2001
and December 31, 2000 3
Consolidated Condensed Statements of Operations for the
Three Months Ended March 31, 2001 and 2000 4
Consolidated Condensed Statements of Cash Flows for the
Three Months Ended March 31, 2001 and 2000 5
Notes to Consolidated Condensed Financial Statements 6
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARCH WIRELESS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
March 31, December 31,
--------- ------------
2001 2000
---- ----
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 92,268 $ 55,007
Accounts receivable, net 117,815 134,396
Inventories 2,696 2,163
Prepaid expenses and other 28,516 19,877
----------- -----------
Total current assets 241,295 211,443
----------- -----------
Property and equipment, at cost 1,444,148 1,442,072
Less accumulated depreciation and amortization (503,174) (444,650)
----------- -----------
Property and equipment, net 940,974 997,422
----------- -----------
Intangible and other assets, net 936,361 1,100,744
----------- -----------
$ 2,118,630 $ 2,309,609
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt $ 37,640 $ 177,341
Accounts payable 64,607 55,282
Accrued restructuring 38,079 60,424
Accrued interest 39,294 39,140
Accrued expenses and other liabilities 134,543 165,459
----------- -----------
Total current liabilities 314,163 497,646
----------- -----------
Long-term debt, less current maturities 1,624,939 1,679,219
----------- -----------
Other long-term liabilities 335,114 74,509
----------- -----------
Deferred income taxes 86,494 121,994
----------- -----------
Redeemable preferred stock 31,107 30,505
----------- -----------
Stockholders' equity (deficit):
Common stock-- $.01 par value 1,723 1,635
Additional paid-in capital 1,103,044 1,095,779
Accumulated other comprehensive income 265 (82)
Accumulated deficit (1,378,219) (1,191,596)
----------- -----------
Total stockholders' equity (deficit) (273,187) (94,264)
----------- -----------
$ 2,118,630 $ 2,309,609
=========== ===========
The accompanying notes are an integral part of these consolidated
condensed financial statements.
3
ARCH WIRELESS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except share and per share amounts)
Three Months Ended
March 31,
2001 2000
---- ----
Revenues $ 327,429 $ 189,995
Cost of products sold (11,511) (8,880)
------------ ------------
315,918 181,115
------------ ------------
Operating expenses:
Service, rental, and maintenance 81,043 39,115
Selling 36,656 25,045
General and administrative 108,677 53,934
Depreciation and amortization 247,088 90,707
------------ ------------
Total operating expenses 473,464 208,801
------------ ------------
Operating income (loss) (157,546) (27,686)
Interest expense, net (63,927) (41,300)
Other expense (8,210) (1,206)
------------ ------------
Income (loss) before income tax benefit and extraordinary
item and accounting change (229,683) (70,192)
Benefit from income taxes 35,500 --
------------ ------------
Income (loss) before extraordinary item and accounting change (194,183) (70,192)
Extraordinary gain from early extinguishment of debt 14,956 7,615
Cumulative effect of accounting change (6,794) --
------------ ------------
Net income (loss) (186,021) (62,577)
Preferred stock dividend (602) (562)
------------ ------------
Net income (loss) to common stockholders $ (186,623) $ (63,139)
============ ============
Basic/diluted net income (loss) per common share
before extraordinary item and accounting change $ (1.17) $ (1.28)
Extraordinary gain per basic/diluted common share 0.09 0.14
Cumulative effect of accounting change per basic/diluted
common share (0.04) --
------------ ------------
Basic/diluted net income (loss) per common share $ (1.12) $ (1.14)
============ ============
Basic/diluted weighted average number of common shares
outstanding 167,193,881 55,316,698
The accompanying notes are an integral part of these consolidated
condensed financial statements.
4
ARCH WIRELESS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
Three Months Ended
March 31,
2001 2000
---- ----
Net cash provided by operating activities $ (9,581) $ 31,915
--------- ---------
Cash flows from investing activities:
Additions to property and equipment, net (25,750) (30,858)
Additions to intangible and other assets (2,757) (1,996)
Acquisition of company, net of cash acquired 174 --
--------- ---------
Net cash used for investing activities (28,333) (32,854)
--------- ---------
Cash flows from financing activities:
Issuance of long-term debt 1,045 18,000
Issuance of notes payable to Nextel 250,000 --
Repayment of long-term debt (175,836) (16,000)
--------- ---------
Net cash provided by financing activities 75,209 2,000
--------- ---------
Effect of exchange rate changes on cash (34) --
--------- ---------
Net increase in cash and cash equivalents 37,261 1,061
Cash and cash equivalents, beginning of period 55,007 3,161
--------- ---------
Cash and cash equivalents, end of period $ 92,268 $ 4,222
========= =========
Supplemental disclosure:
Interest paid $ 52,922 $ 29,057
========= =========
Accretion of discount on senior notes and assumed bank debt $ 12,188 $ 9,428
========= =========
Issuance of common stock in exchange for debt $ 7,353 $ 155,623
========= =========
The accompanying notes are an integral part of these consolidated
condensed financial statements.
5
ARCH WIRELESS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
(a) Preparation of Interim Financial Statements - The consolidated
condensed financial statements of Arch Wireless, Inc. have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission. The financial information included herein, other than the
consolidated condensed balance sheet as of December 31, 2000, has been prepared
by management without audit by independent accountants who do not express an
opinion thereon. The consolidated condensed balance sheet at December 31, 2000
has been derived from, but does not include all the disclosures contained in,
the audited consolidated financial statements for the year ended December 31,
2000. In the opinion of management, all of these unaudited statements include
all adjustments and accruals consisting only of normal recurring accrual
adjustments which are necessary for a fair presentation of the results of all
interim periods reported herein. These consolidated condensed financial
statements should be read in conjunction with the consolidated financial
statements and accompanying notes included in Arch's Annual Report on Form 10-K
for the year ended December 31, 2000. The results of operations for the periods
presented are not necessarily indicative of the results that may be expected for
a full year.
(b) Intangible and Other Assets - Intangible and other assets, net of
accumulated amortization, are comprised of the following (in thousands):
March 31, December 31,
2001 2000
---- ----
(unaudited)
Purchased Federal Communications Commission licenses $ 414,018 $ 451,431
Purchased subscriber lists ......................... 341,181 412,015
Goodwill ........................................... 108,649 163,027
Restricted cash .................................... 39,451 35,280
Deferred financing costs ........................... 18,937 24,905
Other .............................................. 14,125 14,086
---------- ----------
$ 936,361 $1,100,744
========== ==========
(c) Divisional Reorganization - As of March 31, 2001, 1,081 former Arch and
MobileMedia employees had been terminated due to the divisional reorganization,
and the MobileMedia and PageNet integrations. The Company's restructuring
activity as of March 31, 2001 is as follows (in thousands):
Reserve Balance Utilization of
at December 31, Reserve in Remaining
2000 2001 Reserve
---- ---- -------
Severance costs .............. $ 2,957 $ 1,904 $ 1,053
Lease obligation costs ....... 10,776 1,902 8,874
Other costs .................. 162 26 136
------- ------- -------
Total ..................... $13,895 $ 3,832 $10,063
======= ======= =======
6
(d) PageNet Acquisition Reserve - As of March 31, 2001, 842 former PageNet
employees had been terminated. The Company's restructuring activity as of March
31, 2001 is as follows (in thousands):
Reserve Balance Utilization of
at December 31, Reserve in Remaining
2000 2001 Reserve
---- ---- -------
Severance costs .............. $36,767 $16,738 $20,029
Lease obligation costs ....... 9,264 1,694 7,570
Other costs .................. 500 83 417
------- ------- -------
Total ..................... $46,531 $18,515 $28,016
======= ======= =======
(e) Nextel Agreement - In January 2001, Arch agreed to sell its 900 MHz SMR
(Specialized Mobile Radio) licenses to Nextel Communications, Inc. Nextel will
acquire the licenses for an aggregate purchase price of $175 million and invest
$75 million in a new equity issue, Arch Series F 12% Redeemable Cumulative
Junior Preferred Stock. In February 2001, Nextel advanced $250 million in the
form of loans to a newly created, stand-alone Arch subsidiary that holds the
spectrum licenses until the transfers are approved. The new Arch subsidiary is
not permitted to engage in any business other than ownership and maintenance
of the spectrum licenses and will not have any liability or obligation with
respect to any of the debt obligations of Arch and its subsidiaries. Upon
transfer of the spectrum licenses to Nextel, the loan obligations will be
satisfied and $75 million of the loans will be converted into Arch series F 12%
Redeemable Cumulative Junior Preferred Stock. Arch acquired the SMR licenses as
part of its acquisition of PageNet in November 2000. In purchase accounting the
licenses were recorded at their fair value of $175.0 million and are included
the purchased Federal Communications Commission licenses balance in Note (b)
above. No gains or losses resulting from changes in the carrying amounts of
assets to be disposed of have been included in Arch's statement of operations.
No amortization has been recorded on the licenses. Revenues and operating
expenses related to the SMR operation included in the statement of operations
are immaterial.
(g) Debt Exchanged for Equity - In the first quarter of 2001, Arch issued
8,793,350 shares of Arch common stock in exchange for $26.3 million accreted
value ($26.5 million maturity value) of its senior discount notes. Arch recorded
an extraordinary gain of $15.0 million on the early extinguishment of debt as a
result of these transactions.
(h) Derivative Instruments and Hedging Activities - In June 1998, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards (SFAS) No. 133 "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133 requires that every derivative instrument be recorded
in the balance sheet as either an asset or liability measured at its fair value
and that changes in the derivative's fair value be recognized in earnings. Arch
adopted this standard effective January 1, 2001. The Company has not designated
any of the outstanding derivatives as a hedge under SFAS No. 133. The initial
application of SFAS No. 133 resulted in a $6.8 million charge, which was
reported as the cumulative effect of a change in accounting principle. This
charge represents the impact of initially recording the derivatives at fair
value as of January 1, 2001. The changes in fair value of the derivative
instruments will be recognized in other expense. The Company recorded other
expense of approximately $5.9 million related to the changes in fair value of
the derivatives during the period ended March 31, 2001.
(i) Segment Reporting - The Company has determined that it has three
reportable segments; traditional paging operations, two-way messaging operations
and international operations. Management makes operating decisions and assesses
individual performances based on the performance of these segments. The
traditional paging operations consist of the provision of paging and other
one-way wireless messaging services to Arch's U.S. customers. Two-way messaging
operations consist of the provision of two-way wireless messaging services to
Arch's U.S. customers. International operations consist of the operations of the
Company's Canadian subsidiary.
7
Each of these segments incur, and are charged, direct costs associated with
their separate operations. Common costs shared by the traditional paging and
two-way messaging operations are allocated based on the estimated utilization of
resources using various factors that attempt to mirror the true economic cost of
operating each segment.
The Company did not begin to market and sell its two-way messaging products
on a commercial scale until August 2000. The Company's Canadian subsidiary was
acquired in November 2000 in the PageNet acquisition. Prior to 2000,
substantially all of the Company's operations were traditional paging
operations. The following tables present segment financial information related
to the Company's segments for the periods indicated (in thousands):
March 31, 2001 Traditional Two-way Messaging International
-------------- Paging Operations Operations Operations Consolidated
----------------- ---------- ---------- ------------
Revenues............................... $ 305,266 $ 17,247 $ 4,916 $ 327,429
Depreciation and amortization expense.. 228,174 13,874 5,040 247,088
Operating income (loss)................ (131,673) (21,582) (4,291) (157,546)
Adjusted EBITDA(1)..................... 96,501 (7,708) 749 89,542
Total assets........................... 1,801,531 261,600 55,499 2,118,630
Capital expenditures................... 17,270 10,337 900 28,507
March 31, 2000 Traditional Two-way Messaging International
-------------- Paging Operations Operations Operations Consolidated
----------------- ---------- ---------- ------------
Revenues............................... $ 189,995 $ -- $ -- $ 189,995
Depreciation and amortization expense.. 90,707 -- -- 90,707
Operating income (loss)................ (25,065) (2,621) -- (27,686)
Adjusted EBITDA(1)..................... 65,642 (2,621) -- 63,021
Total assets........................... 1,295,468 -- -- 1,295,468
Capital expenditures................... 32,854 -- -- 32,854
(1) Adjusted earnings before interest, income taxes, depreciation and
amortization, as determined by Arch, does not reflect interest, income
taxes, depreciation and amortization, restructuring charges, equity in loss
of affiliate and extraordinary items; consequently adjusted earnings before
interest, income taxes, depreciation and amortization may not necessarily
be comparable to similarly titled data of other wireless messaging
companies. Earnings before interest, income taxes, depreciation and
amortization should not be construed as an alternative to operating income
or cash flows from operating activities as determined in accordance with
generally accepted accounting principles or as a measure of liquidity.
Amounts reflected as earnings before interest, income taxes, depreciation
and amortization or adjusted earnings before interest, income taxes,
depreciation and amortization are not necessarily available for
discretionary use as a result of restrictions imposed by the terms of
existing indebtedness or limitations imposed by applicable law upon the
payment of dividends or distributions among other things.
8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-Q/A for the quarter ended
March 31, 2001, to be signed on its behalf by the undersigned thereunto duly
authorized.
ARCH WIRELESS, INC.
Dated: May 21, 2001 By: /s/ J. Roy Pottle
------------------------------
J. Roy Pottle
Executive Vice President and
Chief Financial Officer
9