UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 2005
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO _______
COMMISSION FILE NUMBER 333-123383
______________________________
HORIZON PCS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 31-1707839
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or Organization)
68 MAIN STREET, CHILLICOTHE, OH 45601-0480
(Address of Principal Executive Offices) (Zip 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 |_| No |X|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |_| No |X|
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes |X| No |_|
As of May 16, 2005, there were 9,013,317 shares of common stock, $0.0001
par value per share, outstanding.
HORIZON PCS
FORM 10-Q
FIRST QUARTER REPORT
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements....................................................1
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..............................................15
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.............23
ITEM 4. Controls and Procedures................................................24
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings......................................................26
ITEM 2. Changes in Securities and Use of Proceeds..............................26
ITEM 3. Defaults Upon Senior Securities........................................26
ITEM 4. Submission of Matters to a Vote of Security Holders....................26
ITEM 5. Other Information......................................................26
ITEM 6. Exhibits...............................................................26
Horizon PCS, Inc. ("Horizon PCS") is the issuer of 11 3/8% Senior Notes
("senior notes") due July 15, 2012. The senior notes are subject to an Form S-4
registration statement that was filed with the Securities and Exchange
Commission ("SEC") on March 17, 2005, and amended on April 28, 2005. The
Co-Registrants are Horizon Personal Communications, Inc. ("HPC") and Bright
Personal Communications Services, LLC ("Bright PCS"), collectively, the
"Operating Companies," which are wholly-owned subsidiaries of Horizon PCS. Each
of the Operating Companies has provided a full, unconditional, joint and several
guaranty of Horizon PCS' obligations under the indenture relating to the senior
notes. Horizon PCS has no operations separate from its investment in the
Operating Companies. Pursuant to Rule 12h-5 of the Securities Exchange Act of
1934, no separate financial statements and other disclosures concerning the
Operating Companies other than narrative disclosures set forth in the Notes to
the Interim Consolidated Financial Statements have been presented herein. As
used herein and except as the context otherwise may require, the "Company,"
"we," "us," "our" or "Horizon PCS" means, collectively, Horizon PCS, Inc. and
the Operating Companies.
HORIZON PCS, INC.
Consolidated Balance Sheets
As of March 31, 2005, and December 31, 2004
- --------------------------------------------------------------------------------
Successor Successor
Company Company
---------------- ----------------
March 31, December 31,
2005 2004
---------------- ----------------
ASSETS (unaudited) (audited)
Current assets:
Cash and cash equivalents $ 50,380,262 $ 55,540,540
Accounts receivable, net of allowance for doubtful accounts
of $777,692 and $996,051, respectively 9,325,386 10,353,496
Equipment inventory 403,698 387,967
Prepaid expenses and other current assets 1,140,788 1,703,024
---------------- ----------------
Total current assets 61,250,134 67,985,027
Other assets:
Debt issuance costs, net of amortization 3,940,388 4,071,734
Deferred activation expense and other assets 723,499 443,914
Intangible assets, net 102,514,282 111,432,516
---------------- ----------------
Total other assets 107,178,169 115,948,164
Property and equipment, net 91,900,257 106,258,330
---------------- ----------------
Total assets $ 260,328,560 $ 290,191,521
==+============= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,080,348 $ 4,690,792
Accrued liabilities 1,300,850 1,267,038
Accrued interest 3,041,233 6,437,934
Accrued real estate, personal property and other taxes 6,036,284 6,360,404
Payable to Sprint 3,529,270 5,063,351
Deferred service revenue 3,949,869 3,938,128
---------------- ----------------
Total current liabilities 20,937,854 27,757,647
Long-term liabilities:
Long-term debt 125,000,000 125,000,000
Other long-term 3,864,870 3,961,136
Deferred activation revenue 558,434 278,848
---------------- ----------------
Total long-term liabilities 129,423,304 129,239,984
---------------- ----------------
Total liabilities 150,361,158 156,997,631
---------------- ----------------
Stockholders' equity:
Preferred stock, $0.0001 par value. Authorized 10,000,000
shares, none issued or outstanding - -
Common stock, $0.0001 par value. Authorized 25,000,000
shares, 9,013,317 issued and outstanding at March 31, 2005 and
8,909,568 issued and outstanding at December 31, 2004 901 891
Additional paid-in capital 158,070,289 157,234,756
Accumulated deficit (48,103,788) (24,041,757)
---------------- ----------------
Total stockholders' equity 109,967,402 133,193,890
---------------- ----------------
Total liabilities and stockholders' equity $ 260,328,560 $ 290,191,521
================ ================
The accompanying notes are an integral part of these consolidated financial statements
1
HORIZON PCS, INC.
Consolidated Statements of Operations
For the Three Months Ended March 31, 2005 and 2004 (unaudited)
- --------------------------------------------------------------------------------
2
Successor Predecessor
Company Company
-------------------- --------------------
For the Three Months For the Three Months
Ended Ended
March 31, 2005 March 31, 2004
-------------------- --------------------
Operating revenues:
Subscriber revenues $ 27,730,982 $ 45,658,557
Roaming revenues 15,216,495 16,241,595
Equipment revenues 1,063,379 1,275,362
-------------------- --------------------
Total operating revenues 44,010,856 63,175,514
-------------------- --------------------
Operating expenses:
Cost of service (exclusive of items
shown below) 23,703,411 44,055,153
Cost of equipment 2,073,233 1,734,049
Selling and marketing 5,702,086 6,614,123
General and administrative (exclusive
of items shown below) 7,620,115 8,128,787
Reorganization expense - 5,520,401
Non-cash compensation (For the three
months ended March 31, 2005, $67,648
related to cost of service, $84,559
related to selling and marketing,
and $683,336 related to general
and administrative) 835,543 48,348
Depreciation and amortization 25,565,966 8,189,322
Gain on sale of subscribers (720,317) -
-------------------- --------------------
Total operating expenses 64,780,037 74,290,183
-------------------- --------------------
Operating loss (20,769,181) (11,114,669)
Interest income and other, net 273,644 148,621
Interest expense, net of capitalized
interest (3,566,494) (2,065,149)
-------------------- --------------------
Loss before income tax benefit (24,062,031) (13,031,197)
Income tax benefit - -
-------------------- --------------------
Net loss (24,062,031) (13,031,197)
Preferred stock dividend - (3,309,519)
-------------------- --------------------
Net loss attributable to common
shareholders $ (24,062,031) $ (16,340,716)
==================== ====================
Basic and diluted loss per share
attributed to common stockholders $ (2.70)
====================
Weighted-average common shares
outstanding 8,915,952
====================
The accompanying notes are an integral part of these consolidated financial statements
2
HORIZON PCS, INC.
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2005 and 2004 (unaudited)
- --------------------------------------------------------------------------------
Successor Predecessor
Company Company
---------------- ----------------
For the Three For the Three
Months Ended Months Ended
March 31, 2005 March 31, 2004
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (24,062,031) $ (13,031,197)
---------------- ----------------
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 25,565,966 8,189,322
Non-cash compensation expense 835,543 48,348
Non-cash interest expense 131,346 -
Gain on sale of subscribers (720,317) -
Bad debt expense 1,073,437 1,533,761
Loss on disposal of assets - -
Change in:
Accounts receivable (45,327) (3,521,251)
Equipment inventory (15,731) (211,814)
Interest receivable and other 562,235 (1,117,548)
Accounts payable (1,610,444) 3,594,705
Accrued liabilities and deferred
service revenue (3,675,268) 495,358
Liabilities subject to compromise - (309,205)
Payable to Sprint (1,534,081) (400,572)
Other assets and liabilities, net (96,265) (117,586)
---------------- ----------------
Total adjustments 20,471,094 8,183,518
---------------- ----------------
Net cash flows from operating activities (3,590,937) (4,847,679)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (2,298,175) (473,857)
Proceeds from the sale of property
and equipment 8,517 -
Proceeds from sale of subscribers, net 720,317 -
---------------- ----------------
Net cash flows from investing
activities (1,569,341) (473,857)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options - -
Notes payable - borrowings - -
Notes payable - repayments - -
---------------- ----------------
Net cash flows from financing
activities - -
---------------- ----------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (5,160,278) (5,321,536)
CASH AND CASH EQUIVALENTS, BEGINNING 55,540,540 70,651,046
---------------- ----------------
CASH AND CASH EQUIVALENTS, ENDING $ 50,380,262 $ 65,329,510
================ ================
The accompanying notes are an integral part of these consolidated financial statements
3
HORIZON PCS, INC.
Notes to Consolidated Financial Statements
As of March 31, 2005 and December 31, 2004,
And for the Three Months Ended March 31, 2005 and 2004 (unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - BUSINESS AND BASIS OF PRESENTATION
The Company primarily provides wireless personal communications services
("PCS") as a PCS affiliate of Sprint. The Company entered into management
agreements with Sprint during 1998 and 1999. These agreements, as amended,
provide the Company with the exclusive right to build, own and manage a wireless
voice and data services network under the Sprint PCS brand in eleven contiguous
states located between Sprint's Chicago, New York and Knoxville markets which
connect or are adjacent to twelve major Sprint markets. The term of the
agreements is twenty years with three successive ten-year renewal periods unless
terminated by either party under provisions outlined in the management
agreements. The management agreements include indemnification clauses between
the Company and Sprint to indemnify each party against claims arising from
violations of laws or the management agreements, other than liabilities
resulting from negligence or willful misconduct of the party seeking to be
indemnified.
In accordance with Statement of Position 90-7, Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code ("SOP 90-7"), the Company
adopted fresh-start accounting for financial reporting purposes as of October 1,
2004, and the Company's emergence from Chapter 11 resulted in a new reporting
entity (Note 2). The periods as of and prior to September 30, 2004 have been
designated "Predecessor Company" and the periods subsequent to September 30,
2004 have been designated "Successor Company". Under fresh-start accounting, the
reorganization value of the Company was allocated to the assets based on their
respective fair values and was in conformity with Statement of Financial
Accounting Standards ("SFAS") No. 141, Business Combinations. Each existing
liability was stated at present value of the amount to be paid. As a result of
the implementation of fresh-start accounting, the financial statements of the
Company after the effective date are not comparable to the Company's financial
statements for prior periods.
The results of operations for the periods shown are not necessarily
indicative of the results to be expected for the fiscal year. In the opinion of
management, the information contained herein reflects all adjustments necessary
to make a fair statement of the results for the periods presented. All such
adjustments are of a normal recurring nature. The consolidated financial
statements included herein include the accounts of Horizon PCS, Inc. and its
subsidiaries, Horizon Personal Communications, Inc. and Bright Personal
Communications Services LLC. The results as of, and for the periods ending,
March 31, 2005 and 2004 are unaudited. The financial information presented
herein should be read in conjunction with the Company's Form 10-K for the year
ended December 31, 2004, which includes information and disclosures not
presented herein.
NOTE 2 - BANKRUPTCY
On August 15, 2003, Horizon PCS, Inc. and its operating subsidiaries,
Horizon Personal Communications, Inc. and Bright Personal Communications
Services LLC (collectively the "Debtors"), filed voluntary petitions for relief
under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code")
in the United States Bankruptcy Court for the Southern District of Ohio (the
"Bankruptcy Court"). The Debtors continued to manage their properties and
operate their businesses in the ordinary course of business as
"debtors-in-possession" subject to the supervision and orders of the Bankruptcy
Court pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code, in Case No.
03-62424 (the "Bankruptcy Case"). On June 27, 2004, the Company filed its
Reorganization Plan with the Bankruptcy Court. On September 21, 2004, the
Bankruptcy Court approved the Plan of Reorganization that satisfies the
requirements of the Bankruptcy Code. On October 1, 2004, the Plan of
Reorganization became effective.
Significant terms of the Plan of Reorganization are as follows:
o All common and preferred equity shares of the Debtors (and all stock
options and warrants) were cancelled;
4
HORIZON PCS, INC.
Notes to Consolidated Financial Statements
As of March 31, 2005 and December 31, 2004,
And for the Three Months Ended March 31, 2005 and 2004 (unaudited)
- --------------------------------------------------------------------------------
o The senior secured debt was paid in full;
o All pre-petition debt securities of the Debtors were settled and
cancelled;
o Unexpired leases and executory contracts of the Debtors were assumed
or rejected;
o Approximately 8.8 million shares of new common stock were issued to
settle claims of bond holders, and approximately 0.2 million shares
were issued to settle the claims of general unsecured creditors;
o Five new directors were appointed to the Company's Board of Directors.
SOP 90-7 also requires separate reporting of certain expenses, realized
gains and losses and provisions for losses related to the bankruptcy filing as
reorganization items. Reorganization items for the three months ended March 31,
2004 includes approximately $300,000 of key employee retention plan payments and
$5.2 million of professional fees.
NOTE 3 - MERGER AGREEMENT WITH IPCS, INC.
On March 17, 2005, the Company entered into an Agreement and Plan of Merger
with iPCS, Inc. ("iPCS"), another PCS affiliate of Sprint, pursuant to which the
Company will be merged with and into iPCS. Pursuant to the merger, each issued
and outstanding share of the Company's common stock will be converted into
0.7725 shares of common stock of iPCS, subject to adjustment for certain
increases or decreases in the outstanding number of shares of Horizon PCS or
iPCS, unless the holder exercises its appraisal rights under the General
Corporation Law of the State of Delaware. Outstanding options to purchase the
Company's common stock will be converted into options to purchase common stock
of iPCS. The new options will have the same terms and conditions as the old
options, except that the number of shares of iPCS common stock for which the
options may be exercised and the exercise price of such options will be adjusted
based upon the exchange ratio. For accounting purposes, iPCS will be the
acquiror.
If the merger is consummated, the board of directors of iPCS will consist
of three members of the Company's board of directors, three members of the board
of directors of iPCS and Timothy M. Yager, currently chief executive officer of
iPCS.
The merger agreement contains certain termination rights for the Company
and iPCS, including if the Company or iPCS receive and decide to accept an
unsolicited, superior offer. The merger agreement further provides that in the
event of termination of the merger agreement under certain circumstances, the
Company and iPCS may be required to pay the other a termination fee of $7.0
million.
If the merger is consummated, the senior notes of the Company will become
the direct obligations of iPCS.
In April 2005, the Federal Trade Commission consented to the merger by
granting early termination of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976. In May 2005, the Federal Communications
Commission ("FCC") consented to the merger. The merger is subject to approval by
the holders of a majority of the Company's common stock and approval by the
holders of a majority of iPCS common stock. For more information regarding the
merger, see Amendment No. 1 to the registration statement on Form S-4 as filed
by iPCS on May 11, 2005.
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND USE OF ESTIMATES
The consolidated financial statements include the financial statements of
Horizon PCS, Inc. (the "Company") and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated.
5
HORIZON PCS, INC.
Notes to Consolidated Financial Statements
As of March 31, 2005 and December 31, 2004,
And for the Three Months Ended March 31, 2005 and 2004 (unaudited)
- --------------------------------------------------------------------------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
PROPERTY AND EQUIPMENT
Property and equipment, including improvements that extend useful lives, are
stated at cost or allocated fair values determined in fresh-start reporting,
while maintenance and repairs are charged to operations as incurred.
Construction work in progress includes expenditures for capital equipment,
construction and items such as direct payroll and related benefits and interest
capitalized during construction. The Company capitalizes interest pursuant to
SFAS No. 34, Capitalization of Interest Cost. The Company capitalized interest
of approximately $120,000 for the three months ended March 31, 2005. In
addition, the Company capitalized labor costs of approximately $44,000 for the
three months ended March 31, 2005. The Predecessor Company did not capitalize
interest or labor for the three months ended March 31, 2004.
REVENUE RECOGNITION
The Company recognizes revenues when persuasive evidence of an arrangement
exists, services have been rendered, the price to the buyer is fixed or
determinable, and collectibility is reasonably assured. The Company recognizes
service revenue from the Company's subscribers as they use the service. The
Company pro-rates monthly subscriber revenue over the billing period and records
airtime usage in excess of the pre-subscribed usage plan. The Company's
subscribers pay an activation fee when they initiate service. The Company
reduces recorded service revenue for billing adjustments. Effective July 1,
2003, The Company adopted EITF No. 00-21, Accounting for Revenue Arrangements
with Multiple Deliverables. This EITF guidance addresses accounting for
arrangements that involve multiple revenue-generating activities. In applying
this guidance, separate contracts with the same party, entered into at or near
the same time, will be presumed to be a bundled transaction, and the
consideration will be measured and allocated to the separate units of the
arrangement based on their relative fair values. The guidance in EITF No. 00-21
became effective for revenue arrangements entered into for quarters beginning
after June 15, 2003. The Company elected to apply this guidance prospectively
from July 1, 2003. Prior to the adoption of EITF No. 00-21, under the provisions
of SAB No.101, the Company accounted for the sale of its handsets and subsequent
service to the customer as a single unit of accounting because the Company's
wireless service is essential to the functionality of the Company's handsets.
Accordingly, the Company deferred all activation fee revenue and its associated
direct costs and amortized these revenues and costs over the average life of the
Company's subscribers, which the Company estimates to be 24 months. Under EITF
No. 00-21, the Company no longer needs to consider whether customers can use
their handsets without the Company's wireless service provided to them. Because
the Company meets the criteria stipulated in EITF No. 00-21, the adoption of
EITF No. 00-21 requires the Company to account for the sale of the handset as a
separate unit of accounting from the subsequent service to the customer. With
the adoption of EITF No. 00-21, the Company now recognizes activation fee
revenue generated from the Company's retail stores as equipment revenue. In
addition, the Company recognizes the portion of the direct activation fee costs
related to the handsets sold in the Company's retail stores. Subsequent to July
1, 2003, the Company has continued to apply the provisions of SAB No. 101 and
have deferred and amortized activation fee revenue and costs generated by
subscribers activated other than through the Company's retail stores.
The Company participates in the Sprint PCS national and regional
distribution program in which national retailers such as RadioShack and Best Buy
sell Sprint PCS products and services. In order to facilitate the sale of Sprint
PCS products and services, national retailers purchase wireless handsets from
Sprint for resale and receive compensation from Sprint for products and services
6
HORIZON PCS, INC.
Notes to Consolidated Financial Statements
As of March 31, 2005 and December 31, 2004,
And for the Three Months Ended March 31, 2005 and 2004 (unaudited)
- --------------------------------------------------------------------------------
sold. For industry competitive reasons, Sprint subsidizes the price of these
handsets by selling the handsets at a price below cost. Under the Company's
affiliation agreements with Sprint, when a national retailer sells a handset
purchased from Sprint to a subscriber in the Company's territory, the Company is
obligated to reimburse Sprint for the handset subsidy that Sprint originally
incurred. The national retailers sell Sprint wireless services under the Sprint
and Sprint PCS brands and marks. The Company does not receive any revenues from
the sale of wireless handsets by national retailers. The Company classifies
these Sprint wireless handset subsidy charges as a sales and marketing expense
for a wireless handset sale to a new subscriber and classify these subsidies as
a cost of service for a wireless handset upgrade to an existing subscriber.
STOCK-BASED COMPENSATION
The Successor Company has adopted the provisions of SFAS No. 123 (Revised
2004), Share-Based Payment ("SFAS No. 123R"). Pursuant to SFAS No. 123R, the
Company measures the cost of employee services received in exchange for the
award of equity instruments based on the fair value of the award as of the date
of grant using the Black-Scholes option pricing model. The fair value is
recognized in the consolidated statements of operations on a straight-line basis
over the expected life of the equity instruments.
In October 2004, the Successor Company adopted a stock option plan pursuant
to which the Company's board of directors may grant stock options to officers,
key employees and certain directors. The new stock option plan authorized grants
of options to purchase up to 986,702 shares of authorized but unissued common
stock. These stock options have 10 year terms and vest equally in six month
increments over three years from the date of grant.
The compensation cost that has been charged against income for the plan was
approximately $836,000 for the three months ended March 31, 2005. This
compensation cost was based on the fair value of the options.
The fair value of the options granted in 2004 was estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
Successor Company:
Expected Dividend Yield 0.0%
Forfeiture rate 10.0%
Risk-free rate 3.1%
Expected volatility 130.0%
Expected life (in years) 3.0
A summary of the Successor Company's option activity under the plan during
the three months ended March 31, 2005, is as follows:
7
HORIZON PCS, INC.
Notes to Consolidated Financial Statements
As of March 31, 2005 and December 31, 2004,
And for the Three Months Ended March 31, 2005 and 2004 (unaudited)
- --------------------------------------------------------------------------------
Weighted-
Average
Weighted- Remaining
Number of Average Contractual Aggregate
Options Shares Exercise Price Term Intrinsic Value
- --------------------------------------- --------------- --------------- --------------- ---------------
Outstanding as of December 31, 2004 778,381 $ 17.76
Granted - -
Exercised - -
Forfeited - -
---------------
Outstanding as of March 31, 2005 778,381 $ 17.76 9.56 $ 5,772,474
=============== =============== =============== ==============
The fair value of options on the November 11, 2004 grant date was
approximately $14.31 per share. All options were issued at $17.76 and none were
exercisable as of March 31, 2005. As of March 31, 2005, there was approximately
$8.6 million of total unrecognized compensation cost related to nonvested
share-based compensation arrangements granted under the plan. That cost is
expected to be recognized over a weighted-average period of 2.56 years.
In 1999, the Predecessor Company adopted a stock option plan pursuant to
which the board of directors could grant stock options to officers, key
employees and certain nonemployees. These stock options were eliminated in the
Plan of Reorganization.
The Predecessor Company applied the intrinsic value-based method of
accounting prescribed by Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations including
FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion No. 25, issued in March 2000, to
account for its fixed plan stock options. Under this method, compensation
expense was recorded on the date of grant only if the current market price of
the underlying stock exceeded the exercise price. SFAS No. 123, Accounting for
Stock-Based Compensation, established accounting and disclosure requirements
using a fair value-based method of accounting for stock-based employee
compensation plans. At the time, as allowed by SFAS No. 123, the Company elected
to apply the intrinsic value-based method of accounting, and adopted the
disclosure requirements of SFAS No. 148, Accounting for Stock-Based Compensation
- -- Transition and Disclosure -- an Amendment of FASB Statement No. 123.
The Predecessor Company applied APB Opinion No. 25 in accounting for the
options granted to officers and key employees, and SFAS No. 123 in accounting
for the options granted to certain nonemployees, under its 1999 plan. The
accompanying consolidated financial statements reflect non-cash compensation
charges relating to the Predecessor Company of approximately $48,000 for the
three months ended March 31, 2004. These options were cancelled as part of the
Plan of Reorganization.
The following table illustrates the effect on net loss if the
fair-value-based method under SFAS No. 123 had been applied to all outstanding
and unvested awards in the period.
8
HORIZON PCS, INC.
Notes to Consolidated Financial Statements
As of March 31, 2005 and December 31, 2004,
And for the Three Months Ended March 31, 2005 and 2004 (unaudited)
- --------------------------------------------------------------------------------
PREDECESSOR COMPANY
---------------------
FOR THE THREE
MONTHS ENDED
MARCH 31, 2004
---------------------
Net loss attributed to common stockholders - $ (16,340,716)
as reported
Add stock-based employee compensation expense
included in reported net loss 48,348
Deduct total stock-based employee compensation
expense determined under fair value base
method for all awards, net of related tax
effects (48,337)
---------------------
Pro forma net loss attributed to common
stockholders $ (16,340,705)
=====================
NET LOSS PER SHARE
The Company computes net loss per common share in accordance with SFAS No.
128, Earnings per Share. Basic and diluted net loss per share attributed to
common stockholders is computed by dividing net loss attributed to common
stockholders for each period by the weighted-average outstanding common shares.
No conversion of common stock equivalents has been assumed in the calculation
since the effect would be antidilutive. As a result, the number of
weighted-average outstanding common shares as well as the amount of net loss per
share is the same for basic and diluted net loss per share calculations for the
period presented. The only items that could potentially dilute earnings per
share in the future are common stock options. The common stock options will be
included in the diluted earnings per share calculation when dilutive. Net loss
per share for the Predecessor Company, which is the period prior to October 1,
2004, is not shown as the common stock of the Predecessor Company was cancelled
as part of the Plan of Reorganization, and therefore is no longer meaningful. .
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based
Payment, which replaces SFAS No. 123, Accounting for Stock-Based Compensation,
and supercedes APB Opinion No. 25, Accounting for Stock Issued to Employees.
SFAS No. 123R requires all share-based payments to employees, including grants
of employee stock options, to be recognized in the financial statements based on
their fair values. The pro forma disclosures previously permitted under SFAS No.
123 no longer will be an alternative to financial statement recognition. SFAS
No. 123R has been adopted as discussed in Note 4 and did not have a material
effect on our consolidated financial statements.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an
amendment of ARB No. 43, Chapter 4. The amendments made by SFAS No. 151 clarify
that abnormal amounts of idle facility expense, freight, handling costs, and
wasted materials (spoilage) should be recognized as current-period charges and
require the allocation of fixed production overheads to inventory based on the
normal capacity of the production facilities. SFAS No. 151 is effective for
fiscal years beginning after June 15, 2005. The adoption of SFAS No. 151 is not
expected to have a material impact on the Company's financial position and
results of operations.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the 2005
presentation.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
9
HORIZON PCS, INC.
Notes to Consolidated Financial Statements
As of March 31, 2005 and December 31, 2004,
And for the Three Months Ended March 31, 2005 and 2004 (unaudited)
- --------------------------------------------------------------------------------
Successor Predecessor
Company Company
----------------- -----------------
March 31, 2005 December 31, 2004
----------------- -----------------
Network assets $ 89,151,778 $ 89,174,889
Switching equipment 26,417,870 26,413,700
Furniture, vehicles, and office equipment 1,541,377 1,322,057
Building 1,680,000 1,680,000
Land 470,000 470,000
----------------- -----------------
Property and equipment in service $ 119,261,025 $ 119,060,646
Accumulated depreciation (33,224,137) (16,620,410)
----------------- -----------------
Property and equipment in service, net 86,036,888 102,440,236
Construction work in progress 5,863,369 3,818,094
----------------- -----------------
Total property and equipment, net $ 91,900,257 $ 106,258,330
================= =================
On October 1, 2004, the Company applied fresh-start reporting, which
required the assets and liabilities to be recorded at fair value. Accordingly,
the Company reduced the value of the property and equipment by approximately
$26.6 million.
In June 2004, under an Asset Purchase Agreement, Sprint acquired the
Company's economic interests in approximately 92,500 subscribers, seven retail
store leases and related store assets in the Company's NTELOS markets in
Virginia and West Virginia. On February 1, 2005, the Company entered into an
amendment to the June 2004 Asset Purchase Agreement. The amendment resulted in a
payment of approximately $81,000 to the Company by Sprint. On February 1, 2005,
the Company entered into a second Asset Purchase Agreement to sell approximately
1,600 subscribers in the Company's Ironton, Ohio market to Sprint for
approximately $639,000.
NOTE 6 - SPRINT AGREEMENTS
Under the Sprint Agreements, Sprint provides the Company significant
support services such as billing, collections, long distance, customer care,
network operations support, inventory logistics support, use of the Sprint and
Sprint PCS brand names, national advertising, national distribution, and product
development. Additionally, the Company derives substantial roaming revenue and
expenses when Sprint's and Sprint's network partners' PCS wireless subscribers
incur minutes of use in the Company's territories and when the Company's
subscribers incur minutes of use in Sprint and other Sprint network partners'
PCS territories. These transactions are recorded in roaming revenue, cost of
service, cost of equipment, and selling and marketing expense captions in the
accompanying consolidated statements of operations. Cost of service and roaming
transactions include long distance charges, roaming expense, and the costs of
services such as billing, collections, and customer service and other
pass-through expenses. Cost of equipment transactions relate to inventory
purchased by the Company from Sprint under the Sprint Agreements. Selling and
marketing transactions relate to subsidized costs on handsets and commissions
paid by the Company under Sprint's national distribution program. The 8%
management fee is included in general and administrative. Amounts recorded
relating to the Sprint Agreements are as follows:
10
HORIZON PCS, INC.
Notes to Consolidated Financial Statements
As of March 31, 2005 and December 31, 2004,
And for the Three Months Ended March 31, 2005 and 2004 (unaudited)
- --------------------------------------------------------------------------------
Successor
Company Predecessor Company
--------------------- ---------------------
For the Three For the Three
Months Ended Months Ended
March 31, 2005 March 31, 2004
--------------------- ---------------------
Roaming revenue $ 11,954,328 $ 12,887,607
==================== =====================
Cost of service:
Roaming $ 8,217,633 $ 10,926,552
Billing and customer care 3,554,796 4,930,801
Long distance 1,436,313 2,401,490
--------------------- ---------------------
Total cost of service 13,208,742 18,258,843
Cost of equipment 2,073,233 1,734,049
Selling and marketing 436,190 235,978
General and administrative:
Management fee 2,331,864 3,663,701
--------------------- ---------------------
Total expense $ 18,050,029 $ 23,892,571
==================== =====================
On March 16, 2005, the Company entered into a new addendum to its
affiliation agreements with Sprint. This addendum implemented the "price
simplification" provisions of similar addenda which Sprint has entered into with
most of the other PCS affiliates of Sprint. Under this simplification, service
bureau fees will be charged at a monthly rate per subscriber of $7.00 for 2005
and $6.75 for 2006; cost per gross addition services will be charged at a
monthly rate of $22.00 per gross subscriber addition in the Company's markets
through 2006. With respect to roaming charges, the addendum establishes a
reciprocal roaming rate for voice subscribers within the Sprint network of
$0.058 per minute through December 31, 2006. Beginning on January 1, 2007, the
reciprocal roaming rate will change annually to equal 90% of Sprint PCS' retail
yield for voice usage from the prior year. With respect to several of its
markets in western Pennsylvania and eastern Pennsylvania, the Company receives
the benefit of a special reciprocal rate of $0.10 per minute. Under the
addendum, this special $0.10 rate will terminate, with respect to each of these
two sets of markets, on the earlier of December 31, 2011 or the first day of the
calendar month which follows the first calendar quarter during which the Company
achieves a subscriber penetration rate of at least 7% of its covered population.
NOTE 7 - INTANGIBLE ASSETS
On September 30, 2004, the Company recorded intangible assets related to
the fair value of owned licensed spectrum, its subscriber base and the Sprint
affiliation agreements. The owned licensed spectrum was determined to have an
indefinite life as it is expected to be renewed with minimal effort and cost.
The subscriber base is being amortized on a straight-line basis over 24 months,
which is the estimated average life of a customer. The Sprint affiliation
intangible is being amortized over the remaining life of the Sprint affiliation
agreements, or 164 months. For the three months ended March 31, 2005, the
Company incurred approximately $8.9 million of amortization expense. The details
of the intangibles as of March 31, 2005, are as follows:
11
HORIZON PCS, INC.
Notes to Consolidated Financial Statements
As of March 31, 2005 and December 31, 2004,
And for the Three Months Ended March 31, 2005 and 2004 (unaudited)
- --------------------------------------------------------------------------------
Gross Net
Amortization Intangible Accumulated Intangible
Period Value Amortization Value
-------------- -------------- -------------- --------------
Successor intangible assets:
Owned licensed spectrum Indefinite $ 1,200,000 - $ 1,200,000
Subscriber base 2 years 63,150,750 (15,787,688) 47,363,063
Sprint affiliation 13.67 years 56,000,000 (2,048,780) 53,951,220
-------------- -------------- ---------------
$120,350,750 $(17,836,468) $102,514,282
============== =============== ===============
Future amortization for the intangibles set forth above for the next five
years is as follows:
-------------------------------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------------------------------------
2005 2006 2007 2008 2009
-------------- -------------- -------------- ------------- --------------
Subscriber base $ 31,575,375 $ 23,681,531 $ - $ - $ -
Sprint affiliation 4,097,561 4,097,561 4,097,561 4,097,561 4,097,561
-------------- -------------- -------------- ------------- --------------
Total $ 35,672,936 $ 27,779,092 $ 4,097,561 $ 4,097,561 $ 4,097,561
============== ============== ============== ============= ==============
NOTE 8 - LONG-TERM DEBT
The components of long-term debt outstanding are as follows:
Interest Rate at March 31, December 31,
March 31, 2005 2005 2004
---------------- ---------------- ----------------
Senior notes............................ 11 3/8% $ 125,000,000 $ 125,000,000
================ ================
The Company pays interest on the 11 3/8% senior notes semi-annually on each
January 15 and July 15. The first payment of approximately $7.0 million was made
on January 15, 2005. These senior notes mature on July 15, 2012, and contain
restrictive covenants. The Company is in compliance with such covenants as of
March 31, 2005.
NOTE 9 - RELATED PARTIES
Horizon Personal Communications, Inc. ("HPC"), one of the Company's
operating subsidiaries, has entered into a service agreement with Horizon
Services, Inc. and a separate services agreement with Horizon Technology, Inc.
Horizon Services and Horizon Technology are both wholly owned subsidiaries of
Horizon Telcom, Inc., the Company's largest stockholder prior to the effective
date of our Plan of Reorganization on October 1, 2004. Thomas McKell, a former
director and the father of the Company's CEO, is the President, a director and
stockholder of Horizon Telcom.
Horizon Services provides services to HPC and Bright PCS including
insurance functions, accounting services, computer access and other customer
relations, human resources, and other administrative services that the Company
would otherwise be required to undertake on its own. These agreements have a
term of three years, with the right to renew the agreement for additional
one-year terms each year thereafter. The Company has the right to terminate each
agreement during its term by providing 90 days' written notice to Horizon
Services. Horizon Services may terminate the agreement prior to its expiration
date only in the event that the Company breaches its obligations under the
services agreement and the Company does not cure the breach within 90 days after
the Company receives written notice of the breach from Horizon Services. Horizon
Services is entitled to direct labor charges at cost and expenses and costs that
are directly attributable to the activities covered by the agreement on a direct
allocation basis from the Company for services provided.
12
HORIZON PCS, INC.
Notes to Consolidated Financial Statements
As of March 31, 2005 and December 31, 2004,
And for the Three Months Ended March 31, 2005 and 2004 (unaudited)
- --------------------------------------------------------------------------------
The agreement provides that Horizon Services' obligations do not relieve
the Company of any of its rights and obligations to its subscribers and to
regulatory authorities having jurisdiction over them. Horizon Services received
compensation from the Company of approximately $790,000 and $1.1 million for the
three months ended March 31, 2005 and 2004, respectively. As of March 31, 2005,
the Company had a non-interest bearing payable to Horizon Services of
approximately $287,000. As of December 31, 2004, the Company had a non-interest
bearing payable to Horizon Services of approximately $445,000 and a receivable
of approximately $8,000.
The Company leases its principal office space and the space for certain
equipment from The Chillicothe Telephone Company, a former affiliate of the
Company prior to the Company's emergence from bankruptcy and a wholly-owned
subsidiary of Horizon Telcom. Under the lease, the Company paid The Chillicothe
Telephone Company $30,000 in each of the three months ended March 31, 2005 and
2004. The Company believes the lease was made on terms no less favorable to the
Company than would have been obtained from a non-affiliated third party. The
lease term expires in May 2007. The Company also has a reciprocal agreement with
The Chillicothe Telephone Company for the usage of various circuits by The
Chillicothe Telephone Company and the Company. As of March 31, 2005, the Company
had a payable to The Chillicothe Telephone Company of approximately $38,000, and
a receivable of approximately $24,000. As of December 31, 2004, the Company had
a payable to The Chillicothe Telephone Company of approximately $40,000, and a
receivable of approximately $26,000.
NOTE 10 - CHANGE IN STOCKHOLDERS' EQUITY
During the first quarter of 2005 as part of the final distribution of
shares in connection with the bankruptcy proceeding (Note 2), the Company issued
approximately 104,000 shares of new common stock to settle claims of bond
holders and general unsecured creditors.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
COMMITMENTS
In January 2005, the Company signed a $14.0 million agreement to purchase
telecommunication equipment from Nortel Networks. The Nortel equipment will
replace the Company's existing wireless network equipment in Fort Wayne,
Indiana, Chillicothe, Ohio, and Johnson City, Tennessee. The Company has paid
$4.25 million through March 31, 2005. The Company has received approximately
$4.23 million of the equipment through March 31, 2005.
OPERATING LEASES
The Company leases office space and various equipment under several
operating leases. In addition, the Company has tower lease agreements with third
parties whereby the Company leases towers for substantially all of the Company's
cell sites. The tower leases are operating leases with a term of five to ten
years with three consecutive five-year renewal option periods.
The Company also leases space for its retail stores. As of March 31, 2005,
the Company leased 12 stores, operating throughout its territories.
13
HORIZON PCS, INC.
Notes to Consolidated Financial Statements
As of March 31, 2005 and December 31, 2004,
And for the Three Months Ended March 31, 2005 and 2004 (unaudited)
- --------------------------------------------------------------------------------
LEGAL MATTERS
The Company is party to legal claims arising in the normal course of
business. Although the ultimate outcome of the claims cannot be ascertained at
this time, it is the opinion of management that none of these matters, when
resolved will have a material adverse impact on the Company's results of
operations or financial condition.
GUARANTEES
The senior notes are guaranteed by the Company's subsidiaries, HPC and
Bright PCS, and will be guaranteed by the Company's future domestic restricted
subsidiaries. The Company has no independent assets or operations apart from its
subsidiaries. The guarantees are general unsecured obligations. Each guarantor
unconditionally guarantees, jointly and severally, on a senior subordinated
basis, the full and punctual payment of principal premium and liquidated
damages, if any, and interest on the discount notes when due. If the Company
creates or acquires unrestricted subsidiaries and foreign restricted
subsidiaries, these subsidiaries need not be guarantors.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and the related notes.
FORWARD-LOOKING STATEMENTS
This quarterly report includes forward-looking statements, which can be
identified by the use of forward-looking terminology such as: "may", "might",
"could", "would", "believe", "expect", "intend", "plan", "seek", "anticipate",
"estimate", "project" or "continue" or the negative thereof or other variations
thereon or comparable terminology. All statements other than statements of
historical fact included in this quarterly report, including without limitation,
the statements under "ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "ITEM 5. Other Information" and located
elsewhere herein regarding our financial position and liquidity are
forward-looking statements. These forward-looking statements include, but are
not limited to:
o statements regarding our anticipated revenues, expense levels,
liquidity and capital resources and operating losses;
o statements regarding our business strategy; and
o statements regarding expectations or projections about markets in our
territory.
Although we believe that the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, we can give no assurance that
such expectations will prove to be correct or that our goals will be achieved.
Given these uncertainties, you are cautioned not to place undue reliance on
these forward-looking statements. We assume no obligation to update or revise
them or provide reasons why actual results may differ. Important factors that
could cause actual results to differ materially from those in the
forward-looking statements included herein include, but are not limited to:
o the impact of our proposed merger with iPCS, Inc. and any effects of a
failure of the proposed merger to be consummated;
o the impact of the proposed merger of Sprint and Nextel;
o the impact of the recent modification of our affiliation agreements
with Sprint;
o the impact of our recently completed bankruptcy proceedings;
o our dependence on our affiliation with Sprint;
o the ability of Sprint to alter the terms of our affiliation agreements
with it, including fees paid or charged to us and other program
requirements;
o our dependence on back-office services, such as billing and customer
care, provided by Sprint;
o changes or advances in technology;
o competition in the industry and markets in which we operate;
o our ability to attract and retain skilled personnel;
o our potential need for additional capital or the need to refinance any
existing indebtedness;
15
o our potential inability to expand our services and related products in
the event of substantial increases in demand for these services and
related products;
o the potential impact of wireless local number portability;
o changes in government regulation;
o future acquisitions;
o the competitiveness and impact on us of Sprint's pricing plans and
Sprint PCS products and services;
o our subscriber credit quality;
o continued high rate of subscriber turnover;
o the potential for inaccuracies in the financial information provided
to us by Sprint;
o our rates of penetration in the wireless industry and in our markets;
o our significant level of indebtedness;
o the impact and outcome of legal proceedings between other Sprint PCS
network partners and Sprint;
o adequacy of bad debt and other reserves;
o our anticipated future losses;
o our subscriber purchasing patterns;
o subscriber satisfaction with our network and operations;
o risks related to future growth and expansion, including subscriber
growth;
o general economic and business conditions;
o possible risks associated with eventual compliance with Section 404 of
the Sarbanes-Oxley Act; and
o effects of mergers and consolidations within the wireless
telecommunications industry, particularly business combinations
involving Sprint or affiliates of Sprint, and unexpected announcements
or developments from others in the wireless telecommunications
industry.
These forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. All
subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
cautionary statements set forth above. See the "Risk Factors" section in the
Company's S-4/A filed on April 28, 2005 for further information regarding
several of the risks and uncertainties.
OVERVIEW
Horizon PCS is a PCS affiliate of Sprint, with the exclusive right to
market Sprint wireless mobility communications network products and services to
a total population of approximately 7.2 million in portions of 11 contiguous
states. Its markets are located between Sprint's Chicago, New York and Knoxville
markets and connect or are adjacent to 12 major Sprint markets. As a PCS
Affiliate of Sprint, Horizon markets wireless mobile communications network
products and services under the Sprint and Sprint PCS brand names. As of
March 31, 2005, the Company had approximately 183,900 subscribers. Horizon
recently revised its method of calculating its total licensed population to make
16
it consistent with the method used by iPCS. This method results in lower
reported total licensed population for several BTAs in which there are counties
that are only partially covered by our affiliation agreements with Sprint PCS.
As a result, the total licensed population is now reported as 7.2 million rather
than 7.4 million. Management believes that this change in the reported total
licensed population will not have a material effect on the Company's revenues or
results of operations.
Sprint operates a 100% digital PCS wireless network in the United States
and holds the licenses to provide PCS nationwide using a single frequency band
and a single technology. Sprint, directly and indirectly through network
partners such as us, provides wireless services in more than 4,000 cities and
communities across the country. Sprint directly operates its PCS network in
major metropolitan markets throughout the United States. Sprint has also entered
into independent agreements with various network partners, such as us, under
which the network partners have agreed to construct and manage PCS networks in
smaller metropolitan areas and along major highways.
MERGER AGREEMENT WITH IPCS, INC.
On March 17, 2005, we entered into an Agreement and Plan of Merger with
iPCS, Inc. ("iPCS"), another PCS affiliate of Sprint, pursuant to which we will
be merged with and into iPCS. Pursuant to the merger, each issued and
outstanding share of our common stock will be converted into 0.7725 shares of
common stock of iPCS, subject to adjustment for certain increases or decreases
in the outstanding number of shares of Horizon PCS or iPCS, unless the holder
exercises its appraisal rights under the General Corporation Law of the State of
Delaware. Outstanding options to purchase our common stock will be converted
into options to purchase common stock of iPCS. The new options will have the
same terms and conditions as the old options, except that the number of shares
of iPCS common stock for which the options may be exercised and the exercise
price of such options will be adjusted based upon the exchange ratio. For
accounting purposes, iPCS will be the acquiror.
If the merger is consummated, the board of directors of iPCS will consist
of three members of our board of directors, three members designated by iPCS and
Timothy M. Yager, currently chief executive officer of iPCS.
The merger agreement contains certain termination rights for the Company
and iPCS, including if the Company or iPCS receive and decide to accept an
unsolicited, superior offer. The merger agreement further provides that in the
event of termination of the merger agreement under certain circumstances, the
Company and iPCS may be required to pay the other a termination fee of $7.0
million.
If the merger is consummated, the senior notes of the Company will become
the direct obligations of iPCS.
In April 2005, the merger was approved under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976. In May 2005, the FCC consented to the
merger. The merger is subject to approval by the holders of a majority of the
Company's common stock and approval by the holders of a majority of iPCS common
stock. For more information regarding the merger, see Amendment No. 1 to the
registration statement on Form S-4 as filed by iPCS on May 11, 2005.
SPRINT/NEXTEL MERGER
On December 15, 2004, Sprint Corporation and Nextel Communications, Inc.
announced that they had signed a merger agreement, pursuant to which Sprint
Corporation and Nextel Communications, Inc. would merge and combine their
operations. Nextel Communications, Inc. and an affiliated company, Nextel
Partners, Inc., operate wireless telecommunications networks in portions of our
service areas. Pursuant to our affiliation agreements with Sprint, Sprint has
granted us certain exclusivity rights within our service areas. The pending
merger between Sprint and Nextel and the operations of the combined company may
result in a breach of the exclusivity provisions of our affiliation agreements
with Sprint, among others. Sprint has announced that it will pursue discussions
with the PCS affiliates of Sprint directed toward a modification of our
affiliation agreements as a result of the Sprint/Nextel merger. We do not know
the terms of Sprint's proposal, or whether we will ultimately reach agreement
with Sprint on mutually satisfactory terms for a revised affiliation agreement.
It is likely that such a revised affiliation agreement would materially change
our business and operations and may result in us making significant payments to
lease or acquire network assets and subscribers or to otherwise modify our
network and marketing plans. There is no assurance that we will have adequate
funds on hand or the ability to borrow such funds in order to acquire the
network assets and subscribers or to otherwise modify our network. In addition,
any borrowing would increase our existing substantial leverage. The announcement
17
and closing of the Sprint/Nextel merger may give rise to a negative reaction by
our existing and potential customers and a diminution in brand recognition or
loyalty, which may have an adverse effect on our revenues. If necessary, we
intend to enforce our rights, whether through seeking injunctive relief or
otherwise, to the extent that Sprint violates or threatens to violate the terms
of our affiliation agreements with Sprint. In the event that the Sprint/Nextel
merger, or any other business combination involving Sprint, is consummated, we
may also incur significant costs associated with integrating Sprint's merger
partner onto our network. In addition, the proposed Sprint/Nextel merger, or any
other such business combination involving Sprint, imposes a degree of
uncertainty on the future of our business and operations insofar as it may lead
to a change in Sprint's PCS affiliate strategy, which may have an adverse effect
on our share price and/or the value of our senior notes.
IMPLEMENTATION OF FRESH-START ACCOUNTING
Pursuant to American Institute of Certified Public Accountants, or "AICPA,"
Statement of Position 90-7 "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code," or "SOP 90-7," the accounting for the effects of the
Reorganization began once the Plan of Reorganization was confirmed by the
Bankruptcy Court, which became effective on October 1, 2004. The fresh-start
accounting principles pursuant to SOP 90-7 provide, among other things, for us
to determine the value to be assigned to the assets of reorganized Horizon PCS,
Inc. as of the confirmation date.
We adopted fresh-start accounting as of October 1, 2004 and our emergence
from Chapter 11 resulted in a new reporting entity. The periods as of September
30, 2004 and prior to October 1, 2004 have been designated "Predecessor Company"
and the periods subsequent to September 30, 2004 have been designated "Successor
Company". Under fresh-start accounting, our reorganization value was allocated
to our assets based on their respective fair values in conformity with the
purchase method of accounting for business combinations. As a result of the
implementation of fresh-start accounting, our financial statements after the
effective date are not comparable to our financial statements for prior periods.
RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THREE MONTHS
ENDED MARCH 31, 2004
KEY METRICS
The following discussion details key operating metrics and focuses on the
details of our financial performance over the three months ended March 31, 2005
compared to the three months ended March 31, 2004.
We provide certain financial measures that are calculated in accordance
with generally accepted accounting principles in the United States ("GAAP") to
assess our financial performance. In addition, we also use non-financial terms,
such as churn, which are metrics used in the wireless communications industry
and are not measures of financial performance under GAAP.
Subscriber Additions. For the three months ended March 31, 2005, our net
subscribers increased by approximately 800 subscribers. We added approximately
2,400 net subscribers and sold our interests in approximately 1,600 subscribers
to Sprint. We expect our subscriber additions to continue to increase in 2005 as
we resume building our subscriber base now that we are emerged from bankruptcy.
Our subscriber base as of March 31, 2005 consisted of approximately 80% prime
credit subscribers compared to approximately 81% as of December 31, 2004. Prime
credit subscribers are those customers with a favorable credit rating.
Churn. Churn is the monthly rate of subscriber turnover that results from
both voluntarily and involuntarily discontinued service during the month. Churn
is computed by dividing the number of subscribers that discontinued service
during the month, net of 30-day returns, by the beginning subscriber base for
the period. Churn for the three months ended March 31, 2005 was 2.9%, the same
as the three months ended March 31, 2004.
18
RESULTS OF OPERATIONS
Results of the Predecessor Company include the operations in our Virginia
and West Virginia markets that were previously operated under a Network Services
Agreement with NTELOS, Inc. These markets were sold to Sprint on June 15, 2004,
and included the economic interest in approximately 92,500 subscribers and seven
retail stores.
Revenues. The following table sets forth a breakdown of our revenues by
type for the three months ended March 31:
Successor Company Predecessor Company
------------------------ ------------------------
Three Months Ended Three Months Ended
March 31, March 31,
2005 2004
------------------------ ------------------------
Amount % Amount %
----------- ----------- ----------- -----------
(dollars in thousands)
Subscriber revenues $27,731 63% $45,659 72%
Roaming revenues 15,217 35% 16,242 26%
Equipment revenues 1,063 2% 1,275 2%
----------- ----------- ----------- -----------
Total revenues $44,011 100% $63,176 100%
=========== =========== =========== ===========
Subscriber revenues. We had approximately 183,900 subscribers at March 31,
2005, compared to approximately 288,900 at March 31, 2004, of which
approximately 93,800 were in the NTELOS markets. Subscriber revenues for the
three months ended March 31, 2005 were approximately $27.7 million, compared to
approximately $45.7 million for the three months ended March 31, 2004, a
decrease of approximately $18.0 million. We received approximately $15.9 million
of subscriber revenues from the NTELOS markets in the first quarter of 2004. As
a result of the decline in our customer base, net of NTELOS, we recognized
approximately $2.1 million less in subscriber revenues.
Roaming revenues. Roaming revenues decreased from approximately $16.2
million for the three months ended March 31, 2004 to approximately $15.2 million
for the three months ended March 31, 2005, a decrease of approximately $1.0
million. This decrease resulted from less minutes of use by Sprint subscribers
on our network in the NTELOS market, which accounted for approximately $4.6
million of roaming revenue in the first quarter of 2004, offset by an increase
of approximately $3.6 million as a result of an increase in rates and minutes of
use in 2005.
Equipment revenues. Equipment revenues for the three months ended March 31,
2005 were approximately $1.1 million, compared to approximately $1.3 million for
the three months ended March 31, 2004, representing a decrease of approximately
$200,000. We sold, including new activations and upgrades, approximately 11,900
handsets at our retail stores during the three months ended March 31, 2005, as
compared to approximately 9,100 sold during the three months ended March 31,
2004. Despite selling more handsets in 2005, we sold these handsets at a lower
average price, net of applicable rebates.
Cost of service. Cost of service for the three months ended March 31, 2005
was approximately $23.7 million, compared to approximately $44.1 million for the
three months ended March 31, 2004, a decrease of approximately $20.4 million.
Approximately $18.6 million of the 2004 expenses were incurred in the NTELOS
markets. Network operating expenses also declined approximately $1.8 million due
to lower costs, primarily for circuits and switches.
Cost of equipment. Cost of equipment for the three months ended March 31,
2005 was approximately $2.1 million, compared to approximately $1.7 million for
the three months ended March 31, 2004, an increase of approximately $400,000.
Cost of equipment increased as a result of more handsets and accessories sold
during 2005. We sold approximately 11,900 handsets, including new activations
and upgrades, at our retail stores during the three months ended March 31, 2005,
as compared to approximately 9,100 sold during the three months ended March 31,
2004.
19
Selling and marketing expenses. Selling and marketing expenses decreased to
approximately $5.7 million for the three months ended March 31, 2005, compared
to approximately $6.6 million for the three months ended March 31, 2004, a
decrease of approximately $900,000. The sale of the NTELOS markets accounted for
approximately $2.0 million of the decrease, offset by an increase of
approximately $1.1 million attributable to increased spending on marketing and
advertising since emerging from bankruptcy. Selling and marketing expenses
include the costs associated with operating our retail stores, including
marketing, advertising, payroll and sales commissions. Selling and marketing
expenses also include commissions paid to national and local third-party
distribution channels and subsidies on handsets sold by third parties for which
we do not record revenue. We expect selling and marketing expenses to continue
increasing as we resume building our subscriber base.
General and administrative expenses. General and administrative expenses
for the three months ended March 31, 2005 were $7.6 million as compared to $8.1
million for the same period in 2004. The sale of the NTELOS markets resulted in
savings of approximately $1.8 million for the first quarter 2005 as compared to
the first quarter in 2004. This decrease was offset by approximately $1.3
million of increased legal and other financial services expenses. The legal and
other financial services expenses include approximately $1.4 million in fees
associated with our merger with iPCS.
Reorganization expenses. Reorganization expenses for the three months ended
March 31, 2004 were $5.5 million. These expenses consist of professional fees
related to our bankruptcy filing of approximately $5.2 million, as well as
payments under our key employee retention plan of $300,000.
Non-cash compensation expense. We recorded approximately $836,000 and
$48,000 for the three months ended March 31, 2005 and 2004, respectively, for
stock options granted in October 2004 and November 1999, respectively. The
increase was the result of the Predecessor's options being cancelled as a result
of the reorganization on October 1, 2004 and new options being granted. In
addition, the 2005 period reflects the adoption of SFAS No. 123R, which caused
us to record higher compensation expense for stock options.
Depreciation and amortization expense. Depreciation and amortization
expense for the three months ended March 31, 2005 was approximately $25.6
million compared to approximately $8.2 million for the three months ended March
31, 2004, an increase of approximately $17.4 million. The increase was the
result of revaluing the property, plant and equipment and intangible assets
during the application of fresh-start accounting. The property, plant and
equipment adjustments resulted in an increase of approximately $8.5 million for
the three months ended March 31, 2005 as compared to the same period in 2004.
Under fresh-start accounting, the remaining useful lives were recasted,
resulting in a shorter remaining life and therefore greater depreciation
expense. Approximately $8.9 million of the increase was due to the intangible
assets that were not recorded on the balance sheet prior to the adoption of
fresh-start reporting on October 1, 2004.
Gain on sale of subscribers. During the three months ended March 31, 2005,
we recorded a gain of approximately $700,000 related to sale of subscribers to
Sprint. Approximately $600,000 of the gain was from the sale of our interest in
approximately 1,600 subscribers in the Ironton, Ohio market to Sprint on
February 1, 2005. Approximately $100,000 of the gain was an amendment, signed in
February 2005, to the Asset Purchase Agreement entered into in May 2004, related
to the sale of subscribers in the NTELOS markets.
Interest income and other, net. Interest income and other net income for
the three months ended March 31, 2005 was approximately $300,000 compared to
approximately $100,000 for the three months ended March 31, 2004 and consisted
primarily of interest income. This increase was due to lowering the balance of
cash on hand and increasing the amount invested in corporate bonds and
commercial paper.
Interest expense, net. Interest expense for the three months ended March
31, 2005 was approximately $3.6 million, compared to approximately $2.1 million
for the three months ended March 31, 2004.
20
We accrue interest at a rate of 11 3/8% annually on our $125.0 million
senior notes issued in July 2004 and began making semi-annual payments on
January 15, 2005. Interest expense on the $125.0 million senior notes was
approximately $3.6 million for the three months ended March 31, 2005. Interest
expense for the three months ended March 31, 2005 also included approximately
$100,000 in amortization of deferred financing fees related to our $125.0
million senior notes, offset by approximately $100,000 of capitalized interest.
For the three months ended March 31, 2004, interest expense consisted of
approximately $2.1 million on our former senior secured credit facility.
Preferred stock dividend. We recorded approximately $3.3 million for the
three months ended March 31, 2004. This stock was cancelled as a result of our
reorganization on October 1, 2004.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2005, we had $50.4 million in cash and cash equivalents
compared to $55.5 million as of December 31, 2004.
With the net proceeds from the offering of the senior notes and subject to
our ability to manage subscriber growth and achieve operating efficiencies, cash
and cash equivalents, combined with cash flows from operations, are expected to
be sufficient to fund any operating losses and working capital and to meet
capital expenditure needs and debt service requirements for at least the next
twelve months.
Statement of Cash Flows. At March 31, 2005, we had cash and cash
equivalents of approximately $50.4 million. At December 31, 2004, we had cash
and cash equivalents of approximately $55.5 million. The decrease in cash and
cash equivalents of approximately $5.1 million is attributed to cash used in
operating activities of $3.6 million and cash used in investing activities of
$1.6 million.
Net cash used in operating activities for the three months ended March 31,
2005 was approximately $3.6 million. This reflects the continuing use of cash
for our operations to add subscribers and operate our network. The net loss of
approximately $24.1 million was offset by approximately $25.6 million in
depreciation, partially offset by approximately $5.1 million in other working
capital changes. Net cash used in operating activities for the three months
ended March 31, 2004 was approximately $4.8 million. Included in this amount is
approximately $5.5 million of reorganization expenses related to our bankruptcy
filing. The net loss of approximately $13.0 million was partially offset by
depreciation, increases in accounts payable and accrued liabilities, offset by
increases to accounts receivable and prepaid expenses.
Net cash used in investing activities for the three months ended March 31,
2005 was approximately $1.6 million, consisting of $700,000 of proceeds received
from Sprint for subscribers, offset by $2.3 million of capital expenditures on
our network. Total capital expenditures anticipated during 2005 are estimated to
be approximately $19.0 million, less approximately $4.5 million from the sale of
old equipment for a net expenditure of $14.5 million.
SEASONALITY
Our business is subject to seasonality because the wireless
telecommunications industry historically has been heavily dependent on fourth
calendar quarter results. Among other things, the industry relies on
significantly higher subscriber additions and handset sales in the fourth
calendar quarter as compared to the other three calendar quarters. A number of
factors contribute to this trend, including:
o the use of retail distribution, which is more dependent upon the
year-end holiday shopping season;
o the timing of new product and service announcements and introductions;
o competitive pricing pressures; and
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o aggressive marketing and promotions.
CRITICAL ACCOUNTING POLICIES & ESTIMATES
Allowance for Doubtful Accounts. Estimates are used in determining our
allowance for doubtful accounts receivable, which are based on a percentage of
our accounts receivables by aging category. The percentage is derived by
considering our historical collections and write-off experience, and current
aging of our accounts receivable and credit-quality trends, as well as Sprint's
credit policy. A change in the actual write-offs experienced could have a
material impact on our financial statements. The following table provides
certain statistics on our allowance for doubtful accounts receivable for the
three months ended:
MARCH 31, MARCH 31,
2005 2004
------------ ------------
Bad debt as a % of subscriber revenue.......... 4% 3%
Write-offs, net of recoveries as a % of
subscriber revenue........................... 5% 4%
Allowance for doubtful accounts as a % of
accounts receivable.......................... 8% 7%
Revenue recognition. We recognize revenues when persuasive evidence of an
arrangement exists, services have been rendered, the price to the buyer is fixed
or determinable, and collectibility is reasonably assured. We recognize service
revenue from our subscribers as they use the service. We pro-rate monthly
subscriber revenue over the billing period and record airtime usage in excess of
the pre-subscribed usage plan. Our subscribers pay an activation fee when they
initiate service. We reduce recorded service revenue for billing adjustments.
Effective July 1, 2003, we adopted EITF No. 00-21, Accounting for Revenue
Arrangements with Multiple Deliverables. This EITF guidance addresses accounting
for arrangements that involve multiple revenue-generating activities. In
applying this guidance, separate contracts with the same party, entered into at
or near the same time, will be presumed to be a bundled transaction, and the
consideration will be measured and allocated to the separate units of the
arrangement based on their relative fair values. The guidance in EITF No. 00-21
became effective for revenue arrangements entered into for quarters beginning
after June 15, 2003. We elected to apply this guidance prospectively from July
1, 2003. Prior to the adoption of EITF No. 00-21, under the provisions of SAB
No. 101, we accounted for the sale of our handsets and our subsequent service to
the customer as a single unit of accounting because our wireless service is
essential to the functionality of our handsets. Accordingly, we deferred all
activation fee revenue and its associated direct costs and amortized these
revenues and costs over the average life of our subscribers, which we estimate
to be 24 months. Under EITF No. 00-21 we no longer need to consider whether
customers can use their handsets without our wireless service provided to them.
Because we meet the criteria stipulated in EITF No. 00-21, the adoption of EITF
No. 00-21 requires us to account for the sale of the handset as a separate unit
of accounting from the subsequent service to the customer. With the adoption of
EITF No. 00-21, we now recognize activation fee revenue generated from our
retail stores as equipment revenue. In addition, we recognize the portion of the
direct activation fee costs related to the handsets sold in our retail stores.
Subsequent to July 1, 2003, we have continued to apply the provisions of SAB No.
101 and have deferred and amortized activation fee revenue and costs generated
by subscribers activated other than through our retail stores.
We participate in the Sprint PCS national and regional distribution program
in which national retailers such as RadioShack and Best Buy sell Sprint PCS
products and services. In order to facilitate the sale of Sprint PCS products
and services, national retailers purchase wireless handsets from Sprint for
resale and receive compensation from Sprint for products and services sold. For
industry competitive reasons, Sprint subsidizes the price of these handsets by
selling the handsets at a price below cost. Under our affiliation agreements
with Sprint, when a national retailer sells a handset purchased from Sprint to a
subscriber in our territory, we are obligated to reimburse Sprint for the
handset subsidy that Sprint originally incurred. The national retailers sell
Sprint wireless services under the Sprint and Sprint PCS brands and marks. We do
not receive any revenues from the sale of wireless handsets by national
retailers. We classify these Sprint wireless handset subsidy charges as a sales
and marketing expense for a wireless handset sale to a new subscriber and
22
classify these subsidies as a cost of service for a wireless handset upgrade to
an existing subscriber.
A management fee of 8% of collected PCS revenues from Sprint PCS
subscribers based in our territory is accrued as services are provided, remitted
to Sprint and recorded as general and administrative expense. Revenues generated
from the sale of handsets and accessories, inbound and outbound Sprint PCS
roaming fees, and roaming services provided to Sprint PCS customers who are not
based in our territory are not subject to the 8% affiliation fee. Expense
related to the management fees charged under the agreement was approximately
$2.3 million and $3.7 million for the three months ended March 31, 2005 and
2004, respectively.
IMPLEMENTATION OF FRESH-START ACCOUNTING
Pursuant to American Institute of Certified Public Accountants, or "AICPA,"
Statement of Position 90-7 "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code," or "SOP 90-7," the accounting for the effects of the
Reorganization began once the Plan of Reorganization was confirmed by the
Bankruptcy Court, which became effective on October 1, 2004. The fresh-start
accounting principles pursuant to SOP 90-7 provide, among other things, for us
to determine the value to be assigned to the assets of reorganized Horizon PCS,
Inc. as of the confirmation date.
We adopted fresh-start accounting as of October 1, 2004 and our emergence
from Chapter 11 resulted in a new reporting entity. The periods as of September
30, 2004 and prior to October 1, 2004 have been designated "Predecessor Company"
and the periods subsequent to September 30, 2004 have been designated "Successor
Company". Under fresh-start accounting, our reorganization value was allocated
to our assets based on their respective fair values in conformity with the
purchase method of accounting for business combinations. As a result of the
implementation of fresh-start accounting, our financial statements after the
effective date are not comparable to our financial statements for prior periods.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based
Payment, which replaces SFAS No. 123, Accounting for Stock-Based Compensation
and supercedes APB Opinion No. 25, Accounting for Stock Issued to Employees.
SFAS No. 123R requires all share-based payments to employees, including grants
of employee stock options, to be recognized in the financial statements based on
their fair values. The pro forma disclosures previously permitted under SFAS No.
123 no longer will be an alternative to financial statement recognition. SFAS
No. 123R has been adopted as discussed in Note 4 and did not have a material
effect on our consolidated financial statements.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an
amendment of ARB No. 43, Chapter 4. The amendments made by SFAS No. 151 clarify
that abnormal amounts of idle facility expense, freight, handling costs, and
wasted materials (spoilage) should be recognized as current-period charges and
require the allocation of fixed production overheads to inventory based on the
normal capacity of the production facilities. SFAS No. 151 is effective for
fiscal years beginning after June 15, 2005. The adoption of SFAS No. 151 is not
expected to have a material impact on the Company's financial position and
results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We do not engage in commodity futures trading activities and do not enter
into derivative financial instruments for speculative trading purposes. We also
do not engage in transactions in foreign currencies that would expose us to
additional market risk. Although in the past we have managed interest rate risk
on our outstanding long-term debt through the use of fixed and variable-rate
debt and interest rate swaps, we currently have no outstanding swaps.
In the normal course of business, our operations are exposed to interest
rate risk. Our primary interest rate risk exposure relates to (i) our ability to
refinance our fixed-rate notes at maturity at market rates, and (ii) the impact
of interest rate movements on our ability to meet interest expense requirements
23
and financial covenants under our debt instruments.
As of March 31, 2005, we had outstanding borrowings of approximately $125.0
million under our senior notes issued in 2004. The rate of interest on the
senior notes is fixed at 11 3/8%. To the extent that we incur any floating rate
financing in the future, we would be exposed to interest rate risk on such
indebtedness, as variable interest rates may increase substantially. If the
merger with iPCS is consummated, the senior notes will become the direct
obligations of iPCS.
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND INTERNAL CONTROLS
Our disclosure controls and procedures (as defined in Rule 13a-15(e) and
Rule 15d-15(e) under the Exchange Act) ("Disclosure Controls") are controls and
procedures that are designed with the objective of ensuring that information
required to be disclosed in our reports filed under the Exchange Act, such as
this annual report, is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms. Disclosure Controls are
also designed with the objective of ensuring that this information is
accumulated and communicated to our management, including our Chief Executive
Officer and our Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS
Our management, including our Chief Executive Officer and our Chief
Financial Officer, does not expect that our Disclosure Controls will prevent all
errors and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within our company have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty and that breakdowns can occur because of a simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people or by management override of the
control. Moreover, the design of any system of controls is also based in part
upon certain assumptions about the likelihood of future events.
Notwithstanding the foregoing limitations, we believe that our Disclosure
Controls provide reasonable assurances that the objectives of our control system
are met.
As of March 31, 2005, the last day of the period covered by this report, an
evaluation was carried out under the supervision and with the participation of
our management, including our Chief Executive Officer and our Chief Financial
Officer, of the effectiveness of the design and operation of our Disclosure
Controls. Based upon that evaluation, our Chief Executive Officer and our Chief
Financial Officer concluded that the design and operation of our Disclosure
Controls were effective at the reasonable assurance level to ensure that
material information related to our Company which is required to be disclosed in
reports filed under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in SEC rules and
forms.
There have not been any changes in our internal controls over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during our first quarter ended March 31, 2005 that have materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.
We place reliance on Sprint to adequately design its internal controls with
respect to the processes established to provide financial information and other
information to us and the other PCS affiliates of Sprint. To address this issue,
Sprint engages an independent registered public accounting firm to perform a
periodic evaluation of these controls and to provide a "Report on Controls
24
Placed in Operation and Tests of Operating Effectiveness for Affiliates" under
guidance provided in Statement of Auditing Standards No. 70. This report is
provided bi-annually to us.
25
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are party to various legal actions that are ordinary and incidental to our
business. While the outcome of legal actions cannot be predicted with certainty,
our management believes the outcome of these proceedings will not have a
material adverse effect on our financial condition or results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In the quarter ended March 31, 2005, we issued 103,749 shares of common
stock to creditors pursuant to our Plan of Reorganization. The Company relied on
the exemption from registration under Securities Act of 1933 provided by Section
1145 of the United States Bankruptcy Code.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
(a) None.
(b) None.
ITEM 6. EXHIBITS
EXHIBITS
Exhibit No. Description
----------- -----------
2.1***(1) Asset Purchase Agreement, dated as of May 12, 2004, by and
between Horizon PCS, Inc., Horizon Personal Communications, Inc.,
Bright Personal Communications Services, LLC and Sprint PCS, Inc.
(1)
2.2*** Joint Plan of Reorganization of Horizon PCS, Inc., Horizon
Personal Communications, Inc. and Bright Personal Communications
Services, LLC, dated as of September 20, 2004.
2.3****(1)Agreement and Plan of Merger, dated as of March 17, 2005, by and
between iPCS, Inc. and Horizon PCS, Inc. (1)
2.4**** Support Agreement, dated as of March 17, 2005, by and among iPCS,
Inc., Apollo Investment Fund IV, L.P. and certain of its
affiliates.
2.5**** Support Agreement, dated as of March 17, 2005, by and among
Horizon PCS, Inc. and certain affiliates of American
International Group, Inc.
2.6**** Support Agreement, dated as of March 17, 2005, by and among iPCS,
Inc., Horizon PCS, Inc. and certain affiliates of Silver Point
Capital L.P.
2.7**** Ancillary Agreement, dated as of March 17, 2005, by and among
iPCS, Inc., certain affiliates of American International Group,
Inc., certain affiliates of Silver Point Capital L.P, Apollo
Investment Fund IV, L.P. and certain of its affiliates, and the
Timothy M. Yager 2001 Trust.
26
3.1*** Amended and Restated Certificate of Incorporation of Horizon PCS.
3.2*** Amended and Restated Bylaws of Horizon PCS.
10.3.5*** Addendum VIII to Sprint PCS Management Agreement, dated as of
March 16, 2005, among Horizon Personal Communications, Inc.,
SprintCom, Inc., Sprint Spectrum L.P., WirelessCo, L.P.,
PhillieCo, L.P., APC PCS, LLC and Sprint Communications Company,
L.P.
10.7.1*** Addendum IV to Sprint PCS Management Agreement, dated as of
March 16, 2005, by and between Sprint Spectrum L.P., Sprint
Communications Company, L.P. and Bright Personal Communications
Services, LLC.
10.14*** Settlement Agreement and Mutual Release, dated as of March 16,
2005, by and between Sprint Spectrum L.P., SprintCom, Inc.,
WirelessCo, L.P., PhillieCo, L.P., APC PCS, LLC, Sprint
Communications Company L.P., Horizon Personal Communications,
Inc. Bright Personal Communications Services, LLC and Horizon
PCS, Inc.
31.1 Certification of CEO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of CFO Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of CEO Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Certification of CFO Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
*** incorporated by reference to the same exhibit number previously filed with
the Registration Statement on Form S-4 of the Registrant (File No.
333-123383).
**** incorporated herein by reference to the Current Report on Form 8-K of
Horizon PCS, Inc. filed on March 18, 2005.
(1) In accordance with Item 601(b)(2) of Regulation S-K, the schedules have
been omitted and a list briefly describing the schedules is at the end of
the Exhibit. The Registrant will furnish supplementally a copy of any
omitted schedule to the commission upon request.
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HORIZON PCS, INC.
Registrant
Date: May 16, 2005 By: /s/ William A. McKell
--------------------------
William A. McKell
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 16, 2005 By: /s/ Peter M. Holland
--------------------------
Peter M. Holland
Chief Financial Officer
(Principal Financial and Chief Accounting Officer)
28