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NextWave Wireless Reports Third Quarter Financial Results
Incurs $172 million charge for discontinued network infrastructure operations
Today NextWave Wireless Inc. (NASDAQ: WAVE) filed its Quarterly Report on Form 10-Q for its third fiscal quarter which ended September 27, 2008. Financial schedules are included with this release.
Results from Continuing Operations
During the third quarter of 2008, the Company discontinued Its Networks segment, which includes its GO Networks, IP Wireless, and Cygnus subsidiaries, and its Global Services and NextWave Network Product Support strategic business units. The financial information below, which reports results from continuing operations, does not include the results of these discontinued operating units.
NextWave reported revenues from continuing operations of $18.2 million for the third quarter of 2008, versus $10.9 million for the third quarter of 2007, an increase of 67 percent. The increase in quarterly revenue was driven by increased sales of NextWave's mobile device software revenues, which are generated by the Company's PacketVideo subsidiary.
For the first nine months of 2008, revenues from continuing operations were $51.5 million compared to $26.4 million for the first nine months of 2007, an increase of 95 percent. The increase in year-over-year revenues is primarily related to increased sales by the Company's PacketVideo subsidiary.
NextWave reported a loss from operations of $23.6 million for the third quarter of 2008, a decrease of $17.9 million or 43 percent over the third quarter of 2007, primarily due to increased royalties from our Multimedia segment and a $19.3 million gain on sale of wireless spectrum in the quarter ended September 27, 2008, offset with a $6.1 million asset impairment and restructuring charge.
For the first nine months of 2008, operating loss was $102.7 million compared to a loss of $108.2 million for the first nine months of 2007, a decrease of five percent. NextWave experienced an increase in operating expenses, excluding costs of revenues, of $31.1 million, year-over-year, including $6.2 million related to asset impairment and restructuring charges, favorably offset by a $19.3 million gain on sale of wireless spectrum.
In an effort to reduce its future working capital requirements, and as required pursuant to the terms of its Second Lien Notes, NextWave has adopted an operating budget (the "Operating Budget") which contemplates the expansion of and implementation of NextWave's global restructuring initiative first announced in the third quarter of 2008. Pursuant to the Operating Budget, NextWave intends to, among other things, divest its network infrastructure businesses, pursue the sale of certain other of its businesses and assets, and complete other cost reduction actions. NextWave believes the completion of the asset divestiture and cost reductions actions contemplated by its Operating Budget, its current cash, cash equivalents and marketable securities, projected revenues from its Multimedia segment, and the proceeds from the issuance of the Second Lien Notes will allow the Company to meet its estimated working capital requirements at least through September 2009.
Discontinuation of Network Infrastructure Businesses
In September 2008, NextWave announced its intent to divest its network infrastructure businesses, which comprise its Networks segment, either through sale, dissolution or closure. Its Networks segment includes its GO Networks, IP Wireless, and Cygnus subsidiaries, and its Global Services and NextWave Network Product Support strategic business units. Accordingly, NextWave is actively marketing for sale its IP Wireless subsidiary and has discontinued the operations of its GO Networks and Cygnus subsidiaries. Additionally, bankruptcy liquidation proceedings have been initiated for three of its network infrastructure subsidiaries in Israel, Denmark and Canada, which is designed to provide an orderly process for the discontinuance of operations and to advance its divestiture and cost reduction strategy. NextWave expects to complete the planned divestiture of its Networks segment during the fourth quarter of 2008.
For the quarter ended September 27, 2008, primarily from its Network reporting segment, the company incurred a loss from discontinued operations of $196.2 million, including a $171.8 million write-down related to asset impairment and restructuring initiatives. The majority of the asset impairment charges were related to a reduction in the carrying value of goodwill and other intangibles assets related to 2007 acquisitions of GO Networks, Inc and IP Wireless, Inc.
Semiconductor Business
The Company has engaged the services of Canaccord Adams to explore strategic transactions to preserve the value of its semiconductor business and eliminate the need for NextWave to make on-going capital investments in or incur liabilities relating to this business past the end of the first fiscal quarter of 2009, as contemplated by the Operating Budget.
Other Financial Results
Total reported net interest expense in the third quarter of 2008 was $11.8 million compared to $6.9 million in the same quarter of 2007, an increase of $4.9 million. This increase reflects a reduction in interest income due to a decrease in available cash, cash equivalents and marketable securities for the quarter.
Net loss available to common shares for the third quarter 2008 was $240.8 million, or $2.34 per share, compared to a net loss available to common shares of $107.8 million, or $1.17 per share for the third quarter of 2007. The increase in net loss available to common shares is primarily due to an increase in loss for discontinued operations of $144.3 million, favorably offset with a reduced loss from continuing operations.
For the first nine months of 2008, net loss available to common shares was $434.8 million, or $4.35 per share, compared to a loss of $229.5 million, or $2.60 per share for the first nine months of 2007. The increase in net loss year-over-year is primarily related to operating losses in acquisitions that were not present for the entire first nine months of 2007, as well as asset impairment and restructuring charges for the current quarter.
To improve its liquidity, on October 9, 2008, NextWave issued Senior-Subordinated Secured Second Lien Notes due 2010 (the "Second Lien Notes") in the aggregate principal amount of $105.3 million, with net proceeds of approximately $89 million to be used solely in connection with the ordinary course business operations and not for any acquisition of assets or businesses or other uses. The Second Lien Notes bear interest at a rate of 14% per annum and mature on December 31, 2010 and are subordinated in right of payment to the Senior Notes. In related transactions, NextWave entered into amendments to its 7% Senior Secured Notes due July 17, 2010 in the aggregate principal amount of $350.0 million and issued Third Lien Subordinated Secured Convertible Notes due 2011 ("Exchange Notes") in an aggregate principal amount of $478.3 million in exchange for all of its outstanding shares of Series A Senior Convertible Preferred Stock. These related activities were consummated to satisfy the funding conditions under the Company's Second Lien Notes commitment and to facilitate the global restructuring initiative. NextWave did not receive any proceeds from the issuance of the Exchange Notes. The Company believes that this funding, obtained during very challenging economic times, provides the Company working capital to allow an orderly execution of its restructuring program and improves its ability to maximize the value of its assets, including its wireless spectrum portfolio.
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NEXTWAVE WIRELESS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except par value data) |
|||||||
| September 27, 2008 | December 29,
2007 |
||||||
| ASSETS | (unaudited) | ||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 5,966 | $ | 47,634 | |||
| Marketable securities | 1,084 | 113,684 | |||||
| Restricted cash and marketable securities | 60,913 | - | |||||
| Accounts receivable, net of allowance for doubtful accounts of $203 and $156, at September 27, 2008 and December 29, 2007, respectively | 6,473 | 6,941 | |||||
| Deferred cost of revenues | 2,739 | 3,515 | |||||
| Wireless spectrum assets held for sale | 141,680 | - | |||||
| Assets of discontinued operations | 44,074 | 249,689 | |||||
| Prepaid expenses and other current assets | 6,039 | 5,536 | |||||
| Total current assets | 268,968 | 426,999 | |||||
| Restricted cash | - | 75,000 | |||||
| Wireless spectrum licenses, net | 498,257 | 633,881 | |||||
| Goodwill | 39,509 | 40,082 | |||||
| Other intangible assets, net | 22,799 | 27,247 | |||||
| Property and equipment, net | 23,725 | 29,773 | |||||
| Other noncurrent assets | 7,115 | 25,756 | |||||
| Total assets | $ | 860,373 | $ | 1,258,738 | |||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
| Current liabilities: | |||||||
| Accounts payable | $ | 10,606 | $ | 6,001 | |||
| Accrued expenses | 30,839 | 49,226 | |||||
| Current portion of long-term obligations | 205,140 | 6,745 | |||||
| Deferred revenue | 20,850 | 24,696 | |||||
| Accrued restructuring charges | 1,851 | - | |||||
| Liabilities of discontinued operations | 65,273 | 80,976 | |||||
| Other current liabilities | 7,479 | 2,121 | |||||
| Total current liabilities | 342,038 | 169,765 | |||||
| Deferred income tax liabilities | 102,744 | 103,264 | |||||
| Long-term obligations, net of current portion | 162,054 | 320,782 | |||||
| Accrued purchase consideration and stock bonuses payable | 3,032 | 57,903 | |||||
| Other noncurrent liabilities | 6,855 | 6,273 | |||||
| Total liabilities | 616,723 | 657,987 | |||||
| Commitments and contingencies | |||||||
| Redeemable Series A Senior Convertible Preferred Stock, $0.001 par value; 355 shares authorized; 355 shares issued and outstanding; liquidation preference of $397,592 and $375,811 at September 27, 2008 (unaudited) and December 29, 2007, respectively | 393,988 | 371,986 | |||||
| Stockholders' equity (deficit): | |||||||
| Preferred stock, $0.001 par value; 25,000 shares authorized; 355 shares designated as Series A Senior Convertible Preferred Stock; no other shares issued or outstanding | - | - | |||||
| Common stock, $0.001 par value; 400,000 shares authorized; 103,092 and 92,667 shares issued and outstanding at September 27, 2008 (unaudited) and December 29, 2007, respectively | 103 | 93 | |||||
| Additional paid-in-capital | 721,080 | 686,918 | |||||
| Accumulated other comprehensive income | 12,335 | 12,836 | |||||
| Accumulated deficit | (883,856 | ) | (471,082 | ) | |||
| Total stockholders' equity (deficit) | (150,338 | ) | 228,765 | ||||
| Total liabilities and stockholders' equity (deficit) | $ | 860,373 | $ | 1,258,738 | |||
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NEXTWAVE WIRELESS INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited) |
||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 27,
2008 |
September 29,
2007 |
September 27,
2008 |
September 29,
2007 |
|||||||||||||
| Technology licensing and service revenues | $ | 18,207 | $ | 10,875 | $ | 51,468 | $ | 26,381 | ||||||||
| Operating expenses: | ||||||||||||||||
| Cost of technology licensing and service revenues | 7,246 | 6,151 | 21,449 | 13,649 | ||||||||||||
| Engineering, research and development | 22,969 | 20,377 | 64,882 | 54,454 | ||||||||||||
| Sales and marketing | 4,669 | 3,799 | 16,694 | 10,606 | ||||||||||||
| General and administrative | 20,155 | 22,040 | 64,263 | 55,019 | ||||||||||||
| Asset impairment charges | 2,244 | - | 2,244 | - | ||||||||||||
| Restructuring charges | 3,818 | - | 3,948 | - | ||||||||||||
| Purchased in-process research and development costs | - | - | - | 860 | ||||||||||||
| Total operating expenses | 61,101 | 52,367 | 173,480 | 134,588 | ||||||||||||
| Gain on sale of wireless spectrum licenses | 19,317 | - | 19,317 | - | ||||||||||||
| Loss from operations | (23,577 | ) | (41,492 | ) | (102,695 | ) | (108,207 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | 229 | 4,813 | 2,694 | 12,313 | ||||||||||||
| Interest expense | (12,045 | ) | (11,710 | ) | (45,821 | ) | (34,048 | ) | ||||||||
| Other income (expense), net | (1,576 | ) | (253 | ) | (2,812 | ) | (70 | ) | ||||||||
| Total other expense, net | (13,392 | ) | (7,150 | ) | (45,939 | ) | (21,805 | ) | ||||||||
| Loss from continuing operations before provision for income taxes and minority interest | (36,969 | ) | (48,642 | ) | (148,634 | ) | (130,012 | ) | ||||||||
| Income tax provision | (144 | ) | (351 | ) | (631 | ) | (752 | ) | ||||||||
| Minority interest | - | - | - | 1,048 | ||||||||||||
| Net loss from continuing operations | (37,113 | ) | (48,993 | ) | (149,265 | ) | (129,716 | ) | ||||||||
| Loss from discontinued operations, net of income tax provision of $797, $0, $966 and $0, respectively | (196,187 | ) | (51,859 | ) | (263,509 | ) | (85,796 | ) | ||||||||
| Net loss | (233,300 | ) | (100,852 | ) | (412,774 | ) | (215,512 | ) | ||||||||
| Less: Preferred stock dividends | (7,397 | ) | (6,862 | ) | (21,782 | ) | (13,814 | ) | ||||||||
| Accretion of issuance costs on preferred stock | (75 | ) | (69 | ) | (220 | ) | (139 | ) | ||||||||
| Net loss applicable to common shares | $ | (240,772 | ) | $ | (107,783 | ) | $ | (434,776 | ) | $ | (229,465 | ) | ||||
| Net loss per common share - basic and diluted: | ||||||||||||||||
| Continuing operations, including preferred stock dividends and costs | $ | (0.43 | ) | $ | (0.60 | ) | $ | (1.72 | ) | $ | (1.62 | ) | ||||
| Discontinued operations | (1.90 | ) | (0.56 | ) | (2.64 | ) | (0.97 | ) | ||||||||
| Net loss per common share - basic and diluted | $ | (2.34 | ) | $ | (1.17 | ) | $ | (4.35 | ) | $ | (2.60 | ) | ||||
| Weighted average shares used in per share calculation | 103,092 | 92,468 | 99,851 | 88,413 | ||||||||||||
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NEXTWAVE WIRELESS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) |
|||||||
| Nine Months Ended | |||||||
| September 27, 2008 | September 29, 2007 | ||||||
| OPERATING ACTIVITIES | |||||||
| Net loss | $ | (412,774 | ) | $ | (215,512 | ) | |
| Loss from discontinued operations, net of taxes | (263,509 | ) | (85,796 | ) | |||
| Loss from continuing operations | (149,265 | ) | (129,716 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
| Amortization of intangible assets | 14,226 | 7,548 | |||||
| Depreciation | 6,676 | 4,170 | |||||
| Non-cash share-based compensation | 4,129 | 7,031 | |||||
| Accretion of interest expense | 16,776 | 15,536 | |||||
| Gain on sale of spectrum license | (19,317 | ) | - | ||||
| Asset impairment charges | 2,244 | - | |||||
| Other-than-temporary impairment of marketable securities | 2,721 | - | |||||
| In-process research and development | - | 860 | |||||
| Minority interest | - | (1,048 | ) | ||||
| Other non-cash adjustments | 450 | 2,262 | |||||
| Changes in operating assets and liabilities: | |||||||
| Accounts receivable | 424 | 3,815 | |||||
| Deferred cost of revenues | 769 | (619 | ) | ||||
| Prepaid expenses and other current assets | (795 | ) | 1,303 | ||||
| Other assets | (1,556 | ) | 1,993 | ||||
| Accounts payable and accrued liabilities | (4,841 | ) | (3,162 | ) | |||
| Deferred revenue | (4,641 | ) | 9,150 | ||||
| Other liabilities and deferred credits | 3,113 | 573 | |||||
| Net cash used in operating activities-continuing operations | (128,887 | ) | (80,305 | ) | |||
| INVESTING ACTIVITIES | |||||||
| Proceeds from maturities of marketable securities | 106,385 | 19,273 | |||||
| Proceeds from sales of marketable securities | 115,671 | 865,234 | |||||
| Purchases of marketable securities | (112,167 | ) | (905,251 | ) | |||
| Cash from sale of wireless spectrum licenses | 35,774 | - | |||||
| Cash paid for business combinations, net of cash acquired | (268 | ) | (84,562 | ) | |||
| Cash paid for wireless spectrum licenses | (4,864 | ) | (34,607 | ) | |||
| Cash paid to acquire property and equipment | (5,779 | ) | (8,616 | ) | |||
| Cash advanced to our investee pursuant to convertible note agreement | (500 | ) | - | ||||
| Other, net | (698 | ) | (500 | ) | |||
| Net cash provided by (used in) investing activities-continuing operations | 133,554 | (149,029 | ) | ||||
| FINANCING ACTIVITIES | |||||||
| Net cash released from restricted cash account securing long-term obligations | 17,763 | - | |||||
| Proceeds from the sale of Series A Senior Convertible Preferred Stock, net of costs to issue | - | 351,146 | |||||
| Proceeds from long-term debt | 21,463 | - | |||||
| Payments on long-term obligations | (7,453 | ) | (4,052 | ) | |||
| Proceeds from the sale of common shares | 1,737 | 2,175 | |||||
| Cash distribution paid to members | - | (2,034 | ) | ||||
| Net cash provided by financing activities-continuing operations | 33,510 | 347,235 | |||||
| Cash used by discontinued operations: | |||||||
| Net cash used in operating activities-discontinued operations | (74,121 | ) | (68,435 | ) | |||
| Net cash used in investing activities-discontinued operations | (5,721 | ) | (9,576 | ) | |||
| Net cash used by discontinued operations | (79,842 | ) | (78,011 | ) | |||
| Effect of foreign currency exchange rate changes on cash | (135 | ) | - | ||||
| Net increase (decrease) in cash and cash equivalents | (41,518 | ) | 39,891 | ||||
| Cash and cash equivalents, beginning of period | 53,050 | 32,980 | |||||
| Cash and cash equivalents, end of period | 11,532 | 72,871 | |||||
| Less cash and cash equivalents of discontinued operations, end of period | (5,566 | ) | (5,644 | ) | |||
| Cash and cash equivalents of continuing operations, end of period | $ | 5,966 | $ | 67,227 | |||
| Noncash investing and financing activities: | |||||||
| Common stock issued for business acquisitions | $ | 36,501 | $ | 74,522 | |||
| Common stock issued under stock plans | $ | 7,051 | $ | 2,268 | |||
| Wireless spectrum licenses acquired with lease obligations | $ | 8,636 | $ | 5,569 | |||
Note Regarding Forward-Looking Statements
This press release contains "forward-looking statements" for purposes of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. There can be no assurances that forward-looking statements will be achieved, and actual events or results could differ materially from the events or results predicted by such statements. Important factors that could cause actual events or results to differ materially are discussed in greater detail in the filings of NextWave with the Securities and Exchange Commission. Investors should refer to NextWave's Quarterly Report on Form 10-Q for the fiscal quarter ended September 27, 2008 and other filings with the Securities and Exchange Commission for a description of risks relating to NextWave's business, including, but not limited to its need to successfully restructure its global operations in order to comply with the terms of its Senior Notes and Second Lien Notes and continue as a going concern; its requirements to comply with a restrictive Operating Budget and meet asset sale targets pursuant to the terms of its Senior Notes and Second Lien Notes or bear adverse economic consequences including increased interest expense, acceleration of indebtedness or further warrant issuances; its high level of leverage and reduced operating flexibility due to debt covenants; its need to successfully sell the majority of its domestic and international spectrum assets in order to retire its debt on or prior to its maturity dates; its Multimedia segment must sustain and grow its business in the current challenging economic climate in light of NextWave's greater dependence on the Multimedia segment for future revenues needed to comply with its Operating Budget; NextWave's common stock could be delisted from the NASDAQ Global Market if its stock price continues to trade below $1.00 per share; it may identify a material weakness in internal control over financial reporting for the year ended December 27, 2008 due to control deficiencies at certain discontinued subsidiaries if NextWave fails to dispose of such subsidiaries prior to fiscal year-end; and the outcome of recent securities class action and derivative claims filed against NextWave and its directors and executive officers; and the other risks described under the heading "Risk Factors" in such filings. All such documents are available through the SEC's website at www.sec.gov. NextWave makes no commitment to update any forward-looking statements in order to reflect subsequent changes in events or circumstances except as may be required pursuant to applicable law.
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