UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 17, 2003
AIRGATE PCS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 027455 58-2422929
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification
incorporation) Number)
Harris Tower,
233 Peachtree Street N.E.,
Suite 1700
Atlanta, Georgia 30303
(Address of principal executive offices) (Zip Code)
(404) 525-7272
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Item 2. Acquisition or Disposition of Assets
On November 30, 2001, AirGate PCS, Inc. (the "Company") acquired iPCS, Inc.
(together with its subsidiaries, "iPCS"). Subsequent to November 30, 2001 and
through February 23, 2003, the results of operations and accounts of iPCS were
consolidated with the Company in accordance with generally accepted accounting
principles. On February 23, 2003, iPCS filed a Chapter 11 bankruptcy petition in
the United States Bankruptcy Court for the Northern District of Georgia for the
purpose of effecting a court-administered reorganization. In accordance with
generally accepted accounting principles, subsequent to February 23, 2003, the
Company ceased consolidating the accounts and results of operations of iPCS and
the accounts of iPCS were recorded as an investment using the cost method of
accounting. On October 17, 2003, the Company irrevocably transferred all of its
shares of iPCS common stock into a trust organized under Delaware law as
described below. On the date of the transfer, generally accepted accounting
principles require this disposition to be accounted for as a discontinued
operation.
The Company filed a prospectus and solicitation statement on Form S-4 with
the Securities and Exchange Commission on September 26, 2003 with respect to a
proposed restructuring of certain of the Company's indebtedness. In connection
with the proposed restructuring, the Company would issue up to 33 million shares
of its common stock. As a result of this issuance, the Company would undergo an
ownership change under Section 382 of the Internal Revenue Code of 1986, as
amended. An ownership change of the Company would also cause an ownership change
of its wholly-owned subsidiary, iPCS. This ownership change could have a
detrimental effect on the use of certain net operating losses ("NOLs") of iPCS
and, consequently, could subject the Company's restructuring to the automatic
stay protection of the iPCS bankruptcy court.
In order to prevent such an effect, on October 17, 2003, the Company
irrevocably transferred all of its shares of iPCS common stock into a trust
organized under Delaware law. The Company's shareholders on the date of transfer
to the trust are the trust's sole beneficiaries (the "Beneficiaries"). Such
Beneficiaries' interest in the trust is equal to their percentage ownership of
the Company on October 17, 2003. The Company received no cash consideration from
its shareholders or the trust in connection with the transfer. The bankruptcy
court overseeing iPCS' bankruptcy approved (i) the transfer of the iPCS shares
to the trust, (ii) the Trust Agreement (the "Agreement") by and between AirGate
and Wilmington Trust Company, as trustee, and (iii) upon confirmation of iPCS's
plan of reorganization by the bankruptcy court, the distribution to the
Beneficiaries of iPCS stock if the iPCS plan of reorganization that the court
approves provides for such distribution. It is likely that the iPCS bankruptcy
court will ascribe little to no value to the iPCS stock held in the trust.
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Under the Agreement, the trustee will administer the trust and the Company
will have no ability to direct the trustee in its administration of the trust.
The Company will pay all expenses of the trust and the trustee.
The Agreement provides that the Beneficiaries may not transfer their
interest in the trust in any manner except by bequest or inheritance or by
operation of law. Distributions from the trust to the Beneficiaries will be made
only upon the final approval of an iPCS plan of reorganization by the iPCS
bankruptcy court which provides for a distribution to the Beneficiaries. The
trust will terminate upon the earlier of (i) a distribution as described in the
previous sentence, (ii) the approval of an iPCS plan of reorganization by the
iPCS bankruptcy court that does not provide for such a distribution and (iii)
October 17, 2006. Upon termination, the trustee will distribute the iPCS stock
to the Beneficiaries. Under no circumstances will the iPCS stock revert to or
vest with the Company.
The Agreement states that iPCS' Board of Directors will retain control over
iPCS and that Timothy M. Yager will remain as iPCS' Chief Restructuring Officer.
The trustee of the trust may not, other than as directed by iPCS' Board of
Directors or by the iPCS bankruptcy court, (i) alter or amend iPCS' certificate
of incorporation or bylaws, (ii) issue any securities, (iii) remove any of iPCS'
directors or (iv) change the size of iPCS' Board of Directors. In addition, the
trustee may not amend the terms of the management agreement between iPCS and an
affiliate of Mr. Yager or take any action to remove Mr. Yager or any other
officer of iPCS. Except as discussed above regarding distributions of the iPCS
stock to the Beneficiaries, the trustee may not sell or transfer such stock.
Finally, the trustee must vote the iPCS stock in accordance with the directions
of the iPCS Board of Directors and the trustee has no obligation to act absent
direction from the iPCS Board of Directors.
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The Agreement further provides that the trustee must deliver to the
Beneficiaries within 90 days of the end of each calendar year, a report showing
assets and liabilities of the trust as of the end of the year and the receipts
and disbursements of the trust for the period. The report must also describe the
changes in the trust's assets and the actions taken by the trustee during the
period. The trustee must also mail to the Beneficiaries interim reports
describing any material events relating to the iPCS stock. Neither the trustee
nor iPCS is required to deliver iPCS' financial statements to the Beneficiaries.
The summary of the Agreement set forth above is qualified in its entirety
to the terms of the Agreement. A copy of the Agreement is attached hereto as
exhibit 99.1 and is incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(b) Pro forma financial information.
The accompanying unaudited Pro Forma Condensed Consolidated Balance Sheet
as of June 30, 2003 and the Unaudited Pro Forma Condensed Consolidated
Statements of Operations for the nine months ended June 30, 2003 and year ended
September 30, 2002 are included as part of this Form 8-K.
(c) Exhibits.
Exhibit No. Description
----------- -----------
99.1 Trust Agreement dated October 17, 2003 by and between
AirGate PCS, Inc. and Wilmington Trust Company, as Trustee.
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AIRGATE PCS, INC.
PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except for share and per share amounts)
On November 30, 2001, AirGate PCS, Inc. (the "Company") acquired iPCS, Inc.
(together with its subsidiaries, "iPCS"). Subsequent to November 30, 2001 and
through to February 23, 2003, the results of operations and accounts of iPCS
were consolidated with the Company in accordance with generally accepted
accounting principles. On February 23, 2003, iPCS filed a Chapter 11 bankruptcy
petition in the United States Bankruptcy Court for the Northern District of
Georgia for the purpose of effecting a court-administered reorganization. In
accordance with generally accepted accounting principles, subsequent to February
23, 2003, the Company ceased consolidating the accounts and results of
operations of iPCS and the accounts of iPCS were recorded as an investment using
the cost method of accounting. On October 17, 2003, the Company irrevocably
transferred all of its shares of iPCS common stock into a trust organized under
Delaware law. On the date of the transfer, generally accepted accounting
principles require this disposition to be accounted for as a discontinued
operation.
The accompanying Unaudited Pro Forma Condensed Consolidated Statements of
Continuing Operations for the nine months ended June 30, 2003 and for the year
ended September 30, 2002 assume that the transfer of shares of iPCS took place
on November 30, 2001. The accompanying unaudited pro forma condensed
consolidated statements of continuing operations present the significant
financial aspects of the disposition as if iPCS were a discontinued operation.
The accompanying unaudited pro forma condensed consolidated information is
presented for illustrative purposes only and is not necessarily indicative of
the financial position which would actually have been reported had the
disposition been consummated during the periods presented, nor is it necessarily
indicative of future operating results or financial position of the Company.
This information was derived from the unaudited consolidated financial
statements of the Company for the nine months ended June 30, 2003 and the
audited consolidated financial statements of the Company for the year ended
September 30, 2002. The historical financial statements used in preparing the
unaudited pro forma condensed consolidated statements of continuing operations
are summarized and should be read in conjunction with the Company's complete
historical financial statements and related notes that the Company has filed
with the Securities and Exchange Commission.
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AIRGATE PCS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF CONTINUING OPERATIONS
For the Nine Months Ended June 30, 2003
(Dollars in thousands, except for share and per share amounts)
Historical Pro Forma
9 Months Ended 9 Months Ended
June 30, Pro Forma June 30,
2003 Adjustments 2003
----------------------- -------------------- ---------------------
(Unaudited) (Unaudited) (Unaudited)
Revenues:
Service revenue $ 242,928 $ (57,896) (1) $ 185,032
Roaming revenue 67,019 (18,893) (1) 48,126
Equipment revenue 10,773 (2,132) (1) 8,641
----------------------- -------------------- ---------------------
320,720 (78,921) 241,799
----------------------- -------------------- ---------------------
Operating Expenses:
Cost of services and roaming (193,956) 56,192 (1) (137,764)
Cost of equipment (22,400) 6,762 (1) (15,638)
Selling and marketing (57,280) 16,417 (1) (40,863)
General and administrative expenses (21,910) 6,881 (1) (15,029)
Non-cash stock compensation expense (530) - (530)
Depreciation and amortization (48,967) 14,135 (1) (34,832)
Amortization (6,855) 6,855 (1) -
----------------------- -------------------- ---------------------
Total operating expenses (351,898) 107,242 (244,656)
----------------------- -------------------- ---------------------
Operating loss (31,178) 28,321 (2,857)
----------------------- -------------------- ---------------------
Interest income 94 (42) (1) 52
Interest expense (45,869) 14,292 (1) (31,577)
Other expense 11 - 11
----------------------- -------------------- ---------------------
Loss from historical operations and
proforma loss from continuing
operations before income taxes (76,942) 42,571 (34,371)
Income taxes - - -
----------------------- -------------------- ---------------------
Net loss from historical operations
and proforma loss from continuing
operations $ (76,942) $ 42,571 $ (34,371)
======================= ==================== =====================
Basic and diluted loss per share:
Net loss from historical operations $ (2.97) $
======================= =====================
Proforma loss from continuing
operations $ $ (1.33)
======================= =====================
Basic and diluted weighted-average
outstanding common shares 25,897,415 25,897,415
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AIRGATE PCS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF CONTINUING OPERATIONS
For the Fiscal Year Ended September 30, 2002
(Dollars in thousands, except for share and per share amounts)
Historical Pro Forma
Year Ended Year Ended
September 30, Pro Forma September 30,
2002 Adjustments 2002
--------------------- ------------------------ --------------------------
(Unaudited) (Unaudited)
Revenues:
Service revenue $ 327,365 $ (100,861) (1) $ 226,504
Roaming revenue 111,162 (37,149) (1) 74,013
Equipment revenue 18,030 (5,003) (1) 13,027
--------------------- ------------------------ --------------------------
456,557 (143,013) 313,544
--------------------- ------------------------ --------------------------
Operating Expenses:
Cost of services and roaming (311,135) 106,996 (1) (204,139)
Cost of equipment (43,592) 15,968 (1) (27,624)
Selling and marketing (116,521) 37,511 (1) (79,010)
General and administrative expenses (25,339) 7,708 (1) (17,631)
Non-cash stock compensation expense (769) - (769)
Depreciation and amortization (70,197) 29,519 (1) (40,678)
Amortization (39,332) 39,252 (1) (80)
Loss on disposal of property and
equipment (1,074) - (1,074)
Goodwill impairment (460,920) 460,920 (1) -
Property and equipment impairment (44,450) 44,450 (1) -
Intangible asset impairment (312,043) 312,043 (1) -
----------------------- -------------------- ---------------------
Total operating expenses (1,425,372) 1,054,367 (371,005)
----------------------- -------------------- ---------------------
Operating loss (968,815) 911,354 (57,461)
----------------------- -------------------- ---------------------
Interest income 590 (429) (1) 161
Interest expense (57,153) 21,673 (1) (35,480)
----------------------- -------------------- ---------------------
Loss from historical operations and
proforma loss from continuing
operations before income taxes (1,025,378) 932,598 (92,780)
Income taxes 28,761 (28,761) (1) -
----------------------- -------------------- ---------------------
Net loss from historical operations
and proforma loss from continuing
operations $ (996,617) $ 903,837 $ (92,780)
======================= ==================== =====================
Basic and diluted loss per share:
Net loss from historical operations $ (41.96) $
======================= =====================
Proforma loss from continuing
operations $ $ (3.91)
======================= =====================
Basic and diluted weighted-average
outstanding common shares 23,751,507 23,751,507
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AIRGATE PCS, INC.
FOOTNOTES TO PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On November 30, 2001, AirGate PCS, Inc. (the "Company") acquired iPCS, Inc.
(together with its subsidiaries, "iPCS"). Subsequent to November 30, 2001 and
through February 23, 2003, the results of operations and accounts of iPCS were
consolidated with the Company in accordance with generally accepted accounting
principles. On February 23, 2003, iPCS filed a Chapter 11 bankruptcy petition in
the United States Bankruptcy Court for the Northern District of Georgia for the
purpose of effecting a court-administered reorganization. In accordance with
generally accepted accounting principles, subsequent to February 23, 2003, the
Company ceased consolidating the accounts and results of operations of iPCS and
the accounts of iPCS were recorded as an investment using the cost method of
accounting with a balance totalling approximately $(184) million. On October 17,
2003, the Company irrevocably transferred all of its shares of iPCS common stock
into a trust. It is expected that the balance will continue to be reflected in
the Company's balance sheet until confirmation of the iPCS plan of
reorganization by the iPCS bankruptcy court.
The pro forma adjusted operations for the nine months ended June 20, 2003 and
fiscal year ended September 30, 2002 include allocations for management services
and related expenses provided to both AirGate and iPCS. The Company formed
AirGate Service Company, Inc. ("ServiceCo"), a restricted subsidiary of AirGate,
to provide management services to both AirGate and iPCS. Generally, the
management personnel included in ServiceCo allocations were AirGate staff in the
Company's principal corporate offices in Atlanta and the iPCS accounting staff
in Geneseo, Illinois. ServiceCo expenses were allocated between AirGate and iPCS
based on the percentage of subscribers they contributed to total number of
Company subscribers, which approximated 60% for AirGate and 40% for iPCS.
Expenses that related to ServiceCo or both companies, such as rents associated
with the Atlanta and Geneseo offices, consulting costs incurred and other
expenses related to these management services were allocated in accordance with
the ServiceCo allocation. For the year ended September 30, 2002, iPCS paid
ServiceCo a net total of $1.7 million for ServiceCo expenses. For the nine
months ended June 30, 2003, iPCS paid ServiceCo a net of $2.7 million for
Service Co expenses. On January 27, 2003, iPCS retained a Chief Restructuring
Officer and began terminating services provided by ServiceCo in March, 2003. All
remaining services were terminated by iPCS by September 30, 2003.
As a result of the ServiceCo allocation, the nine months ended June 30, 2003 and
fiscal year ended September 30, 2002 pro forma adjusted results may be more
favorable than results in the future.
The following is a description of the pro forma adjustment to reflect the
effects of the disposition of iPCS. The disposition is further described in this
Form 8-K.
(1) Represents the adjustment to reclassify the operations of iPCS from
continuing to discontinued operations for the periods presented.
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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 hereunto duly authorized.
AIRGATE PCS, INC. (Registrant)
Date: November 3, 2003 By: /s/ William H. Seippel
----------------------
Name: William H. Seippel
Title: Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Description
----------- -----------
99.1 Trust Agreement dated October 17, 2003 by and between
AirGate PCS, Inc. and Wilmington Trust Company, as Trustee.