NextWave Wireless Reports Third Quarter Financial Results

SAN DIEGO--(BUSINESS WIRE)--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.

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

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

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.