1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-K405/A
AMENDMENT NO. 2
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________ .
COMMISSION FILE NUMBER 000-29667
VOICESTREAM WIRELESS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 91-1983600
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
12920-38TH STREET S.E. 98006
BELLEVUE, WASHINGTON (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(425)378-4000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, computed by reference to the last sale of such stock as of the close
of trading on March 13, 2000, was $8,358,749,778.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
TITLE SHARES OUTSTANDING AS OF MARCH 13, 2000
----- ---------------------------------------
Common Stock, par value $.001 per share 159,849,010
DOCUMENTS INCORPORATED BY REFERENCE
- - Our Current Report on Form 8-K dated March 22, 2000.
- - Omnipoint Corporation Annual Report on Form 10-K for the Year Ended December
31, 1999 (audited financial statements and footnotes thereto only).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
EXPLANATORY NOTE
This Amendment No. 2 to Annual Report on Form 10-K405/A is being filed to
modify the Consolidated Statements of Operations on page F-4 of the financial
statements and schedules filed with this Amendment No. 2 to Annual Report on
Form 10-K405/A to allocate stock-based compensation to the operating expense
line items.
Other than this modification to the Consolidated Statements of Operations
and the addition of Exhibit 23.2, consent of independent public accountants,
dated November 30, 2000, all other information included in the initial filing is
unchanged.
3
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(A) Financial Statements and Schedule
The financial statements and schedules as filed with this Form 10-K are set
forth in the Index to Consolidated Financial Statements and Schedules at page
F-1, which immediately precedes such documents.
(C) The following exhibit is added to the exhibits previously filed with
the Company's Annual Report on Form 10-K405 dated March 23, 2000 as amended on
April 6, 2000.
EXHIBIT DESCRIPTION
- ------- -----------
23.2 Consent of Arthur Andersen LLP (independent public
accountants for VoiceStream Wireless Corporation).
74
4
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
VOICESTREAM WIRELESS CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.......................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1999, 1998 and 1997.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
F-1
5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
VoiceStream Wireless Corporation:
We have audited the accompanying consolidated balance sheets of VoiceStream
Wireless Corporation and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of VoiceStream Wireless
Corporation and subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Seattle, Washington
February 28, 2000
F-2
6
VOICESTREAM WIRELESS CORPORATION
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS
AS OF DECEMBER 31,
-------------------------
1999 1998
----------- ----------
Current assets:
Cash and cash equivalents................................. $ 235,433 $ 8,057
Accounts receivable, net of allowance for doubtful
accounts of $17,482 and $5,715, respectively........... 97,739 24,766
Inventory................................................. 63,072 20,182
Prepaid expenses and other current assets................. 14,332 6,393
----------- ----------
Total current assets.............................. 410,576 59,398
Property and equipment, net of accumulated depreciation of
$284,670 and $151,408, respectively....................... 931,792 619,280
Licensing costs and other intangible assets, net of
accumulated amortization of $21,815 and $13,799,
respectively.............................................. 450,261 312,040
Investments in and advances to unconsolidated affiliates.... 409,721 60,938
Other assets................................................ 19,563
----------- ----------
$ 2,221,913 $1,051,656
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 22,878 $ 16,172
Accrued liabilities....................................... 116,031 45,566
Construction accounts payable............................. 61,398 58,217
Payable to Western Wireless............................... 2,778 5,071
----------- ----------
Total current liabilities......................... 203,085 125,026
Long-term debt.............................................. 2,011,451 540,000
Commitments and contingencies (Note 8)
Shareholders' equity:
Preferred stock, no par value, 50,000,000 shares
authorized; no shares issued and outstanding
Common stock, no par value, and paid-in capital;
300,000,000 shares authorized, 96,305,360 and
95,541,623 shares issued and outstanding,
respectively........................................... 1,095,539 994,789
Deferred compensation..................................... (25,264)
Deficit................................................... (1,062,898) (608,159)
----------- ----------
Total shareholders' equity........................ 7,377 386,630
----------- ----------
$ 2,221,913 $1,051,656
=========== ==========
See accompanying notes to consolidated financial statements.
F-3
7
VOICESTREAM WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- ---------
Revenues:
Subscriber revenues................................ $ 366,802 $ 123,966 $ 52,360
Roamer revenues.................................... 9,295 3,506 227
Equipment revenues................................. 78,025 40,490 25,143
Other revenues..................................... 21,407
----------- ----------- ---------
Total revenues............................. 475,529 167,962 77,730
----------- ----------- ---------
Operating expenses:
Cost of service (excludes stock based compensation
of $12,237, $0 and $0, respectively)............ 114,007 50,978 43,183
Cost of equipment sales............................ 136,584 77,071 53,469
General and administrative (excludes stock based
compensation of $38,255, $0 and $0,
respectively)................................... 134,812 75,343 51,678
Sales and marketing (excludes stock based
compensation of $10,198, $0 and $0,
respectively)................................... 211,399 85,447 59,466
Depreciation and amortization...................... 140,812 83,767 66,875
Stock based compensation........................... 60,690
----------- ----------- ---------
Total operating expenses................... 798,304 372,606 274,671
----------- ----------- ---------
Operating loss....................................... (322,775) (204,644) (196,941)
----------- ----------- ---------
Other income (expense):
Interest and financing expense, net................ (103,461) (34,118) (57,558)
Equity in net losses of unconsolidated
affiliates...................................... (50,945) (24,120) (9,327)
Interest income and other, net..................... 22,442 8,616 11
----------- ----------- ---------
Total other expense, net................... (131,964) (49,622) (66,874)
----------- ----------- ---------
Net loss........................................ $ (454,739) $ (254,266) $(263,815)
=========== =========== =========
Basic and diluted loss per common share.............. $ (4.75) $ (2.75)
=========== ===========
Weighted average common shares used in computing
basic and diluted loss per common share............ 95,708,000 92,387,000
=========== ===========
See accompanying notes to consolidated financial statements.
F-4
8
VOICESTREAM WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands)
PAR VALUE
COMMON AND PAID-IN DEFERRED
STOCK CAPITAL COMPENSATION DEFICIT TOTAL
---------- ------------------- ------------ ----------- ---------
Balance, January 1, 1997...... 76,531,259 $ 231,731 $ (90,078) $ 141,653
Additional capital
contribution............. 518,269 518,269
Net loss.................... (263,815) (263,815)
---------- ---------- -------- ----------- ---------
Balance, December 31, 1997.... 76,531,259 750,000 (353,893) 396,107
Shares issued:
Private placement........ 19,010,364 244,789 244,789
Net loss.................... (254,266) (254,266)
---------- ---------- -------- ----------- ---------
Balance, December 31, 1998.... 95,541,623 994,789 (608,159) 386,630
Shares issued for stock
compensation plans....... 763,737 3,643 3,643
Return of capital
contribution............. (20,000) (20,000)
Deferred compensation....... 86,543 $(85,954) 589
Vesting of deferred
compensation............. 60,690 60,690
Exchange rights............. 30,564 30,564
Net loss.................... (454,739) (454,739)
---------- ---------- -------- ----------- ---------
Balance, December 31, 1999.... 96,305,360 $1,095,539 $(25,264) $(1,062,898) $ 7,377
========== ========== ======== =========== =========
See accompanying notes to consolidated financial statements.
F-5
9
VOICESTREAM WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
----------- --------- ---------
Operating activities:
Net loss............................................. $ (454,739) $(254,266) $(263,815)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization..................... 140,812 83,767 66,875
Interest accretion on senior discount notes....... 3,925
Equity in net loss of unconsolidated affiliates... 50,945 24,120 9,327
Stock based compensation.......................... 60,690
Allowance for bad debt............................ 11,767 3,675 1,293
Amortization of debt issuance cost................ 1,528 571 1,122
Changes in operating assets and liabilities, net
of effects from consolidating acquired
interests:
Accounts receivable............................. (84,740) (10,066) (14,262)
Inventory....................................... (42,890) 2,534 (2,581)
Prepaid expenses and other current assets....... (6,296) 2,124 (4,957)
Accounts payable................................ 6,706 13,669 (8,068)
Accrued liabilities............................. 70,465 20,941 16,937
----------- --------- ---------
Net cash used in operating activities........ (241,827) (112,931) (198,129)
----------- --------- ---------
Investing activities:
Purchase of property and equipment................... (401,621) (206,503) (264,432)
Additions to licensing costs and other intangible
assets............................................ (4,495) (12,871) (71,634)
Acquisition of wireless properties, net of cash
acquired.......................................... (152,517) (4,645)
Investments in and advances to unconsolidated
affiliates........................................ (369,461) (34,259) (37,240)
Refund of deposit held by FCC........................ 7,749
Other................................................ (19,563)
----------- --------- ---------
Net cash used in investing activities........ (947,657) (253,633) (370,202)
----------- --------- ---------
Financing activities:
Proceeds from issuance of common stock, net.......... 3,643 244,789
Additions to long-term debt.......................... 2,622,526 540,000 157,000
Repayment of long-term debt.......................... (1,155,000) (300,000)
(Repayment of) advances from Western Wireless, net... 6,291 (105,446) 406,254
Return of capital.................................... (20,000)
Deferred financing costs, net........................ (40,600) (5,059)
----------- --------- ---------
Net cash provided by financing activities.... 1,416,860 374,284 563,254
----------- --------- ---------
Change in cash and cash equivalents.................... 227,376 7,720 (5,077)
Cash and cash equivalents, beginning of year........... 8,057 337 5,414
----------- --------- ---------
Cash and cash equivalents, end of year................. $ 235,433 $ 8,057 $ 337
=========== ========= =========
See accompanying notes to consolidated financial statements.
F-6
10
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
VoiceStream Wireless Corporation ("VoiceStream") provides wireless
communications services in urban markets in the United States through the
ownership and operation of PCS licenses. VoiceStream has commenced commercial
operations in thirteen markets under the VoiceStream brand name using the Global
System for Mobile Communications ("GSM") technology. Additionally, VoiceStream
PCS services are offered in four additional markets in conjunction with joint
ventures.
In June 1999 VoiceStream formed a wholly owned subsidiary ("VoiceStream
Delaware") as a Delaware corporation to act as the parent company for business
combinations involving VoiceStream. On February 25, 2000, as a result of a
reorganization of VoiceStream, VoiceStream Delaware, as a holding company,
became the parent of Omnipoint Corporation and of VoiceStream.
Prior to May 3, 1999, VoiceStream was an 80.1% owned subsidiary of Western
Wireless Corporation. The remaining 19.9% was owned by Hutchison
Telecommunications PCS (USA) Limited, a subsidiary of Hutchison Whampoa Limited,
a Hong Kong company. On May 3, 1999, VoiceStream was formally separated in a
spin-off transaction from Western Wireless' other operations.
On February 24, 2000, the stockholders of VoiceStream and Aerial
Communications, Inc. approved VoiceStream's acquisition by merger of Aerial. The
closing of the Aerial merger is contingent upon, among other things, FCC
approval and is expected to be completed early in the second quarter of this
year.
VoiceStream expects to incur significant operating losses and to generate
negative cash flows from operating activities during the next several years
while it expands its PCS systems and customer base. These losses are expected to
be financed through borrowings or the issuance of new debt or additional equity.
There can be no assurance that such funds will be available to VoiceStream on
acceptable or favorable terms.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation:
The consolidated financial statements include the accounts of VoiceStream
and its wholly owned subsidiaries. All affiliate investments in which
VoiceStream has between a 20% and 50% interest are accounted for using the
equity method. All significant intercompany accounts and transactions have been
eliminated.
Cash and cash equivalents:
Cash and cash equivalents generally consist of cash and marketable
securities that have original maturity dates not exceeding three months. Such
investments are stated at cost, which approximates fair value.
Revenue recognition:
Service revenues based on customer usage are recognized at the time the
service is provided. Access and special feature service revenues are recognized
when earned. Sales of equipment, primarily handsets, are recognized when the
goods are delivered to the customer.
Inventory:
Inventory consists primarily of handsets and accessories. Inventory is
stated at the lower of cost or market, determined on a first-in, first-out
basis.
F-7
11
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Property and equipment and depreciation:
Property and equipment are stated at cost. Depreciation commences once the
assets have been placed in service and is computed using the straight-line
method over the estimated useful lives of the assets which primarily range from
three to twenty years.
Licensing costs and other intangible assets and amortization:
Licensing costs primarily represent costs incurred to acquire Federal
Communication Commission's ("FCC") PCS licenses, including PCS licenses
principally obtained through acquisitions.
Amortization of licenses begins with the commencement of service to
customers and is computed using the straight-line method over 40 years.
Other intangible assets consist primarily of deferred financing costs and
certain lease rights. Deferred financing costs are amortized using the effective
interest method over the terms of the respective loans. Lease rights are being
amortized over the remaining life of the lease.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of," VoiceStream periodically evaluates whether there has
been any indication of impairment of its long-lived assets, including its
licensing costs and other intangibles. As of December 31, 1999, there has been
no indication of such impairment.
Capitalized Interest:
VoiceStream PCS licenses and wireless communications systems represent
qualified assets pursuant to SFAS No. 34, "Capitalization of Interest Cost."
VoiceStream capitalized interest of $2.5 million in 1999, $1.8 million in 1998
and $4.0 million in 1997.
Income taxes:
Deferred tax assets and liabilities are recognized based on temporary
differences between the financial statements and the tax bases of assets and
liabilities using enacted tax rates expected to be in effect when they are
realized. A valuation allowance against deferred tax assets is recorded, if,
based upon weighted available evidence, it is more likely than not that some or
all of the deferred tax assets will not be realized. For income tax purposes,
VoiceStream's results have historically been included in the consolidated
federal income tax return of Western Wireless for the periods ended May 3, 1999,
December 31, 1998 and December 31, 1997. For these periods, the
provision/benefit for income taxes has been computed as if VoiceStream filed a
separate federal income tax return using the tax rate applicable to Western
Wireless on a consolidated basis. After the Spin-off, VoiceStream's results of
operations are no longer included in Western Wireless' consolidated tax return.
Loss per common share:
Loss per common share is calculated using the weighted average number of
shares of outstanding common stock during the period. The number of shares
outstanding has been calculated based on the requirements of SFAS No. 128,
"Earnings Per Share." Due to the net loss incurred during the periods presented,
all options outstanding are anti-dilutive, thus basic and diluted loss per share
are equal.
F-8
12
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Stock-based compensation plans:
VoiceStream accounts for its stock-based compensation plans under APB
Opinion No. 25, "Accounting for Stock Issued to Employees." See Note 10 for
discussion of the effect on net loss and other related disclosures had
VoiceStream accounted for these plans under SFAS No. 123, "Accounting for
Stock-Based Compensation."
Fair value of financial instruments:
As required under the Credit Facility (as defined in Note 7), VoiceStream
enters into interest rate swap and cap agreements to manage interest rate
exposure pertaining to long-term debt. VoiceStream has only limited involvement
with these financial instruments, and does not use them for trading purposes. In
addition, VoiceStream has historically held derivative financial instruments to
maturity and has never recognized a material gain or loss on disposal. It is
VoiceStream's intent to hold existing derivatives to maturity. Interest rate
swaps are accounted for on an accrual basis, the income or expense of which is
included in interest expense. Premiums paid to purchase interest rate cap
agreements are classified as an asset and amortized to interest expense over the
terms of the agreements. These transactions do not subject VoiceStream to risk
of loss because gains and losses on these contracts are offset against losses
and gains on the underlying liabilities. No collateral is held in relation to
financial instruments.
The carrying value of short-term financial instruments approximates fair
value due to the short maturity of these instruments. The fair value of
long-term debt is based on incremental borrowing rates currently available on
loans with similar term and maturities. VoiceStream does not hold or issue any
financial instruments for trading purposes.
Supplemental cash flow disclosure:
Cash paid for interest (net of amounts capitalized) was $77.5 million in
1999, $26.8 million in 1998 and $17.8 million in 1997.
Non-cash investing and financing activities were as follows:
YEAR ENDED DECEMBER, 31
------------------------------
1999 1998 1997
(dollars in thousands) ------- ------- --------
Conversion of payable to Western Wireless to equity
(See Note 14)...................................... $518,269
Exchange rights...................................... $30,564
Estimates used in preparation of financial statements:
The preparation of financial statements in conformity with generally
accepted accounting principles 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 periods. Actual results could differ from those estimates.
Reclassifications:
Certain amounts in prior year's financial statements have been reclassified
to conform to the 1999 presentation.
F-9
13
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Recently issued accounting standards:
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." It requires the
recognition of all derivatives as either assets or liabilities and the
measurement of those instruments at fair value. The required adoption period is
effective for the issuance of VoiceStream's December 31, 2000, quarterly
financial statements. The implementation of SFAS No. 133 is not expected to have
a material impact on VoiceStream's financial position or results of operations.
SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133", issued
in August 1999, postpones for one year the mandatory effective date for adoption
of SFAS No. 133 to January 1, 2001.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin Number 101, "Revenue Recognition in Financial
Statements." This bulletin will become effective for the issuance of
VoiceStream's March 31, 2000, quarterly financial statements. This bulletin
establishes more clearly defined revenue recognition criteria than previously
existing accounting pronouncements, and specifically addresses revenue
recognition requirements for non-refundable fees, such as activation fees
collected by a company upon entering into an arrangement with a customer, such
as an arrangement to provide telecommunication services. VoiceStream is
currently evaluating the full impact of this bulletin to determine the impact on
its financial position and results of operations.
3. PROPERTY AND EQUIPMENT:
DECEMBER 31,
----------------------
1999 1998
(dollars in thousands) --------- ---------
Land, buildings and improvements............................ $ 24,590 $ 15,549
Wireless communications systems............................. 849,148 459,710
Furniture and equipment..................................... 109,576 57,840
--------- ---------
983,314 533,099
Less accumulated depreciation............................... (284,670) (151,408)
--------- ---------
698,644 381,691
Construction in progress.................................... 233,148 237,589
--------- ---------
$ 931,792 $ 619,280
========= =========
Depreciation expense was $133.9 million in 1999, $77.6 million in 1998 and
$61.2 million in 1997.
4. LICENSING COSTS AND OTHER INTANGIBLE ASSETS:
DECEMBER 31,
--------------------
1999 1998
(dollars in thousands) -------- --------
License costs............................................... $323,272 $320,834
Lease rights................................................ 101,376
Other intangible assets..................................... 47,428 5,005
-------- --------
472,076 325,839
Accumulated amortization.................................... (21,815) (13,799)
-------- --------
$450,261 $312,040
======== ========
Amortization expense was $6.9 million in 1999, $6.2 million in 1998 and
$5.7 million in 1997.
F-10
14
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES:
A subsidiary of VoiceStream holds a 49.9% interest in Cook Inlet
VoiceStream PV/SS PCS, LP ("Cook Inlet PCS"). VoiceStream funded the operations
of Cook Inlet PCS during 1999 and 1998 through loans evidenced by promissory
notes which are due 180 days after the date of issuance. The weighted average
interest rate was 15% for the years ended December 31, 1999, 1998 and 1997. All
promissory notes that have come due were replaced with new promissory notes. The
total investment in Cook Inlet PCS, including advances under such promissory
notes, was $124.6 million and $47.9 million at December 31, 1999 and 1998,
respectively.
In January 1999, certain partners of Cook Inlet PCS, including VoiceStream,
formed another joint venture, Cook Inlet/VoiceStream PCS LLC ("CIVS") (49.9% of
which is owned by a subsidiary of VoiceStream), to participate in the FCC's
reauction of C and F Block licenses in 1999. VoiceStream contributed a total of
$21.1 million and Cook Inlet partners contributed $17.4 million for the deposit
required by the FCC to participate in the reauction. This auction was completed
in April 1999 and resulted in CIVS as the high bidder for 28 licenses including
both the Dallas and Chicago Basic Trading Areas ("BTAs"), for an aggregate
amount of $192.3 million. These licenses were granted by the FCC in October
1999, and VoiceStream contributed a total of $103.0 million to CIVS,
representing a capital contribution of $61.8 million and an advance to the
partnership of $41.2 million. The Cook Inlet partners contributed $50.8 million
to CIVS for the remainder due. Amounts advanced to CIVS by VoiceStream have
since been repaid.
The Cook Inlet partners have certain rights, but not the obligation, to
exchange their joint venture interests for a fixed number of shares of
VoiceStream's common stock for a 30 day period beginning after the FCC
regulatory holding period has expired (currently five years after the issuance
date of the licenses held by CIVS). The fair value of the CIVS exchange rights
of $30.6 million have been recorded as an increase to investment in and advances
to unconsolidated affiliates and additional paid-in capital at December 31,
1999. The exchange rights are being amortized over the life of these exchange
rights. For the year ended December 31, 1999, $1.7 million in expense was
recognized for this amortization.
VoiceStream and the Cook Inlet Partners have entered into reciprocal
technical services agreements which allow each to utilize airtime on the others
spectrum, and/or utilize wireless system infrastructure, in certain agreed upon
markets. The agreements are structured such that each performs as a reseller for
the other and related fees are charged and paid between the parties. During
1999, VoiceStream earned revenues of $21.4 million and incurred expenses of
$25.0 million in fees related to these agreements.
In January 2000, CIVS reached an agreement with an infrastructure equipment
vendor providing CIVS with up to $735 million, composed of a $160 million
revolving credit agreement, term loans of up to $325 million, consisting of $125
million in Tranche A and $200 million in Tranche B, $100 million of 13% Series A
Senior Discount Notes, and up to $150 million 13% Series A Subordinated Notes.
The senior secured facility and the subordinated facilities are not guaranteed
by VoiceStream but are secured by certain assets of CIVS. The net proceeds will
be used to finance capital expenditures, permitted investments, and for working
capital. The amount available for borrowing pursuant to the senior credit
facilities is based upon certain equipment purchases by CIVS, with up to $735
million in the aggregate being available.
In February 2000, VoiceStream announced that it had agreed to make an
investment of approximately $275.0 million in newly issued Class A shares of
Microcell. The per share transaction price was equal to the closing market price
of Microcell's publicly traded Class B Non-Voting shares on the Nasdaq National
Market System on January 6, the date the agreement in principle was reached.
The Class A shares constitute approximately 15% of the issued and
outstanding equity securities of Microcell. Class A shares are non-voting but
are convertible at any time into common shares, which are voting (subject to
Canadian foreign ownership restrictions). If fully converted, these common
shares would represent
F-11
15
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES (CONTINUED):
a 22.6% voting interest in Microcell. VoiceStream will apply the equity method
of accounting to this investment. Additionally, VoiceStream was able to
designate two members of Microcell's Board of Directors.
6. ACCRUED LIABILITIES:
DECEMBER 31,
-------------------
1999 1998
-------- -------
(dollars in thousands)
Accrued payroll and benefits................................ $ 32,436 $ 6,558
Accrued interest expense.................................... 18,652 2,823
Accrued property taxes and other taxes...................... 22,606 25,693
Other....................................................... 42,337 10,492
-------- -------
$116,031 $45,566
======== =======
7. LONG-TERM DEBT:
DECEMBER 31,
----------------------
1999 1998
---------- --------
(dollars in thousands)
Credit Facility:
Revolver.................................................. $ 250,000 $290,000
Term loan................................................. 250,000 250,000
10 3/8% Senior Notes........................................ 1,100,000
11 7/8% Senior Discount Notes............................... 720,000
---------- --------
2,320,000 540,000
Less unamortized discount................................... (308,549)
---------- --------
$2,011,451 $540,000
========== ========
At December 31, 1999, VoiceStream, through a wholly-owned subsidiary, has a
credit facility with a consortium of lenders (the "Credit Facility") consisting
of $500 million in revolving credit and $250 million in a delayed draw term loan
(collectively the "Revolver") and a term loan for $250 million (the "Term
Loan"). As of December 31, 1999, $500 million was outstanding under the Credit
Facility.
On February 25, 2000, immediately following the completion of the Omnipoint
merger, VoiceStream entered into a new credit facility with a consortium of
lenders. Pursuant to the new credit facility, the lenders have made available
term loans and revolving credit loans in an aggregate principal amount not to
exceed $3.25 billion. The revolving credit portion of the new credit facility is
a $1.35 billion reducing revolving credit. Immediately following the completion
of the Omnipoint merger, VoiceStream used the proceeds of draws on the new
credit facility to pay down certain long-term debt of Omnipoint. Additionally, a
portion of the cash equity investments received from Hutchison
Telecommunications PCS (USA) and Sonera, described below, were used to pay off
the remaining balance on the previous Credit Facility.
The availability of the revolving credit portion of the new credit facility
declines over the period commencing three years after the closing date through
the eighth anniversary of the closing date in the following percentages: 10% in
year four, 15% in year five, 20% in year six, 20% in year seven and 35% in year
eight. The term loan portions of the new credit facility is comprised of a $900
million Tranche A and a $1 billion Tranche B. Tranche A is required to be
amortized at the same rate that the availability under the revolving credit
portion of the anticipated new credit facility reduces with a final maturity on
the eighth
F-12
16
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT (CONTINUED):
anniversary of the closing date. Tranche B is required to be amortized in the
following amounts during the period commencing three years after the closing
date through the ninth anniversary: $10 million in each of years four through
eight and the remaining balance in year nine.
Borrowings under Tranche A bear interest, at the borrower's option, at an
annual rate of interest equal to either (1) the greater of (a) the prime rate,
or (b) the Federal Funds rate plus 1/2%, or (2) a Eurodollar rate, in each
instance plus an applicable margin. Such applicable margin will range to a
maximum of 1.50%, in the case of loans based on the prime rate or Federal Funds
rate, and to a maximum of 2.75%, in the case of loans based on a Eurodollar
rate, in each case based upon certain factors including the ratio of total
indebtedness to operating cash flow, as defined in the new credit facility, of
VoiceStream.
Tranche B bears interest, at VoiceStream's option, at an annual rate of
interest equal to either (1) the greater of (a) the prime rate, or (b) the
Federal Funds rate plus 1/2%, or (2) a Eurodollar rate, plus an applicable
margin. Such applicable margin is a fixed percentage of 1.75%, in the case of
loans based on the prime rate or Federal Funds rate, and 3.0% in the case of
loans based on a Eurodollar rate.
The new credit facility contains affirmative and negative covenants, with
which VoiceStream must comply, including financial covenants, and provides for
various events of default. The new credit facility permits the incurrence of
additional indebtedness of up to $1.5 billion. The repayment of the loans is
secured by, among other things, the grant of a security interest in the capital
stock and assets of the VoiceStream and certain of its subsidiaries.
As noted above, the new credit facility permits up to $1.5 billion of
additional indebtedness, including up to $1 billion for a vendor facility, which
would be secured by the same collateral as other indebtedness under the new
credit facility. In March 2000, VoiceStream reached agreements in principle with
an infrastructure equipment vendor and a bank whereby such vendor and bank would
provide up to $1 billion in senior credit facilities and VoiceStream would agree
to acquire certain equipment, software and services from the vendor. The vendor
facilities would have a maturity of 9.25 years and be available in multiple
draws, including $500 million that could be drawn by April 28, 2000, $250
million that could be drawn by July 14, 2000, and $250 million that could be
drawn by October 31, 2000. Net proceeds of the vendor facilities would be used
for the same purposes as proceeds under the new credit facility, and would be
governed by the same covenants and agreements as the new credit facility.
Although VoiceStream is working diligently with the vendor and bank to prepare
formal contracts, there can be no assurance that formal contracts will be
executed or that such funds will be available to VoiceStream.
Certain long-term debt agreements of Omnipoint, and now of VoiceStream,
contain provisions which require VoiceStream to offer repayment of outstanding
amounts when a change of control occurs. The Omnipoint merger constituted a
change of control. Under certain agreements, VoiceStream is required to offer to
repay to the lenders amounts outstanding. Additionally, the holders of the debt
issued under certain of these agreements are entitled to a prepayment premium.
It is expected that the lenders will not exercise the offer to repay amounts
outstanding. However, there can be no assurance that the lenders' options will
not be exercised. In the unlikely event that the lenders do exercise the offer
of repayment, VoiceStream would utilize the funds available from the new credit
facility.
In May 1999, one of VoiceStream's infrastructure equipment vendors
purchased $400 million of VoiceStream's newly issued 12% Senior Debentures (the
"Senior Debentures"). The amounts outstanding under the Senior Debentures were
repaid in November 1999 with the proceeds received from the private offering of
Senior Notes and Senior Discount Notes, discussed below.
In November 1999, VoiceStream, through a private offering circular, offered
a combination of 10 3/8% Senior Notes and 11 7/8% Senior Discount Notes for
aggregate net proceeds of approximately $1.46 billion.
F-13
17
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT (CONTINUED):
VoiceStream used $400 million of the proceeds from the Senior Notes to repay the
Senior Debentures and an additional $485 million to repay outstanding borrowings
under the revolver portion of the Credit Facility.
Proceeds from the Senior Notes issued were $1.1 billion. The Senior
Discount Notes were issued at a discount, resulting in proceeds of $403.6
million, which will accrete over five years to its full principal value of $720
million. The Senior Notes and the Senior Discount Notes mature on November 15,
2009, and are redeemable after five years at VoiceStream's option, in whole or
in part, at varying redemption prices. Interest on the Senior Notes will accrue
at the rate of 10 3/8% per annum and will be payable semiannually beginning May
15, 2000. Interest on the Senior Discount Notes will accrue at a rate of 11 7/8%
per annum and will be payable semiannually commencing on May 15, 2005. The note
indentures contain affirmative and negative covenants. As of December 31, 1999,
VoiceStream was in compliance with these covenants.
The Credit Facility requires VoiceStream to enter into interest rate swap
and cap agreements to manage the interest rate exposure pertaining to borrowings
under the Credit Facility. VoiceStream had entered into interest rate caps and
swaps with a total notional amount of $325.0 million at December 31, 1999.
Generally these instruments have initial terms ranging from 1 to 4 years and
effectively convert variable rate debt to fixed rate. The weighted average
interest rate under these agreements was approximately 6.06% during the year
ended December 31, 1999. The amount of unrealized gain or loss attributable to
changing interest rates at December 31, 1999, was not material.
The aggregate amounts of principal maturities of VoiceStream's long-term
debt at December 31, 1999, are as follows (dollars in thousands):
Year ending December 31,
2000........................................................ $ 0
2001........................................................ 15,000
2002........................................................ 27,500
2003........................................................ 40,000
2004........................................................ 52,500
Thereafter.................................................. 2,185,000
----------
$2,320,000
==========
8. COMMITMENTS AND CONTINGENCIES:
Commitments:
Future minimum payments required under operating leases and agreements that
have initial or remaining noncancellable terms in excess of one year as of
December 31, 1999, are summarized below (dollars in thousands):
Year ending December 31,
2000........................................................ $ 36,344
2001........................................................ 30,910
2002........................................................ 21,665
2003........................................................ 18,136
2004........................................................ 9,452
Thereafter.................................................. 21,646
--------
$138,153
========
F-14
18
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. COMMITMENTS AND CONTINGENCIES (CONTINUED):
Aggregate rental expense for all operating leases was approximately $32.1
million in 1999, $21.3 million in 1998 and $18.0 million in 1997.
In order to ensure adequate supply and availability of certain
infrastructure equipment and services, VoiceStream has committed to purchase PCS
equipment from various suppliers. The aggregate amount of these commitments
total $775.0 million as of December 31, 1999. At December 31, 1999, VoiceStream
has ordered approximately $549.5 million under all of these agreements, of which
approximately $32.6 million is undelivered. In March 2000, VoiceStream committed
to purchase an additional $352 million of similar PCS equipment from a supplier.
VoiceStream and its affiliates have various other purchase commitments for
materials, supplies and other items incident to the ordinary course of business
which are neither significant individually nor in the aggregate. Such
commitments are not at prices in excess of current market value.
Contingencies:
As a result of the Omnipoint and Aerial mergers, VoiceStream may have to
make substantial tax indemnity payments to Western Wireless. In the spin-off
transaction effected on May 3, 1999, Western Wireless distributed its entire
80.1% interest in VoiceStream's common stock to its stockholders. Western
Wireless will recognize gain as a result of the spin-off, if the spin-off is
considered to be part of a plan or series of related transactions pursuant to
which one or more persons acquire, directly or indirectly, 50% or more of
VoiceStream's common stock, considered under IRS rules a "prohibited
transaction". VoiceStream has agreed to indemnify Western Wireless on an
after-tax basis for any taxes, penalties, interest and various other expenses
incurred by Western Wireless if it is required to recognize such a gain. The
amount of such gain that Western Wireless would recognize would be equal to the
difference between the fair market value of VoiceStream common stock at the time
of the spin-off and Western Wireless' adjusted tax basis in such stock at the
time.
In the absence of direct authority, and although the issue is not free from
doubt, VoiceStream believes that it should be able to establish that the
spin-off and VoiceStream Delaware's acquisitions of VoiceStream's stock pursuant
to the mergers, in conjunction with the related transactions and Hutchison's
acquisition of its existing VoiceStream stock within two years prior to the
spin-off, are not pursuant to a prohibited plan. However, if the IRS were to
take the position that a prohibited plan did occur, the estimated range of
possible liability of VoiceStream, not including interest and penalties, if any,
is from zero to $400 million.
Fourteen of the C Block licenses won by CIVS were issued subject to the
outcome of the bankruptcy proceedings of the original licensee. Pursuant to an
FCC order, the bankruptcy debtors elected to relinquish certain licenses, which
were subsequently reauctioned. A secured creditor of the debtors, filed with the
court a motion for reconsideration of the election order, which was denied. An
appeal of this denial is currently before the U. S. District Court of Northern
Maryland. Because the appeal of the election order is still pending, there is
uncertainty as to these C Block licenses of the Cook Inlet entities. In the
event that these licenses are returned to the jurisdiction of the bankruptcy
court, it is unlikely that the Cook Inlet entities will be able to recoup any or
all of the costs incurred by them in connection with the construction and
development of systems related to such licenses.
F-15
19
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES:
Significant components of deferred income tax assets and liabilities, net
of tax, are as follows:
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(dollars in thousands)
Deferred tax assets:
Net operating loss carryforwards.......................... $ 459,459 $ 282,002
Other temporary differences............................... 76,117 13,459
--------- ---------
Total deferred tax assets................................... 535,576 295,461
Valuation allowance......................................... (459,968) (243,049)
--------- ---------
75,608 52,412
Deferred tax liabilities:
Property and wireless licenses basis differences.......... (75,608) (52,412)
--------- ---------
$ 0 $ 0
========= =========
VoiceStream had approximately $1.15 billion net operating loss ("NOL")
carryforwards at December 31, 1999. The NOLs will expire between 2011 and 2019.
The valuation allowance increased approximately $216.9 million in 1999, $100.0
million in 1998 and $105.0 million in 1997.
Management believes that available objective evidence creates sufficient
uncertainty regarding the realization of the net deferred tax assets. Such
factors include recurring operating losses resulting primarily from the
development of VoiceStream's PCS business. Accordingly, a valuation allowance
has been provided for the net deferred tax assets of VoiceStream.
The difference between the statutory tax rate of approximately 40% (35%
federal and 5% state, net of federal benefits) and the tax benefit of zero
recorded by VoiceStream is primarily due to VoiceStream's full valuation
allowance against net deferred tax assets. VoiceStream's ability to utilize the
NOLs in any given year may be limited by certain events, including a significant
change in ownership interest.
After the Spin-off, the NOL carryforwards resulting from VoiceStream's
cumulative tax losses have remained with VoiceStream. Pursuant to a tax sharing
agreement entered into at the time of the Hutchison Investment (as defined in
Note 14), VoiceStream paid Western Wireless $20 million, an amount
representative of the tax benefit of NOLs generated while VoiceStream was a
wholly-owned subsidiary of Western Wireless.
10. STOCK-BASED COMPENSATION PLANS:
Prior to 1999, VoiceStream had no stock options outstanding. During 1999,
deferred compensation and compensation expense was recognized as a result of
restructuring employee stock options in connection with the Spin-off from
Western Wireless on May 3, 1999. As of the date of the Spin-off, all unvested
outstanding options of VoiceStream employees were converted from Western
Wireless options to VoiceStream options and all vested outstanding options were
issued an additional option in VoiceStream as well as maintaining the existing
option in Western Wireless. The number of options and related strike price
varied to maintain the original economic value to the employee.
In accordance with the provisions of EITF 90-9, "Changes to Fixed Employee
Stock Option Plans as a Result of Equity Restructuring", VoiceStream recorded
deferred compensation of $69.0 million as a result of this restructure. Of the
$69.0 million, $50.4 million was recognized as expense during 1999 to reflect
the cost of options that have fully vested. Additionally, deferred compensation
of $17.6 million was recognized
F-16
20
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. STOCK-BASED COMPENSATION PLANS (CONTINUED):
pursuant to fair market value adjustments for the underlying shares in the
Restricted Stock Plan and $10.3 million was recognized as expense during 1999.
This plan is accounted for as a variable plan.
The Employee Stock Purchase Plan (the "ESPP"), which has been effective
since 1999, provides for the issuance of up to 1,000,000 shares of Common Stock
to eligible employees participating in the plan. The terms and conditions of
eligibility under the ESPP require that an employee must have been employed by
VoiceStream or its subsidiaries for at least three months prior to
participation. A participant may contribute up to 10% of their total annual
compensation toward the ESPP, not to exceed the IRS contribution limit each
calendar year. Shares are offered under this ESPP at 85% of market value at each
offer date. Participants are fully vested at all times.
The Management Incentive Stock Plan ("MISOP"), which has been effective
since 1999, provides for the issuance of up to 7,600,000 shares of common stock
as either Nonqualified Stock Options or as Incentive Stock Options. The vesting
period and option term is determined by the MISOP administrator. Options
typically vest over a four year period and have a term of up to 10 years.
At December 31, 1999, VoiceStream has accounted for its stock compensation
plans following the guidelines of APB Opinion No. 25 and related
interpretations. Had compensation cost been determined based upon the fair value
at the grant dates for awards under these plans consistent with the method
defined in SFAS No. 123, VoiceStream's net loss and basic loss per share would
have increased to the pro forma amounts indicated below:
YEAR ENDED
DECEMBER 31, 1999
(in thousands, except per share data) -----------------
Net loss:
As reported............................................... $(454,739)
Pro forma................................................. $(497,159)
Basic and diluted loss per share:
As reported............................................... $ (4.75)
Pro forma................................................. $ (5.19)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model using the following weighted-average
assumptions:
1999
---------------------
Weighted average risk free interest rate............... 5.61% to 6.41%
Expected dividend yield................................ 0%
Expected volatility.................................... 75%
Expected lives (in years).............................. 7.5
The Black-Scholes option-pricing model requires the input of highly
subjective assumptions and does not necessarily provide a reliable measure of
fair value.
F-17
21
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. STOCK-BASED COMPENSATION PLANS (CONTINUED):
Options granted, exercised and canceled are summarized as follows:
YEAR ENDED
DECEMBER 31, 1999
-------------------------
WEIGHTED
AVERAGE
SHARES PRICE PER SHARE
(in thousands, except per share data) ------ ---------------
Outstanding, beginning of period....................... $0.00
Options granted........................................ 4,899 $8.00
Options exercised...................................... (764) $5.19
Options cancelled...................................... $0.00
----- -----
Outstanding, end of the period......................... 4,135 $8.52
===== =====
Exercisable, end of period............................. 2,232 $6.06
===== =====
The weighted average fair value of stock options granted was $25.97 in
1999.
The following table summarizes information about stock options outstanding
at December 31, 1999 (in thousands, except per share data):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
--------------- ----------- ---------------- -------- ----------- --------
$ 0.60 - $ 6.01.................. 1,195 5 years $ 4.80 1,195 $ 4.80
$ 6.87 - $ 7.31.................. 1,033 7 years $ 7.15 830 $ 7.11
$ 7.99 - $ 8.59.................. 50 7 years $ 8.47 28 $ 8.51
$ 9.25 - $ 9.25.................. 863 8 years $ 9.25 179 $ 9.25
$10.62 - $45.13.................. 994 9 years $13.79 $10.61
----- ------- ------ ----- ------
$ 0.60 - $45.13.................. 4,135 7 years $ 8.52 2,232 $ 6.06
===== ====== ===== ======
11. MERGERS AND ACQUISITIONS:
On February 25, 2000, VoiceStream completed the merger with Omnipoint
Corporation. Pursuant to the agreement, VoiceStream exchanged 0.825 shares of
VoiceStream common stock plus $8.00 in cash for every share of outstanding
Omnipoint common stock. There was a cash or share election option available to
shareholders of Omnipoint subject to proration. In conjunction with the merger
agreement, VoiceStream committed to invest a total of $150.0 million in
Omnipoint, of which $102.5 million was invested in Omnipoint preferred stock
upon signing of the merger agreement. The remaining $47.5 million was invested
in Omnipoint preferred stock on October 1, 1999.
In connection with the Omnipoint merger agreement, Hutchison
Telecommunications PCS (USA) made an investment of approximately $957.0 million
into the combined company for common and convertible preferred securities.
$102.5 million of this investment was invested directly in Omnipoint preferred
stock subsequent to finalizing the merger agreement. In addition, another $47.5
million was invested in Omnipoint preferred stock in October 1999. The remaining
$807.0 million was invested into the combined company upon the closing of the
merger. Additionally, Sonera, Ltd, ("Sonera") a Finnish telecommunications
company, who holds an investment in Aerial Operating Company ("AOC"), a
subsidiary of Aerial, invested $500.0 million in VoiceStream at the closing of
the Omnipoint merger, purchasing shares at $57 per VoiceStream share.
F-18
22
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. MERGERS AND ACQUISITIONS (CONTINUED):
On September 20, 1999, VoiceStream announced Board approval of a merger
agreement with Aerial. On February 24, 2000, VoiceStream obtained approval for
the merger from its shareholders. Under the terms of the agreement, VoiceStream
will exchange 0.455 shares of VoiceStream common stock for each share of Aerial
Series A Common Shares. Aerial public shareholders have a right to elect to
receive $18 in cash in lieu of shares of VoiceStream. The close of the Aerial
merger is contingent upon, among other things, FCC approval and is expected to
be completed early in the second quarter 2000.
In connection with the Aerial merger agreement, Telephone and Data Systems,
Inc. ("TDS") has replaced $420.0 million of Aerial debt owed to TDS with equity
of Aerial at $22 per share. Sonera has invested an additional $230.0 million in
Aerial equity, also at $22 per Aerial share. Immediately prior to the merger,
Sonera will convert its interest in AOC into Aerial common stock
On December 31, 1999, VoiceStream purchased certain GSM assets from Sprint
GSM, for approximately $152.5 million in cash. The total purchase price was
allocated to lease rights of $101.4 million, $48.9 to property and equipment,
and $2.2 million to other assets. The effect of this transaction, did not have a
material impact on VoiceStream's financial position or results of operations.
On February 28, 2000, VoiceStream completed the purchase of 9,590,000 newly
issued Class A shares of Microcell Telecommunications Inc. ("Microcell") for
approximately $275 million. The per share transaction price was equal to the
closing market price of Microcell's publicly traded Class B Non-Voting shares on
the Nasdaq National Market System on January 6. The purchase will be accounted
for using the equity method of accounting. The acquisition of these shares did
not have a material impact on VoiceStream's financial position or results of
operations.
12. SELECTED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED):
Selected quarterly consolidated financial information for the years ended
December 31, 1999 and 1998 is as follows (dollars in thousands, except per share
data):
BASIC AND
DILUTED LOSS
TOTAL PER COMMON
QUARTER ENDED REVENUES OPERATING LOSS NET LOSS SHARE
------------- -------- -------------- --------- ------------
March 31, 1998.................... $ 29,883 $ (48,233) $ (64,301) $(0.75)
June 30, 1998..................... $ 36,508 $ (50,412) $ (56,794) $(0.59)
September 30, 1998................ $ 46,186 $ (48,845) $ (61,463) $(0.64)
December 31, 1998................. $ 55,385 $ (57,154) $ (71,708) $(0.77)
March 31, 1999*................... $ 67,712 $ (57,481) $ (77,186) $(0.81)
June 30, 1999*.................... $109,050 $(105,933) $(132,817) $(1.39)
September 30, 1999*............... $134,932 $ (61,739) $ (93,034) $(0.97)
December 31, 1999................. $163,835 $ (97,622) $(151,702) $(1.58)
* Certain reclassifications have been made to the quarterly revenue amounts
to conform to the annual presentation.
13. RELATED PARTY TRANSACTIONS:
VoiceStream's financial statements include an allocation of certain
centralized costs that were incurred by Western Wireless and benefit all of its
operations, including those of VoiceStream prior to the Spin-off. Such
centralized items included the costs of customer service and accounting to
support these functions. These items were allocated to the respective
operational units in a manner that reflected the relative time
F-19
23
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. RELATED PARTY TRANSACTIONS (CONTINUED):
devoted to each of the operational units. VoiceStream was allocated costs of
$5.0 million, $33.3 million and $29.1 million for the years ended December 31,
1999, 1998, and 1997, respectively.
Management believes that the financial information presented fairly
reflects the results of operations had VoiceStream been a stand alone entity
during the entire period presented. Management believes that allocations
reflected in the financial statements are reasonable; however, the financial
information included herein is not necessarily indicative of the financial
position, results of operations or cash flows of VoiceStream in the future.
After the Spin-off, the net operating loss ("NOL") carryforwards resulting
from VoiceStream's cumulative tax losses were transferred from Western Wireless
to VoiceStream. Pursuant to a tax sharing agreement entered into at the time of
the Hutchison investment, VoiceStream paid Western Wireless $20.0 million, the
amount representative of the tax benefit of NOLs generated while VoiceStream was
a subsidiary of Western Wireless. This was accounted for as a return of capital
to Western Wireless.
14. HUTCHISON TRANSACTION:
Under an agreement between Hutchison Telecommunications PCS (USA) and
Western Wireless, Western Wireless was required to invest $750.0 million of
equity in VoiceStream. In the fourth quarter of 1997, approximately $518.3
million of the advances made by Western Wireless to VoiceStream were converted
to equity to comply with this requirement. This agreement required that any
additional investment made by Western Wireless over $750.0 million was to be
reimbursed from the proceeds of Hutchison Telecommunications PCS (USA)'s
investment in VoiceStream.
In February 1998, Hutchison Telecommunications PCS (USA) purchased 19.9% of
VoiceStream for an aggregate purchase price of $248.4 million ("the Hutchison
Transaction"). Western Wireless amended certain outstanding financing agreements
to which it was subject, and unless otherwise agreed to by Hutchison
Telecommunications PCS (USA) and Western Wireless, neither Western Wireless nor
VoiceStream has any liability related to any indebtedness of the other.
Hutchison Telecommunications PCS (USA) designated two directors to a ten person
Board of Directors who had approval rights over certain transactions of
VoiceStream.
F-20
24
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY):
CONDENSED BALANCE SHEETS:
(dollars in thousands)
AS OF DECEMBER 31,
------------------------
1999 1998
----------- ---------
Current assets.............................................. $ 50,649 $ 16
Property and equipment, net of accumulated depreciation of
$1,071 and $57............................................ 104,368 2,398
Licensing costs and other intangible assets, net of
accumulated amortization of $371 and $0................... 213,327 74,200
Investment in and advances to affiliates.................... 1,175,743 311,226
----------- ---------
Total assets...................................... $ 1,544,087 $ 387,840
=========== =========
Current liabilities......................................... $ 25,259 $ 1,210
Long-term debt, net of unamortized discount of $309 million,
due 2009.................................................. 1,511,451
Preferred stock, no par value, 50,000,000 shares authorized;
no shares issued and outstanding. Common stock, no par
value, and paid-in capital, 300,000,000 shares authorized,
96,305,360 and 95,541,623 shares issued and outstanding,
respectively.............................................. 1,095,539 994,789
Deferred compensation....................................... (25,264)
Deficit..................................................... (1,062,898) (608,159)
----------- ---------
Total debt and shareholders' equity............... $ 1,544,087 $ 387,840
=========== =========
CONDENSED STATEMENTS OF OPERATIONS:
(dollars in thousands)
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
----------- --------- ---------
Total revenues..................................... $ 3,603
Operating expenses................................. 76,101 $ 354
----------- ---------
Operating loss..................................... (72,498) (354)
Other income (expense):
Interest and financing expense, net.............. (48,818) (540) $ (2,443)
Equity in net losses of affiliates............... (349,699) (259,755) (261,372)
Other, net....................................... 16,276 6,383
----------- --------- ---------
Other expense, net............................... (382,241) (253,912) (263,815)
----------- --------- ---------
Net loss........................................... $ (454,739) $(254,266) $(263,815)
=========== ========= =========
See accompanying note to Parent Company only
Condensed Financial Information
F-21
25
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) (CONTINUED):
(dollars in thousands)
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
----------- --------- ---------
CONDENSED STATEMENTS OF CASH FLOWS:
(dollars in thousands)
Operating activities:
Net loss............................................. $ (454,739) $(254,266) $(263,815)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Equity in net loss of affiliates.................. 349,699 259,755 261,372
Stock based compensation.......................... 60,690
Other............................................. 20,058 294 (173)
----------- --------- ---------
Net cash provided by (used in) operating
activities................................. (24,292) 5,783 (2,616)
----------- --------- ---------
Investing activities:
Purchase of property and equipment................... (61,473) (1,422)
Additions to licensing costs and other intangible
assets............................................ (496) (8,744) (43,851)
Acquisition of wireless properties, net of cash
acquired.......................................... (152,517) (4,645)
Investments in and advances to unconsolidated
affiliates........................................ (1,176,856) (134,960) (362,891)
Refund of FCC deposit................................ 7,749
----------- --------- ---------
Net cash used in investing activities........ (1,391,342) (145,126) (403,638)
----------- --------- ---------
Financing activities:
Proceeds from issuance of common stock, net.......... 3,643
Additions to long-term debt.......................... 1,911,451
Repayment of debt.................................... (400,000)
(Repayment of) advances from affiliate, net.......... 6,291 (105,446) 406,254
Equity contributions................................. 244,789
Return of capital.................................... (20,000)
Deferred financing costs, net........................ (40,600)
----------- --------- ---------
Net cash provided by financing activities.... 1,460,785 139,343 406,254
----------- --------- ---------
Change in cash and cash equivalents.................... 45,151 0 0
Cash and cash equivalents, beginning of year........... 0 0 0
----------- --------- ---------
Cash and cash equivalents, end of year................. $ 45,151 $ 0 $ 0
=========== ========= =========
See accompanying note to Parent Company only
Condensed Financial Information
A. BASIS OF PRESENTATION:
The condensed financial information presented above represents the balance
sheet, statements of operations and cash flows of VoiceStream as if the
subsidiary that is restricted under the Credit Facility (see Note 7 in
consolidated footnotes) was an unconsolidated entity. VoiceStream less this
subsidiary is referred to as "Parent Company Only". VoiceStream ownership in
such subsidiary has been reflected in this condensed financial information using
the equity method. The condensed balance sheet, statements of operations, and
statements of cash flow for Parent Company Only and the related notes should be
read in conjunction with the VoiceStream Consolidated Financial Statements and
Notes thereto.
F-22
26
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. ACCOUNTS RECEIVABLE ALLOWANCE FOR DOUBTFUL ACCOUNTS
(dollars in thousands)
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES DEDUCTIONS(1) PERIOD
---------- ---------- ------------- ----------
Year ended December 31, 1997................. $ 747 $ 6,628 $ (5,335) $ 2,040
====== ======= ======== =======
Year ended December 31, 1998................. $2,040 $12,780 $ (9,105) $ 5,715
====== ======= ======== =======
Year ended December 31, 1999................. $5,715 $37,000 $(25,233) $17,482
====== ======= ======== =======
- ---------------
(1) Write-offs, net of bad debt recovery.
F-23
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
November 30, 2000
VOICESTREAM WIRELESS CORPORATION
By /s/ JOHN W. STANTON
------------------------------------
John W. Stanton
Chairman of the Board, Director and
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ ROBERT R. STAPLETON President and Director November 30, 2000
- -----------------------------------------------------
Robert R. Stapleton
/s/ CREGG B. BAUMBAUGH Executive Vice President -- November 30, 2000
- ----------------------------------------------------- Finance, Strategy and
Cregg B. Baumbaugh Development (Principal
Financial Officer)
/s/ DONALD GUTHRIE Vice Chairman and Director November 30, 2000
- -----------------------------------------------------
Donald Guthrie
/s/ DOUGLAS G. SMITH Vice Chairman and Director November 30, 2000
- -----------------------------------------------------
Douglas G. Smith
/s/ ALLYN HEBNER Vice President and November 30, 2000
- ----------------------------------------------------- Controller (Principal
Allyn P. Hebner Accounting Officer)
/s/ MITCHELL R. COHEN Director November 30, 2000
- -----------------------------------------------------
Mitchell R. Cohen
/s/ DANIEL J. EVANS Director November 30, 2000
- -----------------------------------------------------
Daniel J. Evans
/s/ RICHARD L. FIELDS Director November 30, 2000
- -----------------------------------------------------
Richard L. Fields
/s/ CANNING K. N. FOK Director November 30, 2000
- -----------------------------------------------------
Canning K. N. Fok
/s/ JONATHAN M. NELSON Director November 30, 2000
- -----------------------------------------------------
Jonathan M. Nelson
/s/ TERENCE M. O'TOOLE Director November 30, 2000
- -----------------------------------------------------
Terence M. O'Toole
28
SIGNATURES TITLE DATE
---------- ----- ----
/s/ JAMES N. PERRY JR. Director November 30, 2000
- -----------------------------------------------------
James N. Perry Jr.
/s/ JAMES J. ROSS Director November 30, 2000
- -----------------------------------------------------
James J. Ross
/s/ HANS SNOOK Director November 30, 2000
- -----------------------------------------------------
Hans Snook
/s/ SUSAN M.F. WOO CHOW Director November 30, 2000
- -----------------------------------------------------
Susan M.F. Woo Chow
/s/ FRANK J. SIXT Director November 30, 2000
- -----------------------------------------------------
Frank J. Sixt
/s/ KAJ-ERIK RELANDER Director November 30, 2000
- -----------------------------------------------------
Kaj-Erik Relander