1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
Amendment No. 1
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
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.,
BELLEVUE, WASHINGTON 98006
- --------------------------------- ----------------------------------
(Address of principal executive (Zip Code)
offices)
(425) 378-4000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
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 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 July 31, 2000
----- --------------------------------------
Common Stock, $0.001 par value 214,617,441
2
EXPLANATORY NOTE
This Amendment No. 1 to Quarterly Report on Form 10-Q/A is being filed to
modify the Consolidated Statements of Operations to allocate stock-based
compensation to the operating expense line items. Other than this modification
to the Consolidated Statements of Operations, all other information included
in the initial filing is unchanged.
Part I - Financial Information
Item 1. Financial Statements
VOICESTREAM WIRELESS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 71,478 $ 235,433
Accounts receivable, net of allowance for doubtful accounts of
$45,352 and $17,482, respectively 219,504 97,739
Inventory 185,366 63,072
Prepaid expenses and other current assets 47,852 14,332
------------ ------------
Total current assets 524,200 410,576
Property and equipment, net of accumulated depreciation
of $432,012 and $284,670, respectively 2,086,105 931,792
Goodwill, net of accumulated amortization
of $112,539 and $0, respectively 9,035,152
Licensing costs and other intangible assets, net of accumulated
amortization of $43,998 and $21,815, respectively 1,994,645 450,261
Investments in and advances to unconsolidated affiliates 1,244,298 409,721
Other assets and investments 63,352 19,563
------------ ------------
$ 14,947,752 $ 2,221,913
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 130,263 $ 22,878
Accrued liabilities 321,007 114,534
Deferred revenue 42,240 4,275
Construction accounts payable 105,890 61,398
Current portion of long-term debt 94,520
------------ ------------
Total current liabilities 693,920 203,085
Long-term debt 5,082,567 2,011,451
Commitments (Note 7)
Preferred stock of consolidated subsidiary 302,416
2.5% convertible junior preferred stock; $0.001 par value;
100,000,000 shares authorized; 7,606 shares issued and outstanding 766,938
Shareholders' equity:
Common stock, $0.001 par value, and paid in capital; 1.0 billion
shares authorized; 213,824,311 and 96,305,360 shares issued
and outstanding, respectively 9,804,976 1,095,539
Deferred compensation (22,613) (25,264)
Deficit (1,680,452) (1,062,898)
------------ ------------
Total shareholders' equity 8,101,911 7,377
------------ ------------
$ 14,947,752 $ 2,221,913
============ ============
See accompanying notes to consolidated financial statements
3
VOICESTREAM WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
Three months ended June 30, Six months ended June 30,
--------------------------------- ---------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
Revenues:
Subscriber revenues $ 273,711 $ 83,292 $ 444,461 $ 136,538
Prepaid revenues 67,434 529 92,636 1,433
Roamer revenues 28,146 1,818 38,330 3,560
Equipment sales 55,846 19,432 89,756 30,351
Affiliate and other revenues 28,420 3,979 45,372 4,879
------------- ------------- ------------- -------------
Total revenues 453,557 109,050 710,555 176,761
------------- ------------- ------------- -------------
Operating expenses:
Cost of service (excludes stock based
compensation of $1,023, $10,667,
$1,712 and $10,667, respectively) 121,384 24,580 183,701 42,348
Cost of equipment sales 103,765 35,662 162,667 60,908
Cost of engineering and R&D 2,289 2,867
General and administrative (excludes
stock based compensation of $2,063,
$27,747, $6,396 and $27,747,
respectively) 144,900 27,004 223,949 48,396
Sales and marketing (excludes stock
based compensation of $853, $8,889,
$1,427 and $8,889, respectively) 142,617 50,784 230,197 85,806
Depreciation and amortization 198,812 29,650 280,904 55,414
Stock based compensation 3,939 47,303 9,535 47,303
------------- ------------- ------------- -------------
Total operating expenses 717,706 214,983 1,093,820 340,175
------------- ------------- ------------- -------------
Operating loss (264,149) (105,933) (383,265) (163,414)
------------- ------------- ------------- -------------
Other income (expense):
Interest and financing expense (120,868) (20,276) (202,099) (31,881)
Equity in net losses of unconsolidated
affiliates (35,373) (4,511) (47,247) (12,799)
Interest income and other, net 11,356 (2,097) 21,990 (1,909)
Accretion of preferred stock of
consolidated subsidiary (5,190) (6,933)
------------- ------------- ------------- -------------
Total other income (expense) (150,075) (26,884) (234,289) (46,589)
------------- ------------- ------------- -------------
Net loss (414,224) (132,817) (617,554) (210,003)
Preferred dividends attributable to
2.5% junior preferred stock (5,463) (6,338)
------------- ------------- ------------- -------------
Net loss attributable to common
shareholders $ (419,687) $ (132,817) $ (623,892) $ (210,003)
============= ============= ============= =============
Basic and diluted loss per common share $ (2.16) $ (1.39) $ (3.95) $ (2.20)
============= ============= ============= =============
Weighted average common shares used in
computing basic and diluted loss per
common share 193,972,000 95,548,000 157,883,000 95,545,000
============= ============= ============= =============
See accompanying notes to consolidated financial statements
2
4
VOICESTREAM WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six months ended June 30,
-----------------------------
2000 1999
----------- -----------
Operating activities:
Net loss $ (617,554) $ (210,003)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 280,904 55,414
Amortization of debt discount and premium 20,240
Equity in net loss of unconsolidated affiliates 47,247 12,799
Stock-based compensation 9,535 47,303
Allowance for bad debts (1,681) 3,314
Other, net 6,742 466
Changes in operating assets and liabilities, net of
effects from consolidating acquired interests:
Accounts receivable (23,078) (30,180)
Inventory (102,319) 2,114
Prepaid expenses and other current assets (5,238) (190)
Accounts payable 92,712 11,402
Accrued liabilities 61,197 32,444
----------- -----------
Net cash used in operating activities (231,293) (75,117)
----------- -----------
Investing activities:
Purchases of property and equipment (469,305) (128,537)
Additions to licensing costs and
other intangible assets (527) (2,228)
Acquisitions of wireless properties, net of cash acquired (469,366)
Investments in and advances to unconsolidated affiliates (364,158) (150,892)
Other (2,252) (13,473)
----------- -----------
Net cash used in investing activities (1,305,608) (295,130)
----------- -----------
Financing activities:
Net proceeds from issuance of common and preferred stock 1,331,099 116
Long-term debt borrowings 2,740,000 755,000
Long-term debt repayments (2,668,688) (270,000)
Net receipts from (payments) to Western Wireless 38,677 (30,570)
Deferred financing costs (68,142) (12,500)
----------- -----------
Net cash provided by financing activities 1,372,946 442,046
----------- -----------
Change in cash and cash equivalents (163,955) 71,799
Cash and cash equivalents, beginning of period 235,433 8,057
----------- -----------
Cash and cash equivalents, end of period $ 71,478 $ 79,856
=========== ===========
See accompanying notes to consolidated financial statements
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VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION:
VoiceStream Wireless Corporation ("VoiceStream" or "we") provides
personal communication services ("PCS") in urban markets in the United States
using the Global System for Mobile Communications, or GSM, technology.
VoiceStream was incorporated in June 1999 as a Delaware corporation to act as
the parent company for business combinations involving our predecessor, now
named VS Washington Corporation ("VS Washington")
On July 24, 2000, we announced a definitive merger agreement (the
"Agreement") with Deutsche Telekom AG, a German telecommunication provider.
Pursuant to the Agreement, which was approved by the Boards of Directors of both
companies, each VoiceStream shareholder will receive 3.2 Deutsche Telekom shares
and $30 in cash for each share of VoiceStream common stock, subject to certain
adjustments. VoiceStream shareholders are able to elect either an all-stock or
all-cash option, subject to the proration terms of the Agreement. In connection
with the merger, Deutsche Telekom will assume all of our outstanding debt,
currently totalling $5.2 billion. Deutsche Telekom will make a $5.0 billion
investment in VoiceStream, which is expected to occur during the third quarter
of 2000 in exchange for preferred stock convertible into common stock at a price
of $160 per share. Deutsche Telekom's investment is not contingent upon the
closing of the merger. The merger is expected to qualify as a tax-free
reorganization for VoiceStream shareholders receiving Deutsche Telekom stock.
The merger is subject to the customary closing conditions, including approval by
VoiceStream's shareholders and legal and regulatory approvals. The merger is
expected to be completed in the first half of 2001.
On February 25, 2000, pursuant to a reorganization agreement approved by
the shareholders of VS Washington and Omnipoint Corporation ("Omnipoint"),
VoiceStream, as a holding company, became the parent of VS Washington and of
Omnipoint. On May 4, 2000, VoiceStream completed the acquisition by merger of
Aerial Communications, Inc. ("Aerial"). VoiceStream's current business
activities consist of the combined businesses of VS Washington, Omnipoint and
Aerial.
Prior to May 3, 1999, VS Washington was an 80.1% owned subsidiary of
Western Wireless Corporation ("Western Wireless"). The remaining 19.9% was owned
by Hutchison Telecommunications PCS (USA) Limited ("Hutchison"), a subsidiary of
Hutchison Whampoa Limited, a Hong Kong company. On May 3, 1999, VS Washington
was formally separated in a spin-off transaction from Western Wireless' other
operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying interim consolidated financial statements and the
financial information included herein are unaudited, but reflect all adjustments
which are, in our opinion, necessary for a fair presentation of the financial
position, results of operations and cash flows for the periods presented. All
such adjustments are of a normal, recurring nature. Results of operations for
interim periods presented herein are not necessarily indicative of results of
operations for the entire year.
Capitalized interest
Our PCS licenses and wireless communications systems represent qualified
assets pursuant to Statement of Financial Accounting Standards ("SFAS") No. 34,
"Capitalization of Interest Cost." Our policy is to capitalize interest in new
markets during the build-out phase until service is initiated for customers. We
had no capitalized interest during the three months ended June 30, 2000 and $0.1
million during the six months ended June 30, 2000. We had no capitalized
interest for the three months ended June 30, 1999 and $1.6 million during the
six months ended June 30, 1999.
Intangible assets and amortization
Goodwill consists of the excess of the purchase price over the fair
value of assets acquired in the Aerial and Omnipoint mergers (see Note 3) and is
being amortized over a useful life of 20 years. Licensing costs, including those
acquired from Aerial and Omnipoint, are amortized over a useful life of 40
years.
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VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED:
Revenue recognition
Service revenues based on customer usage are recognized at the time the
service is provided. Access and special feature service revenue are recognized
when earned. Sales of equipment, primarily handsets, are recognized upon
delivery to the customer. Prepaid coupon sales are deferred until service is
provided.
Supplemental cash flow disclosure
Cash paid for interest (net of any amounts capitalized) was $149.1
million for the six months ended June 30, 2000 and $25.8 million for the same
period in 1999.
Reclassifications
Certain amounts in the prior period financial statements have been
reclassified to conform to the 2000 presentation.
Recently issued accounting pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") 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 implementation of SFAS
No. 133 is not expected to have a material impact on our 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 is effective for the quarter ended December 31, 2000,
with retroactive adoption to January 1, 2000. 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 a contractual arrangement with a customer, such as an arrangement
to provide telecommunication services. We are in the process of evaluating the
impact of adoption of this bulletin.
In March 2000, the FASB released Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation, an interpretation of APB
Opinion No. 25," which provides clarification of APB No. 25 for certain issues
such as the determination of an employee, the criteria for determining whether a
plan qualifies as a non-compensatory plan and the accounting consequences of
various modifications to the terms of a previously fixed stock option or award.
We believe that our practices are in conformity with this guidance, and
therefore Interpretation No. 44 will have no impact on the our financial
statements.
3. AERIAL AND OMNIPOINT MERGERS:
On May 4, 2000, we completed the merger with Aerial and accordingly,
subsequent to this date, Aerial results are included in VoiceStream's
consolidated results. Aerial provides PCS services in urban United States
markets including Columbus, OH, Houston, TX, Kansas City, MO, Minneapolis, MN,
Pittsburg, PA, and Tampa-St. Petersburg, FL. The merger was accounted for using
the purchase method. Pursuant to the agreement, we exchanged 0.455 of a share of
VoiceStream common stock for each share of outstanding Aerial common stock.
In connection with the Aerial merger agreement, prior to closing of the
merger, Telephone and Data Systems, Inc ("TDS") replaced $420.0 million of
Aerial debt owed to TDS with equity of Aerial at $22 per Aerial common share. In
addition, Sonera, Ltd, ("Sonera") a Finnish telecommunications company, which
held an investment in Aerial Operating Company ("AOC"), a subsidiary of Aerial,
invested $230.0 million in Aerial equity, also at $22 per Aerial common share.
Prior to the closing of the Aerial merger, Sonera converted its interest in AOC
into Aerial common stock.
5
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VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. AERIAL AND OMNIPOINT MERGERS - CONTINUED:
On February 25, 2000, we completed the merger with Omnipoint and
accordingly, subsequent to this date, Omnipoint results are included in
VoiceStream's consolidated results. Omnipoint, directly and through joint
ventures in which it has interests, provides PCS services in urban markets
including New York, NY, Detroit, MI, Boston, MA, Philadelphia, PA, Miami, FL,
and Indianapolis, IN. The merger was accounted for using the purchase method.
Pursuant to the agreement, we exchanged 0.825 of a share of VoiceStream common
stock plus $8.00 in cash for each share of outstanding Omnipoint common stock.
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 in June 1999. The
remaining $47.5 million was invested in Omnipoint preferred stock on October 1,
1999.
In connection with the Omnipoint merger agreement, Hutchison made an
investment of $957.0 million into the combined company for common and redeemable
convertible preferred securities. $102.5 million was invested directly in
Omnipoint preferred stock subsequent to finalizing the merger agreement in June
1999. Hutchinson invested an additional $47.5 million in Omnipoint preferred
stock in October 1999. The remaining $807.0 million was invested in VoiceStream
upon the closing of the merger. Upon completion of the merger, Hutchison
exchanged its $150.0 million investment in Omnipoint preferred stock for
VoiceStream common stock at $29 per share. Additionally, Sonera invested $500.0
million in VoiceStream at the closing of the Omnipoint merger, purchasing
VoiceStream common shares at $57 per share.
The components of the purchase price of these merger transactions and
the preliminary allocations are as follows (in thousands, except share data):
AERIAL OMNIPOINT
---------- ----------
Consideration and merger costs:
Total value of shares issued in mergers (a) $5,703,500 $1,538,000
Cash payments 113,900 627,000
Fair value of options and warrants converted 6,100 859,000
Fair value of liabilities assumed inclusive
of minority interest 459,500 3,133,800
Merger related costs 20,500 19,000
Cook Inlet exchange rights (See Note 5) 28,000
---------- ----------
Total consideration 6,303,500 6,204,800
Preliminary allocation of purchase price:
Current assets 94,800 171,000
Property, plant and equipment 384,800 473,000
Investments in unconsolidated affiliates 3,500 714,700
Licenses and other intangibles 550,900 939,000
---------- ----------
Preliminary goodwill $5,269,500 $3,907,100
========== ==========
(a) VoiceStream issued 52,325,301 and 52,952,399 shares, respectively,
in conjunction with the Aerial and Omnipoint mergers.
The above allocations reflect the estimated fair value of assets and
liabilities acquired. Some allocations are based on valuations which are
currently being finalized. VoiceStream does not believe that the final purchase
price allocations will produce materially different results than those reflected
above.
Unaudited pro forma operating results, assuming both the Aerial and
Omnipoint mergers occurred on January 1 of each of the respective years are as
follows (in thousands, except per share data):
SIX MONTHS ENDED JUNE 30
2000 1999
--------- ---------
Total revenues $ 900,000 $ 420,000
Net loss $(895,000) $(595,000)
Basic and diluted loss per common share $ (4.21) $ (2.82)
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VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. PROPERTY AND EQUIPMENT:
JUNE 30, DECEMBER 31,
(in thousands) 2000 1999
----------- -----------
Land, buildings, and improvements $ 57,179 $ 24,590
Wireless communications systems 1,562,299 849,148
Furniture and equipment 231,854 109,576
----------- -----------
1,851,332 983,314
Less accumulated depreciation (432,012) (284,670)
----------- -----------
1,419,320 698,644
Construction in progress 666,785 233,148
----------- -----------
$ 2,086,105 $ 931,792
=========== ===========
Depreciation expense was $91.6 million and $27.9 million for the three
months ended June 30, 2000 and 1999, respectively, and $149.8 million and $52.0
million during the six months ended June 30, 2000 and 1999, respectively.
5. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES:
Cook Inlet VoiceStream PV/SS PCS, LP
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 the six months ended June 30, 2000 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 second quarter 2000. 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 $64.8 million at June 30, 2000 and $61.9 million at December 31,
1999.
Cook Inlet/VoiceStream PCS, LLC
A subsidiary of VoiceStream holds a 49.9% interest in Cook
Inlet/VoiceStream PCS, LLC ("CIVS"). This entity owns, among others, the Dallas
and Chicago FCC BTA licenses. In January 2000, CIVS reached an agreement with an
infrastructure equipment vendor to provide CIVS with credit facilities of up to
$735 million, composed of a $160 million revolving credit agreement, term loans
of $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 of 13% Series A Subordinated Notes. These 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, consisting of the revolving credit agreement and term loans, is
based upon certain equipment purchases by CIVS up to the maximum $485 million
available. The total investment in CIVS including advances under promissory
notes, was $204.4 million at June 30, 2000 and $181.4 million at December 31,
1999.
Cook Inlet/VoiceStream PCS II and III, LLC
Under the Designated Entity rules set forth by the FCC, VoiceStream can
not own C and F Block licenses. Omnipoint's C and F Block licenses, assets and
liabilities associated with these licenses and operations were transferred to
two new joint venture entities controlled by Cook Inlet Region, Inc. ("Cook
Inlet"). We have accounted for this transfer of non-monetary assets as an
investment at VoiceStream's historical cost, which equates to the fair value of
these assets and liabilities as determined in the purchase price allocation
performed for the merger with Omnipoint. The excess purchase price attributed to
these assets has been allocated between license costs and goodwill and is being
amortized into the loss of unconsolidated affiliates over 40 and 20 years,
respectively. Each of these joint venture entities, Cook Inlet/VoiceStream GSM
II PCS, LLC ("CIVS II") and Cook Inlet/VoiceStream GSM III PCS, LLC ("CIVS
III"), qualify as a Designated Entity.
Cook Inlet contributed a total of $75 million in cash to these joint
venture entities for its 50.1% ownership and
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VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES - CONTINUED:
exchange rights. Immediately prior to the merger, Omnipoint contributed a
combination of non-cash assets and liabilities for its 49.9% ownership. Cook
Inlet holds the majority of voting power in each of these joint venture
entities. The total investment in CIVS II and III, including advances under
promissory notes, was $656.5 million and $53.8 million, respectively, as of June
30, 2000.
Cook Inlet has certain rights, but not the obligation, to exchange their
joint venture interests in Cook Inlet PCS, CIVS, CIVS II and CIVS III for
approximately 12.6 million shares of VoiceStream 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 the joint ventures).
For Cook Inlet PCS, CIVS and CIVS II this date is in the second quarter of 2002,
and for CIVS III in the fourth quarter of 2004. These rights are conditioned
upon the FCC's Designated Entity rules and VoiceStream's legal ability to own
the C and F Block licenses at the time of the exchange under such rules. The
initial fair value of these exchange rights of $58.6 million has been recorded
as an increase to investments in and advances to unconsolidated affiliates and
additional paid-in capital. The exchange rights are being amortized over the
remaining FCC regulatory holding periods for the respective licenses. For the
three and six months ended June 30, 2000, $5.5 million and $9.0 million,
respectively, in amortization expense was recognized for these rights.
Microcell investment
On February 28, 2000, VoiceStream completed the purchase of 9,590,000
newly issued Class A shares of Microcell Telecommunications Inc. ("Microcell"),
a Canadian GSM operator 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, 2000.
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 a 22.6% voting interest in Microcell. Additionally,
VoiceStream is entitled to designate two members of Microcell's Board of
Directors. The investment is being accounted for using the equity method. The
total consideration paid by VoiceStream in excess of Microcell's assets, net of
liabilities, amounted to $287 million and is allocated primarily to licenses and
goodwill. Amortization expense recognized since February 28, 2000 was $4.1
million and is included in equity losses of unconsolidated affiliates.
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VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. LONG-TERM DEBT:
JUNE 30, DECEMBER 31,
(in thousands) 2000 1999
----------- ------------
Previous credit facility:
Revolver $ 250,000
Term loan 250,000
New credit facility:
Revolver $ 340,000
Vendor facility 500,000
Term loans 1,900,000
10 3/8 % Senior Notes 1,249,654 1,100,000
11 7/8 % Senior Discount Notes 720,000 720,000
11 5/8% Senior Notes and Series A Senior Notes 449,654
14% Senior Notes
11 1/2% Senior Notes 205,000
FCC license obligations 94,520
----------- -----------
5,458,828 2,320,000
Less unamortized discount and premium, net (281,741) (308,549)
Less current portion of long-term debt (94,520)
----------- -----------
$ 5,082,567 $ 2,011,451
=========== ===========
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 revolving credit loans and term loans in an aggregate principal
amount totaling $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 repay certain long-term debt of Omnipoint.
Additionally, a portion of the cash equity investments received from Hutchison
and Sonera, described in Note (3), were used to pay off the remaining balance on
the previous credit facility.
The new credit facility permits up to $1.5 billion of additional
indebtedness, including up to $1 billion for a vendor facility, which would
become part of the new credit facility, by amendment, subject to the same
covenants and secured by the same collateral. On April 28, 2000, we entered into
a vendor facility with an infrastructure equipment vendor and a bank that
provides up to $1 billion in senior credit facilities and VoiceStream has agreed
to acquire certain equipment, software and services from the vendor. The vendor
facility has a maturity of 9.25 years and is available in multiple draws,
including $500 million that was drawn on April 28, 2000, $250 million that was
drawn in July 2000, and $250 million that can be drawn by October 31, 2000. Net
proceeds of the vendor facilities will be used for the same purposes as other
proceeds under the new 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 portion 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 new credit facility reduces with a final maturity on the eighth
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 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, 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.
9
11
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. LONG-TERM DEBT - CONTINUED:
The $1 billion Tranche B and the vendor facility tranches bear 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
applicable margin on the final $250 million vendor facility tranche, which must
be drawn prior to October 31, 2000, may be subject to adjustment at any time
before disbursement of the funds.
The credit facility requires VoiceStream to enter into interest rate
hedging agreements to manage the interest rate exposure pertaining to borrowings
under the credit facility. VoiceStream had entered into interest rate caps,
collars and swaps with a total notional amount of $325.0 million at June 30,
2000. Generally these instruments have initial terms ranging from 1 to 4 years
and effectively convert variable rate debt to fixed rate. The amount of
unrealized gain or loss attributable to changing interest rates at June 30, 2000
was not material.
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 repayment of the loans is secured by, among
other things, the grant of a security interest in the capital stock and assets
of VoiceStream and certain of its subsidiaries. As of June 30, 2000, we were in
compliance with respect to these affirmative and negative covenants.
During the second quarter of 2000, VoiceStream exchanged $142.8 million
of Omnipoint's 14% Senior Notes for $149.7 million of VoiceStream's 10-3/8%
Senior Notes, and exchanged $102.3 million of Omnipoint's 11-1/2% Senior Notes
for a like amount of VoiceStream's 11-1/2% Senior Notes. In July 2000,
VoiceStream exchanged $193.5 million of the 11.625% Senior Notes due 2006 and
$249.3 million of the 11.625% Series A Senior Notes due 2006 for $476.1 million
of VoiceStream's 10-3/8% Senior Notes. Subsequent to these exchanges, $6.8
million of the Omnipoint 11.625% Senior Notes and Series A Senior Notes and
$102.7 million of the Omnipoint 11-1/2% Senior Notes remain outstanding. The
differences in the total value of debt exchanged represented an adjustment to
fair value of debt assumed in the Omnipoint merger and therefore were treated as
adjustments to the total purchase price of Omnipoint and are reflected in
additional goodwill recorded.
The aggregate amounts of principal maturities of long-term debt at June
30, 2000 are as follows (in thousands):
Twelve months ending June 30, 2001 $ 94,520
Remainder of 2001 -
Year ending December 31,
2002 -
2003 100,000
2004 145,000
Thereafter 5,119,308
----------
$5,458,828
==========
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12
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. COMMITMENTS AND CONTINGENCIES:
Future minimum payments required under operating leases and agreements
that have initial or remaining non-cancelable terms in excess of one year as of
June 30, 2000, are summarized below (in thousands):
Six months ending December 31, 2000 $ 80,346
Year ending December 31,
2001 157,633
2002 145,684
2003 138,183
2004 128,788
Thereafter 270,690
--------
$921,324
========
Aggregate rental expense for all operating leases was approximately
$25.3 million and $7.7 million for the three months ended June 30, 2000 and
1999, respectively, and $52.8 million and $14.5 million during the six months
ended June 30, 2000 and 1999, respectively.
In order to ensure adequate supply and availability of certain
infrastructure equipment requirements and service needs, VoiceStream has
committed to purchase PCS equipment from various suppliers. These commitments
total approximately $1.5 billion. At June 30, 2000, VoiceStream has ordered
approximately $1.0 billion under these agreements, of which approximately $300
million is undelivered.
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 Aerial and Omnipoint 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 VS Washington's common stock to its shareholders. 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
VS Washington'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 VS Washington common stock at the
time of the spin-off and Western Wireless' adjusted tax basis in such stock at
that time.
In the absence of direct authority, and although the issue is not free
from doubt, we believe that we should be able to establish that the spin-off and
VoiceStream's acquisition of VS Washington's stock pursuant to the mergers, in
conjunction with the related transactions and Hutchison's original investment in
VS Washington 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 owned 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 CIVS. In the event that
these licenses are returned to the jurisdiction of the bankruptcy court, it is
unlikely that CIVS will be able to recoup any or all of the costs incurred
by it in connection with the construction and development of systems related
to such licenses.
11
13
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. SALE OF OMNIPOINT TECHNOLOGIES INC.:
On June 27, 2000 we sold a wholly-owned subsidiary, Omnipoint
Technologies ("OTI"), to Xircom, Inc. ("Xircom"). Pursuant to the terms of the
sales agreement, we exchanged all of the outstanding common shares of OTI for
approximately 1.2 million common shares of Xircom. The sale was accounted for as
a tax-free reorganization and VoiceStream did not recognize any gain or loss on
the transaction. The Xircom shares received were valued at approximately $40.4
million, representing the market price per share at the time of the sale, after
discounting for trading restrictions. The operations of OTI were immaterial to
the consolidated operations of VoiceStream for the three month and six month
periods ended June 30, 2000.
9. RELATED PARTY TRANSACTIONS:
VoiceStream and the Cook Inlet joint ventures have entered into
reciprocal technical services agreements which allow each to utilize airtime on
the other's 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 the three months ended June 30, 2000, we earned revenues of
$26.8 million and incurred expenses of $31.8 million related to these
agreements. During the three months ended June 30, 1999, we earned revenues of
$4.0 million and incurred expenses of $4.7 million. For the six months ended
June 30, 2000, we earned revenues of $43.7 million and incurred expenses of
$51.3 million, as compared to revenues of $4.9 million and expenses of $5.7
million during the comparable period in 1999.
12
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VoiceStream Wireless Corporation
By /s/ Cregg Baumbaugh By /s/ Allyn Hebner
--------------------- ------------------------
Cregg Baumbaugh Allyn P. Hebner
Executive V.P. - Finance/Corporate Vice President, Controller and
Development (Principal Financial Officer) Principal Accounting Officer
Dated: November 30, 2000
13