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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 000-23387
TELIGENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 54-1866562
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
8065 LEESBURG PIKE
SUITE 400
VIENNA, VIRGINIA 22182
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 762-5100
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
11 1/2 % SENIOR NOTES DUE 2007
11 1/2 % SENIOR DISCOUNT NOTES DUE 2008
COMMON STOCK, CLASS A, PAR VALUE $.01 PER SHARE
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 [ ] No [X].
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 the registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant was approximately $27 million on March 26,
2001, based on the closing sales price of the registrant's Class A Common Stock
as reported on The Nasdaq Stock Market as of such date.
The number of shares outstanding of each of the registrant's classes of
common stock as of March 26, 2001 was as follows:
Common Stock, Class A 42,583,265
Common Stock, Class B 21,260,610
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This Form 10-K/A is being filed in order to amend the Items set forth below
so as to respond to certain comments the Company received from the SEC on its
original Form 10-K for the year ended December 31, 2000 (the "Original 10-K").
In reviewing the Form 10-K/A and the Original 10-K, the reader should be aware
that since the filing of the Original 10-K the Company and all of its domestic
subsidiaries have filed voluntary bankruptcy petitions under Chapter 11 of the
U.S. Bankruptcy Code (see the Company's Form 8-K dated May 21, 2001) and there
have been substantial changes in the Company's stock ownership, Board of
Directors and management. The information contained in the Form 10-K/A under
Part II, Item 7 (Management's Discussion and Analysis of Financial Condition and
Results of Operations) has not been updated to reflect financial changes,
including the bankruptcy filings, since the filing of the Original 10-K. The
information contained under Part IV of the Form 10-K/A has been revised from
that contained in the Original 10-K to reflect the classification of the
Company's debt as current.
Except for any historical information contained herein, the matters
discussed in this Form 10-K contain certain "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 with respect
to the Company's financial condition, results of operation and business. The
words "anticipate," "believe," "estimate," "expect," "plan," "intend" and
similar expressions, as they relate to the Company, are intended to identify
forward-looking statements. Such statements reflect our current views with
respect to future events and involve known and unknown risks, uncertainties and
other factors. The Company cannot be sure that any of its expectations will be
realized.
In this Annual Report on Form 10-K/A, we will refer to Teligent, Inc., a
Delaware corporation, and, as appropriate, its subsidiaries, as "Teligent," "the
Company," "we," "us," and "our." Where applicable, such references refer to
Teligent's limited liability company predecessor.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below as of December 31, 2000, 1999,
1998, 1997 and 1996 and for the years ended December 31, 2000, 1999, 1998, 1997
and the period from March 5, 1996 (date of inception) to December 31, 1996, were
derived from our audited financial statements. You should read this data
together with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our audited financial statements and related notes,
included elsewhere in this Annual Report on Form 10-K.
MARCH 5, 1996
(DATE OF
YEARS ENDED DECEMBER 31, INCEPTION) TO
------------------------------------------------------ DECEMBER 31,
2000 1999 1998 1997 1996
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA: (1)
Revenues $ 152,072 $ 31,304 $ 960 $ 3,311 $ 1,386
Cost and expenses:
Cost of services 325,119 207,538 79,342 10,229 1,625
Sales, general and administrative 262,806 205,589 123,958 33,854 8,290
Restructuring and asset impairment 34,585 - - - -
Stock-based and other noncash
compensation 28,377 31,451 32,164 89,111 4,071
Depreciation and amortization 133,544 45,742 14,193 6,454 164
------------ ------------- ------------ ------------ -----------------
Total costs and expenses 784,431 490,320 249,657 139,648 14,150
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Loss from operations (632,359) (459,016) (248,697) (136,337) (12,764)
Interest income 25,052 18,933 34,510 3,246 -
Interest expense (133,286) (88,347) (66,880) (4,954) (879)
Equity in losses of international ventures (6,605) - - - -
Other expense (60,788) (483) (404) (9) 10
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Net loss $ (807,986) $ (528,913) $ (281,471) $ (138,054) $ (13,633)
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Accrued preferred stock dividends (41,870) (2,906) - - -
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Net loss applicable to common stockholders $ (849,856) $ (531,819) $ (281,471) $ (138,054) $ (13,633)
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Basic and diluted net loss per common share $ (14.19) $ $ (9.95) $ (5.35) $ (2.94) $ (0.29)
Weighted average common shares outstanding 59,897 53,423 52,597 46,951 46,258
OTHER DATA:
EBITDA (2) $ (435,853) $ (381,823) $ (202,340) $ (40,772) $ (8,529)
Cash used in operating activities (669,116) (313,379) (76,628) (33,260) (6,046)
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Cash used in investing activities (296,385) (354,774) (153,621) (115,755) (3,709)
Cash provided by financing activities 785,763 692,199 221,595 572,613 11,058
DECEMBER 31,
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2000 (3) 1999 1998 1997 1996
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(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents $260,555 $440,293 $416,247 $424,901 $ 1,303
Working capital (deficit) (1,185,320) 342,706 302,408 441,316 (6,978)
Property and equipment, net 560,534 402,989 180,726 8,186 3,545
Intangible assets, net 187,976 96,418 83,857 60,354 -
Total assets 1,209,476 1,131,843 763,434 607,380 19,145
Current portion of long-term debt 1,435,070 - - -
Long-term debt, less current portion - 808,799 576,058 300,000 -
Convertible redeemable preferred stock 520,658 478,788 - - -
Stockholders' (deficit) equity (960,585) (441,917) 31,053 285,146 10,425
(1) Certain amounts in the prior periods' financial statements have been
reclassified to conform to the current year's presentation.
(2) EBITDA consists of earnings before interest, taxes, depreciation,
amortization, stock-based and other non-cash compensation charges and
restructuring and asset impairment charges. While not a measure under
generally accepted accounting principles ("GAAP"), EBITDA is a measure
commonly used in the telecommunications industry, and we include it to help
you understand our operating results. Although you should not assume that
EBITDA is a substitute for operating income determined in accordance with
GAAP, we present it to provide additional information about our ability to
meet future debt service, capital expenditures and working capital
requirements. See the Financial Statements and the related notes. Since all
companies and analysts do not calculate these non-GAAP measurements the
same way, the amount may not be comparable to other calculations.
(3) The December 31, 2000 consolidated balance sheet has been restated to
classify the Company's outstanding debt to a current liability.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements set forth below under this caption constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Please refer to page 3 of the Original 10-K for
additional factors relating to such statements.
GENERAL
The following discussion and analysis is based on Teligent's financial
statements for the years ended December 31, 1998 through 2000 and should be read
together with the Financial Statements and related notes contained elsewhere in
this Annual Report on Form 10-K.
FACTORS AFFECTING FUTURE OPERATIONS
The execution of our business plan has resulted in the rapid expansion of
our operations. This expansion of our operations, including our international
operations, has created operating losses and negative cash flow since our
inception, and may continue to place a significant strain on our management,
financial condition and other resources. Our ability to manage this expansion
effectively will depend upon, among other things, raising capital to pay
expenses, monitoring operations, controlling costs, maintaining regulatory
compliance, interconnecting successfully with the incumbent telephone companies,
maintaining effective quality controls, securing building access, significantly
expanding our internal management, technical, information and accounting systems
and attracting, assimilating and retaining qualified management and professional
and technical personnel. If we are unable to hire and retain senior management
and key staff, expand our facilities, purchase adequate supplies of equipment,
secure building access, increase the capacity of our information systems and/or
successfully manage and integrate such additional resources, customers could
experience delays in connection of service and/or lower levels of customer
service. Failure to meet the demands of customers and to manage the expansion of
our business and operations could have a material adverse effect on our
business, financial condition and results of operations.
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As of March 26, 2001, we had approximately $194 million of cash, cash
equivalents and short-term investments, which based on internal projections, is
expected to allow us to remain funded through the second quarter of 2001. Our
credit facility, entered into on July 2, 1998, has been fully drawn down. Thus,
we need additional sources of funding to finance our operations starting in the
third quarter.
We will require significant capital to, among other things, finance the
further development and expansion of our business and deployment of our
services, including purchasing and installing equipment, operating our network,
obtaining additional spectrum licenses, investing in our international expansion
and joint ventures, leasing office space, hiring and retaining employees,
funding operating losses and for working capital and debt service purposes.
Based on our current business plan, we expect to incur between $220 million and
$250 million in capital investments in the year 2001.
As of March 26, 2001, we had outstanding $300 million aggregate principal
amount of 11.5% Senior Notes due 2007, $440 million aggregate principal amount
of 11.5% Senior Discount Notes due 2008, and $800 million under our existing
credit facility. These debt instruments impose significant operating and
financial restrictions on us, including certain limitations on our ability to
incur additional debt, pay dividends, redeem capital stock, sell assets, engage
in mergers and acquisitions or make investments, transact with affiliates, sell
stock of subsidiaries and place liens on our assets. In addition, our credit
facility contains certain covenants, including covenants regarding the
achievement of certain financing and performance targets and the maintenance of
certain financial ratios.
We received a waiver of the fixed charge coverage ratio for the period
ending December 31, 2000 from the lenders as a part of an amendment and consent
to our existing credit facility. We were in compliance with all other debt
covenants of the existing credit facility as of December 31, 2000. As part of
the amendment, we are required to deliver definitive documentation with respect
to vendor financing (in an aggregate amount of at least $250 million) and
convertible notes (in an aggregate amount of at least $100 million), no later
than April 30, 2001. There can be no assurance that the Company can obtain
vendor financing or convertible notes as required by the amended credit
facility. Failure to observe or perform one or more of the covenants at any
given time will require us to obtain a waiver or consent from the lenders, or
refinance our credit facility. Such a waiver, consent or refinancing may not be
available to us on reasonable terms. A breach of these covenants, ratios or
restrictions in our credit facility also could result in an event of default.
Upon the occurrence of an event of default under our credit facility, the
lenders could elect to declare all amounts outstanding under our credit
facility, together with our accrued interest, to be immediately due and payable.
Our failure to comply with any of these covenants or restrictions could also
limit our ability to obtain future financings. The Company has restated its
December 31, 2000 consolidated balance sheet to classify the outstanding debt to
a current liability.
Revenues
We offer an integrated package of local and long distance services,
value-added services, high-speed data connectivity and Internet access. We
market these services primarily to businesses within buildings on our network
that have been historically served by incumbent telephone companies. We seek to
attract these customers through a broad product offering, superior customer
service and attractive pricing. We anticipate that some of these incumbent
telephone companies may reduce their prices as increased competition begins to
reduce their market share.
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Cost of Services
Certain costs are required to operate and maintain our networks, including:
- Real estate leases for switching centers, base station and
customer buildings;
- Preparation, installation, operation and maintenance of switching
centers, base station sites and individual customer radio links,
as well as equipment in customer buildings;
- Leasing of backhaul facilities between base station sites and
switching centers;
- Leasing of capacity lines;
- Network operations and data center facility expenses;
- The cost to interconnect and terminate traffic with other network
and internet service providers;
- Software licensing fees; and
- And network design and base station configuration planning.
Sales, General and Administrative Costs
We incur costs related to the selling, marketing and promotion of our
products and services. These costs primarily include headcount costs for our
sales and other personnel, as well as advertising costs to develop brand
awareness of the Teligent name.
We also incur operating costs that are common to all telecommunications
providers including customer service and technical support, information systems,
billing and collections, general management and overhead expense, office leases,
bad debt expense and administrative functions. Those areas that will require
more personnel as our customer base grows, such as customer service, will
increase gradually as customer demand increases. Other areas, particularly
information and billing systems, have required significant up-front capital
expenditures and operating costs.
Capital Expenditures
Our main capital expenditure requirements currently include the purchase
and installation of equipment in customer buildings, base stations, network
switches, switch electronics, optical fiber transport equipment, network
operations center tools and systems, data centers equipment and information
technology systems.
Equipment in Customer Buildings. The purchase and installation of equipment
in customer buildings is the largest single capital expense component in our
business plan. These equipment costs include an integrated radio/antenna unit,
modem(s), power supply, multiplexer and router equipment, DSL equipment, line
interface cards, and cables and installation materials. Customers in the same
building may share portions of this equipment, which reduces the capital
expenditures required per customer. In the event a customer leaves us, our
equipment can be used by other customers within the building or in other
buildings, which reduces stranded assets.
Base Station Site. A base station can serve customers within a coverage
area of up to 360-degrees, subject to line-of-sight limitations. A base station
typically comprises four to eight sectors, each of which cover a section of the
service area depending on coverage and capacity requirements. Each sector
requires one or more radio/antenna units and modems, depending on the system
deployed. Construction costs per base station are typically higher than
construction costs per building site. We expect that our sites will typically be
built on top of buildings as opposed to located on towers. While a certain
amount of equipment must initially be installed at each base station, the
overall equipment cost will depend on the number of customers acquired. As more
customers are loaded onto a given base station area, we will add additional
sectors, radio antennas and modems to the initial base station equipment to meet
customer demand.
Base Station to Switch Transport. We transport traffic between our base
stations and switching sites. To the extent we use wireless transport rather
than leased fiber, we would incur capital expenditures as opposed to operating
costs. We also plan to acquire and deploy equipment necessary to activate and
use leased dark fiber.
Switching. Switching costs include traditional circuit-based switch
modules, line cards for interfacing with the backhaul networks and with the
networks of other carriers, packet-based routers, power systems, and
environmental maintenance equipment.
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Network Operations Center. Network operation center costs include
investments in developing a command, control and communications center to
monitor and manage our entire network infrastructure. Further costs include
investments in applications and commercial hardware and software solutions
customized for problem identification and network monitoring.
Data Centers. Data centers are specifically designed for the 24-hour a day
routing of Internet traffic and hosting of Web sites and e-mail. Costs to
develop data centers include investments in computer hardware and software,
redundancy equipment, utilities and environmental controls, security systems,
and broadband connectivity.
Information Technology. Costs to acquire, develop and enhance information
technology systems will also require significant capital investment. Systems for
billing, customer services, order entry and management, finance and network
provisioning and monitoring, among others, have been or are under development or
further enhancement.
COSTS OF OBTAINING ADDITIONAL SPECTRUM
Our existing spectrum has been obtained through means other than
competitive bidding procedures. In the future, additional spectrum may be
obtained in the United States and abroad through acquisitions and auctions.
Additionally, Teligent International, Ltd. has obtained spectrum in
international markets through an award process. Such awards are based on the
quality of the application and the capabilities of the applicants, relative to
the requirements of the regulatory bodies within a particular country.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Teligent's revenues from communication services grew by $120.8 million, or
386%, to $152.1 million during 2000, compared to $31.3 million during 1999. The
increase in revenues is due to growth in our customer base, revenue from
acquisitions and expansion into new markets.
Revenue, exclusive of revenues from entities acquired during 2000,
increased by $80.3 million, or 257%, to $111.6 million for the year ended
December 31, 2000, compared to the corresponding prior year period. This growth
is due to an increase in customers served by a greater number of service lines
in existing market areas and expansion into new markets throughout 1999 and
2000. As of December 31, 2000, Teligent served approximately 35,500 customers,
compared to approximately 15,000 customers at December 31, 1999. Additionally,
Teligent had approximately 490,000 lines in service, compared to approximately
228,000 as of December 31, 1999. These lines may be provisioned for local, long
distance or data service or a combination thereof. Revenues from entities
acquired during 2000 totaled $40.5 million for the year ended December 31, 2000.
Our revenues are comprised of the following (amounts in thousands):
YEAR ENDED DECEMBER 31,
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2000 1999
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Local $ 32,692 $ 6,018
Long distance 73,203 19,491
Data and Other 46,177 5,795
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$ 152,072 $ 31,304
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- Local service revenues increased by $26.7 million, or 443%, for the
year ended December 31, 2000, compared to the corresponding prior year
period. This increase is due to a greater volume of customers ordering
local service over an increased number of local service lines in our
network. Customers ordering local service increased by 165% to
approximately 8,500 as of December 31, 2000, up from 3,200 as of
December 31, 1999. Total local lines increased by 306% to
approximately 138,000 as of December 31, 2000, up from approximately
34,000 as compared to the corresponding prior year period.
- Long distance service revenues increased by $53.7 million, or 276%,
for the year ended December 31, 2000, compared to the corresponding
prior year period. This increase is primarily due to additional
customers ordering long distance service over our increased number of
long distance service lines. Customers ordering
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long distance service increased by 141% to approximately 34,500 as of
December 31, 2000, up from 14,300 as of December 31, 1999. Total long
distance service lines increased by 89% to approximately 413,000 as of
December 31, 2000, up from approximately 219,000 as compared to the
corresponding prior year period.
- Data and other service revenues increased by $40.4 million, or 697%,
for the year ended December 31, 2000, compared to the corresponding
prior year period. The increase is due to revenue from acquisitions
and higher number of customers ordering data services over an
increased number of data lines in our network.
Cost of services, consisting primarily of telecommunications expenses,
operating personnel costs and site acquisition and rent expenses, increased by
$117.6 million, or 57%, to $325.1 million from $207.5 million for the year ended
December 31, 2000, as compared to the corresponding prior year period. This
increase is primarily due to the costs of provisioning higher volumes of
telecommunications and data traffic over our networks. Increases in
personnel-related costs, site rent and utility expenses and office rent related
to our expansion into new markets during 1999 and 2000 also contributed to the
increase in cost of services for these periods. Additionally, telecommunication
costs were reduced by $39.7 million for the year ended December 31, 2000 related
to the resolution of an outstanding liability with one of our vendors. The
Company completed a settlement with the vendor in September 2000 that resulted
in the payment of $17.3 million in interest to the vendor and reimbursement by
the vendor to the Company in the amount of $55 million. Of this amount, $39.7
million was for equipment costs, telecommunication costs, and other network
costs for multipoint radio equipment that did not perform to design
specifications. The $39.7 million was recorded as a reduction of
telecommunications costs which were incurred prior to the completion of the
equipment upgrades. The remaining $15.8 million of the reimbursement from the
vendor was applied against a receivable from the vendor and towards a reserve
for fixed assets associated with the assets to be taken out of service.
Sales, general and administrative expenses increased by $57.2 million, or
28%, to $262.8 million from $205.6 million for the year ended December 31, 2000,
as compared to the corresponding prior year period. This increase is primarily
attributable to the hiring of additional employees during the second half of
1999 and first half of 2000 to support the expansion of our business through
additional markets and services.
Restructuring and asset impairment totaled $34.6 million for the year ended
December 31, 2000. One-time restructuring charges totaled $14.5 million and
include $6.8 million for severance and other compensation, $5.8 million for net
costs relating to lease terminations, and other costs of $1.9 million. Severance
and other compensation relates to the workforce reduction which occurred in
November 2000, and resulted in the termination of approximately 600 employees,
primarily in the sales, real estate, and network operations areas. A non-cash
charge of $20.1 million was recorded to reflect the impairment of fixed assets
in markets in which we are planning to reduce services under the restructuring
plan. The asset impairment charge was calculated based on 100% of the net book
value of the assets located in these markets.
Stock-based and other non-cash compensation expense decreased by $3.1
million, or 10%, to $28.4 million from $31.5 million for the year ended December
31, 2000, as compared to the corresponding prior year period. These expenses
relate to compensation earned by certain employees and executives at the time of
the initial public offering that are being recognized over specified vesting
periods. No additional grants have been made to these persons since the date of
the initial public offering.
Depreciation and amortization increased by $87.8 million, or 192%, to
$133.5 million from $45.7 million, for the year ended December 31, 2000, as
compared to the corresponding prior year period. This increase is due to
significant capital expenditures made during 1999 and 2000 for property,
equipment and acquisitions. The Company also charged $31.1 million to
depreciation and amortization in 2000 for the write down of certain undeployed
assets, where it was determined that such assets would not be deployed.
Interest income increased by $6.1 million, or 32%, to $25.0 million from
$18.9 million, for the year ended December 31, 2000, as compared to the
corresponding prior year period. This increase is due to higher average cash and
cash equivalent balances in 2000 resulting from the proceeds received from the
November 1999 Series A Preferred Stock and April 2000 Class A common stock
offerings, draw downs made on the credit facility and higher average interest
rates during 2000.
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Interest expense increased by $45.0 million, or 51%, to $133.3 million from
$88.3 million, for the year ended December 31, 2000, as compared to the
corresponding prior year period. The increase is due to higher long-term debt
balances. Additionally, the Company recorded $17.3 million in interest expense
during the third quarter of 2000 related to the resolution of an outstanding
liability with one of our vendors.
Equity in losses of international ventures totaled $6.6 million for the
year ended December 31, 2000. These losses are the Company's share of losses
incurred on its investments in international ventures.
Other expense increased by $60.3 million to $60.8 million from $500,000 for
the year ended December 31, 2000, as compared to the corresponding prior year
period. This increase is due to a $61.6 million loss on the write down of
available-for-sale securities to their fair value.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
We generated revenues of $31.3 million from communication services during
1999, compared to $1.0 million during 1998. The increase in revenues is
reflective of, among other things, the growth in our customer base, continued
expansion into new market areas during 1999 and revenue attributable to
acquisitions.
Cost of services, consisting primarily of personnel-related costs,
telecommunications expenses and site rent and site acquisition expenses related
to network operations, totaled $207.5 million for 1999, compared to $79.3
million in 1998. This increase reflects the growth and development of our
network operations to serve 40 major market areas and the increased number of
employees from 1998 to 1999.
Sales, general and administrative expenses, consisting primarily of
personnel-related costs, were $205.6 million for 1999, compared to $124.0
million in 1998. This increase primarily results from higher compensation and
other personnel costs incurred during 1999 due to the increased number of
employees required to drive our growth.
Stock-based and other non-cash compensation expense was $31.5 million in
1999, compared to $32.2 million in 1998.
Depreciation and amortization for 1999 was $45.7 million, compared to $14.2
million in 1998. The increase is due to higher capital expenditures in 1999 and
the amortization of goodwill associated with acquisitions.
Interest income for 1999 was $18.9 million, compared to $34.5 million in
1998. The decrease is due to lower average cash and cash equivalent balances.
Interest expense was $88.3 million in 1999, compared to $66.9 million in
1998. The increase is due to higher long-term debt balances resulting from
borrowings made against the credit facility during 1999 and the amortization of
credit facility fees and interest incurred on the 11 1/2% Senior Discount Notes.
Other expense was $500,000 in 1999, compared to $400,000 in 1998. These
amounts are due to losses from the disposal of property and equipment.
LIQUIDITY AND CAPITAL RESOURCES
We have approximately $194 million of cash, cash equivalents and short-term
investments as of March 26, 2001. Based on our internal projections, we expect
this amount will allow us to remain funded through the second quarter of 2001.
Our credit facility, entered into on July 2, 1998, has been fully drawn down.
Thus, we need additional sources of funding to finance our operations starting
in the third quarter. In addition, in order to develop our business, we will
need a significant amount of money to pay for equipment, meet our debt
obligations, operate our business on a day-to-day basis and contribute
additional capital to our international ventures. Our principal
equipment-related needs include the purchase and installation of equipment in
customer buildings, base stations, network switches and switch electronics,
network operations and data center expenditures and information systems,
platforms and interfaces. We are exploring a variety of alternatives that may
provide the necessary financing, including equity, debt and vendor financing.
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We plan to supplement these funds with proceeds, if available, of up to
$250 million in connection with a stock purchase agreement dated December 7,
2000. (See "Liquidity and Capital Resources--Stock Purchase Agreement") Were we
to gain access to all $250 million in 2001, our projections indicate that we
would be funded through 2001. These projections may be materially different than
the actual timing and amount of money required for the development of our
business and to fund net operating expenses. The stock purchase agreement is
contingent upon certain conditions that we currently do not meet, and there can
be no assurance that we will be able to obtain all or any part of the $250
million equity financing, when such financing will be available or that we will
be able to obtain any other additional financing on terms acceptable to us.
On February 15, 2001, we announced a workforce reduction associated with
the continuing efforts to realign our sales operations. As a result of this
reduction, we terminated 172 employees company-wide and expect to record a
charge of approximately $600,000 in the quarter ended March 31, 2001. We will
continue to evaluate our capital requirements as it relates to personnel-related
expenses. We are managing operations with reduced headcount-related and other
operating expenses and monitoring our on-going capital requirements.
Credit facility and vendor financing
On July 2, 1998, we entered into a credit agreement, as subsequently
amended, with The Chase Manhattan Bank, Goldman Sachs Credit Partners, and
Toronto Dominion Bank, and other lenders, providing for credit facility up to an
aggregate of $800 million. Our obligations under the credit agreement are
secured by substantially all our assets and certain of our subsidiaries' assets.
As of December 31, 2000, we had issued a notice to draw the remaining available
balance under our credit facility, which amount was fully funded in January
2001.
The credit agreement contains certain financial and other covenants that
restrict, among other things, our ability to incur or create additional debt,
enter into mergers or consolidations, dispose of a significant amount of assets,
pay cash dividends, or change the nature of our business. We will also be
subject to certain negative covenants, including covenants regarding the
achievement of certain performance targets and the maintenance of certain
financial ratios. In addition, the amounts outstanding under the credit facility
are subject to mandatory prepayments in certain circumstances.
We executed an amendment and consent to the credit agreement subsequent to
December 31, 2000. Pursuant to the amendment, the interest rates applicable to
borrowings under the facility were increased. The amendment also increased the
maximum aggregate principal amount under the optional term loan tranche of the
facilities from $400 million to $600 million, of which $350 million can be
utilized as vendor loans. The optional term loan tranche is not a binding
commitment of the lenders, rather it provides a vehicle for any of the lenders
to loan us additional funds under the credit facility.
The amendment also changed several of the covenants applicable to us. Any
default under the consolidated fixed charge coverage ratio for the fourth
quarter of 2000 was waived and the test was suspended for the first quarter of
2001. The amendment requires us to maintain substantially all of our cash and
cash equivalents in a collateral and securities account with a lender bank and
the remainder of our funds in a separate operating account. The amendment also
contains a waiver that permitted the explanatory paragraph included in our
auditor's opinion for the year ended December 31, 2000.
As part of the amendment, we are required to deliver definitive
documentation with respect to vendor financing (in an aggregate amount of at
least $250 million) and convertible notes (in an aggregate amount of at least
$100 million), no later than April 30, 2001. We are attempting to secure vendor
financing in the amount of $250 million. If we do not meet the April 30, 2001
deadline described above, we will be in default under our credit facility unless
we receive a waiver. There can be no assurance that we will execute either the
vendor financing or convertible notes by such date or at all. As a result, the
Company has restated its December 31, 2000 consolidated balance sheet to
classify the outstanding debt to a current liability. In addition, the Company
has a new financial covenant that requires compliance effective June 30, 2001
for which there can be no assurance.
Stock Purchase Agreement
9
10
On December 7, 2000, we entered into a stock purchase agreement with RGC
International Investors, LDC, or RGC, as a private placement pursuant to Section
4(2) of the Securities Act of 1933. Pursuant to the purchase agreement, we may,
subject to satisfying certain conditions, at our sole discretion during the 18
months from effectiveness of the resale registration statement, require RGC to
purchase up to $250 million of our Class A common stock in a series of draw
downs. Additionally, we issued 4,972,370 warrants to RGC to purchase an equal
number of shares of our Class A common stock at an exercise price of $3.62 per
share. Warrants to purchase 3,729,278 shares vested on December 7, 2000. The
remaining 1,243,092 warrants will vest pro rata with each tranche purchased
after we have drawn down a total of $150 million.
A draw down is initiated upon our delivery of a draw down notice that will
include a draw down amount and a minimum price at which we are willing to issue
stock to RGC. The number of shares to be purchased by RGC for each tranche will
be based upon the volume-weighted average trading price, or VWAP, of the shares
for each of the nine business days following the receipt of a draw down notice.
If, on any given date, the maximum permitted draw down amount is less than $1
million, or if the VWAP is at or below $2 per share for the preceding trading
day, we may not deliver a draw down notice. If the VWAP is at or below $2 per
share on any day during a draw down period, the total amount of the draw down
will be reduced by the percentage of the draw down amount attributable to that
particular day.
RGC may sell the shares of Class A common stock purchased under the purchase
agreement, including upon exercise of the warrants, from time to time on the
principal exchange or market upon which our common stock is then listed or in
negotiated transactions at prices determined at the time of sale. However,
pursuant to the terms of the purchase agreement and warrants, we may not give
notice of a draw down and RGC may not exercise warrants if doing so would result
in RGC's ownership of greater than 9.9% of our Class A common stock. Further, we
may not issue 20% or more of our common stock as of December 7, 2000, or 20% or
more of our voting power outstanding as of December 7, 2000, without shareholder
approval.
The purchase agreement is contingent upon certain conditions, including a
minimum trading price of $2.00 per share for our common stock at the time of
draw down, limits on the amount that can be drawn down based on trading price
and trading volume of our common stock, and the listing of our common stock on a
principal trading exchange or market such as the Nasdaq National Market or the
Nasdaq SmallCap Market. We may not be able to obtain all or any part of the $250
million equity financing unless the price and volume of our common stock
increase significantly and we may not be able to obtain any other additional
financing on terms acceptable to us.
Convertible Notes
We are currently in negotiations for the issuance of convertible notes.
Although we have not entered into a definitive agreement, and can provide no
assurance that we will reach such an agreement, we expect that any such notes
will be conditioned on completion of the vendor financing discussed above.
Definitive documentation for the issuance of up to $100 million of convertible
notes must be completed as of April 30, 2001, as a condition to our credit
facility, as amended. Under the amended credit facility, we are required to
deliver definitive documentation with respect to convertible notes (in an
aggregate amount of at least $100 million), no later than April 30, 2001. There
can be no assurance that the Company can successfully negotiate the issuance of
convertible notes as required by the amended credit facility. As a result, the
Company has restated its December 31, 2000 consolidated balance sheet to
classify the outstanding debt to a current liability. If we do not enter into a
definitive agreement by that date, we will be in default under the credit
facility unless we receive a waiver.
Historical Cash Flows and Working Capital
For the year ended December 31, 2000 we used cash in operations of $669.1
million, due primarily to the operating loss for the period, partially offset by
depreciation and amortization, loss recognized on the write-down of
available-for-sale securities, stock based and other non-cash compensation,
asset impairment charges recorded during the year and other charges. We used
cash in operations of $313.4 million for the year ended December 31, 1999, due
primarily to the operating loss for the period reduced by depreciation and
amortization, non-cash stock-based compensation and an increase in current
liabilities.
10
11
We used $296.4 million of cash in investing activities in 2000 relating to
the purchase of property and equipment, advances to international ventures and
cash paid for acquisitions, partially offset by the use of restricted cash for
interest payments and net maturities of short-term investments. In 1999, we used
cash in investing activities of $354.8 million, consisting primarily of the
purchase of property and equipment and net purchases of short-term investments,
partially offset by the use of restricted cash for interest payments.
Cash flows provided by financing activities amounted to $785.8 million in
2000, consisting primarily of the draw-down of our credit facility and net
proceeds from the issuance of common stock. For 1999, cash flows provided by
financing activities amounted to $692.2 million, consisting primarily of net
proceeds from the issuance of preferred stock and a $200 million draw-down of
our credit facility.
At December 31, 2000, we had working capital of $249.8 million including
unrestricted cash (including cash equivalents and short-term investments) of
$357.2 million, compared to working capital of $342.7 million and cash of $556.9
million at December 31, 1999. The decrease in working capital is primarily a
result of the use of cash and cash equivalents to cover our operating
expenditures and purchase property and equipment. We will need a significant
amount of cash to continue to build our networks, market our services and cover
operating expenditures.
Our total assets increased to $1,209.5 million at December 31, 2000, from
$1,131.8 million as of December 31, 1999, due primarily to the purchase of
property and equipment, acquired companies and investments in and advances to
international ventures, partially offset by a decrease in current assets.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We have certain exposure to financial market risks, including changes in
interest rates and other relevant market prices. Specifically, an increase or
decrease in interest rates would affect interest costs relating to our credit
facility. At December 31, 2000, we had an outstanding loan balance of $789.7
million under the credit facility. $575.0 million incurs interest at a floating
rate tied to a LIBOR or an alternate base rate and the remaining $214.7 million
incurs interest at a fixed rate of 11.125% per annum. If the interest rate
increased by 1%, then interest expense would increase by approximately $5.8
million. The outstanding balance under the credit facility that incurs interest
at a floating rate represents approximately 40% of our outstanding long-term
debt.
Changes in interest rates do not have a direct impact on interest expense
relating to our remaining fixed rate long-term debt, although the fair market
value of our fixed rate debt is sensitive to changes in interest rates. If
market rates declined, our interest payments could exceed those based on the
current market rate. We currently do not use interest rate derivative
instruments to manage our exposure to interest rate changes, but may do so in
the future.
We also maintain securities with an original maturity of greater than 90
days, but less than one year. These securities are classified as "available for
sale." An immediate increase or decrease in interest rates could have a material
impact on the fair value of these financial instruments or on our short-term
investment portfolio. Based on the fact that the investments are short-term and
are in government securities and/or high-grade corporate debt, no material
interest rate exposure exists as of December 31, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 2000 (restated) and
1999.
Consolidated Statements of Operations for the years ended December 31,
2000, 1999 and 1998.
Consolidated Statements of Stockholders' (Deficit) Equity for the
years ended December 31, 2000, 1999 and 1998.
Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999, and 1998.
11
12
Notes to Consolidated Financial Statements.
(2) FINANCIAL STATEMENT SCHEDULES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
All other schedules are omitted because they are not applicable or not
required or because the required information is incorporated herein by
reference or included in the financial statements or related notes
included elsewhere in this report.
(b) REPORTS ON FORM 8-K.
Item
Date of Report Reported Financial Statements Filed
-------------- -------- --------------------------
October 4, 2000 Item 5 - None
Other Events;
Financial Statements
Pro Forma Financial
Information and Exhibits
December 21, 2000 Item 5 - None
Other Events;
Financial Statements
Pro Forma Financial
Information and Exhibits
(c) EXHIBITS. The following exhibits are filed as a part of this Annual
Report on Form 10-K:
3.1 Form of Certificate of Incorporation of Registrant, filed as Exhibit
3.1 to the Company's Registration Statement on Form S-1 (Registration
No. 333-37381), dated November 26, 1997, and incorporated herein by
reference.
3.2 Form of By-laws of Registrant, filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (Registration No. 333-37381), dated
November 26, 1997, and incorporated herein by reference.
3.3 Certificate of Designation of the Powers, Preferences and Relative,
Participating, Optional and other Special Rights of 73/4% Cumulative
Convertible Preferred Stock and Qualifications, Limitations and
Restrictions Thereof, filed as Exhibit 10.4 to the Company's Current
Report on Form 8-K, dated January 18, 2000, and incorporated herein by
reference.
4.1 Form of Stockholders Agreement, filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-1 (Registration No. 333-37381), dated
November 26, 1997, and incorporated herein by reference.
4.2 Form of Indenture between the Registrant, as issuer, and First Union
National Bank, as Trustee, relating to Registrant's Senior Notes due
2007, including form of Note, filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-1 (Registration No. 333-37381), dated
November 26, 1997, and incorporated herein by reference.
4.3 Form of Pledge Agreement between Registrant, as issuer, and First Union
National Bank, as Escrow Agent, relating to Registrant's Senior Notes
due 2007, filed as Exhibit 4.3 to the Company's Registration Statement
on Form S-1 (Registration No. 333-37381), dated November 26, 1997, and
Incorporated herein by reference.
4.4 Form of Indenture between the Registrant, as issuer, and First Union
National Bank, as Trustee, relating to Registrant's Senior Discount
Notes due 2008, including form of Note, filed as Exhibit 4.4 to the
Company's Annual Report on Form 10-K filed with the Commission on March
31, 1998, and incorporated herein by reference.
12
13
4.5 Form of Certificate for the Class A common stock, filed as Exhibit 4.4
to the Company's Registration Statement on Form S-1 (Registration No.
333-37381), dated November 26, 1997, and incorporated herein by
reference.
4.6 Stockholders Agreement, dated as of January 13, 2000, by and among Alex
J. Mandl, Liberty Media Corporation, Telcom--DTS Investors, L.L.C., and
Microwave Services, Inc., filed as Exhibit 10.1 to the Company's
Current Report on Form 8-K, dated January 18, 2000, and incorporated
herein by reference.
4.7 Stock Purchase Warrant, dated as of December 7, 2000, by the registrant
in favor of RGC International Investors, LDC, filed as Exhibit 10.3 to
the Company's Current Report on Form 8-K, dated December 21, 2000, and
incorporated herein by reference.
10.1 Employment Agreement, dated August 19, 1996, between Associated
Communications, L.L.C. and Alex J. Mandl, filed as Exhibit 10.1 to the
Company's Registration Statement on Form S-1 (Registration No.
333-37381), dated November 26, 1997, and incorporated herein by
reference.
10.2 Stock Contribution Agreement, dated as of March 10, 1997, among
Associated Communications, L.L.C., FirstMark Communications, Inc. and
Lynn Forester, filed as Exhibit 10.2 to the Company's Registration
Statement on Form S-1 (Registration No. 333-37381), dated November 26,
1997, and incorporated herein by reference.
10.3 Securities Purchase Agreement, dated as of September 30, 1997, by and
among Teligent, L.L.C., Microwave Services, Inc., Digital Services
Corporation, and Nippon Telegraph and Telephone Corporation, filed as
Exhibit 10.3 to the Company's Registration Statement on Form S-1
(Registration No. 333-37381), dated November 26, 1997, and incorporated
herein by reference.
10.4 Form of Registration Rights Agreement, by and among Teligent, L.L.C.
and Nippon Telegraph and Telephone Corporation, filed as Exhibit 10.4
to the Company's Registration Statement on Form S-1 (Registration No.
333-37381), dated November 26, 1997, and incorporated herein by
reference.
10.5 Form of Technical Services Agreement, by and among Teligent, L.L.C. and
NTT America, Inc., filed as Exhibit 10.5 to the Company's Registration
Statement on Form S-1 (Registration No. 333-37381), dated November 26,
1997, and incorporated herein by reference.
10.6 Agreement, dated September 29, 1997, among Teligent, L.L.C., Digital
Services Corporation, Telcom- DTS Investors, L.L.C., Microwave
Services, Inc., The Associated Group, Inc. and certain other parties,
filed as Exhibit 10.6 to the Company's Registration Statement on Form
S-1 (Registration No. 333-37381), dated November 26, 1997, and
incorporated herein by reference.
10.7 Agreement and Plan of Merger, dated as of October 6, 1997, by and
between Teligent, Inc. and Teligent, L.L.C., filed as Exhibit 10.7 to
the Company's Registration Statement on Form S-1 (Registration No.
333-37381), dated November 26, 1997, and incorporated herein by
reference.
10.8 Form of Lease Agreement, dated as of July 22, 1997, for the 8065
Leesburg Pike, Vienna, Virginia office space lease between NHP
Incorporated and Teligent, L.L.C., filed as Exhibit 10.8 to the
Company's Registration Statement on Form S-1 (Registration No.
333-37381), dated November 26, 1997, and incorporated herein by
reference.
10.9 Form of Teligent, Inc. 1997 Stock Incentive Plan, as amended and
restated, filed as Exhibit 4.4 to the Company's Registration Statement
on Form S-8 (Registration No. 333-93241), dated December 31, 1999, and
incorporated herein by reference.
10.10 Network Products Purchase Agreement, dated December 11, 1997, by and
between Northern Telcom Inc. and Teligent, Inc., filed as Exhibit 10.10
to the Company's Annual Report on Form 10-K filed with the Commission
on March 31, 1997, and incorporated herein by reference. [Confidential
treatment has been granted for portions of this document].
10.11 Credit Agreement, dated July 2, 1998 among Teligent, Inc., several
banks and other financial institutions or entities, Chase Securities,
Inc., Goldman Sashes Credit Partners L.P. and TD Securities (USA) Inc.,
as advisers and arrangers, Goldman Sachs Credit Partners L.P., as
syndication agent, The Chase Manhattan Bank, as administrative agent
and Toronto Dominion (Texas), Inc. as documentation agent. Filed as
Exhibit 10 to the Company's Form 8-K, filed on August 13, 1998, and
incorporated herein by reference. [Confidential treatment has been
granted for portions of this document].
10.12 Promissory Note, dated February 1, 1997, by Kirby G. Pickle, Jr. to
Associated Communications, L.L.C., filed as Exhibit 10.10 to the
Company's Registration Statement (Registration No. 333-37381), dated
November 26, 1997, and incorporated herein by reference.
13
14
10.13 Promissory Notes, each dated October 29, 1997, by Abraham L. Morris to
Teligent, L.L.C., filed as Exhibit 10.11 to the Company's Registration
Statement on Form S-1 (Registration No. 333-37381), dated November 26,
1997, and incorporated herein by reference.
10.14 Promissory Note, dated August 5, 1997, by Laurence E. Harris to
Associated Communications, L.L.C., filed as Exhibit 10.12 to the
Company's Registration Statement on Form S-1 (Registration No.
333-37381), dated November 26, 1997, and incorporated herein by
reference.
10.15 Promissory Note, dated April 7, 1997, by Steven F. Bell to Associated
Communications, L.L.C., filed as Exhibit 10.14 to the Company's
Registration Statement on Form S-1 (Registration No. 333-37381), dated
November 26, 1997, and incorporated herein by reference.
10.16 Registration rights agreement, dated as of March 6, 1998, by and
between Teligent, Inc., and Microwave Services, Inc., filed as Exhibit
10.16 to the Company's Annual Report on Form 10-K, filed with the
Commission on March 31, 1998, and incorporated herein by reference.
10.17 Registration rights agreement, dated as of February 20, 1998, by and
between Teligent, Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), Goldman Sachs & Co., Salomon Brothers
Inc., and TD Securities (USA) Inc., filed as Exhibit 10.17 to the
Company's Annual Report on Form 10-K, filed with the Commission on
March 31, 1998, and incorporated herein by reference.
10.18 Equipment Purchase Definitive Agreement, dated December 18, 1998, by
and between Teligent, Inc. and Hughes Network Systems, filed as Exhibit
10 to the Company's Current Report on Form 8-K, filed with the
Commission on April 19, 1999, and incorporated herein by reference.
[Confidential treatment has been granted for portions of this
document].
10.19 Teligent, Inc. 1999 Employee Stock Purchase Plan, filed as Exhibit 4.5
to the Company's Registration Statement on Form S-8 (Registration No.
333-93241), dated December 21, 1999, and incorporated herein by
reference.
10.20 Stock Purchase Agreement, dated as of November 4, 1999, between the
Issuer and the Purchasers (as defined in the Stock Purchase Agreement)
named on Schedule I thereto, relating to the purchase and sale of 73/4%
Series A Convertible Preferred Stock of Teligent, Inc, filed as Exhibit
10.2 to the Company's Current Report on Form 8-K, dated January 18,
2000, and incorporated herein by reference.
10.21 Registration Rights Agreement, dated as of November 4, 1999, between
the Issuer and each of the Initial Holders (as defined in the
Registration Rights Agreement), filed as Exhibit 10.3 to the Company's
Current Report on Form 8-K, dated January 18, 2000, and incorporated
herein by reference.
10.22 Common Stock Purchase Agreement, dated as of December 7, 2000, by and
between the registrant and RGC International Investors, LDC, filed as
Exhibit 10.1 to the Company's Current Report on Form 8-K, dated
December 21, 2000, and incorporated herein by reference
10.23 Registration Rights Agreement, dated as of December 7, 2000, by and
among the registrant and RGC International Investors, LDC, filed as
Exhibit 10.2 to the Company's Current Report on Form 8-K, dated
December 21, 2000, and incorporated herein by reference.
10.24 Agreement, dated as of May 9, 2000, by and between Level 3
Communications, LLC and Teligent Services, Inc., as amended, filed as
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed with
the Commission on November 14, 2000, and incorporated herein by
reference. [Portions of the document have been omitted pursuant to a
request for confidential treatment requested through November 1, 2005.]
10.25 Amendment and Consent, dated as of March 30, 2001, to the Credit
Agreement, dated as of July 2, 1998, among Teligent, Inc., lenders from
time to time parties thereto, Goldman Sachs Credit Partners L.P., as
syndication agent, Toronto Dominion (Texas), Inc., as documentation
agent, and The Chase Manhattan Bank, as administrative agent, filed as
Exhibit 10.25 to the Company's Annual Report on Form 10-K, dated March
30, 2001, and incorporated herein by reference. [Portions of the
document have been omitted pursuant to a request for confidential
treatment requested through March 30, 2006].
12.1 Statement regarding computation of ratios, filed as Exhibit 12.1 to the
Company's Annual Report on Form 10-K, dated March 30, 2001, and
incorporated herein by reference.
12.2 Statement regarding computation of ratios, filed as Exhibit 12.2 to the
Company's Annual Report on Form 10-K, dated March 30, 2001, and
incorporated herein by reference.
14
15
21.1 Significant Subsidiaries of the Registrant, filed as Exhibit 21.1 to
the Company's Annual Report on Form 10-K, dated March 30, 2001, and
incorporated herein by reference.
23.1 Consent of Independent Auditors dated June 29, 2001.
99.1 Press release of Teligent, Inc. dated February 28, 2001, filed as
Exhibit 99.1 to the Company's Annual Report on Form 10-K, dated March
30, 2001, and incorporated herein by reference.
15
16
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.
TELIGENT, INC.
(Registrant)
Date: July 3, 2001 By: /s/ NORMAN KLUGMAN
-------------------------------------
Norman Klugman
Chief Financial Officer and Treasurer
(Principal Executive Officer)
16
17
TELIGENT, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
NUMBER
-----------------
Report of Ernst & Young LLP, Independent Auditors.............................................. F-2
Consolidated Balance Sheets as of December 31, 2000 (restated) and December 31, 1999........... F-3
Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998..... F-4
Consolidated Statement of Stockholders (Deficit) Equity for the years ended December 31, 2000,
1999 and 1998.................................................................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998..... F-6
Notes to Consolidated Financial Statements..................................................... F-7
F-1
18
Report of Independent Auditors
The Board of Directors and Stockholders
Teligent, Inc.
We have audited the accompanying consolidated balance sheets of Teligent, Inc.
as of December 31, 2000 and 1999, and the related consolidated statements of
operations, shareholders' (deficit) equity, and cash flows for each of the three
years in the period ended December 31, 2000. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 consolidated financial position of Teligent, Inc. at
December 31, 2000 and 1999, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
The accompanying financial statements have been prepared assuming that Teligent,
Inc. will continue as a going concern. As more fully described in Note 1, the
Company has incurred recurring operating losses and has a substantial need for
working capital. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
As described in Note 8, the December 31, 2000 consolidated balance sheet has
been restated to reflect the classification of the Company's outstanding debt
from a long-term liability to a current liability.
/s/ Ernst & Young LLP
McLean, Virginia
February 23, 2001 except for Note 8,
as to which the date is March 30, 2001
F-2
19
TELIGENT, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31,
--------------------------------------------
2000 1999
(RESTATED)
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 260,555 $ 440,293
Short-term investments 96,635 116,610
Accounts receivable, net 37,267 12,673
Prepaid expenses and other current assets 28,394 17,914
Restricted cash and other investments 5,374 38,224
----------- -----------
Total current assets 428,225 625,714
Property and equipment, net 560,534 402,989
Intangible assets, net 187,976 96,418
Investments in and advances to international ventures
and other assets 32,741 6,722
----------- -----------
Total assets $ 1,209,476 $ 1,131,843
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 107,410 $ 239,139
Accrued expenses and other 71,065 43,869
Current portion of long-term debt 1,435,070 -
----------- -----------
Total current liabilities 1,613,545 283,008
Long-term debt - 808,799
Other noncurrent liabilities 35,858 3,165
Series A cumulative convertible redeemable
preferred stock 520,658 478,788
Commitments and contingencies
Stockholders' deficit:
Common stock 637 547
Additional paid-in capital 808,835 519,607
Accumulated deficit (1,770,057) (962,071)
----------- -----------
Total stockholders' deficit (960,585) (441,917)
----------- -----------
Total liabilities and stockholders' deficit $ 1,209,476 $ 1,131,843
=========== ===========
See notes to consolidated financial statements.
F-3
20
TELIGENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
2000 1999 1998
----------- ----------- -----------
REVENUES:
Communication services $ 152,072 $ 31,304 $ 960
COSTS AND EXPENSES:
Cost of services 325,119 207,538 79,342
Sales, general and administrative 262,806 205,589 123,958
Restructuring and asset impairment 34,585 - -
Stock-based and other noncash compensation 28,377 31,451 32,164
Depreciation and amortization 133,544 45,742 14,193
----------- ----------- -----------
Total costs and expenses 784,431 490,320 249,657
----------- ----------- -----------
Loss from operations (632,359) (459,016) (248,697)
Interest income 25,052 18,933 34,510
Interest expense (133,286) (88,347) (66,880)
Equity in losses of international ventures (6,605) - -
Other expense (60,788) (483) (404)
----------- ----------- -----------
Net loss (807,986) (528,913) (281,471)
Accrued preferred stock dividends and
amortization of issuance costs (41,870) (2,906) -
----------- ----------- -----------
Net loss applicable to common stockholders $ (849,856) $ (531,819) $ (281,471)
=========== =========== ===========
Basic and diluted net loss per common share $ (14.19) $ (9.95) $ (5.35)
=========== =========== ===========
Weighted average common shares outstanding 59,897 53,423 52,597
=========== =========== ===========
See notes to consolidated financial statements.
F-4
21
TELIGENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
(IN THOUSANDS)
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------------ ----------- --------------- -------------
Balance at January 1, 1998 $ 526 $ 436,307 $ (151,687) $ 285,146
Stock-based compensation - 27,006 - 27,006
Exercise of stock options - 372 - 372
Net loss - - (281,471) (281,471)
----------- ------------- --------------- -------------
Balance at December 31, 1998 526 463,685 (433,158) 31,053
----------- ------------- --------------- -------------
Stock-based compensation - 26,094 - 26,094
Exercise of stock options 18 17,042 - 17,060
Issuance of common stock for
acquisitions 3 15,692 - 15,695
Accrued preferred stock
dividends and amortization
of issuance costs - (2,906) - (2,906)
Net loss - - (528,913) (528,913)
----------- ------------- --------------- -------------
Balance at December 31, 1999 547 519,607 (962,071) (441,917)
----------- ------------- --------------- -------------
Issuance of common stock 40 188,332 - 188,372
Issuance of common stock in ICG
transaction 10 61,973 - 61,983
Issuance of common stock for
acquisitions 28 47,197 - 47,225
Accrued preferred stock
dividends and amortization
of issuance costs - (41,870) - (41,870)
Stock-based compensation
- 21,929 - 21,929
Exercise of stock options 9 7,813 - 7,822
Other 3 3,854 - 3,857
Net loss - - (807,986) (807,986)
----------- ------------- --------------- -------------
Balance at December 31, 2000 $ 637 $ 808,835 $ (1,770,057) $ (960,585)
=========== ============= =============== =============
See notes to consolidated financial statements.
F-5
22
TELIGENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
------------------------
2000 1999 1998
------------ ------------- --------------
Cash flows from operating activities:
Net loss $(807,986) $(528,913) $(281,471)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 133,544 45,742 14,193
Loss on write-down of
available-for-sale securities 61,609 - -
Accretion of senior discount notes and
other amortization 40,589 36,707 27,880
Stock-based and other noncash
compensation 28,377 31,451 32,164
Equity in losses of international
ventures 6,605 - -
Asset impairment 20,085 - -
Changes in current assets and current
liabilities, net of acquisitions:
Accounts receivable (19,568) (8,921) (1,172)
Prepaid expenses and other current
assets (13,322) (12,569) (1,355)
Accounts payable (127,529) 101,336 118,581
Accrued liabilities 8,480 21,788 14,552
------------ ------------- --------------
Net cash used in operating
activities (669,116) (313,379) (76,628)
------------ ------------- --------------
Cash flows from investing activities:
Purchase of property and equipment (284,778) (261,427) (183,098)
Maturity of short-term investments 139,675 25,378 -
Purchases of short-term investments (119,700) (141,988) -
Investment in and advances to
international ventures (37,822) - -
Restricted cash and other investments 33,924 26,249 29,477
Cash paid for acquisitions, net of cash
acquired (27,684) (2,986) -
------------ ------------- --------------
Net cash used in investing
activities (296,385) (354,774) (153,621)
------------ ------------- --------------
Cash flows from financing activities:
Proceeds from long-term debt 589,569 200,000 250,703
Proceeds from issuance of common stock,
net 188,372 - -
Proceeds from exercise of stock options 7,822 17,060 372
Proceeds from issuance of preferred
stock, net - 475,882 -
Debt financing costs - (743) (29,480)
------------ ------------- --------------
Net cash provided by financing
activities 785,763 692,199 221,595
------------ ------------- --------------
Net (decrease) increase in cash and
equivalents (179,738) 24,046 (8,654)
Cash and cash equivalents, beginning of
period 440,293 416,247 424,901
------------ ------------- --------------
Cash and cash equivalents, end of period $ 260,555 $ 440,293 $ 416,247
============ ============= ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 79,500 $ 43,191 $ 39,279
============ ============= ==============
Accrued preferred stock dividends to be
paid in kind $ 41,870 $ 2,906 $ -
============ ============= ==============
See notes to consolidated financial statements.
F-6
23
TELIGENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND LIQUIDITY
Teligent, Inc. ("Teligent" or the "Company") is a full-service
communications company that offers business customers local and long-distance
telephony; high-speed data and Internet access services over the Company's
digital SmartWave(TM) local networks. The Company's SmartWave(TM) local
networks integrate advanced fixed wireless technologies with traditional
broadband wireline technology.
The Company has had operating losses and negative cash flow since its
inception. Development of the Company's telecommunications networks and other
elements of its business are costly, and these costs have resulted in negative
cash flow. The Company will require significant capital to, among other things,
finance the further development and expansion of its business and deployment of
its services, including purchasing and installing telecommunications equipment
and operating its network, among other activities. With the Company's existing
cash, cash equivalents and short-term investments, the Company does not have
sufficient funds to operate its business through 2001. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The Company's continued existence is dependent upon receiving additional funding
to operate its business. The Company cannot guarantee that it will be able to
obtain additional funding on acceptable terms.
In order to conserve cash reserves, the Company has targeted reductions
in selling, general and administrative expenses, network expenses and other
operating costs. In addition, the Company has implemented a focused control over
capital expenditures, which should enable it to selectively deploy assets only
in market areas with the greatest return potential.
2. SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries after elimination of all significant intercompany
transactions. International ventures are accounted for by the equity method.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with
maturity dates of 90 days or less at the time of purchase to be cash
equivalents. Cash equivalents consist of money market fund investments and
short-term commercial paper. Restricted cash and other investments relates
primarily to cash and securities which had been held exclusively to fund
interest payments and to secure letters of credit obtained by the Company.
Short-Term Investments
The Company classifies all of its short-term investments as
available-for-sale securities and such investments are reported at fair value,
which approximates cost at December 31, 2000. The Company determines the fair
value of its short-term investments based on quoted market prices. Realized
gains or losses are included in earnings and are determined using the specific
identification method.
At December 31, 2000, the Company's investments are primarily comprised
of corporate bonds, medium and short-term notes and Euro dollar bonds. Gains and
losses for available-for-sale securities have been recognized in interest income
for the years ended December 31, 2000 and 1999. At December 31, 2000, $91.6
million of the Company's short-term investments are due within one year. The
remaining $5.0 million is due within two years.
F-7
24
TELIGENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Accounts Receivable
Accounts receivable are reflected net of an allowance for doubtful
accounts of $7.8 million and $0.9 million at December 31, 2000 and 1999,
respectively.
Property and Equipment
Property and equipment is stated at cost. Costs incurred to prepare an
asset for service, including installation costs; labor and related supplies are
capitalized and depreciated over the useful life of the asset. Depreciation is
computed on the straight-line method over the estimated useful lives of the
assets: 3-10 years for telecommunications equipment, computer systems, and
furniture, and the lesser of the life of the asset or the lease term for
leasehold improvements. Undeployed assets are not depreciated until placed in
service. Repairs and maintenance are charged to expense when incurred.
Construction of these assets takes generally less than 90 days, therefore, no
interest costs were capitalized during the years ended December 31, 2000, 1999
or 1998.
Intangible Assets
Intangible assets are comprised primarily of fixed wireless licenses,
debt financing costs and acquired intangibles. Fixed wireless licenses represent
the direct costs of obtaining such licenses. Debt financing costs represent fees
and other costs incurred in connection with the Credit Facility (see Note 8),
and the issuance of long-term debt. Debt financing costs are amortized to
interest expense over the term of the related debt. Acquired intangibles
represent the excess cost of acquisitions over the fair value of assets or
shares of stock acquired. Fixed wireless licenses, debt financing costs and
acquired intangibles are amortized over useful lives of 15 years, 8-10 years and
5-15 years, respectively. During 2000, the Company recorded a write-down of
intangible assets. See Note 6. No impairment expense was recognized during the
years ended December 31, 1999 or 1998.
Long-Lived Assets
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", management periodically reviews, if impairment
indicators exist, the carrying value and lives of long-lived assets. During
2000, the Company recorded a write-down of certain long-lived assets that were
determined to be impaired in accordance with SFAS No. 121. See Note 3. No
impairment expense was recognized during the years ended December 31, 1999 or
1998.
Income Taxes
The Company uses the liability method of accounting for income taxes.
Deferred income taxes result from temporary differences between the tax basis of
assets and liabilities and the basis reported in the financial statements.
Revenue Recognition
Revenue from providing communications services is recognized when
services are rendered based on usage of the Company's network and from the sale
of certain telecommunications equipment.
Advertising Costs
Costs related to advertising are expensed when the advertising occurs.
Advertising expense was $20.3 million, $19.7 million and $16.1 million for the
years ended December 31, 2000, 1999 and 1998, respectively.
F-8
25
TELIGENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net Loss Per Share
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share," which requires the Company to
present basic and fully diluted earnings per share. Common stock equivalents
have been excluded from the calculation because their effect would be
anti-dilutive.
Stock-Based Compensation
The Company accounts for its stock-based compensation in accordance with
the provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25"), and has provided pro forma
disclosures of net loss and net loss per share in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123").
Business Segments
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS No. 131"). SFAS No. 131 changes the way public companies report segment
information in annual financial statements and also requires those companies to
report selected segment information in interim financial reports to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. Management
believes the Company's operations comprise only one segment.
Concentration of Credit Risk and Major Vendor
Financial instruments that may subject the Company to concentration of
credit risk consist primarily of trade receivables. The Company's trade
receivables are geographically dispersed and include customers in many different
industries. The Company believes that its risk of loss is limited due to the
diversity of its customers and geographic sales areas.
The Company used one vendor as a primary supplier of network equipment
for use in the construction of its digital SmartWave(TM) local networks until
September 2000. As of December 31, 2000 and 1999, amounts due to this vendor for
trade payables totaled $4.7 million and $167.8 million, respectively. Capital
expenditures from this vendor represented 12%, 40% and 47% of the Company's
total capital expenditures for the years ended December 31, 2000, 1999 and 1998,
respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain amounts in the prior periods' financial statements have been
reclassified to conform to the current year's presentation.
F-9
26
TELIGENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. RESTRUCTURING AND ASSET IMPAIRMENT
On November 8, 2000, the Company announced a plan to restructure
its operations in order to focus future business growth on the Company's fixed
wireless networks. This restructuring included a workforce reduction associated
with its efforts to realign its sales, operations and real estate organizations.
As a result of this work force reduction and organizational realignment, the
Company recorded a $14.5 million restructuring charge in the quarter ending
December 31, 2000. The charge consisted of personnel-related costs, primarily
related to severance totaling $6.8 million and office closure and other costs of
$7.7 million. As of December 31, 2000, the balance of the restructuring reserve
was $10.9 million.
The Company recorded a $20.1 million asset impairment charge during the
quarter ended December 31, 2000. The charge consisted principally of the
carrying value of assets abandoned in nine markets where the Company has decided
to focus on a wholesale business strategy.
4. COMPREHENSIVE LOSS
Comprehensive loss includes net loss and foreign currency translation
adjustments. The components of other comprehensive loss are as follows: (amounts
in thousands):
YEARS ENDED DECEMBER 31,
-------------------------------------
2000 1999 1998
---------- ---------- ----------
Loss applicable to common shareholders................ $(849,856) $(531,819) $(281,471)
Other comprehensive loss:
Foreign currency translation adjustments........... (788) -- --
---------- ---------- ----------
Comprehensive loss applicable to common shareholders.. $(850,644) $(531,819) $(281,471)
========== ========== ==========
5. PROPERTY AND EQUIPMENT
The amounts included in property and equipment are as follows as of
December 31 (in thousands):
DECEMBER 31,
---------------------
2000 1999
---------- ---------
Telecommunications equipment.......................................... $476,486 $279,749
Computer systems...................................................... 123,112 79,390
Furniture and leasehold improvements.................................. 25,912 18,510
Undeployed equipment and construction in progress..................... 109,628 81,744
---------- ---------
735,138 459,393
Accumulated depreciation.............................................. (174,604) (56,404)
---------- ---------
$560,534 $402,989
========== =========
Depreciation expense for the years ended December 31, 2000, 1999 and 1998
was $118.2 million, $40.1 million and $10.7 million, respectively. Depreciation
expense for the year ended December 31, 2000 included $26.6 million related to
the write-down of certain undeployed assets, when it was determined that such
undeployed assets would not be deployed.
F-10
27
TELIGENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INTANGIBLE ASSETS
Intangible assets as of December 31 are as follows (in thousands):
2000 1999
--------- --------
Acquired intangibles.................................................... $127,016 $20,947
Fixed wireless licenses................................................. 52,704 51,813
Debt financing costs and other intangibles.............................. 39,577 39,638
--------- --------
219,297 112,398
Accumulated amortization................................................ (31,321) (15,980)
--------- --------
$187,976 $96,418
========= ========
Amortization expense for the year ended December 31, 2000 included a $4.2
million write-down resulting from the Company's decision to cease operations of
a wholly-owned subsidiary. The write-down represents the gross assets of the
acquired company, the largest component of which is intangibles.
7. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
DECEMBER 31,
-------------------
2000 1999
-------- --------
Accrued compensation.................................................... $20,956 $30,570
Accrued telecommunications taxes........................................ 17,539 9,167
Restructuring reserve................................................... 10,870 -
Accrued interest........................................................ 10,801 2,886
Other accrued liabilities............................................... 10,899 1,246
-------- --------
$71,065 $43,869
======== ========
8. LONG-TERM DEBT
Total debt consists of the following (in thousands):
DECEMBER 31,
---------------------
2000 1999
--------- --------
11.5% Senior Notes due 2007............................................ $300,000 $300,000
11.5% Senior Discount Notes due 2008................................... 345,331 308,799
Credit Facility........................................................ 789,739 200,000
--------- -------
1,435,070 808,799
Less current portion (1,435,070) -
--------- -------
Long-term debt - $808,799
========= =======
Senior Notes Offering
In November 1997, the Company issued $300 million of 11 1/2% Senior Notes
due 2007 (the "Senior Notes"). The Company used $93.9 million of the net
proceeds of this offering to purchase a portfolio of Treasury securities which
were classified as restricted cash and investments on the balance sheet, and
were pledged as collateral for the payment of interest on the Senior Notes
through December 1, 2000. Interest on the Senior Notes accrues at a rate of
11 1/2% per annum and is payable semi-annually in June and December.
On or after December 1, 2002, the Notes will be redeemable at the option
of the Company, in whole at any time or in part from time to time, at prices
ranging from 100.00% to 105.75% (expressed in percentages of the principal
amount thereof).
F-11
28
TELIGENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Upon the occurrence of a change in control, as defined in the Senior
Notes agreement, each holder of the Senior Notes will have the right to require
the Company to repurchase all or any part of such holder's Senior Notes at a
purchase price in cash equal to 101% of the principal amount.
Senior Discount Notes Offering
On February 20, 1998, the Company completed an offering (the "Discount
Notes Offering") of $440 million 11 1/2% Senior Discount Notes due 2008 (the
"Senior Discount Notes"). The Company received $243.1 million in net proceeds
from the Discount Notes Offering, after deductions for offering expenses of $7.6
million. Under a 1998 exchange offer, all outstanding Senior Discount Notes were
exchanged for 11 1/2% Series B Discount Notes due 2008 (the "New Discount
Notes") which have been registered under the Securities Act of 1933, as
amended. The New Discount Notes are identical in all material respects to the
Senior Discount Notes.
On or after March 1, 2003, the New Discount Notes will be redeemable at
the option of the Company on terms similar to those of the Senior Notes. In
addition, the New Discount Notes contain change in control repurchase
commitments similar to the Senior Notes.
Credit Facility
On July 2, 1998, the Company entered into a credit agreement, as
subsequently amended, (the "Bank Credit Agreement") with certain lenders,
providing for credit facilities up to an aggregate of $800 million (the "Credit
Facility"). Availability of funds under the Credit Facility were subject to
certain conditions as defined in the Bank Credit Agreement, all of which were
met prior to the draw down of the entire facility in January 2001. Substantially
all of the Company's assets secure the obligations under the Bank Credit
Agreement.
The Credit Facility is structured into three separate tranches consisting
of a term loan facility, a delayed draw term loan facility and a revolving
credit facility, each of which has a final maturity of eight years. Interest
accrues on $575.0 million of outstanding borrowings based on a floating rate
tied to the prevailing LIBOR rate and adjusts based on the attainment of certain
key revenue and leverage benchmarks. The remaining $214.7 million accrued
interest at a fixed rate of 11.125% per annum. The Company incurred commitment
and other fees in connection with obtaining the Credit Facility totaling $19.9
million, which is being amortized over eight years. The Credit Facility contains
certain financial and other covenants that restrict, among other things, the
Company's ability to (a) incur or create additional debt, (b) enter into mergers
or consolidations, (c) dispose of a significant amount of assets, (d) pay cash
dividends, or (e) change the nature of its business. The amounts outstanding
under the Credit Facility are subject to mandatory prepayments in certain
circumstances.
The Company executed an Amendment and Consent (the "Amendment") to the
Bank Credit Agreement subsequent to December 31, 2000. Pursuant to the
Amendment, the interest rates applicable to borrowings under the Credit Facility
were increased. The Amendment also increased the maximum aggregate principal
amount under the optional term loan tranche of the Credit Facility from $400
million to $600 million, of which $350 million can be utilized as vendor loans.
The optional term loan tranche is not a binding commitment of the lenders,
rather it provides a vehicle for any of the lenders to loan the Company
additional funds under the Credit Facility.
The Amendment also changed several of the covenants applicable to the
Company. The Company received a waiver for default of the fixed charge coverage
ratio for the period ending December 31, 2000 from the lenders as part of the
Amendment, and the test was suspended for the first quarter of 2001. The Company
was in compliance with all other debt covenants of the Credit Facility as of
December 31, 2000. The Amendment also requires the Company to maintain
substantially all of its cash and cash equivalents in a collateral and
securities account with a lender bank and the remainder of its funds in a
separate operating account. The Amendment also contains a waiver that permitted
the explanatory paragraph included in the Company's auditor's opinion for the
year ended December 31, 2000.
F-12
29
TELIGENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As part of the Amendment, the Company is required to deliver definitive
documentation with respect to vendor financing (in an aggregate amount of at
least $250 million) and convertible notes (in an aggregate amount of at least
$100 million), no later than April 30, 2001. The Company is attempting to secure
vendor financing in the amount of $250 million. If the Company does not meet the
April 30, 2001 deadline described above, it will be in default under its Credit
Facility. There can be no assurance that the Company will execute either the
vendor financing or convertible notes by such date or at all. In addition, the
Company has a new financial covenant that requires compliance effective June 30,
2001 for which there can be no assurance.
There can be no assurance that the Company can obtain vendor financing or
convertible notes as required by the amended credit facility. Accordingly, the
Company has restated its December 31, 2000 consolidated balance sheet to
classify its outstanding debt as a current liability.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments classified as
current assets or liabilities, and investments approximate their carrying value.
At December 31, 2000, the estimated fair value and carrying amounts of the
Company's Senior Notes, Senior Discount Notes and the Company's Series A
cumulative convertible redeemable preferred stock, par value, $.01 per share
("Series A Preferred Stock") are as follows (in thousands):
FAIR CARRYING
VALUE AMOUNT
--------- ----------
Senior Notes....................................................... $40,500 $ 300,000
Senior Discount Notes.............................................. $37,400 $ 345,331
Series A Preferred Stock........................................... $18,185 $ 520,658
The fair value of the Senior Notes, Senior Discount Notes and the Series
A Preferred Stock was estimated based on quoted market prices.
F-13
30
TELIGENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. INCOME TAXES
Deferred tax assets and liabilities are as follows, as of December 31 (in
thousands):
2000 1999
-------- --------
Deferred tax assets:
Net operating loss carryforward................................... $ 556,142 $ 278,870
Stock based compensation.......................................... 6,126 41,843
Original issue discount........................................... 35,959 22,077
Losses on investments/ asset impairment........................... 39,216 --
Other............................................................. 12,007 1,741
--------- ---------
Total deferred tax assets..................................... 649,450 344,531
Deferred tax liability:
Intangible assets................................................. (10,705) (11,760)
--------- ---------
Net deferred tax assets............................................... 638,745 332,771
Valuation allowance................................................... (638,745) (332,771)
--------- ---------
Total......................................................... $ -- $ --
========= =========
During the years ended December 31, 2000 and 1999, the Company did not
record an income tax benefit or expenses. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. At December 31,
2000, the Company had federal net operating loss carryforwards of $1.534 billion
that expire in various amounts through 2020.
A reconciliation between income taxes computed using the statutory
federal income tax rate and the effective rate, for the years ended December 31,
2000 and 1999, is as follows:
2000 1999
-------- --------
Federal income tax benefit at statutory rate.............................. (34.0)% (34.0)%
State income taxes net of federal......................................... (4.0) (4.0)
Net change in valuation allowance......................................... 38.1 38.6
Other..................................................................... (0.1) (0.6)
------ ------
-- % -- %
====== ======
11. RELATED PARTY TRANSACTIONS
In 1999 and 1998, the Company paid $3.7 million and $4.0 million to a
subsidiary of Nippon Telegraph and Telephone Corporation for technical services
related to network design and implementation. No such payments were made during
2000.
Employees of the parent company of Microwave Services, Inc performed
administrative and management services on behalf of the Company. These charges
totaled $0.3 million and $1.1 million for the years ended December 31, 1999 and
1998, respectively.
Certain technical services were performed by an affiliate of Digital
Services Corporation. The cost of these services totaled $0.9 million in 1999
and $0.6 million in 1998.
F-14
31
TELIGENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. OTHER TRANSACTIONS
During 2000, the Company acquired several communications companies (the
"2000 Transactions"), all of which were accounted for as purchases. The combined
purchase price of the 2000 Transactions consisted of the issuance of 2,822,154
shares of the Company's Class A common stock, par value $.01 per share ("Class A
Common Stock"), valued at $47.2 million at the time of issuance and cash
payments totaling $30.4 million. Earnout provisions could result in the issuance
of up to $30.3 million in additional cash payments or shares of Class A Common
Stock, if certain revenue and other benchmarks are achieved. Revenues from
companies acquired during 2000 totaled $40.5 million for the year ended December
31, 2000.
During 1999, the Company acquired three communications companies (the
"1999 Transactions"), all of which were accounted for as purchases. The combined
purchase price of the 1999 Transactions consisted of 269,308 shares of Class A
Common Stock valued at $15.7 million, and cash payments totaling $3.2 million.
Earnout provisions could result in the issuance of up to an additional 285,562
shares of Class A Common Stock and shares of Class A Common Stock totaling $4.5
million based on the market price of when specific earn-out conditions are met
over the next three years, if certain revenue and other benchmarks are achieved.
No additional earn-out was recorded during the year ended December 31, 2000.
Revenues from companies acquired during 1999 totaled $9.1 million for the year
ended December 31, 1999.
The 2000 and 1999 Transactions are summarized as follows. Amounts
allocated to intangibles are being amortized on a straight-line basis over
periods ranging from 5 to 15 years:
YEARS ENDED DECEMBER 31
-------------------------
2000 1999
---------- ---------
Cash paid for acquisitions, net of cash acquired
Recorded value of assets acquired....................... $ 21,495 $ 3,438
Identified intangibles.................................. 113,414 20,949
Net liabilities assumed................................. (60,000) (5,706)
Common stock issued in acquisitions..................... (47,225) (15,695)
---------- ---------
$ 27,684 $ 2,986
========== =========
In July 2000, the Company closed an investment in ICG Communications
("ICG"); whereby a subsidiary of the Company acquired 2,996,076 shares of ICG
common stock in exchange for one million shares of Class A Common Stock (the
"ICG Transaction"). The value of the Company's investment in ICG as of the
closing date was $62.0 million. Subsequent to the closing date of the ICG
Transaction, the market value of ICG common stock decreased significantly, and
the Company has concluded that the decline is permanent. Accordingly, the
Company has written its investment in ICG common stock down to its market value,
which management believes approximately fair value. At December 31, 2000, the
market value of the investment in ICG common stock was $400,000 and Teligent had
realized a loss on this investment of $61.6 million, which is included in other
expenses.
In September 2000, the Company resolved an outstanding liability with one
of its vendors. This transaction resulted in a reduction of telecommunications
costs (cost of services) of $39.7 million for the year ended December 31, 2000.
Additionally, the transaction resulted in the payment of $17.3 million in
interest to the vendor.
13. CONVERTIBLE REDEEMABLE PREFERRED STOCK
On December 3, 1999, the Company completed the sale of 500,000 shares of
its 7 3/4% Series A cumulative convertible redeemable preferred stock,
liquidation preference $1,000 per share, par value $.01 per share to an investor
group for gross proceeds of $500 million. At December 31, 2000 and 1999, there
were 539,543 and 500,000 shares authorized, issued and outstanding of Series A
Preferred Stock, respectively.
F-15
32
TELIGENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Series A Preferred Stock has an annual dividend rate of 7 3/4%
payable quarterly and dividends are cumulative from the date of issuance.
Dividends must be paid in additional shares of Series A Preferred Stock through
December 3, 2004, and may be paid in either cash or additional shares of Series
A Preferred Stock, at the option of the Company, thereafter.
The Series A Preferred Stock is convertible into Class A Common Stock by
the holders at any time at a initial conversion price of $57.50, but may be
called by the Company after five years and, if still outstanding, must be
redeemed in 2014. The holders of the Series A Preferred Stock have voting rights
equal to the rights held by holders of Class A Common Stock.
14. COMMITMENTS AND CONTINGENCIES
In May 2000, the Company announced a comprehensive network services
agreement (the "Network Services Agreement") with Level 3 Communications, Inc.
("Level 3"). Under the Network Services Agreement, the Company will acquire dark
fiber and other assets. At December 31, 2000, the Company had recorded $6.6
million of assets acquired under capitalized leases related to this agreement.
Commitments for additional capital expenditures totaling $54.1 million at
December 31, 2000 are as follows (in thousands):
2001.................................. $31,957
2002.................................. 5,134
2003.................................. 5,134
2004.................................. 5,134
2005.................................. 5,134
Thereafter............................ 1,574
--------
$54,067
========
The Company leases various operating sites, rooftops, storage, and
administrative offices under operating leases. Rent expense was $58.1 million,
$28.0 million and $10.9 million for the years ended December 31, 2000, 1999 and
1998, respectively. Future minimum lease payments by year, and in the aggregate,
at December 31, 2000, are as follows (in thousands):
2001................................. $ 64,099
2002................................. 61,543
2003................................. 57,270
2004................................. 45,765
2005................................. 28,105
Thereafter........................... 80,827
----------
$337,609
==========
15. CAPITAL STOCK
The Company has authorized two classes of common stock, Class A Common
Stock and Class B Common Stock. The rights of the two classes of common stock
are substantially identical, except that until the number of shares held by
holders of the respective series of Class B Common Stock fall below certain
thresholds, such holders will have the right to elect two directors to the
Company's Board of Directors. As a result of Liberty Media Corporation's
acquisition of The Associated Group, Inc. on January 14, 2000, all of the shares
of Series B-1 Common Stock (defined below) were converted into 21,436,689 shares
of Class A Common Stock and the Series B-1 shares were subsequently cancelled.
Liberty Media Corporation has the right to elect three directors pursuant to the
terms of the Shareholders' Agreement, dated as of January 13, 2000, by and among
Alex J. Mandl, Liberty Media Corporation, Telcom - DTS Investor, L.L.C. and
Microwave Services, Inc.
F-16
33
TELIGENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The number of shares authorized, issued and outstanding at December 31,
2000 and 1999, for each class of stock is summarized below:
DECEMBER 31,
===================================================================================
2000 1999
===================================== =======================================
PAR SHARES SHARES ISSUED SHARES SHARES ISSUED
CLASS VALUE AUTHORIZED AND OUTSTANDING AUTHORIZED AND OUTSTANDING
- ------------ ----- -------------- ----------------- ------------ -----------------
A $0.01 500,000,000 42,423,082 200,000,000 10,281,667
Series B-1 $0.01 -- -- 30,000,000 21,436,689
Series B-2 $0.01 50,000,000 15,477,210 25,000,000 17,206,210
Series B-3 $0.01 20,000,000 5,783,400 10,000,000 5,783,400
Common share activity by class is summarized below:
CLASS SERIES SERIES SERIES
A B-1 B-2 B-3 TOTAL
----------- ------------ ------------ ---------- -----------
Balance at January 1, 1999 8,206,392 21,436,689 17,206,210 5,783,400 52,632,691
Exercise of employee stock options 1,803,291 -- -- -- 1,803,291
Issuance of shares for acquisitions 269,308 -- -- -- 269,308
Other 2,676 2,676
----------- ------------ ------------ ---------- -----------
Balance at December 31, 1999 10,281,667 21,436,689 17,206,210 5,783,400 54,707,966
Conversion of Series B-1 to Class A 21,436,689 (21,436,689) -- -- --
Issuance of shares from stock offering 4,000,000 -- -- -- 4,000,000
Issuance of shares for acquisitions 2,822,154 -- -- -- 2,822,154
Conversion and sale of Series B-2 1,729,000 -- (1,729,000) -- --
Issuance of shares for ICG Transaction 1,000,000 -- -- -- 1,000,000
Exercise of employee stock options 838,258 -- -- -- 838,258
Other 315,314 315,314
----------- ------------ ------------ ---------- -----------
Balance at December 31, 2000 42,423,082 -- 15,477,210 5,783,400 63,683,692
=========== ============ ============ ========== ===========
The Company has authorized 10,000,000 shares of preferred stock, par value
$.01 per share. For shares issued and outstanding, see Note 13.
On May 25, 2000, the Company's shareholders approved an amendment to the
Company's certificate of incorporation, increasing the total number of
authorized shares of Class A Common Stock to 500,000,000, eliminating the Series
B-1 common stock and increasing the number of authorized shares of Series B-2
common stock to 50,000,000 and Series B-3 common stock to 20,000,000. The
Company filed an amendment to the certificate of incorporation with the
Secretary of State of the State of Delaware as approved by the Company's
shareholders, reflecting the amendments.
F-17
34
TELIGENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Common Stock Offering
In April 2000, the Company completed an underwritten offering of 4,000,000
shares of Class A Common Stock at a price of $50 per share, from which the
Company raised approximately $188.3 million of net proceeds, after deducting
approximately $11.7 million of offering expenses. In addition, one of the
Company's stockholders sold 1,000,000 shares of Class A Common Stock, at a price
of $50 per share, of which the Company received no proceeds.
Stock Purchase Agreement and Issuance of Warrants
On December 7, 2000, the Company entered into a stock purchase agreement
with RGC International Investors, LDC ("RGC"), as a private placement pursuant
to Section 4(2) of the Securities Act of 1933. Pursuant to the purchase
agreement, the Company may, subject to satisfying certain conditions, at its
sole discretion during the 18 months from the effectiveness of the resale
registration statement, require RGC to purchase up to $250 million of its Class
A Common Stock in a series of draw-downs. Pursuant to the purchase agreement,
the Company also issued 4,972,370 warrants to RGC to purchase an equal number of
shares of Class A Common Stock at an exercise price of $3.62 per share. Warrants
to purchase 3,729,278 shares vested on December 7, 2000. The remaining 1,243,092
warrants will vest pro rata with each tranche purchased after we have drawn down
a total of $150 million.
A draw down is initiated upon the Company's delivery of a draw down notice
that will include a draw down amount and a minimum price at which the Company is
willing to issue stock to RGC. The number of shares to be purchased by RGC for
each tranche will be based upon the volume-weighted average trading price
("VWAP") of the shares for each of the nine business days following the receipt
of a draw down notice. If, on any given date, the maximum permitted draw down
amount is less than $1 million, or if the VWAP is at or below $2 per share for
the preceding trading day, the Company may not deliver a draw down notice. If
the VWAP is at or below $2 per share during any day during a draw down period,
the total amount of the draw down will be reduced by the percentage of the draw
down amount attributable to that particular day.
RGC may sell the shares of Class A Common Stock purchased pursuant to the
purchase agreement, including upon exercise of the warrants, from time to time
on the principal exchange or market upon which the Company's common stock is
then listed or in negotiated transactions at prices determined at the time of
sale. However, pursuant to the terms of the purchase agreement and warrants, the
Company may not give notice of a draw down and RGC may not exercise warrants if
doing so would result in RGC's ownership of greater than 9.9% of our Class A
Common Stock. Further, the Company may not issue 20% or more of our common stock
as of December 7, 2000, or 20% or more of our voting power outstanding as of
December 7, 2000, without shareholder approval.
The purchase agreement is contingent upon certain conditions, including a
minimum trading price of $2.00 per share for the Company's common stock at the
time of draw down, limits on the amount that can be drawn down based on trading
price and trading volume of our common stock, and the listing of our common
stock on a principal trading exchange or market such as the Nasdaq National
Market or the Nasdaq SmallCap Market. We may not be able to obtain all or any
part of the $250 million equity financing unless the price and volume of our
common stock increase significantly and we may not be able to obtain any other
additional financing on terms acceptable to us.
Company Appreciation Rights, Appreciation Units and Stock Options
In 1996, certain employees were granted Company Appreciation Rights
("CARs") and appreciation units. At the time of the Company's Initial Public
Offering, these CARs and appreciation units were converted into options to
purchase Class A Common Stock. The Company will recognize up to $173.3 million
of compensation expense over the vesting period of the options. Through December
31, 2000, $160.2 million of stock-based compensation expense has been
recognized, and up to $13.1 million will be recognized through September 1, 2002
as follows: $12.7 million in 2001 and $400,000 in 2002. The employees receiving
these benefits are primarily executives and key employees whose compensation
expenses are typically included in general and administrative expenses for the
years ended December 31, 2000, 1999 and 1998.
F-18
35
TELIGENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1997 Stock Incentive Plan
The Company maintains the Teligent, Inc. 1997 Stock Incentive Plan, as
amended (the "1997 Plan"). The 1997 Plan authorizes options to purchase an
aggregate of 18,729,125 shares of Class A Common Stock, including the options
converted from the CARs and Appreciation Units. The exercise price of options
granted, as determined by the Company's Compensation Committee, approximates
fair value. Generally, all options granted under the 1997 Plan vest over a
period of five years and expire ten years from the date of grant.
The Company applies the provisions of APB No. 25 in accounting for its
stock-based compensation. If compensation expense had been determined in
accordance with SFAS No. 123, the Company's net loss for the years ended
December 31, 2000, 1999 and 1998 would have been $892.4 million, $570.6 million
and $324.4 million, or $14.90, $10.68 and $6.16 per share, respectively. Options
arising from the conversion of CARs and Appreciation Units have been valued
based on the number and exercise price of the options issued upon conversion.
The weighted average fair value of options granted was $21.17, $47.25 and $21.91
in 2000, 1999 and 1998, respectively, using the Black-Scholes option pricing
model with the following assumptions: dividend yield 0%, risk free rate interest
rate of 6.4%, 6.0% in 1999 and 5.3% in 1998, an expected life of 5 years in 2000
and 10 years in 1999 and 1998, and an expected volatility of 1.010 in 2000, .861
in 1999 and .648 in 1998.
Option activity for 2000, 1999 and 1998 is set forth below:
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
2000 PRICE 1999 PRICE 1998 PRICE
----------- ---------- ---------- ---------- ---------- ----------
Outstanding, January 1.......... 15,543,964 $20.65 14,618,967 $12.32 13,165,374 $10.30
Granted......................... 6,197,743 27.10 3,255,655 53.74 1,730,735 28.42
Canceled........................ (2,591,629) 37.73 (513,366) 32.61 (223,581) 19.59
Exercised....................... (838,258) 9.33 (1,803,291) 9.46 (49,922) 7.42
Expired......................... (99,862) 26.47 (14,001) 18.07 (3,639) 6.52
----------- ---------- ----------
Outstanding, December 31........ 18,211,958 20.90 15,543,964 20.65 14,618,967 12.32
=========== ========== ==========
Exercisable, December 31........ 7,232,215 $10.78 5,337,648 $6.91 3,824,319 $5.79
=========== ========== ==========
Options outstanding and exercisable by price range as of December 31, 2000
are as follows:
WEIGHTED-
AVERAGE WEIGHTED-
REMAINING WEIGHTED - AVERAGE
RANGE OF CONTRACTUAL AVERAGE EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (IN YEARS) EXERCISE PRICE EXERCISABLE PRICE
- --------------------- ---------------- ----------------- ----------------- ----------------- -----------
$ 1.81 - 2.36 15,800 9.9 2.12 -- --
2.83 - 4.18 2,009,244 5.7 3.76 2,003,244 3.77
4.34 - 6.48 1,067,922 5.9 5.44 1,001,622 5.44
6.52 - 9.63 5,550,970 6.0 7.00 2,998,394 6.74
9.91 - 14.72 1,505,971 9.3 11.88 205,749 12.53
14.94 - 22.13 561,427 7.5 20.36 119,247 21.49
22.50 -32.75 3,643,295 8.8 24.37 332,612 27.87
33.94 - 50.66 2,049,712 7.2 44.57 272,650 44.66
51.16 - 76.56 1,479,817 8.7 61.91 298,697 60.90
77.13 - 95.81 327,800 9.1 83.23 -- --
---------------- -----------------
18,211,958 7.3 20.90 7,232,215 10.78
================ =================
F-19
36
TELIGENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. EMPLOYEE BENEFIT PLANS
Employees of the Company may participate in a 401(k) retirement plan in
which eligible employees may elect to contribute, on a tax-deferred basis, up to
15% of their compensation, not to exceed annual maximums as defined in the
Internal Revenue Code. The Company matches one-half of a participant's
contribution up to 6% of the participant's compensation, vesting over 4 years.
The Company's contributions to the plan were $2.8 million, $1.7 million and $0.9
million for 2000, 1999 and 1998, respectively.
Effective July 1, 1999, the Company adopted the Employee Stock Purchase
Plan ("ESPP"). Under the ESPP, the Company authorized the issuance of 300,000
shares of Class A Common Stock, which allowed eligible employees to purchase
such shares at 85% of the fair value of the Class A Common Stock. As of January
2001, the Company had issued all such shares available under the ESPP. No
additional shares will be distributed under the ESPP until more shares of Class
A Common Stock are authorized for distribution under the ESPP.
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table has been prepared from the financial records of the
Company, without audit, and reflects all adjustments that are, in the opinion of
management, necessary for a fair presentation of the results of operations for
the interim periods presented (in thousands, except per share amounts).
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER TOTAL
---------- ---------- --------- --------- ---------
2000
Revenues................................................. $23,064 $32,264 $42,669 $54,075 $152,072
Loss from operations..................................... (137,815) (145,976) (124,335) (224,233) (632,359)
Net loss applicable to common stockholders............... (166,037) (174,456) (238,638) (270,725) (849,856)
Basic and diluted net loss per common share.............. ($3.02) (2.94) (3.88) (4.25) (14.19)
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER TOTAL
---------- ---------- --------- --------- ---------
1999
Revenues................................................. $ 1,523 $ 3,961 $ 10,320 $ 15,500 $ 31,304
Loss from operations..................................... (93,532) (107,752) (123,999) (133,733) (459,016)
Net loss applicable to common stockholders............... (108,112) (123,472) (143,640) (156,595) (531,819)
Basic and diluted net loss per common share.............. (2.05) (2.34) (2.66) (2.89) (9.95)
The sum of the per common share amounts do not equal the annual amounts
because of the changes in the weighted-average number of shares outstanding
during the year.
F-20
37
TELIGENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. EVENTS SUBSEQUENT TO THE AUDITORS REPORT DATE AND TO THE INITIAL FILING OF
FORM 10-K (UNAUDITED)
Filing for Chapter 11 under the U.S. Bankruptcy Code
On May 21, 2001, the Company and all of its direct and indirect domestic
subsidiaries filed voluntary petitions for relief under Chapter 11 of the U.S.
Bankruptcy Code in the United States Bankruptcy Court for the Southern District
of New York. The 21 separate cases were procedurally (but not substantively)
consolidated for joint administration. Each of the Company and the subsidiaries
included in the filings will continue to operate their businesses as debtors in
possession during the reorganization proceeding. The Company's foreign
subsidiaries were not part of the Chapter 11 filing.
In conjunction with the filing of the petitions, the Company entered into
an interim arrangement with its lenders to provide funds, subject to certain
conditions, for near-term operations. The Bankruptcy Court approved the interim
arrangement with the Company's lenders on May 21, 2001. A hearing on the interim
arrangement is scheduled for June 13, 2001.
While under the protection of Chapter 11, the Company may sell or otherwise
dispose of assets and liquidate or settle liabilities for amounts other than
those reflected in the consolidated financial statements. The financial
statements do not include any adjustments that might be necessary as a result of
the outcome of the uncertainties discussed herein, including the effects of any
plan of reorganization or liquidation.
Based on the aforementioned bankruptcy coupled with the violation of
certain debt-covenants, the repayment of the debt obligations can be accelerated
by its lenders.
Changes in Management and the Board of Directors
On April 17, 2001, Gary Howard and Carl Vogel resigned their seats on the
Company's Board of Directors. David Berkman had resigned his seat on the
Company's Board of Directors on March 2, 2001. On April 17, 2001, Liberty Media
Corporation nominated Howard Jonas, Morris Lichtenstein and Anthony Davidson to
the Company's Board of Directors pursuant to the terms of the Stockholders'
Agreement, dated as of January 13, 2000, by and among Alex J. Mandl, Liberty
Media Corporation, Telcom-DTS Investors, L.L.C. and Microwave Services, Inc.
(the "Stockholders' Agreement"). On April 19, 2001, Howard Jonas, Morris
Lichtenstein, and Anthony Davidson were elected to the Company's Board of
Directors.
On April 20, 2001, Rajendra Singh and Neera Singh resigned their seats on
the Company's Board of Directors and Telcom-DTS Investors, L.L.C. nominated Hal
Perkins and Rahul Prakash pursuant to the terms of the Stockholders' Agreement.
On April 25, 2001, Hal Perkins and Rahul Prakash were elected to the Company's
Board of Directors.
On April 27, 2001, Tetsuro Mikami resigned his seat on the Company's Board
of Directors. Pursuant to the terms of the Company's certificate of
incorporation, Nippon Telegraph and Telephone Corporation ("NTT") is entitled to
elect a director to replace Mr. Mikami. As of May 4, 2001, NTT has not elected a
director to fill the vacancy on the Company's Board of Directors. On the same
date, Alex Mandl was removed as the Chief Executive Officer, Chief Operating
Officer and Chairman of the Company.
On April 30, 2001, Yoav Krill was appointed as the Company's Chief
Executive Officer and on May 1, 2001 he was elected to the Company's Board of
Directors.
F-21
38
TELIGENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On May 2, 2001, Steven F. Bell and Peter T. Garahan resigned their
positions with the Company. Mr. Bell was the Company's Senior Vice President of
Human Resources and Mr. Garahan was the Company's Vice-Chairman and Chief
Financial Officer.
On May 2, 2001, Michael Levitt resigned his seat on the Company's Board of
Directors. Pursuant to the Company's certificate of designation, Hicks, Muse,
Tate & Furst Incorporated and its affiliates ("Hicks, Muse") are entitled to
elect a director to replace Mr. Levitt. On May 18, 2001, Hicks, Muse waived
their right to elect a director (subject to the closing of the transaction with
IDT on or before June 30, 2001). On May 18, 2001, James V. Continenza was
elected to fill this vacancy on the Board.
On May 7, 2001, Mr. Harris resigned his position as General Counsel and
Secretary of the Company. On the same date Stuart H. Kupinsky was appointed as
General Counsel and Secretary of the Company, Mr. Continenza was appointed as
Chief Operating Officer of the Company and Norman Klugman was appointed as the
Company's Chief Financial Officer and Treasurer.
On May 10, 2001, Hamid Akhavan was removed as the Senior Vice President of
Information Technology and Chief Technology Officer of the Company.
Changes in work force
On May 11, 2001, the Company terminated approximately 800 employees in an
effort to reduce costs.
F-22