SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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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 0-28262
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AERIAL COMMUNICATIONS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 39-1706857
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8410 West Bryn Mawr, Suite 1100, Chicago, Illinois 60631
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (773) 399-4200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 1998
----------------------- ------------------------------
Common Shares, $1 par value 31,727,146 Shares
Series A Common Shares, $1 par value 40,000,000 Shares
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<PAGE>
AERIAL COMMUNICATIONS, INC.
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1ST QUARTER REPORT ON FORM 10Q
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INDEX
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Page No.
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Part I. Financial Information
Management's Discussion and Analysis of
Results of Operations and Financial Condition 2-6
Consolidated Statements of Operations -
Three Months Ended March 31, 1998 and 1997 7
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997 8
Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997 9
Notes to Consolidated Financial Statements 10-11
Part II. Other Information 12
Signatures 13
<PAGE>
PART 1. FINANCIAL INFORMATION
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AERIAL COMMUNICATIONS, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
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AND FINANCIAL CONDITION
-----------------------
RESULTS OF OPERATIONS
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Aerial Communications, Inc. ("Aerial" or the "Company" - NASDAQ symbol: AERL),
an 82.4%- owned subsidiary of Telephone and Data Systems, Inc. ("TDS"), was
formed to acquire Personal Communications Services ("PCS") licenses from the
Federal Communications Commission ("FCC"), construct PCS networks in its Major
Trading Areas ("MTAs") and offer wireless PCS communications services in these
areas.
Since its acquisition of PCS licenses in the FCC broadband Block A and Block B
PCS auction, which concluded in March of 1995, the Company devoted its efforts
to recruiting an experienced management team, developing and executing a
business plan, raising capital and designing and constructing a PCS network in
each of its MTAs (Minneapolis, Tampa-St. Petersburg-Orlando, Houston,
Pittsburgh, Kansas City and Columbus). The Columbus MTA launched service on
March 27, 1997. The Company's five remaining MTAs launched service during the
second quarter of 1997.
With the launch of service in its MTAs during the second quarter of 1997, the
Company transitioned from the development stage to being an operating
enterprise. As a result of this transition, the Company has experienced an
increase in revenues and operating expenses and incurred substantial losses. The
Company had no revenues and substantially less expenses in the first quarter of
1997.
The Company's focus in 1998 has been the completion of its PCS networks and the
development of its PCS business. The Company currently has over 1,100 cell sites
in service across all its markets and, although the Company will continue to
refine its network, the build-out is substantially complete. The Company's
average revenue per customer ("ARPU") was $57 for the first quarter of 1998 as
compared to over $70 during the third and fourth quarters of 1997. The decline
in ARPU is primarily attributable to a number of subscribers being deactivated
as part of the Company's continuing management of its credit challenged
customers. The addition of new customers on prepayment plans and fourth quarter
promotions which targeted lower revenue users also contributed to the decline in
ARPU. It is expected that ARPU will continue to decline somewhat before
stabilizing. Despite churn, including Company- initiated deactivations, the
Company added (net) 40,000 customers in the first quarter of 1998 and now has
over 165,000 customers.
Three Months Ended 3/31/98 Compared to Three Months Ended 3/31/97
Operating Revenues
- ------------------
Operating revenues totaled $30.7 million for the three months ended March 31,
1998.
Service revenue primarily consists of charges for access, airtime and
value-added services provided to the Company's customers who use the network
operated by the Company and
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<PAGE>
charges for long-distance calls made on the Company's systems. Service revenue
totaled $24.1 million in the first quarter of 1998.
Equipment sales revenue totaled $6.6 million in the first quarter of 1998.
Equipment sales revenue represents the sale of handsets and related accessories
to retailers, independent agents, and end user customers. The Company
establishes prices on handsets to stimulate growth in the number of customers,
to maintain its market position and to meet competitive prices.
Operating Expenses
- ------------------
Operating expenses totaled $100.1 million in the first quarter of 1998, an
increase of $78.5 million as compared to the first quarter of 1997. The increase
in operating expenses reflects the Company's operational status in the first
quarter of 1998 as compared to the Company being a development stage enterprise
in the first quarter of 1997.
System operations expense totaled $15.0 million in the first quarter of 1998.
Significant costs include cell site rent expense, landline interconnection and
toll charges and the salaries and benefits of engineering and maintenance
employees working on the Company's GSM network.
Marketing and selling expense totaled $17.4 million in the first quarter of
1998. Marketing and selling expenses primarily consist of the cost of print,
television and radio advertising, salaries and benefits for sales and marketing
personnel, sales commissions and the costs of consulting/temporary services. In
1997, Marketing and selling expenses were included in Development costs.
Customer service expense totaled $10.9 million in the first quarter of 1998,
reflecting customer service activity at the Company's National Operations
Center. Significant customer service costs include the salaries and benefits of
customer service employees, bad debt expense, consulting/temporary service
expenses and telephone expenses.
Cost of equipment sold totaled $22.8 million in the first quarter of 1998. Cost
of equipment sold consists primarily of the cost of handsets and related
accessories sold to independent retailers and agents or sold directly through
Company operated stores.
General and administrative expense totaled $14.2 million in the first quarter of
1998, a decrease of $2.3 million as compared to the first quarter of 1997. The
decrease is attributable to the Company being a development stage company in the
first quarter of 1997 and classifying all expenses as either General and
administrative or Development costs. In 1998, the Company's expenses are
classified to reflect the Company's operational status.
Development costs totaled $5.1 million in the first quarter of 1997 and
primarily represent pre- launch marketing, consulting and legal costs.
Operating (Loss)
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Operating (Loss) totaled $69.3 million for the first quarter of 1998, an
increase of $47.7 million as compared to the first quarter of 1997. The Company
expects to continue to have operating losses and to generate negative cash flow
as it continues to build its customer base.
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<PAGE>
Other
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Investment losses totaled $0.5 million in the first quarter of 1997 and
represent the Company's 49% share of the first quarter losses of the Wireless
Alliance, LLC, a joint venture associated with the Company's Minneapolis MTA and
designed to extend the PCS footprint to areas that were not in the Company's
initial build-out. Because the Company's share of the cumulative losses has
exceeded its investment in the Wireless Alliance, LLC, the Company did not
recognize any losses during the first quarter of 1998.
Interest income-other totaled $0.4 million in the first quarter of 1998, a
decrease of $0.7 million as compared to the first quarter of 1997. Interest
income-other is primarily from interest income earned on the balance in Prepaid
network infrastructure costs. Prepaid network infrastructure costs relates to
proceeds from the Company's sale of Series B Zero Coupon Notes in excess of
borrowings under the Nokia Credit Agreement. The average balance in Prepaid
network infrastructure costs was less in the first quarter of 1998 as compared
to the first quarter of 1997.
Other income totaled $0.7 million in the first quarter of 1998 and relates to
rental income from other wireless communications providers who rent antennae
space on towers owned and operated by the Company.
Interest expense-affiliate totaled $13.7 million in the first quarter of 1998,
an increase of $13.1 million as compared to the first quarter of 1997. Interest
expense-affiliate represents interest on amounts borrowed under the Revolving
Credit Agreement with TDS and the TDS 3% guarantee fees associated with
borrowings under the Nokia Credit Agreement and the Series A and Series B Zero
Coupon Notes, less capitalized interest. The average balance of borrowings under
the Revolving Credit Agreement was greater for the first quarter of 1998 as
compared to the first quarter of 1997, resulting in greater interest expense in
1998. Additionally, the Company capitalized $0.7 million less in interest in the
first quarter of 1998 as compared to the first quarter 1997.
Interest expense-other totaled $4.1 million in the first quarter of 1998, an
increase of $3.7 million as compared to the first quarter of 1997. Interest
expense-other relates to interest expense accreted on the Series A Zero Coupon
Notes issued in November 1996, the Series B Zero Coupon Notes issued in February
1998 and interim financing under the Nokia Credit Agreement, less capitalized
interest. The increase is primarily due to the average balance of Long-term debt
outstanding during the first quarter of 1998 being greater than the average
balance outstanding in the first quarter of 1997. Additionally, the Company
capitalized $1.5 million less in interest in the first quarter of 1998 as
compared to the first quarter of 1997.
The Company is included in a consolidated federal tax return with other members
of the TDS consolidated group. For financial reporting purposes, the Company
computes its federal income taxes as if it were filing a separate return as its
own affiliated group and was not included in the TDS group. TDS and the Company
are parties to a Tax Allocation Agreement under which the Company is able to
carry forward any losses and credits and use them to offset any future income
tax liabilities to TDS.
LIQUIDITY AND CAPITAL RESOURCES
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The costs of development, construction, start-up and post-launch activities of
the Company require substantial capital. From inception through March 31, 1998,
the Company had expended $304.4 million for its licenses, including capitalized
interest, $669.8 million for all other capital expenditures and incurred
cumulative net losses of $379.9 million. The Company expects to continue to
incur operating losses and generate negative cash flow from operating
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<PAGE>
activities during the next several years as it continues to build its customer
base.
Cash flows used by operating activities were $62.6 million during the first
quarter of 1998 as compared to $26.2 million in 1997. Operating cash outflow
(operating loss before depreciation and amortization expense) totaled $49.6
million in the first quarter of 1998 compared to $20.5 million in the first
quarter of 1997. Cash flows used by other operating activities (investment and
other income, interest expense, changes in working capital and changes in other
assets and liabilities) required cash investments of $13.0 million in the first
quarter of 1998 as compared to $5.7 million in the first quarter of 1997.
Cash flows from financing activities totaled $87.8 million in the first quarter
of 1998 as compared to $82.8 million in the first quarter of 1997. Cash provided
in 1998 was due primarily to $87.3 million in borrowings under the Revolving
Credit Agreement. In 1997, borrowings under the Revolving Credit Agreement
provided $82.6 million.
Cash flows used in investing activities totaled $29.1 million in the first
quarter of 1998 as compared to $84.7 million in the first quarter of 1997. Cash
used in 1998 and 1997 was due primarily to additions to property and equipment
for PCS network and information system assets.
The Company anticipates that the continuing development of its PCS services will
require substantial capital over the next several years. For 1998 the Company
estimates that the aggregate funds required for construction expenditures will
total approximately $75 million. The Company estimates requiring $245 million
for working capital requirements to fund operations for all of 1998.
In March 1996, the Company selected Nokia Telecommunications, Inc. ("Nokia") as
its sole supplier of digital radio channel and switching infrastructure
equipment during the initial build-out of its PCS networks. Nokia agreed to
provide up to $200 million in financing for the equipment through a Credit
Agreement with the Company dated June 19, 1996 ("Credit Agreement"). In
accordance with the provisions of the Credit Agreement, the Company issued, in
tranches, 10-year unsecured zero coupon promissory notes, the proceeds of which
were paid to Nokia in satisfaction of borrowings by the Company under the Credit
Agreement.
Pursuant to the Credit Agreement, on November 4, 1996, the Company issued $226.2
million in aggregate principal amount at maturity of Series A Zero Coupon Notes
("Series A Notes") due in 2006. The issue price of the Series A Notes was $100
million and there is no periodic payment of interest. The per annum yield to
maturity on the Series A Notes is 8.34% (computed on a semi-annual bond
equivalent basis). The proceeds of the sale of the Series A Notes were paid to
Nokia in satisfaction of all then outstanding obligations and future obligations
of the Company up to $100 million under the Credit Agreement.
Pursuant to the Credit Agreement, on February 5, 1998, the Company issued $220.0
million in aggregate principal amount at maturity of Series B Zero Coupon Notes
("Series B Notes") due in 2008 (representing the final issuance of zero coupon
notes under the Credit Agreement). The issue price of the Series B Notes was
$100 million and there is no periodic payment of interest. The per annum yield
to maturity on the Series B Notes is 8.05% (computed on a semi-annual bond
equivalent basis). The proceeds of the sale of the Series B Notes were paid to
Nokia in satisfaction of all then outstanding obligations and future obligations
of the Company (to the extent not satisfied from the proceeds of the sale of the
Series A Notes) up to $100 million under the Credit Agreement.
At March 31, 1998, the Company had approximately $14.5 million available for
borrowing under its $550 million Revolving Credit Agreement with TDS. Subsequent
to March 31, 1998, the Company secured from TDS a $200 million total increase in
the amount it may borrow under the
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<PAGE>
Revolving Credit Agreement to $750 million, subject to the approval of the TDS
Board of Directors. The Revolving Credit Agreement authorizes increases on a
scheduled basis to $605 million immediately, rising to $750 million on and after
October 31, 1998. The Revolving Credit Agreement also provides that the amount
of any proceeds raised by the Company in connection with the sale of equity to
any third party, and the amount of any proceeds from the issuance by the
Company of any debt to any third party, will be used to pre-pay the borrowings
under the Revolving Credit Agreement as well as reduce the total
amount the Company may borrow under the Revolving Credit Agreement. In
addition to the Revolving Credit Agreement with TDS, other sources of
capital may include additional vendor financing as well as an investment
by a minority equity investor. If sufficient additional future funding
is not made available to the Company on terms and prices acceptable to
the Company, the Company would have to reduce its operating activities, which
could have a material adverse impact on the Company's financial condition and
results of future operations.
RECENT DEVELOPMENTS
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As disclosed in the Company's 1997 Annual Report on Form 10-K, on December 17,
1997, the Company received a proposal from TDS to acquire all of the issued and
outstanding Common Shares of Aerial not already owned by TDS (the "Aerial
Merger"), in exchange for shares of TDS tracking stock which are intended to
reflect the performance of the Company.
In January 1998, the Company's Board of Directors created a special committee of
the Board (the "Special Committee") to review the proposal from TDS. The Special
Committee, consisting of two independent directors of Aerial, engaged a
financial advisor and legal advisor to assist in reviewing the proposal. On
April 15, 1998, the Company announced that the Special Committee had decided to
recommend that Aerial's Board of Directors reject the initial proposal from TDS.
The Special Committee advised TDS that it would be prepared to consider a
revised proposal. TDS has indicated that it intends to make a revised proposal
to the Special Committee and to continue to seek an agreement to acquire the
Aerial Common Shares that it does not own on mutually acceptable terms. However,
there can be no assurance that an agreement will be reached with respect to the
Aerial Merger.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR CAUTIONARY
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STATEMENT
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This Form 10-Q contains "forward-looking" statements, as defined in the Private
Securities Litigation Reform Act of 1995, that are based on current
expectations, estimates and projections. Statements that are not historical
facts, including statements about the Company's beliefs and expectations are
forward-looking statements. These statements contain potential risks and
uncertainties and, therefore, actual results may differ materially. The Company
undertakes no obligation to update publicly any forward-looking statements
whether as a result of new information, future events or otherwise.
Important factors that may affect these projections or expectations include, but
are not limited to: changes in the overall economy; changes in competition in
the Company's markets; advances in telecommunications technology; changes in the
telecommunications regulatory environment; pending and future litigation;
availability of future financing; and unanticipated changes in growth in PCS
customers, penetration rates, churn rates and the mix of products and services
offered in the Company's markets. Readers should evaluate any statements in
light of these important factors.
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<PAGE>
<TABLE>
AERIAL COMMUNICATIONS, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS
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Unaudited
---------
<CAPTION>
Three Months Ended
March 31,
--------------------------
1998 1997
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(Dollars in thousands,
except per share amounts)
<S> <C> <C>
OPERATING REVENUES
Service $ 24,083 $ --
Equipment sales 6,663 --
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Total Operating Revenues 30,746 --
----------- -----------
OPERATING EXPENSES
System operations 15,016 --
Marketing and selling 17,432 --
Customer service 10,899 --
Cost of equipment sold 22,820 --
General and administrative 14,196 16,527
Depreciation 17,807 --
Amortization of intangibles 1,889 --
Development costs -- 5,087
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Total Operating Expenses 100,059 21,614
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OPERATING (LOSS) (69,313) (21,614)
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INVESTMENT AND OTHER INCOME
Investment (losses) -- (469)
Interest income-affiliate -- 95
Interest income-other 360 1,122
Other income 672 --
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Total Investment and Other Income 1,032 748
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(LOSS) BEFORE INTEREST
AND INCOME TAXES (68,281) (20,866)
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INTEREST EXPENSE
Interest expense-affiliate 13,673 634
Interest expense-other 4,107 402
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Total Interest Expense 17,780 1,036
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(LOSS) BEFORE INCOME TAXES (86,061) (21,902)
Income tax expense 860 438
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NET (LOSS) $ (86,921) $ (22,340)
=========== ===========
WEIGHTED AVERAGE COMMON AND
SERIES A COMMON SHARES (000s) 71,636 71,384
(LOSS) PER COMMON AND SERIES A
COMMON SHARE $ (1.21) $ (0.31)
=========== ===========
<FN>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
</FN>
</TABLE>
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<PAGE>
<TABLE>
AERIAL COMMUNICATIONS, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------
Unaudited
---------
<CAPTION>
Three Months Ended
March 31,
------------------------
1998 1997
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(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $ (86,921) $ (22,340)
Add (Deduct) adjustments to reconcile net (loss)
to net cash (used) by operating activities:
Depreciation and amortization 19,696 1,136
Noncash interest expense-Series A Notes 2,205 1,990
Noncash interest expense-Series B Notes 1,240 --
Loss on sale of property and equipment 90 --
Investment losses -- 469
Change in accounts receivable-customer (3,504) --
Change in inventory 13,035 (4,042)
Change in accounts payable-affiliate (130) 338
Change in accrued interest-affiliate 2,355 757
Change in accounts payable-trade (9,591) (6,406)
Change in deferred tax liability-net 860 438
Change in other assets and liabilities (1,948) 1,450
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(62,613) (26,210)
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CASH FLOWS FROM FINANCING ACTIVITIES
Change in Revolving Credit Agreement-TDS 87,266 82,567
Issuance of common stock 529 233
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87,795 82,800
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CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (29,685) (84,607)
Proceeds from sale of property and equipment 145 --
Change in temporary cash and other investments 476 (138)
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(29,064) (84,745)
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NET(DECREASE) IN CASH AND
CASH EQUIVALENTS (3,882) (28,155)
CASH AND CASH EQUIVALENTS-
Beginning of period 5,012 35,284
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End of period $ 1,130 $ 7,129
========== ==========
<FN>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
</FN>
</TABLE>
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<PAGE>
<TABLE>
AERIAL COMMUNICATIONS, INC. AND SUBSIDIARIES
--------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<CAPTION>
(Unaudited) December 31,
March 31, 1998 1997
-------------- ------------
(Dollars in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,130 $ 5,012
Temporary cash investments 254 197
Accounts receivable
Customers, less allowance of
$11,090 and $7,252, respectively 27,534 24,030
Roaming 195 --
Affiliates 192 22
Other 1,288 185
Inventory 12,914 25,949
Other 3,955 2,614
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47,462 58,009
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PROPERTY and EQUIPMENT
Property and equipment-net of accumulated
depreciation of $55,796 and $38,018,
respectively 596,813 584,723
Work in process 16,725 19,381
Prepaid network infrastructure costs 5,399 --
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618,937 604,104
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INVESTMENTS
Investment in PCS licenses-net of accumulated
amortization of $6,377 and $4,489,
respectively 295,155 297,043
Other 765 1,298
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295,920 298,341
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DEFERRED COSTS 567 194
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TOTAL ASSETS $ 962,886 $ 960,648
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable
Affiliates $ 643 $ 773
Trade 65,957 92,020
Accrued interest-affiliate 6,020 3,665
Microwave relocation costs payable 7,254 7,354
Other 7,006 5,957
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86,880 109,769
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REVOLVING CREDIT AGREEMENT-TDS 535,500 448,234
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LONG-TERM DEBT 219,832 196,439
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DEFERRED TAX LIABILITY-NET 14,639 13,779
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COMMON SHAREHOLDERS' EQUITY
Common Shares, par value $1 per share 31,687 31,611
Series A Common Shares, par value $1 per share 40,000 40,000
Additional paid-in capital 414,199 413,746
Retained deficit (379,851) (292,930)
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106,035 192,427
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 962,886 $ 960,648
=========== ===========
<FN>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
</FN>
</TABLE>
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AERIAL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in
the financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not
misleading. It is suggested that these consolidated financial
statements be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's Annual
Report on Form 10-K.
The accompanying unaudited consolidated financial statements contain
all adjustments (consisting of only normal recurring items) necessary
to present fairly the financial position as of March 31, 1998, and
December 31, 1997, the results of operations for the three months ended
March 31, 1998 and 1997, and the cash flows for the three months ended
March 31, 1998 and 1997. The results of operations for the three months
ended March 31, 1998 and 1997, are not necessarily indicative of the
results to be expected for the full year.
2. Net (Loss) per Common and Series A Common Share for the three months
ended March 31, 1998 and 1997, was computed based on the weighted
average number of Common and Series A Common Shares outstanding during
the period.
3. The Company adopted in 1998 Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income." Comprehensive Income (Loss)
equals Net (Loss) for the quarters ended March 31, 1998 and 1997.
4. Supplemental Cash Flow Information. Additions to Property and equipment
of $14.6 million and additions to Prepaid network infrastructure costs
of $5.4 million were financed through a $20.0 million increase in
Long-term debt.
During the first quarter of 1998, the Company incurred interest charges
totaling $17.9 million. The interest charges were comprised of $12.3
million related to the Revolving Credit Agreement, $1.4 million for TDS
guarantee fees on the Series A and Series B Zero Coupon Notes and
obligations under the Nokia Credit Agreement, $0.4 million paid to
Nokia for interest charges relating to the Credit Agreement, $3.4
million in accreted interest on the Series A and Series B Zero Coupon
Notes and $0.4 million in other interest charges. Of these amounts, the
Company capitalized $0.1 million relating to its work in process
expenditures. The remaining $17.8 million was charged to expense.
During the first quarter of 1997 the Company incurred interest charges
of $3.3 million. The interest charges were comprised of $0.6 million
relating to the Revolving Credit Agreement, $0.7 million for TDS
guarantee fees on the Series A Zero Coupon Notes and obligations under
the Nokia Credit Agreement, and $2.0 million in accreted interest on
the Series A Zero Coupon Notes. Of these amounts, the Company
capitalized $2.3 million relating to its work in process expenditures.
The remaining $1.0 million was charged to expense.
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5. Development Stage Company. Effective with the second quarter of 1997,
the Company ceased to be a development stage company and presents its
1998 results of operations, cash flows and financial position in a
manner similar to other operating enterprises within the industry.
6. Revolving Credit Agreement. The Company entered into a Revolving Credit
Agreement with TDS on August 1, 1995, under which all of the
outstanding obligations of the Company to TDS are incorporated.
Subsequent to March 31, 1998, the Company secured from TDS a $200
million total increase in the amount it may borrow under the Revolving
Credit Agreement to $750 million, subject to the approval of the TDS
Board of Directors. The Revolving Credit Agreement authorizes
increases on a scheduled basis to $605 million immediately, rising to
$750 million on and after October 31, 1998. The Revolving Credit
Agreement also provides that the amount of any proceeds raised by the
Company in connection with the sale of equity to any third party, and
the amount of any proceeds from the issuance by the Company of any
debt to any third party, will be used to pre-pay the borrowings under
the Revolving Credit Agreement as well as reduce the total amount the
Company may borrow under the Revolving Credit Agreement. The total
amount advanced to the Company under the Revolving Credit Agreement as
of March 31, 1998 was $535.5 million.
7. Commitments. At March 31, 1998, the Company had orders totaling
approximately $10.1 million with Nokia Telecommunications, Inc. for
network infrastructure equipment. Also, at March 31, 1998, the Company
had orders totaling approximately $3.1 million with various handset
vendors for handsets and accessories.
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PART II. OTHER INFORMATION
--------------------------
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 11 - Computation of earnings per common share.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K filed during the quarter ended March 31, 1998.
No Reports on Form 8-K were filed during the quarter ended March 31,
1998.
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AERIAL COMMUNICATIONS, INC.
---------------------------
(Registrant)
Date May 13, 1998 /s/ Donald W. Warkentin
----------------- -----------------------------
Donald W. Warkentin
President
(Chief Executive Officer)
Date May 13, 1998 /s/ J. Clarke Smith
----------------- -----------------------------
J. Clarke Smith
Vice President-Finance and Administration
(Chief Financial Officer)
Date May 13, 1998 /s/ B. Scott Dailey
----------------- -----------------------------
B. Scott Dailey
Controller
(Principal Accounting Officer)
-13-
<PAGE>
Exhibit 11
<TABLE>
Aerial Communications, Inc. and Subsidiaries
Computation of Earnings Per Common Share
(in thousands, except per share amounts)
<CAPTION>
Three Months Ended March 31, 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Basic Earnings Per Common Share:
Net (Loss) $ (86,921) $ (22,340)
========== ==========
Weighted average number of Common and Series A
Common Shares Outstanding(1) 71,636 71,384
========== ==========
Basic Earnings Per Common Share
Net (Loss) $ (1.21) $ (0.31)
========== ==========
Diluted Earnings Per Common Share (2):
Net (Loss) $ (86,921) $ (22,340)
========== ==========
Weighted average number of Common and Series A
Common Shares Outstanding(1) 71,636 71,384
========== ==========
Diluted Earnings Per Common Share
Net (Loss) $ (1.21) $ (0.31)
========== ==========
<FN>
(1) Weighted average number of Common and Series A Common Shares outstanding
was calculated based on the number of shares outstanding during the
period.
(2) The Company adopted in 1997 Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Common Share". The implementation of
SFAS No. 128 had no effect on reported (Loss) per Common and Series A
Common Share due to the current Net (Loss).
</FN>
</TABLE>
-14-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of Aerial Communications, Inc. as of March 31,
1998, and for the three months then ended, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,130
<SECURITIES> 255
<RECEIVABLES> 38,624
<ALLOWANCES> 11,090
<INVENTORY> 12,914
<CURRENT-ASSETS> 47,462
<PP&E> 674,733
<DEPRECIATION> 55,796
<TOTAL-ASSETS> 962,886
<CURRENT-LIABILITIES> 86,880
<BONDS> 219,832
0
0
<COMMON> 71,687
<OTHER-SE> 34,348
<TOTAL-LIABILITY-AND-EQUITY> 962,886
<SALES> 6,663
<TOTAL-REVENUES> 30,746
<CGS> 22,820
<TOTAL-COSTS> 100,059
<OTHER-EXPENSES> (1,032)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,780
<INCOME-PRETAX> (86,061)
<INCOME-TAX> 860
<INCOME-CONTINUING> (86,921)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (86,921)
<EPS-PRIMARY> (1.21)
<EPS-DILUTED> (1.21)
</TABLE>
