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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
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 June 30, 1998
---------------------------------
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
------------------------------------------------------------------
(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 July 31, 1998
--------------------------- ----------------------------
Common Shares, $1 par value 31,733,362 Shares
Series A Common Shares, $1 par value 40,000,000 Shares
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<PAGE>
AERIAL COMMUNICATIONS, INC.
---------------------------
2nd QUARTER REPORT ON FORM 10Q
------------------------------
INDEX
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Page No.
--------
Part I. Financial Information
Management's Discussion and Analysis of
Results of Operations and Financial Condition 2-9
Consolidated Statements of Operations -
Three Months and Six Months Ended June 30,
1998 and 1997 10
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997 11
Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997 12
Notes to Consolidated Financial Statements 13-15
Part II. Other Information 16-17
Signatures 18
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------
AERIAL COMMUNICATIONS, INC.
---------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
-------------------------------------------------------------
AND FINANCIAL CONDITION
-----------------------
RESULTS OF OPERATIONS
- ---------------------
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 substantially less revenues and expenses in the first half of 1997.
In addition, significant efforts to build-out the Company's network
infrastructure continued throughout the second half of 1997.
The Company's focus in 1998 has been the completion of its PCS networks and the
development of its PCS business. Following is a table of summarized operating
data for the Company's consolidated operations.
<TABLE>
<CAPTION>
Six Months Ended or At June 30,
-------------------------------
1998 1997
---- ----
<S> <C> <C>
Total MTA population (in millions) 27.6 27.6
Customers 204,000 28,000
Average revenue per customer (year to date) $53 N/M
Average revenue per customer (quarter to date) $51 N/M
MTA penetration 0.74% 0.10%
MTAs in operation 6 6
Cell sites in service 1,133 600
Total number of employees 1,451 1,090
<FN>
N/M - not meaningful
</FN>
</TABLE>
2
<PAGE>
Six Months Ended 6/30/98 Compared to Six Months Ended 6/30/97
Operating Revenues
- ------------------
Operating revenues totaled $67.4 million in 1998, an increase of $60.3 million
as compared to 1997. The increase in operating revenues is reflective of the
Company's launch of service between March and June of 1997 and the subsequent
significant efforts to build its customer base.
Service revenue primarily consists of i) charges for access, air time and
value-added services provided to the Company's customers who use the network
operated by the Company (local service revenue); ii) charges to customers of
other wireless carriers who use the Company's PCS network when roaming
(outcollect roaming revenue); and iii) charges for long-distance calls made on
the Company's systems (long distance revenue). Service revenue totaled $52.9
million in 1998, an increase of $51.8 million as compared to 1997. The increase
was driven by increases in local and long distance revenue as a result of the
growth in the number of customers using the Company's PCS network during 1998 as
compared to 1997. As of June 30, 1998, the Company had 204,000 customers and had
been providing service in all of its markets throughout the entire first half of
1998. As of June 30, 1997, the Company had 28,000 customers, after launching
service in all markets between late March and late June of 1997.
The Company's average revenue per customer ("ARPU") was $53 and $51 for the six
months and three months ended June 30, 1998, respectively. It is expected that
ARPU will continue to decline somewhat before stabilizing as the Company
continues to add more moderate wireless users.
Equipment sales revenue represents the sale of handsets and related accessories
to retailers, independent agents, and end user customers. Equipment sales
totaled $14.5 million in 1998, an increase of $8.5 million as compared to 1997.
The increase in Equipment sales revenue reflects the sale of 147,000 handsets in
1998 as compared to 47,000 in 1997. The increased sales volume was partially
offset by a decline in handset prices.
Operating Expenses
- ------------------
Operating expenses totaled $204.2 million in 1998, an increase of $123.8 million
as compared to 1997. The increase in operating expenses is reflective of the
Company's launch of service between March and June of 1997 and the subsequent
significant efforts to build its customer base.
System operations expense totaled $32.6 million in 1998, an increase of $27.7
million as compared to 1997. The increase in system operations expense is due to
the increasing size of the Company's network and its fully operational status
during the first half of 1998 as compared to the first half of 1997. As of June
30, 1998, the Company's PCS network had 1,133 cell sites in service and had been
operational in all of the Company's markets throughout the entire first half of
1998. As of June 30, 1997, the network had approximately 600 cell sites and had
become operational across all markets between late March and late June of 1997.
3
<PAGE>
Customer usage expense increased $10.3 million in 1998 due primarily to
increased landline interconnection and toll charges, reflecting an increasing
customer base and increased use of the Company's network by its customers.
Significant system operations expenses include cell site rent expense and system
maintenance expense which increased $4.8 million and $3.2 million, respectively,
in 1998 as compared to 1997. Salaries and other employee related expenses
increased $6.2 million, primarily reflecting an increase in engineering and
maintenance personnel since June 30, 1997, as well as a decrease in internal
labor costs capitalized. Other systems operations expenses increased $3.2
million and include charges such as cell site utility expense, vehicle and other
maintenance expense and roamer fraud expense.
Marketing and selling expense totaled $35.4 million in 1998, an increase of
$19.5 million as compared to 1997. Significant Marketing and selling expenses
include the salaries, benefits and other employee related expenses for sales and
marketing personnel, which increased $8.1 million in 1998, primarily reflecting
an increase in sales and marketing personnel since June 30, 1997. Sales
commissions increased $3.4 million in 1998, reflecting the Company's growing
customer base. Retail store rental costs increased $2.3 million in 1998
primarily due to the Company's increasing number of store and kiosk locations
across its markets. Other Marketing and selling expense items increased $5.7
million in aggregate, primarily driven by increases in consulting, temporary
service, advertising and other sales expenses.
Customer service expense totaled $23.6 million in 1998, an increase of $21.3
million as compared to 1997. The increase was driven by rapid customer growth,
and the efforts to manage that growth with personnel and new and evolving
information systems. The higher than anticipated level of customer service
expense reflects primarily the effects of higher than planned customer churn and
related bad debt costs as well as additional consulting and temporary service
expenses directed at reducing both customer churn and bad debts.
Cost of equipment sold totaled $43.4 million in 1998, an increase of $28.4
million as compared to 1997. The increase primarily reflects the growth in
handset unit sales to support the rise in customer activations.
General and administrative expense totaled $28.2 million in 1998, a decrease of
$2.4 million as compared to 1997. General and administrative expenses include
the costs of operating the Company's local business offices and its corporate
expenses other than the corporate engineering and marketing departments. The
decrease is attributable to the Company being a development stage company in the
first quarter of 1997 and classifying all operating expenses as either General
and administrative or Development costs. Effective in the second quarter of
1997, the Company prospectively began classifying expenses to reflect its
operational status.
Depreciation expense was $37.2 million in 1998, an increase of $32.0 million as
compared to 1997. The increase is due to rising fixed asset balances as a result
of the Company's network buildout. As of June 30, 1998, the Company had $667.6
million of property and equipment in service which had largely been operational
throughout the entire first half of 1998. As of June 30, 1997, the Company had
$453.9 million of property and equipment in service, the PCS network portion of
which had been in operation for less than half of the period.
4
<PAGE>
Amortization expense was $3.8 million in 1998, an increase of $3.1 million as
compared to 1997. Upon the commencement of service in a particular market, the
Company began amortizing that market's related PCS license. Aerial launched
service across all its markets between late March and late June of 1997. As a
result, year to date consolidated amortization expense in 1997 reflects less
than a full quarter's expense. In 1998, all markets were operational the entire
first half of the year resulting in greater amortization expense.
Development costs totaled $5.8 million in 1997 and primarily represent
pre-launch marketing, consulting and legal costs. Effective in the second
quarter of 1997, the Company was no longer a development stage entity and
prospectively began classifying expenses to reflect its operational status.
Operating (Loss)
- ----------------
Operating (Loss) totaled $(136.8) million in 1998, an increase of $63.5 million
as compared to 1997. Although service revenues are expected to continue to grow
during the remainder of 1998 as the Company builds its customer base, the
Company expects to continue to have operating losses and to generate negative
cash flow in 1998 and for the next few years as it incurs costs associated with
that growth.
Interest and Income Taxes
- -------------------------
Interest expense-affiliate totaled $29.8 million in 1998, an increase of $26.9
million as compared to 1997. Interest expense-affiliate represents interest on
amounts borrowed under the Revolving Credit Agreement with TDS and the 3%
guarantee fees associated with the Series A and Series B Zero Coupon Notes, less
capitalized interest. The average balance of borrowings under the Revolving
Credit Agreement was greater in 1998 as compared to 1997, resulting in greater
interest expense. Additionally, the Company capitalized $2.6 million less in
interest in 1998 as compared to 1997.
Interest expense-other totaled $8.4 million in 1998, an increase of $7.3 million
as compared to 1997. Interest expense-other relates to interest expense accreted
on the Series A Zero Coupon Notes issued in November 1996 and the Series B Zero
Coupon Notes issued in February 1998 as well as interest expense associated with
interim financing under the Nokia 1996 Credit Agreement, less capitalized
interest. The increase is primarily due to the average balance of Long-term debt
outstanding during 1998 being greater than the average balance outstanding
during 1997. Additionally, the Company capitalized $2.9 million less in interest
in 1998 as compared to 1997.
Income taxes -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.
5
<PAGE>
Net (Loss) and (Loss) Per Common and Series A Common Share
- ----------------------------------------------------------
Net (Loss) totaled $(176.4) million in 1998 and $(77.8) million in 1997. Net
(Loss) per Common and Series A Common Share was $(2.46) in 1998 and $(1.09) in
1997. The increase in the Company's Net Loss and Net Loss per Common and Series
A Common Share in 1998 reflects the Company's fully operational status during
the entire first half of 1998 as compared to the Company's start-up status
through the first quarter of 1997.
Three Months Ended 6/30/98 Compared to Three Months Ended 6/30/97
Operating Revenues
- ------------------
Operating revenues totaled $36.7 million in 1998, an increase of $29.5 million
as compared to 1997. Service revenues totaled $28.9 million and equipment sales
totaled $7.8 million in 1998, increases of $27.6 million and $1.9 million,
respectively, as compared to the second quarter of 1997. The increase in
operating revenues reflects the Company's fully operational status during the
entire second quarter of 1998 as compared to the Company launching service
across all its markets between late March and late June of 1997.
Operating Expenses
- ------------------
Operating expenses were $104.2 million in 1998, an increase of $45.4 million as
compared to 1997. With the exception of Marketing and selling expense, the
increase is for reasons generally the same as the first half of 1998.
Marketing and selling expense was $18.0 million in 1998, an increase of $2.0
million as compared to the second quarter of 1997. Salaries, benefits and other
employee related expenses increased $2.9 million, rent expense increased $1.2
million, sales commissions increased $1.1 million and other sales expenses
increased $2.0 million in 1998. These increases were partially offset by a
decrease in advertising expense of $5.2 million in 1998. The decrease is due to
the significant amount of advertising expense the Company incurred as part of
its aggressive marketing campaign in the second quarter of 1997 that accompanied
the launch of service.
Net (Loss) and (Loss) Per Common and Series A Common Share
- ----------------------------------------------------------
Net (Loss) totaled $(89.5) million in 1998 and $(55.5) million in 1997. Net
(Loss) per Common and Series A Common Share was $(1.25) in 1998 and $(0.78) in
1997. The increase in the Company's Net Loss and Net Loss per share in 1998
reflects the Company's fully operational status in during the entire second
quarter of 1998. In 1997, the Company launched service in all its markets
between late March and late June.
6
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The costs of development, construction, start-up and post-launch activities of
the Company require substantial capital. From inception through June 30, 1998,
the Company had expended $304.4 million for its licenses, including capitalized
interest, $691.4 million for all other capital expenditures and incurred
cumulative net losses of $469.3 million. The Company expects to continue to
incur operating losses and generate negative cash flow from operating activities
during the next few years as it continues to build its customer base.
Cash flows used by operating activities were $118.8 million during 1998 as
compared to $86.1 million in 1997. Operating cash outflow (operating loss before
depreciation and amortization expense) totaled $95.8 million in 1998 as compared
to $67.4 million in 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 $23.0
million in 1998 as compared to $18.7 million in 1997.
Cash flows from financing activities totaled $162.6 million in 1998 as compared
to $213.0 million in 1997. Cash provided in 1998 was due primarily to $161.8
million in borrowings under the Revolving Credit Agreement. In 1997, borrowings
under the Revolving Credit Agreement provided $210.2 million.
Cash flows used in investing activities totaled $46.9 million in 1998 as
compared to $158.4 million in 1997. Cash used in 1998 and 1997 was due primarily
to additions to property and equipment for PCS network and information system
assets. Fixed asset additions were financed primarily by borrowings under the
Revolving Credit Agreement with TDS and the Series A and Series B Zero Coupon
Notes.
The Company anticipates that the continuing development of its PCS services will
require substantial capital over the next few years. For all of 1998 the Company
estimates that the funds required for construction expenditures will total
approximately $80 to $100 million. The Company estimates requiring $255 million
for working capital requirements to fund operations for all of 1998.
Nokia Telecommunications Inc. ("Nokia") agreed to provide the Company with up to
$200 million in financing for digital radio channel and switching infrastructure
equipment through a Credit Agreement with the Company dated June 19, 1996 ("1996
Credit Agreement"). In accordance with the provisions of the 1996 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 1996 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. On February 5, 1998,
the Company issued $222.0 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 1996 Credit Agreement). The
aggregate issue price of the Series A and Series B Zero Coupon Notes was $200
million. The proceeds were paid to Nokia in satisfaction of all then outstanding
and future obligations of the Company up to $200 million under the 1996 Credit
Agreement.
7
<PAGE>
On June 30, 1998, the Company and Nokia entered into an agreement ("1998 Credit
Agreement") in which Nokia will provide up to an aggregate $150 million in
financing to the Company for the purchase of network infrastructure equipment
and services from Nokia. Loans under the 1998 Credit Agreement are to be made
available in two $75 million tranches. With respect to Tranche A, the Company
may borrow up to $75 million until June 30, 1999. Tranche A loans mature on June
30, 1999, however, the maturity date of Tranche A loans may be extended to June
30, 2000, upon written notice and payment of an extension fee by the Company to
Nokia. A second $75 million ("Tranche B") becomes available commencing on June
30, 1999, and ending on June 30, 2000, the maturity date of Tranche B loans. The
obligations of the Company under the 1998 Credit Agreement are fully and
unconditionally guaranteed by TDS at an annual fee rate of 3% (See Note 6 -
Vendor Financing for further discussion). As of June 30, 1998, the Company had
$57.8 million available for borrowing under the Tranche A portion of the 1998
Credit Agreement with Nokia.
On June 1, 1998, the Company and Sonera Corporation ("Sonera"), formerly Telecom
Finland Ltd., signed a definitive purchase agreement under which Sonera will
make a $200 million investment in Aerial Operating Co., Inc. ("AOC"), a
wholly-owned subsidiary of the Company. Upon closing, Sonera will purchase
approximately 2.4 million shares of common stock of AOC at a purchase price of
approximately $83 per share representing a 19.423% equity interest in AOC (See
Note 7- Minority Investor for further discussion).
At June 30, 1998, the Company had borrowed $610.1 million under its Revolving
Credit Agreement with TDS. During the second quarter of 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. The Revolving Credit Agreement
authorizes increases on a scheduled basis to $640 million at June 30, 1998,
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 (See Note 7 - Minority
Investor), and the amount of any proceeds from the issuance by the Company of
any debt to any third party, will be used to reduce the borrowings under the
Revolving Credit Agreement as well as reduce the total amount the Company may
borrow under the Revolving Credit Agreement. Additionally, any borrowings under
vendor financing arrangements (See Note 6 - Vendor Financing) concurrently
reduces by the same amount the authorized total line of credit available to the
Company under the Revolving Credit Agreement. As of June 30, 1998, the Company
had $12.7 million available for borrowing under the Revolving Credit Agreement
with TDS, net of $17.2 million in vendor financing under the 1998 Credit
Agreement with Nokia.
The Company believes its capital resources will be sufficient to fund its
capital expenditures and cover operating losses through the end of the year. If
sufficient future funding is not available 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.
8
<PAGE>
TRACKING STOCK PROPOSAL
- -----------------------
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, pursuant to a
merger between the Company and a TDS subsidiary (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.
9
<PAGE>
<TABLE>
AERIAL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
---------
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Service $ 28,852 $ 1,182 $ 52,935 $ 1,182
Equipment sales 7,836 5,961 14,499 5,961
--------- --------- --------- ---------
Total Operating Revenues 36,688 7,143 67,434 7,143
OPERATING EXPENSES
System operations 17,593 4,876 32,609 4,876
Marketing and selling 17,974 15,958 35,406 15,958
Customer service 12,752 2,364 23,651 2,364
Cost of equipment sold 20,573 14,972 43,393 14,972
General and administrative 14,014 14,037 28,210 30,564
Depreciation 19,356 5,161 37,163 5,161
Amortization of intangibles 1,888 722 3,777 722
Development costs -- 686 -- 5,773
--------- --------- --------- ---------
Total Operating Expenses 104,150 58,776 204,209 80,390
--------- --------- --------- ---------
OPERATING (LOSS) (67,462) (51,633) (136,775) (73,247)
INVESTMENT AND OTHER INCOME (EXPENSE)
Investment (losses) -- (583) -- (1,052)
Interest income-affiliate -- -- -- 95
Interest income-other 303 810 663 1,932
Other (expense) (1,009) -- (337) --
--------- --------- --------- ---------
Total Investment and Other Income (Expense) (706) 227 326 975
--------- --------- --------- ---------
(LOSS) BEFORE INTEREST AND INCOME TAXES (68,168) (51,406) (136,449) (72,272)
INTEREST EXPENSE
Interest expense-affiliate 16,169 2,286 29,842 2,920
Interest expense-other 4,251 696 8,358 1,098
--------- --------- --------- ---------
Total Interest Expense 20,420 2,982 38,200 4,018
--------- --------- --------- ---------
(LOSS) BEFORE INCOME TAXES (88,588) (54,388) (174,649) (76,290)
Income tax expense 886 1,087 1,746 1,525
--------- --------- --------- ---------
NET (LOSS) ($89,474) ($55,475) ($176,395) ($77,815)
========= ========= ========= =========
WEIGHTED AVERAGE COMMON AND
SERIES A COMMON SHARES (000s) 71,730 71,499 71,683 71,442
(LOSS) PER COMMON AND
SERIES A COMMON SHARE ($1.25) ($0.78) ($2.46) ($1.09)
========= ========= ========= =========
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
</FN>
</TABLE>
10
<PAGE>
<TABLE>
AERIAL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
---------
<CAPTION>
Six Months ended
June 30,
-----------------
1998 1997
---- ----
(Dollars in Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) ($176,395) ($77,815)
Add (Deduct) adjustments to reconcile net (loss)
to net cash (used) by operating activities
Depreciation and amortization 40,940 5,883
Noncash interest expense - Series A & B Notes 7,565 4,061
Deferred taxes 1,746 1,526
Loss on sale of property and equipment 420 1,052
Change in accounts receivable-customer (2,498) (5,138)
Change in inventory 13,188 (9,743)
Change in accounts payable-affiliates 18 1,472
Change in accounts payable-trade (7,754) (8,880)
Change in accrued interest-affiliate 1,320 1,485
Change in other assets and liabilities 2,665 (49)
--------- ---------
(118,785) (86,146)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in Revolving Credit Agreement-TDS 161,831 210,201
Change in note receivable-other -- 1,925
Issuance of common stock 816 914
--------- ---------
162,647 213,040
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (48,061) (157,702)
Proceeds from sale of property and equipment 298 --
Change in temporary cash and other investments 868 (654)
--------- ---------
(46,895) (158,356)
--------- ---------
NET (DECREASE) IN CASH AND CASH
EQUIVALENTS (3,033) (31,462)
CASH AND CASH EQUIVALENTS-
Beginning of period 5,012 35,284
--------- ---------
End of period $ 1,979 $ 3,822
========= =========
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
</FN>
</TABLE>
11
<PAGE>
<TABLE>
AERIAL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Unaudited)
June 30, 1998 December 31, 1997
------------- -----------------
(Dollars in Thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,979 $ 5,012
Temporary cash investments 117 197
Accounts receivable
Customer, less allowance of $17,709 and $7,252, respectively 26,528 24,030
Roaming 703 --
Affiliates 8 22
Other 367 185
Inventory 12,761 25,949
Prepaid rent 2,908 1,630
Other 1,609 984
----------- ----------
46,980 58,009
----------- ----------
PROPERTY and EQUIPMENT
Property and equipment-net of accumulated
depreciation of $75,102 and $38,018, respectively 592,503 584,723
Work in process 22,942 19,381
----------- ----------
615,445 604,104
----------- ----------
INVESTMENTS
Investment in PCS licenses-net of
accumulated amortization of $8,266 and $4,489, respectively 293,266 297,043
Other 510 1,298
----------- ----------
293,776 298,341
----------- ----------
DEFERRED COSTS 1,197 194
----------- ----------
TOTAL ASSETS $ 957,398 $ 960,648
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable
Affiliates $ 791 $ 773
Trade 47,453 92,020
Accrued interest-affiliate 4,985 3,665
Accrued compensation 5,353 3,414
Accrued taxes 4,248 1,957
Microwave relocation costs payable 8,221 7,354
Other 2,762 586
----------- ----------
73,813 109,769
----------- ----------
REVOLVING CREDIT AGREEMENT-TDS 610,065 448,234
----------- ----------
LONG TERM DEBT 241,147 196,439
----------- ----------
DEFERRED TAX LIABILITY-NET 15,525 13,779
----------- ----------
COMMON SHAREHOLDERS' EQUITY
Common Shares, par value $1.00 per share 31,733 31,611
Series A Common Shares, par value $1.00 per share 40,000 40,000
Additional paid-in capital 414,440 413,746
Retained deficit (469,325) (292,930)
----------- ----------
16,848 192,427
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 957,398 $ 960,648
=========== ==========
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
</FN>
</TABLE>
12
<PAGE>
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 June 30, 1998, and December 31,
1997, the results of operations for the six and three months ended June 30,
1998 and 1997, and the cash flows for the six months ended June 30, 1998
and 1997. The results of operations for the six and three months ended June
30, 1998 and 1997, are not necessarily indicative of the results to be
expected for the full year.
Certain amounts reported in prior periods have been reclassified to conform
to the current period presentation.
2. Net (Loss) per Common and Series A Common Share for the six and three
months ended June 30, 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 six and three months ended June 30, 1998 and 1997.
4. Supplemental Cash Flow Information. Additions to Property and equipment of
$38.0 million were financed through a $0.9 million increase in Microwave
relocation costs payable and a $37.1 million increase in Long-term debt.
In the first half of 1998, the Company incurred interest charges totaling
$38.3 million. The interest charges were comprised of $26.8 million related
to the Revolving Credit Agreement with TDS, $3.1 million for TDS guarantee
fees on the Series A and Series B Zero Coupon Notes and obligations under
the Nokia 1996 Credit Agreement, $0.4 million paid to Nokia for interest
charges relating to the 1996 Credit Agreement, $7.5 million in accreted
interest on the Series A and Series B Zero Coupon Notes and $0.5 million in
other interest charges. Of these amounts, the Company capitalized $0.1
million relating to its work in process expenditures. The remaining $38.2
million was charged to expense.
During the first half of 1997, the Company incurred interest charges of
$9.6 million. The interest charges were comprised of $4.0 million relating
to the Revolving Credit Agreement with TDS, $1.5 million for TDS guarantee
fees on the Series A Zero Coupon Notes and $4.1 million in accreted
interest on the Series A Zero Coupon Notes. Of these amounts, the Company
capitalized $5.6 million relating to its work in process expenditures. The
remaining $4.0 million was charged to expense. The Company converted $1.5
million in accrued TDS guarantee fees to debt under the Revolving Credit
Agreement in the first half of 1997.
13
<PAGE>
5. Development Stage Company. Effective in the second quarter of 1997, the
Company ceased to be a development stage company and presents subsequent
results of operations, cash flows and financial position in a manner
similar to other operating enterprises within the industry.
6. Vendor Financing. On June 30, 1998, the Company and Nokia
Telecommunications Inc. ("Nokia") entered into an agreement ("1998 Credit
Agreement") in which Nokia will provide up to an aggregate $150 million in
financing to the Company for the purchase of network infrastructure
equipment and services from Nokia. Loans under the 1998 Credit Agreement
are to be made available in two $75 million tranches. With respect to
Tranche A, the Company may borrow up to $75 million until June 30, 1999.
Tranche A loans mature on June 30, 1999, however, the maturity date of
Tranche A loans may be extended to June 30, 2000, upon written notice and
payment of an extension fee by the Company to Nokia. A second $75 million
("Tranche B") becomes available commencing on June 30, 1999, and ending on
June 30, 2000, the maturity date of Tranche B loans. Interest under the
1998 Credit Agreement is payable monthly at a per annum rate equal to the
30 day London Interbank Offered Rate ("LIBOR") plus 0.25% (the "Eurodollar
margin"). The Eurodollar margin on any Tranche A loans with an extended
maturity date is subject to adjustment based on ratings for TDS long-term
senior unsecured debt.
The obligations of the Company under the 1998 Credit Agreement are fully
and unconditionally guaranteed by TDS at an annual fee rate of 3%.
Guarantee fees owed TDS are payable semiannually. Of the $241.1 million in
Long-term debt at June 30, 1998, $17.2 million represents borrowings under
the 1998 Credit Agreement, with the balance representing the Series A and
Series B Zero Coupon Notes, including accreted interest.
7. Minority Investor. On June 1, 1998, the Company and Sonera Corporation
("Sonera"), formerly Telecom Finland Ltd., signed a definitive purchase
agreement under which Sonera will make a $200 million investment in Aerial
Operating Co., Inc. ("AOC"), a wholly-owned subsidiary of the Company. Upon
closing, Sonera will purchase approximately 2.4 million shares of common
stock of AOC at a purchase price of approximately $83 per share
representing a 19.423% equity interest in AOC. The Aerial equivalent price
per share and Aerial equivalent equity ownership percentage for Sonera are
subject to adjustment based on Aerial's 20-day average stock price during
the three years commencing the day of closing. Depending on the stock
price, Sonera's equivalent equity ownership amount in Aerial could range
from 18.452% based on a low price of $12.33 per equivalent Aerial share to
14.329% based on a high price of $16.68 per equivalent Aerial share. In
addition, after five years Sonera's equity in Aerial Operating Company
becomes incrementally exchangeable for equity in Aerial Communications,
Inc. or, in certain circumstances, incrementally exchangeable for equity in
Telephone and Data Systems, Inc. or cash. The purchase agreement is subject
to regulatory approval.
8. 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. During the second
quarter of 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. The Revolving Credit Agreement authorizes increases on a scheduled
basis to $640 million on June 30, 1998, 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 (See Note 7- Minority Investor), and the amount
of any proceeds from the issuance by the Company of any debt to any third
party, will be used to reduce the borrowings under the Revolving Credit
Agreement as well as reduce the total amount the Company may borrow under
the Revolving Credit Agreement. Additionally, any borrowings under vendor
financing arrangements (See Note 6 - Vendor Financing) concurrently reduces
by the same amount the authorized total line of credit available to the
Company under the Revolving Credit Agreement. The total amount advanced to
the Company under the Revolving Credit Agreement as of June 30, 1998 was
$610.1 million.
14
<PAGE>
9. Commitments. At June 30, 1998, the Company had orders totaling
approximately $5.6 million with Nokia Telecommunications Inc. for network
infrastructure equipment. Also, at June 30, 1998, the Company had orders
totaling approximately $13.6 million with various handset vendors for
handsets and accessories.
10. Tracking Stock Proposal. 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, pursuant to a merger between the Company and a
TDS subsidiary (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.
15
<PAGE>
PART II. OTHER INFORMATION
--------------------------
Item 4. Submission of Matters to a Vote of Security-Holders.
At the Annual Meeting of Shareholders of Aerial Communications, Inc., held
on May 11, 1998, the following number of votes were cast for the matters
indicated:
1. Election of one Class I Director of the Company by the holders of Common
Shares:
<TABLE>
<CAPTION>
Broker
Nominee For Withhold Non-vote
------- --- -------- --------
<S> <C> <C> <C>
John D. Foster 27,379,427 274,194 -0-
</TABLE>
2. Election of three Class I Directors of the Company by the holder of Series A
Common Shares:
<TABLE>
<CAPTION>
Broker
Nominee For Withhold Non-vote
------- --- -------- --------
<S> <C> <C> <C>
LeRoy T. Carlson, Jr. 600,000,000 -0- -0-
Rudolph E. Hornacek 600,000,000 -0- -0-
Donald W. Warkentin 600,000,000 -0- -0-
</TABLE>
3. The proposal to approve the Company's amendment to the 1996 Long-term
Incentive Plan:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-vote
--- ------- ------- --------
<S> <C> <C> <C> <C>
Series A
Common Shares 600,000,000 -0- -0- -0-
Common Shares 27,051,425 571,517 30,679 -0-
Total 627,051,425 571,517 30,679 -0-
</TABLE>
4. The proposal to ratify the selection of Arthur Andersen LLP as the Company's
Independent Public Accountants for the year ended December 31, 1998:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-vote
--- ------- ------- --------
<S> <C> <C> <C> <C>
Series A
Common Shares 600,000,000 -0- -0- -0-
Common Shares 27,522,433 100,235 30,953 -0-
Total 627,522,433 100,235 30,953 -0-
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 10.18 - Fourth Amendment to the Revolving Credit Agreement by
and between Telephone and Data Systems, Inc. and Aerial Communications,
Inc.
Exhibit 11 - Computation of earnings per common share.
Exhibit 27 - Financial Data Schedule.
16
<PAGE>
(b) Reports on Form 8-K filed during the quarter ended June 30, 1998.
The Company filed on April 29, 1998, a Current Report on Form 8-K dated
February 5, 1998, for purpose of filing the Trust Indenture Agreement
dated February 5, 1998, between the Company, as issuer, Telephone and
Data Systems, Inc., as guarantor and The First National Bank of
Chicago, as trustee related to the $219,975,000 Series B Zero Coupon
Notes Due 2008.
The Company filed on June 16, 1998, a Current Report on Form 8-K dated
June 1, 1998, for purpose of filing a Purchase Agreement entered into
on June 1, 1998, between Aerial Communications, Inc., APT Operating
Company Inc. (renamed Aerial Operating Co., Inc.), a wholly owned
subsidiary of the Company, Telephone and Data Systems, Inc., the parent
corporation of the Company and Sonera Corporation, a limited liability
company organized under the laws of Finland and formerly known as
Telecom Finland Ltd.
17
<PAGE>
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 August 10, 1998 /s/ Donald W. Warkentin
------------------- -----------------------------------------
Donald W. Warkentin
President
(Chief Executive Officer)
Date August 10, 1998 /s/ J. Clarke Smith
------------------- -----------------------------------------
J. Clarke Smith
Vice President-Finance and Administration
(Chief Financial Officer)
Date August 10, 1998 /s/ B. Scott Dailey
------------------- -----------------------------------------
B. Scott Dailey
Controller
(Principal Accounting Officer)
18
<PAGE>
Exhibit 10.18
Fourth Amendment
to the
Revolving Credit Agreement
by and between
Telephone and Data Systems, Inc. and Aerial Communications, Inc.
This Fourth Amendment (the "Fourth Amendment") to the Revolving Credit Agreement
dated as of August 1, 1995, as previously amended (the "Revolving Credit
Agreement") by and between Telephone and Data Systems, Inc. ("TDS"), an Iowa
corporation, and Aerial Communications, Inc., formerly known as American
Portable Telecommunications ("Company"), a Delaware corporation, is effective as
of this 11th day of May, 1998.
WHEREAS TDS and the Company entered into that certain Revolving Credit
Agreement, dated and made effective as of August 1, 1995, which Revolving Credit
Agreement was subsequently amended pursuant to amendment agreements respectively
dated as of December 31, 1995, August 7, 1997 and August 29, 1997; and
WHEREAS TDS continues to own certain of the issued and outstanding shares of the
capital stock of the Company; and
WHEREAS, the Company has identified a need for additional funds and TDS has
agreed to provide the Company certain additional funds for specified purposes
under terms more particularly set forth in the Revolving Credit Agreement as
heretofore amended and as proposed to be amended hereby; and
NOW, THEREFORE, in consideration of the premises set forth above, and for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound, TDS and the Company agree to
further amend the Revolving Credit Agreement as follows:
1. All references to "$425,000,000.00" shall be changed to
references to the "Applicable Maximum Amount".
2. The following definition shall be added to Section 10(b) in
the appropriate alphabetical location:
"Applicable Maximum Amount" shall mean, as of any
date of determination the dollar amount set forth in Schedule
I hereto and pertaining to the period during which such date
occurs, minus the aggregate principal amount of all
prepayments required to be paid pursuant to the last sentence
of Section 2.
3. Schedule I to this Fourth Amendment shall be added to the
Revolving Credit Agreement as Schedule I thereto.
4. Section 2 is amended to add the following provision to the
end of such section:
Notwithstanding the foregoing, the aggregate outstanding
principal balance of the loans shall be prepaid by the Company
concurrently with the Company's receipt of all proceeds of
debt or equity securities issued by the Company to, or loans
or advances made to or for the benefit of the Company by, any
person or entity other than TDS or any affiliate of TDS, which
prepayments shall be made by the Company in amounts equal to
the gross proceeds of such securities, loans or advances net
of all reasonable expenses and fees paid by the Company in
connection with the closing of such transaction.
<PAGE>
5. All references to the termination date of December 31, 1998,
and the phrase "the second anniversary of the date hereof" as
such phrase appears in Section 1, shall be changed to December
31, 1999.
6. The following provision shall be added to the end of
Section 5:
Notwithstanding anything in this Revolving Credit Agreement to
the contrary, in the event that TDS's direct ownership of the
outstanding voting equity securities of the Company shall be
less than 70% (computed on a fully-diluted basis), TDS's
commitment to make additional loans hereunder shall expire on
the 180th day immediately following the date of such event.
7. The requirements of Section 7(b) (2) are waived for the
period ending December 31, 1999.
8. Section 7(b)(3) is amended to delete clause (ii) thereof in
its entirety and to replace such clause with the following
clause:
(ii) indebtedness of the Company or which is guaranteed by the
Company if, as to the Company's obligations thereunder, such
indebtedness is subordinate to all borrowings and other
obligations of the Company under this Revolving Credit
Agreement pursuant to terms, conditions and subordination
agreements acceptable to TDS, unless otherwise waived in
writing by TDS;
All other terms and conditions of the Revolving Credit Agreement shall remain
unchanged and in full force and effect. All defined terms contained in the
Revolving Credit Agreement hereby are incorporated into this Fourth Amendment
and shall have the same meaning herein as in the Revolving Credit Agreement
unless otherwise defined herein.
IN WITNESS WHEREOF, the parties hereto, by their duly authorized
representatives, have executed this Fourth Amendment to the Revolving Credit
Agreement, effective as of the date first written above.
Telephone and Data Systems, Inc. Aerial Communications, Inc
By: /s/ Murray L. Swanson By: /s/ J. Clarke Smith
----------------------------- ------------------------
Name: Murray L. Swanson Name: J. Clarke Smith
Title: Executive Vice President-Finance Title: Vice President-
Finance & Administration
Date: May 21, 1998 Date: May 27, 1998
-------------------------- ---------------------
<PAGE>
<TABLE>
SCHEDULE 1
TO
FOURTH AMENDMENT
<CAPTION>
Applicable
Maximum
As of Amount
------------------------------------------------
<S> <C>
May 11, 1998 $605,000,000
June 30, 1998 $640,000,000
July 31, 1998 $670,000,000
August 31, 1998 $700,000,000
September 30, 1998 $725,000,000
October 31, 1998 and thereafter $750,000,000
</TABLE>
<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 June 30, 1998 1997
- --------------------------- ---- ----
<S> <C> <C>
Basic Earnings Per Common Share:
Net (Loss) $ (89,474) $ (55,475)
========= =========
Weighted average number of Common and Series A
Common Shares Outstanding (1) 71,730 71,499
========= =========
Basic Earnings Per Common Share
Net (Loss) $ (1.25) $ (0.78)
========= =========
Diluted Earnings Per Common Share (2):
Net (Loss) $ (89,474) $ (55,475)
========= =========
Weighted average number of Common and Series A
Common Shares Outstanding (1) 71,730 71,499
========= =========
Diluted Earnings Per Common Share
Net (Loss) $ (1.25) $ (0.78)
========= =========
Six Months Ended June 30, 1998 1997
- ------------------------- ---- ----
Basic Earnings Per Common Share:
Net (Loss) $(176,395) $ (77,815)
========= =========
Weighted average number of Common and Series A
Common Shares Outstanding (1) 71,683 71,442
========= =========
Basic Earnings Per Common Share
Net (Loss) $ (2.46) $ (1.09)
========= =========
Diluted Earnings Per Common Share (2):
Net (Loss) $(176,395) $ (77,815)
========= =========
Weighted average number of Common and Series A
Common Shares Outstanding (1) 71,683 71,442
========= =========
Diluted Earnings Per Common Share
Net (Loss) $ (2.46) $ (1.09)
========= =========
<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>
<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 June 30,
1998, and for the six months then ended, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,979
<SECURITIES> 0
<RECEIVABLES> 44,237
<ALLOWANCES> 17,709
<INVENTORY> 12,761
<CURRENT-ASSETS> 46,980
<PP&E> 690,547
<DEPRECIATION> 75,102
<TOTAL-ASSETS> 957,398
<CURRENT-LIABILITIES> 73,813
<BONDS> 241,147
0
0
<COMMON> 71,733
<OTHER-SE> (54,885)
<TOTAL-LIABILITY-AND-EQUITY> 957,398
<SALES> 14,499
<TOTAL-REVENUES> 67,434
<CGS> 43,393
<TOTAL-COSTS> 204,209
<OTHER-EXPENSES> (326)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,200
<INCOME-PRETAX> (174,649)
<INCOME-TAX> 1,746
<INCOME-CONTINUING> (176,395)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (176,395)
<EPS-PRIMARY> (2.46)
<EPS-DILUTED> (2.46)
</TABLE>
