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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 September 30, 1999
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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
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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
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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 November 1, 1999
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Common Shares, $1 par value 41,804,135 Shares
Series A Common Shares, $1 par value 52,924,151 Shares
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<PAGE>
AERIAL COMMUNICATIONS, INC.
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3rd 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 2-12
Consolidated Statements of Operations -
Three Months and Nine Months Ended September 30,
1999 and 1998 13
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1999 and 1998 14
Consolidated Balance Sheets -
September 30, 1999 and December 31, 1998 15
Notes to Consolidated Financial Statements 16-19
Part II. Other Information 20
Signatures 21
<PAGE>
PART I. 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
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RESULTS OF OPERATIONS
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Aerial Communications, Inc. ("Aerial" or the "Company" - NASDAQ symbol: AERL),
an 82.1%-owned subsidiary of Telephone and Data Systems, Inc. ("TDS"), provides
Personal Communications Services ("PCS") in the Minneapolis, Tampa-St.
Petersburg-Orlando, Houston, Pittsburgh, Kansas City and Columbus (Ohio) Major
Trading Areas ("MTAs"). The Columbus MTA launched service on March 27, 1997. The
Company's five remaining MTAs launched service during the second quarter of
1997.
On September 20, 1999, VoiceStream Wireless Corporation ("VoiceStream") and
Aerial announced that their respective Boards of Directors had approved a
definitive agreement to merge the two companies. See the "VoiceStream Merger"
section of "Liquidity and Capital Resources" below for further discussion of the
transaction.
The following is a table of summarized operating data for the Company's
consolidated operations.
<TABLE>
<CAPTION>
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
As of: 1999 1999 1999 1998 1998
- ------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total MTA population (in millions) 27.5 27.5 27.7 27.7 27.6
Total customers 363,100 346,600 331,600 311,900 230,700
Net customer additions (quarter) 16,500 15,000 19,700 81,200 26,700
Churn rate (year to date) 4.7% 4.8% 4.7% 5.5% 5.5%
Churn rate (quarter) 4.6% 4.8% 4.7% 5.1% 5.5%
Average revenue per customer per
month (year to date) $46 $46 $46 $51 $52
Average revenue per customer per
month (quarter) $46 $47 $46 $49 $50
MTA penetration 1.32% 1.26% 1.20% 1.13% 0.84%
Cell sites in service 1,239 1,207 1,180 1,180 1,152
</TABLE>
Through the first nine months of 1999 the Company has experienced a decline in
its net customer growth rate compared to the same period of the previous year.
The Company plans to increase its net customer growth rate through the selective
use of competitive promotions and expansion of third party dealer and Aerial
owned outlets.
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Nine Months Ended 9/30/99 Compared to Nine Months Ended 9/30/98
Operating Revenues
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Operating revenues totaled $162.1 million in 1999, an increase of $56.2 million
as compared to 1998. The increase in operating revenues reflects the growth of
the Company's customer base in the past year as the Company has added 132,400
customers since September 30, 1998.
Service revenue totaled $141.0 million in 1999, an increase of $55.4 million as
compared to 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 (local service revenue). Service revenue also
consists of charges to customers of other wireless carriers who use the
Company's network when roaming (outcollect roaming revenue) and charges for
long-distance calls made on the Company's systems (long-distance revenue). The
increase in 1999 service revenue was driven by the growth in the number of
customers using the Company's network during 1999 as compared to 1998, partially
offset by a decline in average revenue per customer per month ("ARPU"). The
Company's ARPU was $46 for the nine months ended September 30, 1999 as compared
to $52 for the same period in 1998. The decline in ARPU reflects the addition of
more moderate wireless users to the Company's customer base.
Equipment sales revenue represents the sale of handsets and related accessories
to retailers, independent agents, and end user customers. Equipment sales
totaled $21.1 million in 1999, an increase of $0.8 million as compared to 1998.
The increase in equipment sales revenue is due to increases in the sales prices
for handsets (primarily due to product mix changes) partially offset by a modest
decline in the number of handsets sold in 1999 as compared to 1998.
Operating Expenses
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Operating expenses totaled $307.9 million in 1999, an increase of $4.7 million
as compared to 1998. Operating expenses increased across most functional areas
due to the Company's increased level of business activity during 1999 as
compared to 1998. However, these increases were partially offset by a decrease
in customer service expense and a significant decrease in cost of equipment
sold.
System operations expense totaled $58.9 million in 1999, an increase of $8.1
million as compared to 1998. System maintenance expenses increased $3.9 million,
primarily for maintenance service performed on the Company's network. The
Company began incurring charges for these services during the second quarter of
1998. Salaries and benefits for system operations employees increased $2.7
million, reflecting increased headcount, and cell site expense increased $0.5
million due primarily to the addition of 87 cell sites since September 1998.
Marketing and selling expense totaled $60.4 million in 1999, an increase of $8.4
million as compared to 1998. Efforts to increase gross customer additions,
including increases in advertising, promotion and points of distribution (with
associated increase in store rent expense), contributed significantly to the
overall increase in marketing and selling expense.
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<PAGE>
Customer service expense totaled $29.5 million in 1999, a decrease of $9.2
million as compared to 1998. The decrease in customer service expense is
primarily due to a decrease in bad debt expense as a result of improved credit
management processes.
Cost of equipment sold totaled $39.7 million in 1999, a decrease of $19.9
million as compared to 1998. The decrease reflects a significant decline in
handset cost per unit combined with a modest decrease in handsets sold.
General and administrative expense totaled $52.8 million in 1999, an increase of
$11.8 million as compared to 1998. Consulting expense increased $6.9 million due
primarily to costs associated with the Year 2000 Issue. Salaries and wage
expense increased $6.0 million reflecting an increase in personnel since
September 30, 1998.
Depreciation expense was $61.0 million in 1999, an increase of $5.6 million as
compared to 1998. The increase is due to an increase in the Company's fixed
asset balances. As of September 30, 1999, the Company had $763.4 million of
property and equipment in service as compared to September 30, 1998, when the
Company had $668.3 million of property and equipment in service.
Operating (Loss)
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Operating (Loss) totaled $(145.8) million in 1999, a decrease of $51.6 million
as compared to 1998, largely as a result of the increase in operating revenues
in 1999. Although service revenues are expected to continue to grow during the
remainder of 1999 as the Company builds its customer base, the Company expects
to continue to have operating losses and to generate negative cash flow in 2000
as it incurs costs associated with that growth.
Investment and Other Income (Expense)
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Investment and Other Income (Expense) totaled $2.7 million in 1999, a decrease
of $1.9 million as compared to 1998. The decrease is primarily due to
professional fees the Company paid during 1999 related to the proposed spin-off
of the Company as well as the merger with VoiceStream (See Note 9 - VoiceStream
Merger).
Interest and Income Taxes
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Interest expense-affiliate totaled $52.3 million in 1999, an increase of $5.3
million as compared to 1998. In 1999, 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 and the Nokia 1998 Credit Agreement. The 1999 increase is primarily
attributable to an increase in Company debt guaranteed by TDS and an increase in
the interest rate charged under the Revolving Credit Agreement. During the
fourth quarter of 1998 the interest rate charged on the outstanding balance
under the Revolving Credit Agreement was increased from prime rate plus 1.5% to
prime rate plus 3.0%. See also the "VoiceStream Merger" section of "Liquidity
and Capital Resources" below for further discussion of the interest rate under
the Revolving Credit Agreement.
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Interest expense-other totaled $16.0 million in 1999, an increase of $2.9
million as compared to 1998. In 1999, interest expense-other relates to interest
expense accreted on the Series A and Series B Zero Coupon Notes, as well as
interest expense related to the Nokia 1998 Credit Agreement. The average
outstanding balance of long-term debt (including current portions) was greater
in 1999 as compared to 1998, resulting in greater interest expense.
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, as well as a March
12, 1999 tax settlement agreement which resulted in a payment of $114.5 million
from TDS to Aerial. The $114.5 million received by Aerial covered the estimated
tax losses incurred by the Company and used by TDS for the period commencing
from January 1, 1996 through August 31, 1999. The tax settlement agreement
requires the final settlement amount to cover tax losses incurred by Aerial and
used by TDS for the period commencing January 1, 1996 and ending December 31,
1999.
The payment of the $114.5 million by TDS, partially offset by an increase in
deferred income tax expense of $1.8 million, resulted in a net income tax
benefit of $112.7 million for 1999.
Net (Loss) and (Loss) Per Common and Series A Common Share
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Net (loss) totaled $(98.8) million in 1999 and $(255.5) million in 1998. Net
(loss) per Common and Series A Common Share was $(1.37) in 1999 and $(3.56) in
1998. The decrease in the Company's Net (loss) and Net (loss) per Common and
Series A Common Share in 1999 as compared to 1998 is due to increased operating
revenues and the income tax benefit generated by the $114.5 million received by
the Company from TDS related to the tax settlement agreement, partially offset
by an increase in both operating and non-operating expenses.
Three Months Ended 9/30/99 Compared to Three Months Ended 9/30/98
Operating Revenues
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Operating revenues totaled $56.8 million in 1999, an increase of $18.3 million
as compared to 1998. Service revenue totaled $49.1 million in 1999, an increase
of $16.5 million as compared to 1998. The increase in 1999 service revenue was
driven by the growth in the number of customers using the Company's network
during 1999 as compared to 1998 partially offset by a decline in ARPU. The
Company's ARPU was $46 for the three months ended September 30, 1999 as compared
to $50 for the same period in 1998. The decline in ARPU reflects the addition of
more moderate wireless users to the Company's customer base. Equipment sales
totaled $7.7 million in 1999, an increase of $1.9 million as compared to 1998.
The increase in equipment sales revenue reflects an increase in the sales price
for handsets sold in 1999 as compared to 1998 (primarily due to product mix
changes) as well as an increase in total handsets sold.
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<PAGE>
Operating Expenses
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Operating expenses were $105.4 million in 1999, an increase of $6.4 million as
compared to 1998. The increase in operating expenses is for reasons generally
the same as the first nine months of 1999.
Operating (Loss)
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Operating (Loss) totaled $(48.6) million in 1999, a decrease of $12.0 million as
compared to 1998, largely as a result of the increase in operating revenues in
1999 partially offset by an increase in operating expenses.
Investment and Other Income (Expense)
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Investment and Other Income (Expense) totaled $(2.7) million in 1999, a decrease
of $6.9 million as compared to 1998. The decrease is due to a $3.3 million
decrease in the minority share of Aerial Operating Company, Inc.'s ("AOC")
consolidated net loss (due to cumulative allocable losses exceeding original
investments), and for reasons generally the same as the first nine months of
1999.
Interest Expense
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Interest expense totaled $24.3 million in 1999, an increase of $2.4 million as
compared to 1998. The increase in interest expense is for reasons generally the
same as the first nine months of 1999.
Net (Loss) and (Loss) Per Common and Series A Common Share
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Net (loss) totaled $(76.2) million in 1999 and $(79.1) million in 1998. Net
(loss) per Common and Series A Common Share was $(1.06) in 1999 and $(1.10) in
1998. The decrease in the Company's Net (loss) and Net (loss) per Common and
Series A Common Share in 1999 as compared to 1998 is due primarily to increased
operating revenues in 1999 partially offset by an increase in both operating and
non-operating expenses.
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 September 30,
1999, the Company had expended $304.4 million for its six licenses, including
capitalized interest, $794.5 million for all other capital expenditures and
incurred cumulative net losses of $729.6 million. The Company expects to
continue to incur significant operating losses and generate negative cash flow
from operating activities in 2000 as it continues to build its customer base.
Cash flows from operating activities used $33.4 million in 1999 and $173.3
million in 1998. Operating cash outflow (operating loss before depreciation and
amortization expense) totaled $79.1 million in 1999 as compared to $136.3
million in 1998. The March 12, 1999 tax settlement agreement with TDS provided
$114.5 million in 1999 and cash flows from other operating
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<PAGE>
activities (investment and other income, interest expense, changes in working
capital and changes in other assets and liabilities) required $68.8 million in
1999 and required $37.0 million in 1998.
Cash flows from financing activities provided $63.8 million in 1999 and $236.6
million in 1998. Cash provided in 1999 was primarily due to the Company
borrowing $175.8 million under the Revolving Credit Agreement with TDS. The
Company paid $114.5 million to TDS to repay a portion of the outstanding balance
under the Revolving Credit Agreement with the proceeds from the tax settlement
agreement. In 1998, borrowings under the Revolving Credit Agreement provided
$235.8 million. The Company also received $200 million from the sale to Sonera
Corporation, formerly known as Sonera Ltd. ("Sonera"), of a 19.4% equity
interest in AOC. The proceeds from the sale were remitted to TDS to pay down
part of the outstanding balance under the Revolving Credit Agreement.
Cash flows used in investing activities totaled $27.8 million in 1999 as
compared to $63.9 million in 1998. Cash used in 1999 and 1998 was primarily for
additions to property and equipment for PCS network and information system
assets. Fixed asset additions were financed through a combination of borrowings
under the Revolving Credit Agreement with TDS, and proceeds from the Series B
Zero Coupon Notes and the Nokia 1996 and 1998 Credit Agreements.
For all of 1999, the Company estimates that the aggregate funds required for
capital expenditures for the continuing development of its PCS networks and
services will total approximately $90 million. The Company will be building
additional cell sites to augment its existing coverage area, primarily corridor
coverage on interstates to suburbs. The Company will continue to upgrade its
switching and other fixed network equipment to support future customer growth.
Also in 1999, capital expenditures related to information systems included a
significant upgrade of the Company's billing and customer care system, including
new hardware and software to support employee and customer growth, to address
the Year 2000 Issue and for other project initiatives.
The Company estimates requiring $215 million for working capital requirements to
fund operations for all of 1999, including an estimated $65 million in interest
expense.
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 tranches. With respect to
Tranche A, the Company borrowed $68.5 million and, upon its written notice and
payment of an extension fee to Nokia, extended the maturity date of Tranche A
loans to June 30, 2000. A second tranche of $75 million ("Tranche B") became
available commencing on June 30, 1999. The maturity date of both the Tranche A
and Tranche B loans is June 30, 2000. The obligations of the Company under the
1998 Credit Agreement are fully and unconditionally guaranteed by TDS at an
annual fee rate of 3%. As of September 30, 1999, the Company had $61.1 million
available for borrowing under the 1998 Credit Agreement with Nokia. As part of
the "VoiceStream Merger" discussed below, at the merger close VoiceStream
Wireless Holding Corporation ("Holding") will repay all obligations under or
amend the Nokia
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<PAGE>
1998 Credit Agreement. In connection therewith, TDS will be released from its
guaranties and all liabilities thereunder.
Under the TDS Revolving Credit Agreement, as amended, AOC may borrow up to a
maximum amount (the "Maximum Amount"), less the amount of certain financing
obtained by AOC or Aerial, including the amount of any borrowings under the
Nokia 1998 Credit Agreement. However, debt financing related to the Series A and
Series B Zero Coupon Notes does not change the Maximum Amount. As of September
30, 1999, the Maximum Amount available under the TDS Revolving Credit Agreement
was $775 million and the amount available for borrowing by AOC was approximately
$81 million. See also "TDS Debt Replacement" below for further discussion of the
TDS Revolving Credit Agreement.
VoiceStream Merger
On September 20, 1999, VoiceStream and Aerial announced that their respective
Boards of Directors had approved a definitive agreement to merge the two
companies. VoiceStream, the Company and TDS entered into a September 17, 1999,
Agreement and Plan of Reorganization pursuant to which VoiceStream will exchange
0.455 shares of VoiceStream common stock for each of the Company's Common and
Series A Common Shares. The conversion number is subject to adjustment (but not
below 0.455 or above 0.5 of a share of VoiceStream common stock) in the event
Aerial's merger with VoiceStream closes prior to the closing of the proposed
merger of Omnipoint Corporation and VoiceStream and the average price of
VoiceStream common stock for the 15-day trading period prior to the closing is
less than $39.56 per share.
Aerial public shareholders will have the right to elect to receive $18 in cash
in lieu of shares of VoiceStream. Sonera will convert its shares in AOC into
shares of Aerial (at a conversion ratio of 6.72919) immediately prior to the
merger becoming effective. The parties anticipate that the merger will be tax
free to Aerial shareholders who elect to receive VoiceStream stock. TDS and
major shareholders of VoiceStream have agreed to vote in favor of the merger.
This merger is subject to shareholder approval by both companies as well as
federal, state, and other regulatory approvals, including those of the Federal
Communications Commission and the Federal Trade Commission. The merger is
expected to close in the first quarter of 2000. The following is a discussion of
significant transactions executed in anticipation of but not contingent upon the
merger with VoiceStream, except as indicated below.
TDS Debt Replacement
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On September 17, 1999, TDS, the Company, AOC, VoiceStream and Holding entered
into a Debt/Equity Replacement Agreement (the "TDS Debt Replacement Agreement").
In accordance with the TDS Debt Replacement Agreement, on November 1, 1999, TDS
assigned to Aerial as a contribution to capital $420 million of debt owed by AOC
to TDS under the TDS Revolving Credit Agreement in exchange for an aggregate
19,090,909 shares of Aerial common stock, at a purchase price of $22.00 per
share. On September 17, 1999, the date of the TDS Debt Replacement Agreement,
the closing price of Aerial Common Shares was $20.00 per share. The shares of
Aerial common stock consisted of 6,166,758 Aerial Common Shares and 12,924,151
Aerial Series A Common Shares. Thereafter, on November 1,1999, Aerial assigned
to AOC as a contribution to capital the $420 million of debt received from TDS,
as well as $75
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<PAGE>
million received by Aerial from Sonera (see "Sonera-Aerial Investment" below) in
exchange for an aggregate of 3,343,642 common shares of AOC. As a result of such
transaction, $420 million of debt previously owed by AOC to TDS was extinguished
and the Maximum Amount under the Revolving Credit Agreement was reduced from
$775 million to $355 million. In addition, the interest rate under the Revolving
Credit Agreement was decreased to prime rate plus 2.35% and the guarantee by
Aerial of AOC's obligations thereunder was terminated. Effective at the merger
closing, TDS and AOC will amend the TDS Revolving Credit Agreement by entering
into an Amended and Restated Credit Agreement. The Amended and Restated Credit
Agreement will evidence any loans outstanding under the TDS Revolving Credit
Agreement at that time and the maturity date of such loans will be one year
after the effective date of the Amended and Restated Credit Agreement.
Sonera-Aerial Investment
- ------------------------
On September 17, 1999, TDS, Aerial, AOC, VoiceStream, Holding, Sonera and Sonera
Corporation U.S. ("Sonera U.S.") entered into a Settlement Agreement and Release
providing for the Sonera-Aerial Investment. In accordance with the Sonera-Aerial
Investment, on November 1, 1999, Sonera invested an aggregate of $230 million in
Aerial and AOC at an equivalent price of $22.00 per share of Aerial common
stock. Aerial issued 3,409,091 Aerial common shares to Sonera in consideration
for $75 million, and AOC issued 1,046,999 shares of AOC to Sonera in
consideration for $155 million. The funds invested by Sonera were used to repay
outstanding debt under the TDS Revolving Credit Agreement and are available to
be drawn down by AOC under the TDS Revolving Credit Agreement between November
1, 1999, and the closing of the merger. As a result, the amount available for
borrowing by AOC under the TDS Revolving Credit Agreement was $265.6 million as
of November 1, 1999. Additionally, Sonera surrendered 317,108 shares of AOC
stock on November 1, 1999, without releasing its claims with respect thereto,
and will surrender an additional 317,108 shares at the closing of the merger. At
the merger closing, TDS, Aerial, AOC, VoiceStream and Holding, on the one hand,
and Sonera and Sonera U.S., on the other hand, will release each other from all
claims relating to actions occurring through September 17, 1999, including all
claims by Sonera to the 634,216 disputed shares, and, subject to certain
exceptions, will extend such release through the date of the merger closing.
Market Risk
The Company is subject to market rate risks due to fluctuations in interest
rates and equity markets. The majority of the Company's debt is in the form of
variable rate notes with original maturities ranging from 1 to 10 years. The
Series A and Series B Zero Coupon Notes are fixed rate debt and, therefore,
fluctuations in interest rates can lead to fluctuations in the fair value of
these instruments. The Company has not entered into any financial derivatives to
reduce its exposure to interest rate risks. There has been no material change in
the fair value relative to the Company's outstanding debt since December 31,
1998.
Year 2000 Issue
The Year 2000 Issue exists because many computer systems and applications
abbreviate dates using only two digits, rather than four digits, e.g., "98"
rather than "1998". Unless corrected, this
9
<PAGE>
shortcut may cause problems when the century date "2000" occurs. On that date,
some computer operating systems, applications and embedded technology may
recognize the date as January 1, 1900, instead of January 1, 2000. If the
Company fails to correct any critical Year 2000 processing problems prior to
January 1, 2000, the affected systems may either cease to function or produce
erroneous data, which could have material adverse operational and financial
consequences.
The Company's management established a project team to address Year 2000 issues.
The Company's plan to address the Year 2000 Issue consists of five general
phases: (i) Awareness, (ii) Assessment, (iii) Renovation, (iv) Validation and
(v) Implementation.
The Awareness phase consisted of developing an overall compliance strategy and
establishing a Year 2000 project team that reports periodically to the Company's
Audit Committee. TDS Management established a Year 2000 Program Office at the
TDS corporate level to coordinate activities of the Year 2000 project teams, to
monitor the current status of individual projects, to report periodically to the
TDS Audit Committee, and to promote the exchange of information between all
business units to share knowledge and solution techniques. On an ongoing basis,
the project teams continue to provide Year 2000 information and updates to
customers, employees and business partners. Aerial management has made the Year
2000 Issue a top priority. The Year 2000 effort covers the network and
supporting infrastructure for the provision of PCS services; the operational and
financial information technology ("IT") systems and applications, such as
computer systems that support key business functions such as billing, finance,
customer service, procurement and supply; and a review of the Year 2000
readiness efforts of the Company's critical vendors.
The Assessment phase included the identification of core business areas and
processes, analysis of systems and hardware supporting the core business areas
and the prioritization of renovation or replacement of systems and hardware that
were determined not to be Year 2000 ready. Included in the Assessment phase was
an analysis of risk management factors such as contingency plans and legal
matters. Except for the contingency plans as discussed below, the Assessment
phase was completed in the first quarter of 1999.
The Year 2000 project team identified those mission critical hardware, systems
and applications that were not Year 2000 ready. These critical hardware, systems
and applications that were not Year 2000 ready have undergone renovation. The
Renovation phase consisted of the remediation or replacement of mission critical
systems, applications and hardware. The renovation of mission critical systems,
applications and hardware has been completed.
The renovated mission critical hardware, systems and applications have undergone
Year 2000 validation testing. The Validation phase included testing, verifying
and validating the renovated or replaced platforms, applications, databases and
utilities. The Validation phase consisted of independent verification testing of
mission critical systems, applications and hardware, as well as network and
system component upgrades received from suppliers. In addition, selected Year
2000 upgrades were tested in a controlled environment that replicated the
current environment and was equipped to simulate the turn of the century and
leap year dates. The Company will rely on the Cellular Telecommunications
Industry Association ("CTIA"), Alliance for Telecommunications Industry
Solutions ("ATIS") and TELCO Forum, which formed working
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groups to coordinate efforts of various carriers and manufacturers to facilitate
inter-network Year 2000 testing. These programs have concluded and, generally,
the findings indicate that there are no known network inter-operability defects
related to Year 2000 associated with the available Year 2000 ready upgrades for
the networks. The Company has analyzed the findings and has installed upgrades
appropriate to its network. Validation of mission critical hardware, systems and
applications was completed as of October 31, 1999.
The Implementation phase involves migrating the converted, renovated and
validated mission critical systems, applications and hardware into production.
This phase is expected to be completed during the fourth quarter of 1999.
As with other telecommunications services providers, there exists a worst case
scenario possibility that a failure to correct a Year 2000 problem in one or
more of the mission critical network elements or IT applications could cause a
significant disruption of, or interruption in, certain normal business
functions. Management believes it has assembled the proper staffing and tools,
and put in place procedures to identify and prepare all mission critical systems
for the Year 2000 and believes the necessary programs are in place for a smooth
Year 2000 transition. Based on the assessments and work performed to date by the
project team, management believes that any such material disruption to the
operations due to failure of an internal system is unlikely. However, management
cannot provide assurance that its plan to address Year 2000 readiness will be
successful as the Company is subject to various risks and uncertainties. Like
most other telecommunications operators, the Company is highly dependent on the
telecommunications network vendors to develop and provide Year 2000 ready
hardware, systems and applications and on other third parties, including
vendors, other telecommunications service providers, government agencies and
financial institutions, to deliver reliable services and timely upgrades. The
Company has contacted critical vendors requesting information about their Year
2000 readiness. The responses have been used by the Company to make its
renovations and are being used in developing the Company's overall contingency
plans.
The Company cannot assess with certainty the magnitude of any such potential
adverse impact. However, based upon risk assessment work conducted thus far,
management believes that the most reasonably likely worst case scenario of the
failure by the Company, its suppliers or other telecommunications carriers with
which the Company interconnects to resolve Year 2000 issues would be an
inability by the Company to (i) provide telecommunications services to the
Company's customers, (ii) route and deliver telephone calls originating from or
terminating with other telecommunications carriers, (iii) timely and accurately
process service requests and (iv) timely and accurately bill its customers. In
addition to lost earnings, these failures could also result in loss of customers
due to service interruptions and billing errors, substantial claims by customers
and increased expenses associated with stabilizing operations and executing
contingency plans.
The Company's contingency plan initiatives include business recovery planning
and establishing command centers and critical support teams. Project teams are
developing alternate processes to support critical customer functions in the
event information systems or mechanized processes experience Year 2000
disruptions; as well as for repair or replacement of any affected systems or
processes. The teams are also developing alternate plans for critical suppliers
of products/services that fail to meet established service levels due to Year
2000 disruptions. Retention
11
<PAGE>
and backup procedures for customer and critical business data are being
developed to provide the Company with pre-rollover recovery capabilities. The
Company anticipates completing the balance of its contingency planning in the
fourth quarter of 1999.
The Company estimates that the total costs related to the Year 2000 project will
be approximately $19 million. Through September 30, 1999, the total costs
directly associated with the Year 2000 Issue were approximately $13.6 million.
The timing of expenditures may vary and is not necessarily indicative of
readiness efforts or progress to date. Though Year 2000 project costs will
directly impact the reported level of net (loss), the Company intends to manage
its total cost structure, including deferral of non-critical projects, in an
effort to mitigate the impact of Year 2000 project costs.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR CAUTIONARY
STATEMENT
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; timing of the merger with VoiceStream;
unanticipated changes in growth in PCS customers, penetration rates, churn rates
and the mix of products and services offered in the Company's markets; and
unanticipated problems with the Year 2000 Issue. Readers should evaluate any
statements in light of these important factors.
12
<PAGE>
AERIAL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
---------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(Dollars in thousands, except per share amounts)
OPERATING REVENUES
<S> <C> <C> <C> <C>
Service $ 49,076 $ 32,600 $ 140,969 $ 85,535
Equipment sales 7,701 5,838 21,134 20,337
------------ ------------ ------------ ------------
Total Operating Revenues 56,777 38,438 162,103 105,872
OPERATING EXPENSES
System operations 18,393 16,704 58,915 50,843
Marketing and selling 22,489 16,603 60,365 52,009
Customer service 9,365 15,107 29,527 38,758
Cost of equipment sold 14,114 16,223 39,671 59,616
General and administrative 18,578 14,266 52,759 40,946
Depreciation 20,583 18,253 61,015 55,416
Amortization of intangibles 1,889 1,889 5,666 5,666
------------ ------------ ------------ ------------
Total Operating Expenses 105,411 99,045 307,918 303,254
OPERATING (LOSS) (48,634) (60,607) (145,815) (197,382)
INVESTMENT AND OTHER INCOME (EXPENSE)
Minority share of loss 479 3,766 5,381 3,766
Investment (losses) -- (128) (100) (128)
Interest income 115 115 373 778
Other income (expense) (3,229) 481 (2,998) 144
------------- ------------ ------------ ------------
Total Investment and Other Income (Expense) (2,635) 4,234 2,656 4,560
(LOSS) BEFORE INTEREST AND INCOME TAXES (51,269) (56,373) (143,159) (192,822)
INTEREST EXPENSE
Interest expense-affiliate 18,693 17,115 52,261 46,957
Interest expense-other 5,643 4,828 16,040 13,186
------------ ------------ ------------ ------------
Total Interest Expense 24,336 21,943 68,301 60,143
(LOSS) BEFORE INCOME TAXES (75,605) (78,316) (211,460) (252,965)
Income tax expense (benefit) 576 821 (112,654) 2,567
------------ ------------ ------------ ------------
NET (LOSS) $ (76,181) $ (79,137) $ (98,806) $ (255,532)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON AND
SERIES A COMMON SHARES (000s) 71,928 71,735 71,883 71,701
(LOSS) PER COMMON AND
SERIES A COMMON SHARE $ (1.06) $ (1.10) $ (1.37) $ (3.56)
============ ============ ============ ============
</TABLE>
Accompanying notes to consolidated financial statements are an integral part of
these statements.
13
<PAGE>
AERIAL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
---------
<TABLE>
<CAPTION>
Nine Months ended
September 30,
----------------------
1999 1998
---------- ----------
(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net (Loss) $ (98,806) $(255,532)
Add (Deduct) adjustments to reconcile net (loss)
to net cash (used) by operating activities
Depreciation and amortization 66,681 61,082
Noncash interest expense 13,606 11,818
Deferred taxes 1,670 2,567
Investment losses 100 128
Minority share of (loss) (5,381) (3,766)
Loss on sale of property and equipment 235 559
Change in accounts receivable-customer (3,689) (2,477)
Change in inventory 2,366 9,875
Change in accounts payable-affiliates (22) (126)
Change in accounts payable-trade (18,508) (3,105)
Change in accrued interest-affiliate 3,030 2,431
Change in other assets and liabilities 5,339 3,233
---------- ----------
(33,379) (173,313)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under Revolving Credit Agreement-TDS 175,796 235,766
Repayments of borrowings under the Revolving Credit
Agreement-TDS (114,500) (200,000)
Proceeds from minority investor -- 200,000
Issuance of common stock 2,464 812
---------- ----------
63,760 236,578
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (26,764) (64,541)
Proceeds from sale of property and equipment 75 505
Change in temporary and other investments (1,076) 178
---------- ----------
(27,765) (63,858)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,616 (593)
CASH AND CASH EQUIVALENTS -
Beginning of period 4,943 5,012
---------- ----------
End of period $ 7,559 $ 4,419
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
14
<PAGE>
AERIAL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1999 1998
------------- ------------
ASSETS (Dollars in Thousands)
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 7,559 $ 4,943
Temporary investments -- 35
Accounts receivable
Customer, less allowance of
$3,479 and $5,875, respectively 27,893 24,204
Roaming 2,347 2,252
Other 899 1,348
Inventory 9,012 11,378
Prepaid rent 2,932 3,666
Other 1,173 898
------------ ------------
51,815 48,724
PROPERTY and EQUIPMENT
In service and under construction 788,927 733,958
Less accumulated depreciation (173,561) (112,677)
------------ ------------
615,366 621,281
INVESTMENTS
Investment in PCS licenses-net
of accumulated amortization of
$17,709 and $12,044, respectively 283,823 289,488
Other 2,455 1,444
------------ ------------
286,278 290,932
DEFERRED COSTS 277 410
------------ ------------
TOTAL ASSETS $ 953,736 $ 961,347
============ ============
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES
Accounts payable
Affiliates $ 2,784 $ 6,727
Trade 34,255 56,097
Current portion of long-term debt 82,372 --
Accrued interest-affiliate 7,969 4,939
Accrued compensation 7,666 5,169
Accrued taxes 7,981 7,015
Microwave relocation costs payable 828 1,828
Other 5,302 4,349
------------ ------------
149,157 86,124
------------ ------------
REVOLVING CREDIT AGREEMENT-TDS 611,239 549,943
------------ ------------
LONG-TERM DEBT 246,123 278,010
------------ ------------
DEFERRED TAX LIABILITY-NET 18,027 16,357
------------ ------------
MINORITY INTEREST -- 5,835
------------ ------------
COMMON SHAREHOLDERS' (DEFICIT) EQUITY
Common Shares, par value $1.00 per share 31,969 31,789
Series A Common Shares, par value $1.00 per share 40,000 40,000
Additional paid-in capital 586,852 584,114
Retained deficit (729,631) (630,825)
------------ ------------
(70,810) 25,078
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY $ 953,736 $ 961,347
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
15
<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 September 30, 1999, and
December 31, 1998, the results of operations for the nine and three months
ended September 30, 1999 and 1998, and the cash flows for the nine months
ended September 30, 1999 and 1998. The results of operations for the nine
and three months ended September 30, 1999 and 1998, 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 nine and three
months ended September 30, 1999 and 1998, was computed based on the
weighted average number of Common and Series A Common Shares outstanding
during the period.
3. Comprehensive income (loss) equals Net (loss) for the nine and three months
ended September 30, 1999 and 1998.
4. Supplemental Cash Flow Information. Additions to property and equipment of
$36.9 million were financed through an increase in long-term debt.
In the first nine months of 1999, the Company incurred interest charges
totaling $68.3 million. The interest charges were comprised of $45.8
million related to the Revolving Credit Agreement with TDS, $6.4 million
for TDS guarantee fees on the Series A and Series B Zero Coupon Notes and
obligations under the Nokia 1998 Credit Agreement, $2.2 million paid to
Nokia for interest charges relating to the 1998 Credit Agreement, $13.6
million in accreted interest on the Series A and Series B Zero Coupon Notes
and $0.3 million in other interest charges.
During the first nine months of 1998, the Company incurred interest charges
totaling $60.2 million. The interest charges were comprised of $42.2
million related to the Revolving Credit Agreement with TDS, $4.8 million
for TDS guarantee fees on the Series A and Series B Zero Coupon Notes and
obligations under the Nokia 1996 and 1998 Credit Agreements, $0.4 million
paid to Nokia for interest charges relating to the 1996 Credit Agreement,
$0.5 million paid to Nokia for interest charges relating to the 1998 Credit
Agreement, $11.8 million in accreted interest on the Series A and Series B
Zero Coupon Notes and $0.5 million in other
16
<PAGE>
interest charges. Of these amounts, the Company capitalized $0.1 million
relating to its work in process expenditures. The remaining $60.1 million
was charged to expense.
5. Minority Interest. On September 8, 1998, pursuant to the terms of a
Purchase Agreement (the "Purchase Agreement") between TDS, the Company, AOC
and Sonera Corporation, a company organized under the laws of Finland and
formerly known as Sonera Ltd. ("Sonera"), Sonera purchased approximately
2.4 million shares of common stock of AOC representing a 19.4% equity
interest in AOC (subject to adjustment under certain circumstances) for an
aggregate purchase price of $200 million.
See Note 9 - VoiceStream Merger for discussion of Sonera's additional
investment in the Company.
Minority share of loss of $5.4 million and $3.8 million represents Sonera's
share of AOC's consolidated net loss for the first nine months of 1999 and
1998, respectively.
6. Revolving Credit Agreement. Under the TDS Revolving Credit Agreement, as
amended, AOC may borrow up to a maximum amount (the "Maximum Amount"), less
the amount of certain financing obtained by AOC or Aerial, including the
amount of any borrowings under the Nokia 1998 Credit Agreement. However,
debt financing related to the Series A and Series B Zero Coupon Notes does
not change the Maximum Amount. As of September 30, 1999, the Maximum Amount
available under the TDS Revolving Credit Agreement was $775 million and the
amount available for borrowing by AOC was approximately $81 million. As of
November 1, 1999, as a result of the TDS Debt Replacement and Sonera-Aerial
Investment described in Note 9, the Maximum Amount was $355 million, the
amount outstanding was zero and the amount available for borrowing was
$265.6 million.
See Note 9 - VoiceStream Merger for further discussion of the Revolving
Credit Agreement.
7. Tax Settlement Agreement. On March 12, 1999, the TDS and Aerial boards of
directors approved a tax settlement agreement calling for payment of $114.5
million from TDS to Aerial under the tax allocation agreement. The $114.5
million received by Aerial covered the estimated tax losses incurred by the
Company and used by TDS for the period commencing from January 1, 1996
through August 31, 1999. The tax settlement agreement requires the final
settlement amount to cover tax losses incurred by Aerial and used by TDS
for the period commencing January 1, 1996 and ending December 31, 1999. The
settlement amount was used to repay a portion of the existing AOC
indebtedness to TDS under the Revolving Credit Agreement.
The payment of the $114.5 million by TDS, partially offset by an increase
in deferred income tax expense of $1.8 million, resulted in a net income
tax benefit of $112.7 million for 1999.
8. Commitments. At September 30, 1999, the Company had orders totaling
approximately $4.8 million with Nokia Telecommunications Inc. for network
infrastructure equipment. Also, at September 30, 1999, the Company had
orders for handsets with various handset vendors totaling approximately
$17.8 million.
9. VoiceStream Merger. On September 20, 1999, VoiceStream Wireless Corporation
("VoiceStream") and Aerial announced that their respective Boards of
Directors had approved a definitive agreement to merge the two companies.
VoiceStream, the Company and TDS
17
<PAGE>
entered into a September 17, 1999, Agreement and Plan of Reorganization
pursuant to which VoiceStream will exchange 0.455 shares of VoiceStream
common stock for each of the Company's Common and Series A Common Shares.
The conversion number is subject to adjustment (but not below 0.455 or
above 0.5 of a share of VoiceStream common stock) in the event Aerial's
merger with VoiceStream closes prior to the closing of the proposed merger
of Omnipoint Corporation and VoiceStream and the average price of
VoiceStream common stock for the 15-day trading period prior to the closing
is less than $39.56 per share.
Aerial public shareholders will have the right to elect to receive $18 in
cash in lieu of shares of VoiceStream. Sonera Corporation, formerly known
as Sonera Ltd. ("Sonera"), will convert its shares in AOC into shares of
Aerial (at a conversion ratio of 6.72919) immediately prior to the merger
becoming effective. The parties anticipate that the merger will be tax free
to Aerial shareholders who elect to receive VoiceStream stock. TDS and
major shareholders of VoiceStream have agreed to vote in favor of the
merger. This merger is subject to shareholder approval by both companies as
well as federal, state, and other regulatory approvals, including those of
the Federal Communications Commission and the Federal Trade Commission. The
merger is expected to close in the first quarter of 2000. The following is
a discussion of significant transactions executed in anticipation of but
not contingent upon the merger with VoiceStream, except as indicated below.
TDS Debt Replacement
--------------------
On September 17, 1999, TDS, the Company, AOC, VoiceStream and VoiceStream
Wireless Holding Corporation ("Holding") entered into a Debt/Equity
Replacement Agreement (the "TDS Debt Replacement Agreement"). In accordance
with the TDS Debt Replacement Agreement, on November 1, 1999, TDS assigned
to Aerial as a contribution to capital $420 million of debt owed by AOC to
TDS under the TDS Revolving Credit Agreement in exchange for an aggregate
19,090,909 shares of Aerial common stock, at a purchase price of $22.00 per
share. On September 17, 1999, the date of the TDS Debt Replacement
Agreement, the closing price of Aerial Common Shares was $20.00 per share.
The shares of Aerial common stock consisted of 6,166,758 Aerial Common
Shares and 12,924,151 Aerial Series A Common Shares. Thereafter, on
November 1,1999, Aerial assigned to AOC as a contribution to capital the
$420 million of debt received from TDS, as well as $75 million received by
Aerial from Sonera (see "Sonera-Aerial Investment" below) in exchange for
an aggregate of 3,343,642 common shares of AOC. As a result of such
transaction, $420 million of debt previously owed by AOC to TDS was
extinguished and the Maximum Amount under the Revolving Credit Agreement
was reduced from $775 million to $355 million. In addition, the interest
rate under the Revolving Credit Agreement was decreased to prime rate plus
2.35% and the guarantee by Aerial of AOC's obligations thereunder was
terminated. Effective at the merger closing, TDS and AOC will amend the TDS
Revolving Credit Agreement by entering into an Amended and Restated Credit
Agreement. The Amended and Restated Credit Agreement will evidence any
loans outstanding under the TDS Revolving Credit Agreement at that time and
the maturity date of such loans will be one year after the effective date
of the Amended and Restated Credit Agreement.
Sonera-Aerial Investment
------------------------
On September 17, 1999, TDS, Aerial, AOC, VoiceStream, Holding, Sonera and
Sonera Corporation U.S. ("Sonera U.S.") entered into a Settlement Agreement
and Release providing for the Sonera-Aerial Investment. In accordance with
the Sonera-Aerial Investment, on
18
<PAGE>
November 1, 1999, Sonera invested an aggregate of $230 million in Aerial
and AOC at an equivalent price of $22.00 per share of Aerial common stock.
Aerial issued 3,409,091 Aerial common shares to Sonera in consideration for
$75 million, and AOC issued 1,046,999 shares of AOC to Sonera in
consideration for $155 million. The funds invested by Sonera were used to
repay outstanding debt under the TDS Revolving Credit Agreement and are
available to be drawn down by AOC under the TDS Revolving Credit Agreement
between November 1, 1999, and the closing of the merger. As a result, the
amount available for borrowing by AOC under the TDS Revolving Credit
Agreement was $265.6 million as of November 1, 1999. Additionally, Sonera
surrendered 317,108 shares of AOC stock on November 1, 1999, without
releasing its claims with respect thereto, and will surrender an additional
317,108 shares at the closing of the merger. At the merger closing, TDS,
Aerial, AOC, VoiceStream and Holding, on the one hand, and Sonera and
Sonera U.S., on the other hand, will release each other from all claims
relating to actions occurring through September 17, 1999, including all
claims by Sonera to the 634,216 disputed shares, and, subject to certain
exceptions, will extend such release through the date of the merger
closing.
19
<PAGE>
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings
On September 21, 1999, Herbert Behrens, who purports to be a stockholder of
the Company, filed a putative class action complaint on behalf of
stockholders of the Company in the Court of Chancery of the State of
Delaware in New Castle County. The complaint names as defendants the
Company, TDS, certain directors of the Company and TDS, and VoiceStream in
connection with the transactions contemplated by the Agreement and Plan of
Reorganization and the related agreements, particularly the Debt/Equity
Replacement Agreement, which are described in Part I of the Form 10-Q. The
complaint alleges a breach of fiduciary duties by the defendants, including
in connection with the proposed exchange of $420 million of debt owed by
the Company to TDS for the Company common stock at $22.00 per share. The
complaint alleges that this action benefits TDS at the expense of the
Company's public stockholders and seeks to have the transactions
contemplated by the Agreement and Plan of Reorganization enjoined or, if
they are consummated, to have them rescinded and to recover unspecified
damages, fees and expenses. The Company believes that this lawsuit is
without merit and intends to vigorously defend against this lawsuit.
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 September 30, 1999.
The Company filed a Current Report on Form 8-K dated September 28, 1999,
for the purpose of filing a news release dated September 20, 1999
announcing a merger between the Company and VoiceStream Wireless
Corporation. The Current Report also included various documents related to
the merger as exhibits.
20
<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 November 12, 1999 /s/ Donald W. Warkentin
-------------------------- -----------------------------------------
Donald W. Warkentin
President
(Chief Executive Officer)
Date November 12, 1999 /s/ J. Clarke Smith
-------------------------- -----------------------------------------
J. Clarke Smith
Vice President-Finance and Administration
(Chief Financial Officer)
Date November 12, 1999 /s/ B. Scott Dailey
------------------------- -----------------------------------------
B. Scott Dailey
Vice President-Controller
(Principal Accounting Officer)
21
Exhibit 11
Aerial Communications, Inc. and Subsidiaries
Computation of Earnings Per Common Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999 1998
- -------------------------------- ---- ----
Basic Earnings Per Common Share:
<S> <C> <C>
Net (Loss) $ (76,181) $ (79,137)
================ ===============
Weighted average number of Common and Series A
Common Shares Outstanding (1) 71,928 71,735
================ ===============
Basic Earnings Per Common Share
Net (Loss) $ (1.06) $ (1.10)
================ ===============
Diluted Earnings Per Common Share:
Net (Loss) $ (76,181) $ (79,137)
================ ===============
Weighted average number of Common and Series A
Common Shares Outstanding (1) 71,928 71,735
================ ===============
Diluted Earnings Per Common Share
Net (Loss) $ (1.06) $ (1.10)
================ ===============
Nine Months Ended September 30, 1999 1998
- ------------------------------- ---- ----
Basic Earnings Per Common Share:
Net (Loss) $ (98,806) $ (255,532)
================ ===============
Weighted average number of Common and Series A
Common Shares Outstanding (1) 71,883 71,701
================ ===============
Basic Earnings Per Common Share
Net (Loss) $ (1.37) $ (3.56)
================ ===============
Diluted Earnings Per Common Share:
Net (Loss) $ (98,806) $ (255,532)
================ ===============
Weighted average number of Common and Series A
Common Shares Outstanding (1) 71,883 71,701
================ ===============
Diluted Earnings Per Common Share
Net (Loss) , $ (1.37) $ (3.56)
================ ===============
</TABLE>
(1) Weighted average number of Common and Series A Common Shares outstanding
was calculated based on the number of shares outstanding during the
period.
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of Aerial Communications, Inc. as of September
30, 1999, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 7,559
<SECURITIES> 0
<RECEIVABLES> 34,618
<ALLOWANCES> 3,479
<INVENTORY> 9,012
<CURRENT-ASSETS> 51,815
<PP&E> 788,927
<DEPRECIATION> (173,561)
<TOTAL-ASSETS> 953,736
<CURRENT-LIABILITIES> 149,157
<BONDS> 246,123
0
0
<COMMON> 71,969
<OTHER-SE> (142,779)
<TOTAL-LIABILITY-AND-EQUITY> 953,736
<SALES> 21,134
<TOTAL-REVENUES> 162,103
<CGS> 39,671
<TOTAL-COSTS> 307,918
<OTHER-EXPENSES> (2,656)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,301
<INCOME-PRETAX> (211,460)
<INCOME-TAX> (112,654)
<INCOME-CONTINUING> (98,806)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (98,806)
<EPS-BASIC> (1.37)
<EPS-DILUTED> (1.37)
</TABLE>
