<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________________
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 4, 1997
NEXTLINK Communications, Inc.
-----------------------------
(Exact name of registrant as specific in its charter)
Washington
----------
(State or other jurisdiction of incorporation)
333-4603 91-1738221
-------- ----------
(Commission File Number) (IRS Employer Identification No.)
155 108th Avenue NE, Bellevue, WA 98004
---------------------------------------
(Address of principal executive offices, including zip code)
(206) 519-8900
--------------
(Registrant's telephone number, including area code)
NEXTLINK Communications, L.L.C.
-------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 7. Financial Statements and Exhibits
Item 7 of the Current Report on Form 8-K of the Registrant is hereby
amended and restated in its entirety as set forth below:
(a) Financial Statements of Business Acquired
The financial statements of Linkatel Pacific, L.P. required to be filed
with this Report are filed under this Item, beginning on page F-1 of this
Report.
Independent Auditors' Report F-1
Balance Sheets at December 31, 1996 and 1995 F-2
Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994 and
the Cumulative Period From July 21, 1993
(Date of Inception) to December 31, 1996 F-3
Statements of Partners' Capital for the Years Ended
December 31, 1996, 1995 and 1994 and
the Cumulative Period From July 21, 1993
(Date of Inception) to December 31, 1996 F-4
Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 and
the Cumulative Period From July 21, 1993
(Date of Inception) to December 31, 1996 F-5
Notes to Financial Statements F-6
(b) Pro Forma Financial Information
The pro forma financial statements of the Registrant reflecting the
acquisition of Linkatel Pacific, L.P. that are required to be filed with this
Report are filed under this Item, beginning on page F-10 of this Report.
Pro Forma Consolidated Statement of Operations for
the Year Ended December 31, 1996 (unaudited) F-11
Pro Forma Consolidated Statement of Operations for
the Year Ended December 31, 1995 (unaudited) F-12
Pro Forma Consolidated Balance Sheet at
December 31, 1996 (unaudited) F-13
<PAGE>
(c) Exhibits
2.1 Asset Purchase Agreement, dated as of September 30, 1996,
between NEXTLINK Communications, L.L.C. and Linkatel Pacific, L.P.
(Incorporated by reference to the Exhibit of the same number
contained in the Registrant's Current Report on Form 8-K dated
February 4 , 1997 (File No. 333-4603)).
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners of Linkatel Pacific, L.P.:
We have audited the accompanying balance sheets of Linkatel Pacific, L.P.
(the Partnership), a California limited partnership and a development stage
entity, as of December 31, 1996 and 1995, and the related statements of
operations, partners' capital and cash flows for the years ended December 31,
1996, 1995 and 1994 and the cumulative period from July 21, 1993 (date of
inception) to December 31, 1996. These financial statements are the
responsibility of the Partnership. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Partnership as of December 31, 1996 and
1995, and the results of its operations and its cash flows for the years ended
December 31, 1996, 1995 and 1994 and the cumulative period from July 21, 1993
(date of inception) to December 31, 1996 in conformity with generally accepted
accounting principles.
On February 4, 1997, substantially all of the Partnership's assets were
acquired by and liabilities assumed by an unrelated third party (Note 7),
including obligations under the long-term loan agreement.
/s/ Deloitte & Touche LLP
[LOGO]
January 24, 1997, except for Note 7,
as to which the date is
February 4, 1997
[LOGO]
F-1
<PAGE>
LINKATEL PACIFIC, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
(A DEVELOPMENT STAGE ENTITY)
BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
<CAPTION>
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents, including restricted cash of $500 (1996 and 1995) (Note 4)...... $ 689 $ 3,771
Accounts receivable........................................................................ 22 14
Other current assets....................................................................... 222 99
--------- ---------
Total current assets................................................................... 933 3,884
NETWORK PLANT AND EQUIPMENT (Notes 4 and 5):
Plant...................................................................................... 9,104 6,908
Telecommunications equipment............................................................... 2,339 2,061
Other equipment............................................................................ 318 299
Network-in-progress........................................................................ 3,964 2,867
--------- ---------
Total network plant and equipment...................................................... 15,725 12,135
Less accumulated depreciation and amortization............................................. (1,559) (732)
--------- ---------
Network plant and equipment, net....................................................... 14,166 11,403
OTHER ASSETS:
Organization costs, net (Note 5)........................................................... 179 293
Unamortized debt issue costs, net.......................................................... 211 266
Licenses, net.............................................................................. 56 85
Other...................................................................................... 81 89
--------- ---------
Total other assets..................................................................... 527 733
--------- ---------
$ 15,626 $ 16,020
--------- ---------
--------- ---------
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued liabilities (Note 5).......................................... $ 1,933 $ 1,322
Note payable to NTFC (Note 4).............................................................. 5,555 5,260
--------- ---------
Total current liabilities.............................................................. 7,488 6,582
DEFERRED CREDITS AND OTHER LIABILITIES..................................................... 137 141
ADVANCE FROM NEXTLINK (Note 4)............................................................. 1,490
COMMITMENTS AND CONTINGENCIES (Note 6).....................................................
PARTNERS' CAPITAL (Note 5)................................................................. 6,511 9,297
--------- ---------
$ 15,626 $ 16,020
--------- ---------
--------- ---------
</TABLE>
See independent auditors' report and notes to financial statements.
F-2
<PAGE>
LINKATEL PACIFIC, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
(A DEVELOPMENT STAGE ENTITY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND THE CUMULATIVE PERIOD FROM JULY 21, 1993
(DATE OF INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD
FROM JULY 21,
1993 (DATE OF
INCEPTION) TO
DECEMBER 31,
1996 1995 1994 1996
--------- --------- --------- --------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
REVENUES--Telecommunications services........................... $ 165 $ 62 $ 3 $ 230
COSTS AND EXPENSES (Notes 5 and 6):
Engineering..................................................... 688 409 43 1,176
Sales and marketing............................................. 175 211 215 601
General and administrative...................................... 856 672 813 2,637
Depreciation and amortization................................... 1,010 781 287 2,078
--------- --------- --------- -------
Total costs and expenses.................................... 2,729 2,073 1,358 6,492
--------- --------- --------- -------
OPERATING LOSS.................................................. (2,564) (2,011) (1,355) (6,262)
INTEREST (EXPENSE) INCOME, net.................................. (481) (99) 93 (481)
--------- --------- --------- -------
NET LOSS........................................................ $ (3,045) $ (2,110) $ (1,262) $ (6,743)
--------- --------- --------- -------
--------- --------- --------- -------
</TABLE>
See independent auditors' report and notes to financial statements.
F-3
<PAGE>
LINKATEL PACIFIC, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
(A DEVELOPMENT STAGE ENTITY)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND THE CUMULATIVE PERIOD FROM JULY 21, 1993
(DATE OF INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
LINKATEL COLONY/LINKATEL FIBRCOM
COMMUNICATIONS, INC. NETWORKS, INC. INCORPORATED
(GENERAL AND LIMITED (GENERAL AND LIMITED (GENERAL AND LIMITED
PARTNER) PARTNER) PARTNER)
-------------------------- ------------------------ ------------------------
PARTNERSHIP PARTNERSHIP PARTNERSHIP
UNITS AMOUNT UNITS AMOUNT UNITS AMOUNT
------------- ----------- ------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE, July 21, 1993 (date of
inception)........................ -- $ -- -- $ -- -- $ --
PARTNERS' CAPITAL CONTRIBUTIONS:
Cash (Note 1)....................... 5 5 1 1 1 1
Property, organization costs,
research and development, and
expense reimbursement (Note 1).... 1,500 238 500 435 500 435
NOTE RECEIVABLE (Note 5)............ (159)
NET LOSS............................ (196) (65) (65)
------ ----------- ------ --------- ------ ---------
BALANCE, December 31, 1993.......... 1,505 (112) 501 371 501 371
PARTNERS' CAPITAL CONTRIBUTIONS:
Cash (Note 1)....................... 3,505 3,505 3,505 3,505
Notes payable converted to capital
(Note 1).......................... 500 500 500 500
INTEREST ON NOTE RECEIVABLE (Note
5)................................ (11)
NET LOSS............................ (202) (530) (530)
------ ----------- ------ --------- ------ ---------
BALANCE, December 31, 1994.......... 1,505 (325) 4,506 3,846 4,506 3,846
PARTNERS' CAPITAL CONTRIBUTIONS--
Cash................................ -- -- 2,025 2,025 2,025 2,025
INTEREST ON NOTE RECEIVABLE (Note
5)................................ (10)
NET LOSS............................ (240) (935) (935)
------ ----------- ------ --------- ------ ---------
BALANCE, December 31, 1995.......... 1,505 (575) 6,531 4,936 6,531 4,936
PARTNERS' CAPITAL CONTRIBUTIONS--
Cash................................ 135 135 135 135
INTEREST ON NOTE RECEIVABLE (Note
5)................................ (11)
NET LOSS............................ (313) (1,366) (1,366)
------ ----------- ------ --------- ------ ---------
BALANCE, December 31, 1996.......... 1,505 $ (899) 6,666 $ 3,705 6,666 $ 3,705
------ ----------- ------ --------- ------ ---------
------ ----------- ------ --------- ------ ---------
<CAPTION>
TOTAL
---------------------
PARTNERSHIP
UNITS AMOUNT
---------- ---------
<S> <C> <C>
BALANCE, July 21, 1993 (date of
inception)........................ -- $ --
PARTNERS' CAPITAL CONTRIBUTIONS:
Cash (Note 1)....................... 7 7
Property, organization costs,
research and development, and
expense reimbursement (Note 1).... 2,500 1,108
NOTE RECEIVABLE (Note 5)............ (159)
NET LOSS............................ (326)
---------- ---------
BALANCE, December 31, 1993.......... 2,507 630
PARTNERS' CAPITAL CONTRIBUTIONS:
Cash (Note 1)....................... 7,010 7,010
Notes payable converted to capital
(Note 1).......................... 1,000 1,000
INTEREST ON NOTE RECEIVABLE (Note
5)................................ (11)
NET LOSS............................ (1,262)
---------- ---------
BALANCE, December 31, 1994.......... 10,517 7,367
PARTNERS' CAPITAL CONTRIBUTIONS--
Cash................................ 4,050 4,050
INTEREST ON NOTE RECEIVABLE (Note
5)................................ (10)
NET LOSS............................ (2,110)
---------- ---------
BALANCE, December 31, 1995.......... 14,567 9,297
PARTNERS' CAPITAL CONTRIBUTIONS--
Cash................................ 270 270
INTEREST ON NOTE RECEIVABLE (Note
5)................................ (11)
NET LOSS............................ (3,045)
---------- ---------
BALANCE, December 31, 1996.......... 14,837 $ 6,511
---------- ---------
---------- ---------
</TABLE>
See independent auditors' report and notes to financial statements.
F-4
<PAGE>
LINKATEL PACIFIC, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
(A DEVELOPMENT STAGE ENTITY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND THE CUMULATIVE PERIOD FROM JULY 21, 1993
(DATE OF INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD
FROM JULY 21,
1993 (DATE OF
INCEPTION) TO
DECEMBER 31,
1996 1995 1994 1996
--------- --------- --------- --------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................................... $ (3,045) $ (2,110) $ (1,262) $ (6,743)
Depreciation and amortization.................................................. 1,010 781 287 2,078
Write-off of organization costs................................................ 20 20
Loss on disposal of fixed assets............................................... 5 5
Interest accrued on note receivable due from partner........................... (11) (10) (11) (32)
Interest accrued on note payable to NTFC....................................... 295 260 555
Changes in operating assets and liabilities:
Accounts receivable.......................................................... (8) (10) 7 (22)
Other assets................................................................. (113) 23 (156) (248)
Accounts payable and accrued liabilities and other liabilities............... 607 (693) 1,681 2,059
--------- --------- --------- --------------
Net cash (used in) provided by operating activities........................ (1,240) (1,759) 546 (2,328)
CASH FLOWS FROM INVESTING ACTIVITIES:
Network plant and equipment expenditures....................................... (3,602) (5,351) (6,121) (15,194)
Licenses....................................................................... (24)
Organization costs............................................................. (165)
--------- --------- --------- --------------
Net cash used in investing activities...................................... (3,602) (5,351) (6,121) (15,383)
CASH FLOWS FROM FINANCING ACTIVITIES:
Partners' capital contributions................................................ 270 4,050 7,010 11,337
Proceeds from advance from NextLink............................................ 1,490 1,490
Proceeds from notes payable to NTFC............................................ 5,000 5,000
Proceeds from notes payable to partners........................................ 1,000
Debt issue costs............................................................... (352) (427)
--------- --------- --------- --------------
Net cash provided by financing activities.................................. 1,760 9,050 6,658 18,400
--------- --------- --------- --------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........................... $ (3,082) $ 1,940 $ 1,083 $ 689
CASH AND CASH EQUIVALENTS--
Beginning of period.......................................................... 3,771 1,831 748 0
--------- --------- --------- --------------
CASH AND CASH EQUIVALENTS--
End of period................................................................ $ 689 $ 3,771 $ 1,831 $ 689
--------- --------- --------- --------------
--------- --------- --------- --------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--Interest paid................ $ 226 $ 66 $ 53 $ 345
--------- --------- --------- --------------
--------- --------- --------- --------------
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
During the years ended December 31, 1996 and 1995, accrued interest of $295 and
$260, respectively, was added to the principal balance of the note payable to
NTFC.
Partners' noncash capital contributions:
Network-in-progress.......................................................... $ 543
Organization costs........................................................... 323
Note receivable.............................................................. 159
Licenses..................................................................... 50
Debt issue costs............................................................. 33
Notes payable converted to partners' capital................................. $ 1,000 1,000
</TABLE>
See independent auditors' report and notes to financial statements.
F-5
<PAGE>
LINKATEL PACIFIC, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
(A DEVELOPMENT STAGE ENTITY)
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND 1995 AND
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND THE CUMULATIVE PERIOD FROM JULY 21, 1993
(DATE OF INCEPTION) TO DECEMBER 31, 1996
1. ORGANIZATION
Linkatel Pacific, L.P. (Linkatel) is a California limited partnership.
Linkatel was formed on July 21, 1993 with LINKATEL Communications, Inc. (LCI), a
California corporation, as both a general partner and a limited partner, and
Colony/Linkatel Networks, Inc. (CLN), a California corporation, and FIBRCOM
Incorporated (FIBRCOM), a Delaware corporation, as limited partners. On March 3,
1994, a California Public Utility Commission order was issued which authorized
CLN and FIBRCOM to become general partners. Therefore, on April 11, 1994, an
amendment to Certificate of Limited Partnership was executed and filed with the
State of California adding CLN and FIBRCOM, both limited partners, as general
partners. During 1994, each of the partners contributed $5,000 for its general
partner interest.
The partnership agreement requires CLN and FIBRCOM to make cash capital
contributions collectively totaling $16,000,000. Simultaneous with the closing
of the loan agreement described in Note 4, CLN and FIBRCOM each funded capital
contributions consisting of $3,500,000 cash and conversion of notes payable of
$500,000 to partners' capital in satisfaction of a portion of the partners'
capital requirement. The remaining $8,000,000 capital commitment is to be
contributed based on Linkatel's financial needs and in accordance with certain
terms of the loan agreement. Effective with the sale of the Partnership's assets
(Note 7), such capital commitment is no longer required.
Partnership units were issued to the partners in accordance with the
partnership agreement in exchange for cash, as well as for the agreed-upon value
of property, organization costs, licenses, research and development, and expense
reimbursement. Property, organization and license costs contributed were
recorded by Linkatel at transferors' cost. Linkatel did not record any amounts
for research and development costs incurred by LCI or for LCI expense
reimbursement by CLN and FIBRCOM. Accumulated losses for the period from July
21, 1993 to December 31, 1996 were allocated based on the PRO RATA share of
outstanding partnership units during the period.
2. BASIS OF PRESENTATION
Linkatel was formed to build, own and operate a fiber-optic
telecommunications alternative access network in the Los Angeles basin.
Linkatel, which is a development stage entity, has devoted substantially all of
its present efforts to establishing this business including obtaining adequate
financing, obtaining regulatory approval, building the alternative access
network, assessing market demand and obtaining customers. Linkatel will remain
in the development stage until the network is built and sufficient customer
demand is established.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS--Linkatel considers all highly-liquid investments purchased
with an original maturity of three months or less to be cash equivalents.
NETWORK PLANT AND EQUIPMENT--Additions are recorded at cost which generally
includes materials, applicable labor, overhead and interest. Depreciation is
computed generally using the straight-line
F-6
<PAGE>
LINKATEL PACIFIC, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
(A DEVELOPMENT STAGE ENTITY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996 AND 1995 AND
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND THE CUMULATIVE PERIOD FROM JULY 21, 1993
(DATE OF INCEPTION) TO DECEMBER 31, 1996
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
method over estimated useful lives ranging up to 20 years. Expenditures for
maintenance and repairs are expensed as incurred.
LICENSES--Licenses are recorded at cost and are amortized over five years.
ORGANIZATION COSTS--Organization costs are recorded at cost and are
amortized over five years.
DEBT ISSUE COSTS--Debt issue costs are capitalized and are amortized over
the term of the loan agreement, which is seven years.
REVENUES--Telecommunications fees are recorded as revenue in the period the
service is provided.
INCOME TAXES--Linkatel is not a taxable entity for federal and state income
tax purposes. Accordingly, no provision is made for income taxes in the
accompanying financial statements since Linkatel's operations are reportable by
its partners on their income tax returns.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
4. LOAN AGREEMENT
Linkatel entered into a loan agreement, dated February 17, 1994, with a
third-party finance company. The agreement provides that Linkatel may borrow
principal not to exceed an aggregate of $25,000,000, plus up to $1,700,000 in
capitalized interest. Loan proceeds are to be used solely for the purchase of
equipment and services for Linkatel's fiber-optic transmission and communication
system. Interest is to be accrued and added to principal during the first 12
months following the first borrowing date of each note (the Capitalized Interest
Period) at the 90-day commercial paper rate plus 4.75% (10.21% at December 31,
1996). Monthly interest-only payments commence the month following the
Capitalized Interest Period and will continue for 12 months, after which
principal will be repaid in accordance with a 60-month amortization schedule.
Standby fees are payable as consideration for the loan commitment. The fees are
payable quarterly based on 0.35% per annum of the average portion which remains
unborrowed during each calendar quarter. The loan agreement requires Linkatel to
maintain a compensating balance of cash, cash equivalents or marketable
securities of at least $500,000. Borrowings under the loan agreement are
collateralized by the assets and revenues of Linkatel.
A post-closing, post-initial funding condition included a requirement to
obtain a second carrier agreement with a carrier from a specific listing of
interexchange carriers. That second carrier agreement was executed on January
23, 1995. At December 31, 1994, there were certain events and conditions which
constituted events of default under the loan agreement which if not cured by
Linkatel or waived by
F-7
<PAGE>
LINKATEL PACIFIC, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
(A DEVELOPMENT STAGE ENTITY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996 AND 1995 AND
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND THE CUMULATIVE PERIOD FROM JULY 21, 1993
(DATE OF INCEPTION) TO DECEMBER 31, 1996
4. LOAN AGREEMENT (CONTINUED)
the lender could have prevented initial funding and terminated the loan
agreement. In 1995 Linkatel obtained waivers by the lender of certain of the
requirements of these provisions for the year ended December 31, 1994. Based on
these events, initial funding under the loan agreement in the amount of
$5,000,000 occurred in July 1995. During 1995, the lender agreed to waive
payment of a portion of the standby fees until such time as the lender makes the
remaining loan commitment available to Linkatel. At December 31, 1996, Linkatel
is in default of various covenants under the loan agreement. Such events of
default have not been cured by Linkatel or waived by the lender, including
certain events of default existing at December 31, 1995 and 1994. All borrowings
outstanding ($5,604,000, including accrued interest, at December 31, 1996) are
considered current liabilities since the lender has the right to demand full and
immediate payment.
On September 30, 1996, Linkatel entered into an asset purchase agreement
with an unrelated third-party (Nextlink Communications, LLC) (Nextlink) for the
sale of Linkatel's assets (Note 7). In consideration of Linkatel granting
limited operational and management authority to Nextlink during the interim
period between the signing of the asset purchase agreement until the closing
date (the Interim Period), Nextlink agreed to advance funds to Linkatel up to a
maximum aggregate amount of $2,440,000 for the purpose of providing the
necessary cash flow to cover the operating expenses and capital expenditures of
Linkatel during the Interim Period. Advances of $1,490,000 at December 31, 1996
are unsecured and shall be liabilities of Linkatel assumed by Nextlink at the
closing date (Note 7).
5. RELATED PARTY TRANSACTIONS
During 1995 and 1994, KBLCOM Incorporated (KBLCOM), the parent company of
FIBRCOM; The Providence Journal, the parent company of CLN; and LCI received
fees for services provided to Linkatel. The statements of operations include
$128,000 and $253,000 for financial and human resources services provided by
KBLCOM in 1995 and 1994, respectively, and $6,000 and $78,000 for management
services provided by LCI in 1995 and 1994, respectively. During 1995, Linkatel
incurred $7,000 of expenses related to management services provided by The
Providence Journal. At December 31, 1996 and 1995, network plant and equipment
includes $96,000 and $96,000, respectively, of technical services provided by
The Providence Journal and $217,000 and $217,000, respectively, of consulting
services provided by LCI. At December 31, 1996 and 1995, network plant and
equipment and organization costs include $113,000 and $113,000, respectively, of
consulting services provided by TACAN Corporation, an affiliate of LCI.
Linkatel holds a promissory note from LCI dated December 29, 1992 in the
amount of $150,000 plus accrued interest. The interest rate on the note is 6%
per annum, and unpaid interest is to be added to the principal on an annual
basis. The outstanding loan amount and accrued interest have been deducted from
LCI's partner's capital account. Distributions of earnings payable to LCI as
well as distributions from certain other projects of which LCI is a partner are
to be payable to Linkatel as payments on the note until the note is paid in
full. Payments are to be allocated first to unpaid interest and then to
principal. If the
F-8
<PAGE>
LINKATEL PACIFIC, L.P.
(A CALIFORNIA LIMITED PARTNERSHIP)
(A DEVELOPMENT STAGE ENTITY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996 AND 1995 AND
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND THE CUMULATIVE PERIOD FROM JULY 21, 1993
(DATE OF INCEPTION) TO DECEMBER 31, 1996
5. RELATED PARTY TRANSACTIONS (CONTINUED)
distributions to LCI from Linkatel or the ventures specified in the agreement
are insufficient to fully repay the promissory note by December 31, 2017, the
remaining unpaid balance of principal and unpaid accrued interest are to be
waived.
Accounts payable and accrued liabilities at December 31, 1996 and 1995
include $52,000 and $52,000, respectively, due to KBLCOM.
6. COMMITMENTS
Linkatel has entered into renewable commitments for the rental of poles and
conduit which are based on the actual number of poles and conduit used by the
operation. Such commitments resulted in $333,000, $124,000 and $14,000 of rent
expense in 1996, 1995 and 1994, respectively.
Linkatel has noncancelable operating leases involving certain real property.
Future minimum lease payments under those noncancelable operating leases are as
follows: (In thousands)
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997.......................................................................... $ 253
1998.......................................................................... 254
1999.......................................................................... 153
2000.......................................................................... 5
-----
Total payments required....................................................... $ 665
-----
-----
</TABLE>
Rent expense under these leases in 1996, 1995 and 1994 was approximately
$229,000, $213,000 and $92,000, respectively.
As of February 17, 1994, effective date of the loan agreement (described in
Note 4), Linkatel committed to purchase certain transmission and cable products
and associated services totaling $18,777,000. The commitment may be modified
with appropriate written requests and approvals. The remaining commitment as of
December 31, 1996 is $13,005,000 (Note 7).
7. SUBSEQUENT EVENT
On February 4, 1997, substantially all of the Partnership's assets were
acquired by and liabilities assumed by Nextlink for a total purchase price of
$42,500,000 less the amount of certain assets and liabilities (as defined).
Effective with the sale of the Partnership's assets and assumption of
liabilities by Nextlink, the Partnership's purchase commitment under the loan
agreement had been canceled.
F-9
<PAGE>
NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The following unaudited pro forma statement of operations for the year ended
December 31, 1996 gives effect to the the acquisitions of the ITC Companies
("ITC"), a long distance reseller based in Salt Lake City, Utah, and Linkatel
Pacific, L.P. ("Linkatel"), a competitive access service provider based in Los
Angeles, California (collectively referred to as the "1996 Acquisitions") as if
those transactions had occurred on January 1, 1996. The ITC acquisition closed
in December 1996 and the Linkatel acquisition closed in February 1997. Both
acquisitions will be accounted for using the purchase method of accounting. The
unaudited pro forma statement of operations for the year ended December 31, 1995
gives effect to (i) the 1996 Acquisitions, (ii) the acquisition of Tel-West
Central Services, Inc., now known as NEXTLINK Washington, L.L.C. ("NEXTLINK
Washington"), which conducts NEXTLINK Communications, L.L.C.'s (the "Company")
operations in Spokane, Washington and Sound Response Corporation, now known as
NEXTLINK Interactive, L.L.C. ("NEXTLINK Interactive"), which conducts the
Company's interactive voice response platform operations (collectively referred
to as the "1995 Acquisitions") and (iii) a recapitalization of the Company and
four of the Company's operating subsidiaries, as a result of which each of these
subsidiaries was owned 99% by the Company and 1% by a corporation that is wholly
owned by Mr. Craig O. McCaw (the "Recapitalization") as if those transactions
had occurred on January 1, 1995.
The unaudited pro forma balance sheet gives effect to the Linkatel
acquisition and the conversion of the Company to a corporation as though such
transactions had occurred on December 31, 1996.
The pro forma financial statements have been prepared based on the
historical financial statements of the Company as well as the historical
financial statements of Linkatel, ITC, Tel-West Central Services, Inc. and Sound
Response Corporation and certain estimates and assumptions set forth in the
notes to the pro forma financial statements. This pro forma financial
information is neither necessarily indicative of results that would have
actually occurred had the transactions been consummated on the indicated dates
nor is it necessarily indicative of future operating results or financial
position.
F-10
<PAGE>
NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL LINKATEL ITC ADJUSTMENTS RESULTS
------------ --------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenue.......................................... $ 25,686 $ 172 $ 11,372 $ (953)(1) $ 36,277
Costs and Expenses:
Operating...................................... 25,094 695 7,181 (570)(1) 32,400
Selling, general and administrative............ 31,353 1,031 3,094 (240)(1) 35,238
Deferred compensation.......................... 9,914 -- -- -- 9,914
Depreciation and amortization.................. 10,340 1,010 705 (155)(1) 14,966
3,066(2)
------------ --------- --------- ------------ -----------
Total costs and expenses................... 76,701 2,736 10,980 2,101 92,518
------------ --------- --------- ------------ -----------
Income/(loss) from operations.................... (51,015) (2,564) 392 (3,054) (56,241)
Interest income.................................. 10,446 -- -- (2,267)(3) 8,179
Interest expense................................. (30,876) (481) (182) 28(1) (31,030)
481(4)
------------ --------- --------- ------------ -----------
Income (loss) before minority interests.......... (71,445) (3,045) 210 (4,812) (79,092)
Minority interests in loss of consolidated
subsidiaries.................................... 344 -- -- -- 344
------------ --------- --------- ------------ -----------
Net income (loss)................................ $ (71,101) $ (3,045) $ 210 $ (4,812) $ (78,748)
------------ --------- --------- ------------ -----------
------------ --------- --------- ------------ -----------
</TABLE>
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(1) Reflects elimination of revenues and expenses of ITC after acquisition that
are also included in the historical column.
(2) Reflects additional amortization of intangible assets resulting from
allocation of a portion of the purchase prices of ITC and Linkatel to
goodwill, customer base and other intangible assets.
(3) To reflect a reduction in interest income earned on investment of excess
cash due to assumed payment of cash portion of purchase prices as of January
1, 1996.
(4) To reflect a reduction in Linkatel's interest expense due to assumed
repayment of Linkatel's debt as of January 1, 1996.
F-11
<PAGE>
NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995 PRO FORMA PRO FORMA
HISTORICAL ACQUISITIONS ACQUISITIONS ADJUSTMENTS RESULTS (1)
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenue.................................... $ 7,552 $ 9,492 $ 12,773 $ (4,197)(2) $ 25,620
Costs and expenses:
Operating................................ 6,618 6,089 6,429 (2,629)(2) 16,507
Selling, general and administrative...... 9,563 3,471 4,592 (2,259)(2) 15,367
Deferred compensation.................... 375 -- -- -- 375
Depreciation and amortization............ 3,458 1,286 436 (495)(2) 8,663
912(3)
3,066(4)
------------ ------------ ------------ ------------ -----------
Total costs and expenses................... 20,014 10,846 11,457 (1,405) 40,912
------------ ------------ ------------ ------------ -----------
Income/(loss) from operations.............. (12,462) (1,354) 1,316 (2,792) (15,292)
Interest income............................ -- -- -- -- --
Interest expense........................... (499) (287) (45) 17(3) (814)
------------ ------------ ------------ ------------ -----------
Income (loss) before minority interests.... (12,961) (1,641) 1,271 (2,775) (16,106)
Minority interests in loss of consolidated
subsidiaries.............................. 230 - (13) (103)(5) 114
------------ ------------ ------------ ------------ -----------
Net income (loss).......................... $ (12,731) $ (1,641) $ 1,258 $ (2,878) $ (15,992)
------------ ------------ ------------ ------------ -----------
------------ ------------ ------------ ------------ -----------
</TABLE>
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(1) The pro forma consolidated statement of operations data do not give effect
to the Company's acquisition of certain fixed assets that are now being used
by the Company in Ohio.
(2) Represents elimination of revenues and expenses of NEXTLINK Washington and
NEXTLINK Interactive after acquisition that are also included in the
historical column.
(3) Represents amortization of NEXTLINK Washington and NEXTLINK Interactive
intangible assets, primarily goodwill.
(4) Reflects additional amortization of intangible assets resulting from
allocation of a portion of the purchase prices of ITC and Linkatel to
goodwill, customer base and other intangible assets.
(5) Represents the effect of the Recapitalization as if this transaction had
occurred on January 1, 1995.
F-12
<PAGE>
NEXTLINK COMMUNICATIONS, L.L.C. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL LINKATEL ADJUSTMENTS BALANCE
----------- --------- ------------ -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 76,807 $ 689 $ (30,130)(1) 41,811
(5,555)(2)
Marketable securities...................................... 47,713 -- -- 47,713
Accounts receivable, net................................... 7,008 22 -- 7,030
Other...................................................... 607 222 -- 829
Pledged securities......................................... 39,770 -- -- 39,770
----------- --------- ------------ -----------
Total current assets..................................... 171,905 933 (35,685) 137,153
Pledged securities........................................... 61,668 -- -- 61,668
Property and equipment, net.................................. 97,784 14,166 -- 111,950
Goodwill, net................................................ 24,110 -- 29,619(3) 53,729
Other intangible assets, net................................. 11,243 235 -- 11,478
Other long-term assets, net.................................. 23,973 292 (6,000)(1) 16,775
(1,490)(4)
----------- --------- ------------ -----------
Total assets............................................. $ 390,683 $ 15,626 $ (13,556) $ 392,753
----------- --------- ------------ -----------
----------- --------- ------------ -----------
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
Bank overdraft............................................. $ -- $ -- $ -- $ --
Accounts payable........................................... 18,622 621 -- 19,243
Accrued expenses........................................... 4,112 1,312 -- 5,424
Accrued interest payable................................... 9,250 -- -- 9,250
Notes payable.............................................. -- 5,555 (5,555)(2) --
Current portion of capital lease obligations............... 1,194 -- -- 1,194
Payable to affiliate....................................... 1,500 1,490 (1,490)(4) 1,500
----------- --------- ------------ -----------
Total current liabilities................................ 34,678 8,978 (7,045) 36,611
Long-term liabilities:
Long-term debt............................................. 350,000 -- -- 350,000
Capital lease obligations.................................. 6,262 -- -- 6,262
Other...................................................... 13,139 137 -- 13,276
----------- --------- ------------ -----------
Total current liabilities................................ 404,079 9,115 (7,045) 406,149
Minority interests........................................... 308 -- -- 308
Equity units subject to redemption........................... 4,950 -- -- 4,950
Members' equity (deficit).................................... (18,654) 6,511 (6,511)(5) (18,654)
----------- --------- ------------ -----------
Total liabilities and members' equity (deficit).......... $ 390,683 $ 15,626 $ (18,654) $ 392,753
----------- --------- ------------ -----------
----------- --------- ------------ -----------
</TABLE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(1) Represents payment of the cash portion of the purchase price in the Linkatel
transaction, including $6,000 that had been deposited in escrow pending
closing of the transaction.
(2) Represents repayment of Linkatel debt.
(3) Represents allocation to goodwill of the excess of the purchase price over
the net assets acquired in the Linkatel transaction. The goodwill will have
a 20 year life.
(4) Represents elimination of advances to Linkatel prior to the closing of the
transaction.
(5) Represents elimination of net assets acquired in Linkatel transaction.
F-13
<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.
NEXTLINK COMMUNICATIONS, INC.
By: /s/ R. Bruce Easter, Jr.
-------------------------
Name: R. Bruce Easter, Jr.
Title: Vice President
Date: March 17, 1997
