UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
-----------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________________to_________________
333-06609-01
Commission file number______________333-06609-02____________________
SPRINT SPECTRUM L.P.
SPRINT SPECTRUM FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 48-1165245
___________DELAWARE___________ ________43-1746537_______
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Nos.)
___4900 Main Street, Kansas City, Missouri 64112___
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (816) 559-1000
----------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 1, 1998 the Sprint Spectrum Finance Corporation had Common Stock
outstanding of 100 shares.
Documents Incorporated by Reference: None
<PAGE>
SPRINT SPECTRUM L.P.
SPRINT SPECTRUM FINANCE CORPORATION
1997 FORM 10-K ANNUAL REPORT
Table of Contents
Page
PART I
Item 1. Business.....................................................3
Item 2. Properties..................................................16
Item 3. Legal Proceedings...........................................16
Item 4. Submission of Matters to a Vote of Security Holders.........17
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters.......................................17
Item 6. Selected Financial Data.....................................17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................17
Item 8. Financial Statements and Supplementary Data.................17
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures.................................17
PART III
Item 10. Directors and Executive Officers of the Registrants.........18
Item 11. Executive Compensation......................................22
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................26
Item 13. Certain Relationships and Related Transactions..............27
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on
Form 8-K..................................................29
<PAGE>
Sprint Spectrum L.P.
Sprint Spectrum Finance Corporation
Securities and Exchange Commission
Annual Report on Form 10-K
Part I
Item 1. Business
Business of Sprint Spectrum L.P.
Sprint Spectrum L.P. is a Delaware limited partnership that was formed
on March 28, 1995. The terms "Sprint Spectrum" and the "Company" refer to Sprint
Spectrum L.P. and its direct subsidiaries, including WirelessCo, L.P., Sprint
Spectrum Equipment Company, L.P., Sprint Spectrum Realty Company, L.P. and
Sprint Spectrum Finance Corporation.
The general partner of Sprint Spectrum is Sprint Spectrum Holding
Company, L.P. ("Holdings"), and the limited partner is MinorCo, L.P.
("MinorCo"). Each of Holdings and MinorCo is a Delaware limited partnership
formed by Sprint Enterprises, L.P., which has a 40% partnership interest, TCI
Spectrum Holdings, Inc., which has a 30% partnership interest, and Comcast
Telephony Services and Cox Telephony Partnership, each of which has a 15%
partnership interest. Sprint Enterprises, L.P., TCI Spectrum Holdings, Inc.,
Comcast Telephony Services and Cox Telephony Partnership are collectively
referred to as the "Partners". Each Partner is both a general partner and a
limited partner of both Holdings and MinorCo, holding 99% of its interest as a
general partner and 1% of its interest as a limited partner. Holdings has a
greater than 99% general partnership interest in the Company. The Partners are
subsidiaries of, respectively, Sprint Corporation ("Sprint"),
Tele-Communications, Inc. ("TCI"), Comcast Corporation ("Comcast") and Cox
Communications, Inc. ("Cox", and together with Sprint, TCI and Comcast, the
"Parents"). TCI, Comcast and Cox are collectively referred to as the "Cable
Parents".
Business of Sprint Spectrum Finance Corporation
Sprint Spectrum Finance Corporation ("FinCo"), a Delaware corporation,
was formed on May 21, 1996 and is a wholly-owned subsidiary of Sprint Spectrum
L.P. FinCo has nominal assets, does not conduct any operations and was formed to
be a co-obligor of the securities issued by the Company. Certain institutional
investors who might otherwise be limited in their ability to invest in
securities issued by partnerships by reasons of the legal investment laws in
their states of organization or their charter documents may be able to invest in
the Company's securities because FinCo is a co-obligor. Accordingly, a
discussion of the results of operations, liquidity and capital resources of
FinCo are not presented. See FinCo's notes to financial statements for a
discussion of the securities with respect to which FinCo is serving as
co-obligor.
General
Sprint Spectrum is a leading provider of wireless communications
products and services in the United States. The Company is the largest broadband
wireless personal communications services
<PAGE>
("PCS") company in the United States in terms of total license coverage of
population equivalents. The term population equivalents ("Pops") means the
Donnelley Marketing Service estimate of the December 31, 1995, population of
geographic areas in the United States. The Company was the successful bidder for
29 PCS licenses in the Federal Communications Commission's ("FCC") A Block and B
Block PCS auction which concluded in March 1995. The Company owns PCS licenses
which include the 29 previously mentioned licenses plus a PCS license for the
Omaha MTA which was contributed on February 6, 1997. The Company's 30
wholly-owned markets cover 152 million Pops and include, among others, the New
York, San Francisco, Detroit, Dallas/Fort Worth and Boston/Providence Major
Trading Areas ("MTAs"). The Company, together with other PCS licensees that have
affiliated, or are expected to affiliate with the Company, will have licenses to
provide service to the entire United States population (excluding certain United
States territories).
The Company commenced initial commercial PCS operations late in the
fourth quarter of 1996, and emerged from the development stage during the third
quarter of 1997. As of February 15, 1998, the Company has launched service in
118 metropolitan markets.
Affiliations
To increase its network Pop coverage, the Company has affiliated, and
expects to continue to affiliate with, other PCS providers, including those in
which Holdings or affiliates of its Parents have an interest. Pursuant to
affiliation agreements, each affiliated PCS service provider will be included in
the Company's national network and will use the Sprint(R) and Sprint PCSSM brand
names, trademarks of Sprint Communications Company L.P. ("Sprint
Communications").
As of January 1, 1998, Holdings and MinorCo owned 99.75% and 0.25%,
respectively, of the partnership interests in American PCS, L.P. ("APC"). APC,
through subsidiaries, owns a PCS license for and operates a broadband GSM
(global system for mobile communications ) in the Washington D.C./Baltimore MTA,
and is in the process of building a code division multiple access ("CDMA")
overlay for its existing GSM PCS system. Construction on APC's CDMA network was
substantially complete in December 1997 and the network became operational for
traveling purposes in January 1998. APC expects to launch CDMA services on a
commercial basis before the end of the first quarter of 1998. APC has affiliated
with the Company and is marketing its products and services under the Sprint and
Sprint PCS brand names.
Holdings also owns a 49% limited partnership interest in Cox
Communications PCS, L.P. ("Cox PCS"), a limited partnership that indirectly owns
a PCS license for the Los Angeles-San Diego MTA covering 21.5 million Pops. Cox,
which previously owned this license, contributed the license to Cox PCS on March
31, 1997, and is managing partner of Cox PCS. The Company signed an affiliation
agreement with Cox PCS on December 31, 1996. On February 3, 1998, Cox Pioneer
Partnership ("CPP") notified Holdings that CPP was exercising its put rights and
would transfer 10.2% of the interest in Cox PCS to Holdings, subject to FCC
approval, which will give Holdings controlling interest.
SprintCom, Inc. ("SprintCom"), a wholly-owned subsidiary of Sprint,
participated in the FCC's D and E Block auction which ended January 14, 1997,
and was awarded licenses for 139 of 493 BTAs, covering approximately 70 million
Pops, all of which are geographic areas not covered by the Company's owned PCS
licenses or licenses owned by APC, Cox PCS or PhillieCo, L.P. ("PhillieCo"),
discussed below. SprintCom intends to market products and services as Sprint PCS
when it offers commercial services. In accordance with the Amended and Restated
Agreement of Limited Partnership of MajorCo, L.P. (renamed Sprint Spectrum
Holding Company, L.P. ) dated January 31, 1996 (the
<PAGE>
"Holdings Partnership Agreement"), SprintCom is required to offer to enter into
an affiliation agreement with Holdings with respect to such BTA licenses
pursuant to which SprintCom's systems in such areas would be included in the
Company's national PCS network, although a final agreement has not yet been
reached. In the interim, the Company has been providing buildout services in
certain BTA markets where SprintCom was awarded PCS licenses and is being
reimbursed by SprintCom for such services, which include engineering,
management, purchasing, accounting, and other related services.
The Company also provides various services to PhillieCo, a limited
partnership organized by and among subsidiaries of Sprint, TCI and Cox that owns
a PCS license for the Philadelphia MTA covering 9.1 million Pops. PhillieCo
markets its products and services as Sprint PCS. Although the Company expects to
affiliate with PhillieCo, there is no affiliation agreement at this time and
there can be no assurance that such an agreement will be reached.
Network Buildout
The initial buildout of the Company's network involved systems design,
acquisition of cell sites, equipment procurement, relocation of existing
microwave users, interconnection with other communications providers,
construction of cell sites, installation of switches, and implementation of
advanced management information and billing systems. A team comprised of
engineering and operations employees and independent contractors and consultants
designed and constructed the Sprint Spectrum network based on regional marketing
and product requirements to meet the Company's targets for consistency,
uniformity and reliability.
During 1997, the Company's (along with its affiliates) emphasis and
focus shifted from an initial network buildout process to network operations.
The Company and its affiliates have more than one million customers.
Rollout methodology. The Company's principal objective is to maximize
the quality of coverage (i.e., sound quality and in-building penetration) and
depth of coverage (i.e., network availability when a customer wants to make a
call), and the Company continues to strive to meet that objective. Sprint
Spectrum offers commercial service in 30 MTAs covering 118 metropolitan markets.
The Company is evaluating further coverage expansion within its markets on a
market-by-market basis. In developing its PCS network requirements, Sprint
Spectrum will consider, among other things, population and traffic density, FCC
coverage requirements and the ability to cluster groups of markets.
Sprint Spectrum is managing the buildout of SprintCom's BTA licensed
areas, resulting in further expansion in the areas of coverage. Additionally,
the Company is actively seeking companies desiring an affiliation with the
Sprint Spectrum network as another method of expanding the coverage areas.
RF design. The RF design process includes cell site design, frequency
planning and network optimization for each of Sprint Spectrum's markets. RF
engineering also allocates voice channels and assigns frequencies to cell sites
taking into consideration both PCS and microwave interference issues. The Pops
covered as a result of the network construction during 1996 and 1997 is 81.5
million or 54% of Sprint Spectrum's licensed Pops. Twenty-eight markets (85%)
already exceed the FCC's 5-year Pop coverage requirements.
Property acquisition. The Company hired property acquisition firms for
each MTA to assist with acquisition, zoning, permitting and appropriate
surveying. The Company minimized property acquisition activity through
utilization of the Parents' assets, where possible. The cell site selection
process required
<PAGE>
the lease or acquisition of approximately 5,300 sites in 30 MTAs, many of which
have required the Company to obtain zoning variances or other local governmental
or third-party approvals or permits. As of December 31, 1997, the Company had
signed leases or options for 5,171 sites. There are currently 4,715 sites
completed and in service.
Microwave relocation. Sprint Spectrum relocated existing 2GHz commercial
microwave service users as required in order to clear its spectrum. The Company
contracted with national vendors to assist in the microwave relocation process.
As the Company expands its coverage area through affiliation agreements with
other carriers or other methods, additional microwave paths may need to be
relocated. As prescribed by the FCC cost sharing rules, the Company actively
pursues the recovery of spectrum clearing costs from competing service providers
operating in the Company's markets.
Interconnection. Sprint Spectrum's network is connected to the Public
Switched Telephone Network. Such interconnection is required to facilitate
originating and terminating traffic between the Company's facilities and both
the incumbent local exchange and long distance carriers. The Company uses Sprint
Communications as its interexchange carrier and the agreement for such service
is covered under the Holdings Partnership Agreement.
Roaming. Subject to entering into contracts with analog cellular
providers and other CDMA PCS providers ("Roaming Partners"), the Company is able
to offer automatic roaming (the ability to make and receive calls without
providing separate billing information) to its own customers and to customers of
its Roaming Partners who are traveling in or through the Company's service area.
Additionally, the FCC requires that the Company permit customers of other
wireless service providers having handsets capable of transmitting over the
Company's network to manually roam (the ability to make and receive calls after
providing separate billing information to the serving carrier) on the Company's
network. Customers typically pay higher rates while roaming outside of their
home market.
The Company has entered into roaming agreements with various analog
cellular providers throughout the United States and Canada. As a result, Sprint
Spectrum customers who have dual-mode handsets capable of transmitting over
cellular frequencies have the ability to roam automatically in areas where
Sprint Spectrum service is not available. Additionally the Company has
negotiated roaming arrangements with other CDMA PCS carriers who provide service
in geographic areas not currently covered by the CDMA network of Sprint Spectrum
and its affiliates.
Within its own network, the Company offers "traveling" plans for
subscribers who use the Company's network outside of their home markets.
Features and services operate identically across all of the Company's markets.
As a result, travelers are encouraged to access the network anytime, where
available.
Capitalization and Financing Risks; Partner Deadlock
The buildout of Sprint Spectrum's PCS network and the marketing and
distribution of its products and services will continue to require substantial
capital, and the Company currently has limited sources of revenue to meet its
capital requirements. To date the Company has relied on capital contributions,
advances from Holdings, third party debt and public debt.
The Company's business plan will require additional capital financing
prior to the end of 1998. Sources of funding for Sprint Spectrum's capital
requirements may include additional vendor financing,
<PAGE>
public offerings or private placements of equity and/or debt securities,
commercial bank loans and/or capital contributions from Holdings or the
Partners. However, there can be no assurance that any additional financing can
be obtained on a timely basis, on terms acceptable to the Company and its
Partners and within the limitations contained in the agreements governing the
Company's existing public and third-party debt.
Additionally, the proposed budget for 1998 has not yet been approved by
the Holdings' partnership board, although the board has authorized management to
operate the Company in accordance with such budget. The Partners may mutually
agree to make additional capital contributions. However, the Partners have no
such obligation in the absence of an approved budget, and there can be no
assurance the Partners will reach such an agreement or approve the 1998 proposed
budget. In addition, the failure by the Partners to approve a business plan may
impair the ability of the Company to obtain required financing. Failure to
obtain any such additional financing or capital contributions from the Partners
could result in the delay or abandonment of the Company's development and
expansion plans and expenditures, the failure to meet regulatory requirements or
other potential adverse consequences.
Furthermore, the fact that the proposed budget for fiscal year 1998 has
not been approved by the Holdings partnership board has resulted in the
occurrence of a "Deadlock Event" under the Holdings Partnership Agreement as of
January 1, 1998. Under the Holdings Partnership Agreement, if one of the
Partners refers the budget issue to the chief executive officers of the Parents
for resolution pursuant to specified procedures and the issue remains
unresolved, buy/sell provisions would be triggered which may result in the
purchase by one or more of the Partners of the interest of the other Partners,
or, in certain circumstances, the liquidation of Holdings and it subsidiaries.
Discussions among the Partners about restructuring their interests in Holdings,
in lieu of triggering such buy/sell procedures, are ongoing. However, there can
be no assurance these discussions will result in a change to the partnership
structure or will avert the triggering of the resolution and buy/sell procedures
referred to above or a liquidation of Holdings.
Regulation
The FCC regulates the licensing, construction, operation, acquisition
and interconnection arrangements of wireless telecommunications systems in the
United States under the Communications Act of 1934 (the "1934 Act"), as amended
by the Telecommunications Act of 1996 (the "1996 Act", and together with the
1934 Act, the "Communications Act"). Pursuant to the Communications Act, the FCC
has promulgated, and is in the process of promulgating, a series of rules,
regulations and policies to (i) grant or deny licenses for PCS frequencies, (ii)
grant or deny PCS license renewals, (iii) rule on assignments and/or transfers
of control of PCS licenses, (iv) govern the interconnection of PCS networks with
other wireless and wireline carriers, (v) establish access and universal service
funding provisions, (vi) impose fines and forfeitures for violations of any of
the FCC's rules, and (vii) regulate the technical standards of PCS networks.
PCS licensing. The FCC established service areas for PCS throughout the
United States and its possessions and territories based upon the Rand McNally
market definition of 51 MTAs and 493 smaller BTAs.
The FCC has allocated 120 MHz of radio spectrum in the 1850 to 1990 MHz
band, divided into six separate spectrum blocks, for licensed broadband PCS
services. The A and B Blocks are 30 MHz each and are allocated to the 51 MTAs.
The FCC sponsored auctions for the A and B Blocks that ended
<PAGE>
in March 1995, and the FCC granted the A and B Block licenses in June 1995.
Aggregate bids in the A and B Block auctions totaled $7.72 billion representing
an average price of $15.29 per Pop. The remaining blocks, C (30 MHz), D (10MHz),
E (10MHz) and F (10MHz), are allocated to the 493 BTAs. The C Block auction
ended on May 6, 1996, and the D, E and F Block auctions ended January 14, 1997.
Neither the Company nor Holdings participated in the C, D, E or F Block
auctions. SprintCom was awarded PCS licenses for 139 of 493 BTAs in the D and E
Block auctions.
A PCS license has been awarded for each block in every MTA or BTA for a
total of more than 2,000 licenses. The licenses in each block collectively cover
the United States and its territories. Therefore, any one location may have up
to six PCS service providers who own a license to serve that location, in
addition to the two incumbent cellular license holders. It is expected that some
or all of the PCS license holders who offer services, as well as the incumbent
cellular license holders, will be in competition with the Company.
The FCC prohibits a single entity from having a combined attributable
interest (20% or greater interest in any license) in broadband PCS, cellular and
specialized mobile radio ("SMR") licenses totaling more than 45 MHz in any
geographic area.
Pioneer's preference program. Holdings owns a controlling interest in
APC, one of three recipients of an FCC broadband PCS Pioneer's Preference
license ("Pioneer's Preference") which effectively reduces the cost of a license
by awarding it outside of the auction process. Holdings also has a
non-controlling interest in Cox PCS, which holds a broadband PCS Pioneer's
Preference license awarded to Cox. Following several parties' unsuccessful legal
challenges in the United States Court of Appeals for the District of Columbia
Circuit to the FCC's awards of Pioneer's Preferences, the FCC in March 1996
ruled that the Pioneer's Preference licensees must begin making installment
payments on their licenses. Cox PCS (as successor licensee to Cox) and APC must
pay, respectively, approximately $252 million, plus interest, for the Los
Angeles-San Diego MTA and approximately $102 million, plus interest, for the
Washington-Baltimore MTA over a five-year period.
The District of Columbia Circuit Court of Appeals vacated an FCC order
denying a Pioneer's Preference license for QualComm, Inc. ("QualComm") and
instructed the FCC to further consider its decision. QualComm had sought a
Pioneer's Preference license for southern Florida, specifically a region that
included Miami and surrounding communities. WirelessCo, L.P., a subsidiary of
the Company, holds the A Block Miami-Ft. Lauderdale MTA license. On September
18, 1997, the FCC dismissed all Pioneer's Preference requests, including that of
QualComm. QualComm has asked the FCC to reconsider its decision. It is highly
improbable that the FCC would revisit its award of PCS licenses for the
Miami-Ft. Lauderdale MTA, but such a result cannot be guaranteed.
Transfers and assignments of PCS licenses. Pursuant to the
Communications Act, the FCC must give prior approval to the assignment or
transfer of control of a PCS license. In addition, the FCC has established
transfer disclosure requirements that require licensees that assign or transfer
control of a PCS license within the first three years to file associated
contracts for sale, option agreements, management agreements or other documents
disclosing the total consideration that the applicant would receive in return
for the transfer or assignment of the license. Non-controlling interests in an
entity that holds a PCS license or PCS networks generally may be bought or sold
without prior FCC approval.
Foreign ownership restrictions. The Communications Act restricted
foreign investment in and ownership of certain FCC radio licenses, including PCS
licensees. Non-United States citizens or their representatives, foreign
governments or their representatives, or corporations organized under the laws
of
<PAGE>
a foreign country may not own more than 20% of a common carrier PCS licensee
directly or more than 25% of the parent of a common carrier PCS licensee. The
FCC has the authority to permit the parent of the licensee to exceed the 25%
limit. However, the FCC lacks the authority to permit a licensee itself to
exceed the 20% limit on foreign ownership. If an entity fails to comply with the
foreign ownership requirements, the FCC may order the entity to divest alien
ownership to bring the entity into compliance with the Communications Act. Other
potential sanctions include fines, a denial of renewal or revocation of the
license. The Communications Act eliminated the existing restrictions on the
number of alien officers and directors of FCC licensee companies and companies
controlling FCC licensees.
On March 13, 1997, the Company filed with the FCC a petition requesting
a declaratory ruling that the Company may indirectly hold common carrier radio
licenses so long as the levels of foreign equity and voting interest in each
Parent of an FCC licensee are no greater than the amount permitted for such
Parent individually as the parent of an FCC licensee. The Company alternatively
asked that the FCC declare that a multiplier may be used to calculate the level
of foreign voting interest in the Company. Pursuant to a 1996 FCC decision, and
as an affiliate of Sprint Corporation, the Company is permitted to have a
foreign ownership level of up to 35%.
Effective February 9, 1998, the FCC adopted an order establishing new
rules and policies implementing U.S. commitments to allow up to 100% indirect
foreign ownership of common carrier licensees, pursuant to a multi-lateral
agreement negotiated under the auspices of the World Trade Organization.
Conditions on PCS licenses. All PCS licenses are granted for 10-year
terms conditioned upon timely compliance with the FCC's buildout requirements.
Pursuant to the FCC's buildout requirements, all 30 MHz broadband PCS licensees
must construct facilities that offer coverage to one-third of the population of
their service area(s) within five years of their initial license grant(s) and to
two-thirds of the population within 10 years. Licensees that fail to meet the
buildout requirements may be subject to license forfeiture. The FCC intends to
conduct random audits to ensure that licensees are in compliance with the FCC's
holding period and attribution rules. Rule violations could result in license
revocations, forfeitures or fines.
PCS license renewal. PCS licensees can renew their licenses for an
additional 10 years. PCS renewal applications are not subject to auctions.
However, under the FCC's rules, third parties may oppose renewal applications
and/or file competing applications. If one or more competing applications are
filed, a renewal application will be subject to a comparative renewal hearing.
The FCC's rules afford PCS renewal applicants involved in comparative renewal
hearings with a "renewal expectancy." The renewal expectancy is the most
important comparative factor in a comparative renewal hearing and is applicable
if the PCS renewal applicant has: (i) provided "substantial" service during its
license term; and (ii) substantially complied with all applicable FCC rules and
policies as well as the Communications Act. The FCC's rules define "substantial"
service as service that is sound, favorable and substantially above the level of
mediocre service that might minimally warrant renewal.
Interconnection. Section 332 of the Communications Act grants the FCC
authority to order interconnection between Commercial Mobile Radio Service
("CMRS") Providers and any other common carrier. Section 332 further preempts
the authority of any state public service commission over the rates and entry of
CMRS providers in the market place. Based upon these provisions of the
Communications Act, the Eighth Circuit Court of Appeals recently affirmed the
authority of the FCC to issue rules of special concern to CMRS providers. This
Eighth Circuit ruling specifically upheld several important rules issued by the
FCC following the enactment of the 1996 Act. Namely, the FCC ordered local
<PAGE>
exchange carriers to provide reciprocal compensation to CMRS providers for the
termination of traffic. Moreover, the FCC found that CMRS carriers could use the
interconnection rates of the landline companies as proxies for their own rates,
at least until such time as the CMRS carrier conducted its own cost study to
determine its own termination rate.
Using these new rules, Sprint Spectrum has negotiated interconnection
agreements with all of the major regional Bell operating companies, GTE and
several smaller independent local exchange carriers. These agreements have
lowered Sprint Spectrum's rates for interconnection and created revenues
resulting from termination charges on the Company's network. Sprint Spectrum is
continuing to negotiate agreements with the independent local exchange carriers
and is investigating additional ways to benefit from the FCC's regulations.
Other FCC requirements. In June 1996, the FCC adopted rules that
prohibit broadband PCS providers from unreasonably restricting or disallowing
resale of their services or unreasonably discriminating against resellers.
Resale obligations will automatically expire five years after the FCC concluded
its initial round of licensing of currently allocated broadband PCS spectrum.
The FCC is also considering whether wireless providers should be required to
offer unbundled communications capacity to resellers who intend to operate their
own switching facilities.
The FCC has extended an existing rule to require broadband PCS and other
CMRS providers to provide "manual" roaming service that allows customers of one
wireless provider to obtain service while roaming in another wireless provider's
service area. Such customers must first establish a service relationship with
the host system, by, for example, supplying a valid credit card number to the
host system. In addition, the FCC is considering whether broadband PCS and other
CMRS providers should be required also to offer "automatic" roaming agreements
on a nondiscriminatory basis that would allow customers to roam by simply
turning on their handsets in a host market.
The FCC recently adopted rules permitting broadband PCS networks and
other CMRS providers to provide wireless local loop and other fixed services
that would directly compete with the wireline services of LECs. In June 1996,
the FCC adopted rules requiring broadband PCS and other CMRS providers to
implement enhanced emergency 911 capabilities within 18 months after the
effective date of the FCC's rules. The Company is currently evaluating potential
technical solutions to provide enhanced 911 capabilities and is working with an
outside vendor to eliminate the need for local exchange telephone companies to
replace their infrastructure in order to accommodate the CMRS providers. If
cost-effective solutions are not identified and implemented by the FCC scheduled
implementation date, the Company, as well as other service providers that are
also subject to the regulation, may be subject to penalties imposed by the FCC.
The Company may use common carrier point-to-point microwave and
traditional landline facilities to connect cell sites and to link them to their
respective main switching offices. The FCC will license these microwave
facilities separately and regulate the technical parameters and service
requirements of these facilities.
Communications Assistance for Law Enforcement Act ("CALEA"). The
Communications Assistance to Law Enforcement Act, enacted in 1994 to preserve
electronic surveillance capabilities authorized by Federal and state law,
requires telecommunications carriers to meet certain "capability requirements"
by October 25, 1998. Toward the end of 1997, telecommunications industry
standard setting organizations agreed to a joint standard to implement CALEA's
capability requirements. CALEA provides that a telecommunications carrier
meeting industry CALEA standards shall have safe harbor for
<PAGE>
purposes of compliance with CALEA. Although Sprint Spectrum is able to offer
traditional electronic surveillance capabilities to law enforcement, Sprint
Spectrum will not be able to meet the requirements of the joint standard by
October 25, 1998. In any event, the United States Department of Justice (DOJ)
has objected that the industry joint standard is not sufficient to meet CALEA's
capability requirements and has requested the inclusion of a so-called "punch
list" of additional electronic surveillance capabilities. DOJ has threatened to
seek court enforcement actions against carriers not complying with CALEA's
capability requirements, including the so-called "punch list" items. In an
enforcement action, a court may impose a civil penalty of up to $10,000 per day
for each day in violation after the issuance of an order to comply or after such
future date as the court may specify for compliance, although in determining the
amount of a civil penalty, the court is required to consider the nature,
circumstances, and extent of the violation; the violator's ability to pay; the
violator's good faith efforts to comply in a timely manner; any effect on the
violator's ability to continue to do business; the degree of culpability; the
length of any delay in undertaking efforts to comply; and such other matters as
justice may require.
Other federal regulations. Wireless systems must comply with certain FCC
and Federal Aviation Administration regulations regarding the siting, lighting
and construction of transmitter towers and antennaes. In addition, certain FCC
environmental regulations may cause certain cell site locations to become
subject to regulation under the National Environmental Policy Act.
Review of universal service requirements. The 1996 Act mandated that the
FCC and the states establish a "universal service" program to ensure that
affordable, quality telecommunications services are available to all Americans.
Although the Company is challenging in federal court the authority of the states
to collect universal service contributions from CMRS providers, at present the
Company is required to contribute to the federal universal service program as
well as existing state programs. The FCC has determined that the Company's
"contribution" to the federal universal service program will be a variable
percentage of "end-user telecommunications revenues." Although many states are
likely to adopt a similar assessment methodology, the states are free to
calculate telecommunications service provider contributions in any manner they
choose as long as the process is not inconsistent with the FCC's rules. At the
present time it is not possible to predict the extent of the Company's total
federal and state universal service assessments.
Partitioning. The FCC has modified its rules to allow broadband PCS
licensees to partition their market areas and/or to disaggregate their assigned
spectrum and to transfer partial market areas or spectrum assignments to
eligible third parties. The Rural Telecommunications Group has sought a judicial
stay and review of the decision, arguing that only rural telephone companies
should be eligible to partition PCS licenses.
Wireless facilities siting. Under the 1996 Act, states and localities
cannot regulate the placement of wireless facilities so as to "prohibit" the
provision of wireless services or to "discriminate" among providers of such
services. In addition, so long as a wireless system complies with the FCC's
rules, the 1996 Act prohibits states and localities from using environmental
effects as a basis to regulate the placement, construction or operation of
wireless facilities. The FCC is considering numerous requests for preemption of
local actions affecting wireless facilities siting.
Equal access. Under the 1996 Act, wireless providers are not required to
provide equal access to common carriers for toll services. However, the FCC is
authorized to require unblocked access to toll carriers subject to certain
conditions.
<PAGE>
Deregulation. The 1996 Act requires the FCC to forebear from applying
any statutory or regulatory provision if it is not necessary to keep
telecommunications rates and terms reasonable or to protect customers.
Correspondingly, a state may not apply a statutory or regulatory provision that
theFCC decides not to apply. In addition, the FCC must review its
telecommunications regulations every two years to determine if any can be
eliminated or modified as no longer in the public interest as a result of
increased competition.
Marketing and Distribution
The Company's current marketing strategy is to differentiate itself
through its state-of-the-art network, use of the established and respected
Sprint brand name, diverse distribution channels and sales and packaging
arrangements with the Parents. The Company will build on Sprint's strong
national identity, using regional and local marketing to tailor programs to the
demands of individual markets. The Company has formed segmentation and
distribution strategies targeted at both consumer and business markets.
The Company uses multiple distribution channels in each of its markets,
and will continue to review and implement new distribution channels in the
future as it determines the most effective combination of options. Currently the
Company uses a variety of distribution channels, including third-party
retailers, Company-owned retail stores, direct sales force and telemarketing.
One of the Company's third party retailers, RadioShack, accounted for more than
10% of the Company's operating revenues in 1997.
The Company has also entered into a sales agency agreement with
Sprint/United Management Company ("Sprint/United"). The Company intends to
continue to cross-market the Company's wireless services with the long distance,
local telephone and cable-based entertainment services of the Parents in order
to increase customer acquisition and retention. By using the Parents' regular
contacts with their customers, including bill inserts and customer service
contacts, the Company expects to build market share of its wireless services
efficiently.
Trademarks
The Company does not currently own any patents or registered trademarks,
though it has applied for various patents and registration of certain
trademarks. Sprint and Sprint PCS are trademarks of Sprint Communications and
are licensed to the Company on a royalty-free basis pursuant to a trademark
license agreement between Sprint Communications and the Company. Sprint
Communications may terminate the trademark license agreement (i) upon the
occurrence of a Liquidating Event (as defined in the Holdings Partnership
Agreement), (ii) upon the bankruptcy of the Company, (iii) upon the failure of
the Company to perform in accordance with the material terms of the agreement or
for a breach of its representations and warranties or (iv) if the Company
challenges Sprint's rights to the Sprint trademark and the associated logo. The
Company may terminate the agreement (i) if Sprint Communications abandons or
fails to support its trademark and associated logo, (ii) upon the bankruptcy of
Sprint Communications, (iii) if Sprint Communications takes action that
conflicts with the Company's rights to use the trademark and associated logo or
(iv) if Sprint Communications breaches its covenant to license the trademark and
associated logo to additional licensees in accordance with the terms of the
agreement. Subject to certain conditions, each of the Company and Sprint
Communications may terminate the
<PAGE>
agreement if a controlled affiliate of Sprint ceases to own any equity interest
in Holdings. Within thirty days of termination, or in certain circumstances on a
specified termination date, the Company's rights to use the trademark and
associated logo will cease.
Pursuant to certain of its third party supplier contracts, Sprint
Spectrum has certain rights to use third party supplier trademarks in connection
with the buildout, marketing, and operation of its network.
Products and Services
With its all-digital national wireless network, the Company has
introduced a wide array of services and features that are designed to enhance
utility, provide consumers greater capabilities in call management and increase
usage for both outgoing and incoming calls.
Outgoing Calls. Features that encourage customers to make outgoing
calls include: improved call quality, advanced handsets, national consistency
and customer-driven local calling areas.
Incoming Calls. Features that encourage customers to receive calls in-
clude: caller ID, message management, including voicemail and integrated paging,
and improved battery technology.
The Company believes that the market for wireless communications will
shift over time from today's traditional voice mobility applications, which
supplement customers' wireline service to an environment in which wireless
begins to expand into the wireline market, both as a primary communications
device and as a means of providing advanced functionality. The Company intends
to develop products, services and features which will serve to increase network
utilization above historical cellular usage while simultaneously containing
costs.
Technology
Wireless digital signal transmission is accomplished through the use of
various frequency management technologies, or "protocols." The FCC has not
mandated a universal digital protocol for PCS systems. Currently, various
vendors have proposed three principle competing, incompatible protocols for use
in PCS systems: CDMA, GSM and time division multiple access ("TDMA") (IS-136).
The GSM protocol is an updated, up-banded version of the TDMA-based
protocol now in use in Europe. TDMA (IS-136) is an up-banded version of the
TDMA-based digital cellular protocol now used by cellular operators in the
United States. CDMA is a first-generation technology that was commercially
deployed in the United States in 1996. The Company believes that the CDMA
protocol will be the most widely adopted PCS protocol in the United States.
The Company has selected CDMA technology rather than the other
technologies because it believes it will have increased subscriber capacity,
higher quality of transmission and lower infrastructure and ongoing support
costs. The Company believes that CDMA provides the following benefits:
performance, cost effectiveness, functionality, security and capacity.
<PAGE>
Equipment Vendors
The Company selected Lucent Technologies Inc. ("Lucent") and Northern
Telecom Inc. ("Nortel"), two of the leading telecommunications equipment
manufacturers, to construct its wireless network because of their extensive
experience in wireless technology and their willingness to guarantee delivery in
accordance with specifications developed by the Company. In addition, the
Company obtained financing from Nortel and Lucent to fund the purchase of their
respective equipment and certain payments associated with the construction of
their assigned portions of the network. To mitigate against a substantial
portion of the risks of completion delay and performance of the network and to
ensure the Company has received competitive terms and conditions, the
procurement agreements with each of Lucent and Nortel include, among other
things, deferred payment schedules, liquidated damages provisions, extended
warranty periods and "most favored customer" status.
Sprint Spectrum has entered into six agreements for the purchase of
handsets. There are currently at least 22 companies who plan to make CDMA
handsets. The Company also has secured a supply of dual-mode, dual-band handsets
from several vendors which became available in production quantities during the
latter part of 1997. These handsets operate in the Company's PCS frequencies
when they are within the Company's network coverage area and utilize analog
networks when outside of the Company's digital network coverage areas. The
Company also expects to source handsets from other vendors during 1998 and is
currently negotiating purchase and supply agreements on a preliminary basis with
such other vendors.
Competition
General. The wireless telecommunications industry is experiencing
significant technological changes, as evidenced by the increasing pace of
improvements in the capacity and quality of digital technology, shorter cycles
for new products and enhancements and changes in consumer preferences and
expectations. Accordingly, the Company expects competition in the wireless
telecommunications business to be dynamic and intense as a result of the
entrance of new competitors and the development of new technologies, products
and services.
Each of the markets in which the company competes is served by other
two-way wireless service providers, including cellular and PCS operators and
resellers. Many of these competitors have been operating for a number of years,
currently serve a substantial subscriber base and have significantly greater
financial and technical resources than those available to the Company. Certain
of the Company's competitors are operating, or planning to operate, through
joint ventures and affiliation arrangements, wireless telecommunications systems
that encompass most of the United States.
The Company also faces competition from other current or developing
technologies, such as paging, Enhanced Specialized Mobile Radio ("ESMR") and
satellite networks. In addition, as a result of advances in digital technology,
ESMR operators have begun to design and deploy digital mobile networks that
increase the channel capacity of ESMR systems to a level that may be competitive
with that of cellular systems. A limited number of ESMR operators have begun
offering short messaging, data services and interconnected voice telephony
services on a limited basis. Several ESMR licensees have merged into one company
and plan to build and operate digital mobile networks in most major United
States markets.
<PAGE>
Several entities have received, and several others are seeking, FCC
authorization to construct and operate global satellite networks to provide
domestic and international mobile communications services from geostationary and
low earth orbit ("LEO") satellites. Several of these companies have begun to
launch their satellites for this service. While geostationary orbiting
satellites are subject to transmission delays inherent in high earth orbit
satellite communications, a mobile satellite system could reduce transmission
delays with LEO satellites and could augment or replace communications with
segments of land-based wireless systems. Based on current technologies, however,
satellite transmission services are not expected to be competitively priced
relative to the Company's product offering in its markets.
Continuing technological advances in telecommunications and FCC
policies that encourage the development of new spectrum-based technologies make
it impossible to predict the extent of future competition. The FCC has adopted
rules that provide preferences, including discounted licenses, to companies that
develop new spectrum-based communications technologies without bidding in
FCC-sanctioned auctions. Such a preference may encourage the development of new
technologies that compete with cellular and PCS service. In addition, the
Omnibus Budget Reconciliation Act of 1993 requires, among other things, the
allocation to commercial use of a portion of 200 MHz of the spectrum currently
reserved for government use. It is possible that some portion of the spectrum
that is reallocated will be used to create new land-mobile services or to expand
existing land-mobile services.
The Company expects to compete with other communications technologies
that now exist, such as conventional mobile telephone service, ESMR systems and
paging services and with cellular and PCS resellers. In the future, cellular
service and PCS will also compete more directly with traditional wireline
communications services over their cable systems. In addition, the Company may
face competition from technologies that may be introduced in the future.
The Company anticipates that market prices for two-way wireless
services generally will decline in the future based upon increased competition.
The Company competes to attract and retain customers principally on the basis of
services and features, the size and location of its service areas and pricing.
The Company's ability to compete successfully also depends, in part, on its
ability to anticipate and respond to various competitive factors affecting the
industry, including new services that may be introduced, changes in consumer
preferences, demographic trends, economic conditions and discount pricing
strategies by competitors, which could adversely affect the Company's operating
margins.
The Company's PCS business will directly compete with several other
PCS providers in each of its PCS markets, including AT&T Wireless Services,
Inc., BellSouth Telecommunications, Inc., Omnipoint Corporation, Pacific Bell
Mobile Services, Inc., PCS PrimeCo L.P. and Western Wireless Corporation. The
Company also expects that existing analog wireless service providers in the PCS
markets, some of which have been operational for a number of years and have
significantly greater financial and technical resources than those available to
the Company, will upgrade their systems to provide comparable services in
competition with its PCS system. These cellular competitors include AirTouch,
AT&T Wireless Services, Inc., BellSouth Mobility, Inc., Ameritech Mobile
Communications, Inc., Bell Atlantic Mobile, Southwestern Bell Mobile Systems,
GTE Mobilnet, Inc. and U.S.
Cellular Corp.
The cost to the Company of PCS handsets is not currently comparable
with the cost to analog operators of analog cellular handsets. While the Company
believes that its PCS handsets are competitively priced as compared to digital
cellular handsets of comparable size, weight and features,
<PAGE>
cellular operators may frequently subsidize the sale of analog handset units at
prices below those with which the Company can compete through the Company's
handset subsidies.
Employee Relations
As of December 31, 1997, the Company employed approximately 7,100
personnel, including employees dedicated to PhillieCo and SprintCom activities.
None of the Company's employees are represented by a labor union. Management
believes that the Company's employee relations are good.
Reorganization
Subsequent to December 31, 1997 in an effort to enhance efficiency and
reduce costs, the Company reorganized and restructured certain operations under
which certain field offices will be consolidated. Costs associated with this
reorganization are expected to be recorded in the first quarter of 1998 and will
consist primarily of severance pay, the write-off of certain leasehold
improvements and termination payments under lease agreements.
Item 2. Properties
As of December 31, 1997, the Company occupied approximately 542,000
square feet of leased space in metropolitan Kansas City, Missouri. The Company
occupies 101,000 square feet, consisting of both owned and leased space, in
Lenexa, Kansas for use by network monitoring personnel.
The Company leases a 150,000 square foot facility in Ft. Worth, Texas
for its customer care center. The Company has also leased 110 retail stores
(approximately 334,000 square feet) and expects to lease additional retail
space.
As of December 31, 1997, the Company leased 32 Field Operations offices
(approximately 367,000 square feet in the aggregate) and 35 MTA offices
(approximately 483,000 square feet). The Company intends to close approximately
30 of such offices in connection with certain restructuring activities in 1998.
The Company is also leasing space for base station towers and switch sites as it
constructs its nationwide network. The Company has leased or purchased 47 switch
sites and has entered into leases or options to lease a total of 5,171 cell
sites.
Item 3. Legal Proceedings
The Company is involved in various legal proceedings incidental to the
conduct of its business. Since the enactment of the 1996 Act, the Company has
been involved in various legal proceedings in various states concerning the
imposition of moratoria on the processing or approval of permits for wireless
telecommunication towers, the denial of applications for permits and other
issues arising in connection with tower siting. There can be no assurance that
such litigation, and similar actions taken by others seeking to block actions
necessary for the construction of the Company's network in other locations, will
not, in the aggregate, have a material effect on the Company. While it is not
possible to determine the ultimate disposition of each of these proceedings, the
Company believes that the outcome of such proceedings, individually and in the
<PAGE>
aggregate, will not have a material adverse effect on the Company's financial
condition or results of operations or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
At December 31, 1997, the Company did not have common equity.
Item 6. Selected Financial Data
For information required by Item 6, refer to the "Selected Financial
Data" section of the Financial Statements and Financial Statement Schedule filed
as part of this report.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
For information required by Item 7, refer to the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section of the Financial Statements and Financial Statement Schedule filed as
part of this report.
Item 8. Financial Statements and Supplementary Data
For information required by Item 8, refer to the Company's "Consolidated
Financial Statements" and the "Quarterly Financial Data" section of the
Financial Statements and FinCo's "Financial Statements" filed as part of this
report.
Item 9. Changes in and Disagreements With Accountants on Accounting and Finan-
cial Disclosure
None.
<PAGE>
Item 10. Directors and Executive Officers of the Registrants
The executive officers of the registrants and their respective positions
with Sprint Spectrum and FinCo as of December 31, 1997 are set forth below. In
addition, the representatives of the Partnership Board of Holdings are set forth
below. Sprint Spectrum does not have a partnership board but is managed by
Holdings in its capacity as general partner. The Board of Directors of FinCo is
comprised of Andrew Sukawaty, Robert M. Neumeister, Jr. and Joseph M.
Gensheimer. The ages of the individuals listed, is as of December 31, 1997.
Name Age Positions
Andrew Sukawaty.......... 42 Chief Executive Officer and President of
Sprint Spectrum; President of FinCo
Arthur A. Kurtze......... 53 Chief Operating Officer of Sprint Spectrum
Bernard A. Bianchino..... 49 Chief Business Development Officer of
Sprint Spectrum
Robert M. Neumeister, Jr. 48 Chief Financial Officer of Sprint
Spectrum; Vice President and Treasurer
of FinCo
F. Edward Mattix......... 44 Chief Public Relations Officer of Sprint
Spectrum
Charles E. Levine........ 44 Chief Marketing Officer of Sprint Spectrum
Joseph M. Gensheimer..... 46 General Counsel and Secretary of Sprint
Spectrum; Secretary of FinCo
William T. Esrey......... 57 Holdings Partnership Board Representative
Gary D. Forsee........... 47 Holdings Partnership Board
Representative(1)
Gerald W. Gaines......... 41 Holdings Partnership Board Representative
Arthur B. Krause......... 56 Holdings Partnership Board
Representative (2)
James O. Robbins......... 55 Holdings Partnership Board Representative
Lawrence S. Smith........ 50 Holdings Partnership Board Representative
- -------------------
(1) Thomas E. Weigman was appointed to the Holdings Partnership Board on March
4, 1998. He replaced Mr. Forsee as a Sprint-appointed representative. See
biographies below.
(2) Ronald T. LeMay was appointed to the Holdings Partnership Board on January
12, 1998. He replaced Mr. Krause as a Sprint-appointed representative. See
biographies below.
Andrew Sukawaty, Chief Executive Officer and President
Andrew Sukawaty was appointed Chief Executive Officer and President of
Sprint Spectrum and President of FinCo effective September 2, 1996. Prior to
joining the Company, Mr. Sukawaty was Chief Executive Officer of NTL, the
British diversified broadcast transmission and communications company, since
1994. From 1989 to 1994, he was Chief Operating Officer of Mercury One-2-One,
the British company which started the world's first PCS service in the U.K. in
1993.
Arthur A. Kurtze, Chief Operating Officer
Arthur A. Kurtze was appointed Chief Operating Officer of the Company
in June 1995. Prior to joining the Company, Mr. Kurtze was Senior Vice
President--Operations for Sprint's Local Telecommunications Division. Prior to
joining Sprint in March 1993, Mr. Kurtze was Executive Vice President in charge
<PAGE>
of strategic planning and corporate development for Centel Corp.
Bernard A. Bianchino, Chief Business Development Officer
Bernard A. Bianchino was appointed Chief Business Development Officer of
the Company in September 1995. Most recently, Mr. Bianchino was Executive Vice
President, General Counsel and External Affairs for Qwest Communications
Corporation. He served as Vice President--Law, General Business for Sprint from
1992 to 1994.
Robert M. Neumeister, Jr., Chief Financial Officer
Robert M. Neumeister, Jr. was named Chief Financial Officer of the Com-
pany in September 1995 and Treasurer of FinCo in May 1996. Prior to joining the
Company, Mr. Neumeister served in various capacities at Northern Telecom Ltd.,
which he joined in 1978.
F. Edward Mattix, Chief Public Relations Officer
F. Edward Mattix was named Chief Public Relations Officer of the Company
in April 1996. Prior to joining the Company, he was Vice President--Public
Relations for US WEST Communications, Inc. Mr. Mattix served in various
management level positions relating to public relations or governmental affairs
since joining US WEST, Inc. in 1976.
Charles E. Levine, Chief Marketing Officer
Charles E. Levine was appointed Chief Marketing Officer of Sprint
Spectrum effective January 27, 1997. Prior to joining the Company, Mr. Levine
was President of Octel Link and Senior Vice President of Octel Services from
1994 to 1996. From 1993 to 1994, he was President and Chief Executive Officer of
CAD Forms Technology.
Joseph M. Gensheimer, General Counsel and Secretary
Joseph M. Gensheimer was named General Counsel of the Company in October
1995 and Secretary of FinCo in May 1996. Mr. Gensheimer is responsible for all
legal and regulatory functions. Prior to joining the Company, he was Senior
Counsel for IBM's mainframe and supercomputer divisions. Prior to joining IBM in
1988, he was General Counsel and Secretary of RealCom Communications
Corporation, a telecommunications services provider.
William T. Esrey, Representative
William T. Esrey was appointed as a representative on the Partnership
Board in March 1995. He has been the Chairman of Sprint since 1990 and its
Chief Executive Officer since 1985. Mr. Esrey is also a director of Sprint,
Equitable Lif Assurance Society of America, General Mills, Inc., PanEnergy
Corporation and Everen Capital Corporation. Mr. Esrey currently serves on the
compensation committee of each of PanEnergy Corporation and Everen Capital Cor-
poration.
<PAGE>
Gary D. Forsee, Representative
Gary D. Forsee served as a representative on the Partnership Board from
March 1995 until September 1996 and was re-appointed in July 1997 until March
1998. He was the President--Long Distance Division of Sprint from March 1995
until February 1998. Prior to such appointment, Mr. Forsee served for more than
five years in other capacities at Sprint, including President and Chief
Operating Officer--Government Systems Division, President--Business Services
Group and Chief of Staff--Long Distance Division. In February 1998, Mr. Forsee
was appointed President and Chief Executive Officer of Global One, a joint
venture between Sprint, France Telecom and Deutsche Telekom AG.
Gerald W. Gaines, Representative
Gerald W. Gaines was appointed as a representative on the Partnership
Board in March 1995. He has been the President of TCI Spectrum Holdings, Inc.
and Senior Vice President of TCI Communications, Inc. since 1994. Prior to
joining TCI Communications, Mr. Gaines founded GCG, Inc., a management
services firm advising the telecommunications industry. Mr. Gaines is a
director of Teleport Communications Group Inc.
Arthur B. Krause, Representative
Arthur B. Krause served as a representative on the Partnership Board
from March 1995 until January 1998. He is the Executive Vice President and Chief
Financial Officer of Sprint, positions which he has held since 1988. Prior to
such appointment, Mr. Krause served in other management capacities at Sprint,
including President of United Telephone-Eastern Group.
Ronald T. LeMay, Representative
Ronald T. LeMay served as a representative on the Partnership Board from
September 1996 until July 1997 and was re-appointed in January 1998. He is
President and Chief Operating Officer of Sprint. In October 1989, Mr. LeMay was
appointed President and Chief Operating Officer for the Long Distance Division,
a position he held until assuming responsibility for the Company in March 1995.
Mr. LeMay served as President and Chief Executive Officer of Sprint Spectrum
until September 1996, when he resumed his position as President and Chief
Operating Officer of Sprint. From July 1997 until October 1997, Mr. LeMay served
as Chief Executive Officer of Waste Management Systems. He serves on the Board
of Directors of Sprint and is a director of Yellow Corporation.
James O. Robbins, Representative
James O. Robbins was appointed as a representative on the Partnership
Board in March 1995. He has served as President of Cox since September 1985,
and as Chief Executive Officer since May 1994. Mr. Robbins joined Cox in Sep-
tember 1983 and has served as Vice President, Cox Cable New York City and as
Senior Vice President, Operations of Cox. Mr. Robbins is a director of
Telewest Plc, Teleport Communications Group Inc. and Cox.
<PAGE>
Lawrence S. Smith, Representative
Lawrence S. Smith was appointed as a representative on the Partner-
ship Board in March 1995. He has been Executive Vice President of Comcast
since December 1995. Prior to that time, Mr. Smith served as Senior Vice Pres-
ident of Comcast for more than five years. Mr. Smith is the Principal Account-
ing Officer of Comcast. Mr. Smith is a Director of Comcast UK Cable Partners
Limited.
Thomas E. Weigman, Representative
Thomas E. Weigman was appointed as a representative on the Partnership
Board on March 4, 1998. He is the President of Sprint's Consumer Services Group,
a position which he has held since 1995. Prior to such appointment, Mr. Weigman
served as the President of Sprint's Multimedia and Strategic Services Group and
Chief Marketing Officer for Sprint.
Committees of the Partnership Board; Compensation; Committee Interlocks
Messrs. Krause and Smith have been appointed by Sprint and Comcast,
respectively, to serve on the Audit Committee. Messrs. LeMay and Smith have been
appointed by Sprint and Comcast, respectively, to serve on the Compensation
Committee. TCI and Cox have not yet named their representatives on the Audit
Committee or the Compensation Committee. Representatives receive no compensation
for serving on the Partnership Board or any committee thereof. There are no
Compensation Committee interlocks between Holdings and any affiliated entity.
<PAGE>
Item 11. Executive Compensation
Summary Compensation of Executive Officers. The following table reflects the
cash and non-cash compensation paid by the Company for services in all
capacities for the years ended December 31, 1995, 1996, and 1997 by those
persons who served as the Chief Executive Officer during the fiscal year ended
December 31, 1997, and the other four most highly compensated executive officers
of the Company, determined as of the end of the fiscal year ended December 31,
1997 (the "Named Executives"). The amounts set forth below are only for that
portion of the respective years that the Named Executives were employed by the
Company.
<TABLE>
Summary Compensation Table
Annual Compensation Long Term Compensation
----------------------------------------- ---- ------------------------------------
Securities
Underlying LTIP
Name and Principal Position Year Salary(1) Bonus(2) Other Options/SARs Payouts($)(3)
(#)(3)
- ---------------------------- ------- -- ----------- ----------- ---------- ------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Andrew Sukawaty........... 1997 $ 426,630 $ 325,780 $ 124,665 (4) - $ -
Chief Executive Officer 1996 146,552 325,000 63,620 (5) - -
Arthur A. Kurtze.......... 1997 318,209 167,370 2,584 - -
Chief Operating Officer 1996 295,692 202,723 - - -
1995 171,320 107,500 - 11,000 69,890
Joseph M. Gensheimer...... 1997 313,200 123,800 2,905 - -
General Counsel 1996 302,990 106,000 172,459 (6) - -
1995 78,161 31,150 233,381 (7) - -
Robert M. Neumeister, Jr.. 1997 287,098 148,560 7,064 - -
Chief Financial Officer 1996 277,529 119,400 13,439 (5) - -
1995 79,023 35,950 34,822 (8) - -
Charles E. Levine......... 1997 277,219 142,560 38,520 (9) - -
Chief Marketing Officer - -
- -
</TABLE>
- ------------------
(1) Includes all amounts earned for the respective years, even if deferred
under the Company's Executive Deferred Compensation Plan.
(2) Includes an estimate of the short-term incentive compensation target
established for each officer.
(3) Mr. Kurtze was employed by Sprint immediately prior to his employment by
the Company, and as a former employee, he participated in certain long-term
incentive plans at Sprint not available to the other executives listed in
this table. The Company reimbursed Sprint for a portion of the amounts
shown.
(4) Of the $124,665 shown as other compensation, $92,823 represents relocation
expenses paid on behalf of Mr. Sukawaty.
(5) Represents relocation expenses paid on behalf of Messrs. Sukawaty and
Neumeister.
(6) Includes relocation expenses of $22,459 paid on behalf of Mr. Gensheimer
and $150,000 represents foregone incentive compensation from his former
employer.
(7) Of the $233,381 shown as other compensation, $83,287 represents relocation
expenses paid on behalf of Mr. Gensheimer and $150,000 represents foregone
incentive compensation from his former employer
(8) Of the $34,822 shown as other compensation, $31,818 represents relocation
expenses paid on behalf of Mr. Neumeister.
(9) Of the $38,520 paid, $22,050 represents relocation expenses paid on behalf
of Mr. Levine.
<PAGE>
Long-Term Incentive Plan Awards
The Partnership Board has adopted a Long-Term Incentive Compensation
Plan (the "Long-Term Plan"). The Long-Term Plan is administered by the
Partnership Board, which is authorized to interpret Long-Term Plan provisions,
determine membership, approve incentive targets and payouts and otherwise manage
the Long-Term Plan. The Long-Term Plan has no specified termination date and may
be amended or terminated without constraint.
Employees meeting certain eligibility requirements are considered to be
participants in the Long-Term Plan. Participants received 100% of the
pre-established targets for the period from July 1, 1995 to June 30, 1996 (the
"Introductory Term"). Participants elected a payout of the amount due or
converted 50% or 100% of the award to appreciation units. Unless converted to
appreciation units, payment for the Introductory Term will be made in the third
quarter of 1998. Participants had until March 15, 1997 to make payout or
conversion elections. Appreciation units for the 1996 Long-Term Plan vest 25%
per year commencing on the second anniversary of the date of grant. Appreciation
units for the 1997 Long-Term Plan vest 25% per year commencing on the first
anniversary of the date of the grant and will be granted upon the final results
of an independent valuation of the Company as of June 30, 1997.
The following table summarizes appreciation units granted under the 1996
Long-term Incentive Compensation Plan to the Named Executives. The amounts shown
are the potential realizable values on these units based on assumed annualized
rates of appreciation in the value of the appreciation units of five percent and
ten percent over the term of the units, as set forth in the Securities and
Exchange Commission ("SEC") rules.
<TABLE>
Unit Grants in Last Fiscal Year
Percent
of total
units Potential Realizable Value at Assumed
granted Annual Rates of Unit Appreciation
Number to Exercise Market for Term (2)
of employees or Price at ----------------------------------------
units in fiscal base Date of Expiration
granted(1) year price Grant Date 0% 5% 10%
- ------------------------------------- ----------- -------- ---------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Andrew Sukawaty...... 135,519 12.9% $ 24.00 $ 30.00 6/30/2006 (3) (3) $ 7,293,633
Arthur A. Kurtze..... 51,384 4.9% 24.00 30.00 6/30/2006 $ 308,304 $1,279,462 2,765,487
Joseph M. Gensheimer. 28,168 2.7% 24.00 30.00 6/30/2006 169,008 701,383 1,516,002
Robert M. Neumeister, 46,618 4.4% 24.00 30.00 6/30/2006 279,708 1,160,788 2,508,981
Jr.................
Charles E. Levine.... 19,307 1.83% 24.00 30.00 6/30/2006 115,842 480,744 1,039,103
</TABLE>
- -------------
(1) The number of units granted for Mr. Sukawaty covers the grant periods
through 1999. The number of units granted for the other Named Executives
covers the grant periods through 1998.
(2) The dollar amounts in these columns are the result of calculations at the
five percent and ten percent rates set by the SEC and are not intended to
forecast future appreciation of the units.
(3) The Company has entered into an agreement with Mr. Sukawaty under which he
is guaranteed a minimum rate of return of eight percent. Thus, the minimum
potential realized value exceeds both the zero percent and five percent
rates set by the SEC.
<PAGE>
Short-Term Incentive Plan Summary
The Partnership Board has adopted a Short-Term Incentive Compensation
Plan (the "Short-Term Plan"). The Short-Term Plan is administered by the
Partnership Board, which is authorized to interpret Short-Term Plan provisions,
determine membership, approve incentive targets and payouts and otherwise manage
the Short-Term Plan. The Short-Term Plan has no specified termination date and
may be amended or terminated without constraint.
The Partnership Board selects eligible employees to participate in the
Short-Term Plan. Eligibility is limited to employees within exempt salary bands.
Participation in the Short-Term Plan precludes participation in any other
short-term compensation plans.
Payouts are granted based on pre-set targeted opportunities. Performance
periods are one year long and incentive targets ("Incentive Targets") are
approved by the Partnership Board for each performance period. An Incentive
Target is established for each position based on the Company's overall
compensation strategy. Incentive Targets contain Company and personal objective
components, which are approved by the Chief Executive Officer and the
Partnership Board. Maximum earnings for the Company objectives are determined by
the Board for each performance period. Participants may earn a maximum of 120%
of the incentive opportunity allocated to the personal objective component.
However, a minimum level of performance may be required to generate payout for
the personal objective component.
Payouts for employees selected to participate in the Short-Term Plan
after the start of a performance period are prorated as are certain payouts for
Short-Term Plan participants whose employment with the Company terminates prior
to the end of a performance period. Payouts for Short-Term Plan participants who
change positions during a performance period will be prorated according to the
opportunities applicable to the positions which were held. Notwithstanding the
above, employees may not begin participation in the Short-Term Plan within two
calendar months prior to the completion of a performance period.
Participation in the Short-Term Plan is terminated upon the transfer to
a nonparticipating position in the Company, employment by a Partner, death,
disability or separation from the Company for lack of work. Terminated
participants are eligible for a prorated payment based upon the time served
under the Plan. If a participant is terminated for any but the aforementioned
reasons, that participant's Short-Term Plan payment is deemed forfeited.
Participants who complete a performance period will be eligible to receive a
Short-Term Plan payment regardless of the reason for termination.
Savings Plan
The Company maintains a savings program (the "Savings Plan") for certain
employees, which qualifies under Section 401(k) of the Internal Revenue Code.
Most permanent full-time, and certain part-time, employees are eligible to
become participants in the plan. Participants make contributions to a basic
before tax account and a supplemental before tax account. The maximum
contribution for any participant for any year is 16% of such participant's
compensation subject to maximum amounts set by federal taxation law and certain
additional limitations for Highly Compensated Individuals (as defined in the
Savings Plan). For each eligible employee who elects to participate in the
Savings Plan and makes a contribution to the basic before tax account, the
Company makes a matching contribution equal to 50% of the amount of the basic
before tax contribution of each participant up to the first 6% that the employee
<PAGE>
elects to contribute. Contributions to the Savings Plan are invested, at the
participant's direction, in several designated investment funds. Distributions
from the Savings Plan generally will be made only upon retirement or other
termination of employment, unless deferred by the participants.
Profit Sharing Plan (Retirement Component)
Employees are eligible to participate in the Profit Sharing Plan after
completing 12 consecutive months of service. The Company's profit sharing
contribution will be based on eligible compensation (as defined by the plan). A
combination of age and years of service will determine the amount contributed,
which will range from two to ten percent of eligible compensation. It will be
deposited into individual accounts of the Company-sponsored 401(k) plan. Such
accounts will be established for employees who do not participate in the 401(k)
plan. The profit sharing contribution by the Company will be subject to the
applicable 401(k) investment percentage criteria. The contribution vests after
completion of five years of service; once vested the plan is considered
portable.
Employment Agreements
The Company has entered into employment agreements with Messrs.
Sukawaty, Gensheimer and Levine. The agreements provide for annual base
salaries, as well as short-term and long-term incentive opportunities.
The agreements provide that Sprint Spectrum may terminate the named
officers' employment for any reason at any time, provided, however, that if
termination is other than for cause, total disability or the voluntary
resignation of such officers, Sprint Spectrum will be required to pay special
compensation which includes, among other things, (i) bi-weekly compensation for
a period of 18 months (the "Severance Period"), (ii) subject to certain
conditions, a bonus under any short-term compensation plan maintained during the
Severance Period, (iii) a prorated award under any long-term incentive plan in
which the officer participates, (iv), life, medical and retirement benefits
throughout the Severance Period and (v) outplacement counseling.
Pursuant to the terms of these employment agreements, each of these
officers have agreed that, for 18 months following termination of employment for
any reason, he will not accept any position where, within any 90-day period, he
dedicates his time and efforts principally to a wireless business anywhere in
the United States.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of February 15, 1998, the ownership of
Holdings, MinorCo, L.P., Sprint Spectrum L.P. and FinCo. For a more detailed
discussion of certain ownership interests, see "Business" and "Certain
Relationships and Related Transactions."
Percentage
Name and Address of Beneficial Owner Type of Interest Interest
Sprint Spectrum Holding Company, L.P.
Sprint Enterprises, L.P.(1).............. Partnership(2) 40%
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
TCI Spectrum Holdings, Inc.(3)........... Partnership(2) 30%
5619 DTC Parkway
Englewood, Colorado 80111
Comcast Telephony Services4.............. Partnership(2) 15%
1500 Market Street
Philadelphia, Pennsylvania 19102-2148
Cox Telephony Partnership(5)............. Partnership(2) 15%
1400 Lake Hearn Drive
Atlanta, Georgia 30319-1464
Sprint Spectrum L.P.
Sprint Spectrum Holding Company, L.P.(6). General Partnership 99%
4900 Main Street-Twelfth Floor
Kansas City, Missouri 64112
MinorCo, L.P............................. Limited Partnership 1%
4900 Main Street-Twelfth Floor
Kansas City, Missouri 64112 MinorCo, L.P.
Sprint Enterprises, L.P.(1).............. Partnership 40%
2330 Shawnee Mission Parkway
Westwood, Kansas 66205
TCI Spectrum Holdings, Inc.(3)........... Partnership(2) 30%
5619 DTC Parkway
Englewood, Colorado 80111
Comcast Telephony Services(4)............ Partnership(2) 15%
1500 Market Street
Philadelphia, Pennsylvania 19102-2148
Cox Telephony Partnership(5)............ Partnership(2) 15%
1400 Lake Hearn Drive
Atlanta, Georgia 30319-1464
Sprint Spectrum Finance Corporation
Sprint Spectrum L.P....................... Common Stock 100%
4900 Main Street- Twelfth Floor
Kansas City, Missouri 64112
- -----------------------------------
(1) An indirect wholly-owned subsidiary of Sprint Corporation. The general
partner of Sprint Enterprises, L.P. is US Telecom, Inc., a subsidiary of
Sprint Corporation. The limited partners of Sprint Enterprises, L.P. are
UCOM, Inc., UST PhoneCo, Inc. and UC PhoneCo, Inc., each a subsidiary of
Sprint Corporation.
(2) Each Partner is both a general partner and a limited partner and holds
99.0% of its partnership as a general partner and 1.0% as a limited
partner.
(3) A subsidiary of Tele-Communications, Inc. Interest was originally held by
TCI Network Services and subsequently transferred to TCI Telephony
Services, Inc. which changed its name to TCI Spectrum Holdings, Inc.
(4) Comcast Telephony Services is a general partnership. The general partners
are COM Telephony Services, Inc. and Comcast Telephony Services, Inc.
(5) Cox Telephony Partnership is a general partnership. The general partners
are Cox Communications Wireless, Inc. and Cox Telephony Partners, Inc.
(6) As of December 31, 1997, Holdings, the sole general partner of Sprint
Spectrum, owned a greater than 99.0% partnership interest in Sprint
Spectrum, and MinorCo, the sole limited partner, owned a partnership
interest equal less than 1.0%. The interests held by each of Holdings and
MinorCo fluctuate based on the amount of equity contributed by Holdings to
Sprint Spectrum because MinorCo's limited partnership interest is equal to
the ratio of $5.0 million (its investment in Sprint Spectrum ) to the total
contributed equity to Sprint Spectrum.
<PAGE>
Item 13. Certain Relationships and Related Transactions
The general partner of the Company is Holdings, which holds a greater
than 99% general partnership interest. There are four general partners of
Holdings, Sprint Enterprises, L.P., which has a 40% partnership interest, TCI
Spectrum Holdings, Inc. which has a 30% partnership interest, and Comcast
Telephony Services and Cox Telephony Partnership, each of which has a 15%
partnership interest. Each of the Partners is a subsidiary of Sprint, TCI,
Comcast and Cox, respectively. Sprint is a leading provider of domestic and
international long distance and local exchange telecommunications services. TCI
is one of the largest cable television operators in the United States in terms
of numbers of basic subscribers served. Comcast is engaged in the development,
management and operation of cable and cellular telephone communications systems
and the production and distribution of cable programming. Comcast also provides
cellular telephone communications services in markets with an aggregate
population of over 8.2 million, including the Comcast Service Area. Cox is a
fully integrated, diversified media and broadband communications company with
operations and investments in U.S. cable televisions systems, international
cable television systems, programming and telecommunications and technology.
The Holdings Partnership Agreement sets forth guidelines for business
dealings between the Company and/or Holdings and the Partners and their
affiliates, including the Parents. The Holdings Partnership Agreement permits
Holdings and its subsidiaries, including the Company, to enter into transactions
with the Partners and their affiliates in the normal course of their respective
businesses; provided, however, that (i) any contract, agreement, relationship or
transaction between Holdings or any of its subsidiaries and any person in which
any of the Partners or their affiliates has a direct or indirect material
interest must be approved (after full disclosure by the interested Partner(s) of
all material facts relating to such matter) by the Partnership Board, with the
Partnership Board representatives of the interested Partner(s) abstaining from
deliberations and voting and (ii) the Partnership Board has determined that the
price and terms of such transaction are fair to Holdings and its subsidiaries,
including the Company, and that the price and terms of such transactions are no
less favorable than comparable transactions involving non-affiliates. Subject to
certain conditions, including, without limitation, unanimous approval of
appropriate procedures, the Partnership Board may elect from time to time to
provide rights of first opportunity to various Partners or their affiliates. In
addition, the Holdings Partnership Agreement contains other provisions relating
to transactions between Holdings and its subsidiaries, including the Company, on
the one hand, and the Partners and their affiliates, on the other hand. No
procedures have been adopted by the Company to determine the fairness of related
party transactions and no determination has been made by the Company as to
whether such procedures will be adopted. The Company believes that it will be
able to determine the fairness of related party transactions on a case-by-case
basis through consultation with its independent advisors, market surveys and
other third party means of verification.
The Company entered into an agreement with Sprint to sell the Company's
paging services. Under the agreement, Sprint serves as the Company's agent for
selling traditional paging services and markets these services through direct
mail, direct sales, employee programs, advertising and promotions, and the
agreement does not affect the Company's ability to offer paging services as part
of its integrated wireless service package.
Sprint entered into a three year agreement to become an official sponsor
to the NFL through 1998. The Company elected to participate in the agreement,
and is allocated $5 million per year of the total contract cost.
The Company has entered into a five year contract with Sprint whereby
Sprint will provide invoicing services, including printing customer invoices,
placing the invoices and any other informational or
<PAGE>
promotional inserts into envelopes, and mailing the invoices to the Company's
customers. The Company agreed to pay for the initial development of the systems
and an ongoing charge per invoice handled. The per-invoice charge decreases as
volumes increase.
Sprint was selected as the Company's operator services vendor and was
awarded a three year contract. Services will include "0" call processing, busy
line verification, and initial set-up of software control tables for
confirmation of local calling areas. The Company is charged on a per call record
basis for services provided. Additional charges may be required if specified
monthly call volumes are not realized.
The Company has also entered into a three year agreement with Sprint
whereby Sprint will provide asynchronous transfer mode (ATM) switching equipment
to enable "soft" hand-offs, resulting in fewer dropped calls. When cell sites
are connected to different switches, ATM switching provides for a "soft"
hand-off when the mobile customer's handset establishes a connection with a new
cell before disconnecting with the current cell. Monthly charges are usage-based
and will not increase during the term of the agreement; however, such fees may
be reduced to any lower rate provided to any other customer for such services
during the term of the agreement.
The Company uses Sprint as its interexchange carrier and the agreement
for such service is covered under the Holdings Partnership Agreement.
The Company entered into a miscellaneous services agreement with
Sprint/United Management Company ("Sprint/United"), an affiliate of Sprint, for
Sprint/United to provide various administrative services (e.g., payroll, , etc.)
for the Company. At this time, the Company reimburses Sprint for certain
accounting and data processing services, for participation in certain
advertising contracts, for certain cash payments made by Sprint on behalf of the
Company and other management and administrative services. The costs of such
services are allocated based on direct usage. The aggregate amount of such
expenses was approximately $10,500,000, $11,900,000 and $2,646,000 for 1997,
1996 and 1995, respectively.
In October 1997, the Company entered into a six-month sales agency
agreement pursuant to which Sprint/United will be selling the Company's
equipment and services to Sprint/United's customer base in some markets. The
Company anticipates entering into a longer term agreement with Sprint/United for
more of its markets prior to expiration of the initial term. However, there can
be no assurance that the parties will be able to reach such an agreement.
The Company anticipates entering into additional sales agency agreements
with some of its Partners for the sale of Sprint PCS equipment and services
directly to customer bases of the Partners and their affiliates, as well as for
referrals of customers to Sprint Spectrum. Certain of these sales agency
agreements contemplate that the Company will be a sales agent for sales of
certain products and services of the Partners or their affiliates. However,
there can be no assurance that the parties will be able to reach such an
agreement.
On June 21, 1996, the Company entered into an agreement with Cox PCS
pursuant to which the Company is obligated to sell to Cox PCS a fixed percentage
of the CDMA PCS subscriber equipment purchased by the Company from QualComm
Personal Electronics. Although Cox PCS is not a party to the Purchase and Supply
Agreement among the Company, QualComm Personal Electronics and the various other
parties thereto, the Company has agreed to sell the CDMA PCS subscriber
equipment to Cox PCS at cost.
<PAGE>
Subject to certain exceptions, the Holdings Partnership Agreement
restricts any Partner and its controlled affiliates from bidding on, acquiring,
or directly or indirectly, owning, managing, operating, joining, controlling or
financing, or participating in the management, operation, control or financing
of, or being connected as a principal, agent, representative, consultant,
beneficial owner of an interest in any person, or entity, or otherwise with, or
use or permit its name to be used in connection with, any business that engages
in the bidding for or acquisition of any wireless business license or engages in
any Wireless Business or provides, offers, promotes or brands services that are
within Holdings' core business. Unless approved by a unanimous vote of the
Partners and subject to certain provisions, (i) as a result of Comcast's
ownership of a PCS license for the Philadelphia MTA, Holdings and its
subsidiaries (including the Company) are prohibited from engaging in any of the
activities listed in the preceding sentence, including bidding for or acquiring
any PCS license, in Philadelphia and (ii) no Partner or controlling affiliate
may bid in a PCS auction for any wireless business license, and at no time may
any Partner bid for or acquire a wireless business if such bid or acquisition
would violate or cause the Partnership or other Partners to violate any rules of
the FCC.
The Holdings Partnership Agreement provides that the marketing channels
of the Company will include each of the Partners and certain of their
affiliates. Each of the Partners will be non-exclusive sales agents for the
Company's services, and the Company will be a non-exclusive sales agent for
those services Sprint and the Cable Parents make available to the Company. Any
commissions payable as a result of the sales agency relationships between and
among the Company and the Partners are required to be no less favorable to the
agent than those for comparable agency arrangements with third parties
irrespective of volume. Subject to certain exceptions, the Company's services
will be offered, promoted and packaged solely under the Sprint trademark and the
logo used in connection therewith. Nothing in the Holdings Partnership
Agreement, however, precludes or prohibits the Partners and their affiliates
from marketing, selling or distributing their own non-wireless products and
services.
The Holdings Partnership Agreement provides that each Partner and its
controlled affiliates and Holdings, as a whole, will cause their respective
agents to keep secret and maintain in confidence all confidential and
proprietary information and data of Holdings, the Partners and such affiliates.
Subject to such confidentiality restrictions, Holdings and its subsidiaries will
grant each Partner and its controlled affiliates access to technical information
of Holdings and its subsidiaries.
Pursuant to the Holdings Partnership Agreement, each Partner has agreed
to provide certain services to the Company in connection with the operation of
the network, including antenna sites and/or strand mounting of RF and
transmission equipment, transmission facilities between cell sites and
designated switching locations and provision of primary power, standby power and
maintenance. The provision of any such services by Comcast within a specified
service area is not required.
Part IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
(a) 1. See "Index to Financial Statements" set forth on page F-1.
2. See "Index to Financial Statements" set forth on page F-1.
<PAGE>
3. The following Exhibits are part of this report:
EXHIBITS
3.1 Certificate of Limited Partnership of Sprint Spectrum L.P. (in
corporated by reference to Form S-1 Registration Statement,
Registration No. 333-06609, filed on June 21, 1996).
3.2 Amended and Restated Agreement of Limited Partnership of
MajorCo, L.P. (renamed Sprint Spectrum Holding Company, L.P.)
dated January 31, 1996, among Sprint Spectrum, L.P. (renamed
Sprint Enterprises, L.P.), TCI Network Services, Comcast
Telephony Services, and Cox Telephony Partnership
(incorporated by reference to Form S-1 Registration Statement,
Registration No. 333-06609, filed on June 21, 1996).
3.3 Agreement of Limited Partnership of MajorCo Sub, L.P. (renamed
Sprint Spectrum L.P), dated as of March 28, 1995, among
MajorCo, L.P. and MinorCo, L.P. (incorporated by reference to
Form S-1 Registration Statement, Registration No. 333-06609,
filed on June 21, 1996).
4.1 Senior Note Indenture, dated August 23, 1996, between Sprint
Spectrum L.P., Sprint Spectrum Finance Corporation, and The
Bank of New York, as Trustee (incorporated by reference to
Form 10-Q, filed on November 12, 1996).
4.2 Form of Senior Note (included in Exhibit 4.1).
4.2 Senior Discount Note Indenture, dated August 23, 1996, between
Sprint Spectrum L.P., Sprint Spectrum Finance Corporation, and
The Bank of New York, as Trustee (incorporated by reference to
Form 10-Q, filed on November 12, 1996).
4.3 Form of Senior Discount Note (included in Exhibit 4.3).
10.1 PCS Software License and Purchase Agreement dated October 8,
1996 between Sprint Spectrum Equipment Company, L.P. and Lu-
cent Technologies Inc.(incorporated by reference to Form 10-Q,
filed on May 13, 1997).
10.2 Amendment No. 1 dated as of February 25, 1997, to the Amended
and Restated Procurement Services Contract dated as of
October 9, 1996, between Sprint Spectrum Equipment
Company, L.P. and Lucen Technologies Inc. (incorporated by
reference to Form 10-Q, filed on May 13, 1997).
10.3 Amendment No. 2 dated as of January 29, 1997, to the Procure-
ment and Services Contract dated as of January 31, 1996, be-
tween Sprint Spectrum Equipment Company, L.P. and Northern
Telecom Inc. incorporated by reference to Form 10-Q filed
on May 13, 1997).
10.4 Employment Agreement dated January 21, 1997, between Sprint
Spectrum L.P. and Charles E. Levine (incorporated by reference
to Form 10-Q, filed on May 13, 1997).
10.5 Amendment No. 1 dated as of May 29, 1997, to the Credit Agree-
ment, dated as of October 2, 1996, among Sprint Spectrum L.P.,
Lucent Technologies Inc., the several banks and other
<PAGE>
financial institutions and entities from time to time
parties to the Credit Agreement and Lucent Technologies Inc.,
as agent for the Lenders (incorporated by reference to
Form 10-Q, filed on August 13, 1997).
10.6 First Amendment dated as of April 30, 1997, to the Credit
Agreement dated as of October 2, 1996, among Sprint Spectrum
L.P., Northern Telecom Inc., the several banks and other
financial institutions and entities from time to time parties
to the Credit Agreement and Bank of America NT & SA, as agent
for the Lenders (incorporated by reference to Form 10-Q, filed
on August 13, 1997).
10.7 Sprint Spectrum L.P. 1996 Long-Term Incentive Compensation
Plan (incorporated by reference to Form 10-Q, filed on October
31, 1997).
10.8 Sprint Spectrum L.P. 1997 Long-Term Incentive Compensation
Plan (incorporated by reference to Form 10-Q, filed on October
31, 1997).
10.9 First Amendment dated as of December 15, 1997 to the Credit
Agreement, dated as of October 2, 1996, among Sprint Spectrum
L.P., the several banks and other financial institutions and
entities from time to time parties to the Credit Agreement and
The Chase Manhattan Bank, as Administrative Agent for the
Lenders.
10.10 Second Amendment dated as of December 15, 1997 to the Credit
Agreement dated as of October 2, 1996, among Sprint Spectrum
L.P., Lucent Technologies Inc., the several banks and other
financial institutions and entities from time to time parties
to the Credit Agreement and The Chase Manhattan Bank, as agent
for the Lenders.
10.11 Second Amendment dated as of November 20, 1997 to the Credit
Agreement dated as of October 2, 1996, among Sprint Spectrum
L.P., Northern Telecom Inc., the several banks and other
financial institutions and entities from time to time parties
to the Credit Agreement and Bank of America NT & SA, as agent
for the Lenders.
12 Statements re: computation of ratios
21 Subsidiaries of Registrant
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the fiscal year ended December 31,
1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SPRINT SPECTRUM L.P.
(Registrant)
By /s/ Andrew Sukawaty
Andrew Sukawaty
President and Chief Executive Officer
Date: March 17, 1998
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below hereby appoints Andrew Sukawaty, Robert M. Neumeister, Jr. and Joseph M.
Gensheimer, and each of them individually, his true and lawful agent, proxy and
attorney-in-fact, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to (i) act on, sign
and file with the Securities and Exchange Commission any and all amendments to
this Form 10-K, with all schedules and exhibits thereto, (ii) act on, sign and
file with the Securities and Exchange Commission any and all exhibits to this
Form 10-K or any amendments hereto and (iii) take any and all action which may
be necessary or appropriate in connection therewith, granting unto such agents,
proxies and attorneys-in-fact, and each of them individually, full power and
authority to do and perform each and every act and thing necessary or
appropriate to be done, as fully for all intents and purposes as he might or
could do in person, hereby approving, ratifying and confirming all that such
agents, proxies and attorneys-in-fact, any of them or any of his or their
substitute or substitutes may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 17th day of March, 1998.
/s/ Andrew Sukawaty
Andrew Sukawaty
President and Chief Executive Officer
/s/ Robert M. Neumeister, Jr.
Robert M. Neumeister, Jr.
Chief Financial Officer
/s/ John W. Meyer
John W. Meyer
Vice President and Controller
Principal Accounting Officer
<PAGE>
/s/ Ronald T. LeMay
Ronald T. LeMay
Chairman of Sprint Spectrum Holding Company
Partnership Board
/s/ William T. Esrey
William T. Esrey
Sprint Spectrum Holding Company Partnership
Board Representative
/s/ James O. Robbins
James O. Robbins
Sprint Spectrum Holding Company Partnership
Board Representative
/s/ Lawrence S. Smith
Lawrence S. Smith
Sprint Spectrum Holding Company Partnership
Board Representative
/s/ Gerald W. Gaines
Gerald W. Gaines
Sprint Spectrum Holding Company Partnership
Board Representative
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SPRINT SPECTRUM
FINANCE CORPORATION
(Registrant)
/s/ Andrew Sukawaty
Andrew Sukawaty
President
Date: March 17, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on the 17th day of March, 1998.
/s/ Andrew Sukawaty
Andrew Sukawaty
President and Director
/s/ Robert M. Neumeister, Jr.
Robert M. Neumeister, Jr.
Vice President, Treasurer and Director
<PAGE>
SPRINT SPECTRUM L.P.
SPRINT SPECTRUM FINANCE CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Page
Reference
------------
Sprint Spectrum L.P.
Selected Financial Data......................................... F-2
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... F-3
Consolidated Financial Statements
Report of Independent Auditors'............................. F-11
Consolidated Balance Sheets................................. F-12
Consolidated Statements of Operations....................... F-13
Consolidated Statements of Changes in Partners' Capital..... F-14
Consolidated Statements of Cash Flows....................... F-15
Notes to Consolidated Financial Statements.................. F-16
Schedule II F-30
Sprint Spectrum Finance Corporation
Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... F-31
Financial Statements
Report of Independent Auditors' ............................ F-32
Balance Sheets.............................................. F-33
Statements of Operations.................................... F-34
Statements of Changes in Stockholder's Equity............... F-35
Statement of Cash Flows..................................... F-36
Notes to Financial Statements............................... F-37
<PAGE>
SPRINT SPECTRUM L.P.
SELECTED FINANCIAL DATA
<TABLE>
For the
Period from
October 24,
For the Years Ended 1994 (date of
December 31, inception) to
----------------------------------------------------------- December 31,
1997 1996 1995 1994
----------------- ------------------- ----------------- -----------------
(In Thousands)
Results of Operations
<S> <C> <C> <C> <C>
Net operating revenues............... $ 235,502 $ 4,175 $ - $ -
Operating loss (1)................... 1,298,742 355,873 64,520 3,332
Financial Position
Total assets (2)..................... 5,930,917 3,898,766 2,244,343 123,875
Long-term debt (including current
maturities)....................... 3,112,919 691,241 - -
Construction obligations............. 705,280 714,934 - -
Other noncurrent liabilities......... 48,975 11,356 - -
</TABLE>
(1) Effective August 31, 1996, the Company transferred its investment in
APC to Holdings. Sprint Spectrum's operating loss for the year ended
December 31, 1996 includes approximately $92 million of equity in
losses of APC through August 31, 1996. The operating loss for the year
ended December 31, 1995 includes approximately $46 million of equity in
losses of APC.
(2) The total assets of Sprint Spectrum as of December 31, 1995 include an
investment in APC of $85,546 and a note receivable from APC of $655.
<PAGE>
SPRINT SPECTRUM L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with Sprint
Spectrum L.P.'s consolidated financial statements and notes thereto. The term
"Company" refers to Sprint Spectrum L.P. and its subsidiaries, including FinCo,
WirelessCo, RealtyCo, and EquipmentCo. As of July 1, 1996, Holdings transferred
substantially all operating assets and liabilities to the Company. The Company's
financial information as presented includes the pooled operations of Holdings
through June 30, 1996.
The Company includes certain estimates, projections and other forward-looking
statements in its reports as well as in presentations to analysts and others and
in other material disseminated to the public. There can be no assurances of
future performance and actual results may differ materially from those in the
forward-looking statements. Factors which could cause actual results to differ
materially from estimates or projections contained in forward-looking statements
include:
- the establishment of a market for new digital personal communications
services ("PCS");
- the introduction of competitive service plans and pricing and other
effects of vigorous competition in the markets in which the Company
currently operates or intends to market its services;
- the impact of technological change which may diminish the value of
existing equipment which may, in turn, result in the need to incur
additional costs to upgrade previously sold communications equipment;
- the cost of entering new markets necessary to provide services;
- the impact of any unusual items resulting from ongoing evaluations of
the Company's business strategies;
- the impact of changes brought about by possible restructuring of
partners' ownership interests;
- the effects of unanticipated delays or problems with the development
of technologies and systems used by the Company;
- requirements imposed on the Company and its competitors by the Federal
Communications Commission ("FCC") and state regulatory commissions
under the Telecommunications Act of 1996;
- the possibility of one or more of the markets in which the Company
will compete being impacted by variations in political, economic or
other factors over which the Company has no control;
- the effects of unanticipated delays resulting from zoning or other
disputes with municipalities; and unexpected results in litigation.
General
The Company is an enterprise that was formed to establish a nationwide PCS
wireless telecommunications network. The Company acquired PCS licenses in the
FCC's A Block and B Block PCS auction, which concluded in March 1995, to provide
service to 29 major trading areas ("MTAs") covering 150.3 million Pops.
Additionally, Cox contributed to the Company, effective February 6, 1997, a PCS
license for the Omaha MTA covering 1.7 million Pops. The Company has also
affiliated and expects to continue to affiliate with other PCS providers.
Pursuant to affiliation agreements, each affiliated PCS service provider will
use the Sprint(R) and Sprint PCS(SM) brand names, trademarks of Sprint
Communications Company L.P. ("Sprint Communications").
<PAGE>
Affiliations and Network Coverage
The following is a detail of affiliates in which the Partners have an ownership
interest and to which the Company provides management services.
APC - As of January 1, 1998, Holdings and MinorCo own 99.75% and 0.25%,
respectively, of the partnership interests in American PCS, L.P. ("APC"). APC,
through subsidiaries, owns a PCS license for and operates a broadband GSM
(global system for mobile communications) PCS system in the Washington
D.C./Baltimore MTA, and is in the process of building a code division multiple
access ("CDMA") overlay for its existing GSM PCS system. Construction of APC's
CDMA network was substantially complete in December 1997, and the network became
operational for traveling purposes in January 1998. APC expects to launch CDMA
services on a commercial basis before the end of the first quarter of 1998. APC
has affiliated with the Company and is marketing its products and services under
the Sprint brand name.
Cox Communications PCS, L.P. ("Cox PCS") - Holdings also owns a 49% limited
partnership interest in Cox PCS, a limited partnership that owns a PCS license
for the Los Angeles-San Diego MTA covering 21.5 million Pops. Cox, which
previously owned this license, contributed the license to Cox PCS on March 31,
1997, and is managing partner of Cox PCS. The Company signed an affiliation
agreement with Cox PCS on December 31, 1996. On February 3, 1998, Cox Pioneer
Partnership ("CPP") notified Holdings that CPP was exercising its put rights and
would transfer 10.2% of the interest in Cox PCS to Holdings, subject to FCC
approval, which will give Holdings controlling interest.
SprintCom, Inc. ("SprintCom") -SprintCom, a wholly-owned subsidiary of Sprint,
participated in the FCC's D and E Block auction which ended January 14, 1997,
and was awarded licenses for 139 of 493 BTAs, covering approximately 70 million
Pops, all of which are geographic areas not covered by the Company's owned PCS
licenses or licenses owned by APC, Cox PCS or PhillieCo, L.P. ("PhillieCo"),
discussed below. In accordance with the Amended and Restated Agreement of
Limited Partnership of MajorCo, L.P. (renamed Sprint Spectrum Holding Company,
L.P. ) dated January 31, 1996, SprintCom is required to offer to enter into an
affiliation agreement with Holdings with respect to such BTA licenses pursuant
to which SprintCom's systems in such areas would be included in the Company's
national PCS network, although a final agreement has not yet been reached. In
the interim, Sprint Spectrum has been providing buildout services in certain BTA
markets where SprintCom was awarded PCS licenses and is being reimbursed for
such services, which include engineering, management, purchasing, accounting,
and other related services. SprintCom intends to market its products and
services as Sprint PCS.
PhillieCo - The Company also provides various services to PhillieCo, a limited
partnership organized by and among subsidiaries of Sprint, TCI and Cox that owns
a PCS license for the Philadelphia MTA covering 9.1 million Pops. PhillieCo
markets its products and services as Sprint PCS. Although the Company expects to
affiliate with PhillieCo, there is no affiliation agreement at this time and
there can be no assurance that such an agreement will be reached.
Roaming - The Company has entered into roaming agreements with various analog
cellular providers throughout the United States and Canada. Additionally, the
Company has negotiated roaming arrangements with other CDMA PCS carriers who
provide service in geographic areas not currently covered by the CDMA network of
Sprint Spectrum and its affiliates. As a result, Sprint Spectrum customers with
dual-mode handsets capable of transmitting over cellular and CDMA PCS
frequencies have the ability to roam automatically in areas where Sprint
Spectrum service is not available and where there are roaming agreements.
<PAGE>
Emergence From Development Stage and Continuing Risk Factors
Prior to the third quarter of 1997, the Company reported its operations as a
development stage enterprise. During the development stage, the Company incurred
expenditures in conjunction with PCS license acquisitions, initial design and
construction of the PCS network, engineering, marketing, administrative and
other start-up expenses. The Company has now commenced service in all of the
MTAs in which it owns a license and expects to continue to incur additional
construction costs as it expands coverage in existing license areas.
Additionally, the Company will require substantial working capital to fund
initial operating activities, including the up-front customer acquisition costs.
The extent to which the Company is able to generate operating revenue and
earnings is dependent on a number of business factors, including maintaining
existing financing, generating operating revenues, and attaining profitable
levels of market demand for the Company's products and services.
Year 2000 Issue
The Year 2000 issue addresses the capabilities of computer software, hardware
and firmware to correctly process and exchange dates between the 20th and 21st
centuries. The issue results primarily from coding in computer programs and
chips which uses a two digit date field rather than a four digit date field to
define the applicable year. Any of the Company's computer software, hardware or
firmware that contains or depends upon a date processing function may, for
example, incorrectly recognize a date entry of "00" as the year 1900 rather than
the year 2000 and create a variety of potential miscalculations. This could
result in a system failure or disruptions of operations, including among other
things a temporary inability to process transactions, send invoices or engage in
similar normal business activities.
The Company has made a preliminary assessment of its critical internal business
systems and believes the risk of non-compliance and resultant system failures to
be low. The Year 2000 issue may also affect the systems and applications of the
Company's customers and vendors. The Company is contacting others with whom it
conducts business to receive the appropriate warranties and assurances that
those third parties are or will be Year 2000 compliant. The anticipated cost to
update non-compliant systems resides primarily with third-party vendors. The
Company is currently undertaking a more exhaustive evaluation of its systems and
is planning for the specific implementation of vendor software and testing to be
completed by mid-year 1999. The total cost of modifications and conversions is
not known at this time; however, it is not expected to be material to the
Company's financial position, results of operations or cash flows and is being
expensed as incurred.
Asian Situation
The Asian situation addresses the impact that the financial upheaval in certain
Asian countries may have on the Company's operations. The Company has made a
preliminary assessment of the impact and has determined that there is not a
direct effect on its ability to obtain handsets and other network equipment in
sufficient quantities to meet customer needs. However, the Company is aware that
certain manufacturers of component parts used in the handsets and other network
equipment may be adversely affected by the financial situation in Asia, although
the Company is unable to assess the likelihood of such adverse effect. If such
component manufacturers are unable to produce the necessary components, such
disruption in supply could have a material adverse impact on the operations of
the Company.
<PAGE>
Liquidity and Capital Resources
The buildout of the Company's PCS network and the marketing and distribution of
the Company's PCS products and services will continue to require substantial
capital. The Company currently estimates that its capital requirements (capital
expenditures, the cost of its existing licenses, working capital, debt service
requirements and anticipated operating losses) for the period from inception
through the year 2000 (based on the Company's current plans for its network
buildout in its current license areas) will total approximately $12 billion (of
which approximately $6.9 billion had been expended as of December 31, 1997).
Costs associated with the network buildout include switches, base stations,
towers, antennae, radio frequency engineering, cell site construction and
microwave relocation. Actual amounts of the funds required may vary materially
from these estimates and additional funds would be required in the event of
significant departures from the current business plan, unforeseen delays, cost
overruns, unanticipated expenses, regulatory changes, engineering design changes
and other technological risks.
The Company currently has limited sources of revenue to meet its capital
requirements and has relied upon capital contributions, advances from Holdings,
third party debt and public debt. The Holdings Partnership Agreement provides
for planned aggregate equity capital contributions of approximately $4.2 billion
by the Partners ("Total Mandatory Contributions"), of which $1 billion is not
required to be invested in the Company. Total Mandatory Contributions include
agreed upon values attributable to the contributions of certain additional PCS
licenses by a Partner. The Total Mandatory Contributions amount is required to
be contributed in accordance with capital contribution schedules to be set forth
in approved annual budgets. The partnership board of Holdings may request
capital contributions to be made in the absence of an approved budget or more
quickly than provided for in an approved budget, but always subject to the Total
Mandatory Contributions limit. Throughout 1997, the Partners continued to make
such capital contributions by mutual agreement in the absence of an approved
budget for 1997. However, the Partners have no such obligation in the absence of
an approved budget, and there can be no assurance the Partners will reach such
an agreement or approve the 1998 proposed budget. With regard to the $1.0
billion portion of the $4.2 billion not required to be invested in the Company,
Holdings has used approximately $0.7 million to fund its other affiliate
commitments and make other wireless investments. Amounts budgeted by the
Partners in future years will determine the extent to which the remaining
commitments will be available to the Company.
Furthermore, the fact that the proposed budget for fiscal year 1998 has not been
approved by the Holdings partnership board has resulted in the occurrence of a
"Deadlock Event" under the Holdings Partnership Agreement as of January 1, 1998.
Under the Holdings Partnership Agreement, if one of the Partners refers the
budget issue to the chief executive officers of the Parents for resolution
pursuant to specified procedures and the issue remains unresolved, buy/sell
provisions would be triggered which may result in the purchase by one or more of
the Partners of the interest of the other Partners, or, in certain
circumstances, the liquidation of Holdings and it subsidiaries. Discussions
among the Partners about restructuring their interests in Holdings, in lieu of
triggering such buy/sell procedures, are ongoing. However, there can be no
assurance these discussions will result in a change to the partnership structure
or will avert the triggering of the resolution and buy/sell procedures referred
to above or a liquidation of Holdings.
The Amended and Restated Capital Contribution Agreement (the "Amended
Agreement") was executed effective October 2, 1996, between Sprint Spectrum L.P.
and the Partners. As of December 31, 1997, approximately $3.3 billion had been
contributed to the Company under the Amended Agreement.
In October 1996 and as amended in December 1997, the Company entered into a
credit agreement with The Chase Manhattan Bank, as administrative agent for a
group of lenders, for a $2.0 billion senior secured credit
<PAGE>
facility (the "Bank Facility"). The proceeds of the Bank Facility are to be used
to finance working capital needs, subscriber acquisition costs, capital
expenditures and other general purposes of the Company. The Bank Facility
consists of a $300 million term loan commitment and a revolving credit
commitment of $1.7 billion. As of December 31, 1997, $300 million under the term
loan and $605 million under the revolving credit facility had been borrowed with
$1.1 billion remaining available. There were no borrowings under the revolving
credit commitment at December 31, 1996.
Also in October 1996, the Company entered into credit agreements for up to an
aggregate of $3.1 billion of senior secured multiple drawdown term loan
facilities from two of its network infrastructure equipment vendors. As amended
in April and December 1997, the Nortel facility provides $1.3 billion in senior
secured loans. The Lucent facility, as amended in May and November 1997,
provides $1.8 billion in senior secured loans (together the "Vendor Financing"
and together with the Bank Facility, the "Secured Financing"). The Company is
using the proceeds from the Vendor Financing to fund the purchase of the
equipment and software manufactured by the vendors as well as a substantial part
of the construction and ancillary equipment (e.g., towers, antennae, cable)
required to construct the Company's PCS network. These facilities serve as the
primary financing mechanism for the buildout of the network. The Company has
borrowed $1.6 billion under such facilities at December 31, 1997, of which $300
million was syndicated to Sprint.
The Bank Credit Facility agreement and the Vendor Financing agreements contain
certain restrictive financial and operating covenants, including, among other
requirements, maximum debt ratios (including debt to total capitalization),
limitations on capital expenditures, limitations on additional indebtedness and
limitations on dividends and other payment restrictions affecting certain
restricted subsidiaries. The loss of the right to use the Sprint trademark, the
termination or non-renewal of any FCC license that reduces population coverage
below specified limits, or changes in controlling interest in the Company, as
defined, among other provisions, constitute events of default.
Borrowings under the Secured Financing are secured by the Company's interest in
WirelessCo, RealtyCo and EquipmentCo and certain other personal and real
property (the "Shared Lien"). The Shared Lien equally and ratably secures the
Bank Facility and the Vendor Financing. The Secured Financing is jointly and
severally guaranteed by WirelessCo, RealtyCo and EquipmentCo and is non-recourse
to the Partners and the Parents.
In August 1996, Sprint Spectrum L.P. and FinCo issued $250 million aggregate
principal amount of the 11% Senior Notes and $500 million aggregate principal
amount at maturity of 12 1/2% Senior Discount Notes (together, the "Notes"). The
Senior Discount Notes were issued at a discount to their aggregate principal
amount at maturity and generated proceeds of approximately $273 million. Cash
interest on the Senior Notes will accrue at a rate of 11% per annum and is
payable semi-annually in arrears on each February 15 and August 15, commencing
February 15, 1997. Cash interest will not accrue or be payable on the Senior
Discount Notes prior to August 15, 2001. Thereafter, cash interest on the Senior
Discount Notes will accrue at a rate of 12 1/2% per annum and will be payable
semi-annually in arrears on each February 15 and August 15, commencing February
15, 2002. FinCo was formed solely to be a co-obligor of the Notes. FinCo has
only nominal assets and no operations or revenues, and Sprint Spectrum L.P. will
be responsible for payment of the Notes. On August 15, 2001, Sprint Spectrum
L.P. will be required to redeem an amount equal to $384.772 per $1,000 principal
amount at maturity of each Senior Discount Note then outstanding ($192 million
in aggregate principal amount at maturity, assuming all of the Senior Discount
Notes remain outstanding at such date). The proceeds of approximately $509
million from the issuance of the Notes (net of approximately $14 million of
underwriting discounts, commissions, and offering expenses) were used to fund
capital expenditures, including the buildout of the nationwide PCS network, to
fund working capital requirements, to fund operating losses and for other
partnership purposes. Sprint purchased, and continues to
<PAGE>
hold, approximately $183 million principal amount at maturity of the Senior
Discount Notes. The Notes contain certain restrictive covenants, including,
among other requirements limitations on additional indebtedness, limitations on
restricted payments, limitations on liens, and limitations on dividends and
other payment restrictions affecting restricted subsidiaries.
The Company's business plan will require additional capital financing prior to
the end of 1998. Sources of funding for the Company's further financing
requirements may include additional vendor financing, public offerings or
private placements of equity and/or debt securities, commercial bank loans
and/or capital contributions from Holdings or the Partners. There can be no
assurance that any additional financing can be obtained on a timely basis and on
terms acceptable to the Company and its Partners and within limitations
contained in the Notes, the agreements governing the Secured Financing and any
new financing arrangements. Failure to obtain any such financing could result in
the delay or abandonment of the Company's development and expansion plans and
expenditures, the failure to meet regulatory requirements or other potential
adverse consequences.
For the year ended December 31, 1997, the Company used cash of $916 million in
operating activities, which consisted of the operating loss of $1.4 billion
offset by depreciation and amortization of $354 million and a net change in
working capital of $138 million. As discussed above, the Company has required
(and expects to continue to require) significant working capital to fund the
operations supporting the network buildout and service launch. Cash used in
investing activities totaled $2.1 billion, consisting of capital expenditures
and microwave relocation costs, also discussed above. Cash flow from financing
activities totaled $3 billion during 1997, and included partner capital
contributions of $664 million, net proceeds from term loans and vendor financing
of $1.8 billion, and net borrowings under a revolving credit facility of $605
million after deduction of long-term debt issuance costs. The Company's
available financing sources are described more fully above.
For the year ended December 31, 1996, Sprint Spectrum used cash of $211 million
in operating activities, which consisted of the operating loss of $439 million
and the increase in inventory of $72 million. The uses were offset, in part, by
the equity in the loss of APC through August 31, 1996 and increased payables and
other accruals. Cash used in investing activities totaled $1.7 billion,
consisting of capital expenditures and microwave relocation costs of $1.5
billion and advances to APC of $172 million.
For the year ended December 31, 1995, Sprint Spectrum used cash of $17 million
in operating activities, which consisted of the operating loss of $110 million
offset by an increase in accounts payable and accrued expenses of $46 million
and the equity in the loss of APC. Cash used in investing activities totaled
$2.2 billion, consisting mainly of the purchase of PCS licenses.
Results of Operations
For the Year Ended December 31, 1997
Operating Revenues/Margin
The Company emerged from the development stage in the third quarter of 1997. The
majority of the revenue was generated in the third and fourth quarters and
includes the sales of handsets and accessory equipment through Sprint Spectrum
channels (including Sprint PCS retail stores, telemarketing, and business
channels) and to third party vendors. The negative margin results principally
from the Company's subsidy of handsets. The Company expects to recover the
initial subsidy loss through future service revenues. Cost of
<PAGE>
revenues consists principally of handset and accessory costs, interconnection
costs and switch and cell site expenses, including site rental and utilities.
Average revenue per subscriber for 1997 was approximately $64, excluding
PhillieCo, APC and Cox PCS. This average is expected to decline in the future
(consistent with industry projections) due to increased competition resulting
from additional wireless service providers entering the market, existing
cellular providers and anticipated reductions in per-unit operating costs
resulting from volume increases.
Selling, General and Administrative Expenses
The Company's selling, general and administrative expenses for the year were
$689.2 million compared to $312.7 million for 1996. Selling expenses increased
$160.6 million due to costs incurred during the initial commercial service
launch in various markets and to costs incurred in conjunction with local and
national advertising for existing markets. Such costs include participation with
Sprint in an NFL sponsorship, development and production expenses associated
with advertisements in various media (i.e., television, radio, print), and the
development of printed brochures to promote the Company's products and services.
The Company expects selling expenses will continue to increase in 1998 as the
Company expands its sales and marketing activities.
General and administrative expenses increased $216.0 million due principally to
increases in salary and related benefits, computer equipment and related
expenses and professional and consulting fees. Salaries and benefits, computer
equipment and related expenses increased due to an increase in employee
headcount. These additional employees were added during 1997 to support the
continued growth of the Company. Professional and consulting fees increased due
to the use of consultants and other experts to assist with the continuing
development and enhancement of the Company's sophisticated information systems,
continued rollout and tailoring of employee training, and various other
projects.
Depreciation and Amortization
Depreciation and amortization expense for 1997 was $304.0 million compared to
$11.3 million for 1996. This increase occurred as network equipment in launched
markets has been placed in service and amortization of PCS licenses and
microwave relocation costs in those same markets commenced.
Other Income/Expense
Interest income decreased from $8.3 million for the year ended December 31, 1996
to $4.0 million for the year ended December 31, 1997 as the average daily
invested cash balance decreased during the comparative periods due to the
receipt in the prior year of partner equity contributions in advance of capital
and operational requirements.
Interest expense increased to $117.7 million for the year ended December 31,
1997, compared to $0.5 million for 1996. The balance of the Company's
construction accounts eligible for interest capitalization declined during the
year as markets launched commercial service and equipment was placed in service.
Additionally, interest expense continues to increase as borrowings increase.
Equity in loss of unconsolidated partnership for the year ended December 31,
1996 represents the Company's share of the losses in APC before the ownership
interest was transferred to Holdings on August 31, 1996. The Company retained
the rights and obligations under the affiliation agreement with APC. In
addition, the Company participates in an affiliation agreement with Cox PCS.
Fees earned under these agreements of
<PAGE>
$5.3 million and $1.6 million, respectively, for the years ended December 31,
1997 and 1996 are included in other income.
For the Year Ended December 31, 1996
Sprint Spectrum incurred a loss of $439 million for the year ended December 31,
1996, which included equity in APC loss of $92 million. Certain network
equipment had been placed in service and amortization of PCS licenses and
microwave relocation costs in the launched markets commenced.
The Company commenced initial commercial operations for its PCS services late in
the fourth quarter of 1996 and, as a result, had generated minimal operating
revenues. The negative gross profit resulted primarily from the Company's
subsidy of handsets. Cost of revenues consisted principally of switch and cell
site expenses, including site rental, utilities and access charges. Such costs
were incurred prior to service launch during the network buildout and testing
phases.
Selling expenses increased from $0.1 million for the year December 31, 1995 to
$38.3 million for the year ended December 31, 1996 due to costs incurred in
preparation of and during the initial commercial service launch. Such costs
included participation with Sprint in the NFL sponsorship, development and
production expenses associated with advertisements in various media (i.e.,
television, radio, print), and the development of printed brochures to promote
the Company's products and services.
General and administrative expenses increased from $64.2 million for the year
ended December 31, 1995 to $274.4 million for the year ended December 31, 1996
due principally to increases in salary and related benefits, computer equipment
and related expenses and professional and consulting fees. Salaries and benefits
and computer equipment and related expenses increased due to an increase in
employee headcount. Professional and consulting fees increased due to the use of
consultants and other experts to assist with the development of the Company's
sophisticated information systems (including systems to handle customer care,
billing, network management and financial and administrative services),
development and rollout of training programs for the Company's sales force, and
various other projects associated with the development of the corporate
infrastructure.
Depreciation and amortization expense increased from $0.2 million for the year
ended December 31, 1995 to $11.3 million for the year ended December 31, 1996 as
certain network equipment had been placed in service and amortization of PCS
licenses and microwave relocation costs in the launched markets commenced .
Effective August 31, 1996, the Company's interest in APC, the existing loans to
APC, and obligations to provide additional funding to APC were transferred to
Holdings pursuant to an amendment to the APC partnership agreement. The Company
retained the rights and obligations under an affiliation agreement with APC. The
consolidated financial statements for the year ended December 31, 1996, reflect
the losses allocated to the Company until the transfer to Holdings.
For the Year Ended December 31, 1995
Sprint Spectrum incurred a loss of $110 million for the year ended December 31,
1995, which included equity in APC loss of $46 million. There was no
amortization of licenses during the period as PCS service had not been launched
commercially.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Partners of Sprint Spectrum L.P.
Kansas City, Missouri
We have audited the accompanying consolidated balance sheets of Sprint Spectrum
L.P. and subsidiaries ("the Partnership") as of December 31, 1997 and 1996, and
the related consolidated statements of operations, changes in partners' capital
and cash flows for the three years in the period ended December 31, 1997. Our
audits also included the financial statement schedule listed in the Index at
Item 14 (a)(2). These financial statements and financial statement schedule are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Sprint Spectrum L.P.
and subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for the three years then ended, in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
The Partnership was in the development stage at December 31, 1996; during the
year ended December 31, 1997, the Partnership completed its development
activities and commenced its planned principal operations.
Deloitte & Touche
Kansas City, Missouri
February 3, 1998
<PAGE>
<TABLE>
SPRINT SPECTRUM L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, December 31,
1997 1996
- ------------------------------------------------------------------------ --------------------- ---------------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents......................................... $ 36,821 $ 49,988
Accounts receivable, net.......................................... 96,318 3,310
Receivable from affiliates........................................ 105,156 14,021
Inventory......................................................... 96,907 72,414
Prepaid expenses and other assets................................. 25,353 14,260
--------------------- ----------------------
Total current assets............................................ 360,555 153,993
INVESTMENT IN PCS LICENSES, net...................................... 2,085,836 2,122,908
PROPERTY, PLANT AND EQUIPMENT, net................................... 3,132,664 1,408,680
MICROWAVE RELOCATION COSTS, net...................................... 250,397 135,802
OTHER ASSETS, net.................................................... 101,465 77,383
===================== =====================
TOTAL ASSETS......................................................... $ 5,930,917 $ 3,898,766
===================== =====================
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable.................................................. $ 305,524 $ 196,146
Payable to affiliate.............................................. 1,190 5,626
Accrued interest.................................................. 45,851 12,027
Accrued expenses.................................................. 227,890 47,173
Current maturities of long-term debt.............................. 11,380 5,049
--------------------- ---------------------
Total current liabilities....................................... 591,835 266,021
CONSTRUCTION OBLIGATIONS............................................. 705,280 714,934
LONG-TERM DEBT....................................................... 3,101,539 686,192
OTHER NONCURRENT LIABILITIES......................................... 48,975 11,356
COMMITMENTS AND CONTINGENCIES
LIMITED PARTNER INTEREST IN CONSOLIDATED
SUBSIDIARY........................................................ 5,000 5,000
PARTNERS' CAPITAL AND ACCUMULATED DEFICIT:
Partners' capital................................................. 3,437,565 2,767,564
Accumulated deficit .............................................. (1,959,277) (552,301)
--------------------- ---------------------
Total partners' capital......................................... 1,478,288 2,215,263
===================== =====================
TOTAL LIABILITIES AND PARTNERS' CAPITAL.............................. $ 5,930,917 $ 3,898,766
===================== =====================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SPRINT SPECTRUM L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
For the Year Ended December 31,
--------------------------------------------------------------
1997 1996 1995
------------------ ------------------ ------------------
<S> <C> <C> <C>
OPERATING REVENUES....................... $ 235,502 $ 4,175 $ -
OPERATING EXPENSES:
Cost of revenues....................... 540,986 36,076 -
Selling, general and administrative.... 689,247 312,697 64,309
Depreciation and amortization.......... 304,011 11,275 211
------------------ ------------------ ------------------
Total operating expenses............ 1,534,244 360,048 64,520
------------------ ------------------ ------------------
LOSS FROM OPERATIONS..................... (1,298,742) (355,873) (64,520)
OTHER INCOME (EXPENSE):
Interest income........................ 3,994 8,337 260
Interest expense....................... (117,700) (549) -
Other income........................... 5,472 1,804 38
Equity in loss of unconsolidated
partnership........................ - (92,284) (46,206)
------------------ ------------------ ------------------
Total other income (expense)........ (108,234) (82,692) (45,908)
------------------ ------------------ ------------------
NET LOSS................................. $ (1,406,976) $ (438,565) $ (110,428)
================== ================== ==================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SPRINT SPECTRUM L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(In Thousands)
Partners' Accumulated
Capital Deficit Total
------------------- -------------------- -------------------
<S> <C> <C> <C>
BALANCE, January 1, 1995....................... $ 123,438 $ (3,308) $ 120,130
Contributions of capital....................... 2,173,368 - 2,173,368
Net loss....................................... - (110,428) (110,428)
------------------- -------------------- -------------------
BALANCE, December 31, 1995..................... 2,296,806 (113,736) 2,183,070
Contributions of capital....................... 669,509 - 669,509
Net loss....................................... - (438,565) (438,565)
Transfer of investment in unconsolidated
partnership to Holdings.................... (165,917) - (165,917)
Dividend to Holdings........................... (32,834) - (32,834)
------------------- -------------------- -------------------
BALANCE, December 31, 1996..................... 2,767,564 (552,301) 2,215,263
Contributions of capital....................... 670,001 - 670,001
Net loss....................................... - (1,406,976) (1,406,976)
------------------- -------------------- -------------------
BALANCE, December 31, 1997..................... $ 3,437,565 $ (1,959,277) $ 1,478,288
=================== ==================== ===================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SPRINT SPECTRUM L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Year Ended December 31,
-----------------------------------------------------------------
1997 1996 1995
-------------------- ------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss.............................................. $ (1,406,976) $ (438,565) $ (110,428)
Adjustments to reconcile net loss to net cash
provided by
(used in) operating activities:
Equity in loss of unconsolidated partnership....... - 92,284 46,206
Depreciation and amortization...................... 304,541 11,275 242
Amortization of debt discount and issuance costs... 48,130 14,008 -
Changes in assets and liabilities:
Receivables...................................... (187,630) (16,991) (340)
Inventory........................................ (24,493) (72,414) -
Prepaid expenses and other assets................ (6,550) (21,608) (178)
Accounts payable and accrued expenses............ 319,482 211,555 45,672
Other noncurrent liabilities..................... 37,619 9,500 1,856
-------------------- ------------------- -------------------
Net cash used in operating activities......... (915,877) (210,956) (16,970)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................. (1,980,080) (1,386,346) (31,763)
Proceeds on sale of equipment......................... - - 37
Microwave relocation costs, net....................... (116,253) (135,828) -
Purchase of PCS licenses.............................. - - (2,006,156)
Investment in unconsolidated partnership.............. - - (131,752)
Loan to unconsolidated partnership.................... - (172,000) (655)
-------------------- ------------------- -------------------
Net cash used in investing activities......... (2,096,333) (1,694,174) (2,170,289)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving line of credit......... 605,000 - -
Proceeds from issuance of long-term debt.............. 1,762,914 674,201 -
Change in construction obligations.................... (9,654) 714,934
Payments on long-term debt............................ (2,990) (24) -
Debt issuance costs................................... (20,000) (71,791) -
Limited partner interest in consolidated subsidiary... - - 5,000
Borrowings from affiliates............................ - - 5,000
Partner capital contributions......................... 663,773 669,509 2,173,368
Dividends paid........................................ - (32,834) -
-------------------- ------------------- -------------------
Net cash provided by financing activities..... 2,999,043 1,953,995 2,183,368
-------------------- ------------------- -------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (13,167) 48,865 (3,891)
CASH AND CASH EQUIVALENTS, Beginning of Period.......... 49,988 1,123 5,014
==================== =================== ===================
CASH AND CASH EQUIVALENTS, End of Period................ $ 36,821 $ 49,988 $ 1,123
==================== =================== ===================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of amount capitalized........... $ 33,041 $ 323 $ -
NON-CASH INVESTING AND FINANCING ACTIVITIES:
- The equity interest in an unconsolidated partnership of $165,917 was
transferred to Sprint Spectrum Holding Company, L.P. on August 31, 1996.
- A PCS license covering the Omaha MTA and valued at $6,229 was contributed
to the Company by Cox Communications during the year ended December 31,
1997.
- Accrued interest of $51,673 related to vendor financing was converted to
long-term debt during the year ended December 31, 1997.
See notes to consolidated financial statements.
</TABLE>
<PAGE>
SPRINT SPECTRUM L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Sprint Spectrum L.P. (the "Company") is a limited partnership formed in Delaware
on March 28, 1995, by Sprint Spectrum Holding Company, L.P. ("Holdings") and
MinorCo, L.P. ("MinorCo"), both of which were formed by Sprint Enterprises,
L.P., TCI Spectrum Holdings, Inc., Comcast Telephony Services and Cox Telephony
Partnership (together the "Partners"). The Company was formed pursuant to a
reorganization of the operations of an existing partnership, WirelessCo, L.P.
("WirelessCo") which transferred certain operating functions to Holdings. The
Partners are subsidiaries of Sprint Corporation ("Sprint"), Tele-Communications,
Inc. ("TCI"), Comcast Corporation ("Comcast") and Cox Communications, Inc.
("Cox", and together with Sprint, TCI and Comcast, the "Parents"), respectively.
The Company and certain other affiliated partnerships offer services as Sprint
PCS.
The Partners of the Company have the following ownership interests as of
December 31, 1997 and 1996:
Sprint Spectrum Holding Company, L.P. (general partner)....greater than 99%
MinorCo, L.P. (limited partner)................................less than 1%
The Company is consolidated with its subsidiaries, WirelessCo, Sprint Spectrum
Equipment Company, L.P. ("EquipmentCo"), Sprint Spectrum Realty Company, L.P.
("RealtyCo") and Sprint Spectrum Finance Corporation ("FinCo"). On May 15, 1996,
EquipmentCo and RealtyCo were organized for the purpose of holding PCS
network-related real estate interests and assets. On May 20, 1996, FinCo was
formed to be a co-obligor of the debt obligations discussed in Note 5.
Partnership Agreement - The Amended and Restated Agreement of Limited
Partnership of Sprint Spectrum L.P. (the "Partnership Agreement") dated as of
January 31, 1996 among Holdings and MinorCo provides that the purpose of the
Company is to engage in wireless communications services. The Partnership
Agreement provides for the governance and administration of partnership
business, allocation of profits and losses (including provisions for special and
curative allocations), tax allocations, transactions with partners, disposition
of partnership interests and other matters.
The Partnership Agreement generally provides for the allocation of profits and
losses first to the general partner (Holdings) and secondly to the limited
partner (MinorCo), after giving effect to special allocations. After special
allocations, profits are allocated first to the general partner to the extent of
cumulative net losses previously allocated. Secondly, the limited partner is
allocated profits to the extent of cumulative net losses previously allocated
and then up to the cumulative Preferred Return, as defined in the agreement. The
general partner is allocated all remaining profits. Losses are allocated, after
considering special allocations, to the general partner until its capital
account is zero and secondly to the limited partner to the extent of its capital
account balance. Any remaining losses are allocated to the general partner.
The limited partner interest of MinorCo in WirelessCo is reflected as a minority
interest. Pursuant to the Amended and Restated Agreement of Limited Partnership
of WirelessCo ("WirelessCo Agreement"), MinorCo has not been allocated any
losses incurred by WirelessCo. The WirelessCo Agreement stipulates that all
losses are to be allocated to Sprint Spectrum L.P., the general partner, until
the general partner's capital account is depleted.
<PAGE>
Partner Capital Commitments - The Holdings partnership agreement provides for
planned capital contributions by the Partners ("Total Mandatory Contributions")
of $4.2 billion, which includes agreed upon values attributable to the
contributions of certain additional personal communications service ("PCS")
licenses by a Partner. The Total Mandatory Contributions amount is required to
be contributed in accordance with capital contribution schedules to be set forth
in approved annual budgets. The partnership board of Holdings may request
capital contributions to be made in the absence of an approved budget or more
quickly than provided for in an approved budget, but always subject to the Total
Mandatory Contributions limit. The proposed budget for fiscal 1998 has not yet
been approved by the partnership board, which has resulted in the occurrence of
a Deadlock Event (as defined) under the Holdings partnership agreement as of
January 1, 1998. If the 1998 proposed budget is not approved through resolution
procedures set forth in the Holdings partnership agreement, certain specified
buy/sell procedures may be triggered which may result in a restructuring of the
partners' interest in the Company or, in limited circumstances, liquidation of
the Company. As of December 31, 1997, approximately $4.0 billion of the Total
Mandatory Contributions had been contributed by the Partners to Holdings and its
affiliated partnerships, of which approximately $3.3 billion had been
contributed to Sprint Spectrum L.P.
Emergence from Development Stage Company - Prior to the third quarter of 1997,
the Company reported its operations as a development stage enterprise. The
Company has commenced service in all of the MTAs in which it owns a license. As
a result, the Company is no longer considered a development stage enterprise,
and the balance sheets and statements of operations and of cash flows are no
longer presented in development stage format.
Management believes that the Company will incur additional losses in 1998 and
require additional financial resources to support the current level of
operations and the remaining network buildout for the year ended December 31,
1998. Management believes the Company has the ability to obtain the required
levels of financing through additional financing arrangements or additional
equity funding from the Partners.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The assets, liabilities, results of operations and cash
flows of entities in which the Company has a controlling interest have been
consolidated. All significant intercompany accounts and transactions have been
eliminated.
Prior to July 1, 1996, substantially all wireless operations of the Company and
subsidiaries and Holdings and subsidiaries were conducted at Holdings and
substantially all operating assets and liabilities, with the exception of the
interest in an unconsolidated subsidiary and the ownership interest in PCS
licenses, were held at Holdings. As of July 1, 1996, Holdings transferred those
net assets, and assigned agreements related to the wireless operations to which
it was a party to Sprint Spectrum L.P., EquipmentCo and RealtyCo.
For purposes of these consolidated financial statements, these transactions have
been treated as transactions between entities under common control and accounted
for in a manner similar to a pooling of interest. The Company, as used in these
financial statements, includes the pooled operations of Holdings through June
30, 1996.
Accordingly, for periods prior to July 1, 1996, Sprint Spectrum L.P.'s
historical financial statements have been restated to reflect those operations
of Holdings that were transferred on July 1, 1996 on a pooled basis.
<PAGE>
Information with respect to the financial position and results of operations of
the separate operations pooled herein is as follows (in thousands):
<TABLE>
Sprint
Spectrum L.P. Holdings Combined
<S> <C> <C> <C>
Total Assets, June 30, 1996........................ $ 2,268,805 $ 2,561,328 $ 2,561,328
Partners' Capital & Accumulated Deficit
December 31, 1995................................ 2,201,704 2,178,069 2,183,070
June 30, 1996.................................... 2,258,426 2,469,529 2,472,384
Net Loss
December 31, 1995................................ (49,531) (110,429) (110,428)
June 30, 1996.................................... (81,278) (158,195) (158,195)
</TABLE>
Trademark Agreement - Sprint is a registered trademark of Sprint Communications
Company L.P. ("Sprint Communications") and Sprint and Sprint PCS are licensed to
the Company on a royalty-free basis pursuant to a trademark license agreement
between the Company and Sprint Communications.
Revenue Recognition - Operating revenues for PCS services are recognized as
service is rendered. Operating revenues for equipment sales are recognized at
the time the equipment is delivered to a customer or an unaffiliated agent.
Cost of Equipment - The Company uses multiple distribution channels for its
inventory, including third-party retailers, Company-owned retail stores, its
direct sales force and telemarketing. Cost of equipment varies by distribution
channel and includes the cost of multiple models of handsets, related accessory
equipment and warehousing and shipping expenses.
Cash and Cash Equivalents - The Company considers all highly liquid instruments
with original maturities of three months or less to be cash equivalents. The
Company maintains cash and cash equivalents in financial institutions with the
highest credit ratings.
Accounts Receivable - Accounts receivable are net of an allowance for doubtful
accounts of approximately $9.0 million and $0.2 million at December 31, 1997,
and 1996, respectively.
Inventory - Inventory consists of wireless communication equipment (primarily
handsets). Inventory is stated at the lower of cost (on a first in, first-out
basis) or replacement value. Any losses on the sales of handsets are recognized
at the time of sale.
Property, Plant and Equipment - Property, plant and equipment are stated at cost
or fair value at the date of acquisition. Construction work in progress
represents costs incurred to design and construct the PCS network. Repair and
maintenance costs are charged to expense as incurred. When network equipment is
retired, or otherwise disposed of, its book value, net of salvage, is charged to
accumulated depreciation. When non-network equipment is sold, retired or
abandoned, the cost and accumulated depreciation are relieved and any gain or
loss is recognized. Property, plant and equipment are depreciated using the
straight-line method based on estimated useful lives of the assets. Depreciable
lives range from 3 to 20 years.
Investment in PCS Licenses - During 1994 and 1995, the Federal Communications
Commission ("FCC") auctioned PCS licenses in specific geographic service areas.
The FCC grants licenses for terms of up to ten
<PAGE>
years, and generally grants renewals if the licensee has complied with its
license obligations. The Company believes it will be able to secure renewal of
the PCS licenses held by its subsidiaries. PCS licenses are amortized over
estimated useful lives of 40 years once placed in service. Accumulated
amortization for PCS licenses totaled approximately $45.0 million and $1.7
million as of December 31, 1997, and 1996, respectively. There was no
amortization in 1995.
Microwave Relocation Costs - The Company has also incurred costs associated with
microwave relocation in the construction of the PCS network. Microwave
relocation costs are amortized over estimated useful lives of 40 years once
placed in service. Accumulated amortization for microwave relocation costs
totaled approximately $5.2 million as of December 31, 1997. There was no
amortization in 1996 or 1995.
Intangible Assets - The ongoing value and remaining useful life of intangible
assets are subject to periodic evaluation. The Company currently expects the
carrying amounts to be fully recoverable. Impairments of intangibles and
long-lived assets are assessed based on an undiscounted cash flow methodology.
Capitalized Interest - Interest costs associated with the construction of
capital assets (including the PCS licenses) incurred during the period of
construction are capitalized. The total interest capitalized in 1997 and 1996
was approximately $97.4 million and $30.5 million, respectively. There were no
amounts capitalized in 1995.
Debt Issuance Costs - Included in other assets are costs associated with
obtaining financing. Such costs are capitalized and amortized to interest
expense over the term of the related debt instruments using the effective
interest method. Accumulated amortization for the years ended December 31, 1997,
and 1996 was approximately $13.3 million and $1.9 million, respectively. There
was no amortization in 1995.
Operating Leases - Rent expense is recognized on the straight-line basis over
the life of the lease agreement, including renewal periods. Lease expense
recognized in excess of cash expended is included in non-current liabilities in
the consolidated balance sheet.
Major Customer - The Company markets its products through multiple distribution
channels, including Company-owned retail stores and third-party retail outlets.
The Company's subscribers are disbursed throughout the United States. Sales to
one third-party retail customer represented approximately 21% and 88% of
operating revenues in the consolidated statements of operations for the years
ended December 31, 1997 and 1996, respectively. The Company reviews the credit
history of retailers prior to extending credit and maintains allowances for
potential credit losses. The Company believes that its risk from concentration
of credit is limited.
Income Taxes - The Company has not provided for federal or state income taxes
since such taxes are the responsibility of the individual Partners.
Financial Instruments - The carrying value of the Company's short-term financial
instruments, including cash and cash equivalents, receivables from customers and
affiliates and accounts payable approximates fair value. The fair value of the
Company's long-term debt is based on quoted market prices for the same issues or
current rates offered to the Company for similar debt. A summary of the fair
value of the Company's long-term debt at December 31, 1997 and 1996 is included
in Note 5.
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
<PAGE>
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassifications - Certain reclassifications have been made to the 1996 and
1995 consolidated financial statements to conform to the 1997 consolidated
financial statement presentation.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at December 31, 1997 and
1996 (in thousands):
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Land $ 1,444 $ 905
Buildings and leasehold improvements 612,208 86,467
Fixtures and office furniture 137,180 68,210
Network equipment 2,137,760 255,691
Telecommunications plant - construction work in progress 495,826 1,006,990
-------------- --------------
3,384,418 1,418,263
Less accumulated depreciation (251,754) (9,583)
-------------- --------------
$ 3,132,664 $ 1,408,680
============== ==============
</TABLE>
Depreciation expense on property, plant and equipment was approximately $242.1
million, $9.6 million, and $0.2 million for the years ended December 31, 1997,
1996 and 1995, respectively.
4. INVESTMENT IN UNCONSOLIDATED PARTNERSHIP
American PCS, L.P. - On January 9, 1995, the Company acquired a 49% limited
partnership interest in American PCS, L.P. ("APC"). American Personal
Communications II, L.P. ("APC II") held a 51% interest in APC and was the
managing general partner. The investment in APC was accounted for under the
equity method. Concurrently with the execution of the partnership agreement, the
Company entered into an affiliation agreement with APC which provides for the
reimbursement of certain allocable costs and payment of affiliate fees.
Effective August 31, 1996, the Company's interest in APC, the existing loans to
APC, and obligations to provide additional funding to APC were transferred to
Holdings pursuant to an amendment to the partnership agreement. The Company
retained the rights and obligations under the affiliation agreement with APC,
which provides for the reimbursement of certain allocable costs and payment of
affiliation fees. Summarized financial information is as follows (in thousands):
August 31, 1996 December 31, 1995
------------------ ------------------
Total assets..................... $ 292,069 $ 237,326
Total liabilities................ 341,576 171,180
Total revenues................... 40,921 5,153
Net loss......................... 123,601 51,551
The partnership agreement between the Company and APC II prior to amendment
specifies that losses were allocated based on capital contributions and certain
other factors. Under the equity method, the Company
<PAGE>
recognized the majority of the partnership losses in its financial statements
until the transfer to Holdings based on its capital contributions and the
underlying commitments to provide initial funding.
In January 1997, Holdings and APC II amended the APC partnership agreement with
respect to the allocation of profits and losses. For financial reporting
purposes, profits and losses are to be allocated in proportion to Holdings' and
APC II's respective partnership interests, except for costs related to stock
appreciation rights and interest expense attributable to FCC interest payments
which shall be allocated entirely to APC II. The change in methodology of
allocating profits and losses was made effective to January 1, 1996 and
retroactively applied. The retroactive adjustment for the year ended December
31, 1996 was recognized by Holdings.
The unamortized excess of the Company's investment over its equity in the
underlying net assets of APC at the date of acquisition was approximately $10.1
million. The excess investment amount has been eliminated as a result of the
recognition of the Company's equity in APC's losses. Amortization included in
equity in loss of unconsolidated partnership prior to such elimination totaled
approximately $0.1 million for the period ended August 31, 1996 and $0.2 million
for the year ended December 31, 1995.
5. LONG-TERM DEBT AND BORROWING ARRANGEMENTS
The long-term debt of the Company as of December 31, 1997 and 1996 is summarized
as follows (in thousands):
<TABLE>
1997 1996
--------------- --------------
<S> <C> <C>
11% Senior Notes due in 2006 $ 250,000 $ 250,000
121/2% Senior Discount Notes due in 2006, net of
unamortized discount of $177,720 and $214,501 at
December 31, 1997 and 1996, respectively 322,280 285,499
Credit facility - term loan 300,000 150,000
Credit facility - revolving credit 605,000 -
Vendor financing 1,612,914 -
Note payable to affiliate due in 1998 5,000 5,000
Other 17,725 742
--------------- --------------
Total debt 3,112,919 691,241
Less current maturities 11,380 5,049
--------------- --------------
Long-term debt $ 3,101,539 $ 686,192
=============== ==============
</TABLE>
Senior Notes and Senior Discount Notes - In August 1996, Sprint Spectrum L.P.
and Sprint Spectrum Finance Corporation (together, the "Issuers") issued $250
million aggregate principal amount of 11% Senior Notes due 2006 ("the Senior
Notes"), and $500 million aggregate principal amount at maturity of 12 1/2%
Senior Discount Notes due 2006 (the "Senior Discount Notes" and, together with
the Senior Notes, the "Notes"). The Senior Discount Notes were issued at a
discount to their aggregate principal amount at maturity and generated proceeds
of approximately $273 million. Cash interest on the Senior Notes will accrue at
a rate of 11% per annum and is payable semi-annually in arrears on each February
15 and August 15, commencing February 15, 1997. Cash interest will not accrue or
be payable on the Senior Discount Notes prior to August 15, 2001. Thereafter,
cash interest on the Senior Discount Notes will accrue at a rate
<PAGE>
of 12 1/2% per annum and will be payable semi-annually in arrears on each
February 15 and August 15, commencing February 15, 2002.
On August 15, 2001, the Issuers will be required to redeem an amount equal to
$384.772 per $1,000 principal amount at maturity of each Senior Discount Note
then outstanding ($192 million in aggregate principal amount at maturity,
assuming all of the Senior Discount Notes remain outstanding at such date).
The Notes are redeemable at the option of the Issuers, in whole or in part, at
any time on or after August 15, 2001 at the redemption prices set forth below,
respectively, plus accrued and unpaid interest, if any, to the redemption date,
if redeemed during the 12 month period beginning on August 15 of the years
indicated below:
Senior Notes Senior Discount Notes
Year Redemption Price Redemption Price
2001 105.500% 110.000%
2002 103.667% 106.500%
2003 101.833% 103.250%
2004 and thereafter 100.000% 100.000%
In addition, prior to August 15, 1999, the Issuers may redeem up to 35% of the
originally issued principal amount of the Notes with the net proceeds of one or
more public equity offerings, provided that at least 65% of the originally
issued principal amount at maturity of the Senior Notes and Senior Discount
Notes would remain outstanding immediately after giving effect to such
redemption. The redemption price of the Senior Notes is equal to 111.0% of the
principal amount of the Senior Notes so redeemed, plus accrued and unpaid
interest, if any, to the redemption date. The redemption price of the Senior
Discount Notes is equal to 112.5% of the accreted value at the redemption date
of the Senior Discount Notes so redeemed.
The Notes contain certain restrictive covenants, including (among other
requirements) limitations on additional indebtedness, limitations on restricted
payments, limitations on liens, and limitations on dividends and other payment
restrictions affecting restricted subsidiaries.
Bank Credit Facility - The Company entered into an agreement with The Chase
Manhattan Bank ("Chase") as agent for a group of lenders for a $2 billion bank
credit facility dated October 2, 1996. The proceeds of this facility are to be
used to finance working capital needs, subscriber acquisition costs, capital
expenditures and other general Company purposes.
The facility consists of a revolving credit commitment of $1.7 billion and a
$300 million term loan commitment. In December 1997, certain terms relating to
the financial and operating conditions were amended. As of December 31, 1997,
$605 million had been drawn at a weighted average interest rate of 8.42%, with
$1.1 billion remaining available. There were no borrowings under the revolving
credit commitment as of December 31, 1996. Commitment fees for the revolving
portion of the agreement are payable quarterly based on average unused revolving
commitments. In February 1998, the Company had borrowed an additional $225
million under the revolving credit agreement.
The revolving credit commitment expires July 13, 2005. Availability will be
reduced in quarterly installments ranging from $75 million to $175 million
commencing January 2002. Further reductions may be required after January 1,
2000, to the extent that the Company meets certain financial conditions.
<PAGE>
The term loans are due in sixteen consecutive quarterly installments beginning
January 2002 in aggregate principal amounts of $125,000 for each of the first
fifteen payments with the remaining aggregate outstanding principal amount of
the term loans due as the last installment.
Interest on the term loans and/or the revolving credit loans is at the
applicable LIBOR rate plus 2.5% ("Eurodollar Loans"), or the greater of the
prime rate or 0.5% plus the Federal Funds effective rate, plus 1.5% ("ABR
Loans"), at the Company's option. The interest rate may be adjusted downward for
improvements in the bond rating and/or leverage ratios. Interest on ABR Loans
and Eurodollar Loans with interest period terms in excess of 3 months is payable
quarterly. Interest on Eurodollar Loans with interest period terms of less than
3 months is payable on the last day of the interest period. As of December 31,
1997 and 1996, the weighted average interest rate on the term loans was 8.39%
and 8.19%, respectively.
Borrowings under the Bank Credit Facility are secured by the Company's interests
in WirelessCo, RealtyCo and EquipmentCo and certain other personal and real
property (the "Shared Lien"). The Shared Lien equally and ratably secures the
Bank Credit Facility, the Vendor Financing agreements (discussed below) and
certain other indebtedness of the Company. The credit facility is jointly and
severally guaranteed by WirelessCo, RealtyCo and EquipmentCo and is non-recourse
to the Parents and the Partners.
The Bank Credit Facility agreement and the Vendor Financing agreements contain
certain restrictive financial and operating covenants, including (among other
requirements) maximum debt ratios (including debt to total capitalization),
limitations on capital expenditures, limitations on additional indebtedness and
limitations on dividends and other payment restrictions affecting certain
restricted subsidiaries. The loss of the right to use the Sprint(R) trademark,
the termination or non-renewal of any FCC license that reduces population
coverage below specified limits, or changes in controlling interest in the
Company, as defined, among other provisions, constitute events of default.
Vendor Financing - As of October 2, 1996, the Company entered into financing
agreements with Northern Telecom Inc. ("Nortel") and Lucent Technologies Inc.
("Lucent", and together with Nortel, the "Vendors") for multiple drawdown term
loan facilities totaling $1.3 billion and $1.8 billion, respectively. The
proceeds of such facilities are to be used to finance the purchase of goods and
services provided by the Vendors. Additionally, the commitments allow for the
conversion of accrued interest into additional principal. Such conversions do
not reduce the availability under the commitments. Interest accruing on the debt
outstanding at December 31, 1997, can be converted into additional principal
through February 8, 1999 and March 30, 1999, for Lucent and Nortel,
respectively.
On April 30, 1997 and November 20, 1997 , the Company amended the terms of its
financing agreement with Nortel. The amendments provide for a syndication of the
financing commitment between Nortel, several banks and other vendors (the
"Nortel Lenders"), and the modification of certain operating and financial
covenants. The commitment provides financing in two phases. During the first
phase, the Nortel Lenders will finance up to $800 million. Under the second
phase, the Nortel Lenders will finance up to an additional $500 million upon the
achievement of certain operating and financial conditions, as amended. As of
December 31, 1997, $630 million, including converted accrued interest of $18.6
million, had been borrowed at a weighted average interest rate of 8.98% with
$189 million remaining available under the first phase. In addition, the Company
paid $20 million in origination fees upon the initial drawdown under the first
phase and will be obligated to pay additional origination fees on the date of
the initial drawdown loan under the second phase. In February 1998, the Company
borrowed an additional $47.0 million under the Nortel facility. There were no
borrowings under the Nortel agreement at December 31, 1996.
<PAGE>
On May 29, 1997 and December 15, 1997, the Company amended the terms of its
financing agreement with Lucent. The amendments provide for a syndication of the
financing commitment between Lucent, Sprint and other banks and vendors (the
"Lucent Lenders"), and the modification of certain operating and financial
covenants. The Lucent Lenders have committed to financing up to $1.5 billion
through December 31, 1997, and up to an aggregate of $1.8 billion thereafter.
The Company pays a facility fee on the daily amount of loans outstanding under
the agreement, payable quarterly. The Lucent agreement terminates June 30, 2001.
As of December 31, 1997, the Company had borrowed approximately $983 million,
including converted accrued interest of $33.1 million, under the Lucent facility
at a weighted average interest rate of 8.94%, with $850 million remaining
available. In February 1998, the Company borrowed an additional $104.1 million
under the Lucent facility. There were no borrowings under the Lucent agreement
at December 31, 1996.
The principal amounts of the loans drawn under both the Nortel and Lucent
agreements are due in twenty consecutive quarterly installments, commencing on
the date which is thirty-nine months after the last day of such "Borrowing Year"
(defined in the agreements as any one of the five consecutive 12-month periods
following the date of the initial drawdown of the loan). The aggregate amount
due each year is equal to percentages ranging from 10% to 30% multiplied by the
total principal amount of loans during each Borrowing Year.
The agreements provide two borrowing rate options. During the first phase of the
Nortel agreement and throughout the term of the Lucent agreement "ABR Loans"
bear interest at the greater of the prime rate or 0.5% plus the Federal Funds
effective rate, plus 2%. "Eurodollar Loans" bear interest at the London
interbank (LIBOR) rate (any one of the 30-, 60- or 90-day rates, at the
discretion of the Company), plus 3%. During the second phase of the Nortel
agreement, ABR Loans bear interest at the greater of the prime rate or 0.5% plus
the Federal Funds effective rate, plus 1.5%; and Eurodollar loans bear interest
at the LIBOR rate plus 2.5%. Interest from the date of each loan through one
year after the last day of the Borrowing Year is added to the principal amount
of each loan. Thereafter, interest is payable quarterly.
Borrowings under the Vendor Financing are secured by the Shared Lien. The Vendor
Financing is jointly and severally guaranteed by WirelessCo, RealtyCo and
EquipmentCo and is non-recourse to the Parents and the Partners.
Certain amounts included under the Construction Obligations on the consolidated
balance sheets may be financed under the Vendor Financing agreements.
Note payable to affiliate - As of December 31, 1997 and 1996, the Company had a
note payable of $5 million, bearing interest at 6.5% and payable on July
31,1998, due to an affiliated entity, NewTelco, L.P.
<PAGE>
Fair Value - The estimated fair value of the Company's long-term debt at
December 31, 1997 and 1996 is as follows (in thousands):
<TABLE>
1997 1996
-------------------------------------- -------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
11% Senior Notes $ 250,000 $ 280,650 $ 250,000 $ 270,625
12 1/2% Senior Discount Notes 322,280 389,300 285,499 337,950
Credit facility - term loan 300,000 300,000 150,000 151,343
Credit facility - revolver 605,000 605,000 - -
Vendor facility - Lucent 983,299 983,299 - -
Vendor facility - Nortel 629,615 629,615 - -
</TABLE>
At December 31, 1997, scheduled maturities of long-term debt during each of the
next five years are as follows (in thousands):
1998 $ 11,380
1999 7,025
2000 3,809
2001 353,751
2002 542,518
6. COMMITMENTS AND CONTINGENCIES
Operating Leases - Minimum rental commitments as of December 31, 1997, for all
noncancelable operating leases, consisting principally of leases for cell and
switch sites and office space, for the next five years are as follows (in
thousands):
1998 $ 120,911
1999 117,116
2000 92,510
2001 54,127
2002 15,891
Gross rental expense for cell and switch sites aggregated approximately $80.6
million and $13.1 million for the years ended December 31, 1997 and 1996,
respectively. Gross rental expense for office space approximated $33.2 million,
$11.4 million, and $0.7 million for the years ended December 31, 1997, 1996 and
1995, respectively. Certain cell and switch site leases contain renewal options
(generally for terms of 5 years) that may be exercised from time to time and are
excluded from the above amounts.
Procurement Contracts - On January 31, 1996, the Company entered into
procurement and services contracts with AT&T Corp. (subsequently assigned to
Lucent ) and Nortel for the engineering and construction of a PCS network. Each
contract provides for an initial term of ten years with renewals for additional
one-year periods. The Vendors must achieve substantial completion of the PCS
network within an established time frame and in accordance with criteria
specified in the procurement contracts. Pricing for the initial equipment,
software and engineering services has been established in the procurement
contracts. The procurement contracts provide for payment terms based on delivery
dates, substantial completion dates, and final acceptance dates. In the event of
delay in the completion of the PCS network, the procurement
<PAGE>
contracts provide for certain amounts to be paid to the Company by the Vendors.
The minimum commitments for the initial term are $0.8 billion and $1.0 billion
from Lucent and Nortel, respectively, which include, but are not limited to, all
equipment required for the establishment and installation of the PCS network.
Handset Purchase Agreements - In June, 1996, the Company entered into a
three-year purchase and supply agreement with a vendor for the purchase of
handsets and other equipment totaling approximately $500 million. During 1997
and 1996, the Company purchased $332.7 million and $85 million under the
agreement, respectively. The total purchase commitment must be satisfied by
April 30, 1998.
In September, 1996, the Company entered into another three-year purchase and
supply agreement with a second vendor for the purchase of handsets and other
equipment totaling more than $600 million, with purchases that commenced in
April 1997. During 1997, the Company purchased $147.6 million under the
agreement. The total purchase commitment must be satisfied by April 2000.
Service Agreements - The Company has entered into an agreement with a vendor to
provide PCS call record and retention services. Monthly rates per subscriber are
variable based on overall subscriber volume. If subscriber fees are less than
specified annual minimum charges, the Company will be obligated to pay the
difference between the amounts paid for processing fees and the annual minimum.
Annual minimums range from $20 million to $60 million through 2001. The
agreement extends through December 31, 2001, with two automatic, two-year
renewal periods, unless terminated by the Company. The Company may terminate the
agreement prior to the expiration date, but would be subject to specified
termination penalties.
The Company has also entered into an agreement with a vendor to provide prepaid
calling services. Monthly rates per minute of use are based on overall call
volume. If the average minutes of use are less than monthly specified minimums,
the Company is obligated to pay the difference between the average minutes used
at the applicable rates and the monthly minimum. Monthly minimums range from
$40,000 to $50,000 during the initial term. Certain installation and setup fees
for processing and database centers are also included in the agreement and are
dependent upon a need for such centers. The agreement extends through July 1999,
with successive one-year term renewals, unless terminated by the Company. The
Company may terminate the agreement prior to the expiration date, but would be
subject to specified termination penalties.
In January 1997, the Company entered into a four and one-half year contract for
consulting services. Under the terms of the agreement, consulting services will
be provided at specified hourly rates for a minimum number of hours. The total
commitment is approximately $125 million over the term of the agreement.
Litigation - The Company is involved in various legal proceedings incidental to
the conduct of its business. While it is not possible to determine the ultimate
disposition of each of these proceedings, the Company believes that the outcome
of such proceedings, individually and in the aggregate, will not have a material
adverse effect on the Company's financial condition or results of operations.
7. EMPLOYEE BENEFITS
Employees performing services for the Company were employed by Sprint through
December 31, 1995. Amounts paid to Sprint relating to pension expense and
employer contributions to the Sprint Corporation 401(k) plan for these employees
approximated $0.3 million in 1995.
<PAGE>
The Company maintains short-term and long-term incentive plans. All salaried
employees are eligible for the short-term incentive plan commencing at date of
hire. Short-term incentive compensation is based on incentive targets
established for each position based on the Company's overall compensation
strategy. Targets contain both an objective Company component and a personal
objective component. Charges to operations for the short-term plan approximated
$20.0 million, $12.3 million, and $3.5 million for the years ended December 31,
1997, 1996 and 1995, respectively.
Long-Term Compensation Obligation - The Company has two long-term incentive
plans, the 1996 Plan and the 1997 Plan. Employees meeting certain eligibility
requirements are considered to be participants in each plan. Participants in the
1996 Plan will receive 100% of the pre-established targets for the period from
July 1, 1995 to June 30, 1996 (the "Introductory Term"). Participants in the
1996 Plan elected either a payout of the amount due or converted 50% or 100% of
the award to appreciation units. Unless converted to appreciation units, payment
for the Introductory Term of the 1996 Plan will be made in the third quarter of
1998. Under the 1996 plan, appreciation units vest 25% per year commencing on
the second anniversary of the date of grant and expire after a term of ten
years. The 1997 Plan appreciation units vest 25% per year commencing on the
first anniversary of the date of the grant and also expire after ten years. For
the years ended December 31, 1997, 1996, and 1995, $18.1 million, $9.5 million,
and $1.9 million, respectively, has been expensed under both plans. At December
31, 1997 a total of approximately 103 million units have been authorized for
grant for both plans. The Company has applied APB Opinion No. 25, "Accounting
for Stock Issued to Employees" for 1997 and 1996. No significant difference
would have resulted if SFAS No. 123, "Accounting for Stock-Based Compensation"
had been applied.
Savings Plan - Effective January 1996, the Company established a savings and
retirement program (the "Savings Plan") for certain employees, which qualifies
under Section 401(k) of the Internal Revenue Code. Most permanent full-time, and
certain part-time, employees are eligible to become participants in the plan
after one year of service or upon reaching age 35, whichever occurs first.
Participants make contributions to a basic before tax account and supplemental
before tax account. The maximum contribution for any participant for any year is
16% of such participant's compensation. For each eligible employee who elects to
participate in the Savings Plan and makes a contribution to the basic before tax
account, the Company makes a matching contribution. The matching contributions
equal 50% of the amount of the basic before tax contribution of each participant
up to the first 6% that the employee elects to contribute. Contributions to the
Savings Plan are invested, at the participants discretion, in several designated
investment funds. Distributions from the Savings Plan generally will be made
only upon retirement or other termination of employment, unless deferred by the
participant. Expense under the Savings Plan approximated $4.9 million and $1.1
million in 1997 and 1996, respectively.
Profit Sharing (Retirement) Plan - Effective January 1996, the Company
established a profit sharing plan for its employees. Employees are eligible to
participate in the plan after completing one year of service. Profit sharing
contributions are based on the compensation, age, and years of service of the
employee. Profit sharing contributions are deposited into individual accounts of
the Company's Savings Plan. Vesting occurs once a participant completes five
years of service. For the years ended December 31, 1997 and 1996, expense under
the profit sharing plan approximated $2.5 million and $0.7 million,
respectively.
Deferred Compensation Plan for Executives - Effective January 1997, the Company
established a non-qualified deferred compensation plan which permits certain
eligible executives to defer a portion of their compensation. The plan allows
the participants to defer up to 80% of their base salary and up to 100% of their
annual short-term incentive compensation. The deferred amounts earn interest at
the prime rate. Payments will be made to participants upon retirement,
disability, death or the expiration of the deferral election under the payment
method selected by the participant.
<PAGE>
8. RELATED PARTY TRANSACTIONS
Business Services - The Company reimburses Sprint for certain accounting and
data processing services, for participation in certain advertising contracts,
for certain cash payments made by Sprint on behalf of the Company and other
management services. The Company is allocated the costs of such services based
on direct usage. Allocated expenses of approximately $10.5 million, $11.9
million and $2.6 million are included in selling, general and administrative
expense in the consolidated statement of operations for 1997, and 1996 and 1995,
respectively. In addition to the miscellaneous services agreement described
above, the Company has entered into agreements with Sprint for invoicing
services, operator services, long distance and switching equipment. The Company
is also using Sprint Communications as its interexchange carrier, with the
agreement for such services covered under the Holdings partnership agreement.
Charges for the volume of services provided are similar to those that would be
incurred with an unrelated third-party vendor.
APC - The Company has an affiliation agreement with APC which provides for the
reimbursement of certain allocable costs and payment of affiliation fees. For
the year ended December 31, 1997, the reimbursement of allocable costs of
approximately $14.0 million is included in selling, general and administrative
expenses. There were no reimbursements recognized in 1996 or 1995. Additionally,
affiliation fees are recognized based on a percentage of APC's net revenues.
During the year ended December 31, 1997, affiliation fees of $4.2 million are
included in other income.
PhillieCo, L.P. - The Company provides various services to PhillieCo, L.P.
("PhillieCo"), a limited partnership organized by and among subsidiaries of
Sprint, TCI and Cox. PhillieCo owns a PCS license for the Philadelphia MTA.
During the year ended December 31, 1997, costs for services incurred during 1996
and 1997 of $36.3 million were allocated to PhillieCo, and are included as a
reduction of selling, general and administrative expenses in the accompanying
consolidated statements of operations. Additionally, affiliation fees are
recognized based on a percentage of PhillieCo's net revenues. During the year
ended December 31, 1997, affiliation fees of $0.3 million are included in other
income in the accompanying consolidated statements of operations. The allocated
costs and affiliate fees of $36.6 million are included in receivables from
affiliates at December 31, 1997 and were paid during January 1998. There were no
such costs at December 31, 1996.
SprintCom, Inc. - The Company provides services to SprintCom, Inc.
("SprintCom"), a wholly-owned subsidiary of Sprint. The Company is currently
providing services to build out the network infrastructure in certain BTA
markets where SprintCom was awarded licenses. Such services include engineering,
management, purchasing, accounting and other related services. For the year
ended December 31, 1997, costs for services provided of $29.1 million were
allocated to SprintCom, and are included as a reduction of selling, general and
administrative expenses in the accompanying consolidated statements of
operations. Of the total allocated costs, approximately $14.0 million are
included in receivable from affiliates at December 31, 1997. No such costs were
incurred in 1996.
Cox Communications PCS, L.P. - On December 31, 1996, Holdings acquired a 49%
limited partner interest in Cox Communications PCS, L.P. ("Cox PCS"). Concurrent
with the execution of this partnership agreement, the Company entered into an
affiliation agreement with Cox PCS which provides for the reimbursement of
certain allocable costs and payment of affiliate fees. For the years ended
December 31, 1997 and 1996, allocable costs of approximately $20 million and
$7.3 million, respectively, are netted against selling, general and
administrative expense in the accompanying consolidated statements of
operations. Of these total allocated costs, approximately $1.6 million and $7.3
million were included in receivables from affiliates in the consolidated balance
sheets. In addition, the Company purchases certain
<PAGE>
equipment, such as handsets, on behalf of Cox PCS. Receivables from affiliates
for handsets and related equipment were approximately $31.2 million and $6
million at December 31, 1997 and 1996, respectively.
Paging Services - In 1996, the Company commenced paging services pursuant to
agreements with Paging Network Equipment Company and Sprint Communications. For
the years ended December 31, 1997 and 1996, Sprint Communications received
agency fees of approximately $10.6 million and $4.9 million, respectively.
9. QUARTERLY FINANCIAL DATA (Unaudited)
<TABLE>
Summarized quarterly financial data for 1997 and 1996 is as follows (in thousands):
1997 First Second Third Fourth
---- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Operating revenues................... $ 9,467 $ 25,386 $ 72,534 $ 128,115
Operating expenses................... 200,281 303,098 455,236 575,629
Net loss............................. 188,884 287,664 420,914 509,514
1996 First Second Third Fourth
---- --------- ---------- --------- ----------
Operating revenues................... $ - $ - $ - $ 4,175
Operating expenses................... 30,978 46,897 87,135 195,038
Net loss............................. 67,425 90,770 94,487 185,883
</TABLE>
10. SUBSEQUENT EVENT
Subsequent to December 31, 1997, the Company reorganized certain operations
under which certain field offices will be consolidated. Costs associated with
this reorganization are expected to be recorded in the first quarter of 1998 and
will consist primarily of severance pay, the write-off of certain leasehold
improvements and termination payments under lease agreements.
<PAGE>
<TABLE>
SCHEDULE II
SPRINT SPECTRUM L.P. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1997, 1996 and 1995
(In Thousands)
Additions
------------------------------
Balance at Charged to Charged to
Beginning Costs and Other Other Balance at
Description of Year Expense Accounts Deductions End of Year
- -------- ---------------------------------- ------------ ------------- ------------- ------------- ------------
Receivables
<S> <C> <C> <C> <C> <C>
1997 Allowance for doubtful accounts $ 202 $ 11,277 $ - $ (2,447) (1) $ 9,032
1996 Allowance for doubtful accounts - 202 - - 202
1995 Allowance for doubtful accounts - - - - -
(1) Net recoveries of accounts written off
</TABLE>
<PAGE>
SPRINT SPECTRUM FINANCE CORPORATION
(A Wholly-Owned Subsidiary of Sprint Spectrum L.P.)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Sprint Spectrum Finance Corporation ("FinCo"), a Delaware corporation, was
formed on May 21, 1996 and is a wholly-owned subsidiary of Sprint Spectrum L.P.
FinCo has nominal assets, does not conduct any operations and was formed to be a
co-obligor of the securities issued by the Company. Certain institutional
investors who might otherwise be limited in their ability to invest in
securities issued by partnerships by reasons of the legal investment laws in
their states of organization or their charter documents, may be able to invest
in the Company's securities because FinCo is a co-obligor. Accordingly, a
discussion of the results of operations, liquidity and capital resources of
FinCo are not presented.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Partners of Sprint Spectrum Finance Corporation
Kansas City, Missouri
We have audited the accompanying balance sheets of Sprint Spectrum Finance
Corporation (a wholly owned subsidiary of Sprint Spectrum L.P.) as of December
31, 1997 and 1996, and the related statements of operations, changes in
stockholder's equity and cash flows for the year ended December 31, 1997 and
period from May 21, 1996 (date of inception) to December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 Sprint Spectrum Finance Corporation at
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the year then ended December 31, 1997 and period from May 21, 1996 (date of
inception) to December 31, 1996, in conformity with generally accepted
accounting principles.
Deloitte & Touche
Kansas City, Missouri
February 3, 1998
<PAGE>
SPRINT SPECTRUM FINANCE CORPORATION
(A wholly-owned subsidiary of Sprint Spectrum L.P.)
BALANCE SHEETS
<TABLE>
December 31, December 31,
1997 1996
------------------------------------------------------------------ --- ----------------- --- -----------------
ASSETS
<S> <C> <C>
Receivable from parent......................................... $ - $ 100
================= =================
TOTAL ASSETS................................................... $ - $ 100
================= =================
LIABILITIES AND STOCKHOLDER'S EQUITY
Payable to parent.............................................. $ 1,497 $ -
STOCKHOLDER'S EQUITY:
Common stock, $1.00 par value; 1,000 shares authorized; 100
shares issued and outstanding............................. 100 100
Accumulated deficit.......................................... (1,597) -
----------------- -----------------
Total stockholders' equity.............................. (1,497) 100
================= =================
TOTAL STOCKHOLDER'S EQUITY..................................... $ - $ 100
================= =================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
SPRINT SPECTRUM FINANCE CORPORATION
(A wholly-owned subsidiary of Sprint Spectrum L.P.)
STATEMENT OF OPERATIONS
Period from
May 21, 1996
Year Ended (date of inception)
December 31, to December 31,
1997 1996
----------------------- ------------------------
<S> <C> <C>
Operating Revenues................................ $ - $ -
Operating Expenses................................ 1,597 -
----------------------- ------------------------
Net Loss.......................................... $ (1,597) -
======================= ========================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
SPRINT SPECTRUM FINANCE CORPORATION
(A wholly-owned subsidiary of Sprint Spectrum L.P.)
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
Common Stock Accumulated
-------------------------------------
Shares Dollars Deficit
---------------- ---------------- -----------------
<S> <C> <C> <C>
BALANCE, May 21, 1996............................. 100 $ 100 $ -
================ ================ =================
BALANCE, December 31, 1996........................ 100 $ 100 -
Net loss.......................................... - - (1,597)
---------------- ---------------- -----------------
BALANCE, December 31, 1997........................ 100 $ 100 $ (1,597)
================ ================ =================
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
SPRINT SPECTRUM FINANCE CORPORATION
(A wholly-owned subsidiary of Sprint Spectrum L.P.)
STATEMENT OF CASH FLOWS
From
date of inception
For the year ended to December 31,
December 31, 1997 1996
-------------------------- ---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net loss to net cash used in
operating activities:
<S> <C> <C>
Net loss............................................... $ (1,597) $ -
Changes in assets and liabilities: -
Receivable from parent.............................. 100 (100)
Payable to parent................................... 1,497
-------------------------- ---------------------------
Net cash used in operating activities............. - (100)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock.................................. - 100
-------------------------- ---------------------------
Net cash provided by financing activities......... - 100
-------------------------- ---------------------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.......................................... - -
CASH AND CASH EQUIVALENTS, Beginning of Period.............. -
-
========================== ===========================
CASH AND CASH EQUIVALENTS, End of Period.................... $ - $ -
========================== ===========================
See notes to financial statements.
</TABLE>
<PAGE>
SPRINT SPECTRUM FINANCE CORPORATION
(A wholly-owned subsidiary of Sprint Spectrum L.P.)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Sprint Spectrum Finance Corporation ("FinCo"), a Delaware corporation, was
formed on May 21, 1996 and is a wholly-owned subsidiary of Sprint Spectrum L.P.
(the "Partnership"). FinCo was formed to be a co-obligor of the debt obligations
discussed in Note 2. FinCo pays a management fee to the Partnership based on
actual expenses paid by the Partnership on behalf of FinCo.
The Partnership contributed $100 to FinCo on May 21, 1996 in exchange for 100
shares of common stock.
2. SENIOR NOTES AND SENIOR DISCOUNT NOTES
In August 1996, the Partnership and FinCo (together, the "Issuers") issued $250
million aggregate principal amount of 11% Senior Notes due 2006 (the "Senior
Notes"), and $500 million aggregate principal amount at maturity of 12 1/2%
Senior Discount Notes due 2006 (the "Senior Discount Notes" and, together with
the Senior Notes, the "Notes"). The Senior Discount Notes were issued at a
discount to their aggregate principal amount at maturity and generated proceeds
of approximately $273 million. Cash interest on the Senior Notes will accrue at
a rate of 11% per annum and is payable semi-annually in arrears on each February
15 and August 15, commencing February 15, 1997. Cash interest will not accrue or
be payable on the Senior Discount Notes prior to August 15, 2001. Thereafter,
cash interest on the Senior Discount Notes will accrue at a rate of 12 1/2% per
annum and will be payable semi-annually in arrears on each February 15 and
August 15, commencing February 15, 2002.
On August 15, 2001, the Issuers will be required to redeem an amount equal to
$384.772 per $1,000 principal amount at maturity of each Senior Discount Note
then outstanding ($192 million in aggregate principal amount at maturity,
assuming all of the Senior Discount Notes remain outstanding at such date).
The Notes are redeemable at the option of the Issuers, in whole or in part, at
any time on or after August 15, 2001 at the redemption prices set forth below,
respectively, plus accrued and unpaid interest, if any, to the redemption date,
if redeemed during the 12 month period beginning on August 15 of the years
indicated below:
Senior Discount
Senior Notes Notes
Redemption Price Redemption Price
Year
2001 105.500% 110.000%
2002 103.667% 106.500%
2003 101.833% 103.250%
2004 and thereafter 100.000% 100.000%
<PAGE>
In addition, prior to August 15, 1999, the Issuers may redeem up to 35% of the
originally issued principal amount of the Notes with the net proceeds of one or
more public equity offerings, provided that at least 65% of the originally
issued principal amount at maturity of the Senior Notes and Senior Discount
Notes would remain outstanding immediately after giving effect to such
redemption. The redemption price of the Senior Notes is equal to 111.0% of the
principal amount of the Senior Notes so redeemed, plus accrued and unpaid
interest, if any, to the redemption date. The redemption price of the Senior
Discount Notes is equal to 112.5% of the accreted value at the redemption date
of the Senior Discount Notes so redeemed.
The Notes contain certain restrictive covenants, including (among other
requirements) limitations on additional indebtedness, limitations on restricted
payments, limitations on liens, and limitations on dividends and other payment
restrictions affecting restricted subsidiaries.
3. INCOME TAXES
FinCo has net operating loss carryforwards totaling $1,597 at December 31, 1997,
which expire in 2012. A valuation allowance was provided against the future tax
benefit of the net operating loss carryforward as it is more likely than not
that the net operating loss carryforward will expire before it is realized, as
FinCo has no sources of revenue, and is not expected to generate any taxable
income.
FIRST AMENDMENT
FIRST AMENDMENT, dated as of December 15, 1997 (this
"Amendment"), to the Credit Agreement, dated as of October 2, 1996 (as amended,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
among Sprint Spectrum L.P., a limited partnership organized under the laws of
the State of Delaware (the "Borrower"), the several banks and other financial
institutions and entities from time to time parties thereto (the "Lenders") and
the Chase Manhattan Bank, as Administrative Agent for the Lenders.
W I T N E S S E T H :
WHEREAS, pursuant to the Credit Agreement, the Lenders have
agreed to make certain loans to the Borrower; and
WHEREAS, the Borrower has requested that certain provisions of
the Credit Agreement be modified in the manner provided for in this Amendment,
and the Lenders are willing to agree to such modifications as provided for in
this Amendment.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Terms defined in the Credit Agreement and
used herein shall have the meanings given to them in the Credit Agreement.
2. Amendments to Credit Agreement. (a) The definition of
"Tranche B Commitment Period" contained in subsection 1.1 of the Credit
Agreement is hereby amended by (i)deleting the amount "$1,600,000,000" contained
in clause (a)(iii) (A) thereof and substituting in lieu thereof the amount
"$1,300,000,000" and (ii) deleting the number "80,000,000" contained in clause
(a) (iv) thereof and substituting in lieu thereof the number "60,000,000".
(b) Subsection 6.1 (f) of the Credit Agreement is hereby
amended by deleting the number "80,000,000" contained in the table contained
therein and substituting in lieu thereof the number "60,000,000".
(c) Subsection 6.l (g) of the Credit Agreement is hereby
amended by deleting the numbers "450,000" and "850,000" contained in the table
contained therein and substituting in lieu thereof the numbers "210,000" and
"490,000", respectively.
3. No Other Amendments: Confirmation Except as expressly
amended, modified and supplemented hereby, the provisions of the Credit
Agreement are and shall remain in full force and effect.
4. Effectiveness. This Amendment shall become effective upon
(a) receipt by the Administrative Agent of counterparts hereof, duly executed
and delivered by the Borrower and the Requisite Lenders and (b) the
effectiveness of amendments which cause modifications to subsections 6.1(f) and
(g) of each Initial Vendor Credit Facility (as defined in the Trust Agreement)
that are identical to the modifications to subsections 6.1(f) and (g) of the
Credit Agreement set forth in subsections 2(b) and (c) above.
5. Governing Law: Counterparts. (a) This Amendment and the
rights and obligations of the parties hereto shall be governed by, and construed
and interpreted in accordance with, the laws of the State of New York.
(b) This Amendment may be executed by one or more of the
parties to this Amendment on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Amendment signed by all the parties
shall be lodged with the Borrower and the Vendor. This Amendment may be
delivered by facsimile transmission of the relevant signature pages hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amend-
ment to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
SPRINT SPECTRUM L.P.
By: SPRINT SPECTRUM HOLDING COMPANY, L.P.,
its general partner
By: /s/ Robert E. Sleet, Jr.
Name: Robert E. Sleet, Jr.
Title: Vice President & Treasurer
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a
Lender,
By: /s/ John Haltmaier
Name: John Haltmaier
Title: Vice President
BANKERS TRUST COMPANY
By: /s/ David J. Bell
Name: David J. Bell
Title: Vice President
BAYERISCHE HYPOTHEKEN - UND
WECHSEL-BANK AKTIENGESELLSCHAFT,
NEW YORK BRANCH
By: /s/ Christian Walter
Name: Christian Walter
Title: Vice President
By: /s/ Andreas Vick
Name: Andreas Vick
Title: Vice President
BANQUE NATIONALE DE PARIS
By: /s/ Arnaud Collin du Bocage
Name: Arnuad Collin du Bocage
Title: Executive Vice President
and General Manager
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Stephen C. Levi
Name: Stephen C. Levi
Title: Vice President
<PAGE>
NATIONSBANK OF TEXAS, N.A.
By: /s/ Rosario M. Echeverria
Name: Rosario M. Echeverria
Title: Vice President
SOCIETE GENERALE
By: /s/ John Sadik-Khan
Name: John Sadik-Khan
Title: Vice President
THE BANK OF NEW YORK COMPANY, INC.
By: /s/ James W. Whitaker
Name: James W. Whitaker
Title: Authorized Signer
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By: /s/ Beatrice Kossodo
Name: Beatrice Kossodo
Title: Senior Vice President
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By: /s/ Charles Columbus
Name: Charles Columbus
Title: Managing Director
By: /s/ Salvatore Battinelli
Name: Salvatore Battinelli
Title: Vice President
Credit Department
BANQUE PARIBAS NEW YORK
By: /s/ Salo Aizenberg
Name: Salo Aizenberg
Title: Vice President
CHIAO TUNG BANK CO., LTD, NEW YORK
AGENCY
By: /s/ Kuang-Si Shiu
Name: Kuang-Si Shiu
Title: Senior Vice President
and General Manager
FLEET NATIONAL BANK
By: /s/ Sue Anderson
Name: Sue Anderson
Title: Vice President
<PAGE>
THE SUMITOMO BANK,
LIMITED, CHICAGO BRANCH
By: /s/ Ken-Ichiro Kobayaski
Name: Ken-Ichiro Kobayashi
Title: Joint General Manager
THE SAKURA BANK, LIMITED
By: /s/ Tamihiro Kawauchi
Name: Tamihiro Kawauchi
Title: Senior Vice President &
Group Head Real Estate
Project Finance Group
THE SANWA BANK, LIMITED
By: /s/ David A. Leech
Name: David A. Leech
Title: Vice President
PAMCO CAYMAN, LTD.
By: PROTECTIVE ASSET MANAGEMENT
COMPANY AS COLLATERAL MANAGER
By: /s/ James Dondero
Name: James Dondero
Title: CFA, CPA President
Protective Asset
Management Company
KZH HOLDING CORPORATION
By: /s/ Virginia R. Conway
Name: Virginia R. Conway
Title: Authorized Agent
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
By: /s/ Jeffrey W. Maillet
Name: Jeffrey W. Maillet
Title: Senior Vice President
and Director
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By: /s/ Richard A. Strait
Name: Richard A. Strait
Title: Vice President
<PAGE>
THE SUMITOMO TRUST & BANKING CO.,
LTD., NEW YORK BRANCH
By: /s/ Suraj P. Bhatia
Name: Suraj P. Bhatia
Title: Vice President
CRESTAR BANK
By: /s/ Thomas C. Palmer
Name: Thomas C. Palmer
Title: Vice President
THE ROYAL BANK OF SCOTLAND PLC
By: /s/ Karen L. Stefancic
Name: Karen L. Stefancic
Title: Vice President
SKANDINAVISKA ENSKILDA BANKEN
CORPORATION
By: /s/ Andrew Blain
Name: Andrew Blain
Title: Assistant Vice President
By: /s/ Philip F. Montemurro, Jr.
Name: Philip F. Montemurro, Jr.
Title: Vice President
EXPORT DEVELOPMENT CORPORATION
By: /s/ Robert Forbes
Name: Robert Forbes
Title: Director,
Financial Services
By: /s/ Stephen Davies
Name: Stephen Davies
Title: International Contracts
Specialist
THE FUJI BANK, LIMITED
By: /s/ Peter L. Chinnici
Name: Peter L. Chinnici
Title: Joint General Manager
BANCA COMMERCIALE ITALIANA,
CHICAGO BRANCH
By: /s/ Julian M. Teodori
Name: Julian M. Teodori
Title: Senior Vice President
and Manager
By: /s/ Matthew V. Trujillo
Name: Matthew V. Trujillo
Title: Vice President
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
By: /s/ Glenn B. Eckert
Name: Glenn B. Eckert
Title: Vice President
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By: /s/ Lynn Callicott Baranski
Name: Lynn Callicott Baranski
Title: Authorized Signatory
FIRST UNION NATIONAL BANK
By: /s/ Michael P. Doherty
Name: Michael P. Doherty
Title: Vice President
BARCLAYS BANK PLC
By: /s/ Keith F. Arnsdorff
Name: Keith F. Arnsdorff
Title: Associate Director
CARILLON HOLDING, LIMITED
By: /s/ Gary R. Rodmaker
Name: Gary R. Rodmaker
Title: Portfolio Manager
LEHMAN COMMERCIAL PAPER, INC.
By: /s/ Michelle Swanson
Name: Michelle Swanson
Title: Authorized Signatory
GOLDMAN SACHS CREDIT PARTNERS
By: /s/ Stephen B. King
Name: Stephen B. King
Title: Authorized Signatory
NATEXIS BANQUE BFCE
By: /s/ Evan Kraus
Name: Evan Kraus
Title: Associate
By: /s/ Frederick K. Kammler
Name: Frederick K. Kammler
Title: Vice President
OCTAGON CREDIT INVESTORS LOAN
PORTFOLIO (A) UNIT OF THE CHASE
MANAHATTAN BANK)
By: /s/ Andrew D. Gordon
Name: Andrew D. Gordon
Title: Managing Director
<PAGE>
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset
Management, L.P., an
Investment Advisor
By: /s/ Lynn C. Baranski
Name: Lynn C. Baranski
Title: Authorized Signatory
BANK OF AMERICA NT&SA
By: /s/ Francis J. Griffin
Name: Francis J. Griffin
Title: Attorney-in-Fact
BANK OF MONTREAL
By: /s/ Peter Konigsmann
Name: Peter Konigsmann
Title: Director
DLJ CAPITAL FUNDING, INC.
By: /s/ Stephen Hickey
Name: Stephen Hickey
Title: Managing Director and
Group Head
BEAR STEARNS INVESTMENT
By: /s/ Gregory Henly
Name: Gregory Henly
Title: Senior Managing Director
ROYAL BANK OF CANADA
By: /s/ M. A. Patterson
Name: M. A. Patterson
Title: Senior Manager
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Kenneth A. Selle
Name: Kenneth A. Selle
Title: Authorized Agent
SPRINT CORPORATION
By: /s/ Jeannine Strandjord
Name: Jeannine Strandjord
Title: Senior Vice President
and Treasurer
<PAGE>
WAREHOUSE CONSECO
By: /s/ Eric Johnson
Name: Eric Johnson
Title: Second Vice President
BANKBOSTON, N.A.
By: /s/ Shepard D. Rainie
Name: Shepard D. Rainie
Title: Director
THE INDUSTRIAL BANK OF JAPAN,
LIMITED
By: /s/ William Kennedy
Name: William Kennedy
Title: Vice President
SECOND AMENDMENT
SECOND AMENDMENT, dated as of December 15, 1997 (this
"Amendment), to the Credit Agreement, dated as of October 2, 1996 (as amended,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
among Sprint Spectrum L.P., a limited partnership organized under the laws of
the State of Delaware (the "Borrower"), Lucent Technologies Inc. (the "Vendor"),
the several banks and other financial institutions and entities from time to
time parties thereto (together with the Vendor, the "Lenders") and the Chase
Manhattan Bank, as agent for the Lenders.
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have
agreed to make certain loans to the Borrower; and
WHEREAS, the Borrower has requested that certain provisions
of the Credit Agreement be modified in the manner provided for in this Amend-
ment, and the Lenders are willing to agree to such modifications as provided for
in this Amendment;
NOW, THEREFORE, the parties hereto hereby agree as follows
1. Defined Terms. Terms defined in the Credit Agreement and
used herein shall have the meanings given to them in the Credit Agreement.
2. Amendments to Credit Agreement.
(a) Subsection 6.l(f) of the Credit Agreement is hereby amended by deleting the
number "80,000,000" contained in the table contained therein and substituting in
lieu thereof the number "60,000,000".
(b) Subsection 6.l(g) of the Credit Agreement is hereby
amended by deleting the numbers "450,000" and "850,000" contained in the table
contained therein and substituting in lieu thereof the numbers "210,000" and
"490,000", respectively.
3. Agreement of Lenders. The Lenders hereby agree that the
modification to subsections 6.l(f) and (g) set forth in this Amendment shall be
permitted to be made to the Other Vendor Credit Facility.
4. No Other Amendments; Confirmation. Except as expressly
amended, modified and supplemented hereby, the provisions of the Credit
Agreement are and shall remain in full force and effect.
5. Effectiveness. This Amendment shall become effective upon
(a) receipt by the Administrative Agent of counterparts hereof, duly executed
and delivered by the Borrower and the Requisite Lenders, (b) the Requisite
aggregate Lenders agreeing to the modifications to subsections 6.l(f) and (g)
set forth in this Amendment and (c) the effectiveness of amendments causing
identical modifications to subsections 6.1(f) and (g) of the Ocher Vendor Credit
Policy and the Bank Credit Facility.
6. Governing Law; Counterparts. (a) This Amendment and the
rights and obligations of the parties hereto shall be governed by, and construed
and interpreted in accordance with, the laws of the State of New York.
<PAGE>
(b) This Amendment may be executed by one or more of the
parties to this Amendment on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Amendment signed by all the parties
shall be lodged with the Borrower and the Vendor. This Amendment may be
delivered by facsimile transmission of the relevant signature pages hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
SPRINT SPECTRUM L.P.,
by SPRINT SPECTRUM HOLDING COMPANY, L.P.
its General Partner
by /s/ Robert E. Sleet, Jr.
Name: Robert E. Sleet, Jr.
Title: Vice President & Treasurer
LUCENT TECHNOLOGIES INC.,
as a Lender
by /s/ Florence L. Walsh
Name: Florence L. Walsh
Title: Vice President & Treasurer
THE CHASE MANHATTAN BANK,
as Agent and as a Lender
by /s/John P. Haltmaier
Name: John P. Haltmaier
Title: Vice Presdient
ALLSTATE INSURANCE COMPANY
by /s/ Patricia W. Wilson
Name: Patricia W. Wilson
Title: Authorized Signatory
by /s/ Jerry D. Zinkula
Name: Jerry D. Zinkula
Title: Authorized Signatory
ALLSTATE LIFE INSURANCE COMPANY
by /s/ Patricia W. Wilson
Name: Patricia W. Wilson
Title: Authorized Signatory
by /s/ Jerry D. Zinkula
Name: Jerry D. Zinkula
Title: Authorized Signatory
<PAGE>
BANK OF AMERICA ILLINOIS
by /s/ Francis J. Griffin
Name: Francis J. Griffin
Title: Attorney- in-Fact
BANK OF MONTREAL
/s/Peter Kongsmann
Name: Peter Konigsmann
Title: Director
BARCLAYS BANK PLC
by /s/ Les Bek
Name: Les Bek
Title: Director
THE CIT GROUP/EQUIPMENT FINANCING, INC.
by /s/ J.E. Palmer
Name: J.E. Palmer
Title: Senior Credit Operation Manager
CRESTAR BANK
by /s/ Thomas C. Palmer
Name: Thomas C. Palmer
Title: Vice President
DLJ CAPITAL FUNDING, INC.
by /s/ Stephen Hickey
Name: Stephen Hickey
Title: Managing Director and Group Head
THE FIRST NATIONAL BANK OF CHICAGO
by /s/ Kenneth A. Selle
Name: Kenneth A. Selle
Title: Authorized Agent
FIRST UNION NATIONAL BANK
by /s/ Michael P. Doherty
Name: Michael P. Doherty
Title: Vice President
FLEET NATIONAL BANK
by /s/ Sue Anderson
Name: Sue Anderson
Title: Vice President
<PAGE>
GOLDMAN SACHS CREDIT PARTNERS
by /s/ Stephen B. King
Name: Stephen B. King
Title: Authorized Signatory
THE ING SENIOR SECURED HIGH INCOME FUND, L.P.
by ING CAPITAL ADVISORS, INC., as Investment Advisor
by /s/ Kathleen Lenarcic
Name: Kathleen Lenarcic
Title: Vice President and Portfolio Manager
ING HIGH INCOME PRINCIPAL PRESERVATION FUND HOLDINGS, LDC
by ING CAPITAL ADVISORS, INC., as Investment Advisor
by /s/ Kathleen Lenarcic
Name: Kathleen Lenarcic
Title: Vice President and Portfolio Manager
ARCHIMEDES FUNDING, L.L.C.
by ING CAPITAL ADVISORS, INC., as Investment Advisor
by /s/ Kathleen Lenarcic
Name: Kathleen Lenarcic
Title: Vice President and Portfolio Manager
INDOSUEZ CAPITAL FUNDING III, LIMITED
by INDOSUEZ CAPITAL, as Portfolio Advisor
by /s/ Francois Berthelot
Name: Francois Berthelot
Title: Vice President
KZH SOLEIL CORPORATION III
by /s/ Virginia R. Conway
Name: Virginia R. Conway
Title: Authorized Agent
KZH-ING 1 CORPORATION
by /s/ Virginia R. Conway
Name: Virginia R. Conway
Title: Authorized Agent
<PAGE>
LEHMAN COMMERCIAL PAPER INC.
by /s/ Michele Swanson
Name: Michele Swanson
Title: Authorized Signatory
THE LONG TERM CREDIT BANK OF JAPAN
by /s/ Armund J. Schoen, Jr.
Name: Armund J. Schoen, Jr.
Title: Senior Vice President
THE MITSUBISHI TRUST & BANKING CORPORATION
by /s/ Beatrice Kossodo
Name: Beatric Kossodo
Title: Senior Vice President
DEBT STRATEGIES FUND, INC.
by /s/ Lynn Callicott Baranski
Name: Lynn Callicott Baranski
Title: Authorized Signatory
MERRILL LYNCH PRIME RATE PORTFOLIO
by MERRILL LYNCH ASSET MANAGEMENT, L.P.,
as Investment Advisor
by /s/ Lynn Callicott Baranski
Name: Lynn Callicott Baranski
Title: Authorized Signatory
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
by /s/ Lynn Callicott Baranski
Name: Lynn Callicott Baranski
Title: Authorized Signatory
NATEXIS BANQUE BFCE
by /s/ Evan Kraus
Name: Evan Kraus
Title: Associate
by /s/ Frederick K. Kammler
Name: Frederick K. Kammler
Title: Vice President
NATIONSBANK, N.A.
by /s/ Chris Barton
Name: Chris Barton
Title: Vice President
<PAGE>
OCTAGON CREDIT INVESTORS LOAN PORTFOLIO
(a unit of The Chase Manhattan Bank)
by /s/ Andrew D. Gordon
Name: Andrew D. Gordon
Title: Managing Director
PAMCO CAYMAN LTD.
by PROTECTIVE ASSET MANAGEMENT
COMPANY, as Collateral
Manager
by /s/ James Dondero
Name: James Dondero
Title: CFA, CPA,
President
Protective Asset
Management Company
ROYAL BANK OF CANADA
by /s/ Andrew Cozewith
Name: Andrew Cozewith
Title: Manager
ROYALTON COMPANY
by PACIFIC INVESTMENT MANAGMENT COMPANY,
as its Investment Advisor
by /s/ Ray Kennedy
Name: Ray Kennedy
Title: Vice President
THE SANWA BANK LIMITED
by /s/ David A. Leech
Name: David A. Leech
Title: Vice President
SENIOR HIGH INCOME PORTFOLIO
by /s/ Lynn Callicott Baranski
Name: Lynn Callicott Baranski
Title: Authorized Signatory
<PAGE>
SKANDINAVISKA ENSKILDA BANKEN CORPORATION
by /s/ Philip F. Montemurro. Jr.
Name: Philip F. Montemurro, Jr.
Title: Vice President
by /s/ Andrew Blain
Name: Andrew Blain
Title: Assistant Vice President
THE SUMITOMO BANK, LIMITED, CHICAGO BRANCH
by /s/ Ken-Ichiro Kobayashi
Name: Ken-Ichiro Kobayashi
Title: Joint General Manager
UNION BANK OF SWITZERLAND, NEW YORK BRANCH
by /s/ Robert H. Riley III
Name: Robert H. Riley III
Title: Managing Director
by /s/ David G. Dickinson, Jr.
Name: David G. Dickinson, Jr.
Title: Assistant Treasurer
VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST
by /s/ Jeffrey W. Maillet
Name: Jeffrey w. Maillet
Title: Senior Vice President and Director
SPRINT CORPORATION
by /s/ M. Jeannine Standjord
Name: M. Jeannine Standjord
Title: Senior Vice President and Treasurer
SECOND AMENDMENT
SECOND AMENDMENT, dated as of November 20, 1997 (this "Amendment"), to
the Credit Agreement, dated as of October 2, 1996 (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement), among Sprint
Spectrum L.P., a limited partnership organized under the laws of the State of
Delaware (the "Borrower"), Northern Telecom Inc. and the several banks and other
financial institutions and entities from time to time parties thereto
(collectively, the "Lenders") and Bank of America NT&SA, as agent for the
Lenders.
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders
have agreed to make certain loans to the Borrower; and
WHEREAS, the Borrower has requested that certain provisions
of the Credit Agreement be modified in the manner provided for in this Amend-
ment, and the Lenders are willing to agree to such modifications as provided for
in this Amendment;
NOW, THEREFORE, the parties hereto hereby agree as
follows:
1. Defined Terms. Terms defined in the Credit Agreement
and used herein shall have the meanings given to them in the Credit Agreement.
2. Amendments to Credit Agreement. (a) Subsection l.1 of
the Credit Agreement is hereby amended by adding the following new definition in
correct alphabetic order.
"'Capitalized Interest Loan' as defined in Subsection 2.7(d)."
(b) Subsection 2.2(a) of the Credit Agreement is hereby
amended by deleting the proviso contained in the first sentence thereof in its
entirety and inserting in lieu thereof the following new proviso:
"provided that no more than two borrowings may be made here-
under during any of the successive one-month periods
following the Initial Borrowing Date"
(c) Subsection 2.7(d) of the Credit Agreement is hereby
amended by (i)deleting clause (ii) thereof in its entirety and inserting in lieu
thereof the following:
"(ii) on any Interest Payment Date occurring during the
Interest Capitalization Period, such accrued interest shall be
capitalized and added to the principal amount of the Specified
Loan on which such capitalized interest shall have accrued."
and (ii) inserting the following sentence to the end of such subsection:
"For purposes of clarification, any Loans (each being a
"Capitalized Interest Loan") made pursuant to this subsection
2.7(d) as a result of capitalized interest being added to the
principal amount of a Specified Loan shall, for purposes of
subsections 2.3(a) and 2.7(d), be deemed to be made in the
same Borrowing Year in which the Specified Loan was made
(including Capitalized Interest Loans on Specified Loans which
were originally Capitalized Interest Loans)."
<PAGE>
(d) Subsection 6.1(f) of the Credit Agreement is hereby
amended by deleting the number "80,000,000" contained in the table contained
therein and substituting in lieu thereof the number "60,000,000."
(e) Subsection 6.1(g) of the Credit Agreement is hereby
amended by deleting the numbers "450,000" and "850,000" contained in the table
contained therein and substituting in lieu thereof the numbers "210,000" and
"490,000", respectively.
(f) Section 1 of Schedule I to the Credit Agreement is here-
by amended by deleting clauses (v) and (vi) of the definition of "Phase II
Commitment Period" contained therein and inserting in lieu thereof the following
new clauses:
"(v) the Borrower has drawn $800,000,000 hereunder and drawn
or utilized substantially all of the Bona Fide Commitments
described in the definition of Phase I Commitment Period
(excluding any portion of the Bank Credit Facilities or any
other such Bona Fide Commitments which has not been utilized
as a result of a determination by the Borrower that the actual
utilization of other sources of funding available to the
Borrower was not in the Borrower's best interest) and (vi)
there are then at least 60,000,000 Covered POPS"
(g) Section 2 of Schedule I to the Credit Agreement is here-
by amended by deleting such Section in its entirety and substituting in lieu
thereof the following:
"2. Use of Proceeds.
The Proceeds of the Loans shall be used to finance the
purchase of goods and services provided by the Vendor under
the Vendor Procurement Contract associated with the build-out
of the Borrower's national wireless telecommunications system;
provided that the aggregate amount of Loans which shall have
been made to finance Soft Costs shall not exceed (a) at any
time prior to the commencement of the Phase II Commitment
Period $250,000,000 and (b) from and after the commencement of
the Phase II Commitment Period the greater of (i) $250,000,000
and (ii) 30% of the value of all cumulative non-cancelable
orders placed by the Borrower under the Vendor Procurement
Contract subsequent to the execution thereof which have
deliveries required within 120 days from the date the order
was placed; provided that in no event shall the aggregate
amount of Loans made to finance Soft Costs exceed
$300,000,000.
3. Agreement of Lender. The Lenders hereby agree that the
modifications to subsection 6.1(f) and (g)set forth in this Agreement shall be
permitted to be made to the Other Vendor Credit Facility.
4. No Other Amendments; Confirmation. Except as expressly
amended, modified and supplemented hereby, the provisions of the Credit Agree-
ment are and shall remain in full force and effect.
5. Uncapitalized Accrued Interest. The interest on each
Specified Loan accrued between September 30, 1997, and the date of this Amend-
ment shall be capitalized and added to the principal amount of the Specified
Loan on which such capitalized interest shall have accrued. Such capitalization
shall occur on ecember 31, 1997.
6. Effectiveness. This Amendment shall become effective
upon (a)receipt by the Agent of counterparts hereof, duly executed and delivered
by the Borrower and the Requisite Lenders, (b) the Requisite Aggregate Lenders
<PAGE>
agreeing to the modifications to subsection 6.1(f)and (g)set forth in this
Amendment, and (c) the effectiveness of amendments causing identical modifi-
cations to subsections 6.1(f) and (g) of the Other Vendor Credit Facility and
the Bank Credit Facility.
7. Governing Law; Counterparts. (a) This Amendment and
the rights and obligations of the parties hereto shall be governed by, and
construed and interpreted in accordance with, the laws of the State of New York.
(b) This Amendment may be executed by one or more of the
parties to this Amendment on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Amendment signed by all the parties
shall be lodged with the Borrower and the Vendor. This Amendment may be
delivered by facsimile transmission of the relevant signature pages hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
SPRINT SPECTRUM L.P.
By: SPRINT SPECTRUM HOLDING COMPANY, L.P.
its general partner
By: /s/ Robert E. Sleet, Jr.
Name: Robert E. Sleet, Jr.
Title: Vice President & Treasurer
BANK OF AMERICA NT&SA,
as Agent
By: /s/ Leandro Balidoy
Name: Leandro Balidoy
Title: Vice President
BANK OF AMERICA NT&SA,
as a Lender
By: /s/ Fred L. Thorne
Name: Fred L. Thorne
Title: Vice President
NORTHERN TELECOM INC.
as a Lender
By: /s/ Michael W. McCorkle
Name: Michael W. McCorkle
Title: Director, Customer Finance
<PAGE>
BANK OF NOVA SCOTIA
By: /s/ Vincent J. Fitzgerald, Jr.
Name: Vincent J. Fitzgerald, Jr.
Title: Authorized Signatory
THE CIT GROUP/EQUIPMENT FINANCING, INC.
By: /s/ John E. Palmer
Name: John E. Palmer
Title: Senior Credit Operations Manager
COMERICA BANK
By: /s/ Thomas J. Randall
Name: Thomas J. Randall
Title: Vice President
EXPORT DEVELOPMENT CORP.
By: /s/ Robert Forbes
Name: Robert Forbes
Title: Director, Financial Services
By: /s/ Stephen Davies
Name: Stephen Davies
Title: International Contracts Specialist
GULF INTERNATIONAL BANK B.S.C.
By: /s/ Abdel-Fattah Tahoun
Name: Abdel Fattah Tahoun
Title: Senior Vice President
By: /s/ Haytham F. Khalil
Name: Haytham F. Khalil
Title: Assistant Vice President
ING BARING (U.S.) CAPITAL CORP
By: /s/ Joan M. Chiappe
Name: Joan M. Chiappe
Title: Vice President
MERITA BANK, LTD.
By: /s/ Charles J. Lansdown
Name: Charles J. Lansdown
Title: Vice President
By: /s/ Eric I. Mann
Name: Eric I. Mann
Title: Vice President
<PAGE>
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By: /s/ Colleen McCloskey
Name: Colleen McCloskey
Title: Associate
MERRILL LYNCH SENIOR FLOATING RATE FUND, INC.
By: /s/ Lynn Callicott Baranski
Name: Lynn Callicott Baranski
Title: Authorized Signatory
NTFC CAPITAL CORPORATION
By: /s/ Jerry E. Vaughn
Name: Jerry E. Vaughn
Title: Senior Vice President
ROYAL BANK OF CANADA
By: /s/ Andrew Cozewith
Name: Andrew Cozewith
Title: Manager
ROYALTON COMPANY
By: /s/ Raymond Kennedy
Name: Raymond Kennedy
Title: Vice President
UNION BANK OF SWITZERLAND,
New York Branch
By: /s/ Robert H. Riley, III
Name: Robert H. Riely, III
Title: Managing Director
By: /s/ David G. Dickinson, Jr.
Name: David G. Dickinson, Jr.
Title: Assistant Treasurer
VAN KAMPEN AMERICAN
By: /s/ Jeffrey W. Maillet
Name: Jeffrey W. Maillet
Title: Senior Vice President & Director
EXHIBIT 12
SPRINT SPECTRUM L.P. AND SUBSIDIARIES
COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES
(In Thousands)
<TABLE>
For the
period from
For the Years Ended October 24, 1994
December 31, (date of inception)
------------------------------------------------------------- to
1997 1996 1995 December 31, 1994
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Earnings:
Net loss....................... $ (1,406,976) $ (438,565) $ (110,428) $ (3,308)
Capitalized interest........... (97,399) (30,461) - -
Equity in subs................. - 92,284 46,206 -
----------------- ----------------- ----------------- ------------------
Subtotal (1,504,375) (376,742) (64,222) (3,308)
Fixed charges:
Interest charges............... 215,099 31,010 - -
Interest factor of operating rents 13,662 2,943 - -
-----------------
----------------- ----------------- ------------------
Total fixed charges.......... 228,761 33,953 - -
----------------- ----------------- ----------------- ------------------
Earnings as adjusted................ $ (1,275,614) $ (342,789) $ - $ -
================= ================= ================= ==================
Ratio of earnings to fixed
charges (A)...................... (B) (B) (C) (C)
(A) For purposes of determining the ratio of earnings to fixed charges,
earnings (loss) is defined as losses from continuing operations excluding
equity in losses in unconsolidated partnerships. Fixed charges consist of
interest expense on all indebtedness (including amortization of deferred
debt issuance costs) and the portion of rental expense that is
representative of the interest factor.
(B) The earnings are inadequate to cover fixed charges by $1,733,136 and
$410,695 for the years ended December 31, 1997 and 1996, respectively.
(C) The Company had no fixed charges as defined for the year ended December 31,
1995 or the period from October 24, 1994 (date of inception) through
December 31, 1994.
</TABLE>
EXHIBIT 21
SPRINT SPECTRUM L.P. AND SUBSIDIARIES
SUBSIDIARIES OF REGISTRANT
Sprint Spectrum L.P. is the parent. The subsidiaries of Sprint Spectrum L.P.
are as follows:
Ownership
Jurisdiction or Interest
Incorporation of Held By Its
Name Organization Immediate Parent
- -------------------------------------------- ----------------- -----------------
WirelessCo, L.P. Delaware 99.8%
Sprint Spectrum Equipment Company, L.P. Delaware 99.0%
Sprint Spectrum Realty Company, L.P. Delaware 99.0%
Sprint Spectrum Finance Corporation Delaware 100.0%
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> (28,054)
<SECURITIES> 64,875
<RECEIVABLES> 105,350
<ALLOWANCES> (9,032)
<INVENTORY> 96,907
<CURRENT-ASSETS> 360,555
<PP&E> 3,384,418
<DEPRECIATION> (251,754)
<TOTAL-ASSETS> 5,930,917
<CURRENT-LIABILITIES> 591,835
<BONDS> 3,101,539
0
0
<COMMON> 0
<OTHER-SE> 1,478,288
<TOTAL-LIABILITY-AND-EQUITY> 5,930,917
<SALES> 235,502
<TOTAL-REVENUES> 235,502
<CGS> 540,986
<TOTAL-COSTS> 1,534,244
<OTHER-EXPENSES> 5,472
<LOSS-PROVISION> 11,277
<INTEREST-EXPENSE> (113,706)
<INCOME-PRETAX> (1,406,976)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,406,976)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,406,976)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
