<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
---------- ---------
COMMISSION FILE NUMBER 000-25441
VOICESTREAM WIRELESS CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1956183
- -------------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3650 131ST AVENUE S.E.,
- ------------------------------------- 98006
BELLEVUE, WASHINGTON --------------------------------
(Address of principal executive (Zip Code)
offices)
(425) 653-4600
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Title Shares Outstanding as of November 10, 1999
- -------------------------------------------------------------------------------
<S> <C>
Common Stock, no par value 95,912,932
</TABLE>
<PAGE> 2
VOICESTREAM WIRELESS CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
as of September 30, 1999, and December 31, 1998............................................3
Consolidated Statements of Operations
for the Three and Nine Months Ended September 30, 1999, and September 30, 1998.............4
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1999, and September 30, 1998.......................5
Notes to Consolidated Financial Statements.................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ............................................12
PART II -OTHER INFORMATION.........................................................................20
ITEM 1. LEGAL PROCEEDINGS.........................................................................20
ITEM 2. CHANGES IN SECURITIES.....................................................................20
ITEM 3. DEFAULTS UPON SENIOR SECURITIES...........................................................20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................................20
ITEM 5. OTHER INFORMATION.........................................................................20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..........................................................20
</TABLE>
2
<PAGE> 3
VOICESTREAM WIRELESS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 48,866 $ 8,057
Accounts receivable, net of allowance for doubtful accounts of
$11,667 and $5,715, respectively 75,931 24,766
Inventory 21,011 20,182
Prepaid expenses and other current assets 12,887 6,393
----------- -----------
Total current assets 158,695 59,398
Property and equipment, net of accumulated depreciation
of $241,864 and $151,408, respectively 770,170 619,280
Licensing costs and other intangible assets, net of accumulated
amortization of $20,000 and $13,799, respectively 321,412 312,040
Investments in and advances to unconsolidated affiliates 204,868 60,938
Other assets 14,110
----------- -----------
$ 1,469,255 $ 1,051,656
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 31,426 $ 16,172
Accrued liabilities 98,901 45,566
Construction accounts payable 53,584 58,217
Payable to Western Wireless 1,132 5,071
----------- -----------
Total current liabilities 185,043 125,026
Long-term debt 1,165,000 540,000
Commitments and contingencies (Note 6)
Shareholders' equity:
Preferred stock, no par value; 50,000,000 shares authorized,
no shares issued and outstanding
Common stock, no par value, and paid in capital; 300,000,000
shares authorized, 95,783,011 and 95,541,623 shares issued
and outstanding, respectively 1,054,911 994,789
Deferred compensation (24,503)
Deficit (911,196) (608,159)
----------- -----------
Total shareholders' equity 119,212 386,630
----------- -----------
$ 1,469,255 $ 1,051,656
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 4
VOICESTREAM WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Subscriber revenues $ 107,238 $ 33,291 $ 245,209 $ 82,274
Roamer revenues 2,645 1,110 6,205 2,446
Equipment revenues 18,203 11,785 48,554 27,857
--------- -------- --------- ---------
Total revenues 128,086 46,186 299,968 112,577
--------- -------- --------- ---------
Operating expenses:
Cost of service 24,906 12,290 62,375 35,013
Cost of equipment sales 32,996 21,350 93,904 52,883
General and administrative 35,542 17,925 83,938 56,185
Sales and marketing 48,883 22,383 134,689 54,744
Depreciation and amortization 40,866 21,083 96,280 61,242
Stock based compensation (Note 8) 6,632 53,935
--------- -------- --------- ---------
Total operating expenses 189,825 95,031 525,121 260,067
--------- -------- --------- ---------
Operating loss (61,739) (48,845) (225,153) (147,490)
--------- -------- --------- ---------
Other income (expense):
Interest and financing expense, net (26,919) (7,508) (58,800) (25,010)
Equity in net loss of
unconsolidated affiliates (12,443) (7,068) (34,139) (16,528)
Interest income and other, net 8,067 1,958 15,055 6,470
--------- -------- --------- ---------
Total other expense (31,295) (12,618) (77,884) (35,068)
--------- -------- --------- ---------
Net loss $ (93,034) $(61,463) $(303,037) $(182,558)
========= ======== ========= =========
Basic and diluted loss per common share $ (0.97) $ (0.64) $ (3.17) $ (1.98)
========= ======== ========= =========
Weighted average common shares used in
computing basic and diluted loss per
common share 95,694 95,542 95,595 92,232
========= ======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
VOICESTREAM WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
------------------------------
1999 1998
--------- ---------
<S> <C> <C>
Operating activities:
Net loss $(303,037) $(182,558)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 96,280 61,242
Equity in net loss of unconsolidated affiliates 34,139 16,528
Stock based compensation 53,935
Other, net 1,104 399
Changes in operating assets and liabilities:
Accounts receivable, net (51,165) (2,561)
Inventory (829) 8,573
Prepaid expenses and other current assets (6,890) (1,798)
Accounts payable 15,254 7,816
Accrued liabilities 53,335 10,434
--------- ---------
Net cash used in operating activities (107,874) (81,925)
--------- ---------
Investing activities:
Purchase of property and equipment (245,042) (102,401)
Additions to licensing costs and other intangible assets (2,808) (11,535)
Investments in and advances to unconsolidated affiliates (178,366) (14,346)
Other (14,110)
--------- ---------
Net cash used in investing activities (440,326) (128,282)
--------- ---------
Financing activities:
Proceeds from issuance of common stock, net 888 244,789
Additions to long-term debt 895,000 370,000
Repayment of long-term debt (270,000) (300,000)
Repayment of advances from Western Wireless, net (4,379) (96,839)
Return of capital (20,000)
Deferred financing costs, net (12,500) (5,059)
--------- ---------
Net cash provided by financing activities 589,009 212,891
--------- ---------
Change in cash and cash equivalents 40,809 2,684
Cash and cash equivalents, beginning of period 8,057 337
--------- ---------
Cash and cash equivalents, end of period $ 48,866 $ 3,021
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 6
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION:
VoiceStream Wireless Corporation ("VoiceStream") provides wireless
communications services in urban markets in the United States through the
ownership and operation of PCS licenses. VoiceStream has commenced commercial
operations in eleven markets under the VoiceStream brand name using the Global
System for Mobile Communications ("GSM") technology. Additionally, VoiceStream
PCS services are offered in four additional markets in conjunction with joint
ventures.
VoiceStream was formed in 1994 as Western PCS Corporation. Prior to May 3,
1999, VoiceStream was an 80.1% owned subsidiary of Western Wireless Corporation
("Western Wireless"). The remaining 19.9% was owned by Hutchison
Telecommunications PCS (USA) Limited ("Hutchison USA"), a subsidiary of
Hutchison Whampoa Limited, a Hong Kong company. On May 3, 1999, VoiceStream
formally separated from Western Wireless' other operations (the "Spin-off").
VoiceStream has been operated separately from Western Wireless' other operations
and has been a separate legal entity since its inception.
On June 23, 1999, VoiceStream announced that it had obtained approval from
its Board of Directors for a merger with Omnipoint Corporation ("Omnipoint");
see footnote 9. Omnipoint provides PCS services in urban markets primarily in
the Eastern United States.
On September 20, 1999, VoiceStream announced that its Board of Directors had
approved a merger with Aerial Communications, Inc. ("Aerial"); see footnote 9.
Aerial provides PCS services in urban markets including Columbus, OH, Houston,
TX, Kansas City, MO, Minneapolis, MN, Pittsburgh, PA, and Tampa-St. Petersburg,
FL.
VoiceStream expects to incur significant operating losses and to generate
negative cash flows from operating activities during the next several years
while it expands its PCS systems and customer base. These losses are expected to
be financed through borrowings or the issuance of new debt or additional equity.
There can be no assurance that such funds will be available to VoiceStream on
acceptable or favorable terms.
The accompanying interim consolidated financial statements and the financial
information included herein are unaudited, but reflect all adjustments which
are, in the opinion of management, necessary for a fair presentation of the
financial position, results of operations and cash flows for the periods
presented. All such adjustments are of a normal, recurring nature. Results of
operations for interim periods presented herein are not necessarily indicative
of results of operations for the entire year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Loss per common share
Loss per common share is calculated using the weighted average number of
shares of outstanding common stock during the period. The number of shares
outstanding has been calculated based on the requirements of SFAS No. 128,
"Earnings Per Share." Due to the net loss incurred during the periods presented,
all options outstanding are anti-dilutive, thus basic and diluted loss per share
are equal.
Supplemental cash flow disclosure
Cash paid for interest (net of amounts capitalized) was $38.6 million for
the nine months ended September 30, 1999 and $18.6 million for the same period
in 1998.
Significant non-cash financing activities include stock based compensation
charged to Additional Paid in Capital ("APIC") and deferred compensation of
$79.2 million for the nine months ended September 30, 1999. Non-cash investing
and financing activities included $12.2 million for the contribution of wireless
licenses to a joint venture for the nine months ended September 30, 1998.
6
<PAGE> 7
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED):
Capitalized interest
VoiceStream's PCS licenses and wireless communications systems represent
qualified assets pursuant to SFAS No. 34, "Capitalization of Interest Cost."
VoiceStream had $0.1 million and $0.4 million of capitalized interest for the
three months ended September 30, 1999 and 1998, respectively, and $1.7 million
and $0.4 million during the nine months ended September 30, 1999 and 1998,
respectively.
Recently issued accounting standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." It requires the
recognition of all derivatives as either assets or liabilities and the
measurement of those instruments at fair value. The required adoption period is
effective for the issuance of VoiceStream's December 31, 2000, quarterly
financial statements. The implementation of SFAS No. 133 is not expected to have
a material impact on VoiceStream's financial position or results of operations.
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133", issued in August
1999, postpones for one year the mandatory effective date for adoption of SFAS
No. 133 to January 1, 2001.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
(In thousands) SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ -----------
<S> <C> <C>
Land, buildings, and improvements $ 24,296 $ 15,549
Wireless communications systems 702,126 459,710
Furniture and equipment 91,870 57,840
--------- ---------
818,292 533,099
Less accumulated depreciation (241,864) (151,408)
--------- ---------
576,428 381,691
Construction in progress 193,742 237,589
--------- ---------
$ 770,170 $ 619,280
========= =========
</TABLE>
Depreciation expense was $39.1 million and $19.5 million for the three
months ended September 30, 1999 and 1998, respectively, and $91.1 million and
$77.6 million during the nine months ended September 30, 1999 and 1998,
respectively.
4. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES:
A subsidiary of VoiceStream holds a 49.9% interest in Cook Inlet Western
Wireless PV/SS PCS, LP ("Cook Inlet PCS"). VoiceStream funded the operations of
Cook Inlet PCS during the nine months ended September 30, 1999, and 1998 through
loans evidenced by promissory notes which are due 180 days after the date of
issuance. The weighted average interest rate was 15% for the three months and
for the nine months ended September 30, 1999. All promissory notes that have
come due were replaced with new promissory notes. The total investment in Cook
Inlet PCS, including advances under such promissory notes, was $60.5 million at
September 30, 1999.
In January 1999, certain partners of Cook Inlet PCS, including VoiceStream,
formed another joint venture, Cook Inlet/VoiceStream PCS LLC ("CIVS") (49.9% of
which is owned by VoiceStream), to participate in the Federal Communications
Commission's ("FCC") reauction of C and F Block licenses in 1999. VoiceStream
contributed a total of $23.4 million during the nine months ended September 30,
1999, to the deposit required by the FCC to participate in the reauction. This
auction was completed in April 1999 and resulted in CIVS as the high bidder for
28 licenses, including both the Dallas and Chicago Basic Trading Areas ("BTAs"),
for an aggregate amount of $192.3 million. These licenses were granted by the
FCC in October 1999, and VoiceStream contributed a total of $100.4 million to
CIVS, representing a capital contribution of $59.2 million and an advance to the
partnership of $41.2 million. The Cook Inlet partners contributed $48.8 million
to CIVS for the remainder due.
7
<PAGE> 8
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES - (CONTINUED):
The Cook Inlet partners have certain rights, but not the obligation, to
exchange its joint venture interests into shares of VoiceStream's common stock
for a 30 day period beginning five years after the issuance date of the licenses
held by CIVS.
CIVS has reached an agreement in principle with an infrastructure equipment
vendor whereby such vendor would provide CIVS with up to $825 million in a
combination of senior credit and subordinated facilities, and VoiceStream would
agree to acquire certain equipment, software and services from the vendor. The
agreement contemplates that the net proceeds of the senior secured facility and
the subordinated facility would be used to finance capital expenditures,
permitted investments, and for working capital. The amount available for
borrowing pursuant to the senior credit facility and the subordinated facility
will be based upon the aggregate number of persons covered by licenses for BTAs
acquired by CIVS, with up to $825 million in the aggregate being available.
Although CIVS is working diligently with the vendor to prepare formal contracts,
there can be no assurance that formal contracts will be executed or that such
funds will be available to CIVS.
5. LONG-TERM DEBT:
<TABLE>
<CAPTION>
(In thousands) SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Credit Facility:
Revolver $ 515,000 $ 290,000
Term loan 250,000 250,000
Senior Debentures 400,000
----------- ----------
$ 1,165,000 $ 540,000
=========== ==========
</TABLE>
In June 1998, a wholly owned subsidiary of VoiceStream entered into a $1
billion credit facility with a consortium of lenders (the "Credit Facility").
The Credit Facility consists of $500 million in revolving credit and $250
million in a delayed draw term loan (collectively the "Revolver") and a term
loan for $250 million (the "Term Loan").
In May 1999, one of VoiceStream's infrastructure equipment vendors purchased
$400 million of VoiceStream's newly issued 12% Senior Debentures (the "Senior
Debentures").
In November, 1999, VoiceStream, through a private offering circular, offered
a combination of 10 3/8% Senior Notes and 11 7/8% Senior Discount Notes for
aggregate net proceeds of approximately $1.46 billion. VoiceStream used $400
million of the proceeds from the Senior Notes to repay the Senior Debentures and
an additional $125 million to repay outstanding borrowings under the revolver
portion of the Credit Facility.
The Senior Notes were issued at $1.1 billion principle and gross proceeds
and the Senior Discount Notes were issued at a discount for $403.6 million gross
proceeds, which will accrete over five years to its full principle value of $720
million. The Senior Notes and the Senior Discount Notes mature on November 15,
2009, and are redeemable after five years at VoiceStream's option, in whole or
in part, at varying redemption prices. Interest on the Senior Notes will accrue
at the rate of 10 3/8% per annum and will be payable semiannually beginning May
15, 2000. Interest on the Senior Discount Notes will accrue at a rate of
11 7/8% per annum and will be payable semiannually commencing on May 15, 2005.
The Credit Facility requires VoiceStream to enter into interest rate swap
and cap agreements to manage the interest rate exposure pertaining to borrowings
under the Credit Facility. VoiceStream had entered into interest rate caps and
swaps with a total notional amount of $325 million at September 30, 1999.
Generally these instruments have initial terms ranging from 1 to 4 years and
effectively convert variable rate debt to fixed rate. The weighted average
interest rate under these agreements was approximately 6.06% during the nine
months ended September 30, 1999. The amount of unrealized gain or loss
attributable to changing interest rates at September 30, 1999, was not material.
8
<PAGE> 9
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. LONG-TERM DEBT - (CONTINUED):
Voicestream has received commitments from a group of lenders for a $3.0
billion credit facility that will become available upon closing of the
Omnipoint merger (the "New Credit Facility"). While the lenders have provided
commitments to lend the entire $3.0 billion based upon an agreed upon term
sheet, such commitments are subject to customary conditions, including but not
limited to, negotiation and execution of definitive documentation for the New
Credit Facility, satisfactory completion of due diligence, and no materially
adverse changes. There can be no assurance that such conditions will be met and
that the New Credit Facility will become available to VoiceStream on these or
any other terms. The New Credit Facility will consist of a $1.5 billion revolver
that will be available for a specified period and $1.5 billion of term loans
that will be drawn at closing. The New Credit Facility will have a term of eight
to nine years with partial principal payments beginning after the third year.
The aggregate amounts of principal maturities of VoiceStream's long-term
debt at September 30, 1999, are as follows (In thousands):
<TABLE>
<S> <C>
Three months ending December 31, 1999................... $ 0
Year
2000.................................................... 0
2001.................................................... 28,250
2002.................................................... 54,000
2003.................................................... 79,750
Thereafter.............................................. 1,003,000
-----------
$ 1,165,000
===========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
Commitments:
Future minimum payments required under operating leases and agreements that
have initial or remaining noncancellable terms in excess of one year as of
September 30, 1999, are summarized below (In thousands):
<TABLE>
<S> <C>
Year ending December 31, 1999........................... $ 8,572
Year
2000.................................................... 32,376
2001.................................................... 27,196
2002.................................................... 19,365
2003.................................................... 14,806
Thereafter.............................................. 25,957
-----------
$ 128,272
===========
</TABLE>
Aggregate rental expense for all operating leases was approximately $8.1
million and $5.6 million for the three months ended September 30, 1999 and 1998,
respectively, and $22.6 million and $14.7 million during the nine months ended
September 30, 1999 and 1998, respectively.
In order to ensure adequate supply and availability of certain
infrastructure equipment and services, VoiceStream has committed to purchase PCS
equipment from various suppliers. The aggregate amount of these commitments
total $775 million. At September 30, 1999, VoiceStream has ordered approximately
$519.2 million under all of these agreements, of which approximately $64.0
million is undelivered.
VoiceStream and its affiliates have various other purchase commitments for
materials, supplies and other items incident to the ordinary course of business
which are neither significant individually nor in the aggregate. Such
commitments are not at prices in excess of current market value.
9
<PAGE> 10
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. COMMITMENTS AND CONTINGENCIES - (CONTINUED):
Contingencies:
As a result of the Omnipoint and Aerial mergers, VoiceStream may have to
make substantial tax indemnity payments to Western Wireless. In the Spin-off
transaction effected on May 3, 1999, Western Wireless distributed its entire
80.1% interest in VoiceStream's common stock to its stockholders. Western
Wireless will recognize gain as a result of the Spin-off, if the Spin-off is
considered to be part of a plan or series of related transactions pursuant to
which one or more persons acquire, directly or indirectly, 50% or more of
VoiceStream's common stock, considered under IRS rules a "prohibited
transaction". VoiceStream has agreed to indemnify Western Wireless on an
after-tax basis for any taxes, penalties, interest and various other expenses
incurred by Western Wireless if it is required to recognize such a gain. The
amount of such gain that Western Wireless would recognize would be equal to the
difference between the fair market value of VoiceStream common stock at the time
of the Spin-off and Western Wireless' adjusted tax basis in such stock at the
time.
In the absence of direct authority, and although the issue is not free from
doubt, VoiceStream believes that it should be able to establish that the
Spin-off and VoiceStream Holding's acquisitions of VoiceStream's stock pursuant
to the reorganizations, in conjunction with the related transactions and
Hutchison's acquisition of its existing VoiceStream stock within two years prior
to the Spin-off, are not pursuant to a prohibited plan. However, if the IRS were
to take the position that a prohibited plan did occur, the estimated range of
possible liability of VoiceStream Holdings, not including interest and
penalties, if any, is from zero to $400 million.
Fourteen of the C Block licenses won by CIVS during April 1999, were issued
subject to the outcome of the bankruptcy proceedings of the original licensee.
Pursuant to an FCC order, the bankruptcy debtors elected to relinquish certain
licenses, which were subsequently reauctioned. A secured creditor of the
debtors, filed with the court a motion for reconsideration of the election
order, which was denied. An appeal of this denial is currently before the U. S.
District Court of Northern Maryland. Because the appeal of the election order is
still pending, there is uncertainty as to these C Block licenses of the Cook
Inlet entities. In the event that these licenses are returned to the
jurisdiction of the bankruptcy court, it is unlikely that the Cook Inlet
entities will be able to recoup any or all of the costs incurred by them in
connection with the construction and development of systems related to such
licenses.
7. RELATED PARTY TRANSACTIONS:
VoiceStream's financial statements include an allocation of certain
centralized costs that were incurred by Western Wireless and benefit all of its
operations, including those of VoiceStream prior to the Spin-off. Such
centralized items included the costs of customer service and accounting to
support these functions. These items were allocated to the respective
operational units in a manner that reflects the relative time devoted to each of
the operational units. VoiceStream was allocated costs of $1.1 million and $10.3
million for the three months ended September 30, 1999 and 1998, respectively,
and $5.0 million and $28.6 million for the nine months ended September 30, 1999
and 1998, respectively.
Management believes that the financial information presented, fairly
reflects the results of operations had VoiceStream been a stand alone entity
during the entire period presented. Management believes that allocations
reflected in the financial statements are reasonable; however, the financial
information included herein is not necessarily indicative of the financial
position, results of operations or cash flows of VoiceStream in the future.
After the Spin-off, the net operating loss ("NOL") carryforwards resulting
from VoiceStream's cumulative tax losses were transferred from Western Wireless
to VoiceStream. Pursuant to a tax sharing agreement entered into at the time of
the Hutchison investment, VoiceStream paid Western Wireless $20 million, the
amount representative of the tax benefit of NOLs generated while VoiceStream was
a subsidiary of Western Wireless. This was accounted for as a return of capital
to Western Wireless.
10
<PAGE> 11
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. SHAREHOLDERS' EQUITY:
Stock issuances:
During the nine months ended September 30, 1999, VoiceStream issued 241,288
shares of its common stock as a result of employee stock options exercised.
Other transactions:
During the third quarter, deferred compensation and compensation expense was
recognized as a result of restructuring employee stock options in connection
with the Spin-off. As of the date of the Spin-off, all unvested outstanding
options of VoiceStream employees were converted from Western Wireless options to
VoiceStream options and all vested outstanding options were issued an additional
option in VoiceStream as well as maintaining the existing option in Western
Wireless. The number of options and related strike price varied to maintain the
original economic value to the employee.
Per the provisions of EITF 90-9, "Changes to Fixed Employee Stock Option
Plans as a Result of Equity Restructuring", VoiceStream recorded deferred
compensation of $67.1 million as a result of this restructure. Of the $67.1
million, $47.9 million was recognized as expense through the nine months ended
September 30, 1999 to reflect the cost of options that have fully vested.
Additionally, deferred compensation of $12.1 million was recognized pursuant to
fair market value adjustments for the underlying shares in the Restricted Stock
Plan and $6.0 million was recognized as expense during the nine months ended
September 30, 1999. This plan is accounted for as a variable plan.
9. MERGERS
On June 23, 1999, VoiceStream announced Board approval of a definitive
merger agreement with Omnipoint. Pursuant to the agreement, VoiceStream will
exchange 0.825 shares of VoiceStream common stock plus $8.00 in cash for every
share of Omnipoint common stock. There will be a cash or share election option
available to shareholders of Omnipoint subject to proration. This merger is
subject to shareholder approval of both companies, as well as federal, state,
and other regulatory approvals, including those of the FCC and the Department of
Justice ("DOJ"). Major shareholders have agreed irrevocably to vote for the
merger. In conjunction with the merger agreement, VoiceStream committed to
invest a total of $150 million in Omnipoint, of which $102.5 million was
invested in Omnipoint preferred stock upon signing of the merger agreement. The
remaining $47.5 million was invested in Omnipoint preferred stock on October 1,
1999. The merger is expected to be completed no later than the first quarter of
2000.
In connection with the Omnipoint merger agreement, the majority of which is
contingent upon closure of such, Hutchison USA will make an investment of
approximately $957 million into the combined company for common and convertible
preferred securities. $102.5 million of this investment was invested directly in
Omnipoint preferred stock subsequent to finalizing the merger agreement. In
addition, another $47.5 million was invested in Omnipoint preferred stock in
October 1999. The remaining $807 million will be invested into the combined
company upon the closing of the merger. Additionally, Sonera, Ltd, ("Sonera") a
Finnish telecommunications company, who holds an investment in Aerial Operating
Company ("AOC"), a subsidiary of Aerial, has agreed to invest $500 million in
VoiceStream at the closing of the Omnipoint merger, purchasing shares at $57 per
VoiceStream share.
On September 20, 1999, VoiceStream announced Board approval of a merger
agreement with Aerial. Under the terms of the agreement, VoiceStream will
exchange 0.455 shares of VoiceStream common stock for each share of Aerial
Series A Common Shares. Aerial public shareholders have a right to elect to
receive $18 in cash in lieu of shares of VoiceStream. Telephone and Data
Systems, ("TDS"), a major shareholder of Aerial, and major shareholders of
VoiceStream, including Hutchison USA, have agreed irrevocably to vote in favor
of the merger. The merger is subject to shareholder approval of both companies
as well as federal, state, and other regulatory approvals including those of the
FCC and the DOJ. The merger is expected to be completed during the first quarter
of 2000.
In connection with the Aerial merger agreement, TDS will replace $420
million of Aerial debt owed to TDS with equity of Aerial at $22 per share.
Sonera will invest an additional $230 million in Aerial equity, also at $22 per
Aerial share. Immediately prior to the merger, Sonera will convert its interest
in AOC into Aerial common stock.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
LITIGATION REFORM ACT OF 1995.
Statements contained or incorporated by reference herein that are not based on
historical fact, including without limitation, statements containing the words
"believes," "may," "will," "estimate," "continue," "anticipates," "intends,"
"expects" and words of similar import, constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, events or developments to be
materially different from any future results, events or developments expressed
or implied by such forward-looking statements. Such factors include, among
others, the following: general economic and business conditions, both nationally
and in the regions in which VoiceStream Wireless Corporation ("VoiceStream")
operates; technology changes; competition; changes in business strategy or
development plans; the high leverage of VoiceStream; the ability to attract and
retain qualified personnel; existing governmental regulations and changes in, or
the failure to comply with, governmental regulations; liability and other claims
asserted against VoiceStream; VoiceStream's and its third-party suppliers'
ability to take corrective action in a timely manner with respect to the year
2000 issue; and other factors referenced in VoiceStream's filings with the
Securities and Exchange Commission. Given these uncertainties, readers are
cautioned not to place undue reliance on such forward-looking statements.
VoiceStream disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future results, events or developments.
The following is a discussion and analysis of the consolidated financial
condition and results of operations of VoiceStream and should be read in
conjunction with VoiceStream's consolidated financial statements and notes
thereto and other financial information included herein and in VoiceStream's
Form 10/A (Commission File No. 000-25441). Due to the phase of the business
cycle of VoiceStream's PCS operations, VoiceStream's operating results for prior
periods may not be indicative of future performance.
OVERVIEW
VoiceStream provides wireless communications services in urban markets
in the United States through the ownership and operation of PCS licenses.
VoiceStream has commenced commercial operations in eleven markets under the
VoiceStream brand name using the Global System for Mobile Communications ("GSM")
technology. Additionally, VoiceStream PCS services are offered in four
additional markets in conjunction with joint ventures.
VoiceStream was formed in 1994 as Western PCS Corporation. Prior to May
3, 1999, VoiceStream was an 80.1% owned subsidiary of Western Wireless
Corporation, ("Western Wireless"). The remaining 19.9% was owned by Hutchison
Telecommunications PCS (USA) Limited, a subsidiary of Hutchison Whampoa Limited,
a Hong Kong company. On May 3, 1999, VoiceStream formally separated from Western
Wireless' other operations (the "Spin-off"). VoiceStream has been operated
separately from Western Wireless' other operations and has been a separate legal
entity since its inception.
On June 23, 1999, VoiceStream announced that it had obtained approval
from its Board of Directors for a merger with Omnipoint Corporation
("Omnipoint"); see Liquidity and Capital Resources section. Omnipoint provides
PCS services in urban markets primarily in the Eastern United States.
On September 20, 1999, VoiceStream announced that its Board of Directors
had approved a merger with Aerial Communications, Inc. ("Aerial"); see Liquidity
and Capital Resources section. Aerial provides PCS services in urban markets
including Columbus, Ohio, Houston, Texas, Kansas City, Missouri, Minneapolis,
MN, Pittsburgh, PA, and Tampa-St. Petersburg, FL.
VoiceStream did not commence operations in any of its markets until
February 1996. From that date through the end of 1996, VoiceStream launched
service in six markets: Honolulu, Portland, Salt Lake City, Albuquerque,
Oklahoma City and Des Moines. In 1997, VoiceStream launched service in El Paso,
Boise and Denver. In 1998, VoiceStream launched service in Phoenix/Tucson, and
in February of 1999, launched service in Seattle. Due to the varying dates at
which each of the markets became operational, the expenses and revenues incurred
during any period may not be comparable to another period and may not be
representative of future operations. Additionally,
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<PAGE> 13
during each period being discussed, a portion of the operating expenses was
related to start-up costs incurred before the commencement of operations in each
of the markets. Exclusive of depreciation and amortization expense, which was
not material, approximately $1.0 million and $1.8 million of start-up costs were
incurred during the three months ended September 30, 1999 and 1998,
respectively, and $2.2 million and $3.5 million of start-up costs were incurred
during the nine months ended September 30, 1999 and 1998, respectively.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
VoiceStream had 675,700 subscribers at September 30, 1999, representing
an increase of 122,500 or 22.1% from June 30, 1999, and a 109.6% increase from
December 31, 1998. At September 30, 1998, VoiceStream had 264,800 subscribers,
representing an increase of 52,200 or 24.6% from June 30, 1998, and a 105.9%
increase from December 31, 1997.
The following table sets forth certain financial data as it relates to
the VoiceStream's operations:
<TABLE>
<CAPTION>
(Dollars in thousands) THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------- ----------------------------------
% %
1999 CHANGE 1998 1999 CHANGE 1998
---------- -------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Subscriber revenues $ 107,238 222.1% $ 33,291 $ 245,209 198.0% $ 82,274
Roamer revenues 2,645 138.3% 1,110 6,205 153.7% 2,446
Equipment revenues 18,203 54.5% 11,785 48,554 74.3% 27,857
--------- --------- --------- ---------
Total revenues 128,086 46,186 299,968 112,577
Operating expenses:
Cost of service 24,906 102.7% 12,290 62,375 78.1% 35,013
Cost of equipment sales 32,996 54.5% 21,350 93,904 77.6% 52,883
General and administrative 35,542 98.3% 17,925 83,938 49.4% 56,185
Sales and marketing 48,883 118.4% 22,383 134,689 146.0% 54,744
Depreciation and amortization 40,866 93.8% 21,083 96,280 57.2% 61,242
Stock based compensation 6,632 N.M. 53,935 N.M.
--------- --------- --------- ---------
Total operating expenses 189,825 95,031 525,121 260,067
Other income (expense) (31,295) 148.0% (12,618) (77,884) 122.1% (35,068)
--------- --------- --------- ---------
Net Loss $ (93,034) 51.4% $ (61,463) $(303,037) 66.0% $(182,558)
========= ========= ========= =========
EBITDA (before non-cash charges) $ (14,241) (48.7)% $ (27,762) $ (74,938) (13.1)% $ (86,248)
========= ========= ========= =========
Cash flows provided by (used in):
Operating activities $ (41,654) 157.6% $ (16,169) $(107,874) 31.7% $ (81,925)
========= ========= ========= =========
Investing activities $(136,299) 102.3% $ (67,366) $(440,326) 243.2% $(128,282)
========= ========= ========= =========
Financing activities $ 146,693 142.9% $ 60,504 $ 589,009 176.7% $ 212,891
========= ========= ========= =========
</TABLE>
REVENUES
The increase in service revenues is due to the increase in the number of
subscribers and an increase in the average monthly subscriber revenue per
average subscriber, or ARPU. The increase in subscribers is due to the relative
maturity of the nine markets operating in the third quarter of 1999, which were
also operating in the first nine months of 1998, and the addition of two more
operating markets for the first nine months of 1999, and VoiceStream's "Get
More" advertising campaign, featuring Jamie Lee Curtis, that was initiated in
the second quarter of 1998. ARPU was $58.18 and $46.49 for the three months
ended September 30, 1999 and 1998, respectively, and $54.59 and $46.47 for the
nine months ended September 30, 1999 and 1998, respectively. The increase in
ARPU is primarily due to an increase in the average minutes of use per
subscriber and existing subscribers migrating to and new subscribers adding on
to our higher priced rate plans. Included in subscriber revenues are prepaid
revenues of $0.4 million and $0.5 million for the three months ended September
30, 1999 and 1998, respectively, and $1.9 million and $1.0 million for the nine
months ended September 30, 1999 and 1998, respectively.
Roamer revenues are a result of VoiceStream's continuing effort to
procure domestic and international roaming agreements with other carriers.
VoiceStream expects roamer revenues to continue to increase throughout 1999 due
to increased wireless subscribers and VoiceStream's expanded coverage.
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Equipment revenues increased as a result of more handsets sold. The
increase in handsets sold is due to the number of operational markets during
each period and the relative maturity of VoiceStream's operations in these
markets. Offsetting this increase is a decrease in the average handset selling
price, which is the result of lower handset costs and the competitive
environment. VoiceStream anticipates continued growth in equipment sales as a
result of increases in subscriber additions and the commencement of commercial
operations in other markets.
OPERATING EXPENSES
Cost of service expenses represent expenses incurred only by operational
markets. The increase in cost of service is primarily attributable to the
increased costs of maintaining the expanding wireless network. Cost of service
as a percentage of service revenues declined to 22.7% from 35.7% in the three
months ended September 30, 1999 and 1998, respectively, and to 24.8% from 41.3%
in the nine months ended September 30, 1999 and 1998, respectively, due to
efficiencies gained from the growing subscriber base. While cost of service
expenses are expected to continue to grow in 1999 due to the growth in
subscribers and operating markets, VoiceStream expects the cost of service as a
percentage of service revenue to decline as greater economies of scale are
realized.
Cost of equipment sales increased primarily due to the increase in
handsets sold, offset by a decrease in the average cost of handsets sold.
VoiceStream expects this trend to continue during the remainder of 1999.
Although subscribers generally are responsible for purchasing or otherwise
obtaining their own handsets, VoiceStream has historically sold handsets below
cost to respond to competition and general industry practice and expects to
continue to do so in the future.
The increase in general and administrative expenses is primarily
attributable to the increased costs associated with supporting a larger
subscriber base. General and administrative costs per average subscriber were
$19.28 and $25.03 for the three months ended September 30, 1999 and 1998,
respectively, and $18.69 and $31.74 for the nine months ended September 30, 1999
and 1998, respectively. This decrease is largely the result of efficiencies
gained from a larger subscriber base. While general and administrative expenses
are expected to continue to grow in 1999 due to the growth in subscribers and
operating markets, VoiceStream expects the costs per average subscriber to
decline as greater economies of scale are realized; however, we expect it will
decline at a lower rate.
Sales and marketing costs increased as a result of the increase in net
subscriber additions and the effort to promote VoiceStream's brand name in a
greater number of markets. Sales and marketing cost per net subscriber added,
including the loss on equipment sales, decreased to $520 from $612 for the three
months ended September 30, 1999 and 1998, respectively, and to $510 from $586
for the nine months ended September 30, 1999 and 1998, respectively. This
decrease is largely the result of cost efficiencies from a larger subscriber
base.
The increase in depreciation and amortization expense is attributable to
the continued expansion of VoiceStream's wireless systems. Federal
Communications Commission ("FCC") licenses are not amortized until the related
market is operational. These expenses will increase as new markets become
operational.
A non-cash charge for stock based compensation of $6.6 million and $53.9
million was recognized during the three months and nine months ended September
30, 1999, respectively, largely as a result of a restructuring of stock options
in connection with the Spin-off. The remaining $24.5 million of deferred
compensation as of September 30, 1999, will be recognized as expense over the
future periods the remaining unvested options vest.
OTHER INCOME (EXPENSE)
Interest and financing expense increased to $26.9 million from $7.5
million for the three months ended September 30, 1999 and 1998, respectively,
and to $58.8 from $25.0 for the nine months ended September 30, 1999 and 1998,
respectively, due to the increase in long-term debt. Long-term debt was incurred
primarily to fund VoiceStream's capital expenditures associated with the
build-out of VoiceStream's systems. Interest expense will continue to increase
in 1999 as a result of increased borrowings VoiceStream has incurred, and will
continue to incur, to fund this expansion. The weighted average interest rate,
before the effect of capitalized interest, was 10.6% and 9.5% for the three
months ended September 30, 1999 and 1998, respectively, and 9.7% and 8.7% for
the nine months ended September 30, 1999 and 1998, respectively.
Also included in other income (expense) is loss in unconsolidated
affiliates of $12.4 million and $7.1 million for the three months ended
September 30, 1999 and September 30, 1998, respectively, and $34.1 million and
$16.5 million for the nine months ended September 30, 1999 and September 30,
1998, respectively. The increase in losses for these periods is due to an
increase in costs associated with the launch of operations in the Spokane market
for its Cook Inlet Western Wireless PV/SS PCS, LP ("Cook Inlet PCS") investment
in the first quarter of 1999.
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<PAGE> 15
NET LOSS
The increase in net loss is primarily attributable to the increase in
marketing costs associated with the launch of operations in the Seattle market
in the first quarter of 1999, offset by increased revenues and operating
efficiencies gained from the growing subscriber base. Additionally,
VoiceStream's portion of the loss in its unconsolidated affiliates is greater
due to an increase in costs associated with the launch of operations in the
Spokane market for its Cook Inlet PCS investment in the first quarter of 1999.
VoiceStream expects net loss to improve in 1999 for its operational markets;
however, the commencement of operations in new markets will slow and could
reverse this trend. Additionally, the non-cash charge related to the
restructuring of stock options in connection with the Spin-off increased the net
loss for the first nine months of 1999 by $53.9 million and will have a
continued negative impact as the remaining unvested options vest and the related
expense is recognized.
EBITDA
EBITDA represents operating loss before stock based compensation,
depreciation and amortization. Management believes EBITDA provides meaningful
additional information on VoiceStream's operating results and on its ability to
service its long-term debt and other fixed obligations, and to fund
VoiceStream's continued growth. EBITDA is considered by many financial analysts
to be a meaningful indicator of an entity's ability to meet its future financial
obligations, and growth in EBITDA is considered to be an indicator of future
profitability, especially in a capital-intensive industry such as wireless
telecommunications. EBITDA should not be construed as an alternative to
operating income (loss) as determined in accordance with United States generally
accepted accounting principles ("GAAP"), as an alternate to cash flows from
operating activities (as determined in accordance with GAAP), or as a measure of
liquidity. Because EBITDA is not calculated in the same manner by all companies,
VoiceStream's presentation may not be comparable to other similarly titled
measures of other companies.
EBITDA for VoiceStream improved to negative $14.2 million from negative
$27.8 million for the three months ended September 30, 1999 and September 30,
1998, respectively, and to negative $74.9 million from negative $86.2 million
for the nine months ended September 30, 1999 and September 30, 1998,
respectively. This improvement is primarily due to the increased revenues and
efficiencies gained as a result of the increased subscriber base. VoiceStream
expects EBITDA to improve during the remainder of 1999 for its operational
markets; however, the commencement of operations in new markets will slow and
could reverse this improvement.
LIQUIDITY AND CAPITAL RESOURCES
Financing and Merger Activities
VoiceStream, through a wholly-owned subsidiary, has a credit facility
with a consortium of lenders (the "Credit Facility") consisting of $500 million
in revolving credit and $250 million in a delayed draw term loan (collectively,
the "Revolver") and a term loan for $250 million (the "Term Loan"). As of
September 30, 1999, $765 million was outstanding under the Credit Facility. The
amount which VoiceStream can borrow under the Credit Facility is reduced
beginning in 2001, the same year in which repayment of the Credit Facility
begins. Debt under the Credit Facility matures on December 31, 2006, for the
revolver and the delayed draw term loan, and June 30, 2007, for the other $250
million term loan. The borrowings under the Credit Facility bear interest at
variable rates. Substantially all the assets of VoiceStream, other than certain
licenses acquired in the FCC's D and E Block auctions, the Cook Inlet PCS and
Cook Inlet/VoiceStream PCS LLC ("CIVS") investment interests and certain other
assets and investments, are pledged as security for such debt. The terms of the
Credit Facility restrict, among other things, the sale of assets, distribution
of dividends or other distributions and loans. As of October 1, 1999, the amount
available to borrow under the Credit Facility, which is restricted by certain
financial covenants, was $235 million.
In May 1999, one of VoiceStream's infrastructure equipment vendors
purchased $400 million of VoiceStream's newly issued 12% Senior Debentures (the
"Senior Debentures").
In November, 1999, VoiceStream, through a private offering circular,
offered a combination of 10 3/8% Senior Notes and 11 7/8% Senior Discount Notes
for aggregate net proceeds of approximately $1.46 billion. VoiceStream used $400
million of the proceeds from the Senior Notes to repay the Senior Debentures and
an additional $125 million to repay outstanding borrowings under the revolver
portion of the Credit Facility.
The Senior Notes were issued at $1.1 billion principle and gross
proceeds and the Senior Discount Notes were
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<PAGE> 16
issued at a discount for $403.6 million gross proceeds, which will accrete over
five years to its full principle value of $720 million. The Senior Notes and the
Senior Discount Notes mature on November 15, 2009, and are redeemable after five
years at VoiceStream's option, in whole or in part, at varying redemption
prices. Interest on the Senior Notes will accrue at the rate of 10 3/8% per
annum and will be payable semiannually beginning May 15, 2000. Interest on the
Senior Discount Notes will accrue at a rate of 11 7/8% per annum and will be
payable semiannually commencing on May 15, 2005.
On June 23, 1999, VoiceStream announced Board approval of a definitive
merger agreement with Omnipoint. Pursuant to the agreement, VoiceStream will
exchange 0.825 shares of VoiceStream common stock plus $8.00 in cash for every
share of Omnipoint common stock. There will be a cash or share election option
available to shareholders of Omnipoint subject to proration. This merger is
subject to shareholder approval of both companies as well as federal, state, and
other regulatory approvals including those of the FCC and the Department of
Justice ("DOJ"). Major shareholders have agreed irrevocably to vote for the
merger. In conjunction with the merger agreement, VoiceStream committed to
invest a total of $150 million in Omnipoint, of which $102.5 million was
invested in Omnipoint preferred stock upon signing of the merger agreement. The
remaining $47.5 million was invested in Omnipoint preferred stock on October 1,
1999. The merger is expected to be completed no later than the first quarter of
2000.
In connection with the Omnipoint merger agreement, the majority of which
is contingent upon closure of such, Hutchison Telecommunications PCS (USA)
Limited ("Hutchison USA") will make an investment of approximately $957 million
into the combined company for common and convertible preferred securities.
$102.5 million of this investment was invested directly in Omnipoint preferred
stock subsequent to finalizing the merger agreement. In addition, another $47.5
million was invested in Omnipoint preferred stock in October 1999. The remaining
$807 million will be invested into the combined company upon the closing of the
merger. Additionally, Sonera, Ltd, ("Sonera") a Finnish telecommunications
company, who holds an investment in Aerial Operating Company ("AOC"), a
subsidiary of Aerial, has agreed to invest $500 million in VoiceStream at the
closing of the Omnipoint merger, purchasing shares at $57 per VoiceStream share.
On September 20, 1999, VoiceStream announced Board approval of a merger
agreement with Aerial. Under the terms of the agreement, VoiceStream will
exchange 0.455 shares of VoiceStream common stock for each share of Aerial
Series A Common Shares. Aerial public shareholders have a right to elect to
receive $18 in cash in lieu of shares of VoiceStream. Telephone and Data
Systems, ("TDS"), a major shareholder of Aerial, and major shareholders of
VoiceStream, including Hutchison USA, have agreed irrevocably to vote in favor
of the merger. The merger is subject to shareholder approval of both companies
as well as federal, state, and other regulatory approvals including those of the
FCC and the DOJ. The merger is expected to be completed during the first quarter
of 2000.
In connection with the Aerial merger agreement, TDS will replace $420
million of Aerial debt owed to TDS with equity of Aerial at $22 per share.
Sonera will invest an additional $230 million in Aerial equity, also at $22 per
Aerial share. Immediately prior to the merger, Sonera will convert its interest
in AOC into Aerial common stock.
Upon completion of the Omnipoint and Aerial reorganizations, VoiceStream
expects to receive or have available an aggregate of $6.2 billion in new funding
from the following sources: $3.0 billion under a New Credit Facility, ("New
Credit Facility") for which VoiceStream has received commitments from a group
of lenders and will become available upon the closing of the Omnipoint merger;
$1.7 billion of new equity from Hutchison USA and Sonera, as described above,
and $1.46 billion of net proceeds from the Senior Notes and Senior Discount
Notes offered by VoiceStream in November 1999. While the lenders of the New
Credit Facility have provided commitments to lend the entire $3.0 billion based
upon an agreed upon term sheet, such commitments are subject to customary
conditions, including, but not limited to, negotiation and execution of
definitive documentation for the New Credit Facility, satisfactory completion
of due diligence, and no materially adverse changes. There can be no
assurance that such conditions will be met and that the New Credit Facility
will become available to VoiceStream on these or any other terms. The New
Credit Facility will consist of a $1.5 billion revolver that will be available
for a specified period and $1.5 billion of term loans that will be drawn at
closing. The New Credit Facility is expected to have a term of eight to nine
years with partial payments beginning after the third year. The proceeds from
the New Credit Facility, along with the proceeds from the Senior Notes, and the
investments from Hutchison and Sonera, will be used to repay some or all of the
outstanding debt of VoiceStream, Omnipoint and Aerial. The balance of the
proceeds will be used to fund planned construction of PCS networks, to launch
operations and new markets, to fund operational requirements of the joint
ventures in which VoiceStream holds interests, and to provide working capital
and fund anticipated operating losses.
In the ordinary course of business, VoiceStream continues to evaluate
acquisitions, joint ventures and other potential business transactions. Any such
transactions would be financed with the borrowings under the New Credit Facility
or through the issuance of additional debt or the sale of additional equity.
There can be no assurance that such funds will be available to VoiceStream on
acceptable or favorable terms.
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Investments and Capital Expenditures
For the remainder of 1999, VoiceStream anticipates spending
approximately $80 million for capacity and expansion of operating markets and
$50 million for the development and expansion of new markets (amounts include
anticipated spending by both VoiceStream and Cook Inlet PCS). VoiceStream will
use cash on hand, proceeds from the Senior Notes and amounts available for
borrowing under the Credit Facility for such purposes. In addition, further
funds (which may be significant) will be required to finance the continued
growth of operations, including the build-out of markets, provide for working
capital and service debt. The build-out of additional systems by VoiceStream
will require substantial additional funds. The capital cost of completing the
project in any particular market, and overall, could vary materially from
current estimates. If adequate funds are not available from its existing capital
resources, VoiceStream may be required to curtail its service operations or to
obtain additional funds. The terms of any additional funds may be less favorable
than those contained in current arrangements. In addition to the aforementioned
capital expenditures VoiceStream expects to make in 1999, VoiceStream has
noncancellable lease agreements for various facilities, including cell-site
locations, of approximately $8.6 million for the remainder of 1999. The sources
of funding for such expenditures will come from the same sources as discussed
above.
A wholly owned subsidiary of VoiceStream holds a 49.9% interest in Cook
Inlet PCS. Cook Inlet PCS is subject to the FCC's build-out requirements and
will require significant additional amounts to complete the build-out of its PCS
systems and to meet the government debt service requirements on C and F Block
licenses. No principal payments on these licenses are due in 1999. The potential
sources of such additional funding include vendor loans, loans or capital
contributions by the partners of Cook Inlet PCS or other third party financing.
To date, VoiceStream has funded the operations of Cook Inlet PCS through the
issuance of promissory notes. VoiceStream does not have any further commitments
to fund Cook Inlet PCS. At September 30, 1999, VoiceStream had advanced funds
totaling $103.4 million to Cook Inlet PCS under such promissory notes.
In January 1999, certain partners of Cook Inlet PCS, including
VoiceStream, formed another joint venture, CIVS (49.9% of which is owned by
VoiceStream), to participate in the FCC reauction of C and F Block licenses in
1999. VoiceStream contributed a total of $23.4 million during the nine months
ended September 30, 1999, to the deposit required by the FCC to participate in
the reauction. This auction was completed in April 1999 and resulted in CIVS as
the high bidder for 28 licenses, including both the Dallas and Chicago Basic
Trading Areas ("BTAs"), for an aggregate amount of $192.3 million. These
licenses were granted by the FCC in October 1999, and VoiceStream contributed a
total of $100.4 million to CIVS, representing a capital contribution of $59.2
million and an advance to the partnership of $41.2 million. The Cook Inlet
partners contributed $48.8 million to CIVS for the remainder due.
CIVS has reached an agreement in principle with an infrastructure
equipment vendor whereby such vendor would provide CIVS with up to $825 million
in a combination of senior credit and subordinated facilities, and VoiceStream
would agree to acquire certain equipment, software and services from the vendor.
The agreement contemplates that the net proceeds of the senior secured facility
and the subordinated facility would be used to finance capital expenditures,
permitted investments, and for working capital. The amount available for
borrowing pursuant to the senior credit facility and the subordinated facility
will be based upon the aggregate number of persons covered by licenses for BTAs
acquired by CIVS, with up to $825 million in the aggregate being available.
Although CIVS is working diligently with the vendor to prepare formal contracts,
there can be no assurance that formal contracts will be executed or that such
funds will be available to CIVS.
Cash Flow Information
After the Spin-off, the net operating loss ("NOL") carryforwards
resulting from VoiceStream's cumulative tax losses were transferred from Western
Wireless to VoiceStream. Pursuant to a tax sharing agreement entered into at the
time of the Hutchison investment, VoiceStream paid Western Wireless $20 million,
the amount representative of the tax benefit of NOLs generated while VoiceStream
was a subsidiary of Western Wireless.
Net cash used in operating activities was $107.9 million for the nine
months ended September 30, 1999. Adjustments to the $303.0 million net loss to
reconcile to net cash used in operating activities included $96.3 million of
depreciation and amortization, $34.1 million for equity in the net loss of
unconsolidated subsidiaries, and $53.9 million for stock based compensation as a
result of stock options granted to employees at the time of the Spin-off. Other
adjustments included changes in operating assets and liabilities, including: (i)
an increase of $51.2 million in accounts receivable due to the increase in
sales; and (ii) an increase of $53.3 million in accrued liabilities due to the
increase in accrued interest on long-term debt and commissions due to the
increase in sales. Net cash used in operating activities was $81.9 million
through the third quarter 1998.
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Net cash used in investing activities was $440.3 million for the nine
months ended September 30, 1999. Investing activities consisted primarily of:
(i) purchases of property and equipment of $245.0 million, largely related to
the build-out and expansion of the wireless network; and (ii) investments in and
advances to unconsolidated affiliates of $178.4 million, primarily attributable
to the purchase of Omnipoint preferred stock and advances to Cook Inlet PCS for
working capital and purchases of property and equipment. Net cash used in
investing activities was $128.3 million through the third quarter 1998.
Net cash provided by financing activities was $589.0 million for the
nine months ended September 30, 1999. Financing activities consisted primarily
of: (i) net borrowings on long-term debt of $895.0 million; (ii) repayments of
long-term debt of $270.0 million; (iii) net deferred financing cost of $12.5
million; and (iv) return of capital to Western Wireless for NOLs of $20 million.
Net cash provided by financing activities was $212.9 million through the third
quarter 1998.
YEAR 2000 ISSUES
VoiceStream, like most businesses, will be required to modify
significant portions of its information technology ("IT") and non-IT systems so
that they will function properly in the year 2000. Any of VoiceStream's, or its
vendor's IT and non-IT systems that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. VoiceStream's IT and
non-IT systems that are being addressed include: its wireless networks; systems
which interconnect its wireless networks with landline systems; systems which
allow verification and billing of roaming traffic; internal communication and
data processing systems; billing software and related elements; and systems of
third party suppliers, including those of financial institutions,
payroll/benefits processors and credit bureaus.
Much of VoiceStream's technology, including technology associated with
its critical systems, is purchased from third parties. VoiceStream is dependent
on those third parties to assess the impact of the year 2000 issue on the
technology and services they supply and to take any necessary corrective action.
VoiceStream cannot assure that these third parties will have taken the necessary
corrective action prior to the year 2000.
VoiceStream has adopted a remediation plan to become year 2000
compliant. This plan consists of four key phases: (1) inventory of all systems,
(2) research, including obtaining information from third parties to determine
whether they have accurately assessed the problem and taken corrective action,
(3) implementation of and testing remediation efforts, and (4) development of
contingency plans. VoiceStream has completed the first two phases of its plan
and has substantially completed phases three and four. Upgrades, patches and
other remediation adjustments for all systems have been completed, except for
wireless switches, which are expected to be complete by November 30, 1999, when
planned upgrades to increase capacity have been finalized. Development of
contingency plans in phase four is underway for major, critical business
processes. Specifically, VoiceStream is focusing on 1) customer activations and
additions to existing customers, 2) customer calls and customer service at the
call centers, 3) billing and 4) application of customer payments. VoiceStream is
also developing communication and contingency plans for employee and facility
issues, corporate headquarters, sales offices, call centers, and engineering
offices. Additional areas under consideration include payroll processing and the
distribution center operations. These plans are scheduled to be complete on
November 30, 1999. VoiceStream expects to incur internal staff costs as well as
consulting and other expenses related to infrastructure and facilities
enhancements necessary to complete the remediation of the systems for the year
2000. Although management believes its critical systems will be year 2000
compliant, VoiceStream cannot assure that the remediation of its critical
systems will be complete by the year 2000.
VoiceStream has incurred incremental capitalized costs that represent
ongoing investment in new systems and system upgrades, the timing of which may
have been accelerated to facilitate year 2000 compliance and has not had a
material impact on VoiceStream's financial position or results of operations.
VoiceStream does not expect costs associated with the remainder of the year 2000
testing and remediation efforts to be significant. This expectation assumes that
third party suppliers have accurately assessed the compliance of their products
and that they will successfully correct the issue in non-compliant products.
Based on its current assessments and its remediation plan, which are
based in part upon certain representations of third parties, VoiceStream expects
that it will not experience a disruption of its operations as a result of the
change to the year 2000. However, there can be no assurance that either
VoiceStream or the third parties who have supplied technology used in
VoiceStream's critical systems will be successful in taking corrective action in
a timely manner. As part of its plan, VoiceStream has developed, and is
continuing to develop, contingency plans for its critical systems which include,
among other things, identifying a core system of cell sites that are being
designed to
18
<PAGE> 19
operate for extended periods for mobile to mobile service independent of
external power supplies and landline telephone services. VoiceStream believes
that these contingency plans will mitigate service disruption; however,
VoiceStream cannot guarantee this. VoiceStream will continuously test and update
these plans and systems as long as necessary.
19
<PAGE> 20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material, pending legal proceedings to which
VoiceStream or any of its subsidiaries or affiliates is a party or of
which any of their property is subject which, if adversely decided,
would have material adverse effect on VoiceStream.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 10.48 Second Amendment to Loan Agreement by and among Western
PCS Holding Corporation, TD Securities (USA) Inc., Nationsbanc
Montgomery Securities LLC, Barclays Capital, J.P. Morgan Securities
Inc., Chase Securities Inc., and Toronto Dominion (Texas), Inc.,
dated April 26, 1999.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
A Form 8-K was filed on October 18, 1999 announcing VoiceStream's
intention to merge with Aerial Communications, Inc.
A Form 8-K was filed on October 26, 1999 reporting VoiceStream
Wireless Corporation's financial and operating results for the
third quarter ended September 30, 1999.
A Form 8-K was filed on November 9, 1999 announcing VoiceStream's
$1.5 billion, net proceeds of private senior debt financing.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VoiceStream Wireless Corporation
By s:\Cregg Baumbaugh By s:\Patricia L. Miller
------------------- -------------------
Cregg Baumbaugh Patricia L. Miller
Executive V.P. - Finance/ Controller (Principal
Corporate Development Accounting Officer)
(Principal Financial
Officer)
Dated: November 12, 1999
21
<PAGE> 1
EXHIBIT 10.48
SECOND AMENDMENT
TO LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT, made as of this 27th day
of April, 1999 (the "Amendment") by and among WESTERN PCS HOLDING CORPORATION, a
Delaware corporation (the "Borrower"), the financial institutions whose names
appear as Lenders on the signature pages thereto (collectively, together with
other financial institutions which have become party thereto, the "Lenders"), TD
Securities (USA) Inc., NationsBanc Montgomery Securities LLC, Barclays Capital,
J.P. Morgan Securities Inc., and Chase Securities Inc., as arranging agents
(collectively, the "Arranging Agents"), J. P. Morgan Securities Inc., as
documentation agent (the "Documentation Agent"), NationsBanc Montgomery
Securities LLC and Chase Securities Inc., as co-syndication agents (the
"Co-Syndication Agents"), and Toronto Dominion (Texas), Inc., as administrative
agent (the "Administrative Agent"),
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders, the Arranging Agents, the
Co-Syndication Agents, the Documentation Agent and the Administrative Agent are
parties to that certain Loan Agreement dated as of June 26, 1998, as amended by
its First Amendment dated as of November 25, 1998 (collectively, the "Loan
Agreement"); and
WHEREAS, Western Wireless Corporation, a Washington corporation
(the "Parent"), intends to spin-off VoiceStream Wireless Corporation, a
Washington corporation ("VoiceStream") and its Subsidiaries, including the
Borrower, in a tax-free transaction, involving the distribution to each Parent
shareholder of one share of VoiceSteam common stock for each outstanding share
of the stock of the Parent owned by such shareholder; and
WHEREAS, in connection with such spinoff, certain assets will be
transferred from the Parent to the Borrower, certain corporate transactions will
be accomplished, certain payments shall be made by the Borrower, on behalf of
VoiceStream and its Subsidiaries, to the Parent, and other consents and
approvals as are necessary or prudent to give and obtain in connection with such
spin-off, shall be given and obtained in connection with such spinoff, all as
set forth herein; and
WHEREAS, the Borrower has requested the Administrative Agent, the
Arranging Agents, the Co-Syndication Agents, the Documentation Agent and the
Lenders to agree to amend the Loan Agreement as more fully set forth herein;
NOW, THEREFORE, for and in consideration of the mutual covenants
and agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which is acknowledged, the parties agree that all
capitalized terms used herein shall have the meanings ascribed thereto in the
Loan Agreement except as otherwise defined or limited herein, and further agree
as follows:
<PAGE> 2
1. Amendment to Article 1. Article 1 to the Loan Agreement,
Definitions, shall be amended by adding the following definition thereto in
appropriate alphabetical order:
"'New Mexico Bond' shall have the meaning set forth in Section
7.22 hereof."
2. Amendment to Section 7.6. Section 7.6 of the Loan Agreement,
Investments and Acquisitions, shall be amended by the addition of a new
subsection (f), which shall read as follows:
"(f) Industrial Revenue Bond. The Borrower or one of its
Subsidiaries may make an Investment, in an amount not to exceed
$17,500,000, in one or more industrial revenue development bonds issued
by the City of Albuquerque, New Mexico, in connection with the
assumption of a lease for a call center for the Borrower and its
Subsidiaries, provided that such industrial revenue bond as may be
purchased by the Borrower or any Subsidiary has been or shall be pledged
as additional Collateral for the Obligations."
3. New Section 7.22. The Loan Agreement shall be amended by the
addition of a new Section 7.22, New Mexico Bond, which shall read as follows:
"Section 7.22 New Mexico Bond. The Administrative Agent, the
Arranging Agents, the Co-Syndication Agents, the Documentation Agent and
the Lenders hereby (i) consent to the assumption by the Borrower or one
of its Subsidiaries of the obligations of the Parent pursuant to that
certain Lease and Purchase Agreement dated as of March 1, 1997, between
the City of Albuquerque, New Mexico and the Parent, and the purchase by
the Borrower or one of its Subsidiaries of the bond or bonds referred to
in Section 7.6(f) hereof (collectively the "New Mexico Bond") and the
entering into or assumption of any other obligations of the Parent in
connection with the New Mexico Bond, and the performance of all such
obligations in connection with the New Mexico Bond, and (ii) agree that
(w) the continuing obligations of the Borrower and such Restricted
Subsidiaries arising pursuant to such agreements shall not constitute
"Indebtedness" under Section 4.1(v) or under Section 7.1 hereof, or for
purposes of determining compliance with Sections 7.8 through 7.15 of
this Agreement, (x) any Lien created or deemed to be existing pursuant
to such agreement shall be deemed to be a "Permitted Lien" hereunder,
(y) under Section 5.10 and Section 7.17 hereof, consent is given to the
extent that
-2-
<PAGE> 3
such provision is deemed applicable to the transactions contemplated by
the New Mexico Bond, and (z) for purposes of Section 7.21 hereof, rental
payments under the Lease and Purchase Agreement referred to above shall
not be included in determining compliance with the limitation on
"aggregate rental obligations," to the extent such payments are matched
by payments to such Restricted Subsidiary of principal and interest on
the New Mexico Bond."
4. Consents. Notwithstanding anything to the contrary contained
in the Loan Agreement, as amended by this Amendment, the Lenders, the Arranging
Agents, the Co-Syndication Agents, the Documentation Agent and the
Administration Agent hereby agree (i) to permit the Borrower to become the
lessee of the Albuquerque, New Mexico call center financed with the proceeds of
the New Mexico Bond, and to purchase the New Mexico Bond from the Parent for a
purchase price of $17,100,000 plus any accrued and unpaid interest; and (ii) to
permit certain asset transfers and corporate transactions, as more fully
described on Schedule 1 attached to this Amendment, in order to accomplish a
change of form of the Borrower and certain of its Subsidiaries from corporation
to limited liability company, provided that all steps necessary and appropriate
to maintain in full force and effect the Lien of the Lenders to secure the
Obligations have been taken, and that all obligations of the Borrower and its
Subsidiaries under Section 5.13 of the Loan Agreement have been satisfied.
5. No Other Amendment or Waiver. Except for the amendments set
forth above, the text of the Loan Agreement and all other Loan Documents shall
remain unchanged and in full force and effect.
6. Representations and Warranties. The Borrower hereby represents
and warrants in favor of the Administrative Agent on behalf of the Arranging
Agents, the Co-Syndication Agents, the Documentation Agent and the Lenders as
follows:
(i) Each representation and warranty set forth in Article 4 of
the Loan Agreement is hereby restated and affirmed as true and correct as of the
date hereof;
(ii) The Borrower has the corporate power and authority (A) to
enter into this Amendment and (B) to do all acts and things as are required or
contemplated hereunder to be done, observed and performed by it;
(iii) This Amendment has been duly authorized, validly executed
and delivered by one or more Authorized Signatories, and the Loan Agreement, as
amended by this Amendment, constitutes the legal, valid and binding obligation
of the Borrower, enforceable against the Borrower in accordance with its terms;
and
-3-
<PAGE> 4
(iv) The execution and delivery of this Amendment and performance
by the Borrower of its Obligations under the Loan Agreement, as amended hereby,
do not and will not require the consent or approval of any regulatory authority
or governmental authority or agency having jurisdiction over the Borrower which
has not already been obtained and are not and will not be in contravention of or
in conflict with the Certificate of Incorporation or By-Laws of the Borrower or
the provision of any Applicable Law or any material indenture, agreement or
other instrument, to which the Borrower or any Subsidiary is party or by which
their respective assets or properties are bound or affected.
7. Conditions Precedent to Effectiveness of Amendment. The
effectiveness of this Amendment is subject to the prior fulfillment of each of
the following conditions:
(i) the truth and accuracy of the representations and warranties
contained in Section 6 hereof;
(ii) the receipt by the Administrative Agent of duly executed
counterparts of this Amendment signed by each of the Borrower, the Arranging
Agents, the Co-Syndication Agents, the Documentation Agent, the Administrative
Agent, and the Required Lenders; and
(iii) the receipt by the Administrative Agent, the Arranging
Agents, the Co-Syndication Agents, the Documentation Agent and the Lenders of
any other documents which any of them may reasonably request, certified by an
appropriate governmental official or officer of the Borrower if so requested.
8. Counterparts. This Amendment may be executed in multiple
counterparts, each of which shall be deemed to be an original and all of which,
taken together, shall constitute one and the same agreement.
9. Law of Contract. THIS AMENDMENT SHALL BE DEEMED TO BE MADE
PURSUANT TO THE INTERNAL LAWS OF THE STATE OF NEW YORK WITH RESPECT TO
AGREEMENTS MADE AND TO BE PERFORMED WHOLLY IN THE STATE OF NEW YORK, AND SHALL
BE CONSTRUED, INTERPRETED, PERFORMED AND ENFORCED IN ACCORDANCE THEREWITH.
10. Effective Date. Upon satisfaction of the conditions precedent
referred to in Section 6 above, this Amendment shall be effective as of the date
first set forth above.
11. Loan Document. This Amendment shall be deemed to be a Loan
Document for all purposes.
-4-
<PAGE> 5
[SIGNATURES ON FOLLOWING PAGES]
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused their respective duly
authorized officers or representatives to execute, deliver and seal this
Amendment as of the day and year first above written.
BORROWER: WESTERN PCS HOLDING CORPORATION, A DELAWARE
CORPORATION
By: /s/ Donald Guthrie
----------------------------------------
Name: Donald Guthrie
---------------------------------------
Title: Vice Chairman/CFO
--------------------------------------
Attest: /s/ Alan R. Bender
------------------------------------
Title: Sr. VP & General Counsel
-------------------------------------
ADMINISTRATIVE AGENT: TORONTO DOMINION (TEXAS), INC.
By: /s/ Kimberly Burleson
-----------------------------------------
Name: Kimberly Burleson
---------------------------------------
Title: Vice President
--------------------------------------
ARRANGING AGENTS: TD SECURITIES (USA) INC.
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
-6-
<PAGE> 7
NATIONBANC MONTGOMERY
SECURITIES LLC
By: /s/ William Hutchinson McClendon IV
----------------------------------------
Name: William Hutchison McClendon IV
---------------------------------------
Title: Managing Director
--------------------------------------
-7-
<PAGE> 8
BARCLAYS CAPITAL
By: /s/ Daniele Iacovone
----------------------------------------
Name: Daniele Iacovone
---------------------------------------
Title: Associate Director
--------------------------------------
J.P. MORGAN SECURITIES INC.
By:
Name:
Title:
CHASE SECURITIES INC.
By: /s/ James L. Stone
----------------------------------------
Name: James L. Stone
---------------------------------------
Title: Managing Director
--------------------------------------
DOCUMENTATION
AGENT: J.P. MORGAN SECURITIES INC.
By:
-----------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
CO-SYNDICATION
AGENTS: CHASE SECURITIES INC.
-8-
<PAGE> 9
By: /s/ James L. Stone
----------------------------------------
Name: James L. Stone
---------------------------------------
Title: Managing Director
--------------------------------------
-9-
<PAGE> 10
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ William Hutchison McClendon IV
-----------------------------------------
Name: William Hutchison McClendon IV
---------------------------------------
Title: Managing Director
--------------------------------------
MANAGING AGENTS: CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Mary D. Thorsheim
-----------------------------------------
Name: Mary D. Thorsheim
---------------------------------------
Title: Vice President
--------------------------------------
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Mark F. Mylon
-----------------------------------------
Name: Mark F. Mylon
---------------------------------------
Title: Manager - Operations
--------------------------------------
GOLDMAN SACHS CREDIT PARTNERS, L.P.
By: /s/ Stephen B. King
-----------------------------------------
Name: Stephen B. King
---------------------------------------
Title: Authorized Signatory
--------------------------------------
-10-
<PAGE> 11
SOCIETE GENERALE
By: /s/ John Sadik-Khan
-----------------------------------------
Name: John Sadik-Khan
---------------------------------------
Title: Managing Director
--------------------------------------
-11-
<PAGE> 12
CO-AGENTS: THE BANK OF NEW YORK
By: /s/ Gerry Granovsky
-----------------------------------------
Name: Gerry Granovsky
---------------------------------------
Title: Vice President
--------------------------------------
THE BANK OF NOVA SCOTIA
By: /s/ Vincent J. Fitzgerald, Jr.
-----------------------------------------
Name: Vincent J. Fitzgerald, Jr.
---------------------------------------
Title: Authorized Signatory
--------------------------------------
PNC BANK NATIONAL ASSOCIATION
By: /s/ Thomas A. Coates
-----------------------------------------
Name: Thomas A. Coates
---------------------------------------
Title: Vice President
--------------------------------------
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
By: /s/ Douglas W. Zylstra
-----------------------------------------
Name: Douglas W. Zylstra
---------------------------------------
Title: Vice President
--------------------------------------
By: /s/ Ian Reece
-----------------------------------------
-12-
<PAGE> 13
Name: Ian Reece
---------------------------------------
Title: Senior Credit Officer
--------------------------------------
-13-
<PAGE> 14
PARIBAS, LOS ANGELES BRANCH
By: /s/ Darlynn Kitcher
-----------------------------------------
Name: Darlynn Kitcher
---------------------------------------
Title: Vice President
--------------------------------------
By: /s/ Thomas G. Brandt
-----------------------------------------
Name: Thomas G. Brandt
---------------------------------------
Title: Director
--------------------------------------
LENDERS: TORONTO DOMINION (TEXAS), INC.
By: /s/ Kimberly Burleson
-----------------------------------------
Name: Kimberly Burleson
---------------------------------------
Title: V.P.
--------------------------------------
NATIONSBANK, N.A.
By: /s/ Douglas I. Meckelnburg
-----------------------------------------
Name: Douglas I. Meckelnburg
---------------------------------------
Title: Vice President
--------------------------------------
BARCLAYS BANK, PLC
By: /s/ Daniele Iacovone
-----------------------------------------
Name: Daniele Iacovone
---------------------------------------
-14-
<PAGE> 15
Title: Associate Director
--------------------------------------
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:
-----------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
-15-
<PAGE> 16
THE CHASE MANHATTAN BANK
By: /s/ John L. Huber III
-----------------------------------------
Name: John L. Huber
---------------------------------------
Title: Managing Director
--------------------------------------
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Mark D. Thorsheim
-----------------------------------------
Name: Mark D. Thorsheim
---------------------------------------
Title: Vice President
--------------------------------------
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Mark F. Mylon
-----------------------------------------
Name: Mark F. Mylon
---------------------------------------
Title: Manager - Operations
--------------------------------------
GOLDMAN SACHS CREDIT PARTNERS, L.P.
By: /s/ Stephen B. King
-----------------------------------------
Name: Stephen B. King
---------------------------------------
Title: Authorized Signatory
--------------------------------------
SOCIETE GENERALE
-16-
<PAGE> 17
By: /s/ John Sadik-Khan
-----------------------------------------
Name: John Sadik-Khan
---------------------------------------
Title: Managing Director
--------------------------------------
THE BANK OF NEW YORK
By: /s/ Gerry Granovsky
-----------------------------------------
Name: Gerry Granovsky
---------------------------------------
Title: Vice President
--------------------------------------
-17-
<PAGE> 18
THE BANK OF NOVA SCOTIA
By: /s/ Vincent J. Fitzgerald
-----------------------------------------
Name: Vincent J. Fitzgerald
---------------------------------------
Title: Authorized Signatory
--------------------------------------
PNC BANK NATIONAL ASSOCIATION
By: /s/ Thomas A. Coates
-----------------------------------------
Name: Thomas A. Coates
---------------------------------------
Title: Vice President
--------------------------------------
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
By: /s/ Douglas W. Zylstra
-----------------------------------------
Name: Douglas W. Zylstra
---------------------------------------
Title: Vice President
--------------------------------------
By: /s/ Ian Reece
-----------------------------------------
Name: Ian Reece
---------------------------------------
Title: Senior Credit Officer
--------------------------------------
PARIBAS, LOS ANGELES BRANCH
By: /s/ Darlynn Kitcher
-----------------------------------------
-18-
<PAGE> 19
Name: Darlynn Kitcher
---------------------------------------
Title: Vice President
--------------------------------------
By: /s/ Thomas G. Brandt
-----------------------------------------
Name: Thomas G. Brandt
---------------------------------------
Title: Director
--------------------------------------
-19-
<PAGE> 20
FIRST UNION NATIONAL BANK
By: /s/ Lynae S. Young
-----------------------------------------
Name: Lynae S. Young
---------------------------------------
Title: Vice President
--------------------------------------
CIBC INC.
By: /s/ Colleen Roux
-----------------------------------------
Name: Colleen Roux
---------------------------------------
Title: Executive Director
--------------------------------------
THE CIT GROUP/EQUIPMENT FINANCING, INC.
By: /s/ Bill Hickey
-----------------------------------------
Name: Bill Hickey
---------------------------------------
Title: AVP
--------------------------------------
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES
By: /s/ Jane A Majeski
-----------------------------------------
Name: Jane A. Majeski
---------------------------------------
Title: First Vice President
--------------------------------------
By: /s/ Constance Loosemore
-----------------------------------------
Name: Constance Loosemore
---------------------------------------
Title: Assistant Vice President
--------------------------------------
-20-
<PAGE> 21
EXPORT DEVELOPMENT CORPORATION
By: /s/ Bruce Dunlop
-----------------------------------------
Name: Bruce Dunlop
---------------------------------------
Title: Financial Services Manager
--------------------------------------
By: /s/ Michael R. Smallshaw
-----------------------------------------
Name: Michael R. Smallshaw
---------------------------------------
Title: International Contracts Specialist
--------------------------------------
FLEET NATIONAL BANK
By: /s/ Gabret Komjathy
-----------------------------------------
Name: Gabret Komjathy
---------------------------------------
Title: Vice President
--------------------------------------
FREMONT FINANCIAL CORPORATION
By: /s/ Kannika Viravan
-----------------------------------------
Name: Kannika Viravan
---------------------------------------
Title: Assistant Vice President
--------------------------------------
THE ROYAL BANK OF SCOTLAND PLC
By: /s/ Karen L. Stefancic
-----------------------------------------
Name: Karen L. Stefancic
---------------------------------------
Title: Vice President
--------------------------------------
-21-
<PAGE> 22
SKANDINAVISKA ENSKILDA BANKEN
NEW YORK BRANCH
By: /s/
-----------------------------------------
Name:
---------------------------------------
Title:
-------------------------------------
By: /s/
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
STB DELAWARE FUNDING TRUST I
By: /s/ Donald C. Hargandon
-----------------------------------------
Name: Donald C. Hargandon
---------------------------------------
Title: Assistant Vice President
--------------------------------------
SUMITOMO BANK, LTD.
By: /s/ Suresh S. Tata
-----------------------------------------
Name: Suresh S. Tata
---------------------------------------
Title: Senior Vice President
--------------------------------------
BANK OF MONTREAL
By: /s/
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Gary Egbert
-----------------------------------------
Name: Gary Egbert
---------------------------------------
Title: Vice President
--------------------------------------
-22-
<PAGE> 23
KZH CNC LLC
By: /s/ Virginia Conway
-----------------------------------------
Name: Virginia Conway
---------------------------------------
Title: Authorized Agent
--------------------------------------
KZH CYPRESSTREE-1 LLC
By: /s/ Scott Hignett
-----------------------------------------
Name: Scott Hignett
---------------------------------------
Title: Authorized Agent
--------------------------------------
SENIOR HIGH INCOME PORTFOLIO, INC.
By:
----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
MERRILL LYNCH SENIOR FLOATING
RATE FUND, INC.
By:
---------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
KZH ING-2 LLC
-23-
<PAGE> 24
By: /s/ Virginia Conway
-----------------------------------------
Name: Virginia Conway
---------------------------------------
Title: Authorized Agent
--------------------------------------
-24-
<PAGE> 25
OCTAGON LOAN TRUST
BY: OCTAGON CREDIT INVESTORS AS MANAGER
By:
----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
KZH SOLEIL-2 LLC
By: /s/ James J. Fevola
-----------------------------------------
Name: James J. Fevola
---------------------------------------
Title: Authorized Agent
--------------------------------------
VAN KAMPEN AMERICAN CAPITAL SENIOR
INCOME TRUST
By: /s/ Lisa M. Mincheski
-----------------------------------------
Name: Lisa M. Mincheski
---------------------------------------
Title: Assistant Portfolio Manager
--------------------------------------
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Stender E. Sweeney
-----------------------------------------
Name: Stender E. Sweeney
---------------------------------------
Title: Assistant Vice President
--------------------------------------
CYPRESSTREE INVESTMENT FUND, LLC
By: CypressTree Investment Management
Company, Inc. its Managing Member
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
-25-
<PAGE> 26
CYPRESSTREE INVESTMENT MANAGEMENT COMPANY,
INC. AS: ATTORNEY-IN-FACT AND ON BEHALF OF
FIRST ALLMERICA FINANCIAL LIFE INSURANCE
COMPANY AS PORTFOLIO MANAGER
By:
----------------------------------------
Name:
--------------------------------------
Title:
------------------------------------
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management, L.P., as
Investment Advisor
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
DEBT STRATEGIES FUND, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
MOUNTAIN CAPITAL CLO I, LTD.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
-26-
<PAGE> 27
SENIOR DEBT PORTFOLIO
By: Boston Management and Research, as
Investment Advisor
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
STEIN ROE & FARNHAM INCORPORATED, as agent
for Keyport Life Insurance Company
By: /s/ Brian W. Good
-----------------------------------------
Name: Brian W. Good
---------------------------------------
Title: Vice President & Portfolio Manager
--------------------------------------
PILGRIM AMERICA PRIME RATE TRUST
By: Pilgrim America Investments, Inc., as
Investment Manager
By: /s/ Robert L. Wilson
-----------------------------------------
Name: Robert L. Wilson
---------------------------------------
Title: Vice President
--------------------------------------
BANK OF AMERICA NATIONAL TRUST & SAVINGS
ASSOCIATION
By: /s/ Douglas T. Meckelnburg
-----------------------------------------
-27-
<PAGE> 28
Name: Douglas T. Meckelnburg
---------------------------------------
Title: Vice President
--------------------------------------
PACIFICA PARTNERS I, L.P.
By: /s/ Michael J. Bacevich
-----------------------------------------
Name: Michael J. Bacevich
---------------------------------------
Title: Senior Vice President
--------------------------------------
-28-
<PAGE> 29
BALANCED HIGH YIELD FUND I LTD.
By: /s/ Michael Pellerito
-----------------------------------------
Name: Michael Pellerito
---------------------------------------
Title: AVP
--------------------------------------
By: /s/ Dan Dobrjanskyi
-----------------------------------------
Name: Dan Dobrjanskyi
---------------------------------------
Title: AVP
--------------------------------------
PAM CAPITAL FUNDING, LP
By: Highland Capital
Management, L.P., as Collateral Manager
By: /s/ James Dondero
-----------------------------------------
Name: James Dondero, CFA, CPA
---------------------------------------
Title: President
--------------------------------------
EATON VANCE SENIOR INCOME TRUST
By: Eaton Vance Management, as Investment
Advisor
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
BHF-BANK AKTIENGESELLSCHAFT
By: /s/ Michael Pellerito
-----------------------------------------
-29-
<PAGE> 30
Name: Michael Pellerito
---------------------------------------
Title: AVP
--------------------------------------
By: /s/ Dan Dobrjanskyi
-----------------------------------------
Name: Dan Dobrjanskyi
---------------------------------------
Title: AVP
--------------------------------------
-30-
<PAGE> 31
CAPTIVA III FINANCE LTD.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
MORGAN STANLEY SENIOR FUNDING, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
CYPRESSTREE INVESTMENT PARTNERS II, LTD.
BY: CYPRESSTREE INVESTMENT MANAGEMENT
COMPANY, INC., AS PORTFOLIO MANAGER
By:
-----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
KZH HIGHLAND-2, LLC
By: /s/ Scott Hignett
-----------------------------------------
Name: Scott Hignett
---------------------------------------
Title: Authorized Agent
--------------------------------------
-31-
<PAGE> 32
FLOATING RATE PORTFOLIO
BY: INVESCO SENIOR SECURED MANAGEMENT, INC.
AS ATTORNEY IN FACT
By: /s/ Kathleen A. Lenarcic
-----------------------------------------
Name: Kathleen A. Lenarcic
---------------------------------------
Title: Authorized Signatory
--------------------------------------
-32-
<PAGE> 33
ATHENA CDO, LTD.
BY: PACIFIC INVESTMENT MANAGEMENT COMPANY,
AS ITS INVESTMENT ADVISOR
By: /s/ Mohan V. Phansalkar
-----------------------------------------
Name: Mohan V. Phansalkar
---------------------------------------
Title: Senior Vice President
--------------------------------------
SRV-HIGHLAND, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
MOUNTAIN CAPITAL CLO I, LTD.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
-33-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VOICESTREAM
WIRELESS CORPORATION'S UNAUDITED CONSOLIDATED BALANCE SHEET AND STATEMENT OF
OPERATIONS AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 48,866
<SECURITIES> 0
<RECEIVABLES> 87,598
<ALLOWANCES> 11,667
<INVENTORY> 21,011
<CURRENT-ASSETS> 158,695
<PP&E> 1,012,034
<DEPRECIATION> 241,864
<TOTAL-ASSETS> 1,469,255
<CURRENT-LIABILITIES> 185,043
<BONDS> 1,165,000
1,054,911
0
<COMMON> 0
<OTHER-SE> 24,503
<TOTAL-LIABILITY-AND-EQUITY> 1,469,255
<SALES> 48,554
<TOTAL-REVENUES> 299,968
<CGS> 93,904
<TOTAL-COSTS> 525,121
<OTHER-EXPENSES> 77,884
<LOSS-PROVISION> 19,549
<INTEREST-EXPENSE> 58,800
<INCOME-PRETAX> (303,037)
<INCOME-TAX> 0
<INCOME-CONTINUING> (303,037)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (303,037)
<EPS-BASIC> 3.17
<EPS-DILUTED> 3.17
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