NEXTLINK COMMUNICATIONS INC/NEW
8-K/A, 2000-08-21
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)
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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/ A

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) June 16, 2000

NEXTLINK Communications, Inc.

(Exact name of registrant as specified in its charter)
         
Delaware 333-34974 54-1983517



(State or other
jurisdiction of
incorporation)
(Commission
File Number)
(IRS Employer
Identification No.)

1505 Farm Credit Drive, McLean, Virginia 22102

(Address of principal executive offices) (Zip Code)

Registrant’s Telephone Number, including area code: (703) 547-2000


(Former name or former address, if changed since last report)


Item 2.  Acquisition or Disposition of Assets.

On June 22, 2000, NEXTLINK Communications, Inc. (the “Registrant”) filed a Current Report on Form 8-K (the “Initial Report”) describing the merger on June 16, 2000 of each of NEXTLINK Communications, Inc., a Delaware corporation and Concentric Network Corporation (“Concentric”), a Delaware corporation, with and into the Registrant.

The purpose of this amendment to the Initial Report is to provide the financial statements of Concentric required by Item 7(a) of Form 8-K, and the pro forma combined condensed consolidated financial information required by Item 7(b) of Form 8-K, which information was not included with the Initial Report in reliance on Item 7(a)(4) of Form 8-K.

Item 7.  Financial Statements, Pro Forma Financial Information and Exhibits.

(a)  Financial statements of business acquired:

  The (i) Report of Ernst & Young LLP, dated January 21, 2000 (except for Note 13, as to which the date is March 20, 2000), (ii) consolidated audited balance sheets of Concentric as of December 31, 1998 and 1999, (iii)  consolidated statements of operations of Concentric for the years ended 1997, 1998 and 1999, (iv) consolidated statements of common stock subject to rescission and stockholders’ equity (deficit) of Concentric for the years ended 1997, 1998 and 1999 and (v) consolidated statements of cash flows of Concentric for the years ended 1997, 1998 and 1999 have been filed with the SEC as part of Concentric’s Annual Report on Form 10-K, filed on March 30, 2000 (File No. 000-22575), and are incorporated by reference and filed as exhibits hereto pursuant to Rule 12b-23(3).
 
  The (i) unaudited consolidated balance sheet of Concentric as of March 31, 2000, (ii) unaudited condensed consolidated statements of operations of Concentric for the three month periods ended March 31, 2000 and 1999 and (iii) unaudited condensed consolidated statements of cash flows for the three month periods ended March 31, 2000 and 1999 have been filed with the SEC as part of Concentric’s Quarterly Report on Form 10-Q, filed May  15, 2000 (File No. 000-22575), and are incorporated by reference and filed as exhibits hereto pursuant to Rule 12b-23(3).

(b)  Pro forma financial information.

  (i)    Unaudited Pro Forma Condensed Combined Balance Sheet as of December 31, 1999.
 
  (ii)   Unaudited Pro Forma Condensed Combined Statements of Operations for the year ended December 31, 1999 and the three months ended March  31, 2000.

  (iii)   Notes to Unaudited Pro Forma Condensed Combined Financial Statements.

(c)  Exhibits

         
23 Consent of Ernst & Young LLP.
99.1 Report of Ernst & Young LLP, dated January 21, 2000 (except for Note 13, as to which the date is March 20, 2000).
99.2 Consolidated audited balance sheets of Concentric as of December 31, 1998 and 1999.
99.3 Consolidated statements of operations of Concentric for the years ended 1997, 1998 and 1999.
99.4 Consolidated statements of common stock subject to rescission and stockholders’ equity (deficit) of Concentric for the years ended 1997, 1998 and 1999.
99.5 Consolidated statements of cash flows of Concentric for the years ended 1997, 1998 and 1999.
99.6 Notes to condensed consolidated financial statements.
99.7 Unaudited consolidated balance sheet of Concentric as of March 31, 2000.
99.8 Unaudited condensed consolidated statements of operations of Concentric for the three month periods ended March 31, 2000 and 1999.
99.9 Unaudited condensed consolidated statements of cash flows for the three month periods ended March 31, 2000 and 1999.
99.1 0 Notes to unaudited condensed consolidated financial statements.

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7(b)

UNAUDITED PRO FORMA FINANCIAL INFORMATION

Unaudited Pro Forma Condensed Combined Financial Statements of NEXTLINK and Concentric

      The following unaudited pro forma condensed combined financial statements combine the historical consolidated balance sheets and statements of operations of NEXTLINK and Concentric, including their respective subsidiaries after giving effect to the merger. The unaudited pro forma condensed combined balance sheet as of March 31, 2000 set forth below gives effect to the merger as if it occurred on March 31, 2000. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 1999 and the three months ending March 31, 2000 give effect to the merger as if it occurred January 1, 1999. These statements are prepared based on the notes to these unaudited pro forma condensed combined financial statements. The merger has been accounted for as a purchase business combination.

      The following unaudited pro forma financial information has been prepared based upon, and should be read in conjunction with, the audited historical consolidated financial statements of NEXTLINK and Concentric. The unaudited pro forma condensed combined financial statements are not necessarily indicative of the financial position or operating results that would have occurred had the merger been completed on March 31, 2000 or at the beginning of the period for which the merger is being given effect, nor is it necessarily indicative of future financial position or operating results.

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7(b)(i)

Unaudited Pro Forma Condensed Combined Balance Sheet

As of March 31, 2000
(Dollars in thousands, except per share amounts)
                                                     
Historical Historical Historical Pro Forma
NEXTLINK Concentric Combined Adjustment Note Total






ASSETS
Current assets:
Cash and cash equivalents $ 1,752,720 $ 103,008 $ 1,855,728 (27,000 ) $ 1,828,728
Marketable securities 1,286,121 58,566 1,344,687 2 1,344,687
Accounts receivable, net 110,000 34,458 144,458 144,458
Other current assets 80,417 22,878 103,295 103,295
Pledged securities 9,853 9,853 9,853
Restricted Cash 19,373 19,373 19,373





Total current assets 3,239,111 238,283 3,477,394 (27,000 ) 3,450,394
Property and equipment, net 1,317,250 124,039 1,441,289 1,441,289
Investment in fixed wireless licenses
Goodwill and other intangible assets 303,244 303,244 2,686,108 2 2,932,342
(303,244 )
246,234
Investments 22,795 22,795 22,795
Other assets, net 306,716 11,000 317,716 317,716
Investment in fixed wireless licenses 958,077 958,077 958,077





Total assets $ 5,821,154 $ 699,361 $ 6,520,515 $ 2,602,098 $ 9,122,613





LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable 54,023 52,586 106,609 106,609
Other accrued liabilities 129,704 26,410 156,114 156,114
Accrued interest payable 100,728 100,728 100,728
Deferred revenue 12,402 12,402 12,402
Current portion of long-term obligations 1,214 7,552 8,766 8,766





Total current liabilities 285,669 98,950 384,619 384,619
Long-term debt 4,137,670 146,719 4,284,389 4,284,389
Other long-term liabilities 16,218 29,467 45,685 45,685





Total liabilities 4,439,557 275,136 4,714,693 4,714,693
Redeemable preferred stock 1,476,535 228,865 1,705,400 1,705,400
Shareholders’ equity (deficit): —  
Common stock 1,194,467 543,720 1,738,187 (543,720 ) 2 4,028,091
2,542,356 2
291,268 2
Deferred compensation (85,472 ) (430 ) (85,902 ) 430 3a (85,472 )
Accumulated other comprehensive income 3,756 387 4,143 (387 ) 3a 3,756
Accumulated deficit (1,207,689 ) (348,317 ) (1,556,006 ) 348,317 3a (1,243,855 )
(36,166 ) 2





Total Shareholders’ equity (deficit) (94,938 ) 195,360 100,422 2,602,098 2,702,520





Total liabilities and shareholders’ equity (deficit) $ 5,821,154 $ 699,361 $ 6,520,515 $ 2,602,098 $ 9,122,613





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7(b)(ii)

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 1999
(Dollars in thousands, except per share amounts)
                                                     
Historical Historical Historical Pro Forma
NEXTLINK Concentric Combined Adjustment Note Total






Revenue $ 274,324 $ 148,368 $ 422,692 $ —   $ 422,692
Costs and Expenses:
Cost of Revenue 221,664 118,426 340,090 —   340,090
Selling, general and administrative 266,908 65,875 332,783 —   332,783
Restructuring 30,935 —   30,935 —   30,935
Stock-based compensation 12,872 373 13,245 —   13,245
Depreciation 93,097 28,658 121,755 121,755
Amortization 15,378 10,448 25,826 598,780 3 b 624,606
Write-off of in-process technology —   —   —   36,166 2 36,166





Total costs and expenses 640,854 223,780 864,634 634,946 1,499,580
Loss from operations (366,530 ) (75,412 ) (441,942 ) (634,946 ) (1,076,888 )
Interest Income 90,961 13,558 104,519 104,519
Interest expense (283,123 ) (22,569 ) (305,692 ) (305,692 )
Net interest expense and other —   (664 ) (664 ) (664 )





Net Loss (558,692 ) (85,087 ) (643,779 ) (634,946 ) (1,278,725 )
Preferred stock dividends and accretion (69,189 ) (26,697 ) (95,886 ) —   (95,886 )





Net loss applicable to common shares $ (627,881 ) $ (111,784 ) $ (739,665 ) $ (634,946 ) $ (1,374,611 )





Net loss per share (basic and diluted) (5.02 ) (2.76 ) (7.12 )
Shares used in computation of net loss per share 125,132,459 40,473,000 3 c 193,135,459

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Unaudited Pro Forma Condensed Combined Statement of Operations

For the Three Months Ended March 31, 2000
(Dollars in thousands, except per share amount)
                                                     
Historical Historical Pro Forma
NEXTLINK Concentric Combined Adjustment Note Total






Revenue $ 105,849 $ 57,292 $ 163,141 $ 163,141
 
Costs and Expenses:
Operating 76,021 45,268 121,289 121,289
Selling, general and administrative 92,969 27,242 120,211 120,211
Stock-based compensation 8,985 93 9,078 9,078
Depreciation 40,383 10,785 51,168 51,168
Amortization 5,613 14,949 20,562 149,695 3b 170,257





Total costs and expenses 223,971 98,337 322,308 149,695 472,003
Loss from Operations (118,122 ) (41,045 ) (159,167 ) (149,695 ) (308,862 )
Interest income 44,613 2,649 47,262 47,262
Interest expense (108,359 ) (5,850 ) (114,209 ) (114,209 )
Other income 225,112 61,772 286,884 286,884





Net Income (Loss) 43,244 17,526 60,770 (149,695 ) (88,925 )





Preferred stock dividends and accretion of preferred stock redemption obligation, including issue costs (33,435 ) (8,006 ) (41,441 ) (41,441 )





Earnings (loss) applicable to common shares $ 9,809 $ 9,520 $ 19,329 $ (149,695 ) $ (130,366 )





Earnings (loss) per common share
Basic $ 0.07 $ 0.19 $ (0.64 )
Diluted $ 0.06 $ 0.19 $ (0.64 )
Weighted average share
Basic 135,401,000 49,600,000 3c 203,424,000
Diluted 157,210,000 49,600,000 3c 203,424,000

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7(b)(iii)

NOTES TO UNAUDITED PRO FORMA CONDENSED

COMBINED FINANCIAL STATEMENTS

Note 1.  Basis of Presentation

      The unaudited pro forma condensed combined balance sheet as of March 31, 2000 gives effect to the merger as if it had occurred on March 31, 2000. The unaudited pro forma combined statement of operations for the year ended December 31, 1999 and the three months ended March 31, 2000, give effect to the merger as if it had occurred January 1, 1999. The merger has been accounted for as a purchase business combination.

Note 2.  Purchase Price and Purchase Price Allocation

      The merger was accounted for as a purchase of Concentric by NEXTLINK. The merger resulted in an allocation of purchase price to the tangible and intangible assets of Concentric, as well as a write-off of the portion of the purchase price allocated to in-process technology. The transaction is not expected to result in an incremental deferred tax liability. This allocation reflects our estimate of the fair value of assets to be acquired by NEXTLINK based upon information available to us to date. We plan to adjust this allocation based on the final purchase price and our final determination of asset value.

      The calculation of the purchase consideration was based on the number of outstanding Concentric shares that were exchanged on the actual merger date and the exchange ratio applied per the merger agreement.

      Concentric’s outstanding options and warrants were converted to equivalent options and warrants of NM Acquisition Corp. The number of options and warrants and the exercise prices will be adjusted so that the NM Acquisition Corp. options and warrants issued for Concentric options and warrants will have an equivalent intrinsic value per option and warrant. The term and vesting of the options and warrants was not modified. We have therefore included the estimated fair value of these options and warrants in the purchase price. We calculated the fair value of the options and warrants to purchase shares in NM Acquisition Corp. based on the number of options and warrants outstanding on the actual merger date.

      The aggregate purchase price was determined as follows (in thousands):

           
Concentric common shares outstanding 52,862
Exchange ratio 1.2868

Equivalent NEXTLINK common stock exchanged 68,023
NEXTLINK market value per share (see note 2) $ 37.375

Fair value of common stock issued $ 2,542,356
Fair value of Concentric liabilities at March 31, 2000 275,136
Fair value of Concentric preferred stock at March 31, 2000 228,865
Fair value of Concentric options 216,698
Fair value of Concentric warrants 74,570
Estimated investment banking, legal and accounting fees, and fees paid to holders of Concentric notes and preferred stock 27,000

Total consideration $ 3,364,625

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NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS — (Continued)

      The aggregate purchase price was allocated to the tangible and intangible assets of Concentric as follows (in thousands):

           
Fair value of assets acquired at March 31, 2000 $ 396,117
Fair value of current products and technology 95,218
Fair value of core technology 46,323
Fair value of customer lists 77,299
Fair value of in-process technology 36,166
Fair value of Concentric trade name 10,065
Fair value of Concentric workforce 17,329
Preliminary goodwill 2,686,108

Aggregate purchase price $ 3,364,625

      The allocation of the purchase price to the assets and liabilities of Concentric is preliminary and subject to adjustment as final determination of values and future uses are made.

Note 3.  Other Pro Forma Adjustments

  a.  The pro forma adjustments reflect the elimination of Concentric’s historical common stock, deferred compensation, accumulated comprehensive income and accumulated deficit as of March  31, 2000.

  b.  The effect of allocating the aggregate purchase price to the tangible and intangible assets of Concentric results in additional amortization expense of $598.8 million for the year ended December 31, 1999 and $149.7 million for the quarter ended March 31, 2000. For amortization purposes, goodwill and has been assigned a five-year life and all other acquired intangible assets have been assigned a four-year life.

  c.  Proforma shares outstanding used in the computation of net loss per share for the year ended December 31, 1999 and the quarter ended March 31, 2000 is based on actual number of shares issued on the date of the merger plus NEXLINK’s historically reported weighted average shares outstanding for the period.

Note 4.  Reclassifications

      Certain historical amounts have been reclassified to conform with the pro forma condensed combined presentation.

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SIGNATURE

      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 hereunto duly authorized.

NEXTLINK COMMUNICATIONS, INC.

  By:  /s/ GARY D. BEGEMAN
 
  Gary D. Begeman
Senior Vice President and General Counsel

Dated: August 21, 2000

-9-


Exhibit Index

         
23 Consent of Ernst & Young LLP
99.1 Report of Ernst & Young LLP, dated January 21, 2000 (except for Note 13, as to which the date is March 20, 2000).
99.2 Consolidated audited balance sheets of Concentric as of December 31, 1998 and 1999.
99.3 Consolidated statements of operations of Concentric for the years ended 1997, 1998 and 1999.
99.4 Consolidated statements of common stock subject to rescission and stockholders’ equity (deficit) of Concentric for the years ended 1997, 1998 and 1999.
99.5 Consolidated statements of cash flows of Concentric for the years ended 1997, 1998 and 1999.
99.6 Notes to condensed consolidated financial statements.
99.7 Unaudited consolidated balance sheet of Concentric as of March 31, 2000.
99.8 Unaudited condensed consolidated statements of operations of Concentric for the three month periods ended March 31, 2000 and 1999.
99.9 Unaudited condensed consolidated statements of cash flows for the three month periods ended March 31, 2000 and 1999.
99.1 0 Notes to unaudited condensed consolidated financial statements.

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