<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to _________________
Commission File Number: 1-10726
WINSTAR COMMUNICATIONS, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3585278
- ----------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
230 Park Ave., Suite 2700, New York, NY 10169
---------------------------------------------
(Address of principal executive offices)
(212) 584-4000
-------------------------------
(Registrant's telephone number)
-----------------------
(Former name, former address and former fiscal year end
if changed since last report)
Indicate by checkmark 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
--- ---
State the number of shares outstanding of each of the issuer's classes of common
stock, as of August 12, 1998: 39,606,665
<PAGE>
FORM 10-Q
WINSTAR COMMUNICATIONS, INC.
TABLE OF CONTENTS
PAGE
----
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1997 and June 30, 1998 (unaudited)............. 3
Unaudited Condensed Consolidated Statements
of Operations - three and six months ended
June 30, 1997 and 1998...................................... 4
Unaudited Condensed Consolidated Statement of
Stockholders' Equity (Deficit) - six months ended
June 30, 1998............................................... 5
Unaudited Condensed Consolidated Statements
of Cash Flows - six months ended
June 30, 1997 and 1998...................................... 6
Notes to Condensed Consolidated
Financial Statements........................................ 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............... 15
PART II. Other Information........................................... 23
Item 2. Changes in Securities
Item 4. Submission of Matters to a Vote of
Security Holders
Item 5. Other Information
Item 6. Reports on Form 8-K
Signatures................................................................ 25
2
<PAGE>
WinStar Communications, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ --------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 402,359 $ 574,883
Short term investments 16,903 128,084
----------- -----------
Cash, cash equivalents and short term investments 419,262 702,967
Accounts receivable, net of allowance for doubtful
accounts 30,328 67,600
Inventories 10,296 13,052
Prepaid expenses and other current assets 8,985 32,967
Net assets of discontinued operations 2,105 3,734
----------- -----------
Total current assets 470,976 820,320
Property and equipment, net 284,835 380,149
Investment in equity securities -- 33,852
Licenses, net 174,763 239,300
Intangible assets, net 14,293 114,421
Deferred financing costs 27,463 39,163
Other assets 4,071 13,083
----------- -----------
Total assets $ 976,401 $ 1,640,288
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Current portion of long-term debt $ 386 $ 1,339
Accounts payable and accrued expenses 97,714 91,374
Current portion of capitalized lease obligations 6,848 14,142
----------- -----------
Total current liabilities 104,948 106,855
Capitalized lease obligations, less current portion 21,823 39,264
Long-term debt, less current portion 768,469 1,270,726
Other liabilities -- 10,588
Deferred income taxes 24,000 21,500
----------- -----------
Total liabilities 919,240 1,448,933
----------- -----------
Series C exchangeable redeemable preferred stock 175,553 188,077
Series D senior cumulative convertible redeemable preferred stock -- 200,000
Stockholders' equity (deficit)
Preferred stock 39 40
Common stock, par value $.01; authorized 200,000 shares,
issued and outstanding 34,610 and 39,500, respectively 346 395
Additional paid-in-capital 255,741 383,105
Accumulated deficit (374,518) (553,775)
Accumulated other comprehensive loss -- (26,487)
----------- -----------
Total stockholders' deficit (118,392) (196,722)
----------- -----------
Total liabilities, redeemable preferred stock
and stockholders' deficit $ 976,401 $ 1,640,288
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
WinStar Communications, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
----------------------- ----------------------
1997 1998 1997 1998
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Operating revenues
Telecommunications services
CLEC $ 4,009 $ 30,002 $ 5,988 $ 51,117
Other 3,669 14,740 8,753 29,112
--------- --------- --------- ---------
Total telecommunications services 7,678 44,742 14,741 80,229
Information services 8,662 12,521 14,676 24,470
--------- --------- --------- ---------
Total operating revenues 16,340 57,263 29,417 104,699
--------- --------- --------- ---------
Operating expenses
Cost of services and products 15,908 46,181 28,867 88,956
Selling, general and administrative expenses 39,228 59,693 68,781 113,304
Depreciation and amortization 4,896 16,895 8,397 28,294
--------- --------- --------- ---------
Total operating expenses 60,032 122,769 106,045 230,554
--------- --------- --------- ---------
Operating loss (43,692) (65,506) (76,628) (125,855)
Other (expense) income
Interest expense (20,194) (40,500) (30,992) (69,156)
Interest income 5,090 10,308 7,325 15,236
--------- --------- --------- ---------
Loss from continuing operations before income
tax benefit (58,796) (95,698) (100,295) (179,775)
Income tax benefit -- 1,400 -- 2,500
--------- --------- --------- ---------
Loss from continuing operations (58,796) (94,298) (100,295) (177,275)
Loss from discontinued operations -- -- (477) (1,982)
--------- --------- --------- ---------
Net loss (58,796) (94,298) (100,772) (179,257)
Preferred stock dividends (2,346) (11,287) (2,346) (19,485)
--------- --------- --------- ---------
Net loss applicable to common stockholders $ (61,142) $(105,585) $(103,118) $(198,742)
========= ========= ========= =========
Basic and diluted income loss per share:
From continuing operations $ (1.85) $ (2.77) $ (3.13) $ (5.32)
From discontinued operations $ -- -- (0.01) (0.05)
--------- --------- --------- ---------
Net loss per share $ (1.85) $ (2.77) $ (3.14) $ (5.37)
========= ========= ========= =========
Weighted average shares outstanding 32,967 38,081 32,789 37,000
========= ========= ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders' Equity (Deficit)
For the Six Months Ended June 30, 1998
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Preferred Stock A Common Stock
-------------------------------- ------------------------------
Shares Amount Shares Amount
-------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Balances at December 31, 1997 3,910 $ 39 34,610 $ 346
Issuances of common stock:
For stock option exercises and other 1,006 10
For acquisitions 2,359 24
For investment in equity securities 1,525 15
Dividends declared on Series A preferred stock
Dividends on Series C preferred stock
Dividends on Series D preferred stock
Issuances of Series A preferred stock as
dividends in kind 118 1
Preferred stock issuance costs and other, net
Comprehensive loss:
Net loss
Unrealized loss on investments in marketable
equity securities
============== ============ ============ ===============
Balances at June 30, 1998 4,028 $ 40 39,500 $ 395
============== ============ ============ ===============
<CAPTION>
Accumulated Total
Additional Other Stockholders'
Paid-in Accumulated Comprehensive Equity
Capital Deficit Loss (Deficit)
------------- ---------------- ---------------- -------------
<S> <C> <C> <C> <C>
Balances at December 31, 1997 $ 255,741 $ (374,518) $ - (118,392)
Issuances of common stock:
For stock option exercises and other 12,594 12,604
For acquisitions 78,710 78,734
For investment in equity securities 60,329 60,344
Dividends declared on Series A preferred stock (2,955) (2,955)
Dividends on Series C preferred stock (12,524) (12,524)
Dividends on Series D preferred stock (4,006) (4,006)
Issuances of Series A preferred stock as
dividends in kind 2,954 2,955
Preferred stock issuance costs and other, net (7,738) (7,738)
--------------
Comprehensive loss:
Net loss (179,257) (179,257)
Unrealized loss on investments in marketable
equity securities (26,487) (26,487)
--------------
(205,744)
--------------
=============== =============== =================== =================
Balances at June 30, 1998 $ 383,105 $ (553,775) $ (26,487) $ (196,722)
=============== =============== =================== =================
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
WinStar Communications, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the six months ended
June 30,
----------------------
1997 1998
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(100,770) $(179,257)
Adjustments to reconcile net loss to net cash
used in operating activities:
Net loss from discontinued operations 477 1,982
Depreciation and amortization 9,260 30,264
Deferred income tax benefit -- (2,500)
Provision for doubtful accounts 774 4,400
Non cash interest expense 22,475 50,902
(Increase) decrease in operating assets:
Accounts receivable (7,142) (25,111)
Inventories 565 (2,756)
Prepaid expenses and other current assets (6,859) (2,950)
Other assets (1,392) (9,011)
Increase (decrease) in accounts
payable and accrued expenses 15,799 (29,121)
Net cash used in discontinued operations (1,947) (3,611)
--------- ---------
Net cash used in operating activities (68,760) (166,769)
--------- ---------
Cash flows from investing activities:
Decrease (increase) in short-term investments, net (13,976) (111,181)
Purchase of property and equipment, net (63,354) (119,569)
Acquisitions (34,917) (107,949)
Other, net 457 -
--------- ---------
Net cash used in investing activities (111,790) (338,699)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt, net 270,945 437,592
Net proceeds from redeemable preferred stock -- 193,145
Net proceeds from equity transactions 98,087 12,604
Net proceeds from sale of minority equity interest -- 10,000
Proceeds from equipment lease financing 20,511 30,900
Payment of capital lease obligations (1,903) (3,362)
Other, net (402) (2,887)
--------- ---------
Net cash provided by financing activities 387,238 677,992
--------- ---------
Net increase in cash and cash equivalents 206,688 172,524
Cash and cash equivalents at beginning of period 95,490 402,359
--------- ---------
Cash and cash equivalents at end of period 302,178 574,883
Short-term investments at end of period 40,973 128,084
--------- ---------
Cash, cash equivalents and short-term investments
at end of period $ 343,151 $ 702,967
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
6
<PAGE>
WinStar Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Nature of Business
The Company provides facilities-based voice and broadband data
telecommunications services to businesses and other customers in major
metropolitan areas in the United States. By utilizing its Wireless Fiber(SM)
services and a switch-based infrastructure, the Company distinguishes itself as
a facilities-based, value-added provider of high-capacity telecommunications
services and an attractive alternative to established providers, such as the
RBOCs. The Company also utilizes its Wireless Fiber services to provide other
telecommunications offerings, including Internet, ATM and frame relay services.
The Company creates and/or acquires rights to and distributes information and
entertainment content as a complement to its telecommunications operations. The
Company also operates a nonstrategic consumer products company, which is treated
as a discontinued operation in this report.
To capitalize on opportunities in the telecommunications industry, the Company
is pursuing a rapid expansion of its telecommunications services, which will
require significant amounts of capital to finance capital expenditures and
anticipated operating losses. The Company may elect to slow the speed or narrow
the focus of this expansion in the event it is unable to raise sufficient
amounts of capital on acceptable terms.
2. Basis of Presentation
The condensed consolidated financial statements presented herein include the
accounts of WinStar Communications, Inc. and its subsidiaries (collectively,
"WinStar" or the "Company"). All material inter-company transactions and
accounts have been eliminated in consolidation. The accounts have been prepared
by the Company without audit. The foregoing statements contain all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
the Company's management, necessary to present fairly the financial position of
the Company as of June 30, 1998, the statements of operations for the three and
six months ended June 30, 1997 and 1998, the statements of cash flows for the
six months ended June 30, 1997 and 1998 and the statement of stockholders'
equity for the six months ended June 30, 1998.
Certain information and footnote disclosures normally included in financial
statements have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. These condensed consolidated
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1997. The unaudited financial statements and related
footnotes for the three and six month periods ended June 30, 1997 reflect
certain reclassifications such that they conform to the current period
presentation.
The results of operations for the three and six months ended June 30, 1998 are
not necessarily indicative of the results of operations for the year ending
December 31, 1998.
- --------------------------
Wireless Fiber(SM) is a service mark of WinStar Communications, Inc.
7
<PAGE>
WinStar Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
3. Dividends on Convertible Preferred Stock
Dividends on the 6% Series A Cumulative Convertible Preferred Stock ("Series A
Preferred Stock") since its issuance have been paid "in-kind" in additional
shares of the Series A Preferred Stock.
4. Basic and Diluted Loss Per Share
Basic and diluted loss per share have been calculated by dividing the net loss,
after consideration of preferred stock accretion and dividends, by the weighted
average number of shares of common stock outstanding during each period in
accordance with Statement of Financial Accounting Standards No. 128 ("SFAS No.
128"). Stock options and warrants have been excluded from the calculation of
diluted loss per share as their effect would have been antidilutive. The
adoption of SFAS No. 128 had no effect on earnings per share for the three and
six months ended June 30, 1997.
5. Acquisition of MidCom Communications, Inc.
Effective January 21, 1998 (the "Closing Date"), pursuant to an agreement
between the Company and MIDCOM Communications, Inc. and its subsidiaries
(collectively, "MidCom"), the Company acquired substantially all of MidCom's
assets and businesses for a purchase price of approximately $92.0 million in
cash. The purchase price is subject to a downward adjustment under certain
circumstances.
The Company has retained an independent third party to fully evaluate the assets
and certain liabilities of MidCom, in order to complete the allocation of the
purchase price of the acquisition. Further adjustments may arise as a result of
the finalization of the ongoing evaluation. The results of this evaluation are
expected to be recorded in the near term. The financial statements of MidCom
have been consolidated into the Company's financial statements as of the date of
acquisition.
MidCom was a provider of long distance voice and frame relay data
telecommunications services primarily to small and medium-sized businesses, most
of which are located in major metropolitan areas of California, Florida,
Illinois, New York, Ohio and Washington.
The following pro forma results of operations (in thousands, except per share
data) reflect the combined operations of the Company and MidCom as if the
acquisition was consummated at the beginning of each period presented. The
unaudited pro forma results of operations does not purport to represent the
results of operations that would have actually resulted had the purchase
8
<PAGE>
WinStar Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
occurred on the indicated dates, nor should it be taken as indicative of future
results of operations.
<TABLE>
<CAPTION>
For The Three Months Ended For The Six Months Ended
June 30, June 30,
-------------------------- ------------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenues $ 41,453 $ 57,263 $ 78,836 $ 108,471
Net Loss applicable to common
stockholders (83,557) (105,585) (145,698) (199,144)
Basic and diluted loss per share $ (2.53) $ (2.77) $ (4.44) $ (5.38)
</TABLE>
6. Issuance of Cumulative Convertible Preferred Stock
In March 1998, the Company sold 4,000,000 shares of Series D 7% senior
cumulative convertible preferred stock ("Convertible Preferred Stock") in a
private placement for aggregate gross proceeds of $200 million. The preferred
stock earns a 7% cumulative annual dividend, payable quarterly (commencing on
September 15, 1998) in (i) cash or, at the Company's election, (ii) through the
issuance of a number of shares of the Company's common stock equal to the
dividend amount divided by the discounted current market value of the common
stock (as defined), at the Company's option. The Company is currently prohibited
from paying such dividends in cash under the terms of its outstanding
indentures.
The Convertible Preferred Stock is convertible at the option of the holder at
any time after the issue date, into shares of the Company's common stock at a
conversion price of $49.61 per share of common stock.
The Convertible Preferred Stock is redeemable at the option of the Company after
March 20, 2001, in whole or in part, at defined redemption prices, payable in
cash plus accumulated and unpaid dividends, if any. The terms of the Company's
outstanding indentures currently prohibit any such redemption prior to the
repayment of the debt issued under the indenture. The Convertible Preferred
Stock is mandatorily redeemable on March 15, 2010 at a redemption price of $50,
payable in cash, per share plus accrued and unpaid dividends.
The Convertible Preferred Stock, with respect to dividend rights and rights on
liquidation, winding up and dissolution, ranks (i) senior to all classes of
common stock and to the Series A Preferred Stock of the Company and (ii) on a
parity with the Series C Preferred Stock of the Company.
The Company filed a shelf registration (which was declared effective in June
1998) with the Securities and Exchange Commission with respect to resales of the
Convertible Preferred Stock and the common stock which may be issued on the
conversion thereof or as dividends thereon.
9
<PAGE>
WinStar Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
7. March 1998 Notes
In March 1998, the Company issued $200 million principal amount of unsecured 10%
senior subordinated notes due 2008 ("Cash Pay Notes") and $250 million principal
amount of unsecured 11% senior subordinated deferred interest notes ("Deferred
Interest Notes") due 2008 (collectively, "the Notes"). The Notes are unsecured,
senior subordinated obligations of the Company and rank pari passu in right of
payment with the Company's 14% Convertible Senior Subordinated Notes Due 2005
and the Company's 15% Senior Subordinated Deferred Interest Notes Due 2007 and
are junior in right of payment to all existing and future senior indebtedness of
the Company.
The Cash Pay Notes bear interest at a rate of 10% per annum, payable
semiannually commencing September 15, 1998. The Deferred Interest Notes bear
interest at the rate of 11% per annum. Until March 15, 2003, interest on the
Deferred Interest Notes accrues and compounds semiannually, but will not be
payable in cash.
The Notes mature on March 15, 2008 and are redeemable by the Company on and
after March 15, 2003, at its option, at certain defined prices.
The Company has filed an Exchange Offer Registration Statement with the
Securities and Exchange Commission ("SEC") which has been declared effective
under the Securities Act. The Company has commenced an exchange offer for the
Notes, pursuant to such registration statement.
8. Condensed Financial Information of WinStar Equipment Corp. and WinStar
Equipment II Corp.
The Company's wholly-owned subsidiaries, WinStar Equipment Corp. and WinStar
Equipment II Corp. ("WEC" and "WEC II", respectively), each of which is a
special purpose corporation which was formed to facilitate the financing and
purchase of telecommunications equipment and related property ("Designated
Equipment"), received $200 million and $50 million in gross proceeds,
respectively, from the issuance and sale of 12.5% Guaranteed Senior Secured
Notes ("the WEC and WEC II Notes") in placements of debt in March and August of
1997, respectively. The proceeds of the WEC and WEC II Notes are to be used to
purchase Designated Equipment and, if such equipment is not purchased within a
specified period, WEC and WEC II must apply unused proceeds thereof to redeem
the WEC and WEC II Notes, respectively. Both the interest and principal of the
WEC and WEC II notes are guaranteed by the Company.
10
<PAGE>
WinStar Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
WEC and WEC II have no independent operations other than to purchase Designated
Equipment and to lease this equipment to the Company and its other
telecommunications affiliates. It is therefore unlikely, in the opinion of
management, that WEC or WEC II will generate sufficient income, after the
payment of interest on the WEC and WEC II Notes, to pay dividends or make other
distributions to the Company.
Summary financial information of WEC and WEC II, which are included in the
condensed consolidated financial statements of the Company, are as follows (in
thousands):
Balance sheet information at June 30, 1998 is as follows:
WEC WEC II
--- ------
Current assets $ 87,732 $ 48,486
Long term assets 134,378 2,752
Current liabilities (40,264) (4,216)
Long term liabilities (200,000) (50,000)
--------- --------
Stockholders' deficit $(18,154) $ (2,978)
========= ==========
Statements of operations information for WEC for the three and six months ended
June 30, 1998, the three months ended June 30, 1997 and the period from March
13, 1997 (inception) through June 30, 1997, and for WEC II for the three and six
months ended June 30, 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
WEC WEC II
------------------------------------------------------ ------------------------
Period from
March 13,
Three 1997 Six Six
Three Months (Inception) Months Three Months Months
Months Ended Ended to Ended Ended Ended
June 30, June 30, June 30, June 30, June 30, June 30,
1997 1998 1997 1998 1998 1998
------------ -------- ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Rental revenues from other
WinStar subsidiaries............ $ -- $ 502 $ -- $ 1,014 $ -- $ --
Interest income from other
WinStar subsidiaries............ -- 828 -- 1,692 $ -- $ --
Interest income - investments... 2,595 906 2,986 2,448 879 1,525
Selling, general and
administrative expenses......... -- (597) -- (1,639) -- --
Interest expense................ (5,617) (5,751) (6,450) (11,496) (1,563) (3,125)
------------ ------------ ------------ --------- --------- ---------
Net loss........................ $ (3,022) $ (4,112) $ (3,464) $ (7,981) $ (684) $ (1,600)
============ ============ ============ ========= ========= =========
</TABLE>
11
<PAGE>
WinStar Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
Separate financial statements for WEC or WEC II are not presented because
management of the Company has determined that such information would not provide
any material information that is not already presented in the condensed
consolidated financial statements of the Company.
9. Discontinued Operation - WinStar Global Products, Inc.
On May 13, 1997, a formal plan of disposal for the Company's consumer products
subsidiary, WinStar Global Products, Inc., ("Global Products") was approved by
the Board of Directors and it is anticipated that the disposal will be completed
within the near term. The disposal of Global Products has been accounted for as
a discontinued operation and, accordingly, is carried at its estimated net
realizable value. During the six months ended June 30, 1998, the Company
recorded a loss on discontinued operations of $1,982,000. The accompanying
condensed consolidated balance sheets, and operating results of Global Products
are segregated and reported as discontinued operations in the accompanying
condensed consolidated balance sheets and statements of operations and cash
flows.
Information relating to the discontinued operations of Global Products is as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended Ended
June 30, June 30
-------------------- --------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues $ 2,583 $ 2,203 $ 6,275 $ 4,495
-------- ------- ------- -------
Cost of services and products 1,995 2,222 4,545 4,537
Selling, general & administrative
expenses 1,282 1,029 2,548 2,073
Depreciation and amortization 58 66 116 124
-------- ------- ------- -------
Total operating expenses 3,335 3,317 7,209 6,734
-------- ------- ------- -------
Operating loss (752) (1,114) (934) (2,239)
Interest expense (109) (157) (404) (333)
-------- ------- ------- -------
Net loss $ (861) $(1,271) $(1,338) $(2,572)
======== ======= ======= =======
</TABLE>
12
<PAGE>
WinStar Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
Net assets of the discontinued operations of Global Products at December 31,
1997 and June 30, 1998 are composed of the following (in thousands of dollars):
December 31, June 30,
1997 1998
------------ --------
Assets:
Accounts Receivable, net $ 4,383 $ 790
Inventories 4,663 5,127
Other Assets 1,268 466
-------- --------
Total assets 10,314 6,383
-------- --------
Liabilities:
Current Liabilities 3,570 4,041
Other Liabilities 9,951 4,554
-------- --------
Total liabilities 13,521 8,595
-------- --------
Net deficit $ (3,207) $(2,212)
========= ========
13
<PAGE>
WinStar Communications, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
10. Marketable Securities
On June 21, 1998, the Company purchased 12.9% of the outstanding common stock of
Advanced Radio Telecom Corp. ("ART") and other equity securities from private
investors. The Company issued one share of its common stock in exchange for
every 2.2 shares of ART purchased. The conversion ratio results in a purchase
price of $17.90 per ART share based on the Company's closing stock price on the
date the transaction was closed. The Company issued approximately 1,525,000
restricted common shares in connection with the transaction and received
approximately 3,314,000 common shares of ART and certain other unrelated assets.
The marketable securities acquired are accounted for as "Available for Sale
Securities" in accordance with Statement of Financial Accounting Standards No.
115. The Company has recorded an "other comprehensive loss" (representing
unrealized losses on securities) of $26,487,000 in the Statement of
Stockholders' Equity.
11. New Accounting Pronouncements
The FASB released Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of An Enterprise and Related Information"("SFAS
No.131"), requiring that all public businesses report financial and descriptive
information about their reportable operating segments. The Company will
implement SFAS No. 131 in its 1998 annual report on Form 10K, as required.
12. Subsequent Events
In July 1998, the Company agreed to purchase 850 MHz of bandwidth in New York
City from CellularVision USA, Inc. for $32.5 million in cash. The bandwidth will
be disaggregated from CellularVision's LMDS license for the New York area. This
transaction is subject to FCC approval. The Company has also agreed to lend
CellularVision an amount up to $5.5 million, the repayment of which may be
offset against the purchase price. The acquired spectrum will not be used to
support any of the ongoing services or operations of CellularVision.
In July 1998, the Company entered into a twenty five year lease agreement for
dark fiber capacity in and between a number of major markets at an aggregate
cost of approximately $40 million. To date, the Company has paid $6.5 million of
this amount, with the balance to become payable as portions of the fiber network
are fully constructed and become available to the Company, which is expected to
occur over the next eighteen months.
14
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Company Overview
The Company provides facilities-based voice and broadband data
telecommunications services to businesses and other customers in major
metropolitan areas in the United States. By utilizing its Wireless Fiber(SM)
services and a switch-based infrastructure, the Company distinguishes itself as
a facilities-based, value-added provider of high-capacity telecommunications
services and an attractive alternative to established providers, such as the
RBOCs. The Company also utilizes its Wireless Fiber services to provide other
telecommunications offerings, including Internet, ATM and frame relay services.
The Company acquires rights to and distributes information services and
entertainment content as a complement to its telecommunications operations. The
Company also operates a nonstrategic consumer products company, which is treated
as a discontinued operation in this report.
During the first quarter of 1998 the Company completed its acquisition of the
assets of MidCom Communications, Inc., a national provider of long distance
voice and frame relay data telecommunications services, primarily to small and
medium-sized businesses nationally.
The Company also acquired GoodNet, a rapidly growing Tier I Internet and ATM
backbone provider. Through its national ATM network, GoodNet provides Internet
access and high capacity data services to high bandwidth users.
In connection with the Company's rollout of its local telecommunications
services, the Company also provides business information services to its CLEC
customers. These services are marketed directly to end users and through the
Company's direct sales force.
15
<PAGE>
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
Revenues of the Company's operating segments are as follows (in millions):
Three Months Ended
June 30,
------------------
1997 1998
---- ----
Telecommunications Services:
CLEC Services $ 4,009 $30,002
Other Services 3,669 14,740
------ -------
7,678 44,742
Information Services 8,662 12,521
------- -------
Total Revenues $16,340 $57,263
======= =======
Revenues increased by $40.9 million, or 250.4%, for the three months ended June
30, 1998, to $57.3 million, from $16.3 million for the three months ended June
30, 1997. This increase was principally attributable to the growth in the
Company's telecommunications business, where the addition of new markets and new
services led to 482.7% gain in revenues over the prior year.
Revenues from CLEC services increased by $26.0 million, or 648%, for the quarter
ended June 30, 1998, to $30.0 million, from $4.0 million, for the quarter ended
June 30, 1997. The growth was attributable to continued national sales and
installation of local, long distance and internet services to small and medium
size business customers, and the geographic expansion of sales and network
operations, along with the rapidly expanding large account business unit. Total
CLEC service revenues reached an annual run rate in excess of $130 million at
the end of June, compared with $19 million a year ago.
Revenues from other telecommunications services, which consist of wholesale
operations, residential long distance and MidCom long distance voice services
(other than sales attributable to National Accounts), increased $11.1 million to
$14.7 million in the quarter ended June 30, 1998, as compared to $3.7 million in
the quarter ended June 30, 1997. The increase resulted primarily from revenues,
attributable to former MidCom long distance operations which were acquired in
January 1998. The Company expects a gradual attrition of this revenue over
subsequent quarters.
Revenues from information services increased by $3.9 million, or 44.6%, for the
three months ended June 30, 1998, to $12.5 million, from $8.7 million, for the
three months ended June 30, 1997, due to generally higher demand and the
marketing of new products targeted at the information requirements of small and
medium-sized businesses.
16
<PAGE>
Cost of services and products increased by $30.3 million, or 190.3%, for the
three months ended June 30, 1998, to $46.2 million, from $15.9 million, for the
three months ended June 30, 1997. As a percentage of revenues, cost of services
and products in the quarter ended June 30, 1998 was 80.6%, compared with 97.4%
in the quarter ended June 30, 1997, and 90.1% for the quarter ended March 31,
1998. This decrease in the cost of revenue percentage is the result of increased
volumes and larger percentages of traffic being provisioned over the Company's
network. The Company is continuing to add new markets and build its
telecommunications network. The Company's gross profit margins will gradually
improve as increased volumes and larger percentages of traffic are provisioned
over its own network facilities. The rate of improvement, however, will be
slower during periods when the Company expands into new markets, and will
accelerate as these markets mature.
Selling, general and administrative expense increased by $20.5 million to $59.7
million for the three months ended June 30, 1998, from $39.2 million for the
three months ended June 30, 1997. The Company continued to hire sales,
marketing, network and related support personnel in connection with the
expansion of its CLEC markets. The Company had approximately 750 employees at
June 30, 1997 and approximately 2,300 at June 30, 1998. As a percentage of
revenues, selling, general and administrative expenses declined from 240.1% for
the quarter ended June 30, 1997 to 104.2% for the quarter ended June 30, 1998.
With the rapid expansion of its markets from 1 in December 1996 to 26 at June
30, 1998, and to its plan of 30 at December 31, 1998, the Company expects its
selling, general and administrative expenses to continue to grow in absolute
dollars, but to be a steadily declining percentage of revenues.
Depreciation and amortization expense increased by $12.0 million for the three
months ended June 30, 1998, to $16.9 million, from $4.9 million for the three
months ended June 30, 1997 principally resulting from the Company's acquisition
and deployment of switches, radios and other equipment in connection with its
telecommunications network buildout.
For the reasons noted above, the operating loss for the three months ended June
30, 1998, was $65.5 million, compared with an operating loss of $43.7 million
for the three months ended June 30, 1997.
Interest expense increased by $20.3 million, or 100.6%, for the three months
ended June 30, 1998, to $40.5 million, from $20.2 million for the three months
ended June 30, 1997. This increase was principally attributable to the issuance
of $150 million of debt in the third and fourth quarters of 1997 and another
$450 million of debt in the first quarter of 1998. Of the $40.5 million
interest expense for the quarter, $32.4 million is not payable in cash.
Interest income increased by $5.2 million, or 102.5%, for the three months ended
June 30, 1998, to $10.3 million, from $5.1 million for the three months ended
June 30, 1997. The increase resulted from the additional interest income earned
on the proceeds from the Company's various stock and debt placements.
17
<PAGE>
For the reasons noted above, the Company reported a loss from continuing
operations of $94.3 million for the three months ended June 30, 1998, compared
to a net loss from continuing operations of $58.8 million for the three months
ended June 30, 1997.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Revenues of the Company's operating segments are as follows (in millions):
Six Months Ended
June 30,
------------------
1997 1998
---- ----
Telecommunications Services:
CLEC Services $ 5,988 $ 51,117
Other Services 8,753 29,112
------ --------
14,741 80,229
Information Services 14,676 24,470
------- --------
Total Revenues $29,417 $104,699
======= ========
Revenues increased by $75.3 million, or 255.9% for the six months ended June 30,
1998, to $104.7 million, from $29.4 million for the six months ended June 30,
1997. This increase was attributable to the growth in revenues generated by the
Company's telecommunications operations.
Revenues from CLEC services increased by $45.1 million, or 752.0%, to $51.1
million for the six months ended June 30, 1998, from $6.0 million in the six
months ended June 30, 1997. The CLEC business commenced operations in the second
quarter of 1996. The Company has since been rapidly adding markets and
installing voice and data lines for its business customers.
Revenues from other telecommunications services increased $20.4 million to $29.1
million for the six months ended June 30, 1998, as compared to $8.8 million in
the six months ended June 30, 1997. The increase resulted primarily from sales,
attributable to former MidCom long distance operations which were acquired in
January 1998.
Revenues from information services increased by $9.8 million, or 66.7%, for the
six months ended June 30, 1998, to $24.5 million, from $14.7 million for the six
months ended June 30, 1997, due to a generally higher demand and the marketing
of new products targeted at the information requirements of small and
medium-sized business.
Cost of services and products increased by $60.1 million, or 208.2%, for the six
months ended June 30, 1998, to $89.0 million, from $28.9 million for the six
months ended June 30, 1997. As a percentage of revenues, cost of services and
products for the six months ended June 30, 1998
18
<PAGE>
was 85%, compared with 98.1% in the six months ended June 30, 1997. This
decrease in the cost of revenue percentage is the result of increased volumes
and larger percentages of traffic being provisioned on the Company's network.
Selling, general and administrative expense increased by $44.5 million to $113.3
million for the six months ended June 30, 1998, from $68.8 million for the six
months ended June 30, 1997. The Company continued to hire sales, marketing,
network and related support personnel in connection with the expansion of its
CLEC markets. The Company had approximately 1,479 employees at December 31, 1997
and approximately 2,300 at June 30, 1998. As a percentage of revenues, selling,
general and administrative expenses declined from 234% for the six months ended
June 30, 1997 to 108.2% for the six months ended June 30, 1998. With the rapid
expansion of its markets from 1 in December 1996 to 26 at June 30, 1998, and to
its plan of 30 at December 31, 1998, the Company expects its selling, general
and administrative expenses to continue to grow in absolute dollars, but to be a
steadily declining percentage of revenues.
Depreciation and amortization expense increased by $19.9 million for the six
months ended June 30, 1998, to $28.3 million, from $8.4 million for the six
months ended June 30, 1997 principally resulting from the Company's acquisition
and deployment of switches, radios and other equipment in connection with its
telecommunications network buildout.
For the reasons noted above, the operating loss for the six months ended June
30, 1998, was $125.9 million, compared with an operating loss of $76.6 million
for the six months ended June 30, 1997.
Interest expense increased by $38.2 million, or 123.1%, for the six months ended
June 30, 1998, to $69.2 million, from $31.0 million for the six months ended
June 30, 1997. This increase was principally attributable to the issuance of
$450 million of debt in 1997 and another $450 million of debt in the first
quarter of 1998. Of the $69.2 million interest expense for the quarter, $50.9
million is not payable in cash.
Interest income increased by $7.9 million, or 108.0%, for the six months ended
June 30, 1998, to $15.2 million, from $7.3 million for the six months ended June
30, 1997. The increase resulted from the additional interest income earned on
the proceeds from the Company's various stock and debt placements.
For the reasons noted above, the Company reported a loss from continuing
operations of $177.3 million for the six months ended June 30, 1998, compared to
a net loss from continuing operations of $100.3 million for the six months ended
June 30, 1997.
19
<PAGE>
Liquidity and Capital Resources
In March 1998, the Company sold 4,000,000 shares of its 7% Series D Senior
Cumulative Convertible Preferred Stock pursuant to which the Company realized
net proceeds of approximately $193.1 million.
Additionally, in March 1998, the Company sold an aggregate of $450 million
principal amount of notes (the "1998 Debt Placements"), pursuant to which it
realized net proceeds of approximately $436.7 million.
At June 30, 1998, the Company had approximately $703.0 million in cash, cash
equivalents and short term investments, approximately $104.3 million of which
may only be used to finance equipment purchases in connection with the Company's
rollout of its telecommunications infrastructure.
The Company has incurred significant operating and net losses, due in large part
to the development of its telecommunications services business, and anticipates
that such losses will continue over the near term as the Company executes its
growth strategy. A significant portion of the Company's increased capital
requirements will result from the rollout of the Company's CLEC business. The
Company is building a direct sales force, having opened sales offices currently
serving the 26 major markets in which it offers CLEC services, and is in the
process of expanding into other metropolitan areas. Additionally, the Company is
in the process of ordering and installing switches and other network equipment
to be placed in its key markets. Historically, the Company has funded its
operating losses and capital expenditures through public and private offerings
of debt and equity securities and from credit and lease facilities. Cash used to
fund negative EBITDA during the three months ended June 30, 1998 was
approximately $48.6 million, and purchases of property and equipment during the
three months ended June 30, 1998 was approximately $90.0 million. At June 30,
1998, working capital was $713.5 million, including cash, cash equivalents and
short-term investments of $703.0 million, as compared to working capital and
cash, cash equivalents and short-term investments at December 31, 1997 of $366.0
million and $419.3 million, respectively.
Under its current plans to expand to 40 major metropolitan markets by the end of
1999, the Company plans to spend approximately $150.0 million during the
remainder of 1998 and approximately $300.0 million in 1999 for capital
equipment, which may require the Company to seek additional capital from
financial institutions, equipment vendors or in the financial markets. The
Company anticipates, based on current plans and assumptions relating to its
operations, that its existing financial resources and additional equipment
financing arrangements that the Company intends to seek, will be sufficient to
fund the Company's operations and capital requirements for approximately 15 to
18 months. The Company believes that it will be able to obtain sufficient
capital to execute its business plan. In the event that the Company's
assumptions change or prove to be inaccurate, the Company consummates any
acquisitions of significant businesses or assets (including spectrum licenses),
the Company accelerates its plan
20
<PAGE>
and enters markets more rapidly, or the Company fails to secure additional
equipment financing arrangements, the Company may be required to seek additional
sources of capital sooner than currently anticipated.
In addition to binding commitments to purchase approximately $21.0 million of
telecommunications equipment, the Company is committed to pay approximately
$36.4 million in connection with the acquisition of additional spectrum
licenses, all of which are subject to FCC approval, of which $32.5 million is
payable in cash and as an offset against a $3.5 million loan made by the
Company. The balance is payable in common stock or, at the Company's option, in
cash.
The Company was the highest bidder on certain LMDS licenses in the LMDS auction
and has committed to pay approximately $34.0 million in connection therewith (in
addition to the Company's $8.0 million initial down payment in such auction).
The Company has entered into a twenty five year lease agreement for dark fiber
capacity in and between a number of major markets at an aggregate cost of
approximately $40 million. Amounts will become payable over the next eighteen
months as portions of the fiber network are fully constructed and become
available to the Company. To date the Company has paid $6.5 million of this
amount.
Year 2000 Compliance
The Company is currently addressing the issue of whether or to what extent its
systems will be vulnerable to potential errors and failures as a result of the
"Year 2000" problem, which is the result of prior computer programs being
written using two digits, rather than four digits, to define the applicable
year. Any computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in major system failure or miscalculations.
Based on an initial review of its systems, the Company concluded that its
significant computer programs and internal operations either will not be
materially affected by the Year 2000 problem or will be properly modified or
replaced prior to the end of 1999 at a cost which will not be material to the
Company. However, in light of the Company's commitment to ensuring the
integrity of its systems, including its telecommunications network, the
Company is conducting a comprehensive review of its systems to ensure that all
such systems are Year 2000 compliant. The Company continues to believe that
its exposure to this issue, based on its internal systems, is somewhat limited
by the fact that substantially all of its existing systems have been purchased
or replaced since 1996 or currently remain under development.
The Company has an ongoing task force, comprised of representatives from each
major area of the Company's operations as well as outside consulting firms as
appropriate, to evaluate and remediate its Year 2000 problems. This process
entails: conducting a comprehensive inventory of the Company's internal
systems (including computer and electrical systems, equipment and the systems
of companies acquired or to be acquired by the Company); assessing and
prioritizing any required remediation, particularly with regard to "mission
critical" systems; in the event any systems are found to be non-compliant,
remediating any problems by repairing or, if appropriate, replacing the
non-compliant systems; and testing all affected and remediated systems for
full Year 2000 compliance. The Company is also in the process of developing
contingency plans with regard to potential Year 2000 problems. Although the
Company expects that it will have identified and remediated any Year 2000
problems prior to the end of 1999, if significant Year 2000 problems in the
Company's systems are not uncovered or are not remediated in a timely manner,
such problems could have adverse consequences for the Company's operations.
In addition to assessing its own systems, the Company is conducting an
external review of its vendors and suppliers, including equipment and systems
providers and other telecommunications service providers, to determine their
vulnerability to this issue and any impact that may have on the Company. In
particular, to the extent that other telecommunications carriers in the
national and international telecommunications infrastructure, including
carriers whose services are resold by the Company or to which the Company's
network is interconnected directly or indirectly, are not Year 2000 compliant,
it could create a problem for the Company. There can be no assurance that such
resulting problems will not have a material adverse effect on the Company.
The Company has completed various acquisitions during recent periods and is in
the process of integrating the systems of those companies into the Company.
Those systems are included in the Company's Year 2000 review and remediation
project. The Company expects to consummate additional acquisitions prior to
the end of 1999. The extent of the Year 2000 problems associated with any such
acquired companies and the cost and timing of remediation will be evaluated
during and after completion of the acquisition process. No assurance can be
given that the systems of any acquired company will be Year 2000 compliant
when acquired or will be capable of timely remediation.
The Company does not anticipate that the cost of this project will be
material; however, since the process by its nature is ongoing, the Company is
unable to estimate the actual cost at this time. A cost estimate and budget is
being prepared by the Company and is expected to be substantially completed by
the end of the third quarter of this year.
Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 with respect to the
financial condition, results of
21
<PAGE>
operations and business of the Company. These forward-looking statements involve
certain risks and uncertainties. The words "anticipate", "believe", "estimate",
"expect", "plan", "intend" and similar expressions, as they relate to the
Company, are intended to identify forward-looking statements. Such statements
reflect the current views of the Company with respect to future events and are
subject to certain risks, uncertainties and assumptions. No assurance can be
given that any of such expectations will be realized. Factors that may cause
actual results to differ materially from those contemplated by such forward
looking statements include, without limitation: (a) the Company's ability to
service its debt or to obtain financing for the buildout of its
telecommunications network; (b) the Company's ability to attract and retain a
sufficient revenue-generating customer base; (c) competitive pressures in the
telecommunications industry; and (d) general economic conditions.
22
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
Recent Sales of Unregistered Securities
The following table sets forth certain information with respect to the issuance
by the Company of certain securities during the quarter ended June 30, 1998,
without registration of such securities under the Securities Act:
<TABLE>
<CAPTION>
- ---------------------- ---------------- ----------------- --------------- ----------------------- -------------------
Securities Sold Exemption Terms of Conversion
(Date Sold) Purchaser(s) Consideration Claimed or Exercise Use of Proceeds
- ---------------------- ---------------- ----------------- --------------- ----------------------- -------------------
<S> <C> <C> <C> <C> <C>
476,718 shares of Various Shares issued 4(2) Not applicable The Company did
Common Stock individuals in connection not receive cash
(various dates from and entities with various proceeds for
4/1/98 - 6/30/98) acquisitions of these shares
38 GHz licenses
and related
assets
- ---------------------- ---------------- ----------------- --------------- ----------------------- -------------------
1,525,301 shares of Landover Shares issued 4(2) Not applicable The Company did
Common Stock Holding in connection not receive cash
(6/21/98) Corporation with the proceeds for
and James J. purchase of these shares
Pinto shares of
Advanced Radio
Telecom Corp.
and certain
unrelated assets
- ---------------------- ---------------- ----------------- --------------- ----------------------- -------------------
</TABLE>
Item 4. Submission of Matters to a Vote of Security Holders
At its Annual Meeting of Stockholders (the "Meeting") held on June 10,1998, the
Company submitted the following matters to a vote of its security holders, all
of which mattes were approved:
1. Election of Class I Directors.
Name of Director Votes For Votes Withheld
---------------- --------- --------------
Steven G. Chrust 30,163,553 2,715,497
James I. Cash 30,139,793 2,739,257
The term of office of each of the following additional directors of the Company
continued after the Meeting: William J. Rouhana, Jr., Nathan Kantor, Bert
Wasserman, Steven B. Magyar and William J. vanden Heuvel.
23
<PAGE>
2. Amendment of WinStar Communications, Inc. 1995 Performance Equity Plan
increasing the number of shares available for issuance pursuant to grants
made thereunder from 7,500,000 to 10,000,000.
Votes For Votes Against Abstentions
--------- ------------- -----------
15,694,443 8,082,532 234,447
3. Approval of the WinStar Communications, Inc. Qualified Employee Stock
Purchase Plan and Related Amendment to the Company's By-Laws.
Votes For Votes Against Abstentions
--------- ------------- -----------
23,226,704 597,747 187,001
Item 5 - Other Information
Notes to Stockholders Regarding 1999 Annual Meeting of Stockholders:
Pursuant to Rule 14a-4 promulgated by the Securities and Exchange Commission,
stockholders are advised that the Company's management shall be permitted to
exercise discretionary voting authority under proxies its solicits and obtains
from the Company's 1999 Annual Meeting of Stockholders with respect to any
proposal presented by a stockholder at such meeting, without any discussion of
the proposal in the Company's proxy statement for such meeting, unless the
Company receives notice of such proposal at its principal office in New York,
New York no later than March 24, 1999.
Item 6. Reports on Form 8-K
(1) Current report on Form 8-K filed June 25, 1998.
(2) Current report on Form 8-K filed July 23, 1998.
<PAGE>
SIGNATURES
In accordance with requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
WinStar Communications, Inc.
Registrant
By: /s/ Charles T. Dickson
- ---------------------------
Charles T. Dickson
Executive Vice President and Chief Financial
Officer (Principal Financial Officer) Dated: August 14, 1998
By: /s/ Joseph P. Dwyer
- ---------------------------
Joseph P. Dwyer
Vice President, Finance
(Principal Accounting Officer) Dated: August 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 574,883,000
<SECURITIES> 128,084,000
<RECEIVABLES> 67,600,000
<ALLOWANCES> 0
<INVENTORY> 13,052,000
<CURRENT-ASSETS> 820,320,000
<PP&E> 380,149,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,640,288,000
<CURRENT-LIABILITIES> 106,855,000
<BONDS> 1,270,726,000
388,078,000
40,000
<COMMON> 395,000
<OTHER-SE> (170,670,000)
<TOTAL-LIABILITY-AND-EQUITY> 1,640,288,000
<SALES> 0
<TOTAL-REVENUES> 57,263,000
<CGS> 0
<TOTAL-COSTS> 46,181,000
<OTHER-EXPENSES> 76,588,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,500,000
<INCOME-PRETAX> (95,698,000)
<INCOME-TAX> (1,400,000)
<INCOME-CONTINUING> (94,298,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (94,298,000)
<EPS-PRIMARY> (2.77)
<EPS-DILUTED> (2.77)
<FN>
(1) Receivables are net of allowance for doubtful accounts
(2) PP&E are net of accumulated depreciation
(3) Discontinued operations of Winstar Global Products
</FN>
</TABLE>
