<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Registration Number 333-14859
PROSPECTUS SUPPLEMENT NO. 1 TO PROSPECTUS DATED NOVEMBER 4, 1996
LOGO
WESTERN WIRELESS CORPORATION
OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF 10 1/2% SENIOR SUBORDINATED
NOTES
DUE 2007 FOR EACH $1,000 IN PRINCIPAL AMOUNT OF OUTSTANDING
10 1/2% SENIOR SUBORDINATED NOTES DUE 2007
THAT WERE ISSUED AND SOLD IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
---------------------
Western Wireless Corporation (the "Company"), hereby offers to exchange (the
"Exchange Offer") $200,000,000 in aggregate principal amount of its 10 1/2%
Senior Subordinated Notes Due 2007 (the "Exchange Notes") for $200,000,000 in
aggregate principal amount of its outstanding 10 1/2% Senior Subordinated Notes
Due 2007 that were issued and sold in a transaction or series of transactions
exempt from registration under the Securities Act of 1933, as amended (the
"Original Notes" and, together with the Exchange Notes, the "Notes"). There will
be no cash proceeds to the Company from the Exchange Offer.
The terms of the Exchange Notes are the same in all respects (including
principal amount, interest rate, maturity and ranking) as the terms of the
Original Notes for which they may be exchanged pursuant to the Exchange Offer,
except that the Exchange Notes have been registered under the Securities Act and
therefore will not be subject to certain restrictions on transfer applicable to
the Original Notes and will not be entitled to registration rights. The Exchange
Notes will be issued under the indenture governing the Original Notes. For a
complete description of the terms of the Exchange Notes, see "Description of the
Notes."
The Exchange Notes will bear interest from and including their respective
dates of issuance. Holders whose Original Notes are accepted for exchange will
receive accrued interest thereon to, but not including, the date of issuance of
the Exchange Notes, such interest to be payable with the first interest payment
on the Exchange Notes, but will not receive any payment in respect of interest
on the Original Notes accrued after the issuance of the Exchange Notes.
The Original Notes were originally issued and sold on October 24, 1996 in a
transaction not registered under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon the exemption provided in Section 4(2) of,
and Rule 144A and Regulation S under, the Securities Act (the "Offering").
Accordingly, the Original Notes may not be reoffered, resold or otherwise
pledged, hypothecated or transferred in the United States unless so registered
or unless an applicable exemption from the registration requirements of the
Securities Act is available. Based upon their view of interpretations provided
to third parties by the Staff of the Securities and Exchange Commission (the
"Commission"), the Company believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for the Original Notes may be offered for resale,
resold and otherwise transferred by holders thereof (other than any holder which
is (i) an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act (an "Affiliate"), (ii) a broker-dealer who acquired Original
Notes directly from the Company or (iii) a broker-dealer who acquired Original
Notes as a result of market making or other trading activities) without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such Exchange Notes are acquired in the ordinary
course of such holders' business and such holders are not engaged in, and do not
intend to engage in, and have no arrangement or understanding with any person to
participate in, a distribution of such Exchange Notes. Each broker-dealer who
receives Exchange Notes pursuant to the Exchange Offer in exchange for Original
Notes acquired for its own account as a result of market-making activities or
other trading activities may be a statutory underwriter and must acknowledge
that it will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such Exchange Notes. The Letter of Transmittal
that is filed as an exhibit to the Registration Statement of which this
Prospectus is a part (the "Letter of Transmittal") states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
Broker-dealers who acquired Original Notes as a result of market making or other
trading activities may use this Prospectus, as supplemented or amended, in
connection with resales of the Exchange Notes. The Company has agreed that it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale for a period ending on the earlier of the 90th day after
the Exchange Offer has been completed or such time as broker-dealers no longer
own any Registrable Securities (as defined in the Registration Rights Agreement,
defined below). Any holder that cannot rely upon such interpretations must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction.
The Original Notes and the Exchange Notes constitute new issues of
securities with no established public trading market. The Original Notes,
however, have traded on the National Association of Securities Dealers, Inc.'s
PORTAL Market. Any Original Notes not tendered and accepted in the Exchange
Offer will remain outstanding. To the extent that Original Notes are tendered
and accepted in the Exchange Offer, a holder's ability to sell untendered, and
tendered but unaccepted, Original Notes could be adversely affected. Following
consummation of the Exchange Offer, the holders of Original Notes will continue
to be subject to the existing restrictions on transfer thereof and the Company
will have no further obligation to such holders to provide for the registration
under the Securities Act of the Original Notes except under certain limited
circumstances. See "Description of the Notes -- Registration Covenant; Exchange
Offer". No assurance can be given as to the liquidity of the trading market for
either the Original Notes or the Exchange Notes.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Original Notes being tendered or accepted for exchange. The Exchange
Offer will expire at 5:00 p.m., New York City time, on December 4, 1996, unless
extended (the "Expiration Date"). The date of acceptance for exchange of the
Original Notes (the "Exchange Date") will be the first business day following
the Expiration Date, upon surrender of the Original Notes. Original Notes
tendered pursuant to the Exchange Offer may be withdrawn at any time prior to
the Expiration Date; otherwise such tenders are irrevocable.
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS
TO BE CONSIDERED IN CONNECTION WITH THE EXCHANGE NOTES.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
---------------------
The date of this Prospectus Supplement is November 15, 1996.
<PAGE> 2
This Prospectus Supplement is intended to be read in conjunction with the
Prospectus dated November 4, 1996 (the "Prospectus"), with respect to the Offer
to Exchange $1,000 in principal amount of 10 1/2% Senior Subordinated Notes Due
2007 for each $1,000 in principal amount of outstanding 10 1/2% Senior
Subordinated Notes Due 2007 that were issued and sold in a transaction exempt
from registration under the Securities Act of 1933, as amended. Capitalized
terms used in this Prospectus Supplement and not otherwise defined herein have
the same meanings as in the Prospectus.
On November 14, 1996, the Company filed with the Securities and Exchange
Commission a report on Form 10-Q, a copy of which is attached hereto and deemed
to be a part hereof.
<PAGE> 3
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,
1996
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 000-28160
WESTERN WIRELESS CORPORATION
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1638901
- --------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2001 NW Sammamish Road
Issaquah, Washington 98027
------------------------------------------
(Address of principal executive offices) (Zip Code)
(206) 313-5200
(Registrant's telephone number, including area code)
NOT APPLICABLE
(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 October 31, 1996
----- -----------------------------------------
<S> <C>
Class A Common Stock, no par value 12,990,156
Class B Common Stock, no par value 56,453,403
</TABLE>
Page 1 of 23 sequentially numbered pages
1
<PAGE> 4
WESTERN WIRELESS CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
as of September 30, 1996, and December 31, 1995............................. 3
Consolidated Statements Of Operations
for the Three And Nine Months Ended September 30, 1996 and
September 30, 1995.......................................................... 4
Consolidated Statements Of Cash Flows
for the Nine Months Ended September 30, 1996 and September 30, 1995......... 5
Notes To Consolidated Financial Statements.................................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................... 11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................................. 21
ITEM 2. CHANGES IN SECURITIES............................................................. 21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................................... 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................... 21
ITEM 5. OTHER INFORMATION................................................................. 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................. 22
</TABLE>
2
<PAGE> 5
WESTERN WIRELESS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 22,001 $ 8,572
Accounts receivable, net of allowance for doubtful accounts
of $3,624 and $2,800, respectively 28,678 18,074
Inventory 19,627 5,361
Prepaid expenses and other current assets 6,501 4,001
Deposit held by FCC 25,000 1,500
----------- ---------
Total current assets 101,807 37,508
Property and equipment, net of accumulated depreciation
of $92,136 and $53,423, respectively 381,873 193,692
Licensing costs and other intangible assets, net of accumulated
amortization of $48,020 and $28,364, respectively 536,601 417,971
Investments in and advances to unconsolidated affiliates 9,975 8,388
Other assets 968 1,469
----------- ---------
$ 1,031,224 $ 659,028
=========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,808 $ 7,568
Accrued liabilities 29,327 16,659
Construction accounts payable 50,427 28,408
Unearned revenue and customer deposits 5,129 3,301
----------- ---------
Total current liabilities 96,691 55,936
----------- ---------
Long-term debt, net of current portion 529,665 362,487
----------- ---------
Commitments and contingent liabilities (Note 5)
Shareholders' equity:
Preferred stock, no par value, 50,000,000 shares authorized; no shares
issued and outstanding
Common stock, no par value, 300,000,000 shares authorized; Class A,
12,948,158 and 0 shares issued and outstanding, respectively, and Class
B, 56,485,792 and 58,047,235 shares
issued and outstanding, respectively 568,719 324,729
Deferred compensation (952)
Deficit (162,899) (84,124)
----------- ---------
Total shareholders' equity 404,868 240,605
----------- ---------
$ 1,031,224 $ 659,028
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
WESTERN WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------------- --------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Subscriber revenues $ 48,724 $ 29,466 $ 127,875 $ 73,017
Roamer revenues 10,419 9,653 26,290 21,620
Equipment sales and other revenue 8,196 3,001 17,778 8,180
------------ ------------ ------------ ------------
Total revenues 67,339 42,120 171,943 102,817
------------ ------------ ------------ ------------
Operating expenses:
Cost of service 14,978 7,758 34,532 19,890
Cost of equipment sales 13,403 5,392 28,195 14,282
General and administrative 17,557 7,820 45,966 20,973
Sales and marketing 24,809 10,782 56,887 27,193
Depreciation and amortization 24,081 14,117 57,515 36,017
------------ ------------ ------------ ------------
Total operating expenses 94,828 45,869 223,095 118,355
------------ ------------ ------------ ------------
Operating loss (27,489) (3,749) (51,152) (15,538)
------------ ------------ ------------ ------------
Other income (expense):
Interest and financing expense, net (11,574) (6,931) (28,588) (18,260)
Other, net 458 (455) 965 55
------------ ------------ ------------ ------------
Total other income (expense) (11,116) (7,386) (27,623) (18,205)
------------ ------------ ------------ ------------
Loss before extraordinary item (38,605) (11,135) (78,775) (33,743)
Extraordinary loss on early extinguishment
of debt (6,645)
------------ ------------ ------------ ------------
Net loss $ (38,605) $ (11,135) $ (78,775) $ (40,388)
============ ============ ============ ============
Loss per common share before extraordinary item $ (0.56) $ (0.19) $ (1.24) $ (0.61)
Per common share effect of extraordinary item (0.12)
------------ ------------ ------------ ------------
Net loss per common share $ (0.56) $ (0.19) $ (1.24) $ (0.73)
============ ============ ============ ============
Weighted average common shares and common
equivalent shares outstanding 69,410,000 59,347,000 63,774,000 55,499,000
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 7
WESTERN WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1996 1995
--------- ---------
<S> <C> <C>
Operating activities:
Net loss $ (78,775) $ (40,388)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 58,730 36,017
Extraordinary loss on early extinguishment of debt 6,645
Employee equity compensation 877
Other, net 836 847
Changes in operating assets and liabilities, net of effects from
consolidating acquired interests:
Accounts receivable, net (10,029) (5,791)
Inventory (13,982) 1,092
Prepaid expenses and other current assets (2,537) (106)
Accounts payable 3,457 (365)
Accrued liabilities 12,281 2,242
Unearned revenue and customer deposits 1,342 2,066
--------- ---------
Net cash provided by (used in) operating activities (27,800) 2,259
--------- ---------
Investing activities:
Purchase of property and equipment (199,925) (42,455)
Purchase of wireless licenses and other (82,118) (135,524)
Acquisition of wireless properties, net of cash acquired (40,079) (57,267)
Investments in and advances to unconsolidated affiliates (2,432) (453)
Purchase of subsidiary stock, including fees (5,843)
Deposit held by FCC, net (23,500)
--------- ---------
Net cash used in investing activities (348,054) (241,542)
--------- ---------
Financing activities:
Proceeds from issuance of common stock, net 235,044 143,059
Additions to long-term debt 632,000 378,000
Payment of debt (465,026) (276,942)
Deferred financing costs (12,735) (12,729)
Loans from shareholders 3,842
--------- ---------
Net cash provided by financing activities 389,283 235,230
--------- ---------
Change in cash and cash equivalents 13,429 (4,053)
Cash and cash equivalents, beginning of period 8,572 7,787
--------- ---------
Cash and cash equivalents, end of period $ 22,001 $ 3,734
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 8
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION:
Western Wireless Corporation (the "Company") provides wireless
communications services in the western United States principally through the
ownership and operation of cellular communications systems. In addition to the
cellular communications systems, the Company has acquired seven personal
communications services ("PCS") licenses covering seven Metropolitan Trading
Areas ("MTAs"). Between February and August 1996, the Company initiated service
in the Honolulu, Salt Lake City, Albuquerque and Portland MTAs. The Company
intends to initiate wireless services in the remaining three MTAs by the end of
the first calendar quarter of 1997.
The Company expects to incur significant operating losses and to
generate negative cash flows from operating activities during the next several
years while it develops and constructs its PCS systems and builds a PCS customer
base.
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 to 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. For further information, refer to
the Company's annual audited financial statements and footnotes thereto for the
year ended December 31, 1995, contained in the Company's Prospectus dated May
22, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Net income (loss) per common share:
Net income (loss) per common share is calculated using the weighted
average number of shares of outstanding common stock and common stock
equivalents during the period. As required by the Securities and Exchange
Commission (the "SEC"), common shares issued by the Company in the year
preceding the filing of an initial public offering have been included in the
calculation of shares used in determining the net income (loss) per share as if
they had been outstanding for the entire period prior to and including the
interim period ended March 31, 1996, the effect of which is anti-dilutive. The
calculation of shares used for periods subsequent to this interim period have
been calculated based on the requirements of Accounting Principles Board Opinion
Number 15. Due to the net loss of the three and nine months ended September 30,
1996, all options and warrants are anti-dilutive, thus primary and fully diluted
loss per share are equal.
Cash and cash equivalents:
Cash and cash equivalents generally consist of cash, time deposits,
commercial paper and money market instruments. The Company invests its excess
cash in deposits with major banks, and money market securities of investment
grade companies from a variety of industries and, therefore, bears minimal risk.
These investments have original maturity dates not exceeding three months. Such
investments are stated at cost, which approximates fair value.
Supplemental cash flow disclosure:
Cash paid for interest (net of amounts capitalized) was $22.7 million
and $14.8 million for the nine months ended September 30, 1996 and 1995,
respectively.
6
<PAGE> 9
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED):
Non-cash investing and financing activities were as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPTEMBER, 30
----------------------
1996 1995
---- ----
<S> <C> <C>
Conversion of revolving debt to term debt....... $200,000
Issuance of common stock in exchange for
wireless properties........................... 7,117
Conversion of FCC deposit to wireless license .. $10,000
Exchange of shareholder loans and accrued
interest for common stock..................... 14,068
</TABLE>
During May 1995, the Company issued 896,210 shares of its common stock
in exchange for minority interests in General Cellular Corporation, the
Company's predecessor corporation.
Capitalized Interest
During the nine months ended September 30, 1996 and 1995, the Company
capitalized interest in the amount of $3.3 million and $0.4 million,
respectively, pertaining to the build out of its PCS markets.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
--------- ---------
<S> <C> <C>
Land, buildings and improvements ......... $ 7,228 $ 2,879
Wireless communications systems .......... 332,641 165,825
Furniture and equipment .................. 34,964 16,273
--------- ---------
374,833 184,977
Less accumulated depreciation ............ (92,136) (53,423)
--------- ---------
282,697 131,554
Construction in progress ................. 99,176 62,138
--------- ---------
$ 381,873 $ 193,692
========= =========
</TABLE>
Depreciation expense was $17.6 million and $8.6 million for the three
months ended September 30, 1996, and 1995, respectively, and $39.0 million and
$22.3 million for the nine months ended September 30, 1996, and 1995,
respectively.
4. LONG-TERM DEBT:
Long-term debt consists of (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------- --------
<S> <C> <C>
Credit Facility ................................ $ 45,000 $374,000
Term Loan ...................................... 200,000
10-1/2% Senior Subordinated Notes Due 2006 ..... 200,000
NORTEL Facility ................................ 82,000 13,000
Other .......................................... 2,665 2,487
-------- --------
$529,665 $362,487
======== ========
</TABLE>
7
<PAGE> 10
Western Wireless Corporation
Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
4. LONG-TERM DEBT - (CONTINUED):
In 1995, the Company entered into a credit facility with a group of
banks (the "Credit Facility"). On May 6, 1996, the Company amended the Credit
Facility to increase the Company's borrowing capacity. The increase took the
form of a $200 million term loan (the "Term Loan") which increased the maximum
total borrowings under the Credit Facility to $950 million. Additionally, the
repayment terms and the related covenant requirements were extended by one year.
In May 1996, the Company sold $200 million principal amount of 10-1/2%
Senior Subordinated Notes Due 2006 (the "2006 Notes"). The 2006 Notes mature on
June 1, 2006. Interest accrues and is payable on each June 1 and December 1,
commencing on December 1, 1996. The 2006 Notes may be redeemed at any time at
the option of the Company, in whole or from time to time in part, at varying
redemption prices. The 2006 Notes contain certain restrictive covenants which
impose limitations on the operations and activities of the Company and certain
of its subsidiaries, including the incurrence of other indebtedness, the
creation of liens, the sale of assets, issuance of preferred stock of
subsidiaries, and certain investments and acquisitions.
The Company incurred costs that were deferred, in the amount of
approximately $12.7 million. These costs, which related to the 2006 Notes
issuance and the amendment to the Credit Facility, are being amortized using the
effective interest method.
A wholly owned subsidiary of the Company has a $200 million credit
facility (the "NORTEL Facility") with Northern Telecom, Inc. ("NORTEL").
At September 30, 1996 the unused portions of the NORTEL Facility and
the Credit Facility were $118 million and $705 million, respectively.
The aggregate amounts of principal maturities of the Company's debt are
as follows (in thousands):
<TABLE>
<S> <C> <C> <C>
Three months ending December 31, 1996 .................... $ 0
Year ending December 31,
1997 ..................................................... 10
1998 ..................................................... 2,528
1999 ..................................................... 45
2000 ..................................................... 12,149
Thereafter ............................................... 514,933
--------
$529,665
========
</TABLE>
8
<PAGE> 11
WESTERN WIRELESS CORPORATION
Notes to Consolidated Financial Statements - (Continued)
(Unaudited)
5. COMMITMENTS AND CONTINGENT LIABILITIES:
Commitments:
During the nine months ended September 30, 1996, the Company entered
into various new leases for PCS and cellular sites under operating lease
agreements.
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, 1996, are summarized below (in thousands):
<TABLE>
<S> <C>
Three months ending December 31, 1996 ..................... $ 3,248
Year ending December 31,
1997 ...................................................... 12,441
1998 ...................................................... 11,204
1999 ...................................................... 9,970
2000 ...................................................... 8,969
THEREAFTER ................................................ 12,497
-------
$58,329
=======
</TABLE>
Purchase commitments:
In order to ensure adequate supply and availability of certain
inventory requirements and service needs, the Company, or a wholly owned
subsidiary, has committed to purchase from various suppliers wireless
communications equipment and services. The aggregate amount of these commitments
total approximately $343.7 million. Of this amount approximately $17 million
must be purchased by December 31, 1996 under one agreement. At September 30,
1996 the Company has ordered approximately $180 million under all of these
agreements, of which approximately $60 million is outstanding. As of September
30, 1996, the $17 million requirement under one agreement has been met.
The Company has various other purchase commitments for materials,
supplies and other items incident to the ordinary course of business. In the
aggregate, such commitments are not at prices in excess of current market value.
Contingent liabilities
The Company is involved in various lawsuits arising in the normal
course of business, none of which is expected to have a material adverse effect
on the Company's financial position, cash flows, liquidity or results of
operations.
6. SHAREHOLDERS' EQUITY:
During the second quarter of 1996, 10,664,800 shares of common stock
were issued and approximately $233.9 million in net proceeds were received by
the Company under a registration statement of the Company's Class A Common Stock
filed with the SEC.
During the third quarter of 1996, the Company issued 38,039 shares of
its common stock and received $0.1 million of net proceeds as a result of vested
employee stock options that were exercised.
9
<PAGE> 12
WESTERN WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
7. ACQUISITIONS:
In June 1996, the Company purchased a Denver MTA PCS wireless license
for approximately $66.1 million in cash. The transaction was accounted for as an
asset purchase.
In June 1996, the Company acquired the operations and the cellular
license for the Kansas 3 RSA for approximately $4.1 million in cash. The
transaction was accounted for using the purchase method.
8. RELATED PARTY TRANSACTIONS:
Goldman, Sachs & Co.:
In connection with the debt and equity offerings during the second
quarter of 1996, the Company paid total underwriting fees of approximately $23.3
million. Goldman, Sachs & Co., an affiliate of a shareholder of the Company, was
the lead underwriter on both offerings.
9. SUBSEQUENT EVENTS:
Issuance of Senior Subordinated Notes:
In October 1996 the Company sold $200 million principal amount of
10-1/2% Senior Subordinated Notes, which will mature on February 1, 2007 (the
"2007 Notes"). Interest on the 2007 Notes accrues and is payable semi-annually
on each February 1 and August 1, with payments commencing February 1, 1997. The
2007 Notes were issued pari passu to the 2006 Notes. As such, the 2007 Notes may
be redeemed at any time at the option of the Company, in whole or from time to
time in part, at varying redemption prices. The 2007 Notes contain certain
restrictive covenants which impose limitations on the operations and activities
of the Company and certain of its subsidiaries, including the incurrence of
other indebtedness, the creation of liens, the sale of assets, issuance of
preferred stock of subsidiaries, and certain investments and acquisitions. The
2007 Notes are subordinate in right of payment to the Credit Facility and the
NORTEL Facility.
In connection with this issuance, the Company expects to incur costs
that will be deferred in the amount of approximately $5.9 million.
10
<PAGE> 13
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. Statements contained in
this Quarterly Report that are not based on historical fact are "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The "Risk Factors" and cautionary statements identifying important
factors that could cause actual results to differ materially from those in the
forward looking statements are detailed in the Company's 1996 prospectuses filed
with the Securities and Exchange Commission.
The following is a discussion and analysis of the consolidated
financial condition and results of operations of the Company and should be read
in conjunction with the Company's consolidated financial statements and notes
thereto and other financial information included herein and in the Company's
prospectuses. As a result of acquisitions, the Company's operating results for
prior periods may not be indicative of future performance.
OVERVIEW
The Company provides wireless communications services in the western
United States through the ownership and operation of cellular communications
systems in 73 Rural Service Areas and Metropolitan Statistical Areas. The
Company has acquired broadband personal communications services ("PCS") licenses
in seven Major Trading Areas ("MTAs"). Through September 30, 1996, the Company
has commenced commercial operations in four of its PCS MTAs. A partnership in
which the Company holds a 49.9% limited partnership interest has acquired
broadband PCS licenses in 14 BTAs. These BTA's are not yet operational.
The Company's revenues primarily consist of subscriber revenues
(including access charges and usage charges), roamer revenues (fees charged for
providing services to subscribers of other cellular communications systems when
such subscribers, or "roamers", place or receive a phone call within one of the
Company's service areas) and equipment sales. The majority of the Company's
revenues are derived from subscriber revenues. The Company had no revenues from
its paging or PCS systems prior to February 1, 1996, and February 29, 1996,
respectively. Revenues from paging systems are included in other revenue and are
expected to account for less than 3% of the Company's total revenues in 1996.
The Company expects to continue to sell cellular and PCS handsets below cost and
regards these losses as a cost of building its subscriber base.
As used herein, "EBITDA" represents operating income (loss) from
operations before interest, taxes and depreciation and amortization. EBITDA is a
measure commonly used in the industry and should not be construed as an
alternative to operating income (loss) (as determined in accordance with
Generally Accepted Accounting Principles, "GAAP"), as an alternative to cash
flows from operating activities (as determined in accordance with GAAP), or as a
measure of liquidity. Cellular EBITDA represents EBITDA from the Company's
cellular operations.
In the comparisons that follow, the Company has separately set forth
certain information relating to cellular operations (including paging) and PCS
operations. The Company believes that this is appropriate because its cellular
systems have been operating for a number of years while its PCS systems did not
commence operations until 1996, although the Company incurred start-up costs
beginning in the third quarter of 1995 in connection with such PCS operations.
11
<PAGE> 14
RESULTS OF OPERATIONS
Results of Operations for the Three Months Ended September 30, 1996,
Compared to Three Months Ended September 30, 1995
The Company had 290,400 cellular subscribers at September 30, 1996.
This represents a net increase of 26,200 or 9.9% growth in subscribers generated
through the Company's distribution channels since June 30, 1996. At September
30, 1995, the Company had 174,400 cellular subscribers representing a net
increase of 22,200 or 14.4% growth in subscribers generated through the
Company's distribution channels from June 30, 1995. The Company had 17,600 PCS
subscribers at September 30, 1996, representing a net increase of 11,200 or
175.0% growth in subscribers from June 30, 1996 generated through the Company's
distribution channels.
REVENUES
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1996 1995
------------------ --------
CELLULAR PCS CELLULAR
-------- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Subscriber revenues .......... $46,475 $2,249 $29,466
Roamer revenues .............. 10,419 9,653
Equipment sales .............. 3,093 3,866 3,001
Other revenues (1) ........... 1,237
------- ------ -------
Total revenues .......... $61,224 $6,115 $42,120
======= ====== =======
</TABLE>
- -------
(1) Primarily revenues from paging services
Cellular subscriber revenues increased to $46.5 million for the three
months ended September 30, 1996, from $29.5 million for the three months ended
September 30, 1995. This $17.0 million or 57.7% increase is primarily due to the
substantial growth in the number of subscribers from the comparable three month
period in 1995, offset by a decline in the average monthly cellular subscriber
revenue per subscriber. Average monthly cellular subscriber revenue per
subscriber was $55.86 for the three months ended September 30, 1996, as compared
to $59.94 for the three months ended September 30, 1995. Historically the
Company has experienced a relatively stable average monthly cellular subscriber
revenue per subscriber, but now is experiencing some decline in that measure
which is consistent with what the cellular industry has shown over the past few
years. The Company anticipates this trend to continue through 1997.
PCS subscriber revenues for the three months ended September 30, 1996,
were $2.2 million. Average monthly PCS subscriber revenue per subscriber was
$64.63 for the three months ended September 30, 1996. As the Company's PCS
operations only began generating revenue during 1996, these results are not
necessarily representative of future operations.
Roamer revenues were $10.4 million for the three months ended September
30, 1996, compared to $9.7 million for the three months ended September 30,
1995, an increase of $0.7 million or 7.9%. Growth in the Company's roamer
revenues generally reflects increases in the Company's geographic coverage and
the general subscriber growth in the industry offset by the decline
in reciprocal per minute roamer rates charged by carriers in the industry.
Roamer revenues as a percentage of total cellular revenues declined to 17.0%
12
<PAGE> 15
for the three months ended September 30, 1996, from 22.9% for the three months
ended September 30, 1995, as a result of the 57.7% growth in subscriber revenues
which exceeded the 7.9% increase in roamer revenues. While the Company expects
total roamer revenues to continue to increase, it expects the trend in its
decline of roamer revenues as a percentage of the total revenues to continue
based upon the above mentioned factors.
OPERATING EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------
1996 1995
----------------------- -------------------
CELLULAR (1) PCS CELLULAR PCS
------------ -------- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cost of service ............. $10,981 $ 3,997 $ 7,758
Cost of equipment sales ..... 6,334 7,069 5,392
General and administrative .. 12,400 5,157 7,043 $777
Sales and marketing ......... 13,706 11,103 10,735 47
Depreciation and amortization 16,386 7,695 14,053 64
------- ------- ------- ----
Total operating expenses $59,807 $35,021 $44,981 $888
======= ======= ======= ====
</TABLE>
---------
(1) Includes expenses attributable to paging services
Cellular Operating Expenses:
Cost of service increased to $11.0 million for the three months ended
September 30, 1996, from $7.8 million for the three months ended September 30,
1995. This increase is primarily attributable to the increased number of
subscribers which resulted in increased costs to access local exchange and long
distance carrier facilities and to maintain the Company's expanding wireless
network. While cost of service increased $3.2 million or 41.5%, it decreased as
a percentage of service revenues to 18.9% for the three months ended September
30, 1996, from 19.8% for the three months ended September 30, 1995, which is due
primarily to efficiencies gained from the growing subscriber base. Service
revenues include subscriber, roamer and other revenues.
General and administrative costs increased to $12.4 million, for the
three months ended September 30, 1996 from $7.0 million for the three months
ended September 30, 1995, an increase of $5.4 million or 76.1%. The Company's
general and administrative costs are principally considered to be variable
costs, that is costs that will vary with the level of subscribers. The increase
is primarily attributable to the increase in costs associated with supporting
the increased subscriber base.
Sales and marketing costs increased to $13.7 million for the three
months ended September 30, 1996, from $10.7 million for the three months ended
September 30, 1995, primarily due to net subscriber additions. Sales and
marketing cost per gross subscriber added declined for the three months ended
September 30, 1996, from the three months ended September 30, 1995. Although
the Company noted a decline in the rate of churn for the three months ended
September 30, 1996, from the three months ended September 30, 1995, the growing
subscriber base resulted in a higher number of disconnected subscribers. This
increase in the number of disconnected subscribers resulted in an increase in
the cost per net subscriber added during the three months ended September 30,
1996 to $523 from $484 for the three months ended September 30, 1995. Including
the losses on equipment sales, the cost per net subscriber added increased
to $647 for the three months ended September 30, 1996 from $591 for the three
months ended September 30, 1995.
13
<PAGE> 16
Depreciation expense increased to $10.6 million for the three months
ended September 30, 1996, from $8.5 million for the three months ended September
30, 1995. This increase of $2.1 million or 24.7%, is attributable to the
continued expansion of the Company's cellular systems. Amortization expense
increased to $5.8 million for the three months ended September 30, 1996, from
$5.5 million for the three months ended September 30, 1995. This $0.3 million or
5.5%, increase is primarily attributable to an increase in gross cellular
licensing costs and other intangible assets.
PCS Operating Expenses:
Total PCS operating expenses increased to $35.0 million for the three
months ended September 30, 1996. A significant portion of each individual
component of PCS operating expenses were start-up costs in the PCS MTAs in which
the Company is not yet operational. Accordingly, the PCS operating expenses are
not representative of future operations.
OPERATING LOSS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------
1996 1995
---------------------- -----------------------
CELLULAR (1) PCS CELLULAR PCS
------------ -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating income (loss) $1,417 $(28,906) $(2,861) $(888)
====== ======== ======= =====
</TABLE>
---------
(1) Includes paging operations
Total operating income (loss) increased to $(27.5) million for the
three months ended September 30, 1996, from $(3.7) million for the three months
ended September 30, 1995, primarily as a result of the $(28.9) million operating
loss attributable to PCS operations offset by the cellular operating income. For
the three months ended September 30, 1996, the Company recognized its second
quarter of cellular operating income of $1.4 million, an increase of $4.3
million from the $(2.9) million loss for the three months ended September 30,
1995, due to increased revenues, which exceeded increases in operating expenses.
OTHER INCOME (EXPENSE)
Interest and financing expense, net of capitalized interest,
increased to $11.6 million for the three months ended September 30, 1996, from
$6.9 million for the three months ended September 30, 1995. The increase of $4.7
million or 68.1%, is primarily attributable to an increase in long-term debt,
which increased to $529.7 million at September 30, 1996, from $302.5 million at
September 30, 1995, to fund the Company's capital expenditures, and the issuance
of its Senior Subordinated Notes at 10-1/2% Due 2006 which were outstanding
during the entire three months ended September 30, 1996. Interest and financing
expense will continue to increase due to the issuance of Senior Subordinated
Notes Due 2007 at 10-1/2% that were issued subsequent to September 30, 1996.
14
<PAGE> 17
EBITDA
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------
1996 1995
-------------------------- ----------------------
CELLULAR (1) PCS CELLULAR PCS
------------ -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
EBITDA............... $17,803 $(21,211) $11,192 $(824)
======= ======== ======= =====
</TABLE>
----------
(1) Includes paging operations
EBITDA declined to $(3.4) million for the three months ended September
30, 1996, from $10.4 million for the three months ended September 30, 1995,
primarily due to the $(21.2) million EBITDA attributable to PCS operations
offset by an increase in cellular EBITDA. Cellular EBITDA increased 59.1% to
$17.8 million for the three months ended September 30, 1996, from $11.2 million
for the three months ended September 30, 1995, primarily as a result of
increased revenues due to the increased subscriber base and the related cost
efficiencies. As a result, cellular operating margin (cellular EBITDA as a
percentage of cellular service revenues) increased to 30.6% for the three months
ended September 30, 1996, from 28.6% for the three months ended September 30,
1995.
Results of Operations for the Nine Months Ended September 30, 1996, Compared to
Nine Months Ended September 30, 1995
The Company had 290,400 cellular subscribers at September 30, 1996.
This represents a net increase of 76,200 or 36.4% growth in subscribers
generated through the Company's distribution channels for the nine months ended
September 30, 1996. At September 30, 1995, the Company had 174,400 cellular
subscribers. The Company had 17,600 PCS subscribers at September 30, 1996.
REVENUES
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------
1996 1995
-------------------- ------------
CELLULAR PCS CELLULAR
-------- ------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Subscriber revenues ..... $124,772 $ 3,103 $ 73,017
Roamer revenues ......... 26,290 21,620
Equipment sales ......... 9,092 5,499 8,180
Other revenues (1) ...... 3,187
-------- ------- -------
Total revenues...... $163,341 $ 8,602 $102,817
======== ======= ========
</TABLE>
(1) Primarily revenues from paging services
Cellular subscriber revenues increased to $124.8 million for the nine
months ended September 30, 1996, from $73.0 million for the nine months ended
September 30, 1995. This $51.8 million or 70.9%, increase is primarily due to
the substantial growth in the number of subscribers from the comparable nine
month period in 1995, offset by a 3.9% decrease in average monthly cellular
subscriber revenue per subscriber to $55.06 in the period ended September 30,
1996, from $57.29 in the period ended September 30, 1995. Historically the
Company has experienced a relatively stable average monthly cellular subscriber
revenue per subscriber, but now is experiencing some decline in that measure
which is consistent with what the cellular industry has shown over the past few
years.
15
<PAGE> 18
PCS subscriber revenues for the nine months ended September 30, 1996
were $3.1 million. Average monthly PCS subscriber revenue per subscriber was
$63.33 for the nine months ended September 30, 1996. As the Company's PCS
operations only began generating revenue during 1996, these results are not
necessarily representative of future operations.
Roamer revenues were $26.3 million for the nine months ended September
30, 1996, compared to $21.6 million for the nine months ended September 30,
1995, an increase of $4.7 million or 21.6%. Growth in the Company's roamer
revenues generally reflects increases in the Company's geographic coverage and
the general subscriber growth in the industry offset by the decline in
reciprocal per minute roamer rates charged by carriers in the industry. Roamer
revenues as a percentage of total cellular revenues declined to 16.1% for the
nine months ended September 30, 1996, from 21.0% for the nine months ended
September 30, 1995, as a result of the 70.9% growth in subscriber revenues,
which exceeded the 21.6% increase in roamer revenues. While the Company expects
total roamer revenues to continue to increase, it expects the trend in its
decline of roamer revenues as a percentage of the total revenues to continue
based upon the above mentioned factors.
OPERATING EXPENSES
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------
1996 1995
----------------------- -------------------
CELLULAR (1) PCS CELLULAR PCS
------------ ------- -------- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cost of service ................ $ 28,958 $ 5,574 $ 19,890
Cost of equipment sales ........ 17,886 10,309 14,282
General and administrative ..... 33,202 12,764 20,196 $777
Sales and marketing ............ 37,523 19,364 27,146 47
Depreciation and amortization .. 47,935 9,580 35,953 64
-------- ------- -------- ----
Total operating expenses .. $165,504 $57,591 $117,467 $888
======== ======= ======== ====
</TABLE>
---------
(1) Includes expenses attributable to paging services
Cellular Operating Expenses:
Cost of service increased to $29.0 million for the nine months ended
September 30, 1996, from $19.9 million for the nine months ended September 30,
1995. This increase is primarily attributable to the increased number of
subscribers which resulted in increased costs to access local exchange and long
distance carrier facilities and maintain the Company's expanding wireless
network. While cost of service increased $9.1 million or 45.6%, it decreased as
a percentage of service revenues to 18.8% for the nine months ended September
30, 1996, from 21.0% for the nine months ended September 30, 1995, which is due
primarily to efficiencies gained from the growing subscriber base. Service
revenues include subscriber, roamer and other revenues.
General and administrative costs increased to $33.2 million for the
nine months ended September 30, 1996, from $20.2 million for the nine months
ended September 30, 1995, an increase of $13.0 million, or 64.4%. The Company's
general and administrative costs are principally considered to be variable
costs, that is costs that vary with the number of subscribers. This increase is
primarily due to the increase in costs associated with supporting the increased
subscriber base.
16
<PAGE> 19
Sales and marketing costs increased to $37.5 million for the nine
months ended September 30, 1996, from $27.1 million for the nine months ended
September 30, 1995, primarily due to net subscriber additions. Sales and
marketing cost per gross subscriber added declined for the nine months ended
September 30, 1996, from the nine months ended September 30, 1995. Although the
Company noted a decline in the rate of churn for the nine months ended
September 30, 1996, from the nine months ended September 30, 1995, the growing
subscriber base resulted in a higher number of disconnected subscribers. This
increase in the number of disconnected subscribers resulted in an increase in
the cost per net subscriber added during the nine months ended September 30,
1996 to $492 from $470 for the nine months ended September 30, 1995. Including
the losses on equipment sales, the cost per net subscriber added increased to
$608 for the nine months ended September 30, 1996 from $576 for the nine months
ended September 30, 1995.
Depreciation expense increased to $30.4 million for the nine months
ended September 30, 1996, from $22.2 million for the nine months ended September
30, 1995. This increase of $8.2 million or 36.9%, is attributable to the
continuing expansion of the Company's cellular systems. Amortization expense
increased to $17.5 million for the nine months ended September 30, 1996, from
$13.7 million for the nine months ended September 30, 1995. This $3.8 million or
27.7%, increase is primarily attributable to an increase in gross cellular
licensing costs and other intangible assets.
PCS Operating Expenses:
Total PCS operating expenses increased to $57.6 million for the nine
months ended September 30, 1996. A significant portion of each individual
component of PCS operating expenses were start-up costs in the PCS MTAs not
operational during all of the nine months ended September 30, 1996. Accordingly
the PCS operating expenses are not representative of future operations.
OPERATING LOSS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------
1996 1995
------------------------ -------------------
CELLULAR (1) PCS CELLULAR PCS
------------ -------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating loss..................... $(2,163) $(48,989) $(14,650) $(888)
======= ======== ======== =====
</TABLE>
---------
(1) Includes paging operations
Total operating loss increased to $51.2 million for the nine months
ended September 30, 1996, from $15.5 million for the nine months ended September
30, 1995, as a result of the $49.0 million operating loss attributable to PCS
operations offset by the reduced cellular operating loss. Cellular operating
loss improved to $2.2 million for nine months ended September 30, 1996, from
$14.7 million for the nine months ended September 30, 1995, due to increased
revenues, which exceeded increases in operating expenses.
OTHER INCOME (EXPENSE)
Interest and financing expense, net of capitalized interest, increased
to $28.6 million for the nine months ended September 30, 1996, from $18.3
million for the nine months ended September 30, 1995. The increase of $10.3
million or 56.6%, is primarily attributable to an increase in long-term debt,
which increased to $529.7 million at September 30, 1996, from $302.5 million at
September 30, 1995, to fund the Company's expansion, and the issuance of its
Senior Subordinated Notes at 10-1/2% Due 2006 which were outstanding during four
months of the nine months ended September 30, 1996. Interest and financing
expense will continue to increase due to the issuance of Senior Subordinated
Notes Due 2007 at 10-1/2% that were issued subsequent to September 30, 1996.
17
<PAGE> 20
EBITDA
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------
1996 1995
-------------------------- -----------------------
CELLULAR (1) PCS CELLULAR PCS
------------ -------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
EBITDA ............ $ 45,772 $(39,409) $21,303 $(824)
======== ======== ======= =====
</TABLE>
(1) Includes paging operations
Total EBITDA decreased to $6.4 million for the nine months ended
September 30, 1996, from $20.5 million for the nine months ended September 30,
1995, as a result of increased cellular EBITDA offset by the $(39.4) million
EBITDA attributable to PCS operations. Cellular EBITDA increased 114.9% to $45.8
million for the nine months ended September 30, 1996, from $21.3 million for the
nine months ended September 30, 1995, primarily as a result of increased
revenues due to the increased subscriber base and the related cost efficiencies.
As a result, cellular operating margin (cellular EBITDA as a percentage of
cellular service revenues) increased to 29.7% for the nine months ended
September 30, 1996, from 22.5% for the nine months ended September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's initial public offering of common stock (the "Equity
Offering") became effective on May 22, 1996. Approximately 12.7 million shares
of common stock were sold to the public, of which approximately 10.7 million
shares were sold by the Company. The net proceeds to the Company of the Equity
Offering were approximately $233.9 million. Simultaneously with the Equity
Offering, the Company sold $200 million of senior subordinated debt due 2006
(the "2006 Debt Offering") on the public market. The net proceeds to the Company
of the debt offering after the underwriting discount, but before other offering
expenses, were approximately $194 million. In October 1996 the Company sold $200
million of senior subordinated debt due 2007 (the "2007 Debt Offering" and
together with the Equity Offering and the 2006 Debt Offering are collectively
known as the "Offerings") in a transaction exempt from registration under the
Securities Act of 1933. Currently the Company is offering to exchange the
unregistered notes issued under the 2007 Debt Offering for notes which have been
subsequently registered under the Securities Act of 1933. The net proceeds to
the Company from the 2007 Debt Offering after the underwriting discount, but
before other offering expenses, were approximately $194 million.
The Company has a credit facility (the "Credit Facility") with a
consortium of lenders providing for $750 million of revolving credit and a $200
million term loan. A subsidiary of the Company also has a $200 million credit
facility (the "NORTEL" Facility and, together with the Credit Facility, the
"Senior Secured Facilities") with Northern Telecom Inc. ("NORTEL"). As of
September 30, 1996, $245.0 million and $82.0 million were outstanding under the
Credit Facility and the NORTEL Facility, respectively, and the amounts available
for borrowing under the Credit Facility and the NORTEL Facility were $313.9
million and $25.7 million, respectively. Indebtedness under the Credit Facility
and the NORTEL Facility matures on March 31, 2005, and December 31, 2003,
respectively, and bears interest at variable rates. Substantially all the assets
of the Company are pledged as security for such indebtedness.
18
<PAGE> 21
The Company currently anticipates that it will require approximately
$350 million to complete the build-out of its PCS systems through the end of
1998, and will require additional funds to finance the continued growth of its
cellular operations, provide for working capital, service debt and finance
potential acquisitions. The Company believes that the proceeds from its
Offerings, together with the availability of financing under the Senior Secured
Facilities will be sufficient to fund operating losses, capital expenditures and
working capital necessary for the build-out of its PCS systems and the continued
growth of its cellular operations through December 1998, although to the extent
that the build-out of the PCS systems or the marketing costs incurred in
connection with PCS customer growth are faster than expected, or if the Company
takes advantage of acquisition opportunities, the Company may require additional
funding to implement its business strategy.
Net cash used in operating activities for the nine months ended
September 30, 1996, was $27.8 million. Adjustments to the $78.8 million net loss
for such period to reconcile to net cash used in operating activities consisted
of $58.7 million of depreciation and amortization. Other offsets included
changes in operating assets and liabilities, net of effects from consolidating
acquired interests, consisting primarily of a increase of $10.0 million in
accounts receivable primarily as a result of increased subscriber base and an
increase of $14.0 million in inventories as a result of the purchase of PCS
handsets. Net cash provided by operating activities was $2.3 million for the
nine months ended September 30, 1995. Adjustments to the $40.4 million net loss
for such period to reconcile to net cash used in operating activities consisted
primarily of $36.0 million of depreciation and amortization and $6.6 million of
extraordinary loss on the early extinguishment of debt.
Net cash used in investing activities was $348.1 million for the nine
months ended September 30, 1996. Investing activities for such period consisted
primarily of purchases of wireless licenses and other of $82.1 million of which
$66.1 million was attributable to the purchase of the Denver PCS MTA, purchases
of property and equipment of $199.9 million of which $130.4 million was
attributable to PCS capital expenditures and acquisitions of wireless
properties, net of cash acquired which used cash of $40.1 million. Net cash used
in investing activities was $241.5 million the nine months ended September 30,
1995, the majority of which was comprised of the purchase of the Company's PCS
licenses.
Net cash provided by financing activities was $389.3 million for the
nine months ended September 30, 1996. Financing activities for such period
consisted primarily of additions to long-term debt, which provided cash of
$154.3 million net of $465.0 million in repayments and $12.7 million in fees and
the issuance of stock, primarily under the Equity Offering, which provided cash
of $235.0 million. Net cash provided by financing activities was $235.2 million
for the nine months ended September 30, 1995.
The Company holds a 49.9% limited partnership interest in Cook Inlet
Western Wireless PV/SS PCS, L.P. ("Cook Inlet PCS"), an entity which was the
high bidder for licenses in 13 Basic Trading Areas ("BTAs") in the Federal
Communications Commission's ("FCC") C Block auctions. During a subsequent
reauction by the FCC of certain C Block BTAs during July 1996, Cook Inlet PCS
was the high bidder on one additional BTA. Cook Inlet PCS is subject to the
FCC's Five Year Build-Out Requirement and will require significant additional
amounts to complete the build-out of its PCS systems and to meet the government
debt service requirements on the license purchase prices. The potential sources
of such additional amounts include vendor loans, loans or capital contributions
by the partners of Cook Inlet PCS or other third party financing. There are no
current agreements with respect thereto.
In the ordinary course of business, the Company continuously reviews
potential acquisition opportunities and has entered into various joint
development agreements with respect to international interests. Any such
prospective acquisitions would be financed with the proceeds from the Offerings,
borrowings under the Senior Secured Facilities or additional financing.
19
<PAGE> 22
SEASONALITY
The Company, and the wireless communications industry in general, have
historically experienced significant subscriber growth during the fourth
calendar quarter. Accordingly, during such quarter the Company experiences
greater losses on equipment sales and increases in sales and marketing expenses.
The Company has historically experienced highest usage and revenue per
subscriber during the summer months. The Company expects these trends to
continue.
20
<PAGE> 23
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material, pending legal proceedings to which the Company 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 a material adverse
effect on the Company.
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.
21
<PAGE> 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibit Description
------- -----------
<S> <C>
10.40* Second Amendment to Block "C" Organization and Financing
Agreement and Cook Inlet Western Wireless PV/SS PCS L.P.
Limited Partnership Agreement by and among Western PCS BTA I
Corporation, Western Wireless Corporation, Cook Inlet PV/SS PCS
Partners, L.P., Cook Inlet Telecommunications Inc., SSPCS
Corporation and Providence Media Partners L.P. dated as of June
27, 1996.
10.41* Third Amendment to Block "C" Organization and Financing
Agreement and Cook Inlet Western Wireless PV/SS PCS L.P.
Limited Partnership Agreement by and among Western PCS BTA I
Corporation, Western Wireless Corporation, Cook Inlet PV/SS PCS
Partners, L.P., Cook Inlet Telecommunications Inc., SSPCS
Corporation and Providence Media Partners L.P. dated as of July
30, 1996.
10.42* General Agreement for Purchase of Cellular Systems between
Lucent Technologies Inc. and Western Wireless Corporation,
dated September 16, 1996.
10.43* Amendment No. 1 to PCS 1900 Supply Agreement between Western
PCS Corporation and Northern Telecom Inc., dated July 25, 1996.
10.44* Amendment No. 2 to PCS 1900 Supply Agreement between Western
PCS Corporation and Northern Telecom Inc., dated July 25, 1996.
27.1 Financial Data Schedule
</TABLE>
* Incorporated herein by reference to the exhibit filed with the
Registrant's Registration Statement on Form S-4 (Commission File No.
333-14859)
(b) Reports on Form 8-K
None.
22
<PAGE> 25
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.
Western Wireless Corporation
By /s/ Theresa E. Gillespie By /s/ Nastashia Stoneman Press
---------------------------- --------------------------------
Theresa E. Gillespie Nastashia Stoneman Press
Chief Financial Officer Principal Accounting Officer
Dated: November 14, 1996
23
