<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 2000
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 (IRS Employer Identification No.)
of incorporation or organization)
3650 131ST AVENUE S.E.,
BELLEVUE, WASHINGTON 98006
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(425) 586-8700
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Title Shares Outstanding as of August 7, 2000
---------------------------------- ---------------------------------------
<S> <C>
Class A Common Stock, no par value 70,889,379
Class B Common Stock, no par value 7,075,059
</TABLE>
<PAGE> 2
WESTERN WIRELESS CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Condensed Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999................................. 3
Condensed Consolidated Statements of Operations and Comprehensive Loss
for the Three and Six Months Ended June 30, 2000 and June 30, 1999.............................................. 4
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2000 and June 30, 1999........................................................ 5
Notes to Condensed Consolidated Financial Statements............................................................ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................... 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................................... 18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS............................................................................................... 19
ITEM 2. CHANGES IN SECURITIES........................................................................................... 19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................................................................. 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................................. 19
ITEM 5. OTHER INFORMATION............................................................................................... 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................................ 19
</TABLE>
2
<PAGE> 3
WESTERN WIRELESS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30,
2000 December 31,
(Unaudited) 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,999 $ 42,735
Accounts receivable, net of allowance for doubtful accounts of
$12,176 and $11,199, respectively 86,935 75,846
Inventory 9,654 9,680
Prepaid expenses and other current assets 20,371 27,358
Receivable from VoiceStream Wireless 2,984
----------- -----------
Total current assets 130,959 158,603
Property and equipment, net of accumulated depreciation
of $328,224 and $277,167, respectively 459,899 369,543
Licensing costs and other intangible assets, net of accumulated
amortization of $101,753 and $99,051, respectively 896,288 771,510
Investments in and advances to unconsolidated affiliates 31,542 55,918
Other assets 10,988
----------- -----------
$ 1,529,676 $ 1,355,574
=========== ===========
LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
Accounts payable $ 14,867 $ 11,930
Accrued liabilities and other 88,361 68,069
Construction accounts payable 8,715 8,825
----------- -----------
Total current liabilities 111,943 88,824
----------- -----------
Long-term debt 1,592,066 1,450,000
----------- -----------
Minority interest in consolidated subsidiaries 16,342 1,435
----------- -----------
Commitments and contingencies (Note 4)
Net capital deficiency:
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,
70,856,787 and 70,431,554 shares issued and outstanding, respectively,
and; Class B, 7,075,374 and 7,177,302 shares issued
and outstanding, respectively 689,591 690,953
Deferred compensation (11,398) (17,389)
Accumulated other comprehensive loss (10,940) (4,644)
Deficit (857,928) (853,605)
----------- -----------
Total net capital deficiency (190,675) (184,685)
----------- -----------
$ 1,529,676 $ 1,355,574
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE> 4
WESTERN WIRELESS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Subscriber revenues $ 114,793 $ 95,268 $ 221,516 $ 182,202
Roamer revenues 54,503 34,431 99,152 57,681
Equipment sales and other revenues 13,635 6,852 21,574 12,531
------------ ------------ ------------ ------------
Total revenues 182,931 136,551 342,242 252,414
------------ ------------ ------------ ------------
Operating expenses:
Cost of service 25,536 15,448 44,202 30,952
Cost of equipment sales 10,304 8,061 20,227 15,824
General and administrative 39,195 28,848 76,629 55,552
Sales and marketing 29,858 22,446 58,006 43,906
Depreciation and amortization 30,176 26,604 59,919 49,045
Stock based compensation 5,470 66,496 8,500 66,496
------------ ------------ ------------ ------------
Total operating expenses 140,539 167,903 267,483 261,775
------------ ------------ ------------ ------------
Operating income (loss) 42,392 (31,352) 74,759 (9,361)
------------ ------------ ------------ ------------
Other income (expense):
Interest and financing expense, net (33,952) (23,504) (65,665) (46,800)
Equity in net loss of unconsolidated affiliates (691) (2,924) (486) (7,685)
Other, net (1,022) 1,380 (899) 2,027
------------ ------------ ------------ ------------
Total other expense (35,665) (25,048) (67,050) (52,458)
------------ ------------ ------------ ------------
Minority interest in consolidated subsidiaries 195 747 345 939
------------ ------------ ------------ ------------
Net income (loss) from continuing operations 6,922 (55,653) 8,054 (60,880)
------------ ------------ ------------ ------------
Net (loss) from discontinued operations 7,709 (82,152)
Cost of discontinuance (18,500)
------------ ------------
Total discontinued operations 7,709 (100,652)
Extraordinary loss on early extinguishment of debt (12,377) (12,377)
------------ ------------ ------------ ------------
Net loss $ (5,455) $ (47,944) $ (4,323) $ (161,532)
============ ============ ============ ============
Basic income (loss) per share:
Continuing operations $ 0.09 $ (0.73) $ 0.10 $ (0.79)
Discontinued operations 0.10 (1.31)
Extraordinary item (0.16) (0.16)
------------ ------------ ------------ ------------
Basic loss per share $ (0.07) $ (0.63) $ (0.06) $ (2.10)
============ ============ ============ ============
Diluted income (loss) per share:
Continuing operations $ 0.09 $ (0.73) $ 0.10 $ (0.79)
Discontinued operations 0.10 (1.31)
Extraordinary item (0.16) (0.15)
------------ ------------ ------------ ------------
Diluted loss per share $ (0.07) $ (0.63) $ (0.05) $ (2.10)
============ ============ ============ ============
Weighted average shares outstanding:
Basic 77,848,000 76,611,000 77,789,000 76,734,000
============ ============ ============ ============
Diluted 80,287,000 76,611,000 80,309,000 76,734,000
============ ============ ============ ============
Comprehensive loss:
Net loss $ (5,455) $ (47,944) $ (4,323) $ (161,532)
Other comprehensive loss:
Foreign currency translation (1,130) (333) (6,296) (181)
------------ ------------ ------------ ------------
Total comprehensive loss $ (6,585) $ (48,277) $ (10,619) $ (161,713)
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE> 5
WESTERN WIRELESS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Operating activities:
Net loss $ (4,323) $ (161,532)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Net loss from discontinued operations 82,152
Extraordinary loss on early extinguishment of debt 12,377
Depreciation and amortization 61,656 50,729
Stock based compensation 8,500 66,496
Equity in net loss of unconsolidated affiliates 486 7,685
Minority interest in consolidated subsidiaries (345) (939)
Changes in operating assets and liabilities, net of effects
from consolidating acquired interests 4,906 (25,151)
----------- -----------
Net cash provided by operating activities 83,257 19,440
----------- -----------
Investing activities:
Purchase of property and equipment (127,649) (59,670)
Additions to licensing costs and other intangible assets (22,362) (1,573)
Acquisition of wireless properties, net of cash acquired (90,782) (124,318)
Investments in and advances to unconsolidated affiliates (6,329) (10,408)
Proceeds from repayment of advances to discontinued subsidiary 3,438 21,588
Return of investment from VoiceStream Wireless 20,000
----------- -----------
Net cash used in investing activities (243,684) (154,381)
----------- -----------
Financing activities:
Proceeds from issuance of common stock, net 1,691 3,089
Additions to long-term debt 1,280,000 135,000
Repayment of long-term debt (1,150,000)
----------- -----------
Net cash provided by financing activities 131,691 138,089
----------- -----------
Change in cash and cash equivalents (28,736) 3,148
Cash and cash equivalents, beginning of period 42,735 2,192
----------- -----------
Cash and cash equivalents, end of period $ 13,999 $ 5,340
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements
5
<PAGE> 6
WESTERN WIRELESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION:
Western Wireless Corporation (the "Company") provides wireless
communications services in the United States principally through the ownership
and operation of cellular systems. The Company provides cellular operations
primarily in rural areas in 19 western states under the Cellular One(R)
("Cellular One") brand name.
A wholly owned subsidiary of the Company, WWC Holding Co, Inc.,
("Holding Co.") owns 96% of Western Wireless International Corporation ("WWI")
who, through operating joint ventures, is a provider of wireless communications
services worldwide.
The condensed consolidated balance sheet as of December 31, 1999, has
been derived from audited financial statements. The unaudited interim condensed
financial statements dated June 30, 2000, are presented herein, but reflect all
adjustments, which are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations and cash flows for
the periods presented. All such adjustments are of a normal recurring nature.
Results of operations for interim periods presented herein are not necessarily
indicative of results of operations for the entire year. For further
information, refer to the Company's annual audited financial statements and
footnotes thereto for the year ended December 31, 1999, contained in the
Company's Form 10-K dated March 20, 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation:
The condensed consolidated financial statements include the accounts of
the Company, its wholly owned subsidiaries and its affiliate investments in
which the Company has a greater than 50% interest. All affiliate investments in
which the Company has between a 20% and 50% interest are accounted for using the
equity method. All significant intercompany accounts and transactions have been
eliminated. As of June 30, 2000, the Company consolidates four of WWI's joint
ventures: Ireland, Haiti, Ghana and Bolivia.
Supplemental cash flow disclosure:
Cash paid for interest was $60.6 million and $45.6 million for the six
months ended June 30, 2000, and June 30, 1999, respectively.
Reclassifications:
Certain amounts in prior years' financial statements have been
reclassified to conform to the 2000 presentation.
Recently issued accounting standards:
In March 2000, the Financial Accounting Standards Board ("FASB")
released FASB Interpretation No. 44 ("FIN 44"), "Accounting for Certain
Transactions Involving Stock Compensation - an interpretation of APB Opinion No.
25." This interpretation provides for the clarification of the application of
APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") on
certain issues, such as (i) the definition of an `employee' for purposes of
applying the APB 25, (ii) the criteria for determining whether a plan qualifies
as a noncompensatory plan, (iii) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award and (iv)
the accounting for an exchange of stock compensation awards in a business
combination. The Company accounts for its Management Incentive Stock Option Plan
and Employee Stock Purchase Plan following the guidelines of APB 25 and related
interpretations. The interpretation is not expected to have a material impact on
the Company's financial position or results of operations.
In December 1999, the SEC released Staff Accounting Bulletin No.
101("SAB 101"), "Revenue Recognition in Financial Statements." This bulletin
establishes more clearly defined revenue recognition criteria than previously
existing accounting pronouncements and specifically addresses revenue
recognition requirements for nonrefundable fees, such as activation fees,
collected by a company upon entering into an arrangement with a customer. On
March 24, 2000, Staff Accounting Bulletin No. 101A - Amendment ("SAB 101A") was
released to effectively delay the implementation of SAB 101 until second fiscal
quarter of the fiscal year beginning after December 15, 1999. On June 26, 2000,
Staff Accounting Bulletin No. 101B - Second Amendment ("SAB 101B") was issued
and amends the transition provisions of SAB 101 and effectively supersedes the
original extension provided for in SAB 101A. SAB 101B further delays the
required implementation date for SAB 101 until the quarter ending December 31,
2000. We are currently evaluating the impact of this bulletin on our financial
position and results of operations.
6
<PAGE> 7
WESTERN WIRELESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133, as amended by SFAS No. 138, issued in June 2000,
establishes accounting and reporting standards for derivative instruments,
hedging activities, and exposure definition. SFAS No. 133 requires an entity to
recognize all derivatives as either assets or liabilities and the measurement of
those instruments at fair value. In June 1999, SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133," postpones for one year the mandatory effective date for
adoption of SFAS No. 133 to January 1, 2001. The implementation of SFAS No. 133
is not expected to have a material impact on the Company's financial position or
results of operations.
3. LONG-TERM DEBT:
<TABLE>
<CAPTION>
(Dollars in thousands) JUNE 30, DECEMBER 31,
2000 1999
---------- ----------
<S> <C> <C>
Credit Facility:
Revolvers $ 80,000 $ 750,000
Term Loans 1,100,000 200,000
Additional Facility 100,000
10-1/2% Senior Subordinated Notes Due 2006 200,000 200,000
10-1/2% Senior Subordinated Notes Due 2007 200,000 200,000
Other 12,066
---------- ----------
$1,592,066 $1,450,000
========== ==========
</TABLE>
Credit Facility:
The Company began the quarter with a $1.2 billion credit facility with a
consortium of lenders (the "Credit Facility"), in the form of a $750 million
revolving credit loan and a $450 million in term loans.
On April 25, 2000 (the "Agreement Date"), the Company refinanced the
Credit Facility with a new credit facility (the "New Credit Facility"). The
aggregate amount available under the New Credit Facility is $2.1 billion
consisting of: (i) a $500 million term loan ("Term Loan A"); (ii) a $600 million
term loan ("Term Loan B"); and (iii) two $500 million revolving loans ("Revolver
A" and "Revolver B"). Proceeds from the New Credit Facility were used to repay
the Company's existing Credit Facility. The Company recognized an extraordinary
loss for the quarter ending June 30, 2000, of $12.4 million for the impairment
of existing deferred financing costs relating to the Company's previous Credit
Facility.
Under the terms of Revolver A, Revolver B and Term Loan A, the Company
is required to make quarterly payments on the outstanding principal balance
beginning March 31, 2003. These payments typically tend to increase on the
anniversary date of the initial payment, until paid in full on March 31, 2008.
Any unused portion of Revolver B expires one year from the Agreement Date. Under
the terms of Term Loan B, the Company is required to make small quarterly
payments on the outstanding principal balance beginning March 31, 2003, with a
balloon payment due September 30, 2008. The New Credit Facility contains certain
financial covenants, including limitations on the amount of indebtedness,
certain investments, and restricted payments.
Under the New Credit Facility, interest is payable at an applicable
margin in excess of a prevailing base rate. The prevailing rate is based on the
prime rate or the Eurodollar rate. The applicable margin for Revolver A,
Revolver B and Term Loan A is determined quarterly based on the leverage ratio
of the Company. The applicable margin on Term Loan B is 2.75% for Eurodollar
advances. The Company typically borrows under the Eurodollar rate. The New
Credit Facility also provides for an annual fee ranging from 0.25% to 0.50% on
any undrawn commitment of Revolver A and Revolver B, payable quarterly.
The New Credit Facility requires the Company to enter into interest rate
hedge agreements to manage its exposure to interest rate fluctuations.
10-1/2% Senior Subordinated Notes Due 2006:
In May 1996, the Company issued at par $200 million of 10-1/2% Senior
Subordinated Notes that mature on June 1, 2006 (the "2006 Notes"). Interest is
payable semi-annually. 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 2006 Notes are subordinate in right of
payment to the New Credit Facility.
7
<PAGE> 8
WESTERN WIRELESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10-1/2% Senior Subordinated Notes Due 2007:
In October 1996, the Company issued at par $200 million of 10-1/2%
Senior Subordinated Notes that mature on February 1, 2007 (the "2007 Notes").
Interest is payable semi-annually. 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 that are consistent
with that of the 2006 Notes. The 2007 Notes are subordinate in right of payment
to the New Credit Facility.
The aggregate amounts of principal maturities as of June 30, 2000, are
as follows (dollars in thousands):
<TABLE>
<S> <C>
Six months ending December 31, 2000 $ 0
Year ending December 31,
2001 0
2002 0
2003 64,000
2004 93,000
Thereafter 1,435,066
--------------
$ 1,592,066
==============
</TABLE>
4. COMMITMENTS AND CONTINGENCIES:
In order to ensure an adequate supply and availability of certain
wireless system equipment requirements and service needs, the Company has
committed to purchase from various suppliers, wireless communications equipment
and services. These agreements expire at various dates through 2002. The
aggregate amount of these commitments totals approximately $350 million. At June
30, 2000, the Company has ordered approximately $88 million under these
agreements, of which approximately $24 million is awaiting delivery.
The Company has entered into purchase agreements to buy hardware,
software, and consulting services in the aggregate of $18.5 million relating to
the implementation of a new billing system. As of June 30, 2000, approximately
$9.0 million has been paid toward these commitments.
5. INCOME (LOSS) PER COMMON SHARE:
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share," requires two presentations of income per share - "basic" and "diluted."
Basic income per share is computed by dividing income available to shareholders
(the numerator) by the weighted-average number of shares (the denominator) for
the period. The computation of diluted income per share is similar to basic
income per share, except that the denominator is increased to include the number
of additional shares that would have been outstanding if the potentially
dilutive shares, such as options, had been issued. The treasury stock method is
used to calculate dilutive shares that reduce the gross number of dilutive
shares by the number of shares purchasable from the proceeds of the options
assumed to be exercised.
Income (loss) per share is calculated using the weighted average number
of shares of outstanding stock during the period. For those periods presented
with a net loss, the options outstanding are anti-dilutive, thus basic and
diluted loss per share are equal.
8
<PAGE> 9
WESTERN WIRELESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The components of basic and diluted income (loss) per share are as
follows:
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------------- ----------------------------------
2000 1999 2000 1999
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) from $ 6,922 $ (55,653) $ 8,054 $ (60,880)
continuing operations
Total discontinued operations 7,709 (100,652)
Extraordinary loss on early
extinguishments of debt (12,377) (12,377)
-------------- -------------- -------------- --------------
Net loss $ (5,455) $ (47,944) $ (4,323) $ (161,532)
============== ============== ============== ==============
Denominator:
Weighted-average shares:
Basic 77,848,000 76,611,000 77,789,000 76,734,000
Effect of dilutive securities:
Dilutive options 2,439,000 2,520,000
-------------- -------------- -------------- --------------
Weighted-average shares:
Diluted 80,287,000 76,611,000 80,309,000 76,734,000
============== ============== ============== ==============
Basic income (loss) per share:
Continuing operations $ 0.09 $ (0.73) $ 0.10 $ (0.79)
Discontinued operations 0.10 (1.31)
Extraordinary item (0.16) (0.16)
-------------- -------------- -------------- --------------
Basic loss per share $ (0.07) $ (0.63) $ (0.06) $ (2.10)
============== ============== ============== ==============
Diluted income (loss) per share:
Continuing operations $ 0.09 $ (0.73) $ 0.10 $ (0.79)
Discontinued operations 0.10 (1.31)
Extraordinary item (0.16) (0.15)
-------------- -------------- -------------- --------------
Diluted loss per share $ (0.07) $ (0.63) $ (0.05) $ (2.10)
============== ============== ============== ==============
</TABLE>
6. ACQUISITIONS:
All of the following acquisitions were, or will be, accounted for using
the purchase method of accounting. Substantially the entire purchase price of
each of the acquisitions was, or will be, allocated to licensing costs.
In July 2000, the Company signed an agreement to acquire the assets
associated with the Arizona 4 and California 7 Rural Service Areas (RSA) for an
aggregate amount of approximately $202.5 million in cash. The purchases are
pending approval from the FCC, and are expected to close in the fourth quarter
of 2000.
In July 2000, the Company completed the purchase of the Oklahoma 4 RSA
for approximately $60 million.
In May 2000, the Company completed the purchases of the Wyoming 1 RSA
for approximately $46 million, and the Arizona 6 RSA for approximately $20.2
million.
In January 2000, the Company completed the purchase of the Utah 5 RSA
for approximately $25 million in cash and $5 million in seller subordinate debt.
7. RELATED PARTY TRANSACTIONS:
The financial statements include an allocation of certain centralized
costs to VoiceStream Wireless Corporation ("VoiceStream") and its affiliates,
prior to and subsequent to the spin-off of VoiceStream. Such centralized items
include the costs of shared senior management, customer care operations and
certain domestic back office functions. These costs have been allocated to
VoiceStream and its affiliates in a manner that reflects the relative time
devoted to each. For the three months ended June 30, 2000 and 1999, the Company
allocated to VoiceStream and its affiliates costs of $0.2 million and $2.4
million, respectively, and $0.4 million and $7.2 million for the six months
ended June 30, 2000 and 1999, respectively.
9
<PAGE> 10
WESTERN WIRELESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. SEGMENT INFORMATION:
The Company's operations consist of both domestic and international
operations. The Company mainly provides cellular services in rural markets in
the western United States. The Company's international operations consist of
both consolidated and unconsolidated joint ventures throughout the world.
Certain centralized back office costs and assets benefit all of the Company's
domestic and international operations. These costs are allocated to both
segments in a manner, which reflects the relative time devoted to each of the
segments.
The domestic cellular operations comprise substantially all of the
Company's consolidated revenues and the majority of the Company's expenses and
total assets, as outlined in the table below:
<TABLE>
<CAPTION>
(Dollars in thousands) DOMESTIC INTERNATIONAL
OPERATIONS OPERATIONS CONSOLIDATED
----------- ----------- ------------
<S> <C> <C> <C>
THREE MONTHS ENDED JUNE 30, 2000
Total revenues $ 177,745 $ 5,186 $ 182,931
Total operating expenses 129,906 10,633 140,539
Operating income (loss) 47,839 (5,447) 42,392
SIX MONTHS ENDED JUNE 30, 2000
Total revenues $ 337,054 $ 5,188 $ 342,242
Total operating expenses 254,251 13,232 267,483
Operating income (loss) 82,803 (8,044) 74,759
Total assets 1,417,312 112,364 1,529,676
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands) DOMESTIC INTERNATIONAL
OPERATIONS OPERATIONS CONSOLIDATED
----------- ----------- ------------
<S> <C> <C> <C>
THREE MONTHS ENDED JUNE 30, 1999
Total revenues $ 136,551 $ 136,551
Total operating expenses 166,120 $ 1,783 167,903
Operating loss (29,569) (1,783) (31,352)
SIX MONTHS ENDED JUNE 30, 1999
Total revenues $ 252,414 $ 252,414
Total operating expenses 259,650 $ 2,125 261,775
Operating loss (7,236) (2,125) (9,361)
</TABLE>
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
LITIGATION REFORM ACT OF 1995. Statements contained herein that are not based on
historical fact, including without limitation statements containing the words
"believes," "may," "will," "estimate," "continue," "anticipates," "intends,"
"expects" and words of similar import, constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, events or developments to be
materially different from any future results, events or developments expressed
or implied by such forward-looking statements. Such factors include, among
others, the following: general economic and business conditions, both nationally
and in the regions in which Western Wireless Corporation (the "Company")
operates; technology changes; competition; changes in business strategy or
development plans; the high leverage of the Company; the ability to attract and
retain qualified personnel; existing governmental regulations and changes in, or
the failure to comply with, governmental regulations; liability and other claims
asserted against the Company; and other factors referenced in the Company's
filings with the Securities and Exchange Commission. Given these uncertainties,
readers are cautioned not to place undue reliance on such forward-looking
statements. The Company disclaims any obligation to update any such factors or
to publicly announce the result of any revisions to any of the forward-looking
statements contained herein to reflect future results, events or developments.
The following is a discussion and analysis of the consolidated financial
condition and results of operations of the Company and should be read in
conjunction with the Company's condensed consolidated financial statements and
notes thereto and other financial information included herein and in the
Company's annual report on Form 10-K for the year ended December 31, 1999.
OVERVIEW
Western Wireless (the "Company") provides cellular communications
services in 19 western states under the Cellular One(R) ("Cellular One") brand
name principally through the ownership and operation of cellular wireless
systems. The operations are primarily in rural areas due to the Company's belief
that there are certain strategic advantages to operating in these areas. The
Company owns FCC licenses to provide such services in 103 Rural Service Areas
and Metropolitan Statistical Areas in the United States.
A wholly owned subsidiary of the Company, WWC Holding Co., Inc. owns 96%
of Western Wireless International Corporation ("WWI") who, through operating
joint ventures, is a provider of wireless communications services worldwide. WWI
owns wireless licenses in nine foreign countries and currently has a controlling
interest in four of these countries: Ghana, Haiti, Ireland and Bolivia. Of the
Company's four consolidated subsidiaries, WWI anticipates launching operations
in Ireland and Bolivia during the fourth quarter of 2000. As of June 30, 2000,
WWI interests covered a proportional population of approximately 28.6 million
and had approximately 110,000 proportional subscribers. An operational status by
country follows:
<TABLE>
<CAPTION>
CONSOLIDATED INVESTMENTS EQUITY INVESTMENTS
------------------------ ------------------
Country Status Country Status
------- ------ ------- ------
<S> <C> <C> <C>
Ghana Operating Latvia Operating
Haiti Operating Georgia Operating
Bolivia Under Construction Croatia Operating
Ireland (1) Under Construction Iceland Operating
Ivory Coast Under Construction
</TABLE>
(1) During the fourth quarter of 1999, the Irish High Court remanded to
the Office of the Director of Telecommunication Regulation ("ODTR") its decision
that ranked Meteor Mobile Communications Ltd ("MMC") number one in a bid for a
third mobile phone license in Ireland. The court found that the ODTR may have
shown bias in its decision to rank MMC number one in the bid process and
therefore the decision of the regulator may have been unreasonable. MMC and the
ODTR appealed this ruling to the Irish Supreme Court. On May 18, 2000, the court
upheld the regulator's decision and Meteor was granted its license on June 19,
2000. The ruling has allowed WWI to proceed with network build out and planned
launch during the fourth quarter of 2000.
11
<PAGE> 12
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
The Company had 930,500 subscribers at June 30, 2000, representing an
increase of 55,800 or 6.4% from March 31, 2000. The Company had 737,600
subscribers at June 30, 1999, representing an increase of 42,100 or 6.1% from
March 31, 1999.
The following table sets forth certain financial data as it relates
to the Company's operations:
<TABLE>
<CAPTION>
(Dollars in thousands) THREE MONTHS ENDED JUNE 30,
---------------------------------------------
2000 % CHANGE 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Subscriber revenues $ 114,793 20.5% $ 95,268
Roamer revenues 54,503 58.3% 34,431
Equipment sales and other
revenues 13,635 99.0% 6,852
----------- -----------
Total revenues $ 182,931 $ 136,551
Operating expenses:
Cost of service $ 25,536 65.3% $ 15,448
Cost of equipment sales 10,304 27.8% 8,061
General and administrative 39,195 35.9% 28,848
Sales and marketing 29,858 33.0% 22,446
Depreciation and amortization 30,176 13.4% 26,604
Stock based compensation 5,470 (91.8%) 66,496
----------- -----------
Total operating expenses $ 140,539 $ 167,903
Other expense $ (35,665) (42.4%) $ (25,048)
Net income (loss) from continuing
operations $ 6,922 N.M. $ (55,653)
Other data:
EBITDA - Domestic $ 79,462 25.1% $ 63,544
EBITDA - International (1,424) 20.7% (1,796)
----------- -----------
Total EBITDA $ 78,038 $ 61,748
Cash flows provided by (used in):
Operating activities $ 56,580 N.M. $ 6,676
=========== ===========
Investing activities $ (159,281) N.M. $ (102,665)
=========== ===========
Financing activities $ 100,632 N.M. $ 85,604
=========== ===========
</TABLE>
REVENUES
The increase in subscriber revenues is primarily due to the 26% growth
in the number of the Company's average domestic subscribers for the quarter
ended June 30, 2000, compared to the quarter ended June 30, 1999, offset by a
decrease in the average domestic monthly subscriber revenue per average
subscriber ("ARPU"). ARPU was $42.39 for the three months ended June 30, 2000, a
4.4% decline from $44.32 for the three months ended June 30, 1999. The Company
continues to focus on attracting new customers with rate plans that provide more
value to the customer at a higher average access charge. Management feels this
strategy will provide relative stability in ARPU in future periods.
The increase in roamer revenues is attributed to an increase in roaming
traffic on the Company's domestic network, partially offset by a decrease in the
rates charged between carriers. A significant portion of the increase is driven
by the growth in roamer minutes with digital carriers as a result of the
Company's strategy to become the roaming partner of choice. Roamer revenue as a
percentage of total revenues for the quarter ended June 30, 2000, increased to
29.8%, compared to 25.2% for the quarter ended June 30, 1999. While the Company
expects total roamer minutes and revenue to continue to increase, the
year-over-year growth in roamer revenues is expected to increase at a slower
rate throughout the remainder of 2000. During May 2000, the Company entered the
last year of the current roamer agreement with AT&T Corporation ("AT&T
Wireless"), its largest roaming partner. The Company expects to negotiate a new
agreement with AT&T Wireless at a lower rate. Management believes an increased
volume of roamer minutes with AT&T Wireless and other carriers will offset any
rate reduction.
12
<PAGE> 13
Equipment sales and other revenues for the three months ended June 30,
2000, consist primarily of wireless handset and accessory sales to its domestic
customers, and revenues from the Company's international segment. Domestic
wireless handset and accessory sales increased due to an increase in gross
subscriber additions. The average handset and accessory revenue per item sold
increased compared to the same quarter one year ago. The mix of high-end
handsets with more features comprised a larger portion of overall handset
revenue during the second quarter of 2000 compared to the second quarter of
1999. Additionally, for the three months ended June 30, 2000, the Company's
international segment reported revenues for WWI's consolidated joint ventures.
The Company expects that international revenue will become a more significant
component of other revenues in future periods as WWI continues to launch
operations in its majority owned joint ventures.
OPERATING EXPENSES
The increase in cost of service is mainly attributable to the increased
costs of maintaining the Company's expanding domestic wireless network to
support an increase in the number of subscriber and roamer minutes of use.
Further, $1.7 million of the increase is attributable to the Company's
international segment. The Company expects cost of service dollars to continue
to increase in future periods as a result of the growing subscriber base and the
increase in other carriers' customers roaming on its network. Domestic cost of
service per minute of use ("MOU") decreased to $0.03 per MOU for the three
months ended June 30, 2000, from $0.04 per MOU for the three months ended June
30, 1999. The decrease in domestic cost of service per MOU is due mainly to
fixed cost components increasing at a slower rate than per minute costs.
Domestic cost of service per MOU is expected to continue to decline as greater
economies of scale continue to be realized. International cost of service is
expected to increase as the Company's international segment continues to expand
its existing wireless network and start-up operations.
The increase in general and administrative costs is due partly to the
increase in costs associated with supporting a larger subscriber base and partly
due to the growth in the Company's international segment. For the three months
ended June 30, 2000, the Company's domestic general and administrative monthly
cost per average subscriber increased slightly to $12.91 from $12.59 for the
same period in 1999. The increase is due partly to additional headquarter costs
resulting from lost cost efficiencies as a result of the spin-off of VoiceStream
Wireless Corporation ("VoiceStream") and the new call centers in Manhattan,
Kansas and McAllen, Texas, that opened during the fourth quarter of 1999 and the
first quarter of 2000, respectively. Management anticipates improved cost
efficiencies to be realized on a per domestic subscriber basis in future periods
due to cost reductions expected with the implementation of a new billing system
later in the fiscal year. The increase in international general and
administrative costs is primarily due to pre-operating costs related to start-up
activities in Ireland and Bolivia. Management anticipates that as the Company's
international operations continue to grow the costs associated with supporting
these operations will increase.
The increase in sales and marketing costs is primarily due to the
increase in domestic gross and net subscriber additions. Domestic sales and
marketing cost per net subscriber added, including the loss on equipment sales,
decreased to $659 for the three months ended June 30, 2000, compared to $678 for
the same period in 1999. This decrease is mainly attributable to the costs being
spread over a larger number of net subscriber additions, which increased 31.7%
during the second quarter of 2000 compared to the second quarter of 1999 as a
result of lower customer churn.
Cost of equipment sales increased mainly due to the increase in domestic
handsets sold and the increased average cost of handsets, for the three months
ended June 30, 2000, compared to the same period in 1999. The Company expects
that the cost for its domestic handsets will remain flat for the remainder of
2000.
The increase in depreciation and amortization expenses is mainly
attributable to the acquisition of additional wireless communication systems in
both the Company's domestic and international segments. As the Company continues
to expand its wireless footprint, upgrade its systems, and expand its
international segment, management anticipates depreciation and amortization
expense will increase in future periods.
The decrease in stock based compensation results primarily from the
charge related to the amortization of deferred compensation due to the
cancellation and reissuance of employee stock options as a result of the
spin-off of VoiceStream in the second quarter of 1999.
NET INCOME (LOSS) FROM CONTINUING OPERATIONS
The change from a net loss from continuing operations during the three
months ended June 30, 1999, to net income from continuing operations during the
three months ended June 30, 2000, is mainly due to the $66.5 million in stock
based compensation expense as a result of the spin-off of VoiceStream in 1999.
The Company had no tax liability for the current quarter due to net operating
loss carryforwards ("NOLs") from prior years.
OTHER EXPENSE
Interest and financing expense increased to $34.0 million for the three
months ended June 30, 2000, compared to $23.5 million for the same period in
1999, due to an increase in average outstanding long-term debt and a year-
over-year increase in average interest rates. Long-term debt was incurred
primarily to fund the Company's acquisition of wireless
13
<PAGE> 14
properties and to fund international projects through WWI. The weighted average
interest rate was 9.4% for the three months ended June 30, 2000, as compared to
8.4% for the same period in 1999.
EBITDA
EBITDA represents operating income before depreciation, amortization and
stock based compensation for the Company's operations. Management believes
EBITDA provides meaningful additional information on the Company's operating
results and on its ability to service its long-term debt and other fixed
obligations, and to fund the Company's continued growth. EBITDA is considered by
many financial analysts to be a meaningful indicator of an entity's ability to
meet its future financial obligations, and growth in EBITDA is considered to be
an indicator of future profitability, especially in a capital-intensive industry
such as wireless telecommunications. EBITDA should not be construed as an
alternative to operating income (loss) as determined in accordance with United
States GAAP, as an alternate to cash flows from operating activities (as
determined in accordance with GAAP), or as a measure of liquidity. Because
EBITDA is not calculated in the same manner by all companies, the Company's
presentation may not be comparable to other similarly titled measures of other
companies.
Domestic EBITDA for the Company increased to $79.5 million for the three
months ended June 30, 2000, from $63.5 million for the same period in 1999. The
increase in domestic EBITDA is primarily a result of increased revenues due to
the increased subscriber base and related cost efficiencies gained and increased
roaming revenues.
International EBITDA for the Company's consolidated subsidiaries, which
represent Ireland and Bolivia start-up costs, as well as Ghana and Haiti
on-going operations and WWI headquarter functions, remained relatively stable
compared to the same period in 1999.
14
<PAGE> 15
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
The Company had 930,500 subscribers at June 30, 2000, representing an
increase of 95,800 or 11.5% from December 31, 1999. The Company had 737,600
subscribers at June 30, 1999, representing an increase of 77,200 or 11.7% from
December 31, 1998.
The following table sets forth certain financial data as it relates
to the Company's operations:
<TABLE>
<CAPTION>
(Dollars in thousands) SIX MONTHS ENDED JUNE 30,
---------------------------------------------
2000 % CHANGE 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Subscriber revenues $ 221,516 21.6% $ 182,202
Roamer revenues 99,152 71.9% 57,681
Equipment sales and other
revenues 21,574 72.2% 12,531
----------- -----------
Total revenues $ 342,242 $ 252,414
Operating expenses:
Cost of service $ 44,202 42.8% $ 30,952
Cost of equipment sales 20,227 27.8% 15,824
General and administrative 76,629 37.9% 55,552
Sales and marketing 58,006 32.1% 43,906
Depreciation and amortization 59,919 22.2% 49,045
Stock based compensation 8,500 (87.2%) 66,496
----------- -----------
Total operating expenses $ 267,483 $ 261,775
Other expense $ (67,050) (27.8%) $ (52,458)
Net income (loss) from continuing
operations $ 8,054 N.M. $ (60,880)
Other data:
EBITDA - Domestic $ 145,875 34.7% $ 108,318
EBITDA - International (2,697) (26.1%) (2,138)
----------- -----------
Total EBITDA $ 143,178 $ 106,180
Cash flows provided by (used in):
Operating activities $ 83,257 N.M. $ 19,440
=========== ===========
Investing activities $ (243,684) N.M. $ (154,381)
=========== ===========
Financing activities $ 131,691 N.M. $ 138,089
=========== ===========
</TABLE>
REVENUES
The increase in subscriber revenues is primarily due to the 26.3% growth
in the number of the Company's average domestic subscribers for the six months
ended June 30, 2000, compared to the six months ended June 30, 1999, offset by a
slight decrease in the average monthly domestic subscriber revenue per average
subscriber ("ARPU"). ARPU was $41.83 for the six months ended June 30, 2000, a
3.7% decline from $43.44 for the six months ended June 30, 1999. The Company
continues to focus on attracting new customers with rate plans that provide more
value to the customer at a higher average access charge. Management feels this
strategy will provide relative stability in ARPU in future periods.
The increase in roamer revenues is attributed to an increase in roaming
traffic on the Company's network, partially offset by a decrease in the rates
charged between carriers. A significant portion of the increase is driven by the
growth in roamer minutes with digital carriers as a result of the Company's
strategy to become the roaming partner of choice. Roamer revenue as a percentage
of total revenues for the six months ended June 30, 2000, increased to 29.0%,
compared to 22.9% for the six months ended June 30, 1999. While the Company
expects total roamer minutes and revenue to continue to increase, the
year-over-year growth in roamer revenues is expected to increase at a slower
rate throughout the remainder of 2000. During May 2000, the Company entered the
last year of the current roamer agreement with AT&T Corporation ("AT&T
Wireless"), its largest roaming partner. The Company expects to negotiate a new
agreement with AT&T Wireless at a lower rate. Management believes that the
increased volume of roamer minutes with AT&T Wireless and other carriers will
offset any rate reduction.
Equipment sales and other revenues for the six months ended June 30,
2000, consist primarily of wireless handset and accessory sales to the Company's
domestic customers, and revenues from its international segment. Domestic
wireless handset and accessory sales increased due to an increase in gross
subscriber additions. The average handset and accessory revenue per item sold
increased compared to the same period one year ago. The mix of high-end handsets
with
15
<PAGE> 16
more features comprised a larger portion of overall handset revenue during the
six months ended June 30, 2000, compared to the same period one year ago.
Additionally, for the six months ended June 30, 2000, the Company's
international segment reported revenues for WWI's consolidated joint ventures.
The Company expects that international revenue will become a more significant
component of other revenues in future periods as WWI continues to launch
operations in its majority owned joint ventures.
OPERATING EXPENSES
The increase in cost of service is mainly attributable to the increased
costs of maintaining the Company's expanding domestic wireless network to
support an increase in the number of subscriber and roamer minutes of use.
Further, a portion of the increase is attributable to the Company's
international segment. The Company expects cost of service dollars to continue
to increase in future periods as a result of the growing subscriber base and the
increase in other carriers' customers roaming on its network. Domestic cost of
service per minute of use ("MOU") decreased to $0.03 per MOU for the six months
ended June 30, 2000, from $0.04 per MOU for the six months ended June 30, 1999.
The decrease in domestic cost of service per MOU is due mainly to fixed cost
components increasing at a slower rate than per minute costs. Domestic cost of
service per MOU is expected to continue to decline as greater economies of scale
continue to be realized. International cost of service is expected to increase
as the Company's international segment continues to expand its existing wireless
network and start-up operations.
The increase in general and administrative costs is due partly to the
increase in costs associated with supporting a larger subscriber base and partly
due to the growth in the Company's international segment. For the six months
ended June 30, 2000, the Company's domestic general and administrative monthly
cost per average subscriber increased to $13.43 from $12.74 for the same period
in 1999. The increase is due partly to additional headquarter costs resulting
from lost cost efficiencies as a result of the spin-off of VoiceStream Wireless
Corporation ("VoiceStream") and the new call centers in Manhattan, Kansas and
McAllen, Texas, that opened during the fourth quarter of 1999 and the first
quarter of 2000, respectively. Management anticipates improved cost efficiencies
to be realized on a per domestic subscriber basis in future periods due to cost
reductions expected with the implementation of a new billing system later in the
fiscal year. The increase in international general and administrative costs is
primarily due to pre-operating costs related to start-up activities in Ireland
and Bolivia. Management anticipates that as the Company's international
operations continue to grow the costs associated with supporting these
operations will increase.
The increase in sales and marketing costs is primarily due to the
increase in domestic gross and net subscriber additions. Domestic sales and
marketing cost per net subscriber added, including the loss on equipment sales,
increased to $748 for the six months ended June 30, 2000, compared to $692 for
the same period in 1999. This increase is largely due to a growth in the number
of disconnected subscribers partially offset by spreading the costs over a
greater number of net subscriber additions. The growth in disconnected
subscribers is the result of a similar churn rate (representing customer
attrition) applied to a larger subscriber base.
Cost of equipment sales to the Company increased mainly due to the
increase in domestic handsets sold, for the six months ended June 30, 2000,
compared to the same period in 1999. The Company expects that the cost for its
domestic handsets will remain flat for the remainder of 2000.
The increase in depreciation and amortization expenses is mainly
attributable to the acquisition of additional wireless communication systems in
both the Company's domestic and international segments. As the Company continues
to expand its wireless footprint, upgrade its systems, and expand its
international segment, management anticipates depreciation and amortization
expense will increase in future periods.
The decrease in stock based compensation results primarily from the
charge related to the amortization of deferred compensation due to the
cancellation and reissuance of employee stock options as a result of the
spin-off of VoiceStream in the second quarter of 1999.
NET INCOME (LOSS) FROM CONTINUING OPERATIONS
The change from a net loss from continuing operations during the six
months ended June 30, 1999, to net income from continuing operations during the
six months ended June 30, 2000, is mainly due to the $66.5 million in stock
based compensation expense as a result of the spin-off of VoiceStream in 1999.
The Company had no tax liability for the current period due to net operating
loss carryforwards ("NOLs") from prior years.
OTHER EXPENSE
Interest and financing expense increased to $65.7 million for the six
months ended June 30, 2000, compared to $46.8 million for the same period in
1999, due to an increase in average outstanding long-term debt and a year-
over-year increase in average interest rates. Long-term debt was incurred
primarily to fund the Company's acquisition of wireless properties and to fund
international projects through WWI. The weighted average interest rate increased
to 9.0% for the six months ended June 30, 2000, compared to 8.2% for the same
period in 1999.
16
<PAGE> 17
EBITDA
EBITDA represents operating income before depreciation, amortization and
stock based compensation for the Company's operations. Management believes
EBITDA provides meaningful additional information on the Company's operating
results and on its ability to service its long-term debt and other fixed
obligations, and to fund the Company's continued growth. EBITDA is considered by
many financial analysts to be a meaningful indicator of an entity's ability to
meet its future financial obligations, and growth in EBITDA is considered to be
an indicator of future profitability, especially in a capital-intensive industry
such as wireless telecommunications. EBITDA should not be construed as an
alternative to operating income (loss) as determined in accordance with United
States GAAP, as an alternate to cash flows from operating activities (as
determined in accordance with GAAP), or as a measure of liquidity. Because
EBITDA is not calculated in the same manner by all companies, the Company's
presentation may not be comparable to other similarly titled measures of other
companies.
Domestic EBITDA for the Company increased to $145.9 million for the six
months ended June 30, 2000, from $108.3 million for the same period in 1999. The
increase in domestic EBITDA is primarily a result of increased revenues due to
the increased subscriber base and related cost efficiencies gained and increased
roaming revenues.
International EBITDA for the Company's consolidated subsidiaries, which
represents Ireland and Bolivia start-up costs, as well as Ghana and Haiti
on-going operations and WWI headquarter functions, remained relatively stable
compared to the same period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company began the quarter with a $1.2 billion credit facility with a
consortium of lenders (the "Credit Facility"), in the form of a $750 million
revolving credit loan and a $450 million in term loans.
On April 25, 2000, the Company refinanced the Credit Facility with a new
credit facility (the "New Credit Facility"). The New Credit Facility provides
for $1.0 billion in revolving loans and $1.1 billion in term loans. Proceeds
from the New Credit Facility were used to repay the Company's existing Credit
Facility. The Company has recognized an extraordinary loss for the quarter ended
June 30, 2000 of approximately $12.4 million for the impairment of existing
deferred financing costs relating to the Company's previous Credit Facility. As
of June 30, 2000, $1,180 million was outstanding under the Credit Facility.
Based on certain covenants, the Company, at June 30, 2000, had approximately
$590 million available to borrow under the New Credit Facility.
The Company has issued $200 million principal amount of 10-1/2% Senior
Subordinated Notes Due 2006 (the "2006 Notes") at par and $200 million principal
amount of 10-1/2% Senior Subordinated Notes Due 2007 (the "2007" Notes") at par.
Indebtedness under the 2006 Notes and the 2007 Notes matures June 1, 2006 and
February 1, 2007, respectively. The 2006 and 2007 Notes contain certain
restrictive covenants which impose limitations on the operations and activities
of the Company and certain of its subsidiaries, including the issuance of other
indebtedness, the creation of liens, the sale of assets, issuance of preferred
stock of subsidiaries and certain investments and acquisitions.
For the remainder of 2000, the Company expects to spend: (i)
approximately $70 million for the continued expansion of its domestic cellular
infrastructure, (ii) approximately $263 million for the purchase of the
cellular licenses and the operations of Arizona 4, California 7, and Oklahoma 4
RSAs, and (iii) approximately $50 million for WWI's funding of the Bolivian and
Ireland build outs. The Company will utilize cash on hand, the New Credit
Facility and other sources of funding, for purposes of funding its cellular and
international activities.
Net cash provided by operating activities was $83.3 million for the six
months ended June 30, 2000. Adjustments to the $4.3 million net loss to
reconcile to net cash provided by operating activities included $12.4 million
for the extraordinary loss on the early extinguishments of debt and $61.7
million of depreciation and amortization. Net cash provided by operating
activities was $19.4 million for the six months ended June 30, 1999.
Net cash used in investing activities was $243.7 million for the six
months ended June 30, 2000. The Company purchased property and equipment in the
amount of $127.6 million, of which $9.0 million related to WWI. Investing
activities for the period consisted mostly of $90.8 million in acquisitions of
wireless properties, primarily attributable to the purchase of the Utah 5,
Arizona 6 and Wyoming 1 RSAs. Net cash used in investing activities was $154.4
million for the six months ended June 30, 1999.
Net cash provided by financing activities was $131.7 million for the six
months June 30, 2000. Financing activities for the period consisted primarily of
a net addition to long-term debt of $130 million to finance the acquisition of
wireless properties and fund international joint ventures through WWI. Net
cash provided by financing activities was $138.1 million for the six months
ended June 30, 1999.
In the ordinary course of business, the Company continues to evaluate
acquisition opportunities, joint ventures and other potential business
transactions. Such acquisitions, joint ventures and business transactions may be
material. Such transactions may also require the Company to seek additional
sources of funding through the issuance of additional debt and/or additional
equity at the parent or subsidiary level. There can be no assurance that such
funds will be available to the Company on acceptable or favorable terms.
17
<PAGE> 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's earnings are affected by changes in short-term interest
rates as a result of its borrowings under the New Credit Facility. New Credit
Facility interest payments are determined by the outstanding indebtedness and
the Eurodollar rate at the beginning of the period in which interest is
computed. The Eurodollar rate is adjusted for an applicable margin based on the
Company's financial ratios. The Company also has fixed rate debt under the
Senior Notes at 10-1/2% ($415 million fair value). As required under the New
Credit Facility, the Company utilizes interest rate caps, swaps and collar
agreements to hedge variable rate interest risk on the New Credit Facility. All
of the company's derivative financial instrument transactions are entered into
for non-trading purposes.
Notional amounts outstanding at June 30, 2000, for interest rate caps
are $210 million, $100 million and $25 million ($0.1 million fair value) with
maturity dates in the years 2000, 2001 and 2002, respectively. The interest rate
caps effectively lock $335 million of the Company's New Credit Facility
borrowings between 7.5% and 7.8%.
Notional amounts outstanding at June 30, 2000, for interest rate collars
are $145 million and $55 million ($1.0 million fair value) for expected maturity
dates in the years 2003 and 2004, respectively. The interest rate collars
effectively lock $200 million of the Company's New Credit Facility borrowings
between 7.0% and 7.8%.
Notional amounts outstanding at June 30, 2000, for interest rate swaps
are $45 million ($0.5 million fair value) with an expected maturity date in the
year 2003. The interest rate swaps effectively lock $45 million of the Company's
New Credit Facility borrowings between 6.1% and 6.5%.
18
<PAGE> 19
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
(a) The annual meeting of shareholders of Western Wireless Corporation
was held on May 18, 2000.
(b) The following directors were elected to serve a one year term: John
W. Stanton, John L. Bunce, Mitchell L. Cohen, Daniel J. Evans,
Jonathan M. Nelson, and Terence M. O'Toole.
(c) The following matters were voted upon at the meeting:
1. For the election of directors:
<TABLE>
<CAPTION>
For Withheld
----------- --------
<S> <C> <C>
John W. Stanton 132,999,074 134,976
John L. Bunce 133,012,340 121,710
Mitchell L. Cohen 133,011,430 122,620
Daniel J. Evans 133,009,170 124,880
Jonathan M. Nelson 133,012,190 121,860
Terence M. O'Toole 133,012,140 121,910
</TABLE>
2. Ratification of selection of Arthur Andersen LLP as the
Company's independent auditors for the year ending December 31,
2000:
<TABLE>
<S> <C>
For: 133,110,049
Against: 12,654
Abstain: 11,347
</TABLE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 10.64* Amended and Restated General Agreement for Purchase of
Cellular Systems between Western Wireless Corporation and
Lucent Technologies, Inc., dated effective October 1, 1999.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
A Form 8-K was filed on April 28, 2000, reporting the Company's
financial and operating results for the first quarter ended March
31, 2000.
* Portions of this exhibit have been omitted and filed separately with the
Secretary of the Commission pursuant to the Registrant's Application Requesting
Confidential Treatment under Rule 24b-2 of the Securities Exchange Act of 1934.
19
<PAGE> 20
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/ SCOTT SOLEY
------------------------ --------------------------------
Theresa E. Gillespie Scott Soley
Executive Vice President Executive Director of Accounting
(Chief Accounting Officer)
Dated: August 11, 2000
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
10.64* Amended and Restated General Agreement for Purchase of Cellular
Systems between Western Wireless Corporation and Lucent
Technologies, Inc., dated effective October 1, 1999.
27.1 Financial Data Schedule
</TABLE>
* Portions of this exhibit have been omitted and filed separately with the
Secretary of the Commission pursuant to the Registrant's Application Requesting
Confidential Treatment under Rule 24b-2 of the Securities Exchange Act of 1934.
