<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 of (IRS Employer Identification No.)
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.
Title Shares Outstanding as of November 7, 2000
--------------------------------------------------------------------------------
Class A Common Stock, no par value 70,985,883
Class B Common Stock, no par value 7,070,059
<PAGE> 2
WESTERN WIRELESS CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999........3
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
for the Three and Nine Months Ended September 30, 2000 and September 30, 1999...............4
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 2000 and September 30, 1999.........................5
Notes to Condensed Consolidated Financial Statements........................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.........................................................................................12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..............................20
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..........................................................21
</TABLE>
2
<PAGE> 3
WESTERN WIRELESS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
(Unaudited)
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,398 $ 42,735
Accounts receivable, net of allowance for doubtful accounts of
$12,131 and $11,199, respectively 96,348 75,846
Inventory 9,101 9,680
Prepaid expenses and other current assets 43,569 27,358
Receivable from VoiceStream Wireless 2,984
----------- -----------
Total current assets 172,416 158,603
Property and equipment, net of accumulated depreciation
of $352,361 and $277,167, respectively 505,157 369,543
Licensing costs and other intangible assets, net of accumulated
amortization of $108,405 and $99,051, respectively 960,777 771,510
Investments in and advances to unconsolidated affiliates 31,445 55,918
Other assets 14,841
----------- -----------
$ 1,684,636 $ 1,355,574
=========== ===========
LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
Accounts payable $ 14,782 $ 11,930
Accrued liabilities and other 101,304 68,069
Construction accounts payable 9,246 8,825
----------- -----------
Total current liabilities 125,332 88,824
----------- -----------
Long-term debt 1,712,131 1,450,000
----------- -----------
Minority interest in consolidated subsidiaries 25,411 1,435
----------- -----------
Commitments and contingencies (Note 6)
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, 70,894,066 and 70,431,554 shares issued and outstanding,
respectively, and; Class B, 7,075,059 and 7,177,302 shares issued
and outstanding, respectively 689,163 690,953
Deferred compensation (7,874) (17,389)
Accumulated other comprehensive loss (6,125) (4,644)
Deficit (853,402) (853,605)
----------- -----------
Total net capital deficiency (178,238) (184,685)
----------- -----------
$ 1,684,636 $ 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 INCOME (LOSS)
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Subscriber revenues $ 122,489 $ 102,441 $ 344,005 $ 284,643
Roamer revenues 62,825 46,461 161,977 104,142
Equipment sales and other revenues 13,448 8,142 35,022 20,673
------------ ------------ ------------ ------------
Total revenues 198,762 157,044 541,004 409,458
------------ ------------ ------------ ------------
Operating expenses:
Cost of service 27,860 17,765 72,062 48,717
Cost of equipment sales 11,631 10,030 31,858 25,854
General and administrative 40,509 30,341 117,138 85,893
Sales and marketing 32,780 27,188 90,786 71,094
Depreciation and amortization 30,956 27,020 90,875 76,065
Stock based compensation 8,125 3,850 16,625 70,346
------------ ------------ ------------ ------------
Total operating expenses 151,861 116,194 419,344 377,969
------------ ------------ ------------ ------------
Operating income 46,901 40,850 121,660 31,489
------------ ------------ ------------ ------------
Other income (expense):
Interest and financing expense, net (42,989) (24,961) (108,654) (71,761)
Equity in net loss of unconsolidated
affiliates (482) (3,857) (968) (11,542)
Other, net 258 1,001 (641) 3,028
------------ ------------ ------------ ------------
Total other expense (43,213) (27,817) (110,263) (80,275)
------------ ------------ ------------ ------------
Minority interest in consolidated
subsidiaries 838 509 1,183 1,448
------------ ------------ ------------ ------------
Net income (loss) from continuing
operations 4,526 13,542 12,580 (47,338)
------------ ------------ ------------ ------------
Net loss from discontinued operations (82,152)
Cost of discontinuance (18,500)
------------
Total discontinued operations (100,652)
Extraordinary loss on early extinguishment
of debt (12,377)
------------ ------------
Net income (loss) $ 4,526 $ 13,542 $ 203 $ (147,990)
============ ============ ============ ============
Basic income (loss) per share:
Continuing operations $ 0.06 $ 0.18 $ 0.16 $ (0.62)
Discontinued operations (1.31)
Extraordinary item (0.16)
------------ ------------ ------------ ------------
Basic income (loss) per share $ 0.06 $ 0.18 $ 0.00 $ (1.93)
============ ============ ============ ============
Diluted income (loss) per share:
Continuing operations $ 0.06 $ 0.17 $ 0.16 $ (0.62)
Discontinued operations (1.31)
Extraordinary item (0.16)
------------ ------------ ------------ ------------
Diluted income (loss) per share $ 0.06 $ 0.17 $ 0.00 $ (1.93)
============ ============ ============ ============
Weighted average shares outstanding:
Basic 77,956,000 76,892,000 77,845,000 76,585,000
============ ============ ============ ============
Diluted 80,360,000 79,642,000 80,320,000 76,585,000
============ ============ ============ ============
Comprehensive income (loss):
Net income (loss) $ 4,526 $ 13,542 $ 203 $ (147,990)
Other comprehensive gain (loss):
Unrealized gain on securities 6,900 6,900
Foreign currency translation (2,085) (9) (8,381) (190)
------------ ------------ ------------ ------------
Total comprehensive income (loss) $ 9,341 $ 13,533 $ (1,278) $ (148,180)
============ ============ ============ ============
</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>
Nine months ended
September 30,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Operating activities:
Net income (loss) $ 203 $ (147,990)
Adjustments to reconcile net income (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 93,323 78,747
Stock based compensation 16,588 70,331
Equity in net loss of unconsolidated affiliates 968 11,542
Minority interest in consolidated subsidiaries (1,183) (1,448)
Other, net 114 2,440
Changes in operating assets and liabilities, net of effects
from consolidating acquired interests (16,507) (26,905)
----------- -----------
Net cash provided by operating activities 105,883 68,869
----------- -----------
Investing activities:
Purchase of property and equipment (198,243) (110,205)
Additions to licensing costs and other intangible assets (34,264) (2,508)
Acquisition of wireless properties, net of cash acquired (151,587) (124,318)
Investments in and advances to unconsolidated affiliates (6,880) (15,043)
Proceeds from repayment of advances to discontinued subsidiary 3,438 15,420
Return of investment from VoiceStream Wireless 20,000
----------- -----------
Net cash used in investing activities (387,536) (216,654)
----------- -----------
Financing activities:
Proceeds from issuance of common stock, net 1,859 4,457
Additions to long-term debt 1,400,000 160,000
Repayment of long-term debt (1,150,000) (10,000)
Minority interest contributions 10,457
----------- -----------
Net cash provided by financing activities 262,316 154,457
----------- -----------
Change in cash and cash equivalents (19,337) 6,672
Cash and cash equivalents, beginning of period 42,735 2,192
----------- -----------
Cash and cash equivalents, end of period $ 23,398 $ 8,864
=========== ===========
</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 September 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 September 30, 2000, the Company consolidates four of WWI's
joint ventures: Ireland, Haiti, Ghana and Bolivia.
Marketable securities:
Marketable securities are stated at market value as determined by the
most recently traded price of each security at the balance sheet date. All
marketable securities are defined as available for sale securities under the
provision of SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Management determines the appropriate classification of its
investments in marketable securities at the time of purchase and reevaluates
such determination at each balance sheet date. Available for sale securities are
carried at fair value with the unrealized gains/losses reported as a separate
component of comprehensive income/loss.
Supplemental cash flow disclosure:
Cash paid for interest was $104.3 million and $69.1 million for the nine
months ended September 30, 2000, and September 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 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
6
<PAGE> 7
WESTERN WIRELESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
In June 1998, the FASB 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. PREPAID AND OTHER CURRENT ASSETS:
<TABLE>
<CAPTION>
(Dollars in thousands) SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------- ------------
<S> <C> <C>
Receivable from unconsolidated international entities $ 6,383 $ 7,457
WWI deposits 2,582 8,702
Marketable securities 23,548 2,292
Other 11,056 8,907
------- -------
$43,569 $27,358
======= =======
</TABLE>
4. ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
(Dollars in thousands) SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
Accrued payroll and benefits $ 13,388 $ 12,755
Accrued interest expense 14,623 13,065
Accrued property taxes 7,204 4,948
Accrued taxes (other than income) 12,820 9,480
Accrued interconnect charges 12,606 10,239
Accrued stock appreciation rights 13,281 4,761
Unearned revenue 5,051 2,988
Other 22,331 9,833
-------- --------
$101,304 $ 68,069
======== ========
</TABLE>
5. LONG-TERM DEBT:
<TABLE>
<CAPTION>
(Dollars in thousands) SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ -----------
<S> <C> <C>
Credit Facility:
Revolvers $ 200,000 $ 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 12,131
---------- ----------
$1,712,131 $1,450,000
========== ==========
</TABLE>
Credit Facility:
The Company has a $2.1 billion credit facility with a consortium of
lenders (the "Credit Facility") 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").
7
<PAGE> 8
WESTERN WIRELESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 on April 25, 2001. 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 Credit Facility contains certain financial
covenants, including limitations on the amount of indebtedness, certain
investments, and restricted payments.
Under the 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 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 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 Credit Facility.
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 Credit Facility.
Bolivian Bridge Loan:
Effective October 2000, NuevaTel, S.A. ("NuevaTel"), a subsidiary in
which WWI holds a 55% interest, entered into a bridge loan facility agreement
(the "Bridge Loan") to provide funding for the build out and launch of
NuevaTel's network in Bolivia. The aggregate amount available under the Bridge
Loan is $37.5 million. WWI, along with its partners, has severally guaranteed
the Bridge Loan. Interest is payable at LIBOR plus the applicable margin and the
Bridge Loan is subject to certain restrictive covenants including capital
spending limitations and cash flow requirements. Amounts outstanding under the
Bridge Loan are payable the earlier of October 2002 or upon obtaining a secured
term loan facility. As of September 30, 2000, no amounts are outstanding under
the bridge loan.
The aggregate amounts of principal maturities as of September 30, 2000,
are as follows (dollars in thousands):
<TABLE>
<S> <C>
Three months ending December 31, 2000 $ 0
Year ending December 31,
2001 0
2002 0
2003 76,000
2004 111,000
Thereafter 1,525,131
----------
$1,712,131
==========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
In order to ensure an adequate supply and availability of certain
wireless system equipment requirements and service needs, the Company and its
subsidiaries have committed to purchase from various suppliers, wireless
communications equipment and services. These agreements expire at various dates
through 2003. The aggregate
8
<PAGE> 9
WESTERN WIRELESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
amount of these commitments totals approximately $375 million. At September 30,
2000, the Company has ordered approximately $109 million under these agreements,
of which approximately $11 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 September 30, 2000,
approximately $11.9 million has been paid toward these commitments.
7. 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 calculated using the weighted average number of shares
outstanding during the period. Diluted income per share is computed on the basis
of the weighted average number of common shares outstanding plus the dilutive
effect of outstanding stock options and the employee stock purchase plan using
the "treasury stock" method.
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.
The following table sets forth the computation of basic and diluted
income per share:
<TABLE>
<CAPTION>
(Dollars in thousands, THREE MONTHS ENDED NINE MONTHS ENDED
except per share data) SEPTEMBER 30, SEPTEMBER 30,
------------------------------------ ------------------------------------
2000 1999 2000 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) from
continuing operations $ 4,526 $ 13,542 $ 12,580 $ (47,338)
Total discontinued operations (100,652)
Extraordinary loss on early
extinguishment of debt (12,377)
---------------- ---------------- ---------------- ----------------
Net income (loss) $ 4,526 $ 13,542 $ 203 $ (147,990)
================ ================ ================ ================
Denominator:
Weighted-average shares:
Basic 77,956,000 76,892,000 77,845,000 76,585,000
Effect of dilutive
securities:
Dilutive options 2,404,000 2,750,000 2,475,000
---------------- ---------------- ---------------- ----------------
Weighted-average shares:
Diluted 80,360,000 79,642,000 80,320,000 76,585,000
================ ================ ================ ================
Basic income (loss) per share:
Continuing operations $ 0.06 $ 0.18 $ 0.16 $ (0.62)
Discontinued operations (1.31)
Extraordinary item (0.16)
---------------- ---------------- ---------------- ----------------
Basic income (loss) per share $ 0.06 $ 0.18 $ 0.00 $ (1.93)
================ ================ ================ ================
Diluted income (loss) per share:
Continuing operations $ 0.06 $ 0.17 $ 0.16 $ (0.62)
Discontinued operations (1.31)
Extraordinary item (0.16)
---------------- ---------------- ---------------- ----------------
Diluted income (loss) per share $ 0.06 $ 0.17 $ 0.00 $ (1.93)
================ ================ ================ ================
</TABLE>
8. 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 $203 million in cash. The purchases have
been approved by the FCC, but not yet consummated, and are expected to close in
the fourth quarter of 2000.
9
<PAGE> 10
WESTERN WIRELESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 Arizona 6 RSA
for approximately $46 million, and the Wyoming 1 RSA for approximately $20
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.
9. 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 September 30, 2000 and 1999, the
Company allocated to VoiceStream and its affiliates costs of $0.1 million and
$1.4 million, respectively, and $0.5 million and $8.6 million for the nine
months ended September 30, 2000 and 1999, respectively.
10. 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 SEPTEMBER 30, 2000
Total revenues $ 194,654 $ 4,108 $ 198,762
Total operating expenses 138,729 13,132 151,861
Operating income (loss) 55,925 (9,024) 46,901
Interest expense (37,429) (5,560) (42,989)
NINE MONTHS ENDED SEPTEMBER 30, 2000
Total revenues $ 531,708 $ 9,296 $ 541,004
Total operating expenses 392,980 26,364 419,344
Operating income (loss) 138,728 (17,068) 121,660
Interest expense (100,995) (7,659) (108,654)
Total assets 1,521,935 162,701 1,684,636
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands) DOMESTIC INTERNATIONAL
OPERATIONS OPERATIONS CONSOLIDATED
----------- ------------- ------------
<S> <C> <C> <C>
THREE MONTHS ENDED SEPTEMBER 30, 1999
Total revenues $ 157,044 $ 157,044
Total operating expenses 114,749 $ 1,445 116,194
Operating income (loss) 42,295 (1,445) 40,850
NINE MONTHS ENDED SEPTEMBER 30, 1999
Total revenues $ 409,458 $ 409,458
Total operating expenses 374,399 $ 3,570 377,969
Operating income (loss) 35,059 (3,570) 31,489
</TABLE>
10
<PAGE> 11
WESTERN WIRELESS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. SUBSEQUENT EVENT:
In October 2000, WWI completed the sale of its minority interest in
Baltcom GSM, a Latvian cellular operator, to Tele2 AB ("Tele2"). The total
purchase price paid by Tele2 for 100% of the shares of Baltcom GSM was
approximately $277 million in cash, including the repayment of approximately $53
million in shareholder loans and bank debt. WWI's cash proceeds from the
transaction will be approximately $66 million and the gain on the disposition
will be approximately $57 million.
11
<PAGE> 12
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 104 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. At
September 30, 2000, WWI owned wireless licenses in nine foreign countries with 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 September 30, 2000, WWI interests covered a proportionate population of
approximately 29.8 million and had approximately 147,500 proportionate
subscribers. An operational status by country follows:
<TABLE>
<CAPTION>
CONSOLIDATED INVESTMENTS EQUITY INVESTMENTS
------------------------ ------------------
<S> <C> <C> <C>
Country Status Country Status
------- ------ ------- ---------
Ghana Operating Latvia(2) Operating
Haiti Operating Georgia Operating
Bolivia Under Construction Croatia Operating
Ireland(1) Under Construction Iceland Operating
Ivory Coast(3) Operating
</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 MMC 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.
(2) During October 2000, WWI sold its minority interest in Baltcom GSM,
a Latvian cellular operator. See "Liquidity and Capital Resources" for further
information.
(3) WWI launched services in the Ivory Coast in September 2000.
12
<PAGE> 13
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
The Company had 976,500 subscribers at September 30, 2000, representing
an increase of 46,000 or 4.9% from June 30, 2000. The Company had 774,000
subscribers at September 30, 1999, representing an increase of 36,400 or 4.9%
from June 30, 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 SEPTEMBER 30,
------------------------------------------
2000 % CHANGE 1999
--------- -------- ---------
<S> <C> <C> <C>
Revenues:
Subscriber revenues $ 122,489 19.6% $ 102,441
Roamer revenues 62,825 35.2% 46,461
Equipment sales and other
revenues 13,448 65.2% 8,142
--------- ---------
Total revenues $ 198,762 $ 157,044
Operating expenses:
Cost of service $ 27,860 56.8% $ 17,765
Cost of equipment sales 11,631 16.0% 10,030
General and administrative 40,509 33.5% 30,341
Sales and marketing 32,780 20.6% 27,188
Depreciation and
amortization 30,956 14.6% 27,020
Stock based compensation 8,125 111.0% 3,850
--------- ---------
Total operating
expenses $ 151,861 $ 116,194
Other expense $ (43,213) (55.3%) $ (27,817)
Net income from continuing
operations $ 4,526 (66.6%) $ 13,542
Other data:
EBITDA - Domestic $ 88,771 20.7% $ 73,518
EBITDA - International (2,789) (55.1%) (1,798)
--------- ---------
Total EBITDA $ 85,982 $ 71,720
Cash flows provided by (used in):
Operating activities $ 22,626 $ 49,429
========= =========
Investing activities $(143,852) $ (62,273)
========= =========
Financing activities $ 130,625 $ 16,368
========= =========
</TABLE>
REVENUES
The increase in subscriber revenues is primarily due to the 26.2% growth
in the number of the Company's average domestic subscribers for the quarter
ended September 30, 2000, compared to the quarter ended September 30, 1999,
offset by a decrease in the average domestic monthly subscriber revenue per
average subscriber ("ARPU"). ARPU was $42.82 for the three months ended
September 30, 2000, a 5.2% decline from $45.18 for the three months ended
September 30, 1999. The Company continues to focus on attracting and retaining
customers with rate plans that offer more features and included minutes at a
higher average recurring 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 for other carriers.
Roamer revenue as a percentage of total revenues for the quarter ended September
30, 2000, increased to 31.6%, compared to 29.6% for the quarter ended September
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. The Company has
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.
13
<PAGE> 14
Equipment sales and other revenues for the three months ended September
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. Additionally, for the three months ended September
30, 2000, the Company's international segment reported $4.1 million in 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 September 30, 2000, from $0.04 per MOU for the three months ended
September 30, 1999. The decrease in domestic cost of service per MOU is due
mainly to fixed cost components increasing at a slower rate than variable costs
on a per minute basis. 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 September 30, 2000, the Company's domestic general and administrative
monthly cost per average subscriber decreased to $12.62 from $12.74 for the same
period in 1999. The general and administrative cost per average subscriber
decrease is mainly a result of efficiencies gained from the growing subscriber
base. Management anticipates additional 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 or
early in 2001. 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 $779 for the three months ended September 30, 2000, compared to
$835 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 26.4% during the third quarter of 2000 compared to the third quarter
of 1999 as a result of lower customer churn.
Cost of equipment sales increased mainly due to the increase in domestic
handsets sold for the three months ended September 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 expense 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 stock based compensation results mainly from stock appreciation
rights ("SARs") issued by WWI. WWI's SARs contributed approximately $5.2 million
to the overall charge for the three months ended September 30, 2000.
OTHER EXPENSE
Interest and financing expense increased to $43.0 million for the three
months ended September 30, 2000, compared to $25.0 million for the same period
in 1999, due partly 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 was 9.6%
for the three months ended September 30, 2000, as compared to 8.4% for the same
period in 1999.
NET INCOME FROM CONTINUING OPERATIONS
The decrease in net income from continuing operations from the three
months ended September 30, 1999, to the three months ended September 30, 2000,
is mainly due to the Company's consolidation of the operational results of three
additional WWI joint ventures: Haiti, Ghana and Bolivia during the third quarter
of 2000, compared to only Ireland's operational results in the third quarter of
1999. The Company had no tax liability for the current quarter due to net
operating loss carryforwards ("NOLs") from prior years.
14
<PAGE> 15
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 $88.8 million for the three
months ended September 30, 2000, from $73.5 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.
15
<PAGE> 16
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
The Company had 976,500 subscribers at September 30, 2000, representing
an increase of 141,800 or 17.0% from December 31, 1999. The Company had 774,000
subscribers at September 30, 1999, representing an increase of 113,600 or 17.2%
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) NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------
2000 % CHANGE 1999
--------- ---------- ---------
<S> <C> <C> <C>
Revenues:
Subscriber revenues $ 344,005 20.9% $ 284,643
Roamer revenues 161,977 55.5% 104,142
Equipment sales and other
revenues 35,022 69.4% 20,673
--------- ---------
Total revenues $ 541,004 $ 409,458
Operating expenses:
Cost of service $ 72,062 47.9% $ 48,717
Cost of equipment sales 31,858 23.2% 25,854
General and administrative 117,138 36.4% 85,893
Sales and marketing 90,786 27.7% 71,094
Depreciation and amortization 90,875 19.5% 76,065
Stock based compensation 16,625 (76.4%) 70,346
--------- ---------
Total operating expenses $ 419,344 $ 377,969
Other expense $(110,263) (37.4%) $ (80,275)
Net income (loss) from
continuing operations $ 12,580 N.M. $ (47,338)
Other data:
EBITDA - Domestic $ 234,646 29.0% $ 181,836
EBITDA - International (5,486) (39.4%) (3,936)
--------- ---------
Total EBITDA $ 229,160 $ 177,900
Cash flows provided by (used in):
Operating activities $ 105,883 $ 68,869
========= =========
Investing activities $(387,536) $(216,654)
========= =========
Financing activities $ 262,316 $ 154,457
========= =========
</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 nine months
ended September 30, 2000, compared to the nine months ended September 30, 1999,
offset by a slight decrease in the average monthly domestic subscriber revenue
per average subscriber ("ARPU"). ARPU was $42.21 for the nine months ended
September 30, 2000, a 4.3% decline from $44.10 for the nine months ended
September 30, 1999. The Company continues to focus on attracting and retaining
customers with rate plans that offer more features and included minutes at a
higher average recurring 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 for other carriers. Roamer
revenue as a percentage of total revenues for the nine months ended September
30, 2000, increased to 29.9%, compared to 25.4% for the nine months ended
September 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. The
Company has 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 nine months ended September
30, 2000, consist primarily of wireless handset and accessory sales to the
Company's domestic customers, and revenues from its international segment.
Domestic
16
<PAGE> 17
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 more features comprised a larger portion of overall handset revenue during
the nine months ended September 30, 2000, compared to the same period one year
ago. Additionally, for the nine months ended September 30, 2000, the Company's
international segment reported $9.3 million in 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 nine months
ended September 30, 2000, from $0.04 per MOU for the nine months ended September
30, 1999. The decrease in domestic cost of service per MOU is due mainly to
fixed cost components increasing at a slower rate than variable costs on a per
minute basis. 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 nine months
ended September 30, 2000, the Company's domestic general and administrative
monthly cost per average subscriber increased to $13.15 from $12.75 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 or early in 2001. 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 $759 for the nine months ended September 30, 2000, compared to $740
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 nine months ended September 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 expense 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. This was partially offset by $9.4 million in stock
appreciation rights ("SARs") expense related to WWI for the nine months ended
September 30, 2000.
OTHER EXPENSE
Interest and financing expense increased to $108.7 million for the nine
months ended September 30, 2000, compared to $71.8 million for the same period
in 1999, due mainly 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 9.2% for the nine months ended September 30, 2000, compared to 8.1% for the
same period in 1999.
17
<PAGE> 18
NET INCOME (LOSS) FROM CONTINUING OPERATIONS
The change from a net loss from continuing operations during the nine
months ended September 30, 1999, to net income from continuing operations during
the nine months ended September 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.
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 $234.6 million for the nine
months ended September 30, 2000, from $181.8 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 has a $2.1 billion credit facility with a consortium of
lenders (the "Credit Facility"). The Credit Facility provides for $1.0 billion
in revolving loans and $1.1 billion in term loans. As of September 30, 2000,
$1.3 billion was outstanding under the Credit Facility. Based on certain
covenants, the Company, at September 30, 2000, had approximately $800 million
available to borrow under the 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.
Effective October 2000, NuevaTel S.A. ("NuevaTel"), a subsidiary of WWI,
entered into a bridge loan facility agreement to provide funding for the build
out and implementation of NuevaTel's network in Bolivia. The aggregate amount
available under the bridge loan is $37.5 million.
In October 2000, WWI completed the sale of Baltcom GSM for $277 million.
WWI's portion of the proceeds is approximately $66 million. These proceeds will
primarily be used to reduce outstanding borrowings under the revolving portion
of the Credit Facility.
For the remainder of 2000, the Company expects to spend: (i)
approximately $25 million for the continued expansion of its domestic cellular
infrastructure, (ii) approximately $203 million for the purchase of the cellular
licenses and operations of the Arizona 4 and California 7 RSAs, and (iii)
approximately $10 million for WWI's funding of international joint ventures. The
Company will utilize cash on hand, the Credit Facility and other sources of
funding for purposes of funding its cellular and international activities.
Net cash provided by operating activities was $105.9 million for the
nine months ended September 30, 2000. Adjustments to the $0.2 million net income
to reconcile to net cash provided by operating activities included $12.4 million
for the extraordinary loss on the early extinguishment of debt, $93.3 million of
depreciation and amortization and $16.6 million for stock based compensation.
Net cash provided by operating activities was $68.9 million for the nine months
ended September 30, 1999.
Net cash used in investing activities was $387.5 million for the nine
months ended September 30, 2000. The Company purchased property and equipment in
the amount of $198.2 million, of which $22.7 million related to WWI. Additional
investing activities for the period consisted mostly of $151.6 million in
acquisitions of wireless properties, primarily attributable to the purchase of
the Utah 5, Arizona 6, Wyoming 1 and Oklahoma 4 RSAs. Net cash used in investing
activities was $216.7 million for the nine months ended September 30, 1999.
18
<PAGE> 19
Net cash provided by financing activities was $262.3 million for the
nine months September 30, 2000. Financing activities for the period consisted
primarily of a net addition to long-term debt of $250 million to finance the
acquisition of wireless properties and fund international joint ventures through
WWI. Net cash provided by financing activities was $154.5 million for the nine
months ended September 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.
19
<PAGE> 20
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 Credit Facility. The 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% ($412 million fair value). As required under the Credit
Facility, the Company utilizes interest rate caps, swaps and collar agreements
to hedge variable rate interest risk on the Credit Facility. All of the
Company's derivative financial instrument transactions are entered into for
non-trading purposes.
Notional amounts outstanding at September 30, 2000, for interest rate
caps are $100 million, $100 million and $25 million ($0 fair value) with
maturity dates in the years 2000, 2001 and 2002, respectively. The interest rate
caps effectively lock $225 million of the Company's Credit Facility borrowings
between 7.5% and 7.8%.
Notional amounts outstanding at September 30, 2000, for interest rate
collars are $145 million and $55 million (negative $0.5 million fair value) with
expected maturity dates in the years 2003 and 2004, respectively. The interest
rate collars effectively lock $200 million of the Company's Credit Facility
borrowings between 7.0% and 7.8%.
Notional amounts outstanding at September 30, 2000, for interest rate
swaps are $70 million and $25 million (negative $0.4 million fair value) with
expected maturity dates in the years 2003 and 2005, respectively. The interest
rate swaps effectively lock $95 million of the Company's Credit Facility
borrowings between 6.1% and 6.8%.
20
<PAGE> 21
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Description
------- -----------
10.65 Asset Purchase Agreement by and between Century Yuma
Cellular Corp., Hendrix Electronics, Inc., Hendrix
Radio Communications, Inc., El Centro Cellular
Corp., Century El Centro Cellular Corp., Centennial
Southwest License Company LLC, Centennial
Communications Corp., WWC License LLC and Western
Wireless Corporation dated July 24, 2000.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
A Form 8-K was filed on July 28, 2000, reporting the Company's
financial and operating results for the second quarter ended June
30, 2000, and the acquisition by the Company of the Arizona 4 and
California 7 markets from Centennial Communications Corp.
21
<PAGE> 22
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: November 9, 2000
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
10.65 Asset Purchase Agreement by and between Century Yuma Cellular
Corp., Hendrix Electronics, Inc., Hendrix Radio Communications,
Inc., El Centro Cellular Corp., Century El Centro Cellular Corp.,
Centennial Southwest License Company LLC, Centennial
Communications Corp., WWC License LLC and Western Wireless
Corporation dated July 24, 2000.
27.1 Financial Data Schedule
</TABLE>
