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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 000-28160
WESTERN WIRELESS CORPORATION
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(Exact name of registrant as specified in its charter)
WASHINGTON 91-1638901
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3650 131ST AVENUE S.E.
BELLEVUE, WASHINGTON 98006
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(Address of principal executive offices) (Zip Code)
(425) 586-8700
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, computed by reference to the last sale of such stock as of the close
of trading on March 10, 2000 was $3,676,248,620.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
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Title Shares Outstanding as of March 10, 2000
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Class A Common Stock, no par value 70,713,300
Class B Common Stock, no par value 7,086,564
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the
indicated parts of this Form 10-K: Proxy Statement for its 2000
annual shareholders meeting to be filed with the United States
Securities and Exchange Commission - Part III.
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WESTERN WIRELESS CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999
Table of Contents
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PART I
Item 1. BUSINESS...............................................................................3
Item 2. PROPERTIES............................................................................13
Item 3. LEGAL PROCEEDINGS.....................................................................13
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................13
Executive Officers of the Registrant..........................................................14
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.................16
Item 6. SELECTED FINANCIAL DATA...............................................................17
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS....................................................................................18
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........................23
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...........................................24
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE....................................................................................24
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................................25
Item 11. EXECUTIVE COMPENSATION...............................................................25
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................25
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................25
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K....................26
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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; the
Company's and its third-party suppliers' ability to take corrective action in a
timely manner with respect to the year 2000 issue; 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.
PART I
ITEM 1. BUSINESS
THE BUSINESS OF WESTERN WIRELESS
GENERAL
Western Wireless Corporation (the "Company") provides wireless
communications services in the United States principally through the ownership
and operation of cellular systems. The cellular operations are primarily in
rural areas due to the Company's belief that there are certain strategic
advantages to operating the technology in these areas. As of December 31, 1999,
the Company provides cellular services in 19 western states under the Cellular
One(R) ("Cellular One") brand name, serving over 834,000 subscribers. To support
its growing subscriber base, the Company operates and maintains extensive
centralized management and back office functions in the state of Washington. In
addition, the Company operates two call centers in the states of Washington and
Kansas and a third bilingual call center in the state of Texas. Further, Western
Wireless International Corporation ("WWI"), a subsidiary of the Company, is a
leading provider of wireless communications services worldwide. Since 1996, WWI
has built and launched wireless networks in six countries, and is currently
constructing nationwide cellular networks in three additional regions. At the
end of 1999, these systems served 320,000 customers. See "The Business of
Western Wireless International," for more information.
OPERATION OF CELLULAR COMMUNICATIONS SYSTEMS
Cellular frequencies licensed by the Federal Communication Commission
("FCC") for transmitting two-way voice and data signals are generated at 824 to
899 MHz and can be either analog or digital. Cellular communications systems
service areas are divided into multiple cells. Due to the frequencies in which
they operate, a single cell in an analog system generally transmits over a wider
radius than a comparable digital cell. In both analog and digital systems, each
cell contains a transmitter, a receiver and signaling equipment (the "Cell
Site"). The Cell Site is connected by microwave or landline telephone lines to a
switch that uses computers to control the operation of the wireless
communications system for the entire service area. The system controls the
transfer of calls from cell to cell as a subscriber's handset travels,
coordinates calls to and from handsets, allocates calls among the cells within
the system and connects calls to the local landline telephone system or to a
long distance telephone carrier. Cellular communications providers establish
interconnection agreements with local exchange carriers and inter-exchange
carriers, thereby integrating their systems with the existing landline
communications systems.
The switching office and the Cell Site monitor the signal strength of
calls in progress, because the signal strength of a transmission between a
handset and a Cell Site declines as the handset moves away from the Cell Site.
When the signal strength of a call declines to a predetermined level, the
switching office may "hand off" the call to another Cell Site where the signal
strength is stronger. If a handset leaves the service area of an analog or
digital system, the call is disconnected unless there is a technical connection
with the adjacent system.
STRATEGY
The Company's principal focus is on the operation of wireless
communication systems in rural markets in the United States. The Company
believes that its 800 MHz licenses, combined with the use of analog technology,
currently give it a
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strategic advantage in its rural markets. The Company considers its rural
markets to be less susceptible to competition and have a greater capacity for
future growth than most metropolitan markets. The Company has begun testing
digital technology in some of its more densely populated Metropolitan
Statistical Areas ("MSA") and believes a long-term strategy that mixes the
digital and analog technologies will allow it to optimally service its own
growth as well as the growth in roaming minutes of use.
The Company's operating strategy is to position itself as the premier
rural communications provider in the United States. This strategy requires that
it: (i) maintain and operate high quality systems with extensive coverage; (ii)
expand operations through increased subscriber growth and usage; (iii) increase
the number of telecommunication services available to its customers, such as
data and long-distance; (iv) create an environment that encourages other
carriers' customers to roam on its network; (v) utilize centralized management,
back office functions and its own sales force to improve operating efficiencies
and generate greater economies of scale; and (vi) acquire additional domestic
and international wireless licenses in areas adjacent to or in proximity to its
other markets.
The Company is implementing its strategy by: (i) continually upgrading
and maintaining its present systems to allow for more functionality and quality
performance; (ii) offering a targeted range of products and services at
competitive prices to complement today's business and personal lifestyles; (iii)
providing a superior level of customer service; (iv) continuing to grow its
footprint; and (v) continuing to invest in international operations through its
subsidiary WWI.
The Company has also been a strong proponent of wireless companies
gaining Eligible Telecommunications Carrier ("ETC") status, thereby allowing the
Company access to Universal Service Fund ("USF") payments. ETC designation would
support the Company's strategy to provide fixed Wireless Residential Service
("WRS"), via a wireless device as a principle residential phone, while obtaining
supplemental revenues to offset the cost of serving WRS customers.
ROAMING
Cellular communications providers normally agree to provide service to
subscribers from other compatible wireless systems who are temporarily located
in or traveling through their service areas in a practice called "roaming."
Agreements among system operators provide that the carrier that normally
provides services to the roaming subscriber pays the serving carrier at rates
prescribed by the serving carrier. Analog cellular handsets are functionally
compatible with cellular systems in all markets within the United States. As a
result, analog cellular handsets may be used wherever a subscriber is located,
as long as a cellular system is operational in the area and necessary roaming
arrangements exist. Although analog and digital systems utilize similar
technologies and hardware, they operate on different frequencies and use
different technical and network standards. Dual mode handsets, however, make it
possible for users of one type of system to "roam" on a different type of system
outside of their service area.
The Company has long-term roaming agreements with the majority of
wireless carriers in North America, including AT&T Corporation ("AT&T
Wireless"), VoiceStream Wireless Corporation ("VoiceStream"), Sprint PCS L.P.
("Sprint PCS"), Vodafone AirTouch PLC. ("AirTouch"), SBC Communications, Inc.
("SBC Wireless") and U.S. West, Inc. ("U.S. West"). These arrangements allow
their customers to roam on the Company's network. Similarly, these agreements
provide attractive rates to the Company for its customers who roam in areas
outside the Company's wireless network. The Company has deployed digital voice
channels in most of its markets, which allows certain carriers' digital roaming
traffic to best utilize the Company's network. During 1999, approximately 67% or
$101.4 million of the Company's roamer revenues are attributable to a single
carrier, AT&T Wireless. AT&T Wireless was not a significant customer of the
Company prior to 1999. The Company's current agreement with AT&T Wireless is in
effect until May 2001 and has a small scheduled rate reduction in May 2000.
MARKETS AND SYSTEMS
The Company operates cellular systems in 18 MSAs and 83 Rural Service
Areas ("RSA"), and generally owns 100% of each of its cellular licenses that
cover a total of approximately nine million people. The Company's experience is
that several inherent attributes of RSAs and small MSAs make such markets
attractive. See "Licensing of Cellular Systems." Such attributes include high
subscriber growth rates, population bases of customers with substantial needs
for wireless communications, the ability to cover larger geographic areas with
fewer Cell Sites than is possible in urban areas, less intense competitive
environments and less vulnerability to personal communication services ("PCS")
and other competition.
Population data in the following table is estimated for 2000 based upon
1998 and 1999 actual data provided by Claritas, Inc. ("Claritas"), and is
adjusted by the Company by applying Claritas' growth factors.
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CELLULAR
LICENSE AREA (1) POPULATION
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Arizona
Mohave (AZ-1) (5) 4,000
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Arizona Total 4,000
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Arkansas
Hempstead (AR-11) 66,000
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Arkansas Total 66,000
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California
Mono (CA-6) 28,000
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California Total 28,000
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Colorado
Pueblo 139,000
Park (CO-4) 86,000
Elbert (CO-5) 37,000
Saguache (CO-7) 51,000
Kiowa (CO-8) 46,000
Costilla (CO-9) 30,000
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Colorado Total 389,000
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Idaho
Idaho (ID-2) (2) 78,000
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Idaho Total 78,000
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Iowa
Sioux City 119,000
Monona (IA-8) 55,000
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Iowa Total 174,000
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Kansas
Jewell (KS-3) 51,000
Marshall (KS-4) 127,000
Ellsworth (KS-8) 131,000
Morris (KS-9) 57,000
Franklin (KS-10) 113,000
Reno (KS-14) 179,000
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Kansas Total 658,000
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Minnesota
Kittson (MN-1) 49,000
Lake of the Woods 25,000
(MN-2-A1)
Chippewa (MN-7) 170,000
Lac qui Parle (MN-8) 65,000
Pipestone (MN-9) 130,000
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Minnesota Total 439,000
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Missouri
Bates (MO-9) 79,000
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Missouri Total 79,000
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Montana
Billings (6) 127,000
Great Falls 77,000
Lincoln (MT-1) 154,000
Toole (MT-2) 36,000
Phillips (MT-3) 14,000
Daniels (MT-4) 39,000
Mineral (MT-5) 196,000
Deer Lodge (MT-6) 66,000
Fergus (MT-7) 30,000
Beaverhead (MT-8) (3) 98,000
Carbon (MT-9) 33,000
Prairie (MT-10) 19,000
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Montana Total 889,000
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Nebraska
Lincoln 239,000
Cherry (NE-2) 30,000
Knox (NE-3) 114,000
Grant (NE-4) 34,000
Boone (NE-5) 149,000
Keith (NE-6) 109,000
Hall (NE-7) 93,000
Chase (NE-8) 57,000
Adams (NE-9) 80,000
Cass (NE-10) 88,000
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Nebraska Total 993,000
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Nevada
Humbolt (NV-1) 51,000
Lander (NV-2) 58,000
Mineral (NV-4) 38,000
White Pine (NV-5) 14,000
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Nevada Total 161,000
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New Mexico
Colfax (NM-2) 15,000
Lincoln (NM-6) (4) 240,000
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New Mexico Total 255,000
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North Dakota
Bismarck 93,000
Fargo 172,000
Grand Forks 96,000
Divide (ND-1) 99,000
Bottineau (ND-2) 58,000
McKenzie (ND-4) 63,000
Kidder (ND-5) 46,000
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North Dakota Total 627,000
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Oklahoma
Cimarron (OK-1) 29,000
Beckham (OK-7) 131,000
Jackson (OK-8) 93,000
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Oklahoma Total 253,000
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South Dakota
Rapid City 109,000
Sioux Falls (6) 147,000
Harding (SD-1) 36,000
Corson (SD-2) 22,000
McPherson (SD-3) 51,000
Marshall (SD-4) 68,000
Custer (SD-5) 26,000
Haakon (SD-6) 39,000
Sully (SD-7) 65,000
Kingsbury (SD-8) 70,000
Hanson (SD-9) 107,000
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South Dakota Total 740,000
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Texas
Abilene 154,000
Brownsville 335,000
McAllen 544,000
Lubbock 225,000
Midland (6) 124,000
Odessa (6) 129,000
San Angelo 103,000
Dallam (TX-1) 55,000
Hansford (TX-2) 91,000
Parmer (TX-3) 140,000
Briscoe (TX-4) 41,000
Hardeman (TX-5) 75,000
Fannin (TX-7) 384,000
Gaines (TX-8) 136,000
Hudspeth (TX-12) 27,000
Reeves (TX-13) 31,000
Loving (TX-14) 46,000
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Texas Total 2,640,000
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Utah
Juab (UT-3) 63,000
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CELLULAR
LICENSE AREA (1) POPULATION
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Beaver (UT-4) 125,000
Carbon (UT-5) 84,000
Piute (UT-6) 29,000
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Utah Total 301,000
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Wyoming
Casper 63,000
Sheridan (WY-2) 78,000
Niobrara (WY-4) 131,000
Converse (WY-5) 13,000
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Wyoming Total 285,000
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Total 9,059,000
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(1) Excludes one market containing a population of 90,000 in which the
Company operates under an Interim Operating Authority.
(2) The population for Idaho 2 includes 5,000 persons in the Idaho 3 RSA
because the Company has construction permits to build Cell Sites in
portions of Idaho 3 under its Idaho 2 license.
(3) The population for Montana 8 includes 1,000 persons in the Wyoming 1 RSA
because the Company is a licensed A-2 carrier, servicing a portion of
the Wyoming 1 RSA. An A-2 license is issued by the FCC and covers the
area where the original A-1 carrier has not provided wireless services
to the covered population.
(4) The population for New Mexico 6 includes 100 persons in the New Mexico 3
RSA because the Company is a licensed A-2 carrier, servicing a portion
of the New Mexico 3 RSA.
(5) The Company is a licensed A-2 carrier, servicing a portion of the
Arizona 1 RSA.
(6) These markets have minority ownership interests, the amount of which is
less than one half of one percent of the Company's total licensed
population.
In addition to the license areas listed in the above table, the Company
has announced the intention to purchase the Wyoming 1 and Arizona 6 RSAs from
two other cellular providers. These RSAs include a population of approximately
52,000 for Wyoming 1 and 192,000 for Arizona 6 and are expected to close in the
second quarter of 2000.
PRODUCTS AND SERVICES
The Company offers its subscribers high quality communications service,
as well as several custom calling services, such as call forwarding, call
waiting, conference calling, voice message storage and retrieval, data services
and no-answer transfer. In addition, all subscribers can access local government
emergency services from their cellular handsets (at no charge) by dialing 911.
The Company will continue to evaluate new products and services that may be
complementary to its wireless operations. The Company has designed several
pricing options to meet the varied needs of its customer base. Most options
consist of a fixed monthly charge (with varying allotments of included minutes),
plus variable charges per minute of additional use. In addition, in most cases,
the Company separately charges for its custom calling features.
The Company provides extended regional and national service to its
subscribers, through its membership in North American Cellular Network ("NACN")
and other regional networking arrangements, thereby allowing subscribers to make
and receive calls while in other cellular service areas without dialing special
access codes or requiring special payment arrangements. NACN is the largest
wireless telephone network system in the world, linking wireless communications
providers throughout the United States, Canada, Puerto Rico and the Virgin
Islands. The Company also has special roaming arrangements with certain cellular
communications providers in areas adjacent to the Company's markets that provide
the Company's customers better value when roaming in these surrounding areas.
MARKETING, SALES AND CUSTOMER SERVICE
The Company's sales and marketing strategy is to generate continued net
subscriber growth and increased subscriber revenues. In addition, the Company
targets a customer base that it believes is likely to generate higher monthly
service revenues, while attempting to achieve a low cost of adding new
subscribers.
Marketing - The Company markets its products and services in all markets
under the name Cellular One. Cellular One, the first national brand name in the
cellular industry, is currently utilized by a national coalition of cellular
licensees that serve nearly 1,300 cities and towns with a combined estimated
population of over 115 million. The national advertising campaign conducted by
the Cellular One Group enhances the Company's advertising exposure at a lesser
cost than what could be achieved by the Company alone. In June 1999, the Company
became a 50% partner in the Cellular One Group,
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along with existing Cellular One Group partner, Southwestern Bell, to own,
manage and promote the Cellular One brand nationwide.
Sales - The Company sells its products and services through a
combination of direct and indirect channels. The Company operates 217 stores and
kiosks under the Cellular One brand name and utilizes a direct sales force of
over 800 persons based out of these offices, who are trained to educate new
customers on the features of its products. Sales commissions generally are
linked both to subscriber revenue and subscriber retention, as well as
activation levels.
The Company believes that its local sales offices provide the physical
presence in local markets necessary to position Cellular One as a quality local
service provider, and give the Company greater control over both its costs and
the sales process. The Company also utilizes indirect sales through an extensive
network of national and local merchants and specialty retailers. The Company
intends to continue to use a combination of direct and indirect sales channels,
with the mix depending on the demographics of each particular market.
In addition, the Company acts as a retail distributor of handsets and
maintains inventories of handsets. Although subscribers generally are
responsible for purchasing or otherwise obtaining their own handsets, the
Company has historically sold handsets below cost to respond to competition and
general industry practice and expects to continue to do so in the future.
Customer Service - Customer service is a significant element of the
Company's operating philosophy. The Company is committed to attracting and
retaining subscribers by providing consistently superior customer service. The
Company opened a new state of the art call center in Manhattan, Kansas in
November 1999 and combined with the facility in Issaquah, Washington, the
Company maintains a highly sophisticated monitoring and control system, a staff
of customer service personnel and a well-trained technical staff to handle both
routine and complex questions as they arise, 24 hours a day, 365 days a year.
The Company also operates a call center in the Rio Grande Valley, Texas to
support its growing bilingual subscriber base.
The Company implements credit check procedures at the time of sale and
continuously monitors customer churn (the rate of subscriber attrition). The
Company believes that it helps manage its churn through an outreach program by
its sales force and customer service personnel. This program not only enhances
subscriber loyalty, but also increases add-on sales and customer referrals. The
outreach program allows the sales staff to check customer satisfaction, as well
as to offer additional calling features, such as voice mail, call waiting and
call forwarding.
SUPPLIERS AND EQUIPMENT VENDORS
The Company does not manufacture any of the handsets or Cell Site
equipment used in its operations. The high degree of compatibility among
different manufacturers' models of handsets and Cell Site equipment allows the
Company to design, supply and operate its systems without being dependent upon
any single source of such equipment. The handsets and Cell Site equipment used
in the operations are available for purchase from multiple sources, and the
Company anticipates that such equipment will continue to be available in the
foreseeable future. The Company currently purchases handsets primarily from
Audiovox, Inc., Motorola, Inc., NEC Inc. and Nokia Telecommunications, Inc.
("Nokia") and its Cell Site and switching equipment primarily from Lucent
Technologies, Inc. and Nortel Networks, Inc.
COMPETITION
Competition for subscribers among wireless communications providers is
based principally upon the services and features offered, the technical quality
of the wireless system, customer service, system coverage, capacity and price.
Under current FCC rules, there may be up to seven PCS licensees in each
geographic area in addition to the two existing cellular licensees. Also,
Specialized Mobile Radio ("SMR") dispatch system operators have constructed
digital mobile communications systems on existing SMR frequencies, referred to
as Enhanced Specialized Mobile Radio ("ESMR"), in many cities throughout the
United States, including some of the markets in which the Company operates.
Each of the Company's cellular markets face one cellular competitor
including: AirTouch, Alltel, and Southwestern Bell. Industry consolidation in
1999 resulted in the acquisition of three of the Company's primary competitors,
Aliant, Kansas Cellular and CommNet Cellular Inc., thereby increasing the
presence of regional and national wireless operators within the Company's
footprint. Additionally, the Company has PCS and ESMR competitors in some of its
largest markets. The Company also competes with paging, dispatch and
conventional mobile telephone companies, resellers and landline telephone
service providers in its cellular markets. Increasingly, cellular service is
becoming a viable alternative to landline voice services for certain customer
segments, putting cellular licensees in direct competition with traditional
landline telephone service providers. Potential users of cellular systems may
find their communications needs satisfied by other current and developing
technologies. One or two-way paging services that feature voice messaging and
data display as well as tone only service may be adequate for potential
subscribers who do not need to speak to the caller.
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The FCC requires all cellular licensees to provide service to
"resellers." A reseller provides wireless service to customers but does not hold
an FCC license or own facilities. Instead, the reseller buys blocks of wireless
telephone numbers and capacity from a licensed carrier and resells service
through its own distribution network to the public. Thus, a reseller is both a
customer of a wireless licensee's services and also a competitor of that
licensee. Several small resellers currently operate in competition with the
Company.
In the future, the Company expects to face increased competition from
entities providing similar services using other communications technologies,
including satellite-based telecommunications systems. In addition, the Company
may face competition from the FCC's recent decision to auction 700 MHz licenses
in 2000 (see "Telecommunications Act of 1996 and Other Recent Industry
Developments"). While some of these technologies and services are currently
operational, others are being developed or may be developed in the future.
INTELLECTUAL PROPERTY
Cellular One is a service mark registered with the United States Patent
and Trademark Office. The service mark is owned by Cellular One Group, a
Delaware general partnership comprised equally of the Company and Cellular One
Marketing, Inc., a subsidiary of Southwestern Bell. The Company uses the
Cellular One service mark to identify and promote its cellular telephone service
pursuant to licensing agreements with Cellular One Group. The licensing
agreements require the Company to provide high-quality cellular telephone
service to its customers, and to maintain a certain minimum overall customer
satisfaction rating in surveys commissioned by Cellular One Group. The licensing
agreements that the Company has entered into are for original five-year terms
expiring on various dates. Assuming compliance by the Company with the
provisions of the agreements, each of these agreements may be renewed at the
Company's option for three additional five-year terms.
The Company holds federal trademark registration of the mark "Western
Wireless" and has registered or applied for various other trade and service
marks with the United States Patent and Trademark Office.
GOVERNMENTAL REGULATION
The FCC regulates the licensing, construction, operation, acquisition
and sale of cellular systems in the United States pursuant to the Communications
Act of 1934 (the "Communications Act"), as amended from time to time, and the
rules, regulations and policies promulgated by the FCC thereunder.
LICENSING OF CELLULAR SYSTEMS
A cellular communications system operates under a protected geographic
service area license granted by the FCC for a particular market on one of two
frequency blocks allocated for cellular service. One license for each market was
initially awarded to a company or group that was affiliated with a local
landline telephone carrier in such market and is called the wireline or "B" band
license and the other license is called the non-wireline or "A" band license.
Following notice of completion of construction, a cellular operator obtains
initial operating authority. Cellular authorizations are issued for a 10-year
license term beginning on the date of the initial notification to the FCC of the
initial completion of construction by a cellular carrier. Under FCC rules, the
authorized service area of a cellular provider in each of its markets is
referred to as the Cellular Geographic Service Area ("CGSA"). A cellular
licensee has the exclusive right to build-out its cellular system and serve the
entire area that falls within its MSA or RSA for a period of five years
following grant of the licensee's construction permit. At the end of the
five-year period, however, the licensee's exclusive CGSA rights become limited
to the area actually served by the licensee as of that time, as determined
pursuant to a formula adopted by the FCC and set forth in a System Information
Update ("SIU") filing to the FCC. At the end of the five-year period, any entity
may apply to serve portions of the MSA or RSA not already being served by the
licensee. The five-year exclusivity period has expired for most licensees and
parties have filed unserved area applications, including some in the Company's
markets.
At the end of the 10-year license term, licensees must file applications
for renewal of licenses. The FCC has adopted specific standards that apply to
cellular renewals, under which standards the FCC will award a renewal expectancy
to a cellular licensee that: (i) has provided substantial service during its
past license term; and (ii) has substantially complied with applicable FCC rules
and policies and the Communications Act. Violations of the Communications Act or
the FCC's rules could result in license revocations, forfeitures or fines. The
Company has approximately 70 cellular licenses, which are subject to the renewal
process over the next three years. While the Company believes that each of its
cellular licenses will be renewed, there can be no assurance that all of the
licenses will be renewed.
Cellular radio service providers must also satisfy a variety of FCC
requirements relating to technical and reporting matters. One such requirement
is the coordination of proposed frequency usage with adjacent cellular users,
permittees and licensees in order to avoid electrical interference between
adjacent systems. In addition, the height and power of base station
8
<PAGE> 9
transmitting facilities and the type of signals they emit must fall within
specified parameters. The FCC has also provided guidelines respecting cellular
service resale and roaming practices and the terms under which certain ancillary
services may be provided through cellular facilities.
Cellular licensees are subject to certain Federal Aviation
Administration ("FAA") regulations regarding the location, marking/lighting, and
construction of transmit towers. Each tower requiring FAA notification requires
tower registration with the FCC. In addition, transmit towers may be subject to
regulation under the National Environmental Policy Act and the environmental
regulations of the FCC. State or local zoning and land use regulations also
apply to the Company's activities.
The Company uses, among other facilities, common carrier point-to-point
microwave facilities to connect Cell Sites and to link the Cell Sites to the
main switching office. These facilities are separately licensed by the FCC and
are subject to regulation as to technical parameters, frequency protection and
service.
The Communications Act preempts state and local regulation of the entry
of, or the rates charged by, any provider of commercial mobile radio service
("CMRS") or any private mobile radio service, which CMRS includes cellular
service.
The Company has purchased its cellular licenses from private parties or
the federal government. The Company has used a combination of debt and equity
financing to acquire such licenses.
The Communications Act and FCC rules require the FCC's prior approval of
any assignments of cellular and microwave licenses, including construction
permits, or transfers of control of cellular and microwave licensees (pro forma
assignments and transfers of control do not require prior FCC approval). Subject
to FCC approval, a license or permit may be transferred from a non-wireline
entity to a wireline entity, or vice versa. Non-controlling interests in an
entity that holds a cellular license or cellular system generally may be bought
or sold without prior FCC approval. If the transaction is over a certain size,
any acquisition or sale by the Company of cellular interests may also require
the prior approval of the Federal Trade Commission and the Department of Justice
as well as approval from any state or local regulatory authorities having
competent jurisdiction.
In cases where there is "significant overlap" among PCS, cellular or SMR
licensees, who are linked by common ownership, the FCC's rules impose limits on
the amount of spectrum which may be held. "Significant overlap" is defined by
the FCC to occur when at least 10% of the population within a licensed PCS
service area lies within the related Cellular Geographic Service Area(s) and/or
SMR service area(s). No person or entity may hold an attributable interest in
cellular, PCS and SMR licenses for more than 55 MHz of spectrum in Rural Service
Areas ("RSAs") or 45 MHz of spectrum in all other areas. The rules require that
the officers and directors of any licensee shall be considered to have an
attributable interest in each entity with which they are associated. This means
that the Company's ownership of cellular licenses will be attributed to
VoiceStream because of some common officers and directors. Thus spectrum cap
restrictions will be in effect where the Company owns cellular licenses serving
markets that are also served by VoiceStream. The Company currently owns cellular
licenses serving markets that are wholly or partially within the Oklahoma City
PCS Major Trading Area ("MTA"), resulting in the Company and VoiceStream
exceeding the FCC's spectrum cap restrictions. As a result of the recent merger
between VoiceStream and Omnipoint Corporation ("Omnipoint"), attribution of
licenses held by VoiceStream will also cause the spectrum cap to be exceeded in
the Kansas 3, 8, 9, 10 and 14 RSAs. Following consummation of the merger between
VoiceStream and Aerial Communications, Inc. ("Aerial"), the spectrum cap will be
exceeded in the following additional markets: Kansas RSA 4, Minnesota RSAs 1, 2,
7, 8 and 9, North Dakota RSAs 2, 3, 4 and 5, South Dakota RSAs 2, 3, 4, 6, 7, 8
and 9, Bismark, North Dakota MSA, Fargo, North Dakota MSA, Grand Forks, North
Dakota MSA and Sioux Falls, South Dakota MSA. VoiceStream has requested waivers
of the spectrum cap for these markets, which, if granted, will bring the Company
into compliance with the spectrum cap. In the event that spectrum cap
restrictions are not eliminated as part of the FCC's biennial review of
regulation in the fourth quarter of 2000, and no waiver is granted, then either
the Company or VoiceStream will be obligated to divest sufficient portions of
some markets to come into compliance with the rules.
EMPLOYEES AND LABOR RELATIONS
The Company considers its labor relations to be good and, to the
Company's knowledge, none of its employees is covered by a collective bargaining
agreement. As of December 31, 1999, the Company employed a total of 2,437 people
in the following areas:
<TABLE>
<CAPTION>
Number of
Category Employees
-------- ---------
<S> <C>
Sales and marketing 1,256
Engineering 174
General and administration, including customer service 1,007
</TABLE>
9
<PAGE> 10
THE BUSINESS OF WESTERN WIRELESS INTERNATIONAL
A wholly owned subsidiary of the Company, WWC Holding Co, Inc.,
("Holding Co.") owns 96% of WWI who, through operating joint ventures, is a
provider of wireless communications services worldwide. Since 1996, WWI has
participated in operating joint ventures that have built and launched wireless
networks in Latvia, Georgia, Iceland, Croatia, Ghana and Haiti, and is currently
constructing a nationwide cellular network in Bolivia. In January 2000, WWI,
through its joint venture with the Modern Africa Growth and Investment Company
("MAGIC"), completed an acquisition of the assets and operations of Comstar in
the Ivory Coast. Additionally, WWI holds approximately 67% of Meteor Mobile
Communications ("MMC"), an entity that has been granted the Irish license, which
is pending appeal with the Irish High Court. In total, these systems are
licensed to provide service to over 64 million people.
GENERAL OVERVIEW
The primary business of WWI is wireless communications for mobile and
fixed applications. In each of its markets, WWI's operating joint ventures
provide mobile voice telephony utilizing internationally accepted technology
standards, such as Group Special Mobile ("GSM"). In certain markets, WWI's
operating joint ventures also provide other telecommunications services,
including wireless local loop, international long distance, internet access, pay
phones and paging. Virtually all of these services are provided through wireless
technology, which is often a more economic medium through which to deliver
telecommunications services than traditional landline networks.
WWI has operating joint ventures in countries where there is substantial
unmet demand for communications services and a high potential for rapid
subscriber growth. By introducing competition and providing customers with a
high-quality alternative, WWI has succeeded in expanding the size and service
offerings of the telecommunications sector in these countries.
WWI has pursued a strategy of obtaining interests in licenses to provide
telecommunications services in a variety of countries in which wireless services
can be profitable. The elements of WWI's strategy are to find opportunities
where the company can leverage its operating knowledge and construction
capabilities to bring wireless telecommunications to markets it believes are
underserved by the existing, if any, wireless operators. In addition, it has
been the strategy of WWI to pursue ventures that it believes will result in a
minimal amount of license costs to be paid to the licensing authority.
WWI's ownership interest in each of its operating joint ventures ranges
from 15% to 50%. WWI provides technical and management expertise to each of
these joint ventures. In all of its markets, WWI has traditionally teamed up
with local and international partners. WWI intends to pursue controlling
interest in future operating entities and gain majority ownership in existing
operating entities whenever viable. An operational status by country follows:
<TABLE>
<CAPTION>
Country Status
------- ------
<S> <C>
Latvia Operating
Georgia Operating
Ghana Operating
Croatia Operating
Haiti Operating
Iceland Operating
Ireland Under Construction (1)
Bolivia Under Construction
</TABLE>
In January 2000, WWI completed the acquisition of Comstar Cellular, a
GSM cellular operator in Ivory Coast. The Comstar network is currently under
expansion.
(1) WWI holds approximately 67% of MMC. On October 3, 1999, the Irish
High Court remanded to the Office of the Director of Telecommunication
Regulation ("ODTR") its decision that ranked 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 have
appealed this ruling to the Irish Supreme Court. If the ruling is upheld on
appeal, then it is most likely that: (i) the previous bids will be reviewed and
re-ranked; or (ii) a new bidding process will be implemented. Management remains
committed to the Irish market and believes that the attributes of its original
bid that resulted in the initial number one ranking will continue to be
recognized as the best plan. However, pending the outcome of the appeal, there
is no assurance that the Company will retain its current ranking. During the
period from which the Company's bid was ranked number one up through the date of
the recent court decision, WWI continued to invest in MMC. However, since MMC
may not be awarded the license, it is possible that the investment underlying
MMC may not be realized. If MMC is not successful in its bid for this license,
the estimated range of a potential loss to be recorded by WWI would range from
$9 to $12 million.
10
<PAGE> 11
TELECOMMUNICATIONS ACT OF 1996 AND OTHER RECENT INDUSTRY DEVELOPMENTS
On February 8, 1996, the Telecommunications Act was signed into law,
substantially revising the regulation of communications. The goal of the
Telecommunications Act is to enhance competition and remove barriers to market
entry, while deregulating the communications industry to the greatest extent
possible. To this end, local and long-distance communications providers will,
for the first time, be able to compete in each other's markets, and telephone
and cable companies will likewise be able to compete in each other's markets. To
facilitate the entry of new carriers into existing markets, the
Telecommunications Act imposes certain interconnection requirements on incumbent
carriers. Additionally, all telecommunications providers are required to make an
equitable and nondiscriminatory contribution to the preservation and advancement
of universal service. We cannot predict the outcome of the FCC's rulemaking
proceedings to promulgate regulations to implement the new law or the effect of
the new regulations on cellular service or PCS, and there can be no assurance
that such regulations will not adversely affect our business or financial
condition.
The Telecommunications Act codified the policy that non-regional Bell
operating company CMRS providers will not be required to provide equal access to
long distance carriers, and relieved such CMRS providers of their existing equal
access obligations. The FCC, however, may require CMRS carriers to offer
unblocked access, i.e., implemented by the subscriber's use of a carrier
identification code or other mechanisms at the time of placing a call to the
long distance provider of a subscriber's choice. The FCC has terminated its
inquiry into the imposition of equal access requirements on CMRS providers.
On July 26, 1996, the FCC released a Report and Order establishing
timetables for making emergency 911 services available by cellular, PCS and
other mobile service providers, including "enhanced 911" services that provide
the caller's telephone number, location, and other useful information. Cellular
and PCS providers must be able to process and transmit 911 calls (without call
validation), including those from callers with speech or hearing disabilities.
Under the FCC rules, if a Public Service Answering Point requests and is capable
of processing the caller's telephone number and location information, cellular,
PCS, and other mobile service providers must relay a caller's automatic number
identification and Cell Site location, and by 2001 they must be able to identify
the location of a 911 caller within 125 meters in 67% of all cases. State
actions incompatible with the FCC rules are subject to preemption. On December
1, 1997, the FCC required wireless carriers to transmit all 911 calls without
regard to validation procedures intended to identify and intercept calls from
non-subscribers. Then, in an order released June 9, 1999, the FCC adopted rules
requiring that analog cellular phones include a separate capability for
processing 911 calls that permit these calls to be handled, where necessary, by
either cellular carrier in the area. The new rule applies only to new analog
cellular handsets and not to existing handsets or to PCS or SMR services.
On August 1, 1996, the FCC released a Report and Order expanding the
flexibility of cellular, PCS and other CMRS providers to provide fixed, as well
as mobile services. Such fixed services include, but need not be limited to,
"wireless local loop" services, e.g., to apartment and office buildings, and
wireless backup to private business exchanges and local area networks, to be
used in the event of interruptions due to weather or other emergencies. The FCC
has not yet decided how such fixed services should be regulated, but it has
proposed a presumption that they be regulated as CMRS services.
On August 8, 1996, the FCC released its order implementing the
interconnection provisions of the Telecommunications Act. The FCC's decision is
lengthy and complex and is subject to petitions for reconsideration and judicial
review, as described below, and its precise impact is difficult to predict with
certainty. However, the FCC's order concludes that CMRS providers are entitled
to reciprocal compensation arrangements with Local Exchange Carriers ("LECs")
and prohibits LECs from charging CMRS providers for terminating LEC-originated
traffic. Under the rules adopted by the FCC, states must set arbitrated rates
for interconnection and access to unbundled elements based upon the LECs'
long-run incremental costs, plus a reasonable share of forward-looking joint and
common costs. In lieu of such cost-based rates, the FCC has established proxy
rates to be used by states to set interim interconnection rates pending the
establishment of cost-based rates. The FCC has also permitted states to impose
"bill and keep" arrangements, under which CMRS providers would make no payments
for LEC termination calls where LECs and CMRS providers have symmetrical
termination costs and roughly balanced traffic flows. However, the FCC has found
no evidence that these conditions presently exist. The relationship of these
charges to the payment of access charges and universal service contributions has
not yet been resolved by the FCC. LECs and state regulators filed appeals of the
interconnection order, which were consolidated in the United States Court of
Appeals for the Eighth Circuit. The Court vacated many of the rules adopted by
the FCC, including those rules governing the pricing of interconnection
services, but specifically affirmed the FCC rules governing interconnection with
CMRS providers. In January 1998, the United States Supreme Court agreed to
review that Eighth Circuit decision. In January 1999, the United States Supreme
Court reversed many aspects of the Eighth Circuit's judgment, holding that:
- - the FCC has general jurisdiction to implement the Telecommunications Act's
local competition provisions;
11
<PAGE> 12
- - the FCC's rules governing unbundled access are consistent with the
Telecommunications Act, except for Rule 319, which gives requesting carriers
blanket access to network elements; and
- - the "pick and choose" rule is a reasonable interpretation of the
Telecommunications Act. The FCC on remand adopted a new standard for
determining which network elements the incumbents must unbundle. Applying
the revised standard, the FCC reaffirmed that incumbents must provide
unbundled access to six of the original seven network elements that it
required unbundled in its original order in 1996 (operator and directory
assistance services are no longer required). As a result of the Supreme
Court vacating and remanding the Eighth Circuit's ruling that the FCC lacked
authority to set local pricing standards, the Eighth Circuit will have to
decide whether the FCC's total-element long-run incremental cost methodology
for setting interconnection and unbundled network element rates violates the
Telecommunications Act.
In its implementation of the Telecommunications Act, the FCC established
new federal universal service rules, under which wireless service providers for
the first time are eligible to receive universal service subsidies, but also are
required to contribute to both federal and state universal service funds. For
the first quarter of 2000, the FCC's universal service assessments amount to
5.9% of interstate and international telecommunications revenues for high cost,
low income, schools, libraries and rural health care support mechanisms. Various
parties challenged the FCC's universal service rules, and the cases were
consolidated in the United States Court of Appeals for the Fifth Circuit. The
court affirmed most of the FCC's decisions regarding its implementations of the
high-cost support system but remanded for further consideration the FCC's
decision to assess contributions from carriers based on both international and
interstate revenues. The court also reversed the requirement that incumbent
local exchange carriers recover their contributions from access charges and the
blanket prohibition on additional state eligibility requirements for carriers
receiving high-cost support. Additionally, the Court reversed the rule
prohibiting local telephone service providers from disconnecting low-income
subscribers. Finally, the Court concluded that the FCC exceeded its
jurisdictional authority when it assessed contributions for "schools and
libraries" programs based on the combined intrastate and interstate revenues of
interstate telecommunications providers and when it asserted its jurisdictional
authority to do the same on behalf of high-cost support.
The FCC has adopted rules on telephone number portability, which will
enable subscribers to migrate their landline and cellular telephone numbers to a
PCS carrier and from a PCS carrier to another service provider. In February
1999, the FCC extended the deadline for CMRS carriers to implement service
provider local number portability until November 24, 2002, but suggested that
additional proceedings prior to that date could result in imposition of further
requirements.
The Communications Assistance for Law Enforcement Act ("CALEA") requires
telecommunications carriers to ensure that their facilities are technically
capable of assisting law enforcement officials' use of wiretaps and like devices
to intercept or isolate subscriber communications. In an order released August
31, 1999, the FCC ordered all cellular, wireline and broadband PCS providers to
implement interim standards by June 30, 2000, with full compliance by September
30, 2001. The order also stated that CALEA applies broadly to any carrier
(excluding private networks and information services providers) providing
indiscriminate telecommunications service to the public. Representatives of the
cellular and PCS industry are challenging the surveillance rules. Additionally,
it is not clear that CMRS providers will be able to comply with the rules'
compatibility requirements by the current deadline; nor is it clear whether the
FCC will grant waivers to extend the deadline or what the scope of penalties for
failing to comply may be.
The FCC recently adopted rules limiting the use of customer proprietary
network information ("CPNI") by telecommunications carriers in marketing a broad
range of telecommunications and other services to their customers and the
customers of affiliated companies. Petitions asking the FCC to forbear from
applying CPNI requirements to certain telecommunications carriers were denied on
September 3, 1999, but the FCC did make certain modifications, allowing carriers
to use CPNI to market customer premises equipment or to regain customers who
have switched to another carrier. The rules were struck down by the U.S. Court
of Appeals for the Tenth Circuit in August 1999, but that decision has been
appealed to the Supreme Court. In the event that the FCC's CPNI restrictions are
reinstated, the Company does not anticipate that compliance will have a
significant adverse impact on its financial position, results of operation or
liquidity.
CMRS providers face a September 1, 2000 deadline for compliance with FCC
rules establishing safety limits for human exposure to radio frequency
emissions. On February 18, 2000, the U.S. Court of Appeals for the Second
Circuit affirmed the FCC's guidelines. After September 1, if any facility,
operation or device is found to be non-compliant with radio frequency exposure
guidelines, and if required environmental assessment has not been filed,
penalties ranging from fines to license forfeiture may be imposed.
In October 1999, Congress enacted the Department of Defense
Appropriations Act for fiscal year 2000, which requires the FCC to accelerate
its auction of 36 MHz of spectrum in the 746 - 764 and 776 - 794 MHz bands for
commercial use so that all auction proceeds have been deposited by September 30,
2000. This spectrum became available as a result of the FCC's decision to
generally reclaim, for other use; the spectrum previously allocated for
television
12
<PAGE> 13
broadcast UHF channels 60 - 69. On November 9, 1999, the FCC submitted a report
to Congress outlining the timetable by which it intends to conduct the auction
of this spectrum.
After it completes the rulemaking proceeding that commenced on June 3,
1999 to establish the rules for the auction and the use of this spectrum, the
FCC anticipates a deadline of March 24, 2000 for the filing of "short-form"
applications by interested bidders. In the rulemaking, the FCC tentatively
concluded that this spectrum should be made available for flexible commercial
use under Part 27 of the Rules. Under current plans, the auction will commence
on April 25 and terminate on June 7, 2000. Depending on whether the applications
of winning bidders are opposed and the timeliness of the bidders' payments for
their authorizations, the FCC plans to issue the licenses between August 8 and
September 29, 2000.
The use of this spectrum by the licensees selected in the auction may be
affected by the presence of incumbent broadcasters on some of the channels
through at least December 31, 2006. The frequencies that will be the subject of
the auction were previously allocated for television broadcast stations
operating on UHF channels 60 - 62 and 65 - 67. The FCC decided to reallocate
this spectrum in the context of its conversion of the nation's broadcasters from
analog to digital operation, a process that is currently scheduled to be
completed on December 31, 2006.
ITEM 2. PROPERTIES
PROPERTIES
In addition to the direct and attributable interests in cellular
licenses, paging licenses and other similar assets discussed previously, the
Company leases its principal executive offices located primarily in Bellevue,
Washington. The Company and its subsidiaries and affiliates also lease and own
locations for inventory storage, microwave, Cell Site and switching equipment
and local sales and administrative offices.
The Company currently leases customer call centers in Issaquah,
Washington and McAllen, Texas. The Company owns a call center in Manhattan,
Kansas. These call centers are expected to support the Company's anticipated
subscriber growth for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
There are no material, pending legal proceedings to which the Company or
any of its subsidiaries or affiliates is a party or to which any of their
property is subject which, if adversely decided, would have a material adverse
effect on the Company or any of its subsidiaries or affiliates.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
<PAGE> 14
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the executive officers and key
personnel of Western Wireless are listed below along with their business
experience. The business address of all officers of Western Wireless is 3650
131st Avenue SE, Bellevue, Washington 98006. All of these individuals are
citizens of the United States. Executive officers of Western Wireless are
appointed by the Board of Directors. As Executive Director of Accounting of
Western Wireless, Mr. Soley, although not an executive officer, is a key
employee and Western Wireless' chief accounting officer. No family relationships
exist among any of the executive officers or key personnel of Western Wireless,
except for Mr. Stanton and Ms. Gillespie, who are married to each other.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John W. Stanton 44 Chairman, Director and
Chief Executive Officer
Donald Guthrie 44 Vice Chairman
Mikal J. Thomsen 43 President and Chief
Operating Officer
Theresa E. Gillespie 47 Executive Vice President
Alan R. Bender 45 Executive Vice President
and Secretary
Bradley J. Horwitz 44 Executive Vice President -
International
H. Stephen Burdette 50 Senior Vice President
Jeffrey A. Christianson 43 Senior Vice President,
General Counsel
Scott A. Soley 37 Executive Director of
Accounting (Chief
Accounting Officer)
</TABLE>
John W. Stanton has been a director, Chairman of the Board and Chief
Executive Officer of the Company and its predecessors since 1992. Mr. Stanton
currently is a director of VoiceStream since February 1998, and its Chief
Executive Officer and Chairman since it was formed in 1994. Mr. Stanton served
as a director of McCaw Cellular from 1986 to 1994, and as a director of LIN
Broadcasting from 1990 to 1994, during which time it was a publicly traded
company. From 1983 to 1991, Mr. Stanton served in various capacities with McCaw
Cellular, serving as Vice Chairman of the Board of McCaw Cellular from 1988 to
September 1991 and as Chief Operating Officer of McCaw Cellular from 1985 to
1988. Mr. Stanton is a member of the board of directors of VoiceStream, Advanced
Digital Information Corporation and Columbia Sportswear, Inc., and a trustee of
Whitman College, a private college.
Donald Guthrie has been Vice Chairman of the Company since November
1995. Mr. Guthrie also served as Chief Financial Officer of the Company from
February 1997 to May 1999. Mr. Guthrie continues to serve as Vice Chairman of
VoiceStream, a former subsidiary of the Company, as he has done since 1995. From
1986 to 1995, he served as Senior Vice President and Treasurer of McCaw and,
from 1990 to October 1995 he served as Senior Vice President-Finance of LIN
Broadcasting. Mr. Guthrie is a member of the board of directors of VoiceStream.
Mikal J. Thomsen has been President of the Company since May 1999, and
Chief Operating Officer of the Company and one of its predecessors since 1991.
In his capacity as Chief Operating Officer, Mr. Thomsen has been responsible for
all domestic cellular operations since August 1998. He was also a director of
this predecessor from 1991 until the Company was formed in 1994. From 1983 to
1991, Mr. Thomsen held various positions at McCaw, serving as General Manager of
its International Division from 1990 to 1991 and as General Manager of its West
Florida Region from 1987 to 1990.
Theresa E. Gillespie has been Executive Vice President of the Company
since May 1999. Prior to being elected Executive Vice President, Ms. Gillespie
served as Senior Vice President of the Company from 1997 until May 1999, and
Chief Financial Officer of the Company and one of its predecessors from 1991 to
1997. Ms. Gillespie was Chief Financial Officer of certain entities controlled
by Mr. Stanton and Ms. Gillespie since 1988. From 1986 to 1987, Ms. Gillespie
was Senior Vice President and Controller of McCaw. From 1975 to 1986 she was
employed by a national public accounting firm.
Alan R. Bender has been Executive Vice President and Secretary of the
Company since May 1999. Mr. Bender also served as General Counsel of the Company
from 1994 to February 2000, and as Senior Vice President and Secretary of the
Company from 1994 to May 1999. Mr. Bender continues to serve as Executive Vice
President, General Counsel, and Secretary of VoiceStream, a former subsidiary of
the Company, as he has done since it was formed in 1994. Mr. Bender
14
<PAGE> 15
was General Counsel and Secretary for one of the Company's predecessors from
1990 to 1994 and Vice President from 1992 to 1994.
Bradley J. Horwitz has been Executive Vice President-International of
the Company since March 2000, and President of Western Wireless International
Corporation, a subsidiary of the Company, since 1995. Mr. Horwitz was Vice
President-International of the Company from 1995 to March 2000, and held various
positions at McCaw, serving as Vice President-International Operations from 1992
to 1995, Director-Business Development from 1990 to 1992 and Director of Paging
Operations from 1986 to 1990.
H. Stephen Burdette has been Senior Vice President-Sales, Marketing and
Customer Services of the Company since August 1999. Before joining the Company,
Mr. Burdette served as Senior Vice President-Operations for MobileComm, a Bell
South Company, from 1990 to 1994; then for MobileMedia from 1994 to 1996; and
subsequently for MobileComm from 1996 to 1999 after it was purchased by
MobileMedia.
Jeffrey A. Christianson has been Senior Vice President and General
Counsel of the Company since February 2000. From 1996 to January 2000, Mr.
Christianson served as Senior Vice President, Business Development, General
Counsel and Corporate Secretary of Wizards of the Coast, Inc. From 1993 to 1996,
Mr. Christianson served as General Counsel and Corporate Secretary of Heart
Technology, Inc., a medical device company. Mr. Christianson is a member of the
board of directors of The Humane Society for Seattle/King County and the
Northwest Children's Fund, a Seattle-based non-profit community foundation.
Scott A. Soley has been Executive Director of Accounting of the Company
since November 1999, and has been a key employee as the chief accounting officer
since August 1999. From 1995 to 1999, Mr. Soley held various accounting
positions with the Company. Prior to 1995, Mr. Soley held various accounting
positions with Egghead Software, Inc and gained two years of experience at a
local public accounting firm in the Seattle area.
15
<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company commenced its initial public offering on May 22, 1996, at a
price to the public of $23.50 per share. Since that date, the Company's Class A
Common Stock has been traded on the NASDAQ Stock Market under the symbol WWCA.
There currently is no established public trading market for the Company's Class
B Common Stock. The following table sets forth the quarterly high and low bid
quotations for the Class A Common Stock on the NASDAQ Stock Market. These
quotations reflect the inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
1998 High Low
---- --------- ---------
<S> <C> <C>
First quarter * $24 5/8 $16 3/8
Second quarter * $23 1/4 $16 3/8
Third quarter * $22 1/8 $14 11/16
Fourth quarter * $22 1/8 $14 1/2
</TABLE>
<TABLE>
<CAPTION>
1999 High Low
---- --------- ---------
<S> <C> <C>
First quarter * $37 5/8 $22
Second quarter * $47 3/4 $19 3/4
Third quarter $54 1/16 $27 3/8
Fourth quarter $75 1/4 $43 3/16
</TABLE>
* Prior to May 3, 1999, the date of the Spin-off, the Company's share
price reflected its 80.1% ownership in VoiceStream. VoiceStream consisted of the
Company's former PCS operations. The Company's shareholders received one share
of VoiceStream common stock for each share of the Western Wireless common stock
owned on April 30, 1999.
The accompanying consolidated financial statements have been restated to
report the discontinued operations of VoiceStream separately from the continuing
operations of the Company.
The Company has never declared or paid dividends on its Common Stock and
does not anticipate paying dividends in the foreseeable future. In addition,
certain provisions of the Senior Secured Facilities (as described in
"Management's Discussion and Analysis of Results of Operations and Financial
Condition-Liquidity and Capital Resources") and the indentures of its public
debt offerings contain restrictions on the Company's ability to declare and pay
dividends on its Common Stock.
As of March 10, 2000 there were approximately 232 and 59 shareholders of
record of the Company's Class A and Class B Common Stock, respectively.
There were no sales of unregistered securities made by the registrant in
1999.
16
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial and operating
data for the Company as of and for each of the five years in the period ended
December 31, 1999, which was derived from the Company's consolidated financial
statements and notes thereto that have been audited by Arthur Andersen LLP,
independent public accountants. All of the data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and notes
thereto.
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL DATA (1)
YEAR ENDED DECEMBER 31,
(Dollars in thousands, except ---------------------------------------------------------------------------------
per share data) 1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues $ 567,341 $ 416,620 $ 302,848 $ 225,546 $ 146,555
Operating expenses 427,189 335,340 265,568 230,603 170,490
Stock-based compensation 79,223
------------ ------------ ------------ ------------ ------------
Operating income (loss) 60,929 81,280 37,280 (5,057) (23,935)
Other expense (110,660) (95,118) (38,999) (38,698) (25,374)
Minority interest in consolidated
subsidiaries 1,610 479
------------ ------------ ------------ ------------ ------------
Net loss from continuing operations (48,121) (13,359) (1,719) (43,755) (49,309)
Loss from discontinued operations (100,652) (210,710) (263,815) (86,350)
Loss from extraordinary item (6,645)
------------ ------------ ------------ ------------ ------------
Net loss $ (148,773) $ (224,069) $ (265,534) $ (130,105) $ (55,954)
============ ============ ============ ============ ============
Share data (2):
Basic and diluted loss per share
from continuing operations $ (0.63) $ (0.17) $ (0.03) $ (0.67) $ (0.87)
Per share effect of discontinued
operations (1.31) (2.78) (3.73) (1.33)
Per share effect of extraordinary item (0.12)
------------ ------------ ------------ ------------ ------------
Basic and diluted loss per share $ (1.94) $ (2.95) $ (3.76) $ (2.00) $ (0.99)
============ ============ ============ ============ ============
Weighted average shares used in
computing basic and diluted
loss per share 76,775,000 75,863,000 70,692,000 65,196,000 56,470,000
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEETS DATA:
Total assets $ 1,355,574 $ 1,221,300 $ 1,386,535 $ 1,000,690 $ 659,028
============ ============ ============ ============ ============
Total long-term debt, net of current
Portion $ 1,450,000 $ 1,045,000 $ 1,095,000 $ 600,000 $ 362,487
============ ============ ============ ============ ============
CONSOLIDATED CASH FLOWS PROVIDED BY
(USED IN):
Operating activities: $ 93,420 $ 66,669 $ 83,631 $ 19,939 $ (745)
Investing activities: $ (464,849) $ (29,678) $ (688,356) $ (445,749) $ (293,579)
Financing activities: $ 411,972 $ (49,921) $ 570,376 $ 466,732 $ (295,109)
OTHER DATA:
EBITDA (3) $ 242,165 $ 155,682 $ 103,875 $ 60,289 $ 25,521
Ending subscribers 834,700 660,400 520,000 324,200 209,500
</TABLE>
(1) Certain amounts in prior year's Consolidated Financial Data have been
restated to exclude the discontinued operations of VoiceStream.
(2) Earnings per share and the number of shares outstanding has been
calculated based on the requirements of Statement of Financial Accounting
Standards No. 128. For the prior periods presented, due to the net loss
incurred, all options outstanding are anti-dilutive, thus basic and
diluted loss per share are equal.
(3) EBITDA represents operating income (loss) before depreciation,
amortization and stock-based compensation. 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
generally accepted accounting principles ("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.
17
<PAGE> 18
ITEM 7. 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 or incorporated by reference
in this document that are not based on historical fact are "forward-looking
statements" within the meaning of the Private Securities Reform Act of 1995.
Forward-looking statements may be identified by use of forward-looking
terminology such as "believe,' "intends," "may," "will," "expects," "estimate,"
"anticipate," "continue," or similar terms, variations of those terms or the
negative of those terms.
OVERVIEW
The Company provides cellular communications services in 19 western
states under the 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 18 MSAs and 83 RSAs.
A wholly owned subsidiary of the Company, Holding Co. owns 96% of WWI
which holds non-controlling interests in entities which own wireless licenses in
nine foreign countries. As of December 31 1999, WWI interests covered a
proportional population of 22.7 million and had 74,000 proportional subscribers.
The Company had an 80.1% controlling interest in VoiceStream, an entity
that provides wireless communication services through the ownership and
operation of PCS licenses. On May 3, 1999, VoiceStream was formally separated
from the Company (the "Spin-off"). As of that date, the Company distributed all
of its interest in VoiceStream to its shareholders. Although VoiceStream has
been operated separately from the Company's other operations and has been a
separate legal entity since its inception, the Spin-off established VoiceStream
as a stand-alone entity with objectives separate from those of the Company. For
additional information regarding the Spin-off, see the Company's information
statement filed with the SEC on Form 14-C dated April 12, 1999.
During the second quarter, as a result of the Spin-off, the Company
recognized compensation expense on all options outstanding as of May 3, 1999. On
the date of the Spin-off, the Company cancelled and reissued all outstanding
options. All reissued stock options were granted in a manner that ensured
employees of both the Company and VoiceStream maintained the value of their
options, subject to normal fluctuations in the price of both companies stock,
after the Spin-off. This reissuance did not accelerate any benefits to option
holders. The Company believes this allowed employees to continue to better
participate in the success of the company for which they work. As outlined in
the provisions of EITF 90-9 the Company recorded deferred compensation of
approximately $82.8 million and compensation expense for those options in which
the service period had passed of $63.4 million.
Revenues for the Company consist primarily of subscriber revenues
(including access charges and usage charges), roamer revenues and equipment
sales. The majority of revenues are derived from subscriber revenues. Service
revenues includes monthly access charges, charges for airtime used in excess of
plan minutes, long distance charges derived from calls placed by the Company's
customers and other charges such as activations, voice mail, call waiting, and
call forwarding.
Roaming revenues are revenues that result from providing service to
subscribers of other wireless providers when those subscribers "roam" into our
markets and use our systems to carry their calls. Roaming revenues typically
yield higher average per minute rates and higher margins than subscriber
revenues. The per minute rate paid by a roamer is established by long-term
agreement between the Company and the roamer's wireless provider.
As used herein, "service revenues" include subscriber, roamer and other
revenue. Other revenues consist primarily of paging revenues.
Equipment sales consist of wireless handset and accessory sales to
customers. The Company sells handsets below cost and regards these losses as a
cost of building its subscriber base.
Cost of service consists of the cost of providing wireless service to
subscribers, primarily costs to access local exchange and long distance carrier
facilities and to maintain the wireless network.
General and administrative expenses are principally variable costs based
on the average number of subscribers. General and administrative costs include
the costs associated with billing a subscriber and the administrative costs
associated with maintaining subscribers, including customer service, accounting
and other centralized functions. General and administrative expenses also
include provisions for unbillable fraudulent roaming charges and subscriber bad
debt.
18
<PAGE> 19
Sales and marketing costs include costs associated with acquiring a
subscriber, including direct and indirect sales commissions, salaries, all costs
of retail locations, advertising and promotional expenses. Sales and marketing
costs do not include the revenue or costs of handset sales. However, when sales
and marketing costs per net subscriber addition are discussed, the revenue and
costs from handset sales are included because such measure is commonly used in
the wireless industry.
Depreciation and amortization primarily includes depreciation expense
associated with the property and equipment in service and amortization
associated with its wireless licenses for operational markets.
The financial statements include an allocation of certain centralized
costs to VoiceStream and its affiliates, prior to and subsequent to the
Spin-off. Such centralized items include the costs of shared senior management,
customer care operations and certain back office functions. These costs have
been allocated to VoiceStream and its affiliates in a manner that reflects the
relative time devoted to each.
EBITDA represents operating income (loss) before depreciation,
amortization and stock-based compensation. 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.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND
1997
The Company had 834,700 subscribers at December 31, 1999, a 26.4%
increase during 1999. The Company had 660,400 subscribers at December 31, 1998,
a 27.0% increase in 1998. The Company had 520,000 subscribers at December 31,
1997, a 60.4% increase during 1997. The net number of subscribers added through
system acquisitions was approximately 24,000 in 1999, 5,100 in 1998, and 58,500
in 1997.
The following table sets forth certain financial data as it relates to
the Company's 1999, 1998, and 1997 operations:
<TABLE>
<CAPTION>
(Dollars in thousands) YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1999 % CHANGE 1998 % CHANGE 1997
--------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Subscriber revenues $ 388,062 17.6% $ 330,050 34.5% $ 245,364
Roamer revenues 150,725 125.8% 66,744 67.9% 39,750
Equipment sales and other
Revenues 28,554 44.0% 19,826 11.8% 17,734
--------- --------- ---------
Total revenues $ 567,341 $ 416,620 $ 302,848
Operating expenses:
Cost of service $ 68,883 23.9% $ 55,592 18.3% $ 47,001
Cost of equipment sales 36,249 9.4% 33,149 11.6% 29,698
General and administrative 120,434 35.5% 88,888 46.0% 60,865
Sales and marketing 99,610 19.6% 83,309 35.7% 61,409
Depreciation and amortization 102,013 37.1% 74,402 11.7% 66,595
Stock-based compensation 79,223 N.M.
--------- --------- ---------
Total operating expenses $ 506,412 $ 335,340 $ 265,568
Other expense $(110,660) (16.3%) $ (95,118) (143.9%) $ (38,999)
Net loss from continuing operations $ (48,121) N.M. $ (13,359) N.M. $ (1,719)
EBITDA $ 242,165 55.6% $ 155,682 49.9% $ 103,875
Cash flows provided by (used in):
Operating activities $ 93,420 40.1% $ 66,669 (20.2%) $ 83,631
========= ========= =========
Investing activities $(464,849) N.M. $ (29,678) 95.6% $(688,356)
========= ========= =========
Financing activities $ 411,972 N.M. $ (49,921) (108.8%) $ 570,376
========= ========= =========
</TABLE>
19
<PAGE> 20
REVENUES
The increase in subscriber revenues each year is primarily due to the
growth in the number of subscribers offset slightly by a decrease in the average
monthly subscriber revenue per subscriber ("ARPU"). ARPU was $43.26 in 1999, a
7.1% decline from $46.59 in 1998, which was a 8.9% decline from $51.13 in 1997.
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.
Further, over the past few years the cellular industry as a whole has also shown
a decline in ARPU.
The increase in roamer revenues over the past three years was caused by
an increase in roaming traffic on the Company's network and 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 as a result of the Company's
strategy, implemented in 1998, to become the roamer carrier of choice for other
carriers. Roamer revenues as a percentage of total revenues increased to 26.6%
in 1999, compared to 16.0% for 1998 and 13.1% for 1997. While the Company
expects total roamer minutes to continue to increase, the decline in the rates
charged between carriers may limit the growth of roamer revenues.
Equipment sales increased each year due to the growth in subscriber
additions. Further, average phone and accessory revenue per item sold increased
compared to 1998 and 1997. Also, the mix of high-end handsets with more features
continues to comprise a larger portion of overall handset sales.
OPERATING EXPENSES
The increase in cost of service each year is primarily attributable to
the increased number of subscribers and an increase in the average minutes of
use per subscriber. While cost of service increased in total dollars, it
decreased as a percentage of service revenues to 12.6% in 1999 from 13.8% in
1998 and 16.2% in 1997. The decrease as a percentage of service revenues is due
mainly to service revenues growing at a faster rate than the fixed cost of
service components. 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. However, the cost
of service as a percentage of service revenues is expected to continue to
decline as greater economies of scale are realized.
The increase in general and administrative expenses is primarily
attributable to the increase in costs associated with supporting a larger
subscriber base. For the year ended December 31, 1999, the Company's general and
administrative monthly cost per average subscriber increased to $13.43 in 1999
from $12.55 in 1998 and $12.68 in 1997. The increase is due partly to additional
headquarter costs resulting from lost cost efficiencies as a result of the
Spin-off. In addition, the Company incurred pre-operating costs related to
Ireland with no corresponding additions in subscribers, as the Ireland market is
not yet operational. Management anticipates improved cost efficiencies to be
realized on a per subscriber basis in future periods due to cost reductions
expected with the implementation of a new billing system in the next fiscal
year.
Increases in sales and marketing costs each year are primarily due to
the increase in net subscriber additions. During 1999 the sales and marketing
cost per net subscriber added, including the loss on equipment sales, remained
relatively flat at $748 compared to $752 in 1998 but increased from $574 in
1997. This increase from 1997 to 1999 is largely due to a growth in disconnected
subscribers causing the increase in costs to be spread over a similar amount of
net subscriber additions. The growth in disconnected subscribers is a result of
a similar churn rate (representing customer attrition) applied to a larger
subscriber base.
Cost of equipment sales increased each year due to the increase in the
number of handsets sold, offset by a decrease in the average cost of handsets
sold. The Company expects that the cost for its handsets will decrease at a
slower rate or level off in future years. Although subscribers generally are
responsible for purchasing or otherwise obtaining their own handsets, the
Company has historically sold handsets below cost to respond to competition and
general industry practice and expects to continue to do so in the future.
Increases in depreciation and amortization expense over the past three
years are primarily due to the acquisition of additional wireless communications
system assets. As the Company continues to expand and upgrade its wireless
footprint and systems, management anticipates depreciation and amortization
expense will increase in future periods.
The stock-based compensation results mainly from the cancellation and
reissuance of employee stock options as a result of the Spin-off, as previously
discussed. In addition, stock appreciation rights ("SARs") issued by WWI
contributed approximately $5 million to the overall charge in 1999.
20
<PAGE> 21
EBITDA
The increase in EBITDA is primarily a result of increased revenues due
to the increased subscriber base and the related cost efficiencies gained. As a
result, operating margin (EBITDA as a percentage of service revenues) increased
to 44.5% in 1999 from 38.7% in 1998 and 35.8% in 1997.
NET LOSS FROM CONTINUING OPERATIONS
From 1998 to 1999, the increase in net loss from continuing operations
is primarily attributable to increases in stock-based compensation and other
expenses. From 1997 to 1998, the increase in net loss from continuing operations
is primarily attributable to the increase in other expenses, offset by an
improvement in operating income. The Company expects continued improvement in
operating income in 2000.
OTHER INCOME (EXPENSE); NET OPERATING LOSS CARRYFORWARDS
Interest and financing expense increased to $99.9 million in 1999 from
$92.2 million in 1998 and $41.4 million in 1997 due to the increase in average
long-term debt. 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 8.1% in 1999, 8.9% in 1998, and 8.2%
in 1997.
The Company had available at December 31, 1999, net operating loss
("NOL") carryforwards of approximately $270 million which will expire in the
years 2003 through 2019. The Company may be limited in its ability to use these
carryforwards in any one year due to ownership changes that preceded the
business combination that formed the Company in July 1994. Management believes
that, based on a number of factors, there is sufficient uncertainty regarding
the realization of the Company's NOL carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a credit facility (the "Credit Facility") with a
consortium of lenders providing for $750 million of revolving credit and term
loans in aggregate of $450 million. As of December 31, 1999, $1,050 million was
outstanding under the Credit Facility. Indebtedness under the Credit Facility
matures on March 31, 2006, and bears interest at variable rates. Substantially
all the assets of the Company are pledged as security for such indebtedness. The
terms of the Credit Facility restrict, among other things, the sale of assets,
distribution of dividends or other distributions and loans. Amounts available
for borrowing at December 31, 1999, which are limited by certain financial
covenants and other restrictions, were $150 million under the term loans and
must be fully drawn by May 5, 2000.
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 2007 Notes matures in June 1, 2006 and
February 1, 2007, respectively. The Credit Facility prohibits the repayment of
all or any portion of the principal amounts of the 2006 Notes or 2007 Notes
prior to the repayment of all indebtedness under the Credit Facility. The 2006
Notes 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. The Company obtained the appropriate
waivers from the holders of these notes prior to consummation of the Spin-off at
a cost of $16 million.
On March 2, 2000, the Company signed a commitment letter to secure $2.1
billion in new financing consisting of a combination of revolving and term
loans. Final terms and conditions of this arrangement are contingent upon the
approval of the new financing among the syndicate of lenders. The new financing
arrangement is expected to have terms and conditions similar to the existing
Credit Facility. Proceeds from the new financing arrangement will be used to
repay the Company's existing Credit Facility. Assuming the new financing is
established, the Company will recognize an extraordinary loss ranging from
approximately $13 to $22 million for the impairment of existing deferred
financing costs relating to the Company's current debt structure.
Through the end of 2000, the Company anticipates spending significant
capital resources for the acquisition of wireless assets and the continued
development of its existing infrastructure. In 2000, the Company expects to
spend approximately $140 million for the continued expansion of its cellular
infrastructure, $25 million for the implementation of a new billing system and
back office infrastructure and approximately $100 million for the purchase of
the cellular licenses and operations of the Utah-5, Wyoming-1 and Arizona-6
RSAs. Capital spending during 2000 will allow for expanded minutes of use by the
Company's subscribers as well as from other carriers' customers roaming on its
wireless network. In
21
<PAGE> 22
addition, the Company anticipates it will continue to be a significant source of
funding for international projects through its subsidiary WWI. The Company will
utilize operating cash flow, the Credit Facility and other sources of funding,
for purposes of funding its cellular and other activities.
On May 3, 1999, the Company distributed to its stockholders its entire
interest in VoiceStream. Prior to the Spin-off, the Company had received a
ruling from the IRS to the effect that the Spin-off would not result in the
recognition of income or gain by the Company or its stockholders.
Notwithstanding the ruling, however, the Company would recognize gain as a
result of the Spin-off if the Spin-off is part of a "prohibited plan," that is,
a plan or series of related transactions pursuant to which one or more persons
acquire, directly or indirectly, 50 percent or more of the Company's or
VoiceStream's stock. A prohibited plan is presumed to exist if one or more
persons acquire, directly or indirectly, 50 percent or more of the Company's or
VoiceStream's stock during the four-year period that begins two years before the
Spin-off. In February 2000, VoiceStream completed its merger with Omnipoint,
pursuant to which a newly formed holding company acquired all of the outstanding
stock of VoiceStream and Omnipoint in exchange for stock of the holding company
and cash. On September 17, 1999, VoiceStream entered into an agreement with
Aerial, pursuant to which the holding company will acquire all of the
outstanding stock of Aerial, again in exchange for stock of the holding company
and cash. Either of these transactions, when completed, could give rise to the
rebuttable presumption that the Spin-off was part of a prohibited plan. In
conjunction with the Spin-off, VoiceStream agreed to indemnify the Company on an
after-tax basis for any taxes imposed on the Company if an acquisition of
VoiceStream's stock causes the spin-off to be part of a prohibited plan. As a
result, if the proposed Omnipoint and Aerial transactions fail to overcome the
rebuttable presumption, the Company believes that VoiceStream would be
responsible for the Company's resulting tax liability arising from the Spin-off.
Although the issue is not free from doubt, the Company believes that the
Omnipoint and Aerial transactions are not part of a prohibited plan. Even if it
is ultimately determined that such transactions were part of a prohibited plan,
the Company believes that VoiceStream is capable of funding the resulting
indemnity obligation to the Company.
In February 1998, a subsidiary of Hutchison Telecommunications Limited
("HTL") purchased 19.9% of the outstanding capital stock of VoiceStream for an
aggregate purchase price of $248.4 million (the "Hutchison Investment").
Approximately $113 million of the proceeds were paid to the Company as a
repayment of advances made to VoiceStream and were used by the Company to reduce
amounts outstanding under the Credit Facility.
Adjustments to the $148.8 million net loss to reconcile to net cash used
in operating activities primarily included $102 million of depreciation and
amortization, $82.2 million for the net loss from discontinued operations, $79.2
million for employee equity compensation and $14.5 million for the equity in net
loss of unconsolidated affiliates due to the increase in activity in
international investments. Other adjustments included changes in operating
assets and liabilities, including: (i) an increase of $28.6 million in net
accounts receivable, due primarily to increased revenues; and (ii) an increase
of $18.8 million in prepaid and other current assets mainly related to
international investment activity. Net cash used in operating activities was
$66.7 million in 1998 and $83.6 million in 1997.
Investing activities consisted primarily of: (i) purchases of property
and equipment of $168.2 million; (ii) investments in and advances to
unconsolidated affiliates of $25.5 million, primarily attributable to advances
to international joint ventures; (iii) a return of investment from VoiceStream
Wireless of $20 million; and (iv) $289.7 million for acquisition of wireless
properties in 1999, which consists primarily of the Company's purchase of the
cellular licenses and operations of the Wyoming 4 and Oklahoma 1 RSAs,
Brownsville, TX and McAllen TX MSAs, and Texas 7 and Arkansas 11 RSAs in the
first, second, and fourth quarters of 1999, respectively.
Financing activities consisted primarily of a net addition to long-term
debt of $405 million.
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.
SEASONALITY
The Company, and the wireless communications industry in general, have
historically experienced significant subscriber growth during the fourth
calendar quarter. Accordingly, during such quarter the Company experiences
greater losses on equipment sales and increases in sales and marketing expenses.
The Company has historically experienced highest usage and revenue per
subscriber during the summer months. The Company expects these trends to
continue.
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<PAGE> 23
YEAR 2000
The Company, like most businesses, modified significant portions of its
information technology ("IT") and non-IT systems so that they will function
properly in the year 2000. Much of the Company's technology, including
technology associated with its critical systems, is purchased from third
parties. The Company is dependent on those third parties to assess the impact of
the year 2000 issue on the technology and services they supply and to take any
necessary corrective action. The Company has incurred internal staff costs as
well as consulting and other expenses related to infrastructure and facilities
enhancements necessary to complete the remediation of its systems for the year
2000. The by-product of this effort was that the Company had year 2000 compliant
hardware and software running on all of its major platforms. The incremental
costs for the year 2000 remediation efforts have been insignificant.
The Company's IT and non-IT systems successfully transitioned to the
year 2000. However, there may be latent problems that surface at key dates or
events in the future. The Company has not experienced, and does not anticipate,
any significant problems related to the transition to the year 2000 that would
have a material adverse effect on the results of operations, liquidity and
financial condition of the Company. Furthermore, the Company does not anticipate
any significant expenditure in the future related to year 2000 compliance.
ITEM 7A. 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. Credit Facility
interest payments are determined by the outstanding indebtedness and the spot
LIBOR rate at the beginning of the period in which interest is computed. LIBOR
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 10.5%. As part of
its risk management program, the Company utilizes interest rate caps, swaps and
collar agreements to hedge variable rate interest risk on the Credit Facility.
The following table provides information about the Company's long-term debt and
derivative financial instruments that are sensitive to changes in interest rates
(in millions):
December 31, 1999
<TABLE>
<CAPTION>
Expected maturity date
2000 2001 2002 2003 2004 Thereafter Total Fair Value
------ ------ ------ ------ ------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities:
Maturities of long-term debt:
Variable rate $ 77.2 $115.5 $190.5 $190.5 $476.3 $1,050.0 $1,050.0
Fixed rate 400.0 400.0 425.5
Interest Rate Derivates:
Interest rate derivative financial
instruments related to debt
Interest rate caps:
Notional amounts
outstanding at the
beginning of the year $210.0 $100.0 $ 25.0 $ 335.0 $ 0.2
The interest rate caps effectively locks $335 million of the Company's Credit
Facility borrowings between 7.5% and 7.8%
Interest rate collars:
Notional amounts
outstanding at the
beginning of the year $100.0 $ 100.0 $ 0.0
The interest rate collars effectively lock $100 million of the Company's Credit
Facility borrowings between 7.5% and 7.8%
Interest rate swaps:
Notional amounts
outstanding at the
beginning of the year $ 25.0 $ 65.0 $ 90.0 $ 1.5
The interest rate swaps effectively lock $90 million of the Company's Credit
Facility borrowings between 5.1% and 6.5%.
</TABLE>
23
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are set forth on pages
F-1 through F-18 and the related financial statement schedule is set forth on
page S-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
24
<PAGE> 25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information on directors of the registrant called for by this Item
is incorporated by reference to the section entitled "Election of Directors and
Management Information" in the Company's Proxy Statement for its 2000 annual
shareholders meeting to be filed with the United States Securities and Exchange
Commission ("the Company's Proxy Statement). The information on executive
officers of the registrant called for by this Item is included herein in the
section entitled "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this Item is incorporated by reference to
the section entitled "Executive Compensation" in the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this Item is incorporated by reference to
the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this Item is incorporated by reference to
the section entitled "Certain Relationships and Related Transactions" in the
Company's Proxy Statement.
25
<PAGE> 26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(A) Financial Statements and Schedule
The financial statements and schedules are filed with this Form 10-K are
set forth in the Index to Consolidated Financial Statements and Schedules at
page F-1, which immediately precedes such documents.
(B) Reports on Form 8-K
A Form 8-K was filed on November 11, 1999, reporting Western Wireless'
acquisition of Texas 7 and Arkansas 11 assets from KO Communications for a total
purchase price of $165 million.
A Form 8-K was filed on October 27, 1999, reporting Western Wireless'
financial and operating results for the third quarter ended September 30, 1999.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------------- -----------------------------------------------------------------
<S> <C>
3.1(1) Amended and Restated Articles of Incorporation of the Registrant.
3.2(1) Bylaws of the Registrant.
4.1(2) Indenture between Western Wireless Corporation and Harris Trust
Company of California, dated May 22, 1996
4.2(3) Indenture between Western Wireless Corporation and Harris Trust
Company of California, dated October 24, 1996
4.3(6) Form of Supplemental Indenture to be entered into between Western
Wireless Corporation and Harris Trust Company of California,
relating to the 10 1/2% Senior Subordinated Notes Due 2007
4.4(6) Form of Supplemental Indenture to be entered into between Western
Wireless Corporation and Harris Trust Company of California,
relating to the 10 1/2% Senior Subordinated Notes Due 2006
10.1(1) Purchase Agreement between Motorola Nortel Communications Co. and
General Cellular Corporation, dated July 29, 1993
10.2(1) Western Wireless Corporation, 1994 Management Incentive Stock
Option Plan, approved, as adopted and amended, by Shareholders
November 16, 1995 together with form of Stock Option Agreement
for offers there under
10.3(1) Stockholders Agreement by and among Western Wireless Corporation
and certain of its shareholders, dated July 29, 1994
10.4(1) First Amendment to Stockholders Agreement by and among Western
Wireless Corporation and certain of its shareholders, Adding as a
Party Western PCS Corporation, dated November 30, 1994
10.5(1) Waiver Agreement by and among Western Wireless Corporation,
Western PCS Corporation and certain of Western Wireless
Corporation's shareholders, dated November 30, 1994
10.6(1) Waiver Agreement by and among Western Wireless Corporation,
Western PCS Corporation and certain of Western Wireless
Corporation's shareholders, dated February 15, 1996
10.7(1) Voting Agreement by and among Western Wireless Corporation and
certain of its shareholders, dated July 29, 1994
10.8(1) Voting Agreement by and among Western Wireless Corporation and
certain of its shareholders
10.9(1) Lease Agreement by and between Western Wireless Corporation and
Department of Natural Resources, dated August 25, 1995
10.10(1) First Amendment to Lease Agreement by and between Western
Wireless Corporation and Department of Natural Resources, dated
February 28, 1996
10.11(1) Form of Cellular One Group License Agreement
10.12(1) Employment Agreement by and between John W. Stanton and Western
Wireless Corporation, dated March 12, 1996
10.13(1) Employment Agreement by and between Mikal J. Thomsen and Western
Wireless Corporation, dated March 12, 1996
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C>
10.14(1) Employment Agreement by and between Theresa E. Gillespie and
Western Wireless Corporation, dated March 12, 1996
10.15(1) Employment Agreement by and between Alan R. Bender and Western
Wireless Corporation, dated March 12, 1996
10.16(7) Employment Agreement by and between Donald Guthrie and Western
Wireless Corporation, dated March 12, 1996
10.17(1) Form of Registrant's Restrictive Covenant and Confidentiality
Agreement
10.18(1) Form of Director and Officer Indemnification Agreement
10.19(1) PCS Block "C" Organization and Financing Agreement by and among
Western PCSBTA I Corporation, Western Wireless Corporation, Cook
Inlet PV/SS PCS Partners, L.P., Cook Inlet Telecommunications,
Inc., SSPCS Corporation and Providence Media Partners L.P. dated
as of November 5, 1995
10.20(1) First Amendment to Block "C" Organization and Financing Agreement
and Cook Inlet Western Wireless PV/SS PCS, L.P. Limited
Partnership Agreement by and among Western PCS BTA I Corporation,
Western Wireless Corporation, Cook Inlet PV/SS PCS Partners,
L.P., Cook Inlet Telecommunications, Inc., SSPCS Corporation and
Providence Media Partners L.P. dated as of April 8, 1996
10.21(1) Amended and Restated Loan Agreement among Western Wireless
Corporation and The Toronto-Dominion Bank, Barclays Bank, PLC,
and Morgan Guaranty Trust Company of New York, as Managing Agents
for the Various Lenders, dated May 6, 1996
10.22(3) Second Amendment to Block "C" Organization and Financing
Agreement and Cook Inlet Western Wireless PV/SS PCS, L.P. Limited
Partnership Agreement by and among Western PCS BTA I Corporation,
Western Wireless Corporation, Cook Inlet PV/SS PCS Partners,
L.P., Cook Inlet Telecommunications, Inc., SSPCS Corporation and
Providence Media Partners L.P. dated as of June 27, 1996
10.23(3) Third Amendment to Block "C" Organization and Financing Agreement
and Cook Inlet Western Wireless PV/SS PCS, L.P. Limited
Partnership Agreement and First Amendment to Technical Services
Agreement by and among Western PCS BTA I Corporation, Western
Wireless Corporation, Cook Inlet PV/SS PCS Partners, L.P., Cook
Inlet Telecommunications, Inc., SSPCS Corporation, Providence
Media Partners L.P. and Cook Inlet Western Wireless PV/SS PCS,
L.P., dated July 30, 1996
10.24(3) General Agreement for Purchase of Cellular Systems between Lucent
Technologies Inc. and Western Wireless Corporation, dated
September 16, 1996
10.25(4) Western Wireless Corporation 1996 Employee Stock Purchase Plan
10.26(5) Western Wireless Corporation 1997 Executive Restricted Stock Plan
10.27(5) Form of First Amendment to Amended and Restated Loan Agreement
among Western Wireless Corporation and The Toronto Dominion Bank,
Barclays Bank, PLC, and Morgan Guaranty Trust Company of New
York, as Managing Agents for the various lenders, dated March 27,
1997
10.28(5) Purchase Agreement, dated April 24, 1997, by and among Western
Wireless Corporation, Triad Texas, L.P., Triad Utah, L.P., Triad
Oklahoma, L.P., Triad Cellular Corporation and Triad Cellular
L.P.
10.29(5) Purchase Agreement, dated April 24, 1997, by and between Western
Wireless Corporation and Triad Cellular Corporation
10.30(5) Agreement and Plan of Merger, dated April 24, 1997, by and among
Western Wireless Corporation, Minnesota Cellular Corporation,
Triad Investment Minnesota, Inc., Barry B. Lewis, Craig W.
Viehweg, Terry E. Purvis, Triad Cellular Corporation, Triad
Cellular L.P., and Triad Minnesota, L.P.
10.31(5) Purchase Agreement, dated April 24, 1997, by and between Western
Wireless Corporation and Triad Cellular, L.P.
10.32(9) Second Amendment to Amended and Restated Loan Agreement by and
among Western Wireless Corporation, various financial
institutions, and The Toronto-Dominion Bank, Barclays Bank PLC
and Morgan Guaranty Trust Company of New York as Managing Agents
dated May 28, 1997
10.33(10) Stock Subscription Agreement by and among Western Wireless
Corporation, Hutchison Telecommunications Limited and Hutchison
Telecommunications Holdings (USA) Limited dated October 14, 1997
10.34(10) Form of Cash Management Agreement by and between Western Wireless
Corporation and Western PCS Corporation
10.35(10) Form of Roaming Agreement by and between Western Wireless
Corporation and Western PCS Corporation
10.36(10) Form of Services Agreement by and between Western Wireless
Corporation and Western PCS Corporation
10.37(10) Form of Shareholders Agreement by and among Western Wireless
Corporation, Hutchison Telecommunications PCS (USA) Limited and
Western PCS Corporation
10.38(10) Form of Tax Sharing Agreement by and between Western Wireless
Corporation and Western PCS Corporation
</TABLE>
27
<PAGE> 28
<TABLE>
<S> <C>
10.39(11) Software License Maintenance and Subscriber Billing Services
Agreement dated June 1997
10.40(11) First Amendment to Software License, Maintenance and Subscriber
Billing Services Agreement dated December 1997, between CSC
Intelicom, Inc., and Western Wireless Corporation
10.41(11) Letter agreement dated December 16, 1997 between Western Wireless
Corporation and Intelicom Services Inc. to provide products and
services pursuant to the Software License Maintenance and
Subscriber Billing Services Agreements and First Amendment
thereto
10.42(12) Second Amendment to Loan Agreement by and among Western Wireless
Corporation, TD Securities (USA) Inc., Barclays Capital, and J.P.
Morgan Securities Inc., as Managing Agents for the Various
Lenders, dated February 17, 1998
10.43(13) Asset Purchase Agreement by and between WWC Holding Co, Inc.,
Western Wireless Corporation, and Celludyne II, Inc. dated June
10, 1998
10.44(14) Exchange Rights and Grant Agreement by and among Western PCS BTA
I Corporation, Western Wireless Corporation, Cook Inlet
Telecommunications, Inc. and VoiceStream Wireless Corporation
dated December 17, 1998
10.45(14) Exchange Rights and Grant Agreement by and among Western PCS BTA
I Corporation, Western Wireless Corporation, SSPCS Corporation
and VoiceStream Wireless Corporation dated January 19, 1999
10.46(15) Amendment No. 1 to the General Agreement for Purchase of Cellular
Systems between Western Wireless Corporation and Lucent
Technologies, Inc. effective January 1998
10.47(15) Amendment No. 2 to Purchase Agreement between General Cellular
Corporation and Northern Telecom Inc.
10.48(15) Amendment No. 3 to Purchase Agreement between Western Wireless
Corporation and Northern Telecom Inc. dated September 1998
10.49(18) Asset Purchase Agreement by and among McAllen Cellular Telephone
Company, Inc., GCC License Corporation, Celutel, Inc. and Western
Wireless Corporation dated January 26, 1999
10.50(18) Asset Purchase Agreement by and among Brownsville Cellular
Telephone Company, Inc., GCC License Corporation, Celutel, Inc.
and Western Wireless Corporation dated January 26, 1999
10.51(16) Agreement and Plan of Distribution between Western Wireless
Corporation and VoiceStream Wireless Corporation dated April 9,
1999
10.52(16) Exchange Rights and Grant Agreement by and among Western PCS BTA
I Corporation, Western Wireless Corporation, Cook Inlet
Telecommunications, Inc. and VoiceStream Wireless Corporation
dated December 17, 1998
10.53(16) Exchange Rights and Grant Agreement by and among Western PCS BTA
I Corporation, Western Wireless Corporation, SSPCS Corporation
and VoiceStream Wireless Corporation dated January 19, 1999
10.54(17) First Amendment to Shareholders Agreement by and among
VoiceStream Wireless Corporation, Western Wireless Corporation,
Hutchison Telecommunications Holdings (USA) Limited and Hutchison
Telecommunications PCS (USA) Limited dated May 3, 1999
10.55(19) Asset Purchase Agreement by and between KO Communications, Inc.,
WWC Texas RSA Limited Partnership, and Western Wireless
Corporation dated August 25, 1999
10.56(19) Asset Purchase Agreement by and between NetWireless, LLC, GCC
License LLC, and Western Wireless Corporation dated August 25,
1999
10.57(19) License and Services Agreement between Western Wireless
Corporation and AMDOCS (UK) Limited dated August 23, 1999
10.58(19) Employment Agreement by and between H. Stephen Burdette and
Western Wireless Corporation, dated July 12, 1999
10.59 Employment Agreement by and between Jeffrey A. Christianson and
Western Wireless Corporation, dated December 17, 1999
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
</TABLE>
28
<PAGE> 29
- --------------------
(1) Incorporated herein by reference to the exhibit filed with the Company's
Registration Statement on Form S-1 (Commission File No. 333-2432).
(2) Incorporated herein by reference to the exhibit filed with the Company's
Registration Statement on Form S-1 (Commission File No. 333-2688).
(3) Incorporated herein by reference to the exhibit filed with the Company's
Registration Statement on Form S-4 (Commission File No. 333-14859).
(4) Incorporated herein by reference to the exhibit filed with the Company's
Registration Statement on Form S-8 (Commission File No. 333-18137).
(5) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-1 (Commission File No. 333-14859)
(6) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-3 (Commission File No. 333-14859)
(7) Incorporated by reference to the exhibit filed with the Company's Form
10-K for the year ended 12/31/96.
(8) Incorporated by reference to the exhibit filed with the Company's Form
10-Q for the quarter ended 3/31/97.
(9) Incorporated by reference to the exhibit filed with the Company's Form
10-Q for the quarter ended 6/30/97.
(10) Incorporated by reference to the exhibit filed with the Company's Form
10-Q for the quarter ended 9/30/97.
(11) Incorporated by reference to the exhibit filed with the Company's Form
10-K for the year ended 12/31/97.
(12) Incorporated by reference to the exhibit filed with the Company's Form
10-Q for the quarter ended 3/31/98.
(13) Incorporated by reference to the exhibit filed with the Company's Form
10-Q for the quarter ended 6/31/98.
(14) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form 10 (Commission File No. 000-25441)
(15) 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 246-2 of the Securities
Exchange Act of 1934.
(16) Incorporated by reference to the exhibit filed with the VoiceStream
Wireless Corporation Form 10 (Commission File No. 000-25441) filed with
the SEC on February 26, 1999.
(17) Incorporated by reference to the exhibit filed with the VoiceStream
Wireless Corporation Form 10/A Commission File No. 000-25441) filed with
the SEC on April 13, 1999.
(18) Incorporated by reference to the exhibit filed with the Company's Form
10-K for the year ended 12/31/98.
(19) Incorporated by reference to the exhibit filed with the Company's Form
10-Q for the quarter ended 9/30/99.
29
<PAGE> 30
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
WESTERN WIRELESS CORPORATION CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants ........................................................... F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 ....................................... F-3
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31,
1999, 1998 and 1997 .............................................................................. F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1999, 1998
and 1997 ........................................................................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 ......... F-6
Notes to Consolidated Financial Statements ......................................................... F-7
Schedule II - Valuation and Qualifying Accounts .................................................... S-1
</TABLE>
F-1
<PAGE> 31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Western Wireless Corporation:
We have audited the accompanying consolidated balance sheets of Western Wireless
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations and comprehensive loss, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. These financial statements and schedule referred to below are the
responsibility of Western Wireless management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Western Wireless Corporation
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
consolidated financial statements is presented for purposes of complying with
the Securities and Exchange Commission rules and is not a required part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
Arthur Andersen LLP
Seattle, Washington
March 1, 2000
F-2
<PAGE> 32
WESTERN WIRELESS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
As of December 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 42,735 $ 2,192
Accounts receivable, net of allowance for doubtful accounts of
$11,199 and $7,629, respectively 75,846 45,327
Inventory 9,680 8,794
Prepaid expenses and other current assets 27,358 8,544
Receivable from VoiceStream Wireless 2,984
----------- -----------
Total current assets 158,603 64,857
Property and equipment, net of accumulated depreciation
of $277,167 and $208,776, respectively 369,543 272,317
Licensing costs and other intangible assets, net of accumulated
amortization of $99,051 and $81,209, respectively 771,510 518,789
Investments in and advances to unconsolidated affiliates 55,840 37,663
Other assets 78 12,912
Net assets from discontinued operations 314,762
----------- -----------
$ 1,355,574 $ 1,221,300
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable $ 11,930 $ 5,101
Accrued liabilities 68,069 70,718
Construction accounts payable 8,825 6,582
----------- -----------
Total current liabilities 88,824 82,401
----------- -----------
Long-term debt 1,450,000 1,045,000
----------- -----------
Minority interest in consolidated subsidiaries 1,435 639
----------- -----------
Commitments and contingencies (Note 8)
Shareholders' equity (net capital deficiency):
Preferred stock, no par value, 50,000,000 shares authorized;
no shares issued and outstanding
Common stock, no par value, and paid-in capital; 300,000,000 shares
authorized;
Class A, 70,431,554 and 38,710,893 shares issued and outstanding,
respectively, and; Class B, 7,177,302 and 37,312,477 shares issued
and outstanding, respectively 690,953 800,631
Deferred compensation (17,389) (1,211)
Foreign currency translation (4,644) (2,328)
Deficit (853,605) (703,832)
----------- -----------
Total shareholders' equity (net capital deficiency) (184,685) 93,260
----------- -----------
$ 1,355,574 $ 1,221,300
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 33
WESTERN WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the year ended December 31,
--------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Subscriber revenues $ 388,062 $ 330,050 $ 245,364
Roamer revenues 150,725 66,744 39,750
Equipment sales and other revenues 28,554 19,826 17,734
------------ ------------ ------------
Total revenues 567,341 416,620 302,848
------------ ------------ ------------
Operating expenses:
Cost of service 68,883 55,592 47,001
Cost of equipment sales 36,249 33,149 29,698
General and administrative 120,434 88,888 60,865
Sales and marketing 99,610 83,309 61,409
Depreciation and amortization 102,013 74,402 66,595
Stock-based compensation 79,223
------------ ------------ ------------
Total operating expenses 506,412 335,340 265,568
------------ ------------ ------------
Operating income 60,929 81,280 37,280
------------ ------------ ------------
Other income (expense):
Interest and financing expense, net (99,993) (92,227) (41,406)
Equity in net loss of unconsolidated affiliates (14,529) (4,746) (1,731)
Other, net 3,862 1,855 4,138
------------ ------------ ------------
Total other income (expense) (110,660) (95,118) (38,999)
------------ ------------ ------------
Minority interest in consolidated subsidiaries 1,610 479
------------ ------------
Net loss from continuing operations (48,121) (13,359) (1,719)
------------ ------------ ------------
Net loss from discontinued operations (82,152) (210,710) (263,815)
Cost of discontinuance (18,500)
------------ ------------ ------------
Total discontinued operations (100,652) (210,710) (263,815)
------------ ------------ ------------
Net loss $ (148,773) $ (224,069) $ (265,534)
============ ============ ============
Basic and diluted loss per share:
Continuing operations $ (0.63) $ (0.17) $ (0.03)
Discontinued operations (1.31) (2.78) (3.73)
------------ ------------ ------------
Basic and diluted loss per share $ (1.94) $ (2.95) $ (3.76)
============ ============ ============
Weighted average shares used in
computing basic and diluted loss per share 76,775,000 75,863,000 70,692,000
============ ============ ============
Comprehensive loss:
Net loss $ (148,773) $ (224,069) $ (265,534)
Other comprehensive loss:
Foreign currency translation adjustment (2,316) (2,328)
------------ ------------ ------------
Total comprehensive loss $ (151,089) $ (226,397) $ (265,534)
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 34
WESTERN WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock
------------------------------------
Par value Foreign Total
Class A Class B and paid-in Deferred currency shareholders'
shares Shares capital compensation translation Deficit equity
----------- ----------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 14,540,691 55,239,157 $ 569,278 $ (800) $ (214,229) $ 354,249
Shares issued:
Upon exercise of stock options 268,763 1,077 1,077
In exchange of wireless
properties 1,600,000 28,600 28,600
Private placement 3,888,888 74,300 74,300
Class B shares exchanged for
Class A shares 1,807,994 (1,807,994)
Deferred compensation 95,000 1,781 (45) 1,736
Net loss (265,534) (265,534)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 22,201,336 53,431,163 675,036 (845) (479,763) 194,428
Shares issued:
Upon exercise of stock options 290,871 1,159 1,159
Excess of net book value from the
sale of minority interest in
consolidated subsidiaries 121,998 121,998
Class B shares exchanged for
Class A shares 16,118,686 (16,118,686)
Deferred compensation 100,000 2,438 (366) 2,072
Foreign currency translation
adjustment $ (2,328) (2,328)
Net loss (224,069) (224,069)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 38,710,893 37,312,477 800,631 (1,211) (2,328) (703,832) 93,260
Shares issued:
Upon exercise of stock options 1,480,486 6,972 6,972
Class B shares exchanged for
Class A shares 30,135,175 (30,135,175)
Discontinued operations (207,518) (207,518)
Deferred compensation 105,000 90,868 (16,178) 74,690
Distribution to minority shareholders (1,000) (1,000)
Foreign currency translation
adjustment (2,316) (2,316)
Net loss (148,773) (148,773)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 70,431,554 7,177,302 $ 690,953 $ (17,389) $ (4,644) $ (853,605) $ (184,685)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 35
WESTERN WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the year ended December 31,
---------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net loss $(148,773) $(224,069) $(265,534)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Net loss from discontinued operations 82,152 210,710 263,815
Depreciation and amortization 102,013 74,402 66,595
Employee equity compensation 79,157 1,972 1,835
Equity in net loss of unconsolidated affiliates 14,529 4,746 1,731
Minority interest in consolidated subsidiaries (1,610) (479)
Other, net 6,607 3,772 4,035
Changes in operating assets and liabilities, net of effects
from consolidating acquired interests:
Accounts receivable, net (28,554) (7,746) (10,902)
Inventory (775) 4,962 (6,900)
Prepaid expenses and other current assets (18,814) (845) (11,956)
Accounts payable 6,829 (3,915) 3,261
Accrued liabilities 659 3,159 37,651
--------- --------- ---------
Net cash provided by operating activities 93,420 66,669 83,631
--------- --------- ---------
Investing activities:
Purchase of property and equipment (168,219) (73,371) (54,318)
Additions to licensing costs and other intangible assets (4,390) (8,470) (283)
Acquisition of wireless properties, net of cash acquired (289,716) (35,346) (191,145)
Investments in and advances to unconsolidated affiliates (25,492) (15,443) (26,162)
Receipts from and (advances to) VoiceStream Wireless 2,968 105,446 (406,254)
Return of investment from VoiceStream Wireless 20,000
Other (2,494) (10,194)
--------- --------- ---------
Net cash used in investing activities (464,849) (29,678) (688,356)
--------- --------- ---------
Financing activities:
Proceeds from issuance of common stock, net 6,972 1,159 75,376
Additions to long term debt 415,000 60,000 565,000
Repayment of debt (10,000) (110,000) (70,000)
Net costs of private placement (1,080)
--------- --------- ---------
Net cash provided by (used in) financing activities 411,972 (49,921) 570,376
--------- --------- ---------
Change in cash and cash equivalents 40,543 (12,930) (34,349)
Cash and cash equivalents, beginning of year 2,192 15,122 49,471
--------- --------- ---------
Cash and cash equivalents, end of year $ 42,735 $ 2,192 $ 15,122
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statement
F-6
<PAGE> 36
Western Wireless Corporation
Notes to Consolidated Financial Statements
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) brand
name.
A wholly owned subsidiary of the Company, WWC Holding Co, Inc.,
("Holding Co.") owns 96% of Western Wireless International ("WWI") who, through
operating joint ventures, is a provider of wireless communications services
worldwide. Since 1996, WWI has participated in operating joint ventures that
have built and launched wireless networks in Latvia, Georgia, Iceland, Croatia,
Ghana and Haiti, and is currently constructing a nationwide cellular network in
Bolivia. In January 2000 WWI through its joint venture with the Modern Africa
Growth and Investment Company ("MAGIC"), completed an acquisition of the assets
and operations of Comstar in the Ivory Coast. Additionally, WWI holds
approximately 67% of Meteor Mobile Communications ("MMC"), an entity that has
been granted the Irish license, which is pending appeal with the Irish High
Court.
The Company had an 80.1% controlling interest in VoiceStream Wireless
Corporation ("VoiceStream"), an entity that provides wireless communication
services through the ownership and operation of personal communication service
("PCS") licenses. On May 3, 1999, VoiceStream formally separated from the
Company's other operations (the "Spin-off"). As of that date, the Company
distributed all of its interest in VoiceStream to its shareholders. Although
VoiceStream has been operated separately from the Company's other operations and
has been a separate legal entity since its inception, the Spin-off established
VoiceStream as a stand-alone entity with objectives separate from those of the
Company. The accompanying consolidated financial statements have been restated
to report the discontinued operations of VoiceStream.
Principles of consolidation:
The 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.
Revenue recognition:
Service revenues based on customer usage are recognized at the time the
service is provided. Access and special feature service revenues are recognized
when earned. Sales of equipment, primarily handsets, are recognized when the
goods are delivered to the customer.
Cash and cash equivalents:
Cash and cash equivalents generally consist of cash and marketable
securities that have original maturity dates not exceeding three months. Such
investments are stated at cost, which approximates fair value.
Inventory:
Inventory consists primarily of handsets and accessories. Inventory is
stated at the lower of cost or market, determined on a first-in, first-out
basis.
Property and equipment and depreciation:
Property and equipment are stated at cost. Depreciation commences once
the assets have been placed in service and is computed using the straight-line
method over the estimated useful lives of the assets, which primarily range from
three to twenty years.
Licensing costs and other intangible assets and amortization:
Licensing costs primarily represent costs incurred to acquire Federal
Communication Commission's ("FCC") wireless licenses, including cellular
licenses principally obtained through acquisitions.
Amortization of cellular licenses is computed using the straight-line
method over 40 years.
Other intangible assets consist primarily of deferred financing costs.
Deferred financing costs are amortized using the effective interest method over
the terms of the respective loans. In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed of," the Company
periodically evaluates whether there has been any indication of impairment of
its long-lived
F-7
<PAGE> 37
Western Wireless Corporation
Notes to Consolidated Financial Statements
assets, including its licensing costs and other intangibles. As of December 31,
1999, there has been no indication of such impairment.
Income taxes:
Deferred tax assets and liabilities are recognized based on temporary
differences between the financial statements and the tax basis of assets and
liabilities using enacted tax rates expected to be in effect when they are
realized. A valuation allowance against deferred tax assets is recorded, if,
based upon weighted available evidence, it is more likely than not that some or
all of the deferred tax assets will not be realized.
Loss per common share:
Loss per common share is calculated using the weighted average number of
shares of outstanding common stock during the period. The number of shares
outstanding has been calculated based on the requirements of SFAS No. 128,
"Earnings Per Share." Due to the net loss incurred during the periods presented,
all options outstanding are anti-dilutive, thus basic and diluted loss per share
are equal.
Stock-based compensation plans:
The Company accounts for its stock-based compensation plans under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." See Note 11 for discussion of the effect on net loss and other
related disclosures had Western Wireless accounted for these plans under SFAS
No. 123, "Accounting for Stock-Based Compensation."
Foreign currency translation:
For operations outside the United States that prepare financial
statements in currencies other than the United States dollar, results of
operations and cash flows are translated at average exchange rates during the
period, and assets and liabilities are translated at end of period exchange
rates. Translation adjustments are included as a separate component of
shareholders' equity.
Fair value of financial instruments:
As required under the Credit Facility (as defined in Note 7), the
Company enters into interest rate swap and cap agreements to manage interest
rate exposure pertaining to long-term debt. The Company has only limited
involvement with these financial instruments, and does not use them for trading
purposes. In addition, the Company has historically held derivative financial
instruments to maturity and has never recognized a material gain or loss on
disposal. It is the Company's intent to hold existing derivatives to maturity.
Interest rate swaps are accounted for on an accrual basis, the income or expense
of which is included in interest expense. Premiums paid to purchase interest
rate cap agreements are classified as an asset and amortized to interest expense
over the terms of the agreements. These transactions do not subject the Company
to risk of loss because gains and losses on these contracts are offset against
losses and gains on the underlying liabilities. No collateral is held in
relation to financial instruments.
The carrying value of short-term financial instruments approximates fair
value due to the short maturity of these instruments. The fair value of
long-term debt is based on incremental borrowing rates currently available on
loans with similar term and maturities. The Company does not hold or issue any
financial instruments for trading purposes.
Supplemental cash flow disclosure:
Cash paid for interest was $95.6 million in 1999, $96.4 million in 1998
and $69.6 million in 1997.
Non-cash investing and financing activities were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Discontinued operations (VoiceStream) $227,518
Stock-based compensation (in connection with Spin-off) $ 82,750
Release of cash held in escrow $ 15,000
Issuance of common stock in exchange for wireless assets $ 28,600
</TABLE>
F-8
<PAGE> 38
Western Wireless Corporation
Notes to Consolidated Financial Statements
Estimates used in preparation of financial statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Reclassifications:
Certain amounts in prior years' financial statements have been
reclassified to conform to the 1999 presentation.
Recently issued accounting standards:
In December 1999, the SEC released Staff Accounting Bulletin ("SAB")
Number 101, "Revenue Recognition in Financial Statements." This bulletin will
become effective for the issuance of the Company's March 31, 2000, quarterly
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, such as an arrangement to provide
telecommunications services. We are currently evaluating the impact of this
bulletin on our financial position and results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." It requires
the recognition of all derivatives as either assets or liabilities and the
measurement of those instruments at fair value. The required adoption period is
effective for the issuance the Company's December 31, 2000, financial
statements. The implementation of SFAS No. 133 is not expected to have a
material impact on the Company's financial position or results of operations.
SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133," issued in
August 1999, postpones for one year the mandatory effective date for adoption of
SFAS No. 133 to January 1, 2001.
2. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
<TABLE>
<CAPTION>
(Dollars in thousands) DECEMBER 31,
-------------------
1999 1998
------- -------
<S> <C> <C>
Receivable from unconsolidated international companies $ 7,457 $ 4,048
WWI Deposits 8,702 482
Other 11,199 4,014
------- -------
$27,358 $ 8,544
======= =======
</TABLE>
3. PROPERTIES AND EQUIPMENT:
<TABLE>
<CAPTION>
(Dollars in thousands) DECEMBER 31,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
Land, buildings and improvements $ 13,051 $ 12,748
Wireless communications systems 493,580 373,971
Furniture and equipment 70,424 53,919
--------- ---------
577,055 440,638
Less accumulated depreciation (277,167) (208,776)
--------- ---------
299,888 231,862
Construction in progress 69,655 40,455
--------- ---------
$ 369,543 $ 272,317
========= =========
</TABLE>
Depreciation expense was $85.7 million in 1999, $62.2 million in 1998
and $57.9 million in 1997.
F-9
<PAGE> 39
Western Wireless Corporation
Notes to Consolidated Financial Statements
4. LICENSING COSTS AND OTHER INTANGIBLE ASSETS:
<TABLE>
<CAPTION>
(Dollars in thousands) DECEMBER 31,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
License costs $ 834,755 $ 564,157
Other intangible assets 35,806 35,841
--------- ---------
870,561 599,998
Accumulated amortization (99,051) (81,209)
--------- ---------
$ 771,510 $ 518,789
========= =========
</TABLE>
Amortization expense was $16.3 million in 1999, $12.2 million in 1998
and $8.7 million in 1997.
5. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES:
<TABLE>
<CAPTION>
(Dollars in thousands) DECEMBER 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Western Wireless International:
Latcom Wireless Telephone Co. $ 8,913 $ 12,724
ACG Telesystems Ghana, LLC 15,275 13,122
Nuevatel-Bolivia 9,065 0
Other international investments 13,184 11,817
Cellular One Group 9,403 0
-------- --------
$ 55,840 $ 37,663
======== ========
</TABLE>
The Company's ownership interest in these unconsolidated affiliates
range from 15% to 50%.
In November 1999, a WWI joint venture was notified that government
regulators accepted its bid for a license to provide wireless communication
services in Bolivia. WWI contributed $9.1 million for the purchase of the
license.
In October 1998, a WWI joint venture was granted a license to provide
wireless communication services in Croatia. WWI contributed $3.3 million for the
purchase of the license.
In September 1998, a WWI joint venture was granted a license to provide
wireless communication services in Haiti. WWI contributed $8.5 million for the
purchase of the license.
In June 1998, WWI, through a controlling interest in a partnership (the
"Ireland Partnership"), was notified by the Irish Government that it was the
preferred applicant for a DCS-1800/GSM 900 mobile communication license in
Ireland. The amount bid by the Ireland Partnership on this license was $16.2
million, including related fees. The license has not yet been issued, as the
decision by the Irish Government is subject to a pending legal proceeding (refer
to Note 8 for more information).
The Company's international investments are subject to the laws and
regulations governing telecommunication services in effect in each of the
countries in which it operates. These laws and regulations can have a
significant influence on the Company's results of operations and are subject to
change by the responsible governmental agencies. The financial statements as
presented reflect certain assumptions based on laws and regulations currently in
effect in each of the various countries. The Company cannot predict what future
laws and regulations might be passed that could have a material effect on the
Company's results of operations. The Company assesses the impact of significant
changes in laws and regulations on a regular basis and updates the assumptions
used to prepare its financial statements accordingly.
6. ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
(Dollars in thousands) DECEMBER 31,
--------------------
1999 1998
------- -------
<S> <C> <C>
Accrued payroll and benefits $12,755 $14,667
Accrued interest expense 13,065 13,091
Accrued property taxes 4,948 4,951
Accrued taxes (other than income) 9,480 3,870
Accrued interconnect charges 10,239 6,358
Other 17,582 27,781
------- -------
$68,069 $70,718
======= =======
</TABLE>
F-10
<PAGE> 40
Western Wireless Corporation
Notes to Consolidated Financial Statements
7. LONG-TERM DEBT:
<TABLE>
<CAPTION>
(Dollars in thousands) DECEMBER 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
Credit Facility:
Revolver $ 750,000 $ 445,000
Term Loan 200,000 200,000
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
---------- ----------
$1,450,000 $1,045,000
========== ==========
</TABLE>
Credit Facility:
The Company has a credit facility with a group of banks (the "Credit
Facility") pursuant to which the banks agreed to make loans to the Company, on a
revolving-credit basis, in an aggregate principal amount not to exceed $750
million (the "Revolver") and a term loan (the "Term Loan") of $200 million. The
Revolver is limited to the principal amount outstanding on December 31, 2000.
The Company is required to make quarterly payments on the outstanding principal
of the Revolver beginning March 31, 2001, and on the Term Loan beginning June
30, 2001. These payments increase each year on the anniversary date of the
initial payment, until paid in full on December 31, 2005, for the Revolver and
March 31, 2006, for the Term Loan. The Credit Facility also contains certain
financial covenants, the most restrictive of which impose limitations on the
incurrence of indebtedness.
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, the CD rate or LIBOR. The applicable margin on the Revolver is determined
quarterly based on the leverage ratio of the Company, excluding certain of its
subsidiaries. The applicable margin on the Term Loan is 2.5%. During 1999, 1998
and 1997, all loans under the Credit Facility had been borrowed using the LIBOR
option. The weighted average interest rate, including the appropriate applicable
margin, was 6.8% in 1999 and 7.6% in 1998. The Credit Facility also provides for
an annual fee ranging from 0.25% to 0.375% on the unused commitment, payable
quarterly.
During the fourth quarter of 1999, the Company established a $250
million additional facility (the "Additional Facility"), as permitted under the
Credit Facility. The Additional Facility is structured as a term loan to be
completely drawn by May 5, 2000, and bears interest at LIBOR plus 2.5%. Other
terms and conditions are similar to the existing Term Loan. Amounts available
for borrowing at December 31, 1999, which are limited by certain financial
covenants and other restrictions, were $150 million under the Additional
Facility. The repayment of the Credit Facility is secured by, among other
things, the grant of a security interest in substantially all of the assets of
the Company.
The Credit Facility requires the Company to enter into interest rate
swap and cap agreements to manage the interest rate exposure pertaining to
borrowings under the Credit Facility. The Company had entered into interest rate
caps, swaps and collars with a total notional amount of $525 million at December
31, 1999, and $325 million at December 31, 1998. Generally these instruments
have initial terms ranging from three to four years and effectively convert
variable rate debt to fixed rate. The weighted average interest rate under these
agreements was approximately 7.4% in 1999 and 7.7% in 1998. The amount of
unrealized loss attributable to changing interest rates at December 31, 1999 and
1998 was immaterial.
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 Credit Facility prohibits the repayment of all or any portion of the
principal amount of the 2006 Notes prior to the repayment of all indebtedness
under each credit facility. 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.
F-11
<PAGE> 41
Western Wireless Corporation
Notes to Consolidated Financial Statements
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 Credit Facility prohibits repayment of all or any
portion of the principal amount of the 2007 Notes prior to the repayment of
all indebtedness under each credit facility. 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.
The aggregate amounts of principal maturities as of December 31, 1999,
are as follows (dollars in thousands):
<TABLE>
<S> <C>
Year ending December 31,
2000 $ 0
2001 77,250
2002 115,500
2003 190,500
2004 190,500
Thereafter 876,250
----------
$1,450,000
==========
</TABLE>
In addition, the Credit Facility includes a covenant requiring
additional pre-payment of principal to be made starting March 31, 2001 if the
Company's operating cash flows, net of capital expenditures exceed predetermined
levels. The Company estimates additional principal payments for 2001 range from
$0 to $25 million.
8. COMMITMENTS AND CONTINGENCIES:
The Company leases various facilities, cell site locations,
rights-of-way and equipment under operating lease agreements. The leases expire
at various dates through the year 2019. Some leases have options to renew for
additional periods up to 25 years. Certain leases require the Company to pay
property taxes, insurance and normal maintenance costs. Substantially all of the
Company's leases have fixed minimum lease payments. The Company has no
significant capital lease liabilities.
Future minimum payments required under operating leases and agreements
that have initial or remaining noncancellable terms in excess of one year as of
December 31, 1999, are summarized below (dollars in thousands):
<TABLE>
<S> <C>
Year ending December 31,
2000 $12,845
2001 11,111
2002 9,555
2003 6,440
2004 2,817
Thereafter 4,440
-------
$47,208
=======
</TABLE>
Aggregate rental expense for all operating leases was approximately
$14.8 million in 1999, $12.2 million in 1998 and $10.0 million in 1997.
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 December 31, 1999, $7.3
million has been paid toward these commitments.
The Company has various other purchase commitments for materials,
supplies and other items incident to the ordinary course of business which are
neither significant individually nor in the aggregate. Such commitments are not
at prices in excess of current market value.
On October 3, 1999, the Irish High Court remanded to the Office of the
Director of Telecommunication Regulation ("ODTR") its decision that ranked 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 have appealed this ruling to the Irish Supreme
Court. If the ruling is upheld on appeal, then it is most likely that: (i) the
previous bids will be reviewed and re-ranked or (ii) a new
F-12
<PAGE> 42
Western Wireless Corporation
Notes to Consolidated Financial Statements
bidding process will be implemented. Management remains committed to the Irish
market and believes that the attributes of its original bid that resulted in the
initial number one ranking will continue to be recognized as the best plan.
However, pending the outcome of the appeal, there is no assurance that the
Company will retain its current ranking.
During the period from which the Company's bid was ranked number one up
through the date of the recent court decision, WWI continued to invest in MMC.
However, since MMC may not be awarded the license, it is possible that the
investment underlying MMC may not be realized. If MMC is not successful in its
bid for this license, the estimated range of a potential loss to be recorded by
WWI would range from $9 to $12 million.
9. INCOME TAXES:
Significant components of deferred income tax assets and liabilities,
net of tax, are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) DECEMBER 31,
---------------------------
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 107,853 $ 71,737
Other temporary differences 33,685 12,440
--------- ---------
Total deferred tax assets 141,538 84,177
Valuation allowance (91,360) (55,596)
--------- ---------
50,178 28,581
Deferred tax liabilities:
Property and wireless licenses basis difference (50,178) (28,581)
--------- ---------
$ 0 $ 0
========= =========
</TABLE>
The Company had available at December 31, 1999, net operating loss
("NOL") carryforwards of approximately $270 million. The NOL carryforwards will
expire between 2003 and 2019. The Company may be limited in its ability to use
these carryforwards in any one year due to ownership changes that preceded the
business combination that formed the Company in July 1994. The change in the
valuation allowance increased $36 million in 1999, $3 million in 1998 and $2
million in 1997.
Management believes that available objective evidence creates sufficient
uncertainty regarding the realization of the net deferred tax assets. Such
factors include a history of recurring operating losses and expected increased
competition from new entrants into the Company's cellular markets. Accordingly,
a valuation allowance has been provided for the net deferred tax assets of the
Company.
The difference between the statutory tax rate of approximately 40% (35%
federal and 5% state, net of federal benefits) and the tax benefit of zero
recorded by the Company is primarily due to the full valuation allowance against
net deferred tax assets. The Company's ability to utilize the NOL carryforwards
in any given year may be limited by certain events, including a significant
change in ownership interest.
After the Spin-off, the NOL carryforwards resulting from VoiceStream's
cumulative tax losses remained with VoiceStream. Pursuant to a tax sharing
agreement entered into at the time of the Hutchison Investment, VoiceStream paid
the Company $20 million, an amount representative of the tax benefit of NOLs
generated while VoiceStream was a wholly owned subsidiary of the Company, which
was accounted for as a return of capital to the Company.
10. SHAREHOLDERS' EQUITY:
Stock issuances:
In 1999, the Company issued 1,480,486 shares of its Class A Common Stock
as a result of employee stock option exercises.
The Company issued 105,000 shares in 1999 and 100,000 shares in 1998, of
its Class A Commons Stock to certain key executives pursuant to an Executive
Restricted Stock Plan. The vesting of these shares is subject to certain
performance thresholds as determined by the Board of Directors.
F-13
<PAGE> 43
Western Wireless Corporation
Notes to Consolidated Financial Statements
In May 1998, the Company completed a secondary offering on form S-3 (the
"Secondary Offering") of 13,915,000 Class A Common Stock shares (including on
over-allotment exercised by the underwriters). The Company did not issue any new
primary shares and received no proceeds from the Secondary Offering. The shares
were offered by certain shareholders of the Company who elected to convert a
portion of their Class B Common Stock into publicly traded Class A Common Stock
for sale pursuant to a registration statement. No member of management of the
Company sold any shares in the Secondary Offering.
Other transactions:
During the second quarter, as a result of the Spin-off, the Company
recognized compensation expense on all options outstanding as of May 3, 1999. On
the date of the Spin-off, the Company cancelled and reissued all outstanding
stock options. All reissued stock options were granted in a manner that ensured
employees of both the Company and VoiceStream maintained the value of their
options, subject to normal fluctuations in the price of both companies stock,
after the Spin-off.
This reissuance did not accelerate benefits to option holders. The
Company believes this allows employees to continue to better participate in the
success of the company for which they work. As outlined in the provisions of
EITF 90-9, at the date of the Spin-off, the Company recorded deferred
compensation of approximately $82.8 million and compensation expense for those
options in which the service period had passed of $63.4 million. Subsequent to
the date of the Spin-off, the Company has recognized an additional $6.2 million
of stock option compensation through December 31, 1999.
11. STOCK-BASED COMPENSATION PLANS:
The Management Incentive Stock Option Plan (the "MISOP"), which has been
effective since 1994, provides for the issuance of up to 7,500,000 shares of
common stock as either Nonstatutory Stock Options or as Incentive Stock Options,
the terms and conditions of which are at the discretion of the administrator of
the MISOP.
The Employee Stock Purchase Plan (the "ESPP"), which has been effective
since 1997, provides for the issuance of up to 1,000,000 shares of Class A
Common Stock to eligible employees participating in the plan. The terms and
conditions of eligibility under the ESPP require that an employee must have been
employed by the Company or its subsidiaries for at least three months prior to
participation. A participant may contribute up to 10% of their total annual
compensation toward the ESPP, not to exceed the IRS contribution limit each
calendar year. Shares are offered under this ESPP at 85% of market value at each
offer date. Participants are fully vested at all times.
At December 31, 1999, 1998, and 1997, the Company has accounted for the
above described MISOP and ESPP following the guidelines of APB Opinion No. 25
and related interpretations. Had compensation cost for the MISOP and the ESPP
been determined based upon the fair value at the grant dates for awards under
these plans consistent with the method defined in SFAS No. 123, the Company's
net loss and basic loss per share would have increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) YEAR ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net loss:
As reported $ (148,773) $ (224,069) $ (265,534)
Pro forma $ (157,604) $ (232,110) $ (271,745)
Basic and diluted loss per share:
As reported $ (1.94) $ (2.95) $ (3.76)
Pro forma $ (2.05) $ (3.06) $ (3.84)
</TABLE>
F-14
<PAGE> 44
Western Wireless Corporation
Notes to Consolidated Financial Statements
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model using the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Weighted average risk free interest rates 5.6% 5.8% 6.3%
Expected dividend yield 0% 0% 0%
Expected volatility 63% 50% 50%
Expected lives (in years) 4.75 7.5 7.5
</TABLE>
The Black-Scholes option-pricing model requires the input of highly
subjective assumptions and does not necessarily provide a reliable measure of
fair value.
The decrease in expected lives results from the cancellation and
re-issuance of all outstanding stock options as a result of the Spin-off; see
Note 10 "Other transactions."
Options granted, exercised and canceled under the above MISOP are
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(In thousands, except ---------------------------------------------------------------------
pricing information) 1999 1998 1997
------------------- ------------------- -------------------
Weighted Weighted Weighted
average average average
Shares price Shares price Shares price
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of Period 4,348 $11.78 3,711 $ 9.79 4,165 $ 9.66
Options granted 5,058 $ 7.61 992 $17.41 18 $14.65
Options exercised (1,453) $ 5.02 (291) $ 5.02 (269) $ 4.85
Options cancelled (4,311) $13.01 (64) $14.32 (203) $13.12
------ ------ ------
Outstanding, end of the Period 3,642 $ 7.32 4,348 $11.78 3,711 $ 9.79
====== ====== ======
Exercisable, end of period 1,889 $ 5.54 2,656 $ 9.36 2,384 $ 8.23
</TABLE>
The weighted average fair value of stock options granted was $22.01 in
1999, $9.75 in 1998 and $9.34 in 1997.
The following table summarizes information about fixed price stock
options outstanding at December 31, 1999:
<TABLE>
<CAPTION>
(in thousands, except Options outstanding Options exercisable
pricing information) ------------------------------------------ --------------------------
Weighted
average Weighted Weighted
remaining average average
Range of Number contractual exercise Number exercise
exercise prices outstanding life price exercisable price
- --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.53-$ 5.28 966 5 years $ 4.48 966 $ 4.48
$6.03-$ 6.42 913 7 years $ 6.29 728 $ 6.26
$6.42-$ 9.32 919 8 years $ 8.14 195 $ 8.11
$9.95-$35.00 844 9 years $ 10.79 0 $ --
- ------------ -------- -------- -------- -------- --------
$0.53-$35.00 3,642 7 years $ 7.32 1,889 $ 5.54
======== ========
</TABLE>
In May 1999, in connection with the Spin-off, the Company cancelled and
reissued all outstanding options as, (i) the Company's option holders received
one vested VoiceStream option and one vested Western Wireless option for each
existing vested Western Wireless option; and (ii) the Company's option holders
who became VoiceStream employees received for each unvested Western Wireless
option at the Spin-off a number of unvested VoiceStream options. All reissued
stock options were granted in a manner that ensured employees of both the
Company and VoiceStream maintained the value of their options, subject to normal
fluctuations in the price of both companies stock, after the Spin-off. This
reissuance did not accelerate any benefits to option holders.
In September 1998, the Company's Board of Directors approved the 1998
Stock Appreciation Plan (the "Plan") whereby selected key personnel of WWI and
its Subsidiaries may receive performance units, which are "rights" to receive an
amount based on 5% of the fair market value of WWI. The maximum number of
performance units that may be granted under the Plan as amended is 20,000. As of
December 31, 1999, 15,000 performance units have been issued under the Plan. For
the year ended December 31, 1999, based on the valuation of WWI on January 1,
2000, the Company has incurred $3.9 million in cost related to the Plan.
F-15
<PAGE> 45
Western Wireless Corporation
Notes to Consolidated Financial Statements
12. ACQUISITIONS:
All of the following acquisitions were accounted for using the purchase
method of accounting. Substantially the entire purchase price of each of the
acquisitions was allocated to licensing costs.
In November 1999, the Company purchased the cellular licenses and
operations of the Texas 7 and Arkansas 11 RSAs for approximately $165 million in
cash.
In June 1999, the Company completed the purchase of 50% of the Cellular
One Group for $9 million in cash.
In June 1999, the Company completed the purchase of the cellular
licenses and operations of the Brownsville, TX and McAllen, TX Metropolitan
Statistical Areas ("MSA") for an aggregate amount of approximately $96 million
in cash.
In February 1999, the Company completed the purchase of the cellular
license and operations of the Wyoming 4 and Oklahoma 1 RSA for $19 million in
cash. Prior to the purchase of the Wyoming 4 RSA, the Company operated this
market under an Interim Operating Authority ("IOA") from the FCC.
In August 1998, the Company purchased the cellular license and
operations of the Colorado 4 RSA for approximately $18.5 million in cash.
In June 1998, the Company purchased the cellular license and operations
of the Nebraska 5 RSA for approximately $15.5 million in cash. Prior to the
purchase of the Nebraska 5 RSA, the Company operated this market under an IOA
from the FCC.
In March 1998, the Company was granted 36 Local Multipoint Distribution
Service ("LMDS") licenses that it was the high bidder on in an FCC auction. The
Company paid approximately $5.6 million for these licenses.
13. SELECTED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED):
Selected quarterly consolidated financial information for the years
ended December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
BASIC DILUTED
OPERATING NET EARNINGS EARNINGS
TOTAL INCOME INCOME (LOSS) PER (LOSS) PER
QUARTER ENDED REVENUES (LOSS) (LOSS) COMMON SHARE COMMON SHARE
- ------------------ --------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
March 31, 1999 $ 115,863 $ 21,991 $(113,588) $ (1.49) $ (1.49)
June 30, 1999 $ 136,551 $ (31,352) $ (47,944) $ (0.63) $ (0.63)
September 30, 1999 $ 157,044 $ 40,850 $ 13,542 $ 0.18 $ 0.17
December 31, 1999 $ 157,883 $ 29,440 $ (783) $ (0.01) $ (0.01)
March 31, 1998 $ 90,630 $ 15,988 $ (64,150) $ (0.84) $ (0.84)
June 30, 1998 $ 98,404 $ 18,446 $ (53,040) $ (0.70) $ (0.70)
September 30, 1998 $ 111,364 $ 24,226 $ (49,673) $ (0.65) $ (0.65)
December 31, 1998 $ 116,222 $ 22,620 $ (57,206) $ (0.75) $ (0.75)
</TABLE>
14. 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 mainly consist
of unconsolidated joint ventures. Certain centralized back office costs and
assets benefit all of the Company's operations. These costs are allocated to
both segments in a manner, which reflects the relative time devoted to each of
the segments.
The only significant international component of the Company's financial
results is the equity in net loss of unconsolidated affiliates. The domestic
cellular operations comprise the majority of the Company's total revenues,
expenses and total assets as presented in the table below:
F-16
<PAGE> 46
Western Wireless Corporation
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
(Dollars in thousands) DOMESTIC INT'L
OPERATIONS OPERATIONS CONSOLIDATED
----------- ----------- ------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Total revenues $ 567,341 $ 567,341
Depreciation and amortization expense 101,254 $ 759 102,013
Operating income (loss) 65,788 (4,859) 60,929
Interest expense 95,476 4,517 99,993
Equity in net income (loss) of unconsolidated affiliates 305 (14,834) (14,529)
Total assets 1,276,878 78,696 1,355,574
Total capital expenditures 154,370 13,849 168,219
YEAR ENDED DECEMBER 31, 1998
Total revenues $ 416,620 $ 416,620
Depreciation and amortization expense 74,395 $ 7 74,402
Operating income (loss) 83,708 (2,428) 81,280
Interest expense 91,184 1,043 92,227
Equity in net loss of unconsolidated affiliates (4,746) (4,746)
Total assets 1,180,856 40,444 1,221,300
Total capital expenditures 73,371 73,371
YEAR ENDED DECEMBER 31, 1997
Total revenues $ 302,848 $ 302,848
Depreciation and amortization expense 66,595 66,595
Operating income (loss) 39,034 $ (1,754) 37,280
Interest expense 41,406 41,406
Equity in net loss of unconsolidated affiliates (1,731) (1,731)
Total assets 1,358,775 27,760 1,386,535
Total capital expenditures 54,318 54,318
</TABLE>
15. RELATED PARTY TRANSACTIONS:
The financial statements include an allocation of certain centralized
costs to VoiceStream and its affiliates, prior to and subsequent to the
Spin-off. Such centralized items include the costs of shared senior management,
customer care operations and certain 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 twelve months ended December 31, 1999,
1998 and 1997, the Company allocated to VoiceStream and its affiliates costs of
$8.9 million, $26.3 million and $30.5, respectively.
After the Spin-off, the NOL carryforwards resulting from VoiceStream's
cumulative tax losses were transferred to VoiceStream. Pursuant to a tax sharing
agreement entered into at the time of the Hutchison investment, VoiceStream paid
the Company $20 million, the amount representative of the tax benefit of NOLs
generated while VoiceStream was a wholly owned subsidiary of the Company. This
transaction was accounted for as a return of capital to the Company.
The Company, its Holding Co., WWI, and Bradley Horwitz, the Executive
Vice President-International, have entered into an amendment of a subscription
and put and call agreement with respect to shares of common stock of WWI whereby
Mr. Horwitz's interest in WWI is decreased from 10% to 4.04% in consideration of
the Company's investment in WWI of an additional $29 million in 1996 and 1997.
Holding Co. continues to own the balance of the outstanding capital stock of
WWI. Any funds provided by the Company to WWI on or subsequent to January 1,
1998, shall be considered revolving debt loaned by the Company to WWI at an
interest rate of 10.5% per annum.
16. SUBSEQUENT EVENTS:
On March 2, 2000 the Company signed a commitment letter to secure $2.1
billion in new financing consisting of a combination of revolving and term
loans. Final terms and conditions of this arrangement are contingent upon the
approval of the new financing among the syndicate of lenders. The new financing
arrangement is expected to have terms and conditions similar to the existing
Credit Facility. Proceeds from the new financing arrangement will be used to
repay the Company's existing Credit Facility. Assuming the new financing is
established, the Company will recognize an extraordinary loss ranging from
approximately $13 to $22 million for the impairment of existing deferred
financing costs relating to the Company's current debt structure.
In January 2000, the Company completed the purchase of the Utah 5 Rural
Service Area ("RSA") for approximately $25 million in cash and $5 million in
seller subordinate debt. Further, the Company signed an agreement to acquire the
assets
F-17
<PAGE> 47
Western Wireless Corporation
Notes to Consolidated Financial Statements
associated with the Arizona 6 and Wyoming 1 RSAs for an aggregate amount of
approximately $67 million in cash. The purchase is pending approval from the
FCC, and are expected to close in the second quarter of 2000.
In January 2000, WWI, through its joint venture with MAGIC, completed an
acquisition of the assets and operations of Comstar in the Ivory Coast. WWI has
contributed $9.1 million to date for the purchase of the license. The Comstar
network is currently under expansion.
F-18
<PAGE> 48
WESTERN WIRELESS CORPORATION
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
ACCOUNTS RECEIVABLE ALLOWANCE FOR DOUBTFUL ACCOUNTS
(Dollars in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Charged Balance
beginning costs and to other Deductions at end
Description of period expenses accounts(1) (2) of period
----------- ---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999 $ 7,629 $ 18,280 $ 1,635 $(16,345) $ 11,199
======== ======== ======== ======== ========
Year ended December 31, 1998 $ 7,891 $ 16,048 $ 1,418 $(17,728) $ 7,629
======== ======== ======== ======== ========
Year ended December 31, 1997 $ 3,519 $ 9,814 $ 1,206 $ (6,648) $ 7,891
======== ======== ======== ======== ========
</TABLE>
(1) Represents market acquisitions and dispositions, late fees and net fraud
credits given to customers.
(2) Write-offs, net of bad debt recovery.
S-1
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly causes this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: 3/20/00
WESTERN WIRELESS CORPORATION
By /s/ John W. Stanton
--------------------------------
John W. Stanton
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title
---------- -----
<S> <C> <C>
/s/ John W. Stanton Chairman of the Board and Chief Date: 3/20/00
- ---------------------------- Executive Officer
John W. Stanton (Principal Executive Officer)
/s/ Theresa E. Gillespie Executive Vice President Date: 3/20/00
- ----------------------------
Theresa E. Gillespie
/s/ Scott A. Soley Executive Director of Accounting Date: 3/20/00
- ---------------------------- (Chief Accounting Officer)
Scott A. Soley
/s/ John L. Bunce Jr. Director Date: 3/20/00
- ----------------------------
John L. Bunce, Jr.
/s/ Mitchell R. Cohen Director Date: 3/20/00
- ----------------------------
Mitchell R. Cohen
/s/ Daniel J. Evans Director Date: 3/20/00
- ----------------------------
Daniel J. Evans
/s/ Jonathan M. Nelson Director Date: 3/20/00
- ----------------------------
Jonathan M. Nelson
/s/ Terence M. O'Toole Director Date: 3/20/00
- ----------------------------
Terence M. O'Toole
</TABLE>
S-2
<PAGE> 1
EXHIBIT 10.59
December 17, 1999
Jeffrey A. Christianson
Dear Jeff:
This letter (the "Letter Agreement") sets forth the terms of your employment
with Western Wireless Corporation ("WWC"), effective February 1, 2000.
1. Your title will be Senior Vice President and General Counsel. In that
capacity you will report to the President of WWC (the "President").
2. Your responsibilities will include supervision of all legal and human
resources functions, together with such other duties as may be assigned
to you by the President. In addition, you agree to serve as a director
and/or senior officer of any subsidiary of WWC, if so elected, without
any additional salary or other compensation. You will devote
substantially all of your business time and attention to the obligations
delineated in this Letter Agreement.
3. Your base compensation will be $185,000, payable in accordance with
standard payroll practices of WWC. In addition, you will have an
opportunity, as determined by WWC, to earn a performance bonus targeted
at $40,000 per year, to be paid quarterly, and to continue, during the
course of your employment, participation in the option program at a
level to be determined by WWC. Your options shall contain change of
control language consistent with other officers of WWC including, but
not limited to, language providing for full vesting of all stock options
granted upon a change of control (as that term is defined in the sock
option agreements for the officers of WWC). It is understood that
nothing contained herein will prevent WWC, in its sole and absolute
discretion, from, at any time, increasing your compensation, either
permanently or for a limited period, whether in base compensation, by
bonus or otherwise, if WWC in its sole discretion, shall deem it
advisable to do so in order to recognize and fairly compensate you for
the value of your services to WWC; provided, however, that nothing
contained in this paragraph three shall in any manner obligate WWC to
make any such increase or provide any such additional compensation or
benefits.
4. WWC will reimburse you for all reasonable out-of-pocket business
expenses paid or incurred by you in connection with the performance of
your duties, upon submission of signed, itemized lists of such expenses
on general forms established for that purpose by WWC.
5. You will be entitled to participate in all group health and insurance
programs and all other fringe benefit or retirement plans or other plans
effective generally with respect to executives of WWC.
6. WWC will enter into an Indemnification Agreement with you pursuant to
which WWC will agree to indemnify you against certain liabilities
arising by reason of your affiliation with WWC.
7. (a) Notwithstanding any other provision of this Letter Agreement, your
employment by WWC may be terminated by WWC at any time, with or without
Cause, as defined below. In the event of a termination for Cause you
will have no rights to severance payments. Termination for "Cause" means
(i) your gross neglect or willful material breach of your principal
employment responsibilities or duties, (ii) a final judicial
adjudication that you are guilty of a felony, (iii) fraudulent conduct
as determined by a court of competent jurisdiction in the course of your
<PAGE> 2
Jeffrey A. Christianson
Page 2
employment with WWC or any of its subsidiaries, (iv) the breach by you
of the covenant set forth in paragraph nine, below, or (v) the material
breach by you of any other provision of this Letter Agreement which
continues uncured for a period of thirty (30) days after notice thereof
by WWC. In the event of your voluntary termination of employment with
WWC, you will have no rights to severance benefits.
(b) In the event of an involuntary termination for other than Cause
(which shall include your resignation as a direct result of (i) a
reduction in your base compensation and/or incentive bonus target
percentage, or (ii) the material breach by the Company of any provision
of this Letter Agreement which continues uncured for a period of thirty
(30) days after notice thereof by you), then (A) you will be entitled to
receive a severance payment in an amount equal to your accrued but
unpaid existing annual targeted incentive bonus through the date of
termination, 6 months of your then base compensation and an amount equal
to 6 months of your existing annual targeted incentive bonus; (B) WWC
will, at its expense, make all COBRA benefit payments on behalf of you
and your dependents for six (6) months following such involuntary
termination; and (C) with respect to any stock options previously
granted to you by WWC which remain unvested at the time of the
involuntary termination, notwithstanding the vesting language in the
stock option agreement pursuant to which such options were granted,
there shall be immediate vesting of that portion of each such grant of
unvested stock options as equals the product of the total number of such
options under such grant which remain unvested multiplied by a fraction
the numerator of which is the sum of (i) the number of days from the
date on which the last vesting of options under such grant took place to
and including the date on which the termination occurs plus (ii) 183 and
the denominator of which is the number of days remaining from the date
on which the last vesting of options under such grant took place to and
including the date on which the final vesting under such grant would
have occurred.
Your death or permanent disability will be deemed an involuntary
termination for other than Cause. "Permanent disability" shall mean your
inability substantially to render the services required hereunder for
eight (8) months in any eighteen (18) month period because of a physical
or mental condition, it being understood that until you have received
notice from WWC terminating this Letter Agreement, you will continue to
receive your base compensation and all other benefits to which you are
entitled under this Letter Agreement.
(c) You agree that upon termination of your employment by WWC for any
reason you will surrender to WWC all proprietary records, lists and
other documents obtained by you or entrusted to you during the course of
your employment by WWC, together with all copies of all such documents.
8. You agree not to disclose at any time, whether during the term of this
Letter Agreement or thereafter, any secret or confidential information
relating to WWC's or any of its subsidiaries' businesses, financial
condition or prospects, which information you have obtained while
employed by WWC or by any of its subsidiaries or any of the predecessors
in interest of any of them, except (i) as may be required in furtherance
of the businesses of WWC or of any of its subsidiaries, (ii) with WWC's
express prior written consent, (iii) if such information is made
generally available to the public through no fault of yours, or (iv) if
such disclosure is required by applicable law or regulation or by legal
process and then only with prompt written notice to WWC in advance of
any such disclosure.
<PAGE> 3
Jeffrey A. Christianson
Page 3
9. You agree that, during the term of your employment by WWC and for a
period of one (1) year immediately following the termination of your
employment with WWC for any reason whatsoever, you will not, either
directly or indirectly, for compensation or any other consideration,
individually or as an employee, broker, agent, consultant, lender,
contractor, advisor, solicitor, stockholder (provided that ownership of
5% or less of the outstanding stock of any corporation listed on a
national securities exchange is not prohibited), proprietor, partner, or
person having any other material economic interest in, affiliated with
or rendering services to any other entity, engage in or provide services
to or for a business that is substantially the same as or similar to
WWC's or its subsidiaries businesses and which competes within the
applicable commercial mobile radio services markets serviced by WWC or
its subsidiaries, directly or indirectly.
10. This Letter Agreement contains the entire agreement between you and WWC
with respect to your employment by WWC, other than human resource and
corporate policies which are to be executed by all employees. This
Letter Agreement may not be amended, waived, changed, modified or
discharged except by an instrument in writing executed by or on behalf
of you and WWC.
11. All notices, requests, demands and other communications with respect to
this Letter Agreement will be in writing and will be deemed to have been
duly given if delivered by hand, registered or certified mail (first
class postage and fees prepaid, return receipt requested), telecopier or
overnight courier guaranteeing next-day delivery, as follows:
a) to WWC:
Western Wireless Corporation
3650 - 131st Avenue SE, #400
Bellevue, Washington 98006
Attention: President
Telecopier: (425) 586-8102
b) to you:
Jeffrey A. Christianson
and/or to such other persons and addresses as either you or WWC has
specified in writing to the other by notice as aforesaid.
12. If any part of this Letter Agreement is hereafter construed to be
invalid or unenforceable in any jurisdiction, the same will not affect
the remainder of the Letter Agreement or the enforceability of such part
in any other jurisdiction, which will be given full effect, without
regard to the invalid portions or the enforceability in such other
jurisdiction. If any part of this Letter Agreement is held to be
unenforceable because of the scope thereof, you and WWC agree that the
court making such determination will have the power to reduce the
duration and/or area of such provision and, in its reduced form, said
provision shall be enforceable; provided, however, that such court's
determination will not affect the enforceability of this Letter
Agreement in any other jurisdiction
<PAGE> 4
Jeffrey A. Christianson
Page 4
beyond such court's authority.
13. This Letter Agreement will be governed by and construed and interpreted
in accordance with the laws of the State of Washington without reference
to conflicts of laws principles.
Please signify your acceptance of the terms of this Letter Agreement by signing
where indicated below.
Sincerely yours,
WESTERN WIRELESS CORPORATION
By: /s/ Mikal Thomsen
Title: President
AGREED TO AND ACCEPTED:
/s/ Jeffrey A. Christianson
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<CAPTION>
ENTITY NAME: ORGANIZED IN: D/B/A
- ------------ ------------- -----
<S> <C> <C>
WWC Holding Co., Inc. Delaware Cellular One
WWC Paging Corporation Washington Telewaves
WWC Systems Purchasing Corporation Delaware n/a
Western CLEC Corporation Delaware Business Services by Cellular One
Western COG Corporation Delaware n/a
WWC License Holding LLC Delaware n/a
General Cellular Holdings, Inc. Delaware n/a
WWC License LLC Delaware Cellular One
Billings Cellular Corporation Montana Cellular One
WWC Texas RSA Limited Partnership Delaware Cellular One
WWC Texas RSA Holding Corporation Delaware n/a
Sioux Falls Cellular Communications, Inc. Delaware n/a
Cellular Corporation of Sioux Falls Delaware Cellular One
Odessa Cellular Corporation Texas n/a
WWC Odessa License Corporation Delaware n/a
WWC Odessa Limited Partnership Delaware Cellular One
WWC Midland Corporation Delaware n/a
WWC Midland Holding Corporation Delaware n/a
Midland Cellular Telephone Company, L.P. Delaware Cellular One
WWC Midland License Corporation Delaware n/a
Western Wireless International Corporation Delaware n/a
Western Wireless International Haiti Corporation Delaware n/a
Western Wireless International Ghana Corporation Delaware n/a
Western Wireless International Latvia Corporation Delaware n/a
Western Wireless International Georgia Corporation Delaware n/a
Western Wireless International Venezuela
Corporation Delaware n/a
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
ENTITY NAME: ORGANIZED IN: D/B/A
- ------------ ------------- -----
<S> <C> <C>
Western Wireless International Bolivia Corporation Delaware n/a
Western Wireless International Trinidad Tobago
Corporation Delaware n/a
Western Wireless International Iceland Corporation Delaware n/a
Western Wireless International Ireland Corporation Delaware n/a
Meteor Mobile Communications
Western Wireless International Ivory Coast
Corporation Delaware n/a
Western Wireless International Ivory Coast II
Corporation Delaware n/a
Western Wireless International Croatia Corporation Delaware n/a
CCIH, LLC Delaware n/a
Comstar Cellular, S.A.
ACG Telesystems Ghana LLC Delaware n/a
Meteor Mobile Communications Dublin, Ireland n/a
Latcom Wireless Telephone Co.
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into Western Wireless Corporation's
previously filed Registration Statements, File No. 333-10421, File No.
333-18137, File No. 333-86437 and File No. 333-28959.
/s/ Arthur Andersen LLP
Seattle, Washington,
March 17, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WESTERN
WIRELESS CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AS OF AND FOR
THE TWELVE MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 42,735
<SECURITIES> 0
<RECEIVABLES> 87,045
<ALLOWANCES> 11,199
<INVENTORY> 9,680
<CURRENT-ASSETS> 158,603
<PP&E> 646,710
<DEPRECIATION> 277,167
<TOTAL-ASSETS> 1,355,574
<CURRENT-LIABILITIES> 88,824
<BONDS> 1,450,000
690,953
0
<COMMON> 0
<OTHER-SE> (875,638)
<TOTAL-LIABILITY-AND-EQUITY> 1,355,574
<SALES> 23,482
<TOTAL-REVENUES> 567,341
<CGS> 68,883
<TOTAL-COSTS> 506,412
<OTHER-EXPENSES> (110,660)
<LOSS-PROVISION> 18,267
<INTEREST-EXPENSE> 99,993
<INCOME-PRETAX> (148,773)
<INCOME-TAX> 0
<INCOME-CONTINUING> (48,121)
<DISCONTINUED> (100,652)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (148,773)
<EPS-BASIC> (1.94)
<EPS-DILUTED> (1.94)
</TABLE>
