-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O6/FGUPP5u0me3Dn3gjiuktOL5oEdcXJH9T5bLJLc4tdLuuU26eOieG5sFDHHJEv f4FfuCS//FJc3wAS+O9KwA== 0000891020-96-001472.txt : 19961120 0000891020-96-001472.hdr.sgml : 19961120 ACCESSION NUMBER: 0000891020-96-001472 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19961115 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTERN WIRELESS CORP CENTRAL INDEX KEY: 0000930738 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 911638901 STATE OF INCORPORATION: WA FISCAL YEAR END: 0123 FILING VALUES: FORM TYPE: 424B3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-14859 FILM NUMBER: 96668016 BUSINESS ADDRESS: STREET 1: 2001 NW SAMMAMISH RD CITY: ISSAQUAH STATE: WA ZIP: 98027 BUSINESS PHONE: 2063135200 MAIL ADDRESS: STREET 1: 2001 NW SAMMAMISH RD CITY: ISSAQUAH STATE: WA ZIP: 98027 424B3 1 424B3 1 Filed Pursuant to Rule 424(b)(3) Registration Number 333-14859 PROSPECTUS SUPPLEMENT NO. 1 TO PROSPECTUS DATED NOVEMBER 4, 1996 LOGO WESTERN WIRELESS CORPORATION OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF 10 1/2% SENIOR SUBORDINATED NOTES DUE 2007 FOR EACH $1,000 IN PRINCIPAL AMOUNT OF OUTSTANDING 10 1/2% SENIOR SUBORDINATED NOTES DUE 2007 THAT WERE ISSUED AND SOLD IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED. --------------------- Western Wireless Corporation (the "Company"), hereby offers to exchange (the "Exchange Offer") $200,000,000 in aggregate principal amount of its 10 1/2% Senior Subordinated Notes Due 2007 (the "Exchange Notes") for $200,000,000 in aggregate principal amount of its outstanding 10 1/2% Senior Subordinated Notes Due 2007 that were issued and sold in a transaction or series of transactions exempt from registration under the Securities Act of 1933, as amended (the "Original Notes" and, together with the Exchange Notes, the "Notes"). There will be no cash proceeds to the Company from the Exchange Offer. The terms of the Exchange Notes are the same in all respects (including principal amount, interest rate, maturity and ranking) as the terms of the Original Notes for which they may be exchanged pursuant to the Exchange Offer, except that the Exchange Notes have been registered under the Securities Act and therefore will not be subject to certain restrictions on transfer applicable to the Original Notes and will not be entitled to registration rights. The Exchange Notes will be issued under the indenture governing the Original Notes. For a complete description of the terms of the Exchange Notes, see "Description of the Notes." The Exchange Notes will bear interest from and including their respective dates of issuance. Holders whose Original Notes are accepted for exchange will receive accrued interest thereon to, but not including, the date of issuance of the Exchange Notes, such interest to be payable with the first interest payment on the Exchange Notes, but will not receive any payment in respect of interest on the Original Notes accrued after the issuance of the Exchange Notes. The Original Notes were originally issued and sold on October 24, 1996 in a transaction not registered under the Securities Act of 1933, as amended (the "Securities Act"), in reliance upon the exemption provided in Section 4(2) of, and Rule 144A and Regulation S under, the Securities Act (the "Offering"). Accordingly, the Original Notes may not be reoffered, resold or otherwise pledged, hypothecated or transferred in the United States unless so registered or unless an applicable exemption from the registration requirements of the Securities Act is available. Based upon their view of interpretations provided to third parties by the Staff of the Securities and Exchange Commission (the "Commission"), the Company believes that the Exchange Notes issued pursuant to the Exchange Offer in exchange for the Original Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any holder which is (i) an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act (an "Affiliate"), (ii) a broker-dealer who acquired Original Notes directly from the Company or (iii) a broker-dealer who acquired Original Notes as a result of market making or other trading activities) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders are not engaged in, and do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of such Exchange Notes. Each broker-dealer who receives Exchange Notes pursuant to the Exchange Offer in exchange for Original Notes acquired for its own account as a result of market-making activities or other trading activities may be a statutory underwriter and must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes. The Letter of Transmittal that is filed as an exhibit to the Registration Statement of which this Prospectus is a part (the "Letter of Transmittal") states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Broker-dealers who acquired Original Notes as a result of market making or other trading activities may use this Prospectus, as supplemented or amended, in connection with resales of the Exchange Notes. The Company has agreed that it will make this Prospectus available to any broker-dealer for use in connection with any such resale for a period ending on the earlier of the 90th day after the Exchange Offer has been completed or such time as broker-dealers no longer own any Registrable Securities (as defined in the Registration Rights Agreement, defined below). Any holder that cannot rely upon such interpretations must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. The Original Notes and the Exchange Notes constitute new issues of securities with no established public trading market. The Original Notes, however, have traded on the National Association of Securities Dealers, Inc.'s PORTAL Market. Any Original Notes not tendered and accepted in the Exchange Offer will remain outstanding. To the extent that Original Notes are tendered and accepted in the Exchange Offer, a holder's ability to sell untendered, and tendered but unaccepted, Original Notes could be adversely affected. Following consummation of the Exchange Offer, the holders of Original Notes will continue to be subject to the existing restrictions on transfer thereof and the Company will have no further obligation to such holders to provide for the registration under the Securities Act of the Original Notes except under certain limited circumstances. See "Description of the Notes -- Registration Covenant; Exchange Offer". No assurance can be given as to the liquidity of the trading market for either the Original Notes or the Exchange Notes. The Exchange Offer is not conditioned upon any minimum aggregate principal amount of Original Notes being tendered or accepted for exchange. The Exchange Offer will expire at 5:00 p.m., New York City time, on December 4, 1996, unless extended (the "Expiration Date"). The date of acceptance for exchange of the Original Notes (the "Exchange Date") will be the first business day following the Expiration Date, upon surrender of the Original Notes. Original Notes tendered pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date; otherwise such tenders are irrevocable. SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED IN CONNECTION WITH THE EXCHANGE NOTES. --------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------------- The date of this Prospectus Supplement is November 15, 1996. 2 This Prospectus Supplement is intended to be read in conjunction with the Prospectus dated November 4, 1996 (the "Prospectus"), with respect to the Offer to Exchange $1,000 in principal amount of 10 1/2% Senior Subordinated Notes Due 2007 for each $1,000 in principal amount of outstanding 10 1/2% Senior Subordinated Notes Due 2007 that were issued and sold in a transaction exempt from registration under the Securities Act of 1933, as amended. Capitalized terms used in this Prospectus Supplement and not otherwise defined herein have the same meanings as in the Prospectus. On November 14, 1996, the Company filed with the Securities and Exchange Commission a report on Form 10-Q, a copy of which is attached hereto and deemed to be a part hereof. 3 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 000-28160 WESTERN WIRELESS CORPORATION (Exact name of registrant as specified in its charter) WASHINGTON 91-1638901 - --------------------------------- -------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 2001 NW Sammamish Road Issaquah, Washington 98027 ------------------------------------------ (Address of principal executive offices) (Zip Code) (206) 313-5200 (Registrant's telephone number, including area code) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Title Shares Outstanding as of October 31, 1996 ----- ----------------------------------------- Class A Common Stock, no par value 12,990,156 Class B Common Stock, no par value 56,453,403
Page 1 of 23 sequentially numbered pages 1 4 WESTERN WIRELESS CORPORATION FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996 TABLE OF CONTENTS
Page PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets as of September 30, 1996, and December 31, 1995............................. 3 Consolidated Statements Of Operations for the Three And Nine Months Ended September 30, 1996 and September 30, 1995.......................................................... 4 Consolidated Statements Of Cash Flows for the Nine Months Ended September 30, 1996 and September 30, 1995......... 5 Notes To Consolidated Financial Statements.................................. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................... 11 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS................................................................. 21 ITEM 2. CHANGES IN SECURITIES............................................................. 21 ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................................... 21 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................... 21 ITEM 5. OTHER INFORMATION................................................................. 21 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................. 22
2 5 WESTERN WIRELESS CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited)
September 30, 1996 December 31, 1995 ------------------ ----------------- ASSETS Current assets: Cash and cash equivalents $ 22,001 $ 8,572 Accounts receivable, net of allowance for doubtful accounts of $3,624 and $2,800, respectively 28,678 18,074 Inventory 19,627 5,361 Prepaid expenses and other current assets 6,501 4,001 Deposit held by FCC 25,000 1,500 ----------- --------- Total current assets 101,807 37,508 Property and equipment, net of accumulated depreciation of $92,136 and $53,423, respectively 381,873 193,692 Licensing costs and other intangible assets, net of accumulated amortization of $48,020 and $28,364, respectively 536,601 417,971 Investments in and advances to unconsolidated affiliates 9,975 8,388 Other assets 968 1,469 ----------- --------- $ 1,031,224 $ 659,028 =========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 11,808 $ 7,568 Accrued liabilities 29,327 16,659 Construction accounts payable 50,427 28,408 Unearned revenue and customer deposits 5,129 3,301 ----------- --------- Total current liabilities 96,691 55,936 ----------- --------- Long-term debt, net of current portion 529,665 362,487 ----------- --------- Commitments and contingent liabilities (Note 5) Shareholders' equity: Preferred stock, no par value, 50,000,000 shares authorized; no shares issued and outstanding Common stock, no par value, 300,000,000 shares authorized; Class A, 12,948,158 and 0 shares issued and outstanding, respectively, and Class B, 56,485,792 and 58,047,235 shares issued and outstanding, respectively 568,719 324,729 Deferred compensation (952) Deficit (162,899) (84,124) ----------- --------- Total shareholders' equity 404,868 240,605 ----------- --------- $ 1,031,224 $ 659,028 =========== =========
See accompanying notes to consolidated financial statements. 3 6 WESTERN WIRELESS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share data) (Unaudited)
Three months ended Nine months ended September 30, September 30, -------------------------------- -------------------------------- 1996 1995 1996 1995 ------------ ------------ ------------ ------------ Revenues: Subscriber revenues $ 48,724 $ 29,466 $ 127,875 $ 73,017 Roamer revenues 10,419 9,653 26,290 21,620 Equipment sales and other revenue 8,196 3,001 17,778 8,180 ------------ ------------ ------------ ------------ Total revenues 67,339 42,120 171,943 102,817 ------------ ------------ ------------ ------------ Operating expenses: Cost of service 14,978 7,758 34,532 19,890 Cost of equipment sales 13,403 5,392 28,195 14,282 General and administrative 17,557 7,820 45,966 20,973 Sales and marketing 24,809 10,782 56,887 27,193 Depreciation and amortization 24,081 14,117 57,515 36,017 ------------ ------------ ------------ ------------ Total operating expenses 94,828 45,869 223,095 118,355 ------------ ------------ ------------ ------------ Operating loss (27,489) (3,749) (51,152) (15,538) ------------ ------------ ------------ ------------ Other income (expense): Interest and financing expense, net (11,574) (6,931) (28,588) (18,260) Other, net 458 (455) 965 55 ------------ ------------ ------------ ------------ Total other income (expense) (11,116) (7,386) (27,623) (18,205) ------------ ------------ ------------ ------------ Loss before extraordinary item (38,605) (11,135) (78,775) (33,743) Extraordinary loss on early extinguishment of debt (6,645) ------------ ------------ ------------ ------------ Net loss $ (38,605) $ (11,135) $ (78,775) $ (40,388) ============ ============ ============ ============ Loss per common share before extraordinary item $ (0.56) $ (0.19) $ (1.24) $ (0.61) Per common share effect of extraordinary item (0.12) ------------ ------------ ------------ ------------ Net loss per common share $ (0.56) $ (0.19) $ (1.24) $ (0.73) ============ ============ ============ ============ Weighted average common shares and common equivalent shares outstanding 69,410,000 59,347,000 63,774,000 55,499,000 ============ ============ ============ ============
See accompanying notes to consolidated financial statements. 4 7 WESTERN WIRELESS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
Nine months ended September 30, ------------------------------- 1996 1995 --------- --------- Operating activities: Net loss $ (78,775) $ (40,388) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 58,730 36,017 Extraordinary loss on early extinguishment of debt 6,645 Employee equity compensation 877 Other, net 836 847 Changes in operating assets and liabilities, net of effects from consolidating acquired interests: Accounts receivable, net (10,029) (5,791) Inventory (13,982) 1,092 Prepaid expenses and other current assets (2,537) (106) Accounts payable 3,457 (365) Accrued liabilities 12,281 2,242 Unearned revenue and customer deposits 1,342 2,066 --------- --------- Net cash provided by (used in) operating activities (27,800) 2,259 --------- --------- Investing activities: Purchase of property and equipment (199,925) (42,455) Purchase of wireless licenses and other (82,118) (135,524) Acquisition of wireless properties, net of cash acquired (40,079) (57,267) Investments in and advances to unconsolidated affiliates (2,432) (453) Purchase of subsidiary stock, including fees (5,843) Deposit held by FCC, net (23,500) --------- --------- Net cash used in investing activities (348,054) (241,542) --------- --------- Financing activities: Proceeds from issuance of common stock, net 235,044 143,059 Additions to long-term debt 632,000 378,000 Payment of debt (465,026) (276,942) Deferred financing costs (12,735) (12,729) Loans from shareholders 3,842 --------- --------- Net cash provided by financing activities 389,283 235,230 --------- --------- Change in cash and cash equivalents 13,429 (4,053) Cash and cash equivalents, beginning of period 8,572 7,787 --------- --------- Cash and cash equivalents, end of period $ 22,001 $ 3,734 ========= =========
See accompanying notes to consolidated financial statements. 5 8 WESTERN WIRELESS CORPORATION NOTES TO CONSOLIDATED FINANCIAL (Unaudited) 1. ORGANIZATION AND BASIS OF PRESENTATION: Western Wireless Corporation (the "Company") provides wireless communications services in the western United States principally through the ownership and operation of cellular communications systems. In addition to the cellular communications systems, the Company has acquired seven personal communications services ("PCS") licenses covering seven Metropolitan Trading Areas ("MTAs"). Between February and August 1996, the Company initiated service in the Honolulu, Salt Lake City, Albuquerque and Portland MTAs. The Company intends to initiate wireless services in the remaining three MTAs by the end of the first calendar quarter of 1997. The Company expects to incur significant operating losses and to generate negative cash flows from operating activities during the next several years while it develops and constructs its PCS systems and builds a PCS customer base. The accompanying interim consolidated financial statements and the financial information included herein are unaudited, but reflect all adjustments which are, in the opinion of management, necessary to a fair presentation of the financial position, results of operations and cash flows for the periods presented. All such adjustments are of a normal, recurring nature. Results of operations for interim periods presented herein are not necessarily indicative of results of operations for the entire year. For further information, refer to the Company's annual audited financial statements and footnotes thereto for the year ended December 31, 1995, contained in the Company's Prospectus dated May 22, 1996. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Net income (loss) per common share: Net income (loss) per common share is calculated using the weighted average number of shares of outstanding common stock and common stock equivalents during the period. As required by the Securities and Exchange Commission (the "SEC"), common shares issued by the Company in the year preceding the filing of an initial public offering have been included in the calculation of shares used in determining the net income (loss) per share as if they had been outstanding for the entire period prior to and including the interim period ended March 31, 1996, the effect of which is anti-dilutive. The calculation of shares used for periods subsequent to this interim period have been calculated based on the requirements of Accounting Principles Board Opinion Number 15. Due to the net loss of the three and nine months ended September 30, 1996, all options and warrants are anti-dilutive, thus primary and fully diluted loss per share are equal. Cash and cash equivalents: Cash and cash equivalents generally consist of cash, time deposits, commercial paper and money market instruments. The Company invests its excess cash in deposits with major banks, and money market securities of investment grade companies from a variety of industries and, therefore, bears minimal risk. These investments have original maturity dates not exceeding three months. Such investments are stated at cost, which approximates fair value. Supplemental cash flow disclosure: Cash paid for interest (net of amounts capitalized) was $22.7 million and $14.8 million for the nine months ended September 30, 1996 and 1995, respectively. 6 9 WESTERN WIRELESS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (Unaudited) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED): Non-cash investing and financing activities were as follows (in thousands):
NINE MONTHS ENDED ----------------- SEPTEMBER, 30 ---------------------- 1996 1995 ---- ---- Conversion of revolving debt to term debt....... $200,000 Issuance of common stock in exchange for wireless properties........................... 7,117 Conversion of FCC deposit to wireless license .. $10,000 Exchange of shareholder loans and accrued interest for common stock..................... 14,068
During May 1995, the Company issued 896,210 shares of its common stock in exchange for minority interests in General Cellular Corporation, the Company's predecessor corporation. Capitalized Interest During the nine months ended September 30, 1996 and 1995, the Company capitalized interest in the amount of $3.3 million and $0.4 million, respectively, pertaining to the build out of its PCS markets. 3. PROPERTY AND EQUIPMENT: Property and equipment consists of (in thousands):
SEPTEMBER 30, DECEMBER 31, 1996 1995 --------- --------- Land, buildings and improvements ......... $ 7,228 $ 2,879 Wireless communications systems .......... 332,641 165,825 Furniture and equipment .................. 34,964 16,273 --------- --------- 374,833 184,977 Less accumulated depreciation ............ (92,136) (53,423) --------- --------- 282,697 131,554 Construction in progress ................. 99,176 62,138 --------- --------- $ 381,873 $ 193,692 ========= =========
Depreciation expense was $17.6 million and $8.6 million for the three months ended September 30, 1996, and 1995, respectively, and $39.0 million and $22.3 million for the nine months ended September 30, 1996, and 1995, respectively. 4. LONG-TERM DEBT: Long-term debt consists of (in thousands):
SEPTEMBER 30, DECEMBER 31, 1996 1995 -------- -------- Credit Facility ................................ $ 45,000 $374,000 Term Loan ...................................... 200,000 10-1/2% Senior Subordinated Notes Due 2006 ..... 200,000 NORTEL Facility ................................ 82,000 13,000 Other .......................................... 2,665 2,487 -------- -------- $529,665 $362,487 ======== ========
7 10 Western Wireless Corporation Notes to Consolidated Financial Statements - (Continued) (Unaudited) 4. LONG-TERM DEBT - (CONTINUED): In 1995, the Company entered into a credit facility with a group of banks (the "Credit Facility"). On May 6, 1996, the Company amended the Credit Facility to increase the Company's borrowing capacity. The increase took the form of a $200 million term loan (the "Term Loan") which increased the maximum total borrowings under the Credit Facility to $950 million. Additionally, the repayment terms and the related covenant requirements were extended by one year. In May 1996, the Company sold $200 million principal amount of 10-1/2% Senior Subordinated Notes Due 2006 (the "2006 Notes"). The 2006 Notes mature on June 1, 2006. Interest accrues and is payable on each June 1 and December 1, commencing on December 1, 1996. The 2006 Notes may be redeemed at any time at the option of the Company, in whole or from time to time in part, at varying redemption prices. The 2006 Notes contain certain restrictive covenants which impose limitations on the operations and activities of the Company and certain of its subsidiaries, including the incurrence of other indebtedness, the creation of liens, the sale of assets, issuance of preferred stock of subsidiaries, and certain investments and acquisitions. The Company incurred costs that were deferred, in the amount of approximately $12.7 million. These costs, which related to the 2006 Notes issuance and the amendment to the Credit Facility, are being amortized using the effective interest method. A wholly owned subsidiary of the Company has a $200 million credit facility (the "NORTEL Facility") with Northern Telecom, Inc. ("NORTEL"). At September 30, 1996 the unused portions of the NORTEL Facility and the Credit Facility were $118 million and $705 million, respectively. The aggregate amounts of principal maturities of the Company's debt are as follows (in thousands): Three months ending December 31, 1996 .................... $ 0 Year ending December 31, 1997 ..................................................... 10 1998 ..................................................... 2,528 1999 ..................................................... 45 2000 ..................................................... 12,149 Thereafter ............................................... 514,933 -------- $529,665 ========
8 11 WESTERN WIRELESS CORPORATION Notes to Consolidated Financial Statements - (Continued) (Unaudited) 5. COMMITMENTS AND CONTINGENT LIABILITIES: Commitments: During the nine months ended September 30, 1996, the Company entered into various new leases for PCS and cellular sites under operating lease agreements. Future minimum payments required under operating leases and agreements that have initial or remaining noncancellable terms in excess of one year as of September 30, 1996, are summarized below (in thousands): Three months ending December 31, 1996 ..................... $ 3,248 Year ending December 31, 1997 ...................................................... 12,441 1998 ...................................................... 11,204 1999 ...................................................... 9,970 2000 ...................................................... 8,969 THEREAFTER ................................................ 12,497 ------- $58,329 =======
Purchase commitments: In order to ensure adequate supply and availability of certain inventory requirements and service needs, the Company, or a wholly owned subsidiary, has committed to purchase from various suppliers wireless communications equipment and services. The aggregate amount of these commitments total approximately $343.7 million. Of this amount approximately $17 million must be purchased by December 31, 1996 under one agreement. At September 30, 1996 the Company has ordered approximately $180 million under all of these agreements, of which approximately $60 million is outstanding. As of September 30, 1996, the $17 million requirement under one agreement has been met. The Company has various other purchase commitments for materials, supplies and other items incident to the ordinary course of business. In the aggregate, such commitments are not at prices in excess of current market value. Contingent liabilities The Company is involved in various lawsuits arising in the normal course of business, none of which is expected to have a material adverse effect on the Company's financial position, cash flows, liquidity or results of operations. 6. SHAREHOLDERS' EQUITY: During the second quarter of 1996, 10,664,800 shares of common stock were issued and approximately $233.9 million in net proceeds were received by the Company under a registration statement of the Company's Class A Common Stock filed with the SEC. During the third quarter of 1996, the Company issued 38,039 shares of its common stock and received $0.1 million of net proceeds as a result of vested employee stock options that were exercised. 9 12 WESTERN WIRELESS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (Unaudited) 7. ACQUISITIONS: In June 1996, the Company purchased a Denver MTA PCS wireless license for approximately $66.1 million in cash. The transaction was accounted for as an asset purchase. In June 1996, the Company acquired the operations and the cellular license for the Kansas 3 RSA for approximately $4.1 million in cash. The transaction was accounted for using the purchase method. 8. RELATED PARTY TRANSACTIONS: Goldman, Sachs & Co.: In connection with the debt and equity offerings during the second quarter of 1996, the Company paid total underwriting fees of approximately $23.3 million. Goldman, Sachs & Co., an affiliate of a shareholder of the Company, was the lead underwriter on both offerings. 9. SUBSEQUENT EVENTS: Issuance of Senior Subordinated Notes: In October 1996 the Company sold $200 million principal amount of 10-1/2% Senior Subordinated Notes, which will mature on February 1, 2007 (the "2007 Notes"). Interest on the 2007 Notes accrues and is payable semi-annually on each February 1 and August 1, with payments commencing February 1, 1997. The 2007 Notes were issued pari passu to the 2006 Notes. As such, the 2007 Notes may be redeemed at any time at the option of the Company, in whole or from time to time in part, at varying redemption prices. The 2007 Notes contain certain restrictive covenants which impose limitations on the operations and activities of the Company and certain of its subsidiaries, including the incurrence of other indebtedness, the creation of liens, the sale of assets, issuance of preferred stock of subsidiaries, and certain investments and acquisitions. The 2007 Notes are subordinate in right of payment to the Credit Facility and the NORTEL Facility. In connection with this issuance, the Company expects to incur costs that will be deferred in the amount of approximately $5.9 million. 10 13 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. Statements contained in this Quarterly Report that are not based on historical fact are "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The "Risk Factors" and cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward looking statements are detailed in the Company's 1996 prospectuses filed with the Securities and Exchange Commission. The following is a discussion and analysis of the consolidated financial condition and results of operations of the Company and should be read in conjunction with the Company's consolidated financial statements and notes thereto and other financial information included herein and in the Company's prospectuses. As a result of acquisitions, the Company's operating results for prior periods may not be indicative of future performance. OVERVIEW The Company provides wireless communications services in the western United States through the ownership and operation of cellular communications systems in 73 Rural Service Areas and Metropolitan Statistical Areas. The Company has acquired broadband personal communications services ("PCS") licenses in seven Major Trading Areas ("MTAs"). Through September 30, 1996, the Company has commenced commercial operations in four of its PCS MTAs. A partnership in which the Company holds a 49.9% limited partnership interest has acquired broadband PCS licenses in 14 BTAs. These BTA's are not yet operational. The Company's revenues primarily consist of subscriber revenues (including access charges and usage charges), roamer revenues (fees charged for providing services to subscribers of other cellular communications systems when such subscribers, or "roamers", place or receive a phone call within one of the Company's service areas) and equipment sales. The majority of the Company's revenues are derived from subscriber revenues. The Company had no revenues from its paging or PCS systems prior to February 1, 1996, and February 29, 1996, respectively. Revenues from paging systems are included in other revenue and are expected to account for less than 3% of the Company's total revenues in 1996. The Company expects to continue to sell cellular and PCS handsets below cost and regards these losses as a cost of building its subscriber base. As used herein, "EBITDA" represents operating income (loss) from operations before interest, taxes and depreciation and amortization. EBITDA is a measure commonly used in the industry and should not be construed as an alternative to operating income (loss) (as determined in accordance with Generally Accepted Accounting Principles, "GAAP"), as an alternative to cash flows from operating activities (as determined in accordance with GAAP), or as a measure of liquidity. Cellular EBITDA represents EBITDA from the Company's cellular operations. In the comparisons that follow, the Company has separately set forth certain information relating to cellular operations (including paging) and PCS operations. The Company believes that this is appropriate because its cellular systems have been operating for a number of years while its PCS systems did not commence operations until 1996, although the Company incurred start-up costs beginning in the third quarter of 1995 in connection with such PCS operations. 11 14 RESULTS OF OPERATIONS Results of Operations for the Three Months Ended September 30, 1996, Compared to Three Months Ended September 30, 1995 The Company had 290,400 cellular subscribers at September 30, 1996. This represents a net increase of 26,200 or 9.9% growth in subscribers generated through the Company's distribution channels since June 30, 1996. At September 30, 1995, the Company had 174,400 cellular subscribers representing a net increase of 22,200 or 14.4% growth in subscribers generated through the Company's distribution channels from June 30, 1995. The Company had 17,600 PCS subscribers at September 30, 1996, representing a net increase of 11,200 or 175.0% growth in subscribers from June 30, 1996 generated through the Company's distribution channels. REVENUES
THREE MONTHS ENDED SEPTEMBER 30, -------------------------------- 1996 1995 ------------------ -------- CELLULAR PCS CELLULAR -------- ------ -------- (IN THOUSANDS) Subscriber revenues .......... $46,475 $2,249 $29,466 Roamer revenues .............. 10,419 9,653 Equipment sales .............. 3,093 3,866 3,001 Other revenues (1) ........... 1,237 ------- ------ ------- Total revenues .......... $61,224 $6,115 $42,120 ======= ====== =======
- ------- (1) Primarily revenues from paging services Cellular subscriber revenues increased to $46.5 million for the three months ended September 30, 1996, from $29.5 million for the three months ended September 30, 1995. This $17.0 million or 57.7% increase is primarily due to the substantial growth in the number of subscribers from the comparable three month period in 1995, offset by a decline in the average monthly cellular subscriber revenue per subscriber. Average monthly cellular subscriber revenue per subscriber was $55.86 for the three months ended September 30, 1996, as compared to $59.94 for the three months ended September 30, 1995. Historically the Company has experienced a relatively stable average monthly cellular subscriber revenue per subscriber, but now is experiencing some decline in that measure which is consistent with what the cellular industry has shown over the past few years. The Company anticipates this trend to continue through 1997. PCS subscriber revenues for the three months ended September 30, 1996, were $2.2 million. Average monthly PCS subscriber revenue per subscriber was $64.63 for the three months ended September 30, 1996. As the Company's PCS operations only began generating revenue during 1996, these results are not necessarily representative of future operations. Roamer revenues were $10.4 million for the three months ended September 30, 1996, compared to $9.7 million for the three months ended September 30, 1995, an increase of $0.7 million or 7.9%. Growth in the Company's roamer revenues generally reflects increases in the Company's geographic coverage and the general subscriber growth in the industry offset by the decline in reciprocal per minute roamer rates charged by carriers in the industry. Roamer revenues as a percentage of total cellular revenues declined to 17.0% 12 15 for the three months ended September 30, 1996, from 22.9% for the three months ended September 30, 1995, as a result of the 57.7% growth in subscriber revenues which exceeded the 7.9% increase in roamer revenues. While the Company expects total roamer revenues to continue to increase, it expects the trend in its decline of roamer revenues as a percentage of the total revenues to continue based upon the above mentioned factors. OPERATING EXPENSES
THREE MONTHS ENDED SEPTEMBER 30, ----------------------------------------------- 1996 1995 ----------------------- ------------------- CELLULAR (1) PCS CELLULAR PCS ------------ -------- -------- ----- (IN THOUSANDS) Cost of service ............. $10,981 $ 3,997 $ 7,758 Cost of equipment sales ..... 6,334 7,069 5,392 General and administrative .. 12,400 5,157 7,043 $777 Sales and marketing ......... 13,706 11,103 10,735 47 Depreciation and amortization 16,386 7,695 14,053 64 ------- ------- ------- ---- Total operating expenses $59,807 $35,021 $44,981 $888 ======= ======= ======= ====
--------- (1) Includes expenses attributable to paging services Cellular Operating Expenses: Cost of service increased to $11.0 million for the three months ended September 30, 1996, from $7.8 million for the three months ended September 30, 1995. This increase is primarily attributable to the increased number of subscribers which resulted in increased costs to access local exchange and long distance carrier facilities and to maintain the Company's expanding wireless network. While cost of service increased $3.2 million or 41.5%, it decreased as a percentage of service revenues to 18.9% for the three months ended September 30, 1996, from 19.8% for the three months ended September 30, 1995, which is due primarily to efficiencies gained from the growing subscriber base. Service revenues include subscriber, roamer and other revenues. General and administrative costs increased to $12.4 million, for the three months ended September 30, 1996 from $7.0 million for the three months ended September 30, 1995, an increase of $5.4 million or 76.1%. The Company's general and administrative costs are principally considered to be variable costs, that is costs that will vary with the level of subscribers. The increase is primarily attributable to the increase in costs associated with supporting the increased subscriber base. Sales and marketing costs increased to $13.7 million for the three months ended September 30, 1996, from $10.7 million for the three months ended September 30, 1995, primarily due to net subscriber additions. Sales and marketing cost per gross subscriber added declined for the three months ended September 30, 1996, from the three months ended September 30, 1995. Although the Company noted a decline in the rate of churn for the three months ended September 30, 1996, from the three months ended September 30, 1995, the growing subscriber base resulted in a higher number of disconnected subscribers. This increase in the number of disconnected subscribers resulted in an increase in the cost per net subscriber added during the three months ended September 30, 1996 to $523 from $484 for the three months ended September 30, 1995. Including the losses on equipment sales, the cost per net subscriber added increased to $647 for the three months ended September 30, 1996 from $591 for the three months ended September 30, 1995. 13 16 Depreciation expense increased to $10.6 million for the three months ended September 30, 1996, from $8.5 million for the three months ended September 30, 1995. This increase of $2.1 million or 24.7%, is attributable to the continued expansion of the Company's cellular systems. Amortization expense increased to $5.8 million for the three months ended September 30, 1996, from $5.5 million for the three months ended September 30, 1995. This $0.3 million or 5.5%, increase is primarily attributable to an increase in gross cellular licensing costs and other intangible assets. PCS Operating Expenses: Total PCS operating expenses increased to $35.0 million for the three months ended September 30, 1996. A significant portion of each individual component of PCS operating expenses were start-up costs in the PCS MTAs in which the Company is not yet operational. Accordingly, the PCS operating expenses are not representative of future operations. OPERATING LOSS
THREE MONTHS ENDED SEPTEMBER 30, ---------------------------------------------------- 1996 1995 ---------------------- ----------------------- CELLULAR (1) PCS CELLULAR PCS ------------ -------- -------- -------- (IN THOUSANDS) Operating income (loss) $1,417 $(28,906) $(2,861) $(888) ====== ======== ======= =====
--------- (1) Includes paging operations Total operating income (loss) increased to $(27.5) million for the three months ended September 30, 1996, from $(3.7) million for the three months ended September 30, 1995, primarily as a result of the $(28.9) million operating loss attributable to PCS operations offset by the cellular operating income. For the three months ended September 30, 1996, the Company recognized its second quarter of cellular operating income of $1.4 million, an increase of $4.3 million from the $(2.9) million loss for the three months ended September 30, 1995, due to increased revenues, which exceeded increases in operating expenses. OTHER INCOME (EXPENSE) Interest and financing expense, net of capitalized interest, increased to $11.6 million for the three months ended September 30, 1996, from $6.9 million for the three months ended September 30, 1995. The increase of $4.7 million or 68.1%, is primarily attributable to an increase in long-term debt, which increased to $529.7 million at September 30, 1996, from $302.5 million at September 30, 1995, to fund the Company's capital expenditures, and the issuance of its Senior Subordinated Notes at 10-1/2% Due 2006 which were outstanding during the entire three months ended September 30, 1996. Interest and financing expense will continue to increase due to the issuance of Senior Subordinated Notes Due 2007 at 10-1/2% that were issued subsequent to September 30, 1996. 14 17 EBITDA
THREE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------------- 1996 1995 -------------------------- ---------------------- CELLULAR (1) PCS CELLULAR PCS ------------ -------- -------- ------- (IN THOUSANDS) EBITDA............... $17,803 $(21,211) $11,192 $(824) ======= ======== ======= =====
---------- (1) Includes paging operations EBITDA declined to $(3.4) million for the three months ended September 30, 1996, from $10.4 million for the three months ended September 30, 1995, primarily due to the $(21.2) million EBITDA attributable to PCS operations offset by an increase in cellular EBITDA. Cellular EBITDA increased 59.1% to $17.8 million for the three months ended September 30, 1996, from $11.2 million for the three months ended September 30, 1995, primarily as a result of increased revenues due to the increased subscriber base and the related cost efficiencies. As a result, cellular operating margin (cellular EBITDA as a percentage of cellular service revenues) increased to 30.6% for the three months ended September 30, 1996, from 28.6% for the three months ended September 30, 1995. Results of Operations for the Nine Months Ended September 30, 1996, Compared to Nine Months Ended September 30, 1995 The Company had 290,400 cellular subscribers at September 30, 1996. This represents a net increase of 76,200 or 36.4% growth in subscribers generated through the Company's distribution channels for the nine months ended September 30, 1996. At September 30, 1995, the Company had 174,400 cellular subscribers. The Company had 17,600 PCS subscribers at September 30, 1996. REVENUES
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------- 1996 1995 -------------------- ------------ CELLULAR PCS CELLULAR -------- ------ ------------ (IN THOUSANDS) Subscriber revenues ..... $124,772 $ 3,103 $ 73,017 Roamer revenues ......... 26,290 21,620 Equipment sales ......... 9,092 5,499 8,180 Other revenues (1) ...... 3,187 -------- ------- ------- Total revenues...... $163,341 $ 8,602 $102,817 ======== ======= ========
(1) Primarily revenues from paging services Cellular subscriber revenues increased to $124.8 million for the nine months ended September 30, 1996, from $73.0 million for the nine months ended September 30, 1995. This $51.8 million or 70.9%, increase is primarily due to the substantial growth in the number of subscribers from the comparable nine month period in 1995, offset by a 3.9% decrease in average monthly cellular subscriber revenue per subscriber to $55.06 in the period ended September 30, 1996, from $57.29 in the period ended September 30, 1995. Historically the Company has experienced a relatively stable average monthly cellular subscriber revenue per subscriber, but now is experiencing some decline in that measure which is consistent with what the cellular industry has shown over the past few years. 15 18 PCS subscriber revenues for the nine months ended September 30, 1996 were $3.1 million. Average monthly PCS subscriber revenue per subscriber was $63.33 for the nine months ended September 30, 1996. As the Company's PCS operations only began generating revenue during 1996, these results are not necessarily representative of future operations. Roamer revenues were $26.3 million for the nine months ended September 30, 1996, compared to $21.6 million for the nine months ended September 30, 1995, an increase of $4.7 million or 21.6%. Growth in the Company's roamer revenues generally reflects increases in the Company's geographic coverage and the general subscriber growth in the industry offset by the decline in reciprocal per minute roamer rates charged by carriers in the industry. Roamer revenues as a percentage of total cellular revenues declined to 16.1% for the nine months ended September 30, 1996, from 21.0% for the nine months ended September 30, 1995, as a result of the 70.9% growth in subscriber revenues, which exceeded the 21.6% increase in roamer revenues. While the Company expects total roamer revenues to continue to increase, it expects the trend in its decline of roamer revenues as a percentage of the total revenues to continue based upon the above mentioned factors. OPERATING EXPENSES
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------- 1996 1995 ----------------------- ------------------- CELLULAR (1) PCS CELLULAR PCS ------------ ------- -------- ---- (IN THOUSANDS) Cost of service ................ $ 28,958 $ 5,574 $ 19,890 Cost of equipment sales ........ 17,886 10,309 14,282 General and administrative ..... 33,202 12,764 20,196 $777 Sales and marketing ............ 37,523 19,364 27,146 47 Depreciation and amortization .. 47,935 9,580 35,953 64 -------- ------- -------- ---- Total operating expenses .. $165,504 $57,591 $117,467 $888 ======== ======= ======== ====
--------- (1) Includes expenses attributable to paging services Cellular Operating Expenses: Cost of service increased to $29.0 million for the nine months ended September 30, 1996, from $19.9 million for the nine months ended September 30, 1995. This increase is primarily attributable to the increased number of subscribers which resulted in increased costs to access local exchange and long distance carrier facilities and maintain the Company's expanding wireless network. While cost of service increased $9.1 million or 45.6%, it decreased as a percentage of service revenues to 18.8% for the nine months ended September 30, 1996, from 21.0% for the nine months ended September 30, 1995, which is due primarily to efficiencies gained from the growing subscriber base. Service revenues include subscriber, roamer and other revenues. General and administrative costs increased to $33.2 million for the nine months ended September 30, 1996, from $20.2 million for the nine months ended September 30, 1995, an increase of $13.0 million, or 64.4%. The Company's general and administrative costs are principally considered to be variable costs, that is costs that vary with the number of subscribers. This increase is primarily due to the increase in costs associated with supporting the increased subscriber base. 16 19 Sales and marketing costs increased to $37.5 million for the nine months ended September 30, 1996, from $27.1 million for the nine months ended September 30, 1995, primarily due to net subscriber additions. Sales and marketing cost per gross subscriber added declined for the nine months ended September 30, 1996, from the nine months ended September 30, 1995. Although the Company noted a decline in the rate of churn for the nine months ended September 30, 1996, from the nine months ended September 30, 1995, the growing subscriber base resulted in a higher number of disconnected subscribers. This increase in the number of disconnected subscribers resulted in an increase in the cost per net subscriber added during the nine months ended September 30, 1996 to $492 from $470 for the nine months ended September 30, 1995. Including the losses on equipment sales, the cost per net subscriber added increased to $608 for the nine months ended September 30, 1996 from $576 for the nine months ended September 30, 1995. Depreciation expense increased to $30.4 million for the nine months ended September 30, 1996, from $22.2 million for the nine months ended September 30, 1995. This increase of $8.2 million or 36.9%, is attributable to the continuing expansion of the Company's cellular systems. Amortization expense increased to $17.5 million for the nine months ended September 30, 1996, from $13.7 million for the nine months ended September 30, 1995. This $3.8 million or 27.7%, increase is primarily attributable to an increase in gross cellular licensing costs and other intangible assets. PCS Operating Expenses: Total PCS operating expenses increased to $57.6 million for the nine months ended September 30, 1996. A significant portion of each individual component of PCS operating expenses were start-up costs in the PCS MTAs not operational during all of the nine months ended September 30, 1996. Accordingly the PCS operating expenses are not representative of future operations. OPERATING LOSS
NINE MONTHS ENDED SEPTEMBER 30, -------------------------------------------------- 1996 1995 ------------------------ ------------------- CELLULAR (1) PCS CELLULAR PCS ------------ -------- -------- ------ (IN THOUSANDS) Operating loss..................... $(2,163) $(48,989) $(14,650) $(888) ======= ======== ======== =====
--------- (1) Includes paging operations Total operating loss increased to $51.2 million for the nine months ended September 30, 1996, from $15.5 million for the nine months ended September 30, 1995, as a result of the $49.0 million operating loss attributable to PCS operations offset by the reduced cellular operating loss. Cellular operating loss improved to $2.2 million for nine months ended September 30, 1996, from $14.7 million for the nine months ended September 30, 1995, due to increased revenues, which exceeded increases in operating expenses. OTHER INCOME (EXPENSE) Interest and financing expense, net of capitalized interest, increased to $28.6 million for the nine months ended September 30, 1996, from $18.3 million for the nine months ended September 30, 1995. The increase of $10.3 million or 56.6%, is primarily attributable to an increase in long-term debt, which increased to $529.7 million at September 30, 1996, from $302.5 million at September 30, 1995, to fund the Company's expansion, and the issuance of its Senior Subordinated Notes at 10-1/2% Due 2006 which were outstanding during four months of the nine months ended September 30, 1996. Interest and financing expense will continue to increase due to the issuance of Senior Subordinated Notes Due 2007 at 10-1/2% that were issued subsequent to September 30, 1996. 17 20 EBITDA
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------------------ 1996 1995 -------------------------- ----------------------- CELLULAR (1) PCS CELLULAR PCS ------------ -------- -------- ------ (IN THOUSANDS) EBITDA ............ $ 45,772 $(39,409) $21,303 $(824) ======== ======== ======= =====
(1) Includes paging operations Total EBITDA decreased to $6.4 million for the nine months ended September 30, 1996, from $20.5 million for the nine months ended September 30, 1995, as a result of increased cellular EBITDA offset by the $(39.4) million EBITDA attributable to PCS operations. Cellular EBITDA increased 114.9% to $45.8 million for the nine months ended September 30, 1996, from $21.3 million for the nine months ended September 30, 1995, primarily as a result of increased revenues due to the increased subscriber base and the related cost efficiencies. As a result, cellular operating margin (cellular EBITDA as a percentage of cellular service revenues) increased to 29.7% for the nine months ended September 30, 1996, from 22.5% for the nine months ended September 30, 1995. LIQUIDITY AND CAPITAL RESOURCES The Company's initial public offering of common stock (the "Equity Offering") became effective on May 22, 1996. Approximately 12.7 million shares of common stock were sold to the public, of which approximately 10.7 million shares were sold by the Company. The net proceeds to the Company of the Equity Offering were approximately $233.9 million. Simultaneously with the Equity Offering, the Company sold $200 million of senior subordinated debt due 2006 (the "2006 Debt Offering") on the public market. The net proceeds to the Company of the debt offering after the underwriting discount, but before other offering expenses, were approximately $194 million. In October 1996 the Company sold $200 million of senior subordinated debt due 2007 (the "2007 Debt Offering" and together with the Equity Offering and the 2006 Debt Offering are collectively known as the "Offerings") in a transaction exempt from registration under the Securities Act of 1933. Currently the Company is offering to exchange the unregistered notes issued under the 2007 Debt Offering for notes which have been subsequently registered under the Securities Act of 1933. The net proceeds to the Company from the 2007 Debt Offering after the underwriting discount, but before other offering expenses, were approximately $194 million. The Company has a credit facility (the "Credit Facility") with a consortium of lenders providing for $750 million of revolving credit and a $200 million term loan. A subsidiary of the Company also has a $200 million credit facility (the "NORTEL" Facility and, together with the Credit Facility, the "Senior Secured Facilities") with Northern Telecom Inc. ("NORTEL"). As of September 30, 1996, $245.0 million and $82.0 million were outstanding under the Credit Facility and the NORTEL Facility, respectively, and the amounts available for borrowing under the Credit Facility and the NORTEL Facility were $313.9 million and $25.7 million, respectively. Indebtedness under the Credit Facility and the NORTEL Facility matures on March 31, 2005, and December 31, 2003, respectively, and bears interest at variable rates. Substantially all the assets of the Company are pledged as security for such indebtedness. 18 21 The Company currently anticipates that it will require approximately $350 million to complete the build-out of its PCS systems through the end of 1998, and will require additional funds to finance the continued growth of its cellular operations, provide for working capital, service debt and finance potential acquisitions. The Company believes that the proceeds from its Offerings, together with the availability of financing under the Senior Secured Facilities will be sufficient to fund operating losses, capital expenditures and working capital necessary for the build-out of its PCS systems and the continued growth of its cellular operations through December 1998, although to the extent that the build-out of the PCS systems or the marketing costs incurred in connection with PCS customer growth are faster than expected, or if the Company takes advantage of acquisition opportunities, the Company may require additional funding to implement its business strategy. Net cash used in operating activities for the nine months ended September 30, 1996, was $27.8 million. Adjustments to the $78.8 million net loss for such period to reconcile to net cash used in operating activities consisted of $58.7 million of depreciation and amortization. Other offsets included changes in operating assets and liabilities, net of effects from consolidating acquired interests, consisting primarily of a increase of $10.0 million in accounts receivable primarily as a result of increased subscriber base and an increase of $14.0 million in inventories as a result of the purchase of PCS handsets. Net cash provided by operating activities was $2.3 million for the nine months ended September 30, 1995. Adjustments to the $40.4 million net loss for such period to reconcile to net cash used in operating activities consisted primarily of $36.0 million of depreciation and amortization and $6.6 million of extraordinary loss on the early extinguishment of debt. Net cash used in investing activities was $348.1 million for the nine months ended September 30, 1996. Investing activities for such period consisted primarily of purchases of wireless licenses and other of $82.1 million of which $66.1 million was attributable to the purchase of the Denver PCS MTA, purchases of property and equipment of $199.9 million of which $130.4 million was attributable to PCS capital expenditures and acquisitions of wireless properties, net of cash acquired which used cash of $40.1 million. Net cash used in investing activities was $241.5 million the nine months ended September 30, 1995, the majority of which was comprised of the purchase of the Company's PCS licenses. Net cash provided by financing activities was $389.3 million for the nine months ended September 30, 1996. Financing activities for such period consisted primarily of additions to long-term debt, which provided cash of $154.3 million net of $465.0 million in repayments and $12.7 million in fees and the issuance of stock, primarily under the Equity Offering, which provided cash of $235.0 million. Net cash provided by financing activities was $235.2 million for the nine months ended September 30, 1995. The Company holds a 49.9% limited partnership interest in Cook Inlet Western Wireless PV/SS PCS, L.P. ("Cook Inlet PCS"), an entity which was the high bidder for licenses in 13 Basic Trading Areas ("BTAs") in the Federal Communications Commission's ("FCC") C Block auctions. During a subsequent reauction by the FCC of certain C Block BTAs during July 1996, Cook Inlet PCS was the high bidder on one additional BTA. Cook Inlet PCS is subject to the FCC's Five Year Build-Out Requirement and will require significant additional amounts to complete the build-out of its PCS systems and to meet the government debt service requirements on the license purchase prices. The potential sources of such additional amounts include vendor loans, loans or capital contributions by the partners of Cook Inlet PCS or other third party financing. There are no current agreements with respect thereto. In the ordinary course of business, the Company continuously reviews potential acquisition opportunities and has entered into various joint development agreements with respect to international interests. Any such prospective acquisitions would be financed with the proceeds from the Offerings, borrowings under the Senior Secured Facilities or additional financing. 19 22 SEASONALITY The Company, and the wireless communications industry in general, have historically experienced significant subscriber growth during the fourth calendar quarter. Accordingly, during such quarter the Company experiences greater losses on equipment sales and increases in sales and marketing expenses. The Company has historically experienced highest usage and revenue per subscriber during the summer months. The Company expects these trends to continue. 20 23 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There are no material, pending legal proceedings to which the Company or any of its subsidiaries or affiliates is a party or of which any of their property is subject which, if adversely decided, would have a material adverse effect on the Company. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. 21 24 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Description ------- ----------- 10.40* Second Amendment to Block "C" Organization and Financing Agreement and Cook Inlet Western Wireless PV/SS PCS L.P. Limited Partnership Agreement by and among Western PCS BTA I Corporation, Western Wireless Corporation, Cook Inlet PV/SS PCS Partners, L.P., Cook Inlet Telecommunications Inc., SSPCS Corporation and Providence Media Partners L.P. dated as of June 27, 1996. 10.41* Third Amendment to Block "C" Organization and Financing Agreement and Cook Inlet Western Wireless PV/SS PCS L.P. Limited Partnership Agreement by and among Western PCS BTA I Corporation, Western Wireless Corporation, Cook Inlet PV/SS PCS Partners, L.P., Cook Inlet Telecommunications Inc., SSPCS Corporation and Providence Media Partners L.P. dated as of July 30, 1996. 10.42* General Agreement for Purchase of Cellular Systems between Lucent Technologies Inc. and Western Wireless Corporation, dated September 16, 1996. 10.43* Amendment No. 1 to PCS 1900 Supply Agreement between Western PCS Corporation and Northern Telecom Inc., dated July 25, 1996. 10.44* Amendment No. 2 to PCS 1900 Supply Agreement between Western PCS Corporation and Northern Telecom Inc., dated July 25, 1996. 27.1 Financial Data Schedule
* Incorporated herein by reference to the exhibit filed with the Registrant's Registration Statement on Form S-4 (Commission File No. 333-14859) (b) Reports on Form 8-K None. 22 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Western Wireless Corporation By /s/ Theresa E. Gillespie By /s/ Nastashia Stoneman Press ---------------------------- -------------------------------- Theresa E. Gillespie Nastashia Stoneman Press Chief Financial Officer Principal Accounting Officer Dated: November 14, 1996 23 -----END PRIVACY-ENHANCED MESSAGE-----