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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER 000-29667
VOICESTREAM WIRELESS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 91-1983600
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
12920 - 38TH STREET S.E.
BELLEVUE, WASHINGTON 98006
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(425) 378-4000
(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: COMMON STOCK, PAR
VALUE $.001 PER SHARE
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. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, computed by reference to the last sale of such stock as of the
close of trading on March 16, 2001 was $23,141,538,954.
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 MARCH 16, 2001
----- ---------------------------------------
Common Stock, par value $.001 per share 256,237,075
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VOICESTREAM WIRELESS CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 32
Item 3. Legal Proceedings........................................... 32
Item 4. Submission of Matters to a Vote of Security Holders......... 32
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 34
Item 6. Selected Consolidated Financial Data........................ 38
Item 7. Management's Discussion and Analysis of Financial Condition
and
Results of Operations....................................... 40
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 60
Item 8. Financial Statements and Supplementary Data................. 61
Item 9. Changes in and Disagreements with Accountants on Accounting
and
Financial Disclosure........................................ 61
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 62
Item 11. Executive Compensation...................................... 66
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 69
Item 13. Certain Relationships and Related Transactions.............. 72
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on
Form 8-K.................................................... 74
3
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE LITIGATION REFORM ACT OF 1995.
Information contained or incorporated by reference herein that is 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 VoiceStream operates;
technology changes; competition; changes in business strategy or development
plans; the high leverage of VoiceStream; 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 VoiceStream; and other factors referenced in VoiceStream's
filings with the Securities and Exchange Commission. GIVEN THESE UNCERTAINTIES,
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING
STATEMENTS. VoiceStream 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.
Unless the context requires otherwise, "VoiceStream", "we", "our" and "us"
include us and our predecessors and subsidiaries.
PART I
ITEM 1. BUSINESS
INTRODUCTION
VoiceStream is a nationwide provider of personal communications services
("PCS"). We operate and use the Global System for Mobile Communications ("GSM")
communications technology platform. We are a member of The GSM Alliance, L.L.C.,
a consortium of United States and Canadian digital wireless PCS carriers, which
helps provide seamless wireless communications for its customers in more than
2,400 North American cities. GSM companies provide superior voice clarity,
industry-leading security and leading-edge wireless voice, data and fax features
for customers. In North America, more than seven million customers are using GSM
service in 47 U.S. states, the District of Columbia, and six Canadian Provinces,
including every top 10 market in North America. VoiceStream has roaming
agreements with more than 125 of the major operators worldwide, providing
service in 70 countries. In addition, we have entered into roaming agreements
with cellular carriers which, together with roaming agreements with GSM
carriers, will permit our subscribers with dual-mode capability to roam in
substantially all areas across the United States.
VoiceStream was incorporated in Delaware in June 1999 as a wholly owned
subsidiary of VS Washington Corporation ("VS Washington"). VS Washington was
formed in Washington in 1994 as Western PCS Corporation. Prior to May 3, 1999,
VS Washington was an 80.1% owned subsidiary of Western Wireless Corporation
("Western Wireless"). The remaining 19.9% was owned by Hutchison
Telecommunications PCS (USA) Limited ("Hutchison"), a subsidiary of Hutchison
Whampoa Limited, a Hong Kong company. As the result of a spin-off transaction on
May 3, 1999, VS Washington formally separated from Western Wireless' other
operations.
Prior to February 25, 2000 VS Washington provided PCS service in urban
markets in the western United States. On February 25, 2000 through a series of
business combinations we became the parent of VS Washington and Omnipoint
Corporation ("Omnipoint"), a PCS provider in urban markets in the northeastern
United States, including New York, Detroit, Boston, Philadelphia, Miami and
Indianapolis. On May 4, 2000 we acquired by merger Aerial Communications, Inc.
("Aerial"), a PCS provider in urban markets including Columbus, Houston, Kansas
City, Minneapolis, Pittsburgh, and Tampa-St Petersburg.
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A portion of our business is conducted through contractual relationships
with entities controlled by Cook Inlet Region Inc. ("CIRI") in which we have
non-controlling ownership interests. Our operations, assets and relationships
with CIRI and related entities are more fully described below. We also own an
interest in Microcell Communications, Inc. ("Microcell"), a PCS provider in
urban Canadian markets.
On July 24, 2000 we announced a definitive agreement to merge with Deutsche
Telekom AG ("Deutsche Telekom"), a German telecommunication provider, to form
the first combined European and U.S. wireless communication provider utilizing
the GSM standard. The merger will provide us with capital resources, technology
expertise and global reach and enable us to provide cost-competitive service,
accelerate our nationwide build-out and upgrade to next generation voice and
data service in the United States. We expect the merger to close in the first
half of 2001, subject to regulatory approvals.
On August 28, 2000 we announced a definitive merger agreement with
Powertel, Inc. ("Powertel"), a PCS provider based in West Point, Georgia,
servicing the southeastern United States. Our merger with Powertel is contingent
upon the termination of our proposed merger with Deutsche Telekom. To facilitate
the combination of Deutsche Telekom, VoiceStream and Powertel, Deutsche Telekom
and Powertel have entered into a separate definitive agreement for Deutsche
Telekom to acquire Powertel. Should our merger with Deutsche Telekom be
consummated, then we expect that Powertel will also merge with Deutsche Telekom.
These mergers are subject to regulatory approvals.
If our merger with Powertel is completed, we will be the largest PCS
provider using GSM technology in the United States. Upon completion of the
merger with Powertel and the addition of those markets we will have a nearly
nationwide wireless footprint utilizing a single technology and common
frequencies. We will own, collectively with joint venture entities in which we
have interests and assuming the consummation of the Powertel and other pending
transactions, 430 broadband PCS licenses covering 272 million people in 24 of
the 25 largest U.S. markets. Our operating network, collectively with entities
in which we will have interests, will cover 126 million people in the United
States.
Strategy
Our strategy is to efficiently consolidate operations and marketing under
the VoiceStream brand name and to:
- Penetrate the rapidly growing, broad consumer market segment. We will
seek to penetrate the consumer segment of the market by providing
premier value in wireless services with more minutes, features and
services at attractive price points, and marketing such features and
services under the "Get More From Life" message. This marketing message
is delivered by a celebrity spokesperson, Jamie Lee Curtis.
- Increase Sales. Our services and products will continue to be sold
through an extensive and balanced distribution network featuring
national and local dealers, company-owned stores and a direct sales
force.
- Achieve cost efficiencies through centralization and size. We plan to
continue to centralize key functions such as customer care and sales.
Our size should also enable us to purchase network and subscriber
equipment at favorable pricing and financing terms.
- Build high quality networks with extensive coverage. We plan to continue
to construct our networks to increase capacity and enhance call quality
within and around the metropolitan markets that we serve. In addition we
will seek to build networks and initiate service in additional
metropolitan markets where we hold licenses.
- Offer features that capitalize on the advantages of GSM wireless
technology. We will continue to offer a wide variety of wireless
products and services including the capability of offering customers
next-generation wireless voice and data services such as wireless
Internet and multimedia applications.
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- Acquire PCS licenses and systems opportunistically. We will continue to
seek opportunities to acquire additional PCS licenses, systems and/or
operators which are additive to our current footprint, increase our
spectrum or that would increase the availability of GSM wireless service
in North America.
Marketing, Sales and Customer Service
Our sales and marketing strategy is to generate continued subscriber growth
and increase subscriber revenues. In addition, we target a customer base that we
believe is likely to generate higher monthly service revenues, while attempting
to achieve a lower cost of adding new subscribers.
- Marketing -- We market our PCS products and services under the
proprietary VoiceStream brand name. Our objective is to develop brand
recognition of VoiceStream through substantial advertising and direct
marketing in each of our PCS markets.
In marketing our PCS service, we concentrate our marketing efforts
primarily on the consumer market. Through our "Get More" proposition, we
emphasize that consumers get more for their money from our enhanced
features, privacy, customer service and competitive pricing of these
services. We also promote to businesses that would benefit from
integrated voice messaging, wireless data transmission, and enhanced
features and services. Our advertising is supported by a celebrity
spokesperson -- Jamie Lee Curtis.
- Sales -- We sell our products and services through a combination of
direct and indirect channels. We operate company-owned retail locations
and utilize a direct sales force. Our training programs provide our
sales employees with an understanding of our systems, products and
services so that they, in turn, can provide information to prospective
customers. Sales commissions generally are linked to subscriber revenue,
type of service, activation levels and subscriber retention.
We believe that our local sales offices provide the physical presence in
local markets necessary to position VoiceStream as a quality local
service provider, and give us greater control over both our costs and
the sales process. We also utilize indirect sales through a network of
national and local merchant and specialty retailers. We intend to
continue to use a combination of direct and indirect sales channels,
with the mix depending on the retail needs of each particular market.
In addition, we act as a retail distributor of handsets and maintain
inventories of handsets. Although subscribers generally are responsible
for purchasing or otherwise obtaining their own handsets, we have
historically sold handsets below cost to respond to competition and
general industry practice and expect to continue to do so in the future.
- Customer Service -- Customer service is a significant element of our
operating philosophy. We are committed to attracting and retaining
subscribers by providing consistently superior customer service. We
maintain a monitoring and control system with a well-trained staff of
customer service and technical personnel to handle both routine and
complex questions as they arise, 24 hours a day, 365 days a year.
We utilize credit check procedures at the time of sale and continuously
monitor customer churn (the rate of subscriber attrition). We manage our
churn rate through a program implemented through our sales force and
customer service personnel intended to enhance subscriber loyalty and
increase add-on sales and customer referrals. The 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.
- Intellectual property -- We hold a federal trademark registration for
the mark "VoiceStream" and have applied to register "VoiceStream and
Design." We have registered or applied for various other trade and
service marks with the United States Patent and Trademark Office.
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Products and Services
We provide a variety of wireless products and services designed to match a
range of needs for business and personal use. We offer several distinct services
and features in our PCS systems, including:
- Enhanced Features -- We offer caller identification, call hold, voice
mail and numeric paging, as well as custom calling features such as call
waiting, conference calling and call forwarding.
- Messaging and Wireless Data Transmission -- We provide for two-way
messaging to and from all subscribers' handsets. This facilitates a
number of messaging and internet-related services including those we
currently offer, such as the receipt of wireless e-mail, and those which
may be offered in the future, such as Web browsing. We will be North
America's first GSM wireless service provider to carry the AOL Instant
Messenger service, and the first to offer it to all of our wireless
subscribers. Through the AOL Instant Messenger service, our customers
will have a convenient new way to see when family, colleagues and
friends are available on their phone or desktop, and to communicate with
them in real-time directly through our existing handsets and two-way
short messaging service ("SMS") through high speed wireless Internet
access.
- General Packet Radio Service -- GPRS is a standardized packet-switched
data service that is an extension of the GSM architecture. GPRS will
allow for increased data access speeds in wireless handsets and offers
customers the advantage of 'always connected/always on-line' access.
Initially, GPRS handsets will be capable of operating at speeds up to
five times faster than current GSM networks, and speeds will increase up
to ten times faster than is currently possible as new terminal devices
are launched. Possible applications and benefits to wireless users
include faster web browsing and e-mail transmission, in addition to
video streaming capabilities.
- Call Security and Privacy -- Our sophisticated encryption algorithms
provide increased call security, encouraging users to make private,
business and personal calls with significantly lower risk of
eavesdropping than on analog-based systems.
- Smart Card -- We provide "Smart" cards, programmed with the customer's
billing information and a specified service package, which allow
customers to obtain PCS connectivity automatically in a variety of
terminal devices, simply by inserting their smart cards into compatible
PCS devices.
- Prepaid Wireless -- We offer prepaid wireless services in many of our
markets.
- Over-the-Air Activation and Over-the-Air Customer Profile
Management -- We are able to transmit changes in the customer's feature
package, including mobile number assignment and personal directory
numbers, directly to the customer's handset.
- Roaming -- We have entered into roaming agreements that allow our
customers to roam on cellular systems. Dual-mode handsets allow roaming
onto analog cellular systems. Our customers are able to roam throughout
the United States and internationally, either on other GSM-based PCS
systems operated by current licensees or by using dual-mode handsets
that can be used on existing cellular systems.
- Suppliers and equipment vendors -- We do not manufacture any of the
handsets or network equipment used in our operations. The high degree of
compatibility among different manufacturers' models of handsets and
network equipment allows us to design, construct and operate our systems
without being dependent upon any single source of such equipment. The
handsets and network equipment used in our operations are available for
purchase from multiple sources, and we anticipate that equipment will
continue to be available in the foreseeable future. We currently
purchase handsets from several vendors including Motorola Inc., Ericsson
Inc. and Nokia Mobile Phones, Inc. We currently deploy network equipment
primarily from Ericsson Inc., Nortel Networks Inc. and Nokia
Telecommunications Inc.
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Markets and Systems
We own 330 licenses covering over 235 million people, excluding: (i)
licenses which we are committed to assign to unrelated third parties, (ii)
licenses which we have a right to acquire from Powertel, and (iii) licenses held
by joint ventures in which we have an ownership interest of 50% or less, and
including (a) Auction No. 35 licenses for which we are the high bidder, and (b)
licenses which we have a right to acquire from unrelated third parties. We,
together with joint venture entities in which we have interests, will own 430
broadband PCS licenses covering 272 million people, if the Powertel merger and
other pending transactions are completed and Auction No. 35 licenses are granted
to applicable parties..
The following tables set forth the licenses and the populations covered by
such licenses. Each table below lists Major Trading Areas ("MTA") in descending
order by licenced population, with Basic Trading Areas ("BTA") within such
markets listed alphabetically. Unless the context otherwise requires, when used
herein, with respect to a licensed area, "persons" and "population" are
interchangeable and refer to the aggregate number of persons located in such
licensed area. Persons and population data are based upon 2001 estimates by
Claritas, a market research firm.
VOICESTREAM LICENSES
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
-------------------- ----------- --------- ------
New York
Albany.................................................... 1,037,000 A 20 MHz
Allentown................................................. 724,000 A 20 MHz
Binghamton................................................ 337,000 A 20 MHz
Burlington................................................ 402,000 A 20 MHz
Elmira.................................................... 311,000 A 20 MHz
Glens Falls............................................... 122,000 A, E 30 MHz
Hartford.................................................. 1,123,000 A 20 MHz
Ithaca.................................................... 100,000 A 20 MHz
New Haven................................................. 979,000 A 20 MHz
New London................................................ 351,000 A 20 MHz
New York.................................................. 18,802,000 A, D 30 MHz
Oneonta................................................... 107,000 A 20 MHz
Plattsburgh............................................... 117,000 A 20 MHz
Poughkeepsie.............................................. 441,000 A 20 MHz
Rutland................................................... 98,000 A 20 MHz
Scranton.................................................. 651,000 A 20 MHz
Stroudsburg............................................... 134,000 A 20 MHz
Syracuse.................................................. 778,000 A 20 MHz
Utica..................................................... 290,000 A 20 MHz
Watertown................................................. 295,000 A 20 MHz
-----------
27,199,000
Los Angeles
Bakersfield............................................... 659,000 A, B 20 MHz
El Centro................................................. 146,000 B 10 MHz
Las Vegas(1).............................................. 1,564,000 B 10 MHz
Los Angeles............................................... 16,564,000 B, F 20 MHz
San Diego(2).............................................. 2,905,000 B 10 MHz
San Luis Obispo........................................... 243,000 B 10 MHz
Santa Barbara............................................. 403,000 B, F 20 MHz
-----------
22,484,000
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VOICESTREAM LICENSES
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
-------------------- ----------- --------- ------
San Francisco-San Jose
Chico..................................................... 226,000 B 10 MHz
Eureka.................................................... 151,000 B 10 MHz
Fresno.................................................... 909,000 B, F 20 MHz
Merced.................................................... 223,000 B, F 20 MHz
Modesto................................................... 500,000 B, F 20 MHz
Redding................................................... 277,000 B 10 MHz
Reno...................................................... 597,000 B, F 20 MHz
Sacramento................................................ 1,984,000 B 10 MHz
Salinas................................................... 389,000 B 10 MHz
San Francisco............................................. 7,257,000 B, E 20 MHz
Stockton.................................................. 614,000 B, F 20 MHz
Visalia................................................... 498,000 B, F 20 MHz
Yuba City................................................. 138,000 B 10 MHz
-----------
13,763,000
Chicago
Benton Harbor(3).......................................... 159,000 C6, F 40 MHz
Bloomington............................................... 238,000 A 10 MHz
Champaign-Urbana.......................................... 224,000 C6 30 MHz
Chicago................................................... 8,952,000 C6 30 MHz
Danville.................................................. 110,000 F 10 MHz
Decatur-Effingham......................................... 246,000 C6 30 MHz
Elkhart................................................... 264,000 C6, E 40 MHz
Fort Wayne................................................ 698,000 C6, F 40 MHz
Galesburg................................................. 74,000 E 10 MHz
Jacksonville.............................................. 70,000 C2, E 25 MHz
Kankakee.................................................. 135,000 C6 30 MHz
Mattoon................................................... 63,000 C6 30 MHz
Michigan City-La Porte.................................... 111,000 C6 30 MHz
Peoria.................................................... 467,000 F 10 MHz
Rockford.................................................. 446,000 C6 30 MHz
South Bend................................................ 351,000 C2, F 25 MHz
Springfield............................................... 273,000 C6 30 MHz
-----------
12,881,000
Dallas-Fort Worth
Abilene................................................... 253,000 D 10 MHz
Amarillo.................................................. 399,000 D 10 MHz
Austin(2)................................................. 1,289,000 D, F 20 MHz
Big Spring................................................ 33,000 D 10 MHz
Brownwood................................................. 61,000 D 10 MHz
Clovis.................................................... 70,000 E 10 MHz
Dallas-Fort Worth......................................... 5,432,000 C6 30 MHz
Hobbs..................................................... 53,000 D 10 MHz
Longview.................................................. 315,000 C6 30 MHz
Lubbock................................................... 389,000 E 10 MHz
Midland................................................... 123,000 D, E 20 MHz
Odessa.................................................... 212,000 D, E 20 MHz
Paris..................................................... 91,000 C5, D 20 MHz
San Angelo................................................ 159,000 D 10 MHz
Sherman-Denison........................................... 171,000 D 10 MHz
Shreveport................................................ 584,000 C6 30 MHz
Temple(2)................................................. 334,000 F 10 MHz
Texarkana................................................. 260,000 C6 30 MHz
Tyler..................................................... 303,000 C6 30 MHz
Waco...................................................... 292,000 C6, F 40 MHz
-----------
10,823,000
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VOICESTREAM LICENSES
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
-------------------- ----------- --------- ------
Boston-Providence
Bangor.................................................... 325,000 C2, E 25 MHz
Boston.................................................... 4,311,000 D, E 20 MHz
Hyannis................................................... 242,000 D 10 MHz
Keene..................................................... 116,000 D, E 20 MHz
Lebanon................................................... 175,000 C6 30 MHz
Lewiston-Auburn........................................... 218,000 E 10 MHz
Manchester-Nashua-Concord................................. 605,000 D, E 20 MHz
Pittsfield................................................ 131,000 C6, E 40 MHz
Portland-Brunswick........................................ 511,000 D 10 MHz
Presque Isle.............................................. 75,000 D, E, F 30 MHz
Providence-Pawtucket-New Bedford-Fall River............... 1,521,000 D, F 20 MHz
Springfield-Holyoke....................................... 660,000 C6, D 40 MHz
Waterville-Augusta........................................ 168,000 D, E 20 MHz
Worcester-Fitchburg-Leominster............................ 750,000 D, E 20 MHz
-----------
9,808,000
Detroit
Adrian.................................................... 102,000 C2, E, F 35 MHz
Battle Creek.............................................. 242,000 C2, F 25 MHz
Detroit................................................... 5,006,000 C6 30 MHz
Findlay-Tiffin............................................ 153,000 D, E 20 MHz
Flint..................................................... 512,000 C6, F 40 MHz
Jackson................................................... 207,000 C2, E, F 35 MHz
Kalamazoo................................................. 369,000 C6 30 MHz
Lansing................................................... 527,000 E, F 20 MHz
Lima...................................................... 250,000 D, E 20 MHz
Toledo.................................................... 778,000 D, F 20 MHz
-----------
8,146,000
Philadelphia
Atlantic City(1).......................................... 340,000 C1 15 MHz
Dover(1).................................................. 305,000 C1 15 MHz
Philadelphia(1)........................................... 6,012,000 C1 15 MHz
-----------
6,657,000
Atlanta
Albany(4)................................................. 346,000 B, F 40 MHz
Athens(5)................................................. 196,000 B 30 MHz
Atlanta(5)................................................ 4,341,000 B 30 MHz
Augusta(4)................................................ 578,000 B, F 40 MHz
Chattanooga(5)............................................ 555,000 B 30 MHz
Cleveland(5).............................................. 101,000 B 30 MHz
Columbus(5)............................................... 357,000 B 30 MHz
Dalton(5)................................................. 121,000 B 30 MHz
Gainesville(5)............................................ 236,000 B 30 MHz
La Grande(5).............................................. 70,000 B 30 MHz
Macon(4).................................................. 648,000 B, F 40 MHz
Opelika(5)................................................ 141,000 B 30 MHz
Rome(5)................................................... 123,000 B 30 MHz
Savannah(4)............................................... 735,000 B, F 40 MHz
-----------
8,548,000
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VOICESTREAM LICENSES
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
-------------------- ----------- --------- ------
Washington-Baltimore
Baltimore(2).............................................. 2,559,000 F 10 MHz
Charlottesville........................................... 225,000 E 10 MHz
Cumberland................................................ 159,000 E, F 20 MHz
Fredericksburg............................................ 165,000 D 10 MHz
Hagerstown-Chambersburg-Martinsburg....................... 364,000 D 10 MHz
Salisbury................................................. 179,000 D, E 20 MHz
Washington, D.C. ......................................... 4,697,000 E, F 20 MHz
Winchester................................................ 162,000 D, E 20 MHz
-----------
8,510,000
Tampa
Daytona Beach............................................. 479,000 A 30 MHz
Lakeland.................................................. 471,000 A 30 MHz
Melbourne................................................. 478,000 A 30 MHz
Ocala..................................................... 253,000 A 30 MHz
Orlando................................................... 1,637,000 A 30 MHz
Sarasota.................................................. 596,000 A, F 40 MHz
Tampa..................................................... 2,540,000 A 30 MHz
-----------
6,454,000
Houston
Beaumont.................................................. 457,000 A 30 MHz
Bryan..................................................... 168,000 A 30 MHz
Houston................................................... 5,022,000 A 30 MHz
Lake Charles.............................................. 279,000 A 30 MHz
Lufkin.................................................... 155,000 A 30 MHz
Victoria(1)............................................... 161,000 A 30 MHz
-----------
6,242,000
Minneapolis-St. Paul
Aberdeen.................................................. 84,000 B 30 MHz
Bemidji................................................... 65,000 B 30 MHz
Bismarck.................................................. 127,000 B 20 MHz
Brainerd.................................................. 97,000 B 30 MHz
Dickinson................................................. 35,000 B 30 MHz
Duluth(6)................................................. 407,000 B 10 MHz
Eau Claire................................................ 193,000 B 30 MHz
Fergus Falls.............................................. 128,000 B 30 MHz
Huron..................................................... 51,000 B 30 MHz
Ironwood.................................................. 30,000 B 30 MHz
Mankato................................................... 245,000 B 30 MHz
Minneapolis............................................... 3,257,000 B 30 MHz
Minot..................................................... 117,000 B 30 MHz
Mitchell.................................................. 83,000 B 30 MHz
Rochester................................................. 251,000 B 30 MHz
St. Cloud................................................. 292,000 B 30 MHz
Watertown................................................. 74,000 B 30 MHz
Williston................................................. 24,000 B 30 MHz
Willmar-Marshall.......................................... 123,000 B 30 MHz
Worthington............................................... 94,000 B 30 MHz
-----------
5,777,000
Miami-Ft. Lauderdale
Miami-Ft. Lauderdale...................................... 3,803,000 E, F 20 MHz
Naples.................................................... 240,000 D 10 MHz
West Palm Beach........................................... 1,098,000 F 10 MHz
-----------
5,141,000
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VOICESTREAM LICENSES
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
-------------------- ----------- --------- ------
Cleveland
Ashtabula................................................. 104,000 C6, E 40 MHz
Canton-New Philadelphia................................... 529,000 C6, E 40 MHz
Cleveland-Akron........................................... 2,958,000 C5, E 20 MHz
East Liverpool-Salem...................................... 111,000 C6, E 40 MHz
Erie...................................................... 277,000 C6, E 40 MHz
Mansfield................................................. 231,000 C6, E 40 MHz
Meadville................................................. 89,000 E 10 MHz
Sandusky.................................................. 138,000 C2, E 25 MHz
Sharon.................................................... 121,000 E 10 MHz
Youngstown-Warren......................................... 473,000 C6, E 40 MHz
-----------
5,031,000
St. Louis
Cape Girardeau............................................ 189,000 C6, E, F 50 MHz
Carbondale-Marion......................................... 217,000 E, F 20 MHz
Columbia.................................................. 210,000 D, E 20 MHz
Jefferson City............................................ 158,000 D, F 20 MHz
Kirksville................................................ 56,000 D, E 20 MHz
Mount Vernon.............................................. 123,000 C6, D 40 MHz
Poplar Bluff.............................................. 153,000 C6, F 40 MHz
Quincy-Hannibal........................................... 180,000 D, E 20 MHz
Rolla..................................................... 100,000 C6, F 40 MHz
Springfield............................................... 645,000 F 10 MHz
St. Louis................................................. 2,851,000 C6 30 MHz
West Plains............................................... 77,000 D, F 20 MHz
-----------
4,959,000
Denver
Casper-Gillette........................................... 142,000 B 30 MHz
Cheyenne.................................................. 108,000 B 30 MHz
Colorado Springs.......................................... 539,000 B, F 40 MHz
Denver.................................................... 2,628,000 B 30 MHz
Fort Collins.............................................. 247,000 B 30 MHz
Grand Junction............................................ 248,000 B 30 MHz
Greeley................................................... 176,000 B 30 MHz
Pueblo.................................................... 309,000 B 30 MHz
Rapid City................................................ 190,000 B 30 MHz
Riverton.................................................. 49,000 B 30 MHz
Rock Springs.............................................. 60,000 B 30 MHz
Scottsbluff............................................... 99,000 B 30 MHz
-----------
4,795,000
Phoenix
Flagstaff................................................. 116,000 C6, E 40 MHz
Nogales................................................... 41,000 E 10 MHz
Phoenix................................................... 3,369,000 A, E, F 30 MHz
Prescott.................................................. 161,000 C6, E 40 MHz
Sierra Vista-Douglas...................................... 114,000 C6, E 30 MHz
Tucson.................................................... 827,000 E, F 20 MHz
Yuma...................................................... 142,000 C6 30 MHz
-----------
4,770,000
11
12
VOICESTREAM LICENSES
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
-------------------- ----------- --------- ------
Seattle
Aberdeen.................................................. 88,000 C1 15 MHz
Bellingham(2)............................................. 167,000 F 10 MHz
Bremerton................................................. 238,000 C1 15 MHz
Olympia(2)................................................ 330,000 E 10 MHz
Port Angeles.............................................. 94,000 C1 15 MHz
Seattle-Tacoma(2)......................................... 3,214,000 E, F 20 MHz
Wenatchee................................................. 210,000 C1 15 MHz
Yakima.................................................... 254,000 C1 15 MHz
-----------
4,595,000
Richmond-Norfolk
Danville.................................................. 170,000 E 10 MHz
Lynchburg................................................. 159,000 E 10 MHz
Martinsville.............................................. 90,000 E 10 MHz
Norfolk-VA Beach.......................................... 1,780,000 E, F 20 MHz
Richmond-Petersburg....................................... 1,238,000 E, F 20 MHz
Roanoke................................................... 656,000 F 10 MHz
Staunton-Waynesburo....................................... 110,000 E 10 MHz
-----------
4,203,000
Pittsburgh
Altoona................................................... 224,000 B 30 MHz
Clarksburg................................................ 192,000 B 30 MHz
Du Bois................................................... 127,000 B 30 MHz
Fairmont.................................................. 55,000 B 30 MHz
Indiana................................................... 87,000 B 30 MHz
Johnstown................................................. 230,000 B 30 MHz
Morgantown................................................ 106,000 B 30 MHz
New Castle................................................ 94,000 B 30 MHz
Oil City.................................................. 103,000 B 30 MHz
Pittsburgh................................................ 2,422,000 B 30 MHz
Steubenville.............................................. 131,000 B 30 MHz
Wheeling.................................................. 213,000 B 30 MHz
-----------
3,984,000
Puerto Rico-US Virgin Islands
Mayaguez(1)............................................... 1,508,000 A 10 MHz
San Juan.................................................. 2,421,000 A, F 20 MHz
-----------
3,929,000
Louisville
Bowling Green(8).......................................... 249,000 D, E 20 MHz
Corbin(8)................................................. 146,000 D, E 20 MHz
Evansville(8)............................................. 520,000 D, E 20 MHz
Lexington(8).............................................. 918,000 D, E 20 MHz
Louisville(8)............................................. 1,479,000 D, E 20 MHz
Madisonville(8)........................................... 46,000 D, E 20 MHz
Owensboro(8).............................................. 164,000 D, E 20 MHz
Paducah(8)................................................ 231,000 D, E 20 MHz
Somerset(8)............................................... 126,000 D, E 20 MHz
-----------
3,879,000
Cincinnati-Dayton
Cincinnati................................................ 2,182,000 B, F 30 MHz
Dayton-Springfield........................................ 1,245,000 B, E 30 MHz
Logan..................................................... 39,000 C4 10 MHz
Portsmouth................................................ 93,000 C3 10 MHz
Williamson................................................ 180,000 F 10 MHz
-----------
3,739,000
12
13
VOICESTREAM LICENSES
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
-------------------- ----------- --------- ------
Portland
Bend...................................................... 151,000 A 30 MHz
Coos Bay-North Bend....................................... 84,000 A, F 40 MHz
Eugene-Springfield........................................ 321,000 A 30 MHz
Klamath Falls............................................. 80,000 A 30 MHz
Longview.................................................. 98,000 A 30 MHz
Medford-Grants Pass....................................... 255,000 A 30 MHz
Portland.................................................. 2,094,000 A 30 MHz
Roseburg.................................................. 102,000 A 30 MHz
Salem-Albany.............................................. 529,000 A 30 MHz
-----------
3,714,000
Memphis-Jackson
Blytheville(8)............................................ 69,000 A 30 MHz
Columbus-Starkville(7).................................... 171,000 A 30 MHz
Dyersburg-Union City(8)................................... 117,000 A 30 MHz
Greenville-Greenwood(8)................................... 203,000 A 30 MHz
Jackson, MS(8)............................................ 661,000 A 30 MHz
Jackson, TN(8)............................................ 282,000 A 30 MHz
Memphis(8)................................................ 1,525,000 A 30 MHz
Meridian(7)............................................... 206,000 A 30 MHz
Natchez(8)................................................ 69,000 A 30 MHz
Tupelo-Corinth(8)......................................... 318,000 A 30 MHz
Vicksburg(8).............................................. 60,000 A 30 MHz
-----------
3,681,000
San Antonio
Brownsville(1)............................................ 355,000 D 10 MHz
Corpus Christi............................................ 548,000 D, F 20 MHz
Laredo(1)................................................. 225,000 D 10 MHz
McAllen(1)................................................ 616,000 D 10 MHz
San Antonio............................................... 1,873,000 C5, D, F 30 MHz
-----------
3,617,000
Birmingham
Aniston(8)................................................ 165,000 B 30 MHz
Birmingham(7)............................................. 1,320,000 B, F 40 MHz
Decatur(7)................................................ 145,000 B, F 40 MHz
Dothan(8)................................................. 219,000 B 30 MHz
Florence(8)............................................... 182,000 B 30 MHz
Gadsden(7)................................................ 185,000 B, F 40 MHz
Huntsville(7)............................................. 512,000 B, F 40 MHz
Montgomery(8)............................................. 473,000 B 30 MHz
Selma(8).................................................. 72,000 B 30 MHz
Tuscaloosa(8)............................................. 251,000 B 30 MHz
-----------
3,524,000
Indianapolis
Anderson.................................................. 178,000 F 10 MHz
Bloomington-Bedford....................................... 239,000 E 10 MHz
Columbus.................................................. 157,000 E, F 20 MHz
Indianapolis(2)........................................... 1,515,000 E 10 MHz
Kokomo-Logansport......................................... 188,000 C2, D 25 MHz
Lafayette................................................. 272,000 E 10 MHz
Marion.................................................... 106,000 E 10 MHz
Muncie.................................................... 176,000 F 10 MHz
Richmond.................................................. 104,000 F 10 MHz
Terre Haute............................................... 245,000 E, F 20 MHz
Vincennes-Washington...................................... 93,000 E, F 20 MHz
-----------
3,273,000
13
14
VOICESTREAM LICENSES
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
-------------------- ----------- --------- ------
Salt Lake City
Boise-Nampa............................................... 578,000 A 30 MHz
Idaho Falls............................................... 222,000 A 30 MHz
Logan..................................................... 101,000 A 30 MHz
Pocatello................................................. 101,000 A 30 MHz
Provo-Orem................................................ 382,000 A 30 MHz
Salt Lake City............................................ 1,589,000 A 30 MHz
St. George................................................ 137,000 A, E 40 MHz
Twin Falls................................................ 162,000 A 30 MHz
-----------
3,272,000
Kansas City
Emporia................................................... 45,000 B 30 MHz
Joplin.................................................... 238,000 B 30 MHz
Kansas City............................................... 2,060,000 B 30 MHz
Lawrence.................................................. 105,000 B 30 MHz
Manhattan................................................. 116,000 B 30 MHz
Pittsburgh................................................ 90,000 B 30 MHz
St. Joseph................................................ 190,000 B 30 MHz
Sedalia................................................... 91,000 B 30 MHz
Topeka.................................................... 265,000 B 30 MHz
-----------
3,200,000
Des Moines-Quad Cities
Burlington(8)............................................. 137,000 A 10 MHz
Cedar Rapids(8)........................................... 287,000 A 10 MHz
Clinton-Sterling(8)....................................... 145,000 A 10 MHz
Davenport-Moline(8)....................................... 431,000 A 10 MHz
Des Moines(8)............................................. 795,000 A, F 40 MHz
Dubuque(8)................................................ 178,000 A 10 MHz
Fort Dodge(8)............................................. 125,000 A 10 MHz
Iowa City(8).............................................. 127,000 A 10 MHz
Marshalltown(8)........................................... 57,000 A 10 MHz
Mason City(8)............................................. 114,000 A 10 MHz
Ottumwa(8)................................................ 123,000 A 10 MHz
Sioux City(8)............................................. 335,000 A 10 MHz
Waterloo-Cedar Falls(8)................................... 255,000 A 10 MHz
-----------
3,109,000
Charlotte-Greensboro-Greenville-Raleigh
Charleston................................................ 701,000 F 10 MHz
Columbia.................................................. 650,000 F 10 MHz
Greenville SC............................................. 894,000 F 10 MHz
Goldsboro................................................. 233,000 F 10 MHz
Orangeburg................................................ 118,000 F 10 MHz
Sumter.................................................... 170,000 F 10 MHz
-----------
2,766,000
Buffalo-Rochester
Buffalo................................................... 1,170,000 C6 30 MHz
Jamestown-Dunkirk......................................... 179,000 E 10 MHz
Olean-Bradford............................................ 236,000 D, E 20 MHz
Rochester................................................. 1,133,000 C6, D 40 MHz
-----------
2,718,000
14
15
VOICESTREAM LICENSES
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
-------------------- ----------- --------- ------
Jacksonville
Brunswick(8).............................................. 79,000 A 30 MHz
Gainesville(8)............................................ 308,000 A 30 MHz
Jacksonville(8)........................................... 1,340,000 A 30 MHz
Panama City(8)............................................ 206,000 A 30 MHz
Tallahassee(8)............................................ 490,000 A 30 MHz
Valdosta(8)............................................... 159,000 A 30 MHz
Waycross(8)............................................... 112,000 A 30 MHz
-----------
2,694,000
El Paso-Albuquerque
Albuquerque............................................... 796,000 A 30 MHz
Carlsbad.................................................. 53,000 A 30 MHz
El Paso................................................... 764,000 A, F 40 MHz
Farmington-Durango........................................ 208,000 A 30 MHz
Gallup.................................................... 134,000 A 30 MHz
Las Cruces................................................ 246,000 A 30 MHz
Roswell................................................... 79,000 A 30 MHz
Santa Fe.................................................. 211,000 A 30 MHz
-----------
2,491,000
Columbus
Athens.................................................... 131,000 B 30 MHz
Chillicothe............................................... 105,000 B 30 MHz
Columbus.................................................. 1,677,000 B 30 MHz
Marion.................................................... 102,000 B 30 MHz
Parksburg................................................. 180,000 B 30 MHz
Zanesville................................................ 193,000 B 30 MHz
-----------
2,388,000
Little Rock
El Dorado-Magnolia-Camden................................. 101,000 C6, E 30 MHz
Fayetteville-Springdale................................... 316,000 E 10 MHz
Fort Smith................................................ 314,000 D 10 MHz
Harrison.................................................. 86,000 D 10 MHz
Hot Springs............................................... 134,000 D 10 MHz
Jonesboro-Paragould....................................... 175,000 E 10 MHz
Little Rock............................................... 934,000 A, D 20 MHz
Pine Bluff................................................ 146,000 D 10 MHz
Russellville.............................................. 93,000 E 10 MHz
-----------
2,299,000
Spokane-Billings
Billings.................................................. 309,000 E 10 MHz
Bozeman................................................... 82,000 E 10 MHz
Butte..................................................... 65,000 C3, D 20 MHz
Great Falls............................................... 158,000 E 10 MHz
Helena.................................................... 70,000 C4, D 20 MHz
Kalispell................................................. 74,000 C3, C5, D 30 MHz
Kennewick-Pasco........................................... 188,000 D 10 MHz
Lewiston-Moscow........................................... 122,000 E 10 MHz
Missoula.................................................. 170,000 D 10 MHz
Spokane................................................... 742,000 C1 15 MHz
Walla Walla-Pendleton..................................... 174,000 C6, D 25 MHz
-----------
2,154,000
Nashville
Clarksville(8)............................................ 262,000 D, E 20 MHz
Cookeville(8)............................................. 135,000 D, E 20 MHz
Nashville(7).............................................. 1,721,000 D, E, F 30 MHz
-----------
2,118,000
15
16
VOICESTREAM LICENSES
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
-------------------- ----------- --------- ------
Milwaukee
Janesville................................................ 241,000 F 10 MHz
Milwaukee................................................. 1,812,000 E, F 20 MHz
-----------
2,053,000
Oklahoma City
Ada....................................................... 55,000 A 30 MHz
Ardmore................................................... 89,000 A 30 MHz
Enid...................................................... 83,000 A,D 40 MHz
Lawton-Duncan............................................. 164,000 A 30 MHz
McAlester................................................. 54,000 A 30 MHz
Oklahoma City............................................. 1,408,000 A, D 40 MHz
Ponca City................................................ 46,000 A, D 40 MHz
Stillwater................................................ 77,000 A, D 40 MHz
-----------
1,976,000
Omaha
Grand Island.............................................. 146,000 E 10 MHz
Hastings.................................................. 71,000 E 10 MHz
Lincoln................................................... 337,000 E 10 MHz
McCook.................................................... 33,000 E 10 MHz
Norfolk................................................... 108,000 E 10 MHz
North Platte.............................................. 86,000 E 10 MHz
Omaha(1).................................................. 976,000 C2 15 MHz
-----------
1,757,000
New Orleans
Baton Rouge............................................... 685,000 C6 30 MHz
Hammond................................................... 110,000 C6 30 MHz
Lafayette................................................. 542,000 C6 30 MHz
-----------
1,337,000
Tulsa
Bartlesville.............................................. 48,000 C6, D 25 MHz
Coffeysville.............................................. 61,000 C6, D 25 MHz
Muskogee.................................................. 163,000 C6, D 25 MHz
Tulsa..................................................... 947,000 C6, D 25 MHz
-----------
1,219,000
Honolulu
Hilo...................................................... 142,000 A 30 MHz
Honolulu.................................................. 854,000 A 30 MHz
Kahului-Wailuku-Lahaina................................... 124,000 A 30 MHz
Lihue..................................................... 57,000 A 30 MHz
-----------
1,177,000
Knoxville
Knoxville(8).............................................. 1,114,000 E 10 MHz
Wichita
Hutchinson................................................ 126,000 D, E 20 MHz
Salina.................................................... 140,000 C6, D, E 30 MHz
Wichita................................................... 671,000 D, F 20 MHz
-----------
937,000
VOICESTREAM TOTAL........................................... 254,905,000
===========
---------------
(1) Cook Inlet/VS GSM IV PCS, LLC, in which we own a 49.9% minority interest,
also owns licenses for these BTAs.
(2) Cook Inlet/VS GSM V PCS, LLC, in which we own a 49.9% minority interest,
was the high bidder for these licenses in these BTAs in the 2000/2001
auction for FCC PCS licenses.
(3) The FCC has added numerical postscripts to the original 30 MHz C Block PCS
licenses to reflect the splitting of certain of these licenses into two
separate 15 MHz licenses (C1 or C2), and, more recently, the splitting of
certain other licenses into three separate 10 MHz licenses (C3, C4 or C5).
C Block licenses that include the full 30 MHz of spectrum are called C6.
(4) Licenses for these BTAs are owned by both VoiceStream and Powertel.
16
17
(5) Licenses for these BTAs are owned by Powertel only.
(6) Wireless Alliance LLC received 20 MHz of the 30 MHz of this BTA within the
Minneapolis MTA license in exchange for the issuance to us of a minority
ownership interest in Wireless Alliance.
(7) Licenses for these BTAs are owned by Powertel and Eliska Wireless Ventures
I, Inc.
(8) VoiceStream contributed portions of the Des Moines MTA license to Iowa
Wireless Services, L.P. in return for a minority interest. As a result, we
own 30 MHz of the A Block license for certain counties within the Des
Moines BTA but only 10 MHz of the A Block for the remainder of the Des
Moines MTA. The remaining 20 MHz is owned by Iowa Wireless.
Relationship with Cook Inlet
In connection with its authority to regulate the sale and use of radio wave
spectrum used to provide PCS service in the United States, the FCC adopted rules
that granted a narrow category of entities ("Designated Entities") the exclusive
right to bid for and own C and F Block licenses for the initial five-year period
following award of the licenses. VoiceStream does not qualify as a Designated
Entity. In order to continue expanding service to VoiceStream customers, we
obtained 49.9% indirect minority interests in six Designated Entities controlled
by CIRI. The FCC recently revised the rules pertaining to certain C and F Block
licenses formerly restricted to Designated Entities to allow their ownership by
non-Designated Entities. In December 2000, we acquired controlling interests in
four of these Designated Entities: Cook Inlet/VoiceStream PV/SS PCS, L.P. ("Cook
Inlet PCS"), Cook Inlet/VoiceStream PCS, LLC ("CIVS"), Cook Inlet/VS GSM II PCS,
LLC ("CIVS II"), and Cook Inlet/VS GSM III PCS, LLC ("CIVS III"). On December
31, 2000, we held 49.9% minority interests in Cook Inlet/VS GSM IV PCS Holdings,
LLC ("CIVS IV") and Cook Inlet/VS GSM V PCS Holdings, LLC ("CIVS V"). Various
subsidiaries of CIVS IV and CIVS V qualified under the Designated Entity rules
to own and operate C and F Block licenses. Our customers will be able to obtain
service in territories covered by licenses owned and operated by subsidiaries of
CIVS IV and CIVS V through reseller and other contractual arrangements between
us and affiliates of CIVS IV and CIVS V.
CIVS IV
CIVS IV, a Delaware limited liability company, was formed in October 2000
for the purpose of acquiring and operating licenses subject to the FCC's
Designated Entity rules. CIVS IV is managed by Cook Inlet Mobile Corporation
("Cook Inlet Mobile"), a subsidiary of CIRI, which owns a 50.1% interest in CIVS
IV. We hold a 49.9% minority interest in CIVS IV. In October 2000, we and Cook
Inlet Mobile each made initial capital investments in CIVS IV commensurate with
our respective ownership percentages. A subsidiary of CIVS IV owns FCC licenses
to provide wireless communications services in the following 15 BTA license
areas. See "-- Governmental Regulation; Licensing of PCS Systems."
17
18
CIVS IV
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
-------------------- ---------- ----- ---
Philadelphia
Atlantic City(1).......................................... 340,000 C2 15 MHz
Dover(1).................................................. 305,000 C2 15 MHz
Philadelphia(1)........................................... 6,012,000 C2 15 MHz
----------
6,657,000
New Orleans
Houma..................................................... 276,000 C6 15 MHz
New Orleans............................................... 1,394,000 C6 15 MHz
----------
1,670,000
Los Angeles
Las Vegas(1).............................................. 1,564,000 C6 15 MHz
Puerto Rico
Mayaguez(1)............................................... 1,508,000 F 10 MHz
San Antonio
Brownsville(1)............................................ 355,000 F 10 MHz
Eagle Pass-Del Rio........................................ 120,000 F 10 MHz
Laredo(1)................................................. 225,000 F 10 MHz
McAllen(1)................................................ 616,000 F 10 MHz
----------
1,316,000
Omaha
Omaha(1).................................................. 976,000 C6 15 MHz
Dallas
Monroe.................................................... 328,000 C2 15 MHz
Houston
Victoria(1)............................................... 161,000 F 10 MHz
Washington
Harrisonburg.............................................. 146,000 C2 15 MHz
----------
CIVS IV TOTAL............................................... 14,326,000
==========
---------------
(1) Licenses for these BTAs are also owned by VoiceStream.
18
19
CIVS V
CIVS V, a Delaware limited liability company, was formed in October 2000
for the purpose of acquiring and operating licenses subject to the FCC's
Designated Entity rules. CIVS V is managed by Cook Inlet Wireless, Inc. ("Cook
Wireless"), a subsidiary of CIRI, which owns a 50.1% interest in CIVS V. We hold
a 49.9% minority interest in CIVS V. In November 2000, we and Cook Wireless each
made initial capital investments in CIVS V commensurate with our respective
ownership percentages. A subsidiary of CIVS V was the high bidder in the
2000/2001 auction for FCC PCS licenses in the following 22 BTA license areas.
See "-- Governmental Regulation; Licensing of PCS Systems."
CIVS V
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
-------------------- ---------- ----- ------
Charlotte-Greensboro-Greenville-Raleigh
Asheville................................................. 588,000 C4 10 MHz
Burlington................................................ 124,000 C4 10 MHz
Charlotte................................................. 2,053,000 C4 10 MHz
Fayetteville.............................................. 630,000 C4 10 MHz
Greensboro................................................ 1,403,000 C4 10 MHz
Greenville NC............................................. 246,000 C4 10 MHz
Hickory................................................... 332,000 C4 10 MHz
Jacksonville.............................................. 142,000 C4 10 MHz
New Bern.................................................. 173,000 C4 10 MHz
Raleigh................................................... 1,433,000 C4 10 MHz
Roanoke Rapids............................................ 76,000 C4 10 MHz
Rocky Mount............................................... 218,000 C4 10 MHz
Wilmington................................................ 325,000 C4 10 MHz
----------
7,743,000
Seattle
Bellingham(1)............................................. 167,000 C4 10 MHz
Olympia(1)................................................ 330,000 C4 10 MHz
Seattle-Tacoma(1)......................................... 3,214,000 C3 10 MHz
----------
3,711,000
Los Angeles-San Diego
San Diego(1).............................................. 2,905,000 C4 10 MHz
Washington-Baltimore
Baltimore(1).............................................. 2,559,000 C3 10 MHz
Dallas-Fort Worth
Austin(1)................................................. 1,289,000 C4 10 MHz
Temple(1)................................................. 334,000 C3 10 MHz
----------
1,623,000
Indianapolis
Indianapolis(1)........................................... 1,515,000 C3 10 MHz
Detroit
Saginaw................................................... 632,000 C4 10 MHz
----------
CIVS V TOTAL................................................ 20,688,000
==========
---------------
(1) Licenses for these BTAs are also owned by VoiceStream.
19
20
Iowa Wireless Services, LP
Iowa Wireless Services, LP ("Iowa Wireless") is a Delaware limited
partnership ultimately controlled by Iowa Network Services, Inc., an Iowa
corporation. We hold a 38% limited partnership interest in Iowa Wireless. Iowa
Wireless began operations in certain markets in 1998.
Iowa Wireless owns FCC licenses to provide wireless communications services
in the following 13 BTA license areas. See "-- Governmental Regulation;
Licensing of PCS Systems."
IOWA WIRELESS LICENSES
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
---------------------- ---------- ----- ------
Des Moines-Quad Cities
Burlington(1)............................................. 137,000 A, D 30 MHz
Cedar Rapids(1)........................................... 287,000 A 20 MHz
Clinton-Sterling(1)....................................... 145,000 A, D 30 MHz
Davenport-Moline(1)....................................... 431,000 A 20 MHz
Des Moines(1)............................................. 795,000 A 20 MHz
Dubuque(1)................................................ 178,000 A 20 MHz
Fort Dodge(1)............................................. 125,000 A 20 MHz
Iowa City(1).............................................. 127,000 A 20 MHz
Marshalltown(1)........................................... 57,000 A, D 30 MHz
Mason City(1)............................................. 114,000 A, D 30 MHz
Ottumwa(1)................................................ 123,000 A 20 MHz
Sioux City(1)............................................. 335,000 A 20 MHz
Waterloo-Cedar Falls(1)................................... 255,000 A 20 MHz
---------
IOWA WIRELESS TOTAL......................................... 3,109,000
=========
---------------
(1) VoiceStream contributed 20 MHz of the A Block spectrum in all portions of
the Des Moines MTA, except for the counties of Clarke, Dallas, Jasper,
Polk, Stony, Madison and Warren in the Des Moines BTA to Iowa Wireless, in
return for a minority interest in Iowa Wireless. As a result, VoiceStream
owns 30 MHz of the A Block license for these counties within the Des Moines
BTA, but only 10 MHz of the A Block license for the remainder of the Des
Moines MTA. The remaining 20 MHz is owned by Iowa Wireless.
D&E/Omnipoint Wireless Joint Venture, L.P.
D&E/Omnipoint Wireless Joint Venture, L.P. ("D&E/Omnipoint") is a Delaware
limited partnership formed in September 1997. We hold a 50% interest in this
entity. We have committed to contribute additional licenses to D&E/Omnipoint for
the following western Pennsylvania BTA markets, namely the C Block licenses for
the Harrisburg, Reading and York BTAs and the C-1 Block license for the
Lancaster BTA. D&E/Omnipoint launched service in the following markets in
September 1997.
D&E/OMNIPOINT LICENSES
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
---------------------- ---------- ----- ------
Philadelphia
Harrisburg................................................ 691,000 C6, D 40 MHz
Lancaster................................................. 466,000 C6, E 40 MHz
Reading................................................... 362,000 C1 15 MHz
York...................................................... 472,000 C6, E 40 MHz
---------
D&E/OMNIPOINT TOTAL......................................... 1,991,000
=========
20
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NPI-Omnipoint Wireless, LLC
NPI-Omnipoint Wireless, LLC ("NPI Omnipoint") is a Michigan limited
liability company formed in October 1998. We received a 20% interest in this
joint venture entity in exchange for certain licenses and the agreement to
contribute certain other licenses for several central Michigan BTAs including
the C6 Block licenses for Alpena and Sault Ste. Marie, the C2 Block licenses for
Muskegon and Grand Rapids (partitioned), and the F Block license for Grand
Rapids (partitioned). NPI Omnipoint launched service in the following markets in
the spring of 1999.
NPI OMNIPOINT LICENSES
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
---------------------- ---------- -------- ------
Detroit
Alpena.................................................... 67,000 C6 30 MHz
Grand Rapids.............................................. 1,070,000 C2, E, F 35 MHz
Mount Pleasant............................................ 131,000 E 10 MHz
Muskegon.................................................. 224,000 C2, E 25 MHz
Petoskey.................................................. 104,000 C6, D 25 MHz
Saginaw-Bay City.......................................... 632,000 E 10 MHz
Sault Ste. Marie.......................................... 56,000 C6 30 MHz
Traverse.................................................. 244,000 C6 15 MHz
---------
NPI OMNIPOINT TOTAL......................................... 2,528,000
=========
Wireless Alliance, LLC
Wireless Alliance, LLC ("Wireless Alliance") is a Minnesota limited
liability company formed in November 1996. We hold a 30% interest in Wireless
Alliance, which launched service in 1998.
WIRELESS ALLIANCE LICENSES
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
-------------------------- ---------- ----- ------
Minneapolis
Duluth(1)................................................. 407,000 B 20 MHz
Fargo..................................................... 313,000 B 20 MHz
Grand Forks............................................... 197,000 B 20 MHz
Sioux Falls............................................... 236,000 B 20 MHz
---------
WIRELESS ALLIANCE TOTAL..................................... 1,153,000
=========
---------------
(1) Wireless Alliance received 20 MHz of the 30 MHz of this BTA within the
Minneapolis MTA license in exchange for the issuance to us of a 30%
ownership interest in Wireless Alliance.
21
22
Eliska Wireless Ventures I, Inc.
Eliska Wireless Ventures I, Inc. ("Eliska") is a Designated Entity in which
Powertel has a minority interest similar to our ventures with CIRI. Should we
merge with Powertel, we would hold an interest in Eliska. Eliska launched
service on February 1, 2001.
ELISKA LICENSES
MTA/BTA LICENSE AREA POPULATION BLOCK MHZ
-------------------- ---------- ----- ------
New Orleans
Biloxi.................................................... 395,000 C6 30 MHz
Ft. Walton Beach.......................................... 217,000 C6 30 MHz
Hattiesburg............................................... 188,000 C6 30 MHz
Laurel.................................................... 81,000 C6 30 MHz
Mobile.................................................... 663,000 C6 30 MHz
Pensacola................................................. 415,000 C6 30 MHz
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1,959,000
Memphis
Columbus-Starkville(1).................................... 171,000 C1 15 MHz
Meridian(1)............................................... 206,000 C1 15 MHz
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377,000
ELISKA TOTAL................................................ 2,336,000
=========
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(1) Licenses for these BTAs are also owned by VoiceStream.
THE WIRELESS COMMUNICATIONS INDUSTRY
Overview
Wireless communications systems use a variety of radio frequencies to
transmit voice and data signals. Broadly defined, the wireless communications
industry includes one-way radio applications, such as paging or beeper services,
and two-way radio applications, such as cellular, PCS and enhanced specialized
mobile radio networks. Each such application is licensed in a distinct radio
frequency block.
Since its introduction in 1983, wireless service has grown dramatically. As
of June 30, 2000, according to the Cellular Telecommunications & Internet
Association, referred to as CTIA, there were 97 million wireless subscribers in
the United States, representing a penetration rate of 35%.
In the wireless communications industry, there are two principal frequency
bands licensed by the Federal Communications Commission ("FCC") for transmitting
two way voice and data signals, 824 to 896 MHz and 1850 to 1990 MHz. The 824 to
896 MHz frequency band was designated for cellular service which began
commercial operation in 1983 utilizing analog-based technology. Certain wireless
operators are now providing digital-based wireless data services utilizing the
cellular frequency band. The 1850 - 1990 MHz band was designated for PCS which
utilizes digital technology. PCS spectrum was auctioned by the FCC in six
frequency blocks (A - F) beginning with the A and B Blocks in late 1994 and
1995. In late 1995 and in 1996 the C Block was auctioned and the FCC concluded
simultaneous auctions of the D, E and F Blocks in 1997. In 1999, and again in
late 2000 and early 2001, the FCC re-auctioned portions of the C, D, E and F
Blocks, as applicable, that were returned, retaken or not purchased in previous
auctions.
Digital systems convert voice or data signals into a stream of digits that
is compressed before transmission, enabling a single radio channel to carry
multiple simultaneous signal transmissions. This technology enables enhanced
capacity, along with improvements in digital signaling thereby allowing digital-
based wireless carriers to offer new and enhanced services which comprise PCS.
These services include greater call privacy and robust data transmission
features, such as "mobile office" applications that include facsimile,
electronic mail, wireless connections to computer/data networks and Internet
capabilities. Packet-switched data, the technology underlying GPRS, is a further
extension of digital technology that provides for substantially higher data
transmission rates and continuous connectivity to data networks. See
"-- Operation of Wireless Communications Systems."
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PCS competes directly with existing cellular telephone and data services,
paging and specialized mobile radio services. PCS offers features that are not
generally provided by analog cellular providers, such as data transmissions to
and from portable computers, advanced paging services and facsimile services. In
addition, PCS is increasingly competing with with wired local communications
services as PCS costs decline and the quality and range of services increases.
See "-- Governmental Regulation" for a discussion of the FCC auction process and
allocation of wireless licenses.
Operation of Wireless Communications Systems
Wireless communications system service areas, whether cellular or PCS, are
divided into multiple cells. Due to the frequencies on which they operate, a
single cell in a cellular system generally transmits over a wider radius than a
comparable PCS cell. In both cellular and PCS systems, each cell contains a
transmitter, a receiver and signaling equipment (collectively referred to as 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. Wireless communications providers establish
interconnection agreements with local exchange carriers and interexchange
carriers, thereby integrating their system with the existing landline
communications system.
Because the signal strength of a transmission between a handset and a cell
site declines as the handset moves away from the cell site, the switching office
and the cell site monitor the signal strength of calls in progress. 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 a cellular or PCS system, the
call is disconnected unless there is a technical connection with the adjacent
system.
Wireless system operators 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 PCS and cellular 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.
PCS systems operate under one of three principal digital signal
transmission technologies, or standards, that have been deployed by various
operators and vendors: GSM; Time Division Multiple Access, referred to as TDMA;
or Code Division Multiple Access, referred to as CDMA.
GSM is the most widely used wireless technology in the world, serving over
452 million customers. It offers an open system architecture, supported by a
variety of vendors, that allows operators to achieve cost economies in
infrastructure and mobile terminal equipment. GSM provides the benefit of a
single phone number and transparent services on a global roaming basis. GSM has
high capacity and high voice quality and utilizes an industry-leading encryption
and authentication technology that provides customers with a high level of
subscription and conversation privacy. GSM has supported wireless data from its
inception, and is currently evolving to support high-speed wireless packet-boxed
data transmission to provide subscribers with enhanced internet and mobile data
services. GSM technology has not historically been widely deployed by North
American wireless operators. It is based on a different network protocol than
other North American standards, making system interoperability and roaming with
other North American cellular or PCS systems more difficult.
CDMA has been widely deployed in North America and parts of Asia. It has
easier interoperability with North America analog cellular systems than GSM. It
uses a closed architecture, dependent upon intellectual
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property rights owned by a few manufacturers which increase the costs in
infrastructure and handsets. It has limited global deployment, thus limiting the
customer's ability to use CDMA service outside of the U.S.
GSM and TDMA are both based upon time-division of spectrum and are
currently incompatible with each other and with CDMA. Accordingly, a subscriber
to a system that utilizes GSM technology is currently unable to use a GSM
handset when traveling in an area not served by GSM-based PCS operators, unless
the subscriber carries a dual-mode handset that permits the subscriber to use
the analog cellular system in that area. Under a Memorandum of Understanding
between GSM operators in the United States and Canada and the association of
TDMA operators in the United States and Canada, there are plans to promote the
interoperability of GSM and TDMA standards.
Competition
Competition for subscribers among wireless licensees is based principally
upon the services and features offered, the technical quality of the wireless
systems, customer service, system coverage, capacity and price. Under current
FCC rules, there are at least six PCS licenses in each geographic area, which
may be held by a minimum of three separate licensees, in addition to two
cellular licensees. Also, specialized mobile radio ("SMR") dispatch system
operators have constructed digital mobile communications systems on existing SMR
frequencies, referred to as ESMR, in many cities throughout the United States,
including some of the markets in which we operate.
We operate in highly competitive markets. Our principal competitors are the
national PCS providers in our markets, many of which have been operational for a
number of years. These competitors often provide greater coverage within
individual markets due to earlier entry into those markets and larger subscriber
bases. Most of these competitors provide services in a greater number of markets
that enable them to offer no or low cost roaming and toll calls. Many of our
competitors have significantly greater financial and technical resources than
those available to us and provide comparable services in competition with our
PCS services. These competitors include Verizon Wireless Inc., AT&T Wireless
Services, Inc. ("AT&T Wireless"), Cingular Wireless LLC, Nextel Communications,
Inc., Sprint Corp. (PCS Group) ("Sprint PCS") and Qwest Wireless LLC ("Qwest
Wireless"). We also compete with paging, dispatch and cellular companies,
resellers and landline telephone service providers.
Potential users of wireless systems may find their communications needs
satisfied by other current and developing technologies. One or two-way paging or
beeper 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. Wireless service also competes more directly with traditional
landline telephone service providers.
GSM systems have not been deployed in all areas of the United States. As a
result, our customers may not be able to use PCS service conveniently while
roaming in areas outside our markets. Further, our principal PCS competitors use
standards other than GSM. For example, Qwest Wireless and Sprint PCS use the
CDMA standard. AT&T Wireless currently uses the TDMA standard; however it has
recently announced that it will convert its systems to GSM. Systems using the
CDMA and TDMA standards cover more areas of the United States than do GSM
systems. Therefore, our competitors deploying such systems currently have a
competitive advantage in this regard.
The FCC generally requires all cellular and PCS licensees to provide
service to resellers. A reseller provides wireless service to customers but does
not hold FCC licenses or own facilities. 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 our
systems. With respect to PCS licensees, the resale obligations terminate on
November 24, 2002.
We face increased competition from entities providing similar services
using other communications technologies. While some of these technologies and
services are currently operational, others are being developed or may be
developed in the future.
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Licenses have been auctioned in different services and on different
frequencies that may provide additional competition to VoiceStream's PCS
services. In April 1997, the FCC auctioned 30 MHz of spectrum in 2305 to 2350
MHz spectrum band for Wireless Communications Services ("WCS"), which can
provide fixed or mobile telecommunications service. VoiceStream holds nine WCS
licenses acquired in this auction, which are in addition to the PCS licenses
listed in the tables above. In late 1997, the FCC also auctioned 10 MHz of
spectrum for SMR service, another potential competitor with PCS and cellular
service. Moreover, in 1998, the FCC auctioned more than 1000 MHz of spectrum for
local multipoint distribution service. VoiceStream acquired 16 licenses as a
result of such auction. During 1998, the FCC auctioned 25 MHz of spectrum for
the General Wireless Communications Service, plus additional spectrum in the 220
MHz band. In 2000, the FCC auctioned spectrum in the 38.6 - 40.0 GHz band for
point-to-point and point-to-multipoint communications (the use of this spectrum
for mobile communications is contingent upon the development by the FCC of
inter-licensee and inter-service interference criteria). The FCC conducted two
auctions in 2000 awarding more than 3,800 licenses for spectrum in the 800 MHz
band for SMR service. In 2000 and early 2001, the FCC auctioned 104 licenses in
the 700 MHz guard band, in which licensees may lease spectrum to third parties
on a for-profit basis for fixed or mobile communications. We cannot foresee how
technological progress or economic incentives will affect competition from these
new services. In all instances, the FCC reserves the right to amend or repeal
its service regulations and auction schedule.
Further competition may come from spectrum in the 746 - 764 and 776 - 794
MHz bands, which became available as a result of the FCC's decision to reclaim
for other use the spectrum previously allocated for television broadcast UHF
channels 60 - 69. The upcoming auction of these licenses (designated as Auction
#31 by the FCC) is scheduled to begin September 12, 2001.
GOVERNMENTAL REGULATION
The FCC regulates the licensing, construction, operation, acquisition and
sale of PCS systems in the United States pursuant to the Communications Act of
1934 (the "Communications Act") and the Telecommunications Act of 1996 (the
"Telecommunications Act") (collectively the "Acts"), each as amended from time
to time, and the rules, regulations and policies promulgated by the FCC
thereunder.
Licensing of PCS Systems
In order to increase competition in wireless communications, promote
improved quality and service and make available the widest possible range of
wireless services, federal legislation was enacted directing the FCC to allocate
radio frequency spectrum for PCS by competitive bidding. A PCS system operates
under a protected geographic service area license granted by the FCC for a
particular market on one of six frequency blocks allocated for broadband PCS
service. The FCC has divided the United States and its possessions and
territories into PCS markets made up of 493 BTAs and 51 MTAs. Each MTA consists
of at least two BTAs. At least six licenses are issued in each PCS service area.
The FCC initially has allocated 120 MHz of radio spectrum in the 2 GHz band for
licensed PCS service. The FCC divided the 120 MHz of spectrum into six
individual blocks, each of which is allocated to serve either MTAs or BTAs. The
initial spectrum allocation included two 30 MHz blocks (A and B Blocks) licensed
for each of the 51 MTAs, one 30 MHz block (C Block) licensed for each of the 493
BTAs, and three 10 MHz blocks (D, E and F Blocks) licensed for each of the 493
BTAs. Of these licenses, any qualified applicant was eligible to acquire a
license in Blocks A, B, D or E, while Block C and F licenses were reserved for
applicants, known as "Designated Entities," with gross revenues of less than
$125 million in each of the last two years and total assets of less than $500
million as of the time of the application for the license. Subsequently, the
Commission split the 30 MHz C Block licenses in some BTAs into two separate 15
MHz licenses, each still reserved for Designated Entities. More recently, the
Commission reconfigured each 30 MHz C Block license auctioned in the recently
concluded Auction No. 35 (and any C Block licenses to be auctioned in the
future) into three separate 10 MHz C Block licenses. The Commission also removed
the eligibility restriction, and therefore opened to all qualified applicants
(whether Designated Entity or not), the following licenses auctioned in Auction
No. 35 or subsequent auctions: all F Block licenses; two of the three 10 MHz C
Block licenses in "Tier 1" markets (i.e., BTAs with populations equal to or
greater than 2.5 million); and one of the three 10 MHz licenses in "Tier 2"
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markets (i.e., BTAs with populations of less than 2.5 million). Accordingly,
these licenses are referred to as "open." All other C and F Block licenses
remained "closed" (i.e., set aside for Designated Entities). Licensees may
further divide, or "disaggregate," licenses in any spectrum block spectrally
into two or more separate licenses serving the same geographic territory, each
on a portion of the initial bandwidth, thereby creating additional licenses.
Licensees may also divide, or "partition," licenses along geographic lines, into
two or more separate licenses serving a portion of the initial geographic
territory, on the entire initial bandwidth, thereby also creating additional
licenses. Partitioning can be combined with disaggregation. There is no limit on
the number of disaggregations and/or partitions that may be made to a particular
license. A PCS license has been or will be awarded for each MTA or BTA in every
block, for a total of more than 2,000 licenses, which number will increase based
on the further division of licenses by the Commission and licensees themselves
as described above.
Under the FCC's current rules specifying spectrum ownership limits
affecting broadband PCS licensees, no person or entity may hold an attributable
interest in licenses for more than 45 MHz of PCS, cellular and SMR services
regulated as Commercial Mobile Radio Services ("CMRS") where there is
significant overlap in any geographic area (significant overlap will occur when
at least 10% of the population of the PCS licensed service area is within the
Cellular Geographic Service Area ("CGSA") and/or SMR service area, as defined by
the FCC); however, the aggregation limit for licensees serving rural areas
(defined as Cellular RSAs) is 55 MHz. For purposes of this spectrum limit, any
controlling ownership interest shall be "attributable," as will any equity
interest of 20% or more (however, 40% or more applies (1) if the ownership
interest is held by a small business, (2) if the interest is held by an entity
with a non-controlling interest in a PCS licensee that is a small business or
(3) if the interest is held by a passive institutional investor). Furthermore,
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 Western Wireless's ownership of cellular licenses will be attributed to us
because of some common officers and directors. Both CIVS IV and CIVS V's PCS
licenses, as well as the licenses of other joint ventures in which VoiceStream
holds the requisite minority interests, will be attributed to us because of our
equity interest. Currently, VoiceStream and its affiliates, for purposes of the
spectrum cap rules, do not own any cellular, PCS or SMR spectrum that requires
divestiture to come into compliance with the spectrum cap. The FCC has recently
issued a Notice of Proposed Rulemaking seeking comment on whether the CMRS
spectrum cap and related cellular cross-interest rule should be eliminated,
modified or retained. In the event that the spectrum cap restrictions are not
eliminated, then VoiceStream and/or its affiliates may be obligated to divest
sufficient portions of some markets to come into compliance with the rules based
on future market acquisitions.
All PCS licenses are granted for a ten-year term, at the end of which they
must be renewed. The FCC has adopted specific standards to apply to PCS
renewals, under which the FCC will award a renewal expectancy to a PCS licensee
that (1) has provided substantial service during its past license term and (2)
has substantially complied with applicable FCC rules and policies and the Acts.
All 30 MHz PCS licensees, including VoiceStream, must construct facilities with
a signal level sufficient to provide adequate service to at least one-third of
the population of their service area within five years of their initial license
grants and to two-thirds of the population within ten years. All 10 MHz and 15
MHz PCS licensees, including VoiceStream, must construct facilities with a
signal level sufficient to provide adequate service to at least one-quarter of
the population in their licensed service area within five years of their initial
license grants, or make a showing of substantial service in their licensed
service area within five years of their initial license grants. Parties to a
license disaggregation or partition must apportion between themselves
responsibilities for meeting any outstanding construction benchmarks pertaining
to the affected license. Licensees that fail to meet the coverage requirements
may be subject to forfeiture of the license.
PCS systems are subject to certain Federal Aviation Administration
regulations with respect to the location, lighting and construction of
transmitter towers and antennae and 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 will also apply to our
activities. We will use, among other facilities, common carrier point to point
microwave facilities to connect cell sites and to link them to the main
switching office. These
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facilities are separately licensed by the FCC and are subject to regulation as
to technical parameters and service.
We have purchased our PCS licenses from private parties and the federal
government. We used a combination of debt and equity financing to acquire such
licenses. Some joint ventures in which we hold an interest have utilized
financing from the federal government to the extent available.
Transfers and Assignments of PCS Licenses
The Acts and FCC rules require the FCC's prior approval of the assignment
or transfer of control of a license for a PCS system. In addition, the FCC has
established transfer disclosure requirements that require licensees who transfer
control of or assign a PCS license within three years of receiving a new license
through a competitive bidding procedure to file associated contracts for sale,
option agreements, management agreements or other documents disclosing the total
consideration that the licensee would receive in return for the transfer or
assignment of its license. Non-controlling interests in an entity that holds a
PCS license or PCS system generally may be bought or sold without FCC approval.
Any acquisition or sale by us of PCS interests may also require the prior
approval of the Federal Trade Commission and the Department of Justice, if over
a certain size, as well as state or local regulatory authorities having
competent jurisdiction.
FCC rules restrict the voluntary assignments or transfers of control of
closed C and F Block licenses. During the first five years of the license term,
assignments or transfers affecting control are permitted only to assignees or
transferees that meet the entrepreneur eligibility criteria for holding a closed
C and F Block license at the time the application for assignment or transfer of
control is filed, or if the proposed assignee or transferee holds other licenses
for C and F Blocks and, at the time of receipt of such licenses, met the
applicable eligibility criteria. The entrepreneur eligibility restrictions do
not apply to the assignment or transfer of control of licenses won in open
bidding. Furthermore, upon satisfaction of the first construction benchmark for
a C or F Block license won in closed bidding, the licensee may assign or
transfer control of the license to a non-designated entity. Any transfers or
assignments during the entire ten year initial license term are subject to an
unjust enrichment penalty of acceleration of any installment payment plans
should the assignee or transferee not qualify for the same benefits. Any
transfers or assignments during the first five years of the initial license term
are subject to an unjust enrichment penalty of forfeiture of all or a portion of
bidding credits, with the certain limited exceptions. In the case of the C and F
Blocks, the FCC has authority to conduct random audits to ensure that licensees
are in compliance with the FCC's eligibility rules. Violations of the Acts or
the FCC's rules could result in license revocations, forfeitures or fines.
For a period of up to 10 years after the grant of a PCS license, subject to
extension, a PCS licensee will share spectrum with existing licensees that
operate certain fixed microwave systems within its license area. To secure a
sufficient amount of unencumbered spectrum to operate our PCS systems
efficiently and with adequate population coverage, we will need to relocate many
of these incumbent licensees. In an effort to balance the competing interests of
existing microwave users and newly authorized PCS licensees, the FCC adopted a
transition plan to relocate such microwave operators to other spectrum blocks
and a cost sharing plan so that if the relocation of an incumbent benefits more
than one PCS licensee, the benefiting PCS licensees will share the cost of the
relocation. Initially, this transition plan allowed most microwave users to
operate in the PCS spectrum for a two-year voluntary negotiation period and an
additional one-year mandatory negotiation period. The FCC has shortened the
voluntary negotiation period by one year without lengthening the mandatory
negotiation period for PCS licensees in the C, D, E and F Blocks. For public
safety entities dedicating a majority of their system communications for police,
fire or emergency medical services operations, the voluntary negotiation period
is three years, with an additional two year mandatory negotiation period.
Parties unable to reach agreement within these time periods may refer the matter
to the FCC for resolution, but the incumbent microwave user is permitted to
continue its operations until final FCC resolution of the matter. The transition
and cost sharing plans expire on April 4, 2005, at which time remaining
incumbents in the PCS spectrum band will be responsible for their costs to
relocate to alternate spectrum.
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Foreign Ownership
Under the Communications Act, no more than 25% of a FCC licensee's capital
stock may be indirectly owned or voted by non-United States citizens or their
representatives, by a foreign government, or by a foreign corporation, absent a
FCC finding that a higher level of foreign ownership is not inconsistent with
the public interest. In November 1997, the FCC adopted new rules, effective in
February 1998, to implement the World Trade Basic Telecom Organization
Agreement. Formerly, potential licensees had to demonstrate that their markets
offered effective competitive opportunities in order to obtain authorization to
exceed the 25% indirect foreign ownership threshold. Under the new rules, this
showing is only required for entities from countries that are not World Trade
Organization members. Applicants from World Trade Organization Agreement
signatories are presumed to offer competitive opportunities. However, the FCC
reserves the right to attach additional conditions to a grant of authority, and,
in the exceptional case in which an application poses a very high risk to
competition, to deny an application. The limitation on direct foreign ownership
in an FCC licensee remains fixed at 20%, with no opportunity to increase the
percentage, and is unaffected by the FCC's new rules.
The FCC granted VoiceStream in 2000, as a result of the
VoiceStream/Omnipoint and VoiceStream/ Aerial mergers, authorization to have up
to 55.6% total indirect foreign ownership. Indirect foreign ownership of FCC
licenses that VoiceStream controls is currently less than 55.6%. In
contemplation of VoiceStream's acquisition by Deutsche Telekom, VoiceStream and
Deutsche Telekom have requested that the FCC increase the level of permitted
indirect foreign ownership in VoiceStream to 100%.
Recent Industry Developments
The FCC has established 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, including those from callers with speech or hearing
disabilities, without regard to validation procedures intended to identify and
intercept calls from non-subscribers. Although all wireless carriers must be
capable of transmitting 911 calls from individuals with speech or hearing
disabilities, carriers utilizing digital systems have been unable technically to
transmit calls from text type ("TTY") devices. In light of recent technological
advances related to TTY/digital compatibility, digital wireless service
providers must be capable of transmitting 911 TTY calls by June 30, 2002. Under
Phase I of the FCC's E911 rules, if a Public Service Answering Point ("PSAP")
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 location. The FCC's rules require
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. This rule applies only to new analog cellular handsets and
not to existing handsets or to PCS or SMR services. Under Phase II of the FCC's
E911 rules, CMRS carriers are allowed to choose a handset-based or network-based
approach for identifying the location of an E911 caller. Two approaches are
permitted. If a handset-based approach is selected, the PSAP must be able to
identify the location of a 911 caller within 50 meters in 67% of all cases and
within 150 meters for 95% of all calls. The carrier must begin selling and
activating handsets with automatic location identification ("ALI") capability by
October 1, 2001. By December 31, 2001, 25% of the CMRS carrier's new handset
activations must be ALI-compatible. If the carrier selects a network-based
approach, the PSAP must be able to identify the location of a 911 caller within
100 meters in 67% of all cases and within 300 meters for 95% of all calls. The
carrier must provide ALI service to 50% of callers within six months of a
request by a public safety answering point. State actions incompatible with the
FCC rules are subject to preemption. In September 2000, the FCC granted
VoiceStream a limited waiver of the accuracy standards described above.
VoiceStream, by this waiver, is permitted to deploy a "hybrid" location
solution, subject to the following conditions:
- By October 1, 2001, VoiceStream must ensure that 50 percent of all new
handsets activated are ALI-capable, and that ALI-capable handsets comply
with an accuracy requirement of 100 meters for 67 percent of calls, 300
meters for 95 percent of calls.
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- By March 31, 2002, VoiceStream must ensure that 100 percent of all new
handsets activated are ALI-capable.
- VoiceStream must ensure that all new ALI-capable handsets activated on or
after October 1, 2003 comply with an accuracy requirement of 50 meters
for 67 percent of calls, 150 meters for 95 percent of calls.
- By December 31, 2001, VoiceStream must implement a Network Safety
Solution ("NSS") for calls from handsets that are not ALI-capable that
provides location accuracy of 1000 meters for 67 percent of calls.
- VoiceStream must report the result of all trials and tests, as well as
actual operational deployment, of its ALI technology semi-annually
beginning October 1, 2000, and continuing through October 1, 2003.
Under these conditions, we will have to comply with the network-based
accuracy standard initially, and then with the more stringent handset standard
within two years. In return, VoiceStream will deploy ALI-capable handsets faster
than the timetables set forth by the FCC. Also by the end of 2001, we will be
able to provide baseline location information for all callers on its network,
regardless of whether they have an upgraded handset, that is substantially more
accurate than Phase I information.
FCC rules provide that a local exchange carrier ("LEC") must provide CMRS
carriers interconnection within a reasonable time after it is requested, unless
such interconnection is not technically feasible or economically reasonable.
Moreover, the carriers must comply with principles of mutual compensation. LECs
and CMRS providers must pay "reasonable compensation" to the other carrier for
any terminating traffic that originates on their facilities. In 1996, the FCC
released a lengthy and complex order implementing the interconnection provisions
of the Telecommunications Act. The FCC's decision was subject to petitions for
reconsideration and judicial review, as described below, and its precise impact
continues to be difficult to predict with certainty. However, the FCC's order
concludes that CMRS providers are entitled to reciprocal compensation
arrangements with LECs, in which CMRS providers are entitled to collect the same
charges for terminating wireline-to-wireless traffic on their systems that the
LECs charge for terminating wireless-to-wireline calls, 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;
- 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 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
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and directory assistance services are no longer required). Upon remand, the
Eighth Circuit held that the Telecommunications Act foreclosed the cost
methodology adopted by the FCC, which was based on the efficient replacement
cost of existing technology. In January 2001, the United States Supreme Court
granted certiorari to consider the Eighth Circuit's decision. Resolution of this
issue is still pending.
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 2001, the FCC's universal service proposed contribution
factor amounts to 6.7 % of interstate and international telecommunications
revenues for high cost, low income, schools, libraries and rural health care
support mechanisms. Many states also are developing state universal service fund
programs. A number of these states require contributions, which vary greatly
from state to state, from CMRS carriers.
The FCC has adopted rules on telephone number portability in an effort to
achieve more efficient number utilization, 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. The FCC established November 24, 2002
as the deadline for CMRS carriers to implement service provider number
portability.
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 PCS, cellular and wireline carriers 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 service providers) providing indiscriminate
telecommunications service to the public. Representatives of the PCS and
cellular industries challenged the portion of the surveillance rules that
require carriers to make the location of antenna towers used in wireless
telephone calls, signaling information from custom calling features (such as
call forwarding and call waiting), telephone numbers dialed after calls are
connected, and data pertaining to digital "packet-mode" communications available
to law enforcement agencies. In August 2000, the United States Court of Appeals
for the District of Columbia vacated and remanded the provision regarding the
customer features and dialed digits because the FCC failed to explain cogently
why the regulation should be allowed. The court upheld the FCC's decision
regarding the location of antennas as reasonable. On February 22, 2001, the FCC
extended the deadline by which VoiceStream and its affiliates must comply with
the CALEA requirements until March 31, 2001. On March 15, 2001, the FCC further
extended this deadline until September 30, 2001.
The FCC has initiated a rulemaking proceeding to consider whether
"automatic" roaming rules should be adopted for CMRS carriers, and whether the
FCC should sunset the current "manual" roaming requirement. Manual roaming, the
most rudimentary form of roaming, requires that the subscriber take some
additional action to establish a contractual relationship with a host carrier to
carry a call that is placed outside the subscriber's home area. Many wireless
carriers have already entered into voluntary automatic roaming agreements with
other carriers so that a call made outside a subscriber's home area is not
dropped. The FCC has not yet issued a decision in this proceeding.
Media reports have suggested that some radio frequency emissions from
wireless handsets may raise various health concerns, including cancer, and may
interfere with various electronic medical devices, including hearing aids and
pacemakers, and at least one class action lawsuit has been filed in the United
States against wireless service providers and handset manufacturers relating to
these issues. Concerns over radio frequency emissions may discourage the use of
wireless handsets, which would adversely affect VoiceStream's business. Some
governments may propose legislation mandating health warnings pending the
outcome of research concerning the health and safety risks of wireless handsets.
Negative findings of studies concerning health and safety risks of wireless
handsets could have an adverse effect on the wireless industry, VoiceStream's
business, or the use of GSM wireless technology and could lead to governmental
regulations that may have an adverse effect on VoiceStream's business. In
addition, several states in the United States have proposed or enacted
legislation that would limit or prohibit the use and/or
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possession of a mobile telephone while driving an automobile. If such
legislation is adopted and strictly enforced, it may have an adverse effect on
VoiceStream's business.
The rapid growth and penetration of wireless services has prompted the
interest of state legislatures and state public utility commissions, generally
in the form of efforts to regulate customer billing, termination of service
arrangements, advertising, filing of "informational" tariffs, certification of
operation, and others areas. While the Acts generally preempt state and local
governments from regulating the entry of, or the rates charged by, wireless
carriers, a state has authority to petition the FCC to allow it to regulate the
rates of CMRS providers. No state has petitioned the FCC, but such action by the
states in the future cannot be precluded. Several states also have proposed or
imposed consumer protection regulations on wireless carriers. At the local
level, wireless facilities typically are subject to zoning and land use
regulation, and may be subject to fees for use of public rights of way. Although
local and state governments cannot categorically prohibit the construction of
wireless facilities in any community, or take actions which have the effect of
prohibiting construction, securing state and local government approvals for new
tower sites may become a more difficult and lengthy process. The FCC does not
presently specify the rates CMRS carriers may charge for their services, nor
does it require the filing of tariffs for U.S. wireless operations. However, the
FCC has the authority to regulate the rates, terms and conditions under which
the Company provides service because CMRS carriers are statutorily considered to
be common carriers and thus are required to charge just and reasonable rates and
are not allowed to engage in unreasonable discrimination.
In August 2000, the FCC addressed the extent to which the Acts limit
plaintiffs in class action lawsuits against CMRS carriers to recover damages and
obtain other remedies based upon alleged violations of state consumer protection
statutes and common law. The FCC determined that the Acts did not preempt state
rate regulation as a matter of law, but that whether a specific damage award is
prohibited would depend upon the facts of a particular case. This ruling may
affect the number of class action suits brought against CMRS providers and the
amount of damages awarded by courts.
Finally, FCC Auction No. 35, in which VoiceStream and a subsidiary of CIVS
V participated, includes many licenses that are the subject of pending
litigation by the original licensee, NextWave Communications, Inc. ("Next
Wave"). The United States Supreme Court denied NextWave's petition for writ of
certiorari to the United States Court of Appeals for the Second Circuit, which
held that a bankruptcy court could not stop the FCC from canceling and
re-auctioning ninety of NextWave's licenses. However, NextWave has appealed to
the United States Court of Appeals for the District of Columbia Circuit the
FCC's cancellation of NextWave's licenses and reclamation of the spectrum. Oral
arguments were held on March 15, 2001. There is no assurance that NextWave will
not prevail in its lawsuit, and that the FCC will not be obligated to return the
licenses to NextWave, including the licenses awarded during the auction to
VoiceStream or the subsidiary of CIVS V.
EMPLOYEES AND LABOR RELATIONS
We consider our labor relations to be good and none of our employees are
covered by a collective bargaining agreement.
As of February 17, 2001, we employed a total of approximately 12,565 people
in the following areas:
NUMBER OF
CATEGORY EMPLOYEES
-------- ---------
Sales and marketing......................................... 341
Engineering................................................. 1,761
General and administration.................................. 4,698
Customer service............................................ 5,765
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ITEM 2. PROPERTIES
We operate 332 retail stores, all of which are leased.
We operate 9,303 microwave cell and switching equipment sites. The majority
of our sites are leased for an initial five-year period, with options for
renewal for up to five additional five-year periods.
Our corporate headquarters consist of leased office space in three
buildings in Bellevue, Washington occupying 408,000 combined square feet. The
leases expire between May 2005 and October 2012.
We maintain nine customer service centers occupying 425,000 combined square
feet in leased premises located in the following cities:
Albuquerque, NM Bethlehem, PA
Bellingham, WA Fort Lauderdale, FL
Salem, OR Kansas City, MO
Wichita, KS Tampa, FL
Colorado Springs, CO
We lease and own five locations for inventory storage and distribution, and
52 sales and administrative offices.
ITEM 3. LEGAL PROCEEDINGS
Except as referenced in the next sentence there are no material, pending
legal proceedings to which we or any of our 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 their financial position, results of
operations or cash flows. For discussion of certain legal proceedings relating
to FCC license grants, see "Item 1. Business -- Government Regulation."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Our annual meeting of shareholders was held on October 25, 2000.
(b) The following directors were elected at the meeting:
John W. Stanton Richard L. Fields
Mitchell R. Cohen Canning Fok
Daniel J. Evans James N. Perry, Jr.
Jonathan M. Nelson James J. Ross
Terence M. O'Toole Frank J. Sixt
Robert R. Stapleton Kaj-Erik Relander
Douglas G. Smith Hans Snook
Donald Guthrie Susan M.F. Woo Chow
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(c) The following matters were voted on at the meeting:
To elect directors
PERCENT PERCENT
FOR OF VOTED WITHHELD OF VOTED
----------- ---------- --------- ----------
John W. Stanton 208,103,517 99.73 563,183 .27
Daniel J. Evans 208,133,531 99.74 533,169 .26
Terence M. O'Toole 207,446,311 99.42 1,222,389 .58
Douglas G. Smith 208,043,471 99.70 623,229 .30
Richard L. Fields 208,102,100 99.73 564,600 .27
James N. Perry, Jr. 208,108,861 99.73 557,839 .27
Susan M.F. Woo Chow 208,111,288 99.73 555,412 .27
Kaj-Erik Relander 208,112,720 99.73 553,980 .27
Mitchell R. Cohen 208,135,125 99.75 531,575 .25
Jonathan M. Nelson 207,952,141 99.66 714,559 .34
Robert R. Stapleton 208,099,821 99.73 566,879 .27
Donald Guthrie 208,111,785 99.73 554,915 .27
Canning K. N. Fok 207,681,871 99.53 984,829 .47
James J. Ross 208,100,511 99.73 566,189 .27
Frank J. Sixt 208,111,132 99.73 555,568 .27
Hans Snook 207,623,997 99.50 1,042,703 .50
To ratify the selection of the auditors
PERCENTAGE
VOTE OF VOTED
----------- -------------
For 208,401,374 99.87
Against 240,331 .12
Abstain 24,995 .01
To increase the number of shares authorized under the Executive Restricted
Stock Plan from 200,000 to 500,000.
PERCENTAGE
VOTE OF VOTED
----------- -------------
For 196,421,237 94.13
Against 11,822,413 5.67
Abstain 423,050 .20
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PART II
ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common shares have been traded on the Nasdaq Stock Market under the
symbol VSTR since May 3, 1999. The following table sets forth, for the calendar
quarters indicated, the high and low sales prices for our common shares as
reported on the Nasdaq Stock Market.
HIGH LOW
---- ----
1999
Second quarter (Beginning May 3, 1999)...................... $ 34 1/4 $ 16 3/8
Third quarter............................................... $ 72 $ 28 1/8
Fourth quarter.............................................. $142 5/16 $ 57 3/4
2000
First quarter............................................... $159 5/16 $ 97 1/2
Second quarter.............................................. $143 3/8 $ 77 5/8
Third quarter............................................... $161 $100 15/16
Fourth quarter.............................................. $131 1/2 $100 5/8
2001
First quarter through March 16, 2001........................ $134 7/8 $ 83
We have never paid cash dividends on our common shares. We have declared a
stock dividend of .75 common shares per 100 common shares outstanding payable on
April 6, 2001 to holders of record on March 23, 2001. Aside from this dividend,
we do not anticipate declaring or paying dividends in the foreseeable future.
Provisions of our credit facility and the indentures for our senior notes and
senior discount notes (as described in "Management's Discussion and Analysis of
Results of Operations and Financial Condition -- Liquidity and Capital
Resources") contain restrictions on our ability to declare and pay dividends on
our common shares.
As of January 24, 2001, there were approximately 57,000 beneficial holders
of our common shares.
In connection with the completion of the Omnipoint merger on February 25,
2000, Hutchison made an investment of $957 million in VoiceStream for common and
convertible preferred securities at a purchase price of $29 per common share. A
portion of this investment was made upon the signing of the merger agreement on
June 23, 1999 when Hutchison invested $102.5 million in Omnipoint preferred
stock. An additional $47.5 million was invested in Omnipoint preferred stock in
October 1999. Upon closing of the merger, the Omnipoint preferred stock was
exchanged for VoiceStream common shares at a purchase price of $29 per common
share and Hutchison invested $196.4 million in exchange for VoiceStream common
shares and $610.6 million in exchange for VoiceStream 2.5% convertible preferred
shares. The convertible preferred stock was converted into VoiceStream common
shares during 2000 at a conversion price of $29 per share. See "Certain
Relationships and Related Transactions." Sonera Corporation ("Sonera") made an
investment of $500 million in VoiceStream at the time the Omnipoint merger was
completed. Sonera purchased 8,771,930 common shares at a price of $57 per share.
On September 6, 2000, we issued and sold 3,906,250 shares of a new class of
voting preferred stock to Deutsche Telekom for $5 billion. The voting preferred
stock is not convertible unless our merger agreement with Deutsche Telekom is
terminated. If it is terminated, the voting preferred stock becomes convertible
into common shares at a price of $160 per share.
On December 14, 2000, we exchanged 7,759,804 VoiceStream common shares with
CIRI for the interests of its affiliates in Cook Inlet PCS, CIVS, CIVS II and
CIVS III and 153,063 VoiceStream common shares with SSPCS Corporation ("SSPCS")
for the interests of SSPCS in Cook Inlet PCS. As a result of the exchanges, we
obtained control of 144 C and F block PCS licenses covering over 100 million
people, including licenses in Dallas, Chicago, Philadelphia, Seattle, Phoenix,
Washington D.C., Miami, Los Angeles, Cincinnati, Detroit, St. Louis, Tulsa,
Spokane, and others.
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The sales to Sonera, Hutchison and Deutsche Telekom and the issuances to
CIRI and SSPCS described above were made pursuant to the exemption from
registration afforded by Section 4(2) under the Securities Act of 1933, as
amended.
In connection with the Omnipoint merger, Hutchison and certain of its
affiliates agreed that, for a period of five years after the completion of the
Omnipoint merger, the beneficial ownership of our common stock by Hutchison and
their affiliates will not exceed:
- 33% during the first two years after February 25, 2000;
- 36% during the third year after February 25, 2000; and
- 40% during the fourth and fifth years after February 25, 2000.
Among other things, this agreement also:
- prohibits Hutchison and its affiliates from, in certain circumstances,
participating in a proxy contest, tender offer, exchange offer or other
transaction relating to a change of control of VoiceStream;
- provides Hutchison a preemptive right with respect to our future private
equity issuances; and
- entitles Hutchison to registration rights.
In connection with the Aerial merger agreement, Telephone and Data Systems,
Inc. ("TDS") entered into an investment agreement with us. With certain
exceptions, this agreement provides that, until September 17, 2004, the
beneficial ownership of our common shares held by TDS and its affiliates may not
exceed 24.9% of our outstanding common shares. Among other things, this
agreement also prohibits TDS and its affiliates from, in certain circumstances,
participating in a proxy contest, tender offer, exchange offer or other
transaction relating to a change of control of VoiceStream.
Each of TDS, Hutchison Whampoa Ltd., which is the parent of Hutchison,
Sonera, John W. Stanton, The Goldman Sachs Group, Inc. (the "GS Group"), Richard
Fields and Allen & Company Incorporated, Douglas G. Smith and Avance Capital and
Madison Dearborn Capital Partners, LP agreed, at the time the Deutsche Telekom
merger agreement was executed, not to sell any of our common shares until the
meeting of our stockholders to vote on the merger. That meeting occurred on
March 13, 2001, at which time our stockholders approved the merger. From and
after that time and until the merger is completed, each of the above-named
stockholders is permitted to sell 17.5% of the common shares owned by that
stockholder. After the merger is completed, the stockholders may not sell any of
the Deutsche Telekom stock they receive for three months, after which time they
may sell up to 40% the Deutsche Telekom common stock they received (or would
have received but for sales of our common shares) in exchange for our common
shares held on the date the merger agreement was signed. Beginning six months
after the merger is completed, all restrictions on the sale by the above-named
stockholders of Deutsche Telekom common stock received in the merger expire. TDS
is exempt from the above-described restrictions to the extent that it is
required to sell VoiceStream common shares in order to avoid being subject to
the Investment Company act of 1940. Other than Richard Fields and Allen &
Company, the above-named stockholders agreed not to exercise their rights to
cause VoiceStream to file a registration statement covering their resales of
VoiceStream common shares until the completion of the Deutsche
Telekom/VoiceStream merger or the termination of that merger agreement.
VoiceStream filed a registration statement to permit resales of its common
shares by Richard Fields and Allen & Company, which registration became
effective on February 9, 2001.
VoiceStream, John W. Stanton, the GS Group, Hutchison, Allen & Company
Incorporated, Madison Dearborn Capital Partners L.P., James N. Perry, Jr.,
Richard L. Fields, Douglas G. Smith, James J. Ross, Sonera and TDS, and other
entities and persons related to or affiliated with them, entered into an
agreement, dated as of February 25, 2000, as amended on May 4, 2000 (the "Voting
Agreement"), in which they agreed
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to vote their common shares for the election of a Board of Directors consisting
of 17 members, subject to adjustment, designated as set forth below.
(i) John W. Stanton, as long as he is the chief executive officer of
VoiceStream;
(ii) one member designated by Mr. Stanton, so long as he or entities
affiliated with him beneficially own at least 4,500,000 common shares
(currently Jonathan M. Nelson);
(iii) four members designated by Hutchison and its affiliated entities,
which number of designees shall be subject to increases or decreases
depending upon increases or reductions in their percentage ownership
of outstanding common shares, so that the percentage of Board
members that they are able to designate will always equal the
percentage of VoiceStream's common shares they own (if necessary,
the Board will be expanded to accommodate this right), provided
however that if they own less than 9,800,000 common shares they
shall be entitled to designate only one member and if they own less
than 4,500,000 common shares they shall be entitled to designate no
members (currently Canning K. N. Fok, Susan M. F. Woo Chow, Hans
Snook and Frank J. Sixt);
(iv) one member designated by GS Group and affiliated entities, so long as
they beneficially own at least 4,5000,000 common shares (currently,
Terence M. O'Toole);
(v) four members who were on the Omnipoint Board of Directors prior to
February 25, 2000 and who are selected by Omnipoint to serve from
February 25, 2000 until and including the expiration of the term of
office of the directors elected at the second annual meeting of
shareholders of VoiceStream taking place after February 25, 2000
(currently, Douglas G. Smith, Richard L. Fields, James N. Perry, Jr.
and James J. Ross);
(vi) one member designated by Sonera and its affiliated entities, so long
as they beneficially own at least 4,500,000 common shares, except
that if they own more than 9,800,000 common shares and TDS and its
affiliated entities own less than 4,500,000 common shares, they will
be entitled to designate two members to the Board of Directors of
VoiceStream (currently, Kaj-Erik Relander);
(vii) one member designated by TDS and its affiliated entities so long as
they own at least 4,500,000 common shares, except that if they own
more than 9,800,000 common shares and Sonera and its affiliated
entities own less than 4,500,000 common shares, they will be
entitled to designate two members to the Board of Director of
VoiceStream (nominee not designated); and
(viii) the remaining members of the Board of Directors to be selected by a
majority of the persons selected as described above (currently,
Mitchell R. Cohen, Daniel J. Evans, Robert R. Stapleton and Donald
Guthrie).
The Voting Agreement will remain in effect unless and until Deutsche
Telekom converts its VoiceStream preferred stock into common shares, in which
case the Voting Agreement will be amended and restated to provide for a Board of
Directors consisting of 19 persons (subject to adjustment) designated as set
forth in (i) through (vii) with the following additional designees:
(i) Two members designated by Deutsche Telekom and its affiliated entities
so long as they beneficially own at least 9,800,000 common shares;
provided, however, that if they beneficially own at least 4,500,000
common shares but less than 9,800,000 common shares, the number of
members that they will be entitled to designate will be one;
(ii) The then President of VoiceStream;
(iii) The then Vice-Chairman of VoiceStream; and
(iv) The remaining members of the Board of Directors as selected by a
majority of the directors designated by Mr. Stanton (including
himself), the GS Group and affiliated entities and the President and
Vice-Chairman of VoiceStream.
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In addition, Hutchison would be assured of two designees so long as it
holds at least 9,800,000 common shares regardless of the percentage of
outstanding shares that number represents.
In connection with entering into the Powertel/VoiceStream merger agreement,
the parties to the Voting Agreement agreed that if the VoiceStream/Powertel
merger occurs, the Voting Agreement will be amended as necessary to entitle the
Powertel Board of Directors to designate one member to the VoiceStream Board of
Directors at the first two annual meetings after the VoiceStream/Powertel
merger.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial and
operating data for VoiceStream as of and for each of the five years in the
period ended December 31, 2000. Financial data as of and for each of the five
years in the period ended December 31, 2000, were derived from our audited
consolidated financial statements and notes thereto. All the data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and notes
thereto.
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ----------- ----------- ----------- -----------
(dollars in thousands)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Subscriber revenues................................ $ 1,172,748 $ 364,307 $ 121,870 $ 52,360 $ 7,794
Prepaid revenues................................... 237,079 2,495 2,096 -- --
Roamer revenues.................................... 110,245 9,295 3,506 227 --
Equipment sales.................................... 283,168 78,025 40,490 25,143 9,745
Affiliate and other revenues....................... 119,457 21,407 640 -- --
------------ ----------- ----------- ----------- -----------
Total revenues................................... 1,922,697 475,529 168,602 77,730 17,539
------------ ----------- ----------- ----------- -----------
Operating expenses:
Cost of service.................................... 514,117 114,007 51,618 43,183 12,470
Cost of equipment sales............................ 513,955 136,584 77,071 53,469 20,789
General and administrative......................... 689,994 134,812 75,343 51,678 20,209
Sales and marketing................................ 796,272 211,399 85,447 59,466 31,505
Depreciation and amortization...................... 810,827 140,812 83,767 66,875 14,395
Stock based compensation........................... 51,029 60,690 -- -- --
------------ ----------- ----------- ----------- -----------
Total operating expenses......................... 3,376,194 798,304 373,246 274,671 99,368
------------ ----------- ----------- ----------- -----------
Operating loss....................................... (1,453,497) (322,775) (204,644) (196,941) (81,829)
Other income (expense):
Interest and financing expense, net................ (477,613) (103,461) (34,118) (57,558) (3,607)
Equity in net losses of unconsolidated
affiliates....................................... (233,565) (37,514) (19,414) (9,327) (954)
Interest income and other, net..................... 99,939 9,011 3,910 11 40
Accretion of preferred stock of consolidated
subsidiary....................................... (17,118) -- -- -- --
------------ ----------- ----------- ----------- -----------
Net loss......................................... $ (2,081,854) $ (454,739) $ (254,266) $ (263,815) $ (86,350)
============ =========== =========== =========== ===========
CONSOLIDATED BALANCE SHEET DATA:
Current assets....................................... $ 3,363,925 $ 410,576 $ 59,398 $ 49,945 $ 59,515
Property and equipment, net.......................... 3,467,550 931,792 619,280 420,638 318,473
Licensing costs and other intangible assets, net..... 12,902,922 450,261 312,040 315,653 227,997
Other assets......................................... 543,346 429,284 60,938 36,055 8,142
------------ ----------- ----------- ----------- -----------
Total assets..................................... $ 20,277,743 $ 2,221,913 $ 1,051,656 $ 822,291 $ 614,127
============ =========== =========== =========== ===========
Current liabilities.................................. $ 855,100 $ 203,085 $ 125,026 $ 126,184 $ 155,769
Long-term debt....................................... 5,719,886 2,011,451 540,000 300,000 143,000
Other................................................ 5,329,076 -- -- -- 173,705
Shareholders' equity................................. 8,373,681 7,377 386,630 396,107 141,653
------------ ----------- ----------- ----------- -----------
Total liabilities and shareholders' equity....... $ 20,277,743 $ 2,221,913 $ 1,051,656 $ 822,291 $ 614,127
============ =========== =========== =========== ===========
OTHER DATA:
Licensed population.................................. 239,172,000 64,825,000 62,593,000 62,808,000 19,488,000
Covered population(1)................................ 107,601,000 23,411,000 16,121,000 12,529,000 6,133,000
Subscribers/Users:
Subscribers........................................ 2,908,000 845,700 322,400 128,600 35,500
Prepaid users...................................... 971,000 -- -- -- --
Adjusted EBITDA(2)................................... $ (591,641) $ (121,273) $ (120,877) $ (130,066) $ (67,434)
CASH FLOWS PROVIDED BY (USED IN):
Operating activities................................. $ (1,214,426) $ (255,258) $ (117,637) $ (198,129) $ (81,272)
Investing activities................................. $ (4,073,661) $ (934,226) $ (248,927) $ (370,202) $ (342,587)
Financing activities................................. $ 6,207,550 $ 1,416,860 $ 374,284 $ 563,254 $ 429,250
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---------------
(1) Represents population that is covered by our consolidated systems.
(2) Adjusted EBITDA represents operating loss before depreciation and
amortization and non-cash stock-based compensation. Management believes
Adjusted EBITDA provides meaningful additional information on our operating
results and on our ability to service our long-term debt and other fixed
obligations and to fund our continuing growth. Adjusted 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
Adjusted EBITDA is considered to be an indicator of future profitability,
especially in a capital-intensive industry such as wireless
telecommunications. Adjusted EBITDA should not be construed as an
alternative to operating income (loss) as determined in accordance with
generally accepted accounting principles, referred to as GAAP, as an
alternate to cash flows from operating activities, as determined in
accordance with GAAP, or as a measure of liquidity. Because Adjusted EBITDA
is not calculated in the same manner by all companies, our presentation may
not be comparable to other similarly titled measures reported by other
companies.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion and analysis of the consolidated financial
condition and results of operations of VoiceStream and should be read in
conjunction with VoiceStream's consolidated financial statements and notes
thereto and other financial information included herein. Due to the stage of
development of our PCS operations and the significance of mergers and other
transactions, our operating results for prior periods may not be indicative of
future performance.
OVERVIEW
We provide PCS service in urban markets in the United States through the
ownership and operation of PCS licenses and through our minority interests in
joint ventures that own and operate similar licenses. We also hold a minority
investment in Microcell Communications, a Canadian GSM service provider. We have
grown through acquisitions, auctions of licenses sponsored by the FCC and
internal growth. In addition, we have raised substantial amounts of capital in a
series of transactions. The following chronology highlights the key events:
- We were formed in 1994 as Western PCS Corporation and were a wholly
owned subsidiary of Western Wireless. On February 17, 1998, we sold a
19.9% ownership interest to Hutchison. As the result of a spin-off
transaction effected May 3, 1999, we formally separated from Western
Wireless' other operations.
- On February 25, 2000, we merged with Omnipoint, a PCS service provider
in urban markets, including New York, NY, Detroit, MI, Boston, MA,
Philadelphia, PA, Miami, FL, and Indianapolis, IN. Our reported results
of operations for the twelve months ended December 31, 2000, include
Omnipoint's results for the period February 26, 2000 through December
31, 2000.
- On May 4, 2000, we merged with Aerial, a PCS service provider in urban
markets including Columbus, OH, Houston, TX, Kansas City, MO,
Minneapolis, MN, Pittsburgh, PA, and Tampa-St. Petersburg, FL. Our
results of operations for the twelve months ended December 31, 2000,
include Aerial's results for the period May 5, 2000 through December 31,
2000.
- On July 24, 2000, we announced a definitive merger agreement with
Deutsche Telekom. Pursuant to the Deutsche Telekom merger agreement,
which has been approved by the Boards of both companies and the
shareholders of VoiceStream, each VoiceStream shareholder may elect to
receive 3.2 Deutsche Telekom shares and $30 in cash for each VoiceStream
common share, subject to certain adjustments. VoiceStream shareholders
are able to elect either an all-share or all-cash option, subject to the
proration terms of the Deutsche Telekom merger agreement. In connection
with the merger, Deutsche Telekom will assume all of our outstanding
long-term debt, which at December 31, 2000 totaled $5.7 billion. The
merger is subject to regulatory approvals. The merger is expected to be
completed in the first half of 2001.
- On August 28, 2000, we announced a definitive merger agreement with
Powertel, a PCS service provider based in West Point, Georgia servicing
the southeastern United States. The merger with Powertel is contingent
upon the termination of VoiceStream's proposed merger with Deutsche
Telekom. Should the VoiceStream merger with Deutsche Telekom be
consummated, then we expect that Powertel will also merge with Deutsche
Telekom. Pursuant to the VoiceStream/Powertel merger agreement, holders
of Powertel common and preferred stock will receive VoiceStream common
shares at a conversion ratio, subject to adjustment, ranging from .65,
if the average closing price of VoiceStream common shares is $130.77 or
above, to .75 if the average closing price of VoiceStream common shares
is $113.33 or below. Between these two prices the conversion ratio will
be the quotient determined by dividing $85 by the average closing price
of VoiceStream common shares. The merger is subject to regulatory
approvals.
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- On September 5, 2000, in connection with the merger agreement, Deutsche
Telekom made an initial investment of $5.0 billion in VoiceStream
preferred shares. The preferred shares are convertible into VoiceStream
common shares at a price of $160 per common share.
- In December 2000 and February 2001, our partners in Cook Inlet PCS,
CIVS, CIVS II and CIVS III elected to exercise their respective exchange
rights, whereby they exchanged their interests in these entities for
VoiceStream common shares. We also made a cash payment of approximately
$51 million in exchange for an interest in Cook Inlet PCS held by an
affiliate of CIRI. The exchanges were made possible by legislation
passed in August 2000.
Operating markets
We did not commence operations in any of our markets until February 1996.
After that date, we launched service in the following markets in the years
indicated:
1996 1997 1998 1999
---- ---- ---- ----
Albuquerque Boise Phoenix/Tucson San Antonio/Austin
Des Moines Denver Seattle/Tacoma
Honolulu El Paso Washington DC/Baltimore
Oklahoma City
Portland
Salt Lake
City
The following operational markets, which were initially launched in the
years indicated, were acquired in the Omnipoint merger in February 2000:
1997 1998
---- ----
Albany Boston
Hartford Detroit
New Haven Indianapolis
New York Miami/Ft. Lauderdale
The following operational markets, which were initially launched in 1997,
were acquired in the Aerial merger in May 2000:
Columbus
Houston
Kansas City
Minneapolis
Pittsburgh
Tampa/St. Petersburg
The following operational markets, which were initially launched in the
years indicated, were acquired from the Cook Inlet Designated Entities in
December 2000:
1997 1999 2000
---- ---- ----
Atlantic City Spokane Dallas
Philadelphia/Dover
Tulsa
Due to the varying dates at which each of the markets became operational or
were acquired, the revenues and expenses recognized during any period may not be
comparable to another period and may not be representative of future operations.
Additionally, during each period being discussed, a portion of the operating
expenses were start-up costs incurred before the commencement of operations in
each of the markets. Exclusive of depreciation and amortization expense, which
was not material, approximately $6.9 million,
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$2.8 million, and $7.7 million of start-up costs were incurred for the years
ended December 31, 2000, 1999, and 1998, respectively.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
The following table sets forth certain financial data as it relates to our
operations:
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
2000 CHANGE 1999 CHANGE 1998
----------- ------- ----------- ------- -----------
(dollars in thousands)
Revenues:
Subscriber revenues........... $ 1,172,748 221.9% $ 364,307 198.9% $ 121,870
Prepaid revenues.............. 237,079 9,402.2% 2,495 19.0% 2,096
Roamer revenues............... 110,245 1,086.1% 9,295 165.1% 3,506
Equipment sales............... 283,168 262.9% 78,025 92.7% 40,490
Affiliate and other
revenues................... 119,457 458.0% 21,407 3,244.8% 640
----------- ----------- -----------
Total revenues............. 1,922,697 304.3% 475,529 182.0% 168,602
----------- ----------- -----------
Operating expenses:
Cost of service............... 514,117 351.0% 114,007 120.9% 51,618
Cost of equipment sales....... 513,955 276.3% 136,584 77.2% 77,071
General and administrative.... 689,994 411.8% 134,812 78.9% 75,343
Sales and marketing........... 796,272 276.7% 211,399 147.4% 85,447
Depreciation and
amortization............... 810,827 475.8% 140,812 68.1% 83,767
Stock-based compensation...... 51,029 (15.9)% 60,690 N.M.... --
----------- ----------- -----------
Total operating expenses... 3,376,194 322.9% 798,304 113.9% 373,246
----------- ----------- -----------
Operating Loss.................. (1,453,497) 350.3% (322,775) 57.7% (204,644)
Other income (expense).......... (628,357) 376.2% (131,964) 165.9% (49,622)
----------- ----------- -----------
Net loss........................ $(2,081,854) 357.8% $ (454,739) 78.8% $ (254,266)
=========== =========== ===========
Other Data:
Licensed population............. 239,172,000 269.0% 64,825,000 3.6% 62,593,000
Covered population.............. 107,601,000 359.6% 23,411,000 45.2% 16,121,000
Subscribers/Users:
Subscribers..................... 2,908,000 243.9% 845,700 162.3% 322,400
Prepaid Users................... 971,000 100.0% -- --
Adjusted EBITDA................. $ (591,641) 387.9% $ (121,273) 0.3% $ (120,877)
=========== =========== ===========
Cash flows provided by (used
in):
Operating activities.......... $(1,214,426) 375.8% $ (255,258) 117.0% $ (117,637)
=========== =========== ===========
Investing activities.......... $(4,073,661) 336.0% $ (934,226) 275.3% $ (248,927)
=========== =========== ===========
Financing activities.......... $ 6,207,550 338.1% $ 1,416,860 278.6% $ 374,284
=========== =========== ===========
REVENUES
The increase in service revenues (subscriber, prepaid and roamer revenues)
is due in part to the growth in the number of VoiceStream subscribers as we
continue to build-out our wireless network and launch our services and marketing
campaign into new markets and in part due to our acquired growth through the
Aerial and Omnipoint mergers. Included in the results for 2000 is $752.4 million
in service revenues generated by the acquired markets.
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We had 3,879,000 customers at December 31, 2000, representing an increase
of 3,033,300 or 358.7% from December 31, 1999. At December 31, 1999 we had
845,700 customers representing an increase of 523,300, or 162.3% from 1998. We
added 1,552,000 net customers in 2000 and acquired 1,481,000 customers. The
acquired customers in 2000 came from our mergers with Aerial and Omnipoint and
the acquisition of controlling interests in Cook Inlet PCS, CIVS, CIVS II and
CIVS III. The net customer additions are due in part to the launch of our "Get
More" marketing strategy, including our advertising campaign, featuring Jamie
Lee Curtis, in all of the former Aerial and Omnipoint markets. In addition, we
continued to experience significant growth in the markets owned by VoiceStream
at the start of the year. We believe our "Get More" marketing strategy that was
initiated in the second quarter of 1998 has contributed to the rapid customer
growth throughout all of our markets. We intend to continue the "Get More"
marketing strategy and expect a continued positive effect on customer growth.
Total service revenue per average customer ("ARPU") was $45.72 for 2000
compared to $55.39 for 1999 and $45.81 for 1998. The decline in ARPU during 2000
is largely due to an increase in the prepaid component of our customer base due
to the customers acquired in the Aerial and Omnipoint mergers. At December 31,
2000, we had 971,000 prepaid customers, representing 25% of our total customer
base. We did not have a material prepaid customer base in 1999 or 1998. During
the third and fourth quarters of 2000, we also experienced an ARPU decline in
the post-pay subscriber bases acquired in the Omnipoint and Aerial mergers. We
believe that the ARPU decline is similar to that experienced with the original
launch of the "Get More" campaign in 1998. In 1999, ARPU recovered due to an
increase in the average minutes of use per subscriber and existing subscribers
migrating to, and new subscribers adding on to, our higher priced rate plans. We
expect a similar recovery in post-pay ARPU in 2001 as subscribers adjust usage
patterns to the "Get More" rate plans.
Prepaid revenues were $237.1 million for 2000, $2.5 million for 1999 and
$2.1 million for 1998. The substantial increase in prepaid revenues is largely
attributable to the Omnipoint and Aerial mergers, which had more mature prepaid
programs than VoiceStream. In 2001, we expect that prepaid customers will
decrease as a percentage of our total customer base as our primary focus for
growth is post pay subscribers.
Roamer revenues increased to $110.2 million in 2000 from $9.3 million in
1999 and $3.5 million in 1998. Roaming revenue increases are primarily due to
the additions of the Omnipoint and Aerial markets which together contributed
$77.0 million of the increase in 2000. The remaining increase is a result of our
continuing effort to procure domestic and international roaming agreements with
other carriers.
Equipment revenues increased year over year in both 2000 and 1999 as a
result of increases in the number of handsets sold. This volume increase is
correlated to our continuing subscriber growth as described above. The addition
of the Omnipoint and Aerial markets contributed $153.0 million to equipment
sales during 2000. We anticipate continued equipment sales growth in 2001 in
conjunction with our increasing customer base and as next generation products
are introduced.
Other revenues consist primarily of revenue earned as part of the
reciprocal technical services agreements and reciprocal resale agreements with
Cook Inlet PCS, CIVS, CIVS II and CIVS III or their affiliates. These agreements
allowed VoiceStream and these Designated Entities to utilize air time on each
other's spectrum, and/or utilize wireless system infrastructure, in certain
agreed upon markets. The agreements were structured such that each acted as a
reseller for the other with related fees charged and paid between the parties.
With the addition of the Omnipoint and Aerial markets, the number of these
agreements and the level of activity increased in 2000. In 2001, we will
consolidate the results of Cook Inlet PCS, CIVS, CIVS II and CIVS III and these
revenues will be eliminated in our consolidated results.
OPERATING EXPENSES
Cost of service expenses represent expenses incurred in operational
markets. Cost of service as a percentage of service revenue increased to 31.4%
in 2000, from 28.7% in 1999 and 40.3% in 1998. The Omnipoint and Aerial mergers
contributed $227.4 million to the increase in cost of service during 2000. The
cost of service expenses also include $138.1 million, $26.3 million and $0 in
2000, 1999 and 1998, respectively, for fees related to the technical services
agreements and reciprocal resale agreements with Cook Inlet PCS,
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CIVS, CIVS II and CIVS III or their affiliates. In 2001, we will consolidate the
results of Cook Inlet PCS, CIVS, CIVS II and CIVS III, and these expenses will
be eliminated from our consolidated results. Excluding Designated Entity
revenues and fees described above these percentages were 24.6%, 23.4% and 40.3%
respectively. The remaining increase in cost of service is primarily
attributable to the increased costs of maintaining the expanding wireless
network and supporting a growing customer base. The trend is mainly due to the
higher costs of serving customers in the markets acquired in the Omnipoint and
Aerial mergers. The decline from 1998 to 1999 was a result of the efficiencies
gained from the growing subscriber base. While cost of service expenses are
expected to increase due to continuing growth in customers and their usage, we
expect the cost of service as a percentage of service revenue to decline as
greater economies of scale are realized.
Cost of equipment sales increased each year primarily due to the increase
in the number of handsets sold, offset by decreases in the average cost of each
handset sold. The increase in the number of handsets sold is attributed to
general subscriber growth. Omnipoint and Aerial markets contributed
approximately $287.5 million to the increase in 2000. Although subscribers
generally are responsible for purchasing or otherwise obtaining their own
handsets, we have historically sold handsets below cost to respond to
competition and general industry practice and expect to continue to do so in the
future.
General and administrative cost per average customer was $22.38 for 2000,
compared to $19.23 for 1999 and $27.84 for 1998. The Omnipoint and Aerial
mergers contributed $321.3 million to the increase in general and administrative
expenses during 2000. The remaining increase in general and administrative
expenses each year is primarily attributable to the increased costs associated
with supporting a larger customer base. The increase in 2000 was also a result
of efforts to fully integrate the Omnipoint and Aerial business into
VoiceStream's operations, including the implementation of a common billing
system, common customer care practices and centralized headquarters functions.
In addition, 2000 expenses included costs related to the pending Deutsche
Telekom/VoiceStream merger totaling approximately $10 million. The decrease in
cost per customer from 1998 to 1999 was largely due to efficiencies gained from
administering a larger subscriber base. While general and administrative
expenses are expected to continue to grow due to continuing growth in
subscribers, we expect the cost per customer to decline as greater economies of
scale are realized.
Sales and marketing costs increased as a result of the continued subscriber
growth in VoiceStream's markets and the introduction of the VoiceStream brand
name and the "Get More" marketing strategy to the Aerial and Omnipoint markets.
We incurred sales and marketing costs of $463.7 million in the Aerial and
Omnipoint markets in 2000 which included the costs of re-branding activities and
launching the "Get More" marketing strategy in all of the Omnipoint and Aerial
markets. The sales and marketing cost per customer added, including the loss on
equipment sales, of $370, has been on a downward trend since 1998. Sales and
marketing cost per net subscriber added, including the loss on equipment sales,
was $660 for 2000 compared to $520 for 1999 and $630 for 1998. The increase in
2000 is largely due to higher customer turnover or churn rates for the prepaid
businesses acquired in the Omnipoint and Aerial mergers.
Depreciation and amortization expense increased due to the tangible and
intangible assets acquired in the Omnipoint and Aerial mergers and the continued
expansion of our wireless network. These mergers contributed $165.1 million to
depreciation and $376.0 million to amortization during 2000. We do not amortize
FCC licenses until the related market is operational.
Stock-based compensation expense was $51.0 million for the year ended
December 31, 2000. The expense in 2000 included $35.4 million for restricted
stock granted to certain executives of VoiceStream at the time of the Deutsche
Telekom merger agreement. These restricted stock grants were contingent on
attaining certain corporate performance hurdles and were fully granted and
expensed in 2000. In 1999, a non-cash charge for stock based compensation of
$60.7 million was recorded as a result of the restructuring of stock options in
connection with the spin-off from Western Wireless. The spin-off related
deferred compensation is being amortized over the remaining vesting periods of
the related stock options. As of December 31, 2000, approximately $8.0 remains
unamortized.
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ADJUSTED EBITDA
Adjusted EBITDA represents operating loss before depreciation, amortization
and non-cash stock-based compensation. We believe Adjusted EBITDA provides
meaningful additional information on our operating results and on our ability to
service our long-term debt and other fixed obligations, and to fund our
continued growth. Adjusted 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 Adjusted EBITDA is considered to be an indicator of
future profitability, especially in a capital-intensive industry such as
wireless telecommunications. Adjusted 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 Adjusted EBITDA is not calculated in the same
manner by all companies, our presentation may not be comparable to other
similarly titled measures reported by other companies.
Adjusted EBITDA loss increased to $591.6 million in 2000 from $121.3
million in 1999 and $120.9 million in 1998. The year on year increase in 2000
was driven by three factors: the incremental costs of customer growth together
with the related expenditures necessary to support this growth, the ongoing
operating costs associated with the former Omnipoint and Aerial markets and the
costs associated with expanding our wireless network. Costs of customer growth
includes increased sales and marketing, equipment losses and general and
administration expenses.
OTHER INCOME (EXPENSE); NET OPERATING LOSS CARRYFORWARDS
Interest and financing expense, net of capitalized interest, increased to
$477.6 million from $103.5 million in 1999 and $34.1 million in 1998 due to the
increase in our long-term debt. We assumed $3.1 billion of debt in the Omnipoint
and Aerial mergers and have incurred additional debt to fund capital
expenditures, license purchases and operating losses. We expect interest expense
to increase in 2001 due to the increased debt levels built up through 2000. The
weighted average effective interest rate, before capitalized interest, was 10.4%
in 2000, 10.3% in 1999 and 8.8% in 1998.
Also included in other income (expense) is equity in net losses of
unconsolidated affiliates of $233.6 million in 2000, $37.5 million in 1999 and
$19.4 million in 1998. In 2000, we recorded our equity share in the losses of
Microcell and the Cook Inlet Designated Entities including $45.2 million from
the write-off of unamortized FCC debt discounts when the debt was paid down in
connection with our acquiring a controlling interest in CIVS and CIVS II in
December 2000.
We had approximately $5.5 billion of net operating loss carryforwards at
December 31, 2000, which will expire between 2010 and 2020. We believe that
available objective evidence creates significant uncertainty regarding the
realization of the net deferred tax assets. Such factors include recurring
operating losses resulting primarily from the development of our PCS business.
Accordingly we have provided for a valuation allowance against our net deferred
tax assets of VoiceStream. Certain net operating losses historically generated
by Omnipoint and Aerial may be lost upon change in control as a result of the
mergers.
NET LOSS
Our net loss was $2.1 billion in 2000 compared to $455 million in 1999 and
$254 million in 1998. The year on year increase in 2000 was driven primarily by
the Omnipoint and Aerial mergers and the incremental costs of continued high
customer growth together with the related expenditures necessary to support this
growth. The operating costs associated with the former Omnipoint and Aerial
markets, the costs of integrating those operations with our operations and the
incremental costs of high customer growth following the mergers were greater
than the revenues generated from those operations. The Omnipoint and Aerial
acquisitions also drove dramatic increases in depreciation and amortization
expense for acquired property, goodwill and licenses, and interest expense on
debt assumed in the mergers. Interest expense is also impacted by the increased
borrowings necessary to fund capital expenditures and operating losses. Equity
in net losses of unconsolidated affiliates also increased as these entities
incurred large losses for growth-related reasons similar
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to our own. From 1998 to 1999, the increase in net loss was primarily
attributable to the increase in interest and finance expense as well as the
increase in our portion of the loss in our unconsolidated affiliates.
LIQUIDITY AND CAPITAL RESOURCES
Mergers, Acquisitions, Investments and Capital Expenditures
On February 25, 2000, we completed our merger with Omnipoint. Pursuant to
the merger agreement, 0.825 of a VoiceStream common share plus $8.00 in cash
were exchanged for each outstanding Omnipoint common share. Total consideration
for the acquisition including liabilities assumed was $6.25 billion. In
conjunction with the merger agreement signed on June 23, 1999, we invested a
total of $150 million in Omnipoint, of which $102.5 million was invested in
Omnipoint preferred shares upon signing of the merger agreement, and the
remaining $47.5 million was invested in Omnipoint preferred shares on October 1,
1999.
On February 28, 2000, we purchased approximately 9.6 million Class A shares
of Microcell for $274.6 million. Our holding represents approximately 15% of the
issued and outstanding equity securities of Microcell.
On May 4, 2000, we completed our merger with Aerial. Pursuant to the merger
agreement, 0.455 of a VoiceStream common share was exchanged for each
outstanding Aerial Series A common share. Total consideration paid for the
acquisition including liabilities assumed was $6.3 billion.
On December 14, 2000, we issued approximately 7.9 million VoiceStream
common shares and $50 million in cash to CIRI and SSPCS Corporation in exchange
for their interests in Cook Inlet PCS, CIVS, CIVS II and CIVS III. On February
14, 2001, we issued a total of approximately 4.4 million VoiceStream common
shares to Providence Media Partners, L.P., Providence Equity Partners III, L.P.
and Providence Equity Operating Partners III, L.P. in exchange for their
interests in Cook Inlet PCS and CIVS, giving us 100% ownership of these
entities. Total consideration to acquire the 50.1% interests in these four
entities was $2.3 billion including liabilities assumed.
On January 22, 2001, we purchased the assets of STPCS Joint Venture, LLC
("STPCS"). Through its operating company, SOL Communications Inc., STPCS held
licenses and assets in South Texas. Pursuant to the terms of the agreement, we
purchased STPCS's licenses and related assets for $292 million in cash. In
addition, STPCS's F block licenses and related assets were purchased by CIVS IV
for $9 million.
On February 12, 2001, CIVS IV purchased FCC PCS licenses formerly held by
Pocket Communications for $195 million.
In February 2001, on completion of the latest FCC PCS spectrum re-auction,
we were the high bidder on 19 additional PCS licenses for $482.6 million, and
CIVS V, a Designated Entity in which we indirectly hold a 49.9% interest, was
high bidder on 22 additional PCS licenses for $506.4 million.
We spent $1.4 billion on capital expenditures in 2000, primarily for the
continuing build out of our wireless network. We expect similar levels of
expenditures in 2001, directly and through CIVS IV and CIVS V, for further
license purchases, capacity expansion of operating markets and the development
and expansion of new markets. Actual capital expenditures could vary
considerably from our estimates depending on opportunities that arise over the
course of the year and what capital resources we have available to fund
expenditures. At December 31, 2000, we had cash and short term investments on
hand totaling $2.3 billion. We intend to use these funds and additional amounts
available for borrowing under our credit facility to meet our anticipated cash
requirements.
Financing Activities
In connection with the completion of the Omnipoint merger on February 25,
2000, Hutchison made an investment of $957 million in VoiceStream for common and
convertible preferred securities at a purchase price of $29 per common share. A
portion of this investment was made upon the signing of the merger agreement on
June 23, 1999 when Hutchison invested $102.5 million in Omnipoint preferred
stock. An additional $47.5 million was invested in Omnipoint preferred stock in
October 1999. Upon closing of the
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merger, the Omnipoint preferred stock was exchanged for VoiceStream common
shares at a purchase price of $29 per common share and Hutchison invested $196.4
million in exchange for VoiceStream common shares and $610.6 million in exchange
for VoiceStream 2.5% convertible preferred stock. The convertible preferred
stock was converted into VoiceStream common shares during 2000 at a conversion
price of $29 per share.
Sonera made an investment of $500 million in VoiceStream at the time the
Omnipoint merger was completed. Sonera purchased 8,721,930 common shares at a
price of $57 per share.
During the third quarter of 2000, we received $5.0 billion in proceeds from
the sale of convertible preferred stock to Deutsche Telekom, $810 million of
which was used to pay down the revolving credit portion of the $3.25 billion
credit facility described below. The remainder of the proceeds from this
investment are being used to fund expenditures to expand our wireless network,
acquisitions of additional spectrum and operating losses.
On February 25, 2000, immediately following the completion of the Omnipoint
merger, we entered into a credit facility with a consortium of lenders. Pursuant
to the credit facility, the lenders have made available revolving credit loans
and term loans in an aggregate principal amount totaling $3.25 billion. The
revolving credit portion of the credit facility is a $1.35 billion reducing
revolving credit. The term loan portion of the facility is comprised of a $900
million tranche and a $1 billion tranche. Immediately following the completion
of the Omnipoint merger, we used the proceeds of draws on the credit facility to
repay certain long-term debt of Omnipoint. Additionally, portions of the cash
equity investments received from Hutchison and Sonera were used to pay off the
remaining balance of the previous credit facility.
The credit facility permits up to $1.5 billion of additional indebtedness,
through a vendor facility of $1 billion and an incremental facility of up to
$500 million. Total borrowing permitted under the credit facility including the
additional indebtedness is $4.75 billion. The repayment of the $4.75 billion is
secured by, among other things, the grant of a security interest in certain
assets of VoiceStream and certain of its subsidiaries and in the capital stock
of certain of VoiceStream's subsidiaries.
Borrowings under the revolving credit portion and the $900 million Tranche
A term loan portion of the credit facility bear interest, at our option, at an
annual rate of interest equal to either (1) the greater of (a) the prime rate or
(b) the Federal Funds rate plus 1/2%, or (2) a Eurodollar rate, in each
instance plus an applicable margin. Such applicable margin will range to a
maximum of 1.50%, in the case of loans based on the prime rate or Federal Funds
rate, and to a maximum of 2.75%, in the case of loans based on a Eurodollar
rate, in each case based upon certain factors including the ratio of total
indebtedness to operating cash flow, as defined in the credit facility. The
availability of the revolving credit portion of the credit facility declines
over the period commencing three years after the closing date through the eighth
anniversary of the closing date in the following percentages: 10% in year four,
15% in year five, 20% in year six, 20% in year seven and 35% in year eight with
a final maturity on February 25, 2008. At December 31, 2000 $1.35 billion was
available through the revolving credit portion of the credit facility. The $900
million tranche is required to be amortized at the same rate that the
availability under the revolving credit portion of the credit facility reduces
with a final maturity on the eighth anniversary of the closing date.
The $1 billion Tranche B term loan portion of the credit facility bears
interest, at our option, at an annual rate of interest equal to either (1) the
greater of (a) the prime rate or (b) the Federal Funds rate plus 1/2%, or (2) a
Eurodollar rate, in each instance plus an applicable margin. Such applicable
margin is a fixed 1.75% in the case of loans based on the prime rate or Federal
Funds rate, and 3.0% in the case of loans based on a Eurodollar rate. The $1
billion tranche is required to be amortized in the following amounts during the
period commencing three years after the closing date: 1% in each of years four
through nine and final maturity of the remaining balance on February 25, 2009.
On April 28, 2000 we received a commitment for the vendor facility that
provides for up to $1.0 billion in senior credit facilities and requires us to
make certain equipment, software and services purchases. The facility became
part of the credit facility and is subject to the same covenants and is entitled
to the same collateral on a pari passu basis. In 2000, $750 million was drawn
under this facility and an additional $250 million may be drawn under this
facility through June 30, 2001. The vendor facility bears interest at the same
rate as
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Tranche B of the term loan described above and is required to be amortized in
the following percentage during the period commencing four years after the
closing date: 1% in each of years five through nine with a final maturity of the
remaining balance on June 30, 2009. The applicable margin on the additional $250
million of the vendor facility may be subject to adjustment at any time before
disbursement of the funds.
The credit facility contains affirmative and negative covenants, including
financial covenants, and provides for various events of default. As of December
31, 2000, we were in compliance with these affirmative and negative covenants.
Our 10 3/8% Senior Notes accrue interest at the rate of 10 3/8% per annum
payable semiannually and mature on November 15, 2009. Our 11 7/8% Senior
Discount Notes were issued at a discount which is being accreted to the full
principal value of $720 million over five years to November 15, 2004. Interest
is accrued at a rate of 11 7/8% per annum, and will be payable semiannually
commencing on May 15, 2005. The 11 7/8% Senior Discount Notes mature on November
15, 2009. Our 11 1/2% Senior Notes accrue interest at 11 1/2% payable
semiannually and mature on September 15, 2009.
During 2000, VoiceStream issued additional debt in exchange for certain
debt outstanding of Omnipoint (dollars in millions):
OMNIPOINT DEBT RETIRED VOICESTREAM DEBT ISSUED
-------------------------------------------- ------------------------------------
BALANCE RATE DESCRIPTION DUE BALANCE RATE DESCRIPTION DUE
-------------------------------------------- ------------------------------------
$142.8 14% Senior Notes 2003 $149.7 10 3/8% Senior Notes 2009
$102.3 11 1/2% Senior Notes 2009 $102.3 11 1/2% Senior Notes 2009
$200.0 11 5/8% Senior Notes 2006 $478.2 10 3/8% Senior Notes 2009
$245.4 11 5/8% Series A Senior Notes 2006
At December 31, 2000, following the completion of these exchanges, $4.6
million of the Omnipoint 11 5/8% Series A Senior Notes and $102.7 million of the
Omnipoint 11 1/2% Senior Notes remain outstanding. The Omnipoint 11 1/2% Senior
Notes accrue interest at an effective rate of 11.93%, payable semiannually and
mature on September 15, 2009. The Omnipoint 11 5/8% Series A Senior Notes accrue
interest at 11 5/8% payable semiannually and mature on August 9, 2006. The
differences in the total value of debt exchanged were treated as Omnipoint
purchase price adjustments.
On January 13, 2000, an infrastructure equipment provider agreed to provide
subsidiaries of CIVS with credit facilities of up to $735 million, composed of a
$485 million loan facility (including a $160 million revolving loan and term
loans aggregating $325 million), $100 million of 13% Series A Senior Discount
Notes, and up to $150 million 13% Series A Subordinated Notes. The repayment of
the $485 million loan facility is secured by, among other things, the grant of a
security interest in the capital stock and assets of certain of CIVS's
subsidiaries. The net proceeds are being used to finance capital expenditures,
permitted investments, and for working capital in connection with our Chicago
and Dallas systems. The CIVS loan facility contains affirmative and negative
covenants, including financial covenants, and provides for various events of
default. As of December 31, 2000, we were in compliance with these affirmative
and negative covenants of the CIVS credit facility and had $160 million in
credit available through the revolving portion of the loan facility. The Series
A Senior Discount Notes and Series A Subordinated Notes have not been issued but
may be issued at any time before June 30, 2001.
The term loan portion of the loan facility described above is divided into
a $125 million loan and a $200 million loan. Advances under the revolving loan
and the $125 million term loan bear interest, at the borrower's option, at an
annual rate of interest equal to either (1) the greater of (a) the prime rate,
or (b) the Federal Funds rate, plus 5/8%, or (2) a Eurodollar rate, in each
instance plus an applicable margin. Such applicable margin will range to a
maximum of 2.75%, in the case of loans based on the prime rate or Federal Funds
Rate, and to a maximum of 3.75%, in the case of loans based on a Eurodollar
rate, in each case based upon certain factors including the ratio of total
indebtedness to operating cash flow, as defined in the loan facility. Advances
under the $200 million term loan portion of this facility bear interest, at the
borrower's option, at an annual rate of interest equal to either (1) the greater
of (a) the prime rate or (b) the Federal Funds rate plus 5/8%, or (2) a
Eurodollar rate, in each instance plus an applicable margin. Such applicable
margin will range
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to a maximum of 3.00%, in the case of loans based on the prime rate or Federal
Funds rate, and to a maximum of 4.00%, in the case of loans based on a
Eurodollar rate, in each case based upon certain factors including the ratio of
total indebtedness to operating cash flow, as defined in the loan facility. The
availability of the revolving loan declines as follows: 17.5% in 2004, 20% in
2005, 25% in 2006 and 37.5% in 2007 with a final maturity of December 31, 2007.
The $125 million term loan is required to be amortized at the same rate as the
availability of the revolving loan declines. The $200 million term loan is
required to be amortized 1% in each of 2004 through 2007 with the remainder
maturing on December 31, 2008.
The CIVS loan facility contains affirmative and negative covenants,
including financial covenants, and provides for various events of default. As of
December 31, 2000, we were in compliance with these affirmative and negative
covenants of the CIVS loan facility and had $160 million available through the
revolving credit portion of the facility. The Series A Senior Discount Notes and
Series A Subordinated Notes have not been issued but may be issued at any time
before June 30, 2001.
On May 4, 2000 a wholly owned subsidiary of CIVS II entered into a $350
million loan facility for the purpose of financing the continued build-out of
networks and the operations of the Philadelphia, PA; Atlantic City, NJ; and
Dover, DE markets and refinancing of $145 million of prior indebtedness. The
CIVS II loan facility is collateralized by substantially all of the assets of
such subsidiary and its license subsidiaries and a pledge of all capital stock
of each subsidiary.
The CIVS II loan facility consists of a revolving loan facility of up to
$150 million and a $200 million term loan. The principal amount of the CIVS II
revolving loan facility is payable in quarterly installments beginning in 2004
as follows: 11.25% in 2004, 18.75% in 2005, 23.75% in 2006, 36.25% in 2007, and
10% on final maturity of March 31, 2008. The principal amount of the CIVS II
term loan facility is payable in quarterly installments beginning in 2004 as
follows: 0.75% in 2004; 1% in each of 2005, 2006 and 2007; 72.25% in 2008 and
24% of the term loan facility is due on the final maturity date of March 31,
2009. Interest on the CIVS II loan facility is payable at varying interest rates
at a base rate based either on the Federal Funds rate plus 1/2% or the prime
rate, or Eurodollar plus, in each case, a set margin based on the borrower's
leverage ratio. The CIVS II loan facility contains affirmative and negative
covenants, including financial covenants, and provides for various events of
default. As of December 31, 2000 we had fully utilized the credit available
under the CIVS II loan facility. We were in compliance with all but one
covenant, related to annualized EBITDA levels, but had obtained an appropriate
waiver for this event of non-compliance.
Both the CIVS and CIVS II facilities are included in our consolidated
balance sheet at December 31, 2000 after we acquired controlling interests of
these entities.
The capital cost of completing the build-out in any particular market,
funding operating losses, funding acquisitions of licenses or operating
businesses or funding debt service costs could vary materially from current
estimates and could require us to attempt to obtain additional funds. The terms
of any additional funds may be less favorable than those contained in current
arrangements.
Cash Flow Information
Net cash used in operating activities was $1.2 billion in 2000. Adjustments
to the $2.1 billion net loss to reconcile to net cash used in operating
activities included $810.8 million of depreciation and amortization which
increased primarily due to the growth in our wireless network infrastructure,
our increasing license holdings and amortization of goodwill acquired in the
acquisitions of Omnipoint and Aerial and $233.6 million of equity in the net
loss of unconsolidated subsidiaries primarily due to the results of Cook Inlet
PCS, CIVS, CIVS II and CIVS III. We expect equity losses to decline in 2001 as
we are now consolidating the results of Cook Inlet PCS, CIVS, CIVS II and CIVS
III. Other adjustments included changes in operating assets and liabilities,
including: (i) an increase of $309.3 million in accounts receivable; (ii) an
increase of $254.5 million in inventory; (iii) an increase in accounts payable
of $110.1 million; and (iv) an increase in accrued liabilities of $126.7 million
due to the increase in accrued interest on long-term debt. The increased use of
cash in operating activities in 2000 was driven primarily by the rapid growth in
sales and the related investments in accounts receivable and inventory necessary
to support that growth. We expect continued use of cash in operating activities
to fund operating losses and increased working capital related to continued
rapid growth in our operations. We expect to finance these increasing cash
demands with our existing capital resources. However, if these resources prove
to be inadequate, we may be required to curtail our service operations or
49
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reduce our rate of growth to a level we can support. Net cash used in operating
activities was $255.3 million in 1999 and $117.6 million in 1998.
Net cash used in investing activities was $4.1 billion in 2000. Investing
activities consisted primarily of: (i) the acquisition of Omnipoint, Aerial,
Cook Inlet PCS, CIVS, CIVS II and CIVS III for $589.6 million; (ii) investments
in and advances to unconsolidated affiliates of $729.8 million, primarily
attributable to our $275 million investment in Microcell and additional funding
of operations of Cook Inlet PCS, CIVS, CIVS II and CIVS III; (iii) purchases of
property and equipment of $1.4 billion, largely related to the continuing
build-out of the wireless network; and (iv) purchases of $1.2 billion of
short-term investments, net. Net cash used in investing activities was $934.2
million in 1999 and $248.9 million in 1998.
Net cash provided by financing activities was $6.2 billion in 2000. In
2000, we issued preferred and common stock in private placements for net
proceeds of $6.4 billion. Long-term debt borrowings were $3.5 billion in 2000
and long-term repayments were $3.6 billion, of which $2.3 billion was used to
refinance Omnipoint and Aerial debt. Net cash provided by financing activities
was $1.4 billion in 1999 and $374.3 million in 1998.
On completion of our pending merger with Powertel, we would have an
increase of approximately $4.4 billion in licenses, goodwill and other
intangibles which would result in an increase in amortization expense of
approximately $210 million annually. The valuation of intangible assets acquired
in the merger is subject to change based upon the VoiceStream common share price
on the date the merger is completed. We expect that the merger would increase
our operating expenses due to costs associated with integration and the costs of
implementing our marketing and subscriber growth strategies in the Powertel
markets.
If the merger does not close as a result of our failure to comply with any
of the covenants or agreements contained in the Powertel Agreement, we would be
obligated to pay Powertel $150 million plus expenses not to exceed $10 million.
If the merger does not close as a result of Powertel not complying with any of
the covenants or agreements contained in the VoiceStream/Powertel merger
agreement, Powertel may be obligated to pay VoiceStream and Deutsche Telekom $75
million each plus expenses not to exceed $10 million in the aggregate.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended by SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133", and SFAS 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities". The statements establish
accounting and reporting standards requiring an entity to record all derivative
instruments (including certain embedded derivatives) as either an asset or
liability measured at fair value. The statements require that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. VoiceStream has adopted the provisions of
these accounting standards as of January 1, 2001. Adoption did not have a
material impact on our consolidated results of operations, financial condition
or cash flows.
In December 1999, the SEC issued Staff Accounting Bulletin Number 101,
"Revenue Recognition in Financial Statements." This bulletin is effective for
the quarter ended December 31, 2000, with retroactive adoption to January 1,
2000. This bulletin establishes more clearly defined revenue recognition
criteria than previously existing accounting pronouncements, and specifically
addresses revenue recognition requirements for non-refundable fees, such as
activation fees collected by a company upon entering into a contractual
arrangement with a customer to provide telecommunication services. Adoption of
the guidance provided in this bulletin did not have a material impact on our
consolidated financial statements.
In July 2000, the FASB released Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation, an interpretation of
Accounting Principles Board ("APB") Opinion No. 25," ("FIN 44") which provides
clarification of APB No. 25 for certain issues such as the determination of an
employee, the criteria for determining whether a plan qualifies as a
non-compensatory plan and the accounting consequences of various modifications
to the terms of a previously fixed stock option or award. Our practices are in
conformity with this guidance.
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PRESENTATION OF ADDITIONAL FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Should our proposed merger with Deutsche Telekom be terminated we expect to
merge with Powertel.
The following unaudited pro forma condensed combined financial statements
combine the historical consolidated balance sheets of VoiceStream and Powertel
and statements of operations of VoiceStream, Omnipoint, Aerial and Powertel. The
VoiceStream/Powertel merger is contingent upon the termination of the Deutsche
Telekom/VoiceStream merger. Should the Deutsche Telekom/VoiceStream merger be
consummated, we expect that Powertel will also merge with Deutsche Telekom.
These financial statements give effect to the VoiceStream/Powertel merger using
the purchase method of accounting for a business combination.
We derived this information from the audited consolidated financial
statements of VoiceStream and Powertel for the year ended December 31, 2000 and
the unaudited financial statements of Omnipoint and Aerial for the periods ended
February 24, 2000 and May 3, 2000, respectively. This information is only a
summary and you should read it in conjunction with the historical financial
statements and related notes.
The unaudited pro forma condensed combined statement of operations for the
year ended December 31, 2000 assumes the VoiceStream mergers with Omnipoint,
Aerial and Powertel were effected on January 1, 2000. The unaudited pro forma
condensed combined balance sheet as of December 31, 2000 gives effect to the
VoiceStream/Powertel merger as if it had occurred on December 31, 2000. The
accounting policies of VoiceStream, Omnipoint, Aerial and Powertel are
substantially comparable. Certain reclassifications have been made to Omnipoint,
Aerial and Powertel's historical presentations to conform to VoiceStream's
presentation. These reclassifications do not materially impact the companies'
results of operations or financial position for the periods presented.
We are providing the unaudited pro forma condensed combined financial
information for illustrative purposes only. The companies may have performed
differently had they always been combined. You should not rely on the pro forma
combined financial information as being indicative of the historical results
that would have been achieved had the companies always been combined or the
future results that the combined companies will experience after the merger.
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VOICESTREAM WIRELESS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 2000
(DOLLARS IN THOUSANDS)
POWERTEL VOICESTREAM
MERGER AND POWERTEL
VOICESTREAM(1) POWERTEL(2) ADJUSTMENTS PRO FORMA
-------------- ----------- ----------- ------------
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 1,154,896 $ 168,563 $ (13,000)(5e) $ 1,310,459
Short-term Investments............................. 1,175,636 -- -- 1,175,636
Accounts receivable, net........................... 469,475 56,012 -- 525,487
Inventory.......................................... 340,284 35,362 -- 375,646
Prepaid expenses and other current assets.......... 223,634 26,188 -- 249,822
----------- ---------- ---------- -----------
Total current assets......................... 3,363,925 286,125 (13,000) 3,637,050
Property and equipment, net.......................... 3,467,550 627,286 -- 4,094,836
Goodwill, net........................................ 9,075,605 -- 4,040,405(5) 13,116,010
Licensing costs and other intangible assets, net..... 3,827,317 389,004 384,524(5) 4,600,845
Investments in and advances to unconsolidated
affiliates......................................... 498,869 33,718 -- 532,587
Other assets......................................... 44,477 22,876 -- 67,353
----------- ---------- ---------- -----------
$20,277,743 $1,359,009 $4,411,929 $26,048,681
=========== ========== ========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 150,632 $ 45,476 $ -- $ 196,108
Accrued liabilities................................ 404,621 68,094 -- 472,715
Deferred revenues.................................. 60,272 22,887 -- 83,159
Construction accounts payable...................... 207,462 -- -- 207,462
Current portion of long-term debt.................. 32,113 33,023 -- 65,136
----------- ---------- ---------- -----------
Total current liabilities.................... 855,100 169,480 -- 1,024,580
----------- ---------- ---------- -----------
Deferred gain on sale of assets...................... -- 74,499 (74,499)(6) --
Long-term debt (see Note 7).......................... 5,719,886 1,223,838 -- 6,943,724
----------- ---------- ---------- -----------
Total long-term liabilities.................. 5,719,886 1,298,337 (74,499) 6,943,724
----------- ---------- ---------- -----------
Contingencies (see Note 16)
Minority interest in equity of consolidated
subsidiaries....................................... 16,563 -- -- 16,563
Convertible redeemable preferred shares.............. 5,000,000 -- -- 5,000,000
Preferred shares of consolidated subsidiary.......... 312,513 152,219 (152,219)(5) 312,513
Shareholders' equity:
Common shares and paid-in capital.................. 11,572,083 524,837 (524,837)(8) 15,959,774
4,211,081(5)
10,071(10)
166,539(5d)
Deferred compensation.............................. (8,412) (703) 703(8) (18,483)
(10,071)(10)
Accumulated other comprehensive loss............... (45,238) -- -- (45,238)
Deficit............................................ (3,144,752) (785,161) 785,161(8) (3,144,752)
----------- ---------- ---------- -----------
Total shareholders' (deficit) equity......... 8,373,681 (261,027) 4,638,647 12,751,301
----------- ---------- ---------- -----------
$20,277,743 $1,359,009 $4,411,929 $26,048,681
=========== ========== ========== ===========
See Notes to the Unaudited Pro Forma Condensed Combined Financial Statements.
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VOICESTREAM WIRELESS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OMNIPOINT
AND AERIAL VOICESTREAM,
MERGER OMNIPOINT
VOICESTREAM(1) OMNIPOINT(3) AERIAL(4) ADJUSTMENTS AND AERIAL POWERTEL(2)
-------------- ------------ --------- ----------- ------------ -----------
Revenues:
Subscriber revenues.......... $ 1,172,748 $ 34,765 $ 75,155 $ -- $ 1,282,668 $ 243,594
Prepaid revenues............. 237,079 38,180 10,052 -- 285,311 164,833
Roamer revenues.............. 110,245 8,931 5,901 -- 125,077 20,788
Equipment revenues........... 283,168 10,272 6,796 -- 300,236 25,956
Other revenues............... 119,457 223 -- -- 119,680 2,000
----------- --------- -------- --------- ----------- ---------
Total revenues............. 1,922,697 92,371 97,904 -- 2,112,972 457,171
----------- --------- -------- --------- ----------- ---------
Operating expenses:
Cost of service.............. 514,117 23,527 32,143 -- 569,787 112,652
Cost of equipment sales...... 513,955 27,520 21,558 -- 563,033 108,301
General and administrative... 689,994 52,036 43,550 -- 785,580 105,454
Sales and marketing.......... 796,272 32,762 32,547 -- 861,581 124,232
Depreciation and
amortization............... 810,827 33,582 36,585 106,872(13) 987,866 102,723
Stock based compensation..... 51,029 -- -- 1,462(12) 52,491 --
----------- --------- -------- --------- ----------- ---------
Total operating expenses... 3,376,194 169,427 166,383 108,334 3,820,338 553,362
----------- --------- -------- --------- ----------- ---------
Operating loss................. (1,453,497) (77,056) (68,479) (108,334) (1,707,366) (96,191)
----------- --------- -------- --------- ----------- ---------
Other income (expense):
Interest and financing
expense, net............... (477,613) (57,138) (8,605) -- (543,356) (138,565)
Equity in net loss of
unconsolidated
affiliates................. (233,565) -- -- (4,322)(14) (237,887) --
Interest income and other,
net........................ 99,939 2,485 22,747 -- 125,171 22,535
Minority share of loss....... (17,118) -- -- (3,487)(15) (20,605) --
----------- --------- -------- --------- ----------- ---------
Total other income
(expense)................ (628,357) (54,653) 14,142 (7,809) (676,677) (116,030)
----------- --------- -------- --------- ----------- ---------
Net loss....................... $(2,081,854) $(131,709) $(54,337) $(116,143) $(2,384,043) $(212,221)
=========== ========= ======== ========= =========== =========
Basic and diluted pro forma
loss per common share (see
Note 11).....................
Weighted average common shares
used in computing basic and
diluted loss per common share
(see Note 11)................
POWERTEL ADJUSTED
MERGER VOICESTREAM
ADJUSTMENTS AND POWERTEL
----------- ------------
Revenues:
Subscriber revenues.......... $ -- $ 1,526,262
Prepaid revenues............. -- 450,144
Roamer revenues.............. -- 145,865
Equipment revenues........... -- 326,192
Other revenues............... -- 121,680
--------- -----------
Total revenues............. -- 2,570,143
--------- -----------
Operating expenses:
Cost of service.............. -- 682,439
Cost of equipment sales...... -- 671,334
General and administrative... -- 891,034
Sales and marketing.......... -- 985,813
Depreciation and
amortization............... 230,971(9) 1,321,560
Stock based compensation..... 10,054(10) 62,545
--------- -----------
Total operating expenses... 241,025 4,614,725
--------- -----------
Operating loss................. (241,025) (2,044,582)
--------- -----------
Other income (expense):
Interest and financing
expense, net............... -- (681,921)
Equity in net loss of
unconsolidated
affiliates................. -- (237,887)
Interest income and other,
net........................ -- 147,706
Minority share of loss....... -- (20,605)
--------- -----------
Total other income
(expense)................ -- (792,707)
--------- -----------
Net loss....................... $(241,025) $(2,837,289)
========= ===========
Basic and diluted pro forma
loss per common share (see
Note 11)..................... $ (10.60)
===========
Weighted average common shares
used in computing basic and
diluted loss per common share
(see Note 11)................ 269,961
===========
See Notes to the Unaudited Pro Forma Condensed Combined Financial Statements.
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VOICESTREAM WIRELESS CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
Note 1
These columns reflect VoiceStream's consolidated historical balance sheet
and statement of operations as of and for the year ended December 31, 2000.
The balance sheet includes the $5 billion investment in VoiceStream
convertible voting preferred shares made by Deutsche Telekom on September 6,
2000. The preferred shares are convertible to VoiceStream common shares at
Deutsche Telekom's option at a price of $160 per share if the proposed merger
between Deutsche Telekom and VoiceStream is terminated. If Deutsche Telekom
converted these preferred shares to VoiceStream common shares, an additional
31,250,000 VoiceStream common shares would have been outstanding. On a pro forma
basis the loss per share would have been as follows:
HISTORICAL
VOICESTREAM VOICESTREAM AND POWERTEL
----------- ------------------------
December 31, 2000........................................... $9.34 $9.49
On February 25, 2000 and May 4, 2000, VoiceStream completed mergers with
Omnipoint and Aerial, respectively. Pursuant to the Omnipoint agreement,
VoiceStream exchanged 0.825 of a VoiceStream common share plus $8.00 in cash for
each outstanding Omnipoint common share. Pursuant to the Aerial agreement,
VoiceStream exchanged 0.455 of a VoiceStream common share for each outstanding
Aerial common share.
The components of the purchase price of these merger transactions and
allocations are as follows (in thousands):
AERIAL OMNIPOINT
------ ---------
Consideration and merger costs:
Total value of shares issued in merger.................... $5,703,500 $1,388,000
Cash payments............................................. 113,900 627,000
Fair value of options and warrants converted.............. 6,100 859,000
Liabilities assumed inclusive of minority interest........ 459,000 3,174,600
Hutchison preferred share conversion...................... -- 150,000
Merger related costs...................................... 20,500 19,000
Cook Inlet exchange rights................................ -- 28,000
---------- ----------
Total consideration................................. 6,303,000 6,245,600
Preliminary allocation of purchase price:
Current assets............................................ 94,700 212,800
Property, plant and equipment............................. 362,900 466,400
Investments in unconsolidated affiliates.................. 3,600 679,900
Licenses and other intangibles............................ 551,200 931,400
---------- ----------
Goodwill............................................ $5,290,600 $3,955,100
========== ==========
The above allocations reflect the fair value of assets and liabilities
acquired.
Note 2
These columns reflect the Powertel historical consolidated balance sheet
and statement of operations as of and for year ended December 31, 2000.
Certain reclassifications have been made to the historical financial
statements of Powertel to conform to VoiceStream's financial statement
presentation. These reclassifications do not materially impact Powertel's
results of operations or financial position.
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VOICESTREAM WIRELESS CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONDENSED (CONTINUED)
COMBINED FINANCIAL STATEMENTS
Note 3
These columns reflect the historical statement of operations of Omnipoint
for the period ended February 24, 2000, adjusted for the deconsolidation of
certain operations that were contributed to CIVS II and CIVS III immediately
prior to the merger with VoiceStream. CIVS II and CIVS III were owned 49.9% by
Omnipoint through 2000 when the remaining 50.1% interest was acquired by
VoiceStream. These entities have been accounted for under the equity method in
2000.
Certain reclassifications have been made to the historical financial
information for Omnipoint to conform to VoiceStream's financial statement
presentation. These reclassifications do not materially impact Omnipoint's
results of operations.
Note 4
These columns reflect the historical statement of operations of Aerial for
the period ended May 3, 2000. The statement of operations has been adjusted to
reflect certain debt conversions, repayments and equity investments between
Aerial, its subsidiary, Aerial Operating Corporation, its parent, TDS, and
Sonera, which occurred in connection with the VoiceStream/Aerial merger on May
4, 2000.
Certain reclassifications have been made to the historical financial
information for Aerial to conform to VoiceStream's financial statement
presentation. These reclassifications do not materially impact Aerial's
financial position or results of operations.
Note 5
The VoiceStream/Powertel merger will result in an allocation of the
purchase price to the tangible and intangible assets and liabilities of
Powertel. The allocation reflects the estimated fair value of the assets and
liabilities acquired by VoiceStream based upon information available at the date
of the preparation of the accompanying pro forma condensed combined financial
statements and will be adjusted upon final determination of such fair values.
Management is not aware of any circumstances that would cause the final purchase
price allocation to be significantly different from that which is reflected in
the accompanying pro forma condensed combined balance sheet. However, the actual
purchase price will differ based on any change in VoiceStream's common share
price on the actual measurement date and the valuations and allocations may
differ from those reflected herein.
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VOICESTREAM WIRELESS CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONDENSED (CONTINUED)
COMBINED FINANCIAL STATEMENTS
The components of the purchase price of this transaction and the
preliminary allocation are as follows (in thousands, except share data):
Powertel restricted and common shares outstanding(a)........ 31,559
Conversion of Powertel preferred shares and cumulative
dividends to common shares(b)............................. 17,955
----------
Pro forma Powertel shares outstanding....................... 49,514
VoiceStream exchange ratio per share(c)..................... 0.708
----------
Equivalent VoiceStream common shares........................ 35,012
VoiceStream share price(c).................................. $ 120.13
----------
Subtotal.................................................... $4,211,081
Fair value of liabilities of Powertel at December 31,
2000...................................................... 1,393,318
Option/warrant conversion costs(d).......................... 166,539
Merger related costs(e)..................................... 13,000
----------
Total consideration................................. $5,783,938
Preliminary allocation of purchase price:
Fair value of assets of Powertel acquired (excluding FCC
licenses)(f).............................................. (970,005)
Fair value of FCC licenses acquired (net book value of
licenses equal to $389,004)(f)............................ (773,528)
----------
Preliminary goodwill................................ $4,040,405
==========
---------------
(a) Outstanding Powertel common shares are as of February 5, 2001, the latest
practicable date.
(b) An additional 18.0 million VoiceStream common shares relate to the Powertel
preferred shares and cumulative dividends that will be converted into
VoiceStream common shares as part of the merger.
(c) The conversion ratio of .708 of a VoiceStream common share for each Powertel
share is calculated pursuant to the VoiceStream/Powertel merger agreement
based on the closing price of VoiceStream common shares on February 5, 2001,
the latest practicable date, at $120.13 per share. Pursuant to the
VoiceStream/Powertel merger agreement, if the average of the closing prices
of VoiceStream common shares on certain days immediately prior to the
closing date is less than $113.33 per share, the conversion ratio will be
.75. If the closing price of VoiceStream common shares on those days is
greater than $130.77 per share, the conversion ratio will be .65.
For a $10 per share increase in the VoiceStream common share price above the
$130.77 collar, the merger consideration would increase by approximately
$320 million and would also increase annual amortization expense by
approximately $16 million. For a $10 per share decrease in the VoiceStream
share price below the $113.13 collar, the merger consideration would
decrease by approximately $370 million and would also decrease annual
amortization expense by approximately $19 million.
(d) This amount represents the fair value, based on a Black-Scholes valuation,
of VoiceStream options and warrants to be issued in exchange for outstanding
Powertel options and warrants at February 5, 2001, the latest practicable
date. The calculation is based on the number of Powertel options and
warrants outstanding, the exchange ratio as defined above, and the closing
market price of VoiceStream on the Nasdaq Stock Market on that date. The
calculation excludes a portion of the intrinsic value of unvested stock
options for which performance of future service is required, pursuant to the
guidelines of FIN 44, that has been recorded as deferred compensation (see
Note 10).
(e) The estimated merger costs to be incurred by VoiceStream as a result of the
VoiceStream/Powertel merger are as follows (in thousands):
Investment banking fees..................................... $10,000
Legal, accounting and printing fees......................... 3,000
-------
$13,000
=======
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VOICESTREAM WIRELESS CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONDENSED (CONTINUED)
COMBINED FINANCIAL STATEMENTS
(f) The estimated fair market values of the Powertel tangible assets and
licenses acquired are based on preliminary valuation using assumptions we
believe are reasonable, pending finalization of the purchase price
allocation process.
Note 6
This adjustment reflects the reversal the 2000 statement of operations
impact of a deferred gain recorded on Powertel's balance sheet from a
sales-leaseback transaction that occurred in 1999.
Note 7
Certain of the long-term debt agreements of Powertel contain provisions
which require Powertel to offer repayment of outstanding amounts when a change
of control occurs. Additionally, the holders of the debt issued under certain of
these agreements are entitled to a prepayment premium which at March 31, 2001,
would be $7.1 million. The pro forma condensed combined balance sheet assumes
that the lenders will not exercise the offer for Powertel to repay amounts
outstanding, and therefore, no outstanding debt amounts have been reclassified
as current. The aggregate amount of principal maturities (including prepayment
premiums, if any) of Powertel's long-term debt at December 31, 2000, should the
holders accept the offer of repayment would be approximately $1.2 billion. It is
assumed that the offer to repurchase would commence within 30 days of the
completion of the VoiceStream/Powertel merger.
Note 8
This adjustment represents the elimination in consolidation of Powertel's
historical common shares and paid-in capital of $524.8 million, the elimination
of Powertel's historical deferred compensation of approximately $.7 million and
the elimination of Powertel's historical accumulated deficit of $785.2 million.
Note 9
This adjustment represents the amortization of the additional purchase
price allocated to FCC licenses and goodwill in the VoiceStream/Powertel merger.
Goodwill and FCC licenses acquired in the VoiceStream/ Powertel merger are
amortized over 20 years. Other FCC licenses are amortized over 40 years.
Note 10
Pursuant to FIN 44, VoiceStream has recorded as deferred compensation a
portion of the intrinsic value of the unvested stock options for which future
service is required as deferred compensation in shareholders' equity
(approximately $10.1 million). This balance is being recognized as compensation
expense over the remaining future vesting period of the grants.
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VOICESTREAM WIRELESS CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONDENSED (CONTINUED)
COMBINED FINANCIAL STATEMENTS
Note 11
The following summarizes the pro forma calculation of loss per share (in
thousands, except per share data):
DECEMBER 31,
2000
------------
VoiceStream weighted average common shares outstanding...... 191,553
Conversion of Omnipoint outstanding common shares........... 9,449
Additional Hutchison investment (includes Omnipoint Series A
preferred share conversion)............................... 1,384
Conversion of East/West Communications shares............... 280
Sonera Corporation's $500 million investment (at
$57/share)................................................ 1,787
Conversion of Aerial shares................................. 24,225
Conversion of Powertel common and restricted shares......... 22,330
Conversion of Powertel preferred shares (including
cumulative dividends)..................................... 17,953
-----------
Total weighted average common shares................ 268,961
===========
VoiceStream pro forma net loss.............................. $(2,838,060)
VoiceStream 2.5% convertible junior preferred dividends..... (12,535)
-----------
Pro forma net loss attributable to common shareholders...... $(2,850,595)
===========
Basic and diluted pro forma loss per common share........... $ (10.60)
===========
Note 12
This adjustment represents additional costs recorded as a result of
modifications made to stock option agreements for an officer of Omnipoint.
Note 13
This adjustment represents the amortization of the additional purchase
price allocated to FCC licenses and goodwill of Omnipoint and Aerial, offset by
a reduction in depreciation expense as a result of the write-down to fair value
of fixed assets acquired in the Omnipoint and Aerial mergers. FCC licenses
acquired in the Omnipoint and Aerial merger are amortized over a 40 year period
and goodwill is amortized over a 20 year period.
Note 14
This adjustment represents the amortization of the difference between the
underlying net book value of the investments in CIVS II and CIVS III and the
fair value assigned to these investments at the time of the Omnipoint merger.
This difference has been allocated to FCC licenses and goodwill and is being
amortized over 40 years and 20 years, respectively.
Note 15
This adjustment represents dividends related to Omnipoint 7% convertible
preferred shares which are reflected as minority interest expense by VoiceStream
as a result of the Omnipoint merger.
Note 16
On May 3, 1999, Western Wireless distributed its entire 80.1% interest in
VoiceStream's common shares to its stockholders. Prior to this "spin-off,"
Western Wireless obtained a favorable ruling from the IRS indicating that the
spin-off would not result in the recognition of gain or taxable income to
Western Wireless or its stockholders. However, Western Wireless could still
recognize gain upon the spin-off, notwithstanding
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59
VOICESTREAM WIRELESS CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONDENSED (CONTINUED)
COMBINED FINANCIAL STATEMENTS
the favorable IRS ruling, if it is determined that the spin-off was part of a
"prohibitive plan," that is, a plan or series of related transactions in which
one or more persons acquire, directly or indirectly 50% or more of VoiceStream's
stock. Acquisitions of 50% or more of VoiceStream's stock occurring during the
four year period beginning two years before the spin-off would give rise to a
rebuttable presumption that the spin-off was part of a prohibited plan. Although
it is not assured, VoiceStream believes that it should be able to establish that
the spin-off, the subsequent Omnipoint and Aerial mergers, certain investments
by Hutchison and Sonera and the potential VoiceStream/Powertel mergers are not
pursuant to a "prohibitive plan."
VoiceStream has agreed to indemnify Western Wireless on an after-tax basis
for any taxes, penalties, interest and various other expenses incurred by
Western Wireless if it is required to recognize such a gain. The amount of such
gain that Western Wireless would recognize would be equal to the difference
between the fair market value of VoiceStream common shares at the time of the
spin-off and Western Wireless' adjusted tax basis in such shares at the time.
The estimated range of possible liability of VoiceStream, not including interest
and penalties, if any, is from zero to $400 million.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our significant exposures to market risk are due to interest rate and
foreign currency fluctuations. Our discussion below provides information about
our market sensitive financial instruments and constitute "forward looking
statements" which involve risks and uncertainties. Actual results could differ
materially from those projected in the forward looking statements.
We have assets and liabilities that are sensitive to floating interest
rates. We hold short-term interest yielding investments consisting of various
commercial paper instruments with maturities ranging up to seven months. Our
primary objective in managing these investments is to preserve capital and
liquidity and we generally hold these investments through maturity.
We hold an investment in Microcell, a Canadian company that is sensitive to
foreign currency price risk. We do not hedge any portion of our net investment
in Microcell, which comprised 1% of our total assets and 1.7% of our net loss at
December 31, 2000.
Our primary sensitivity to floating interest rates is in our debt
instruments. Our long-term debt includes credit facilities with a combination of
fixed and floating interest rates and Notes bearing fixed interest rates. Our
interest rate management objectives are to limit the effect of interest rate
changes on earnings and cash flows. To achieve this objective we maintain a high
percentage of fixed rate debt. We generally manage our variable rate instruments
through a combination of interest rate swap, cap and collar contracts. We do not
enter into derivative instrument transactions for trading or speculative
purposes. After giving effect to these interest rate contracts, we have
approximately $3.68 billion of fixed rate debt at a weighted average interest
rate of 10.2% and $2.34 billion of floating interest debt at a weighted average
rate of 9.74%. At December 31, 2000, a one percent increase in interest rates
would cause approximately a $234 million increase in our annual interest
expense.
VoiceStream has issued 3,906,250 of convertible preferred stock to Deutsche
Telekom. The shares are convertible at the holder's option into VoiceStream
common shares at a conversion ration of eight VoiceStream common share per
preferred share. The value of the preferred stock at December 31, 2000 is $3.2
billion and will change based on the variables used in the Black-Scholes option
pricing model, which include the price and volatility of VoiceStream's common
shares. We also have 317,669 shares of 7% cumulative, convertible and redeemable
preferred stock of a consolidated subsidiary. The shares are redeemable at
$1,040 per share and convertible at a ratio of one preferred share to 26.512
VoiceStream common shares. The value of the preferred stock at December 31, 2000
is $848.0 million and will fluctuate based on the price of VoiceStream's common
shares.
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The table below presents principal cash flows and the related average
interest rates by expected maturity dates for certain financial instruments
sensitive to interest rate fluctuations that we held at December 31, 2000. For
interest rate derivatives, the table presents the notional amounts and weighted
average interest rates by contractual maturity dates.
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------
FAIR
2001 2002 2003 2004 2005 THEREAFTER TOTAL VALUE
---------- ------- -------- -------- -------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
ASSETS
Commercial paper................. $2,306,309 $ -- $ -- $ -- $ -- $ -- $2,306,309 $2,305,635
Avg interest rate................ 6.6% -- -- -- -- -- N/A N/A
LIABILITIES
Long term debt fixed rate........ $ 32,113 $ -- $ -- $ -- $ -- $2,657,486 $2,689,599 $2,568,586
Avg. interest rate............... 8.0% -- -- -- -- 10.5%
Long term debt floating rate..... -- -- $100,000 $187,250 $247,125 $2,790,625 $3,325,000 $3,325,000
Avg. interest rate............... -- -- 8.7% 9.0% 9.0% 9.2% N/A N/A
INTEREST RATE DERIVATIVES
INTEREST RATE SWAPS
Pay fixed/receive variable....... $ 580,000 $45,000 $ 85,000 $ 60,000 $ -- $ -- $ 770,000 $ 625
Avg. pay rate.................... 6.3% 5.4% 6.3% 6.8% -- -- N/A N/A
Avg. receive rate................ 6.0% 5.9% 5.9% 6.0% -- -- N/A N/A
INTEREST RATE CAPS
Notional amount.................. $ 60,000 $ -- $ 40,000 $ -- $ -- $ -- $ 100,000 $ 12
Strike rate...................... 6.7% -- 8.8% -- -- -- N/A N/A
Forward rate..................... 6.0% -- 5.9% -- -- -- N/A N/A
INTEREST RATE COLLARS
Notional amount.................. $ 60,000 $60,000 $ -- $ -- $ -- $ -- $ 120,000 $ (8)
Strike rate -- upper............. 6.8% 6.5% -- -- -- -- N/A N/A
Strike rate -- lower............. 4.9% 4.9% -- -- -- -- N/A N/A
Forward rate..................... 6.0% 5.9% -- -- -- -- N/A N/A
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are set forth on pages F-1
through F-30.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of our executive officers and directors are
listed below along with their business experience for the past five years. Mr.
Stanton, and, until May 3, 2002, Mr. Guthrie, may serve as officers of
VoiceStream and Western Wireless. It is anticipated that they will divide their
time between VoiceStream and Western Wireless.
NAME AGE POSITION
---- --- --------
John W. Stanton........................ 45 Chairman, Chief Executive Officer, and Director
Robert R. Stapleton.................... 42 President and Director
Douglas G. Smith....................... 47 Vice Chairman and Director
Donald Guthrie......................... 45 Vice Chairman and Director
Cregg B. Baumbaugh..................... 44 Executive Vice President, Finance, Strategy and
Development
Alan R. Bender......................... 46 Executive Vice President, General Counsel and
Secretary
Robert P. Dotson....................... 40 Executive Vice President, Marketing and Business
Operations
Timothy R. Wong........................ 44 Executive Vice President, Engineering and Technical
Operations
Allyn P. Hebner........................ 48 Vice President, Controller and Principal Accounting
Officer
Patricia L. Miller..................... 38 Senior Vice President, Business Operations
Julie A. Pollard....................... 34 Senior Vice President, Customer Operations and
Systems
Cole J. Brodman........................ 35 Senior Vice President, Technology Development
Mitchell R. Cohen...................... 37 Director
Daniel J. Evans........................ 75 Director
Richard L. Fields...................... 44 Director
Canning K. N. Fok...................... 49 Director
Jonathan M. Nelson..................... 44 Director
Terence M. O'Toole..................... 42 Director
James N. Perry, Jr..................... 40 Director
James J. Ross.......................... 62 Director
Hans Snook............................. 52 Director
Susan M.F. Woo Chow.................... 47 Director
Frank J. Sixt.......................... 49 Director
Kaj-Erik Relander...................... 38 Director
In addition, pursuant to the TDS stockholder agreement and subsequent to
the closing of the Aerial merger, TDS will have the right to designate an
additional director. TDS has not at this time determined who it will designate.
John W. Stanton has been a director of VoiceStream since February 1998, and
has been Chief Executive Officer and Chairman of VoiceStream since its formation
in 1994. Mr. Stanton has also been a director, Chief Executive Officer and
Chairman of Western Wireless and its predecessors since 1992. 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 also a member of the Board of Directors of Microcell
Telecommunications, Inc., Advanced Digital Information Corporation and Columbia
Sportswear, Inc. In addition, Mr. Stanton is a trustee of Whitman College, a
private college.
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Robert R. Stapleton has been a director of VoiceStream since April 1999 and
President of VoiceStream since its formation in 1994. Effective April 1998, Mr.
Stapleton became responsible for all operations of VoiceStream. Mr. Stapleton
was President of Western Wireless and one of its predecessors from 1992 to May
1999. From 1989 to 1992, he served in various positions with General Cellular,
including Chief Operating Officer and Vice President of Operations. From 1984 to
1989, Mr. Stapleton was employed by mobile communications subsidiaries of
Pacific Telesis, Inc., which now are affiliated with Vodafone AirTouch. Mr.
Stapleton is also a member of the Board of Directors of Microcell
Telecommunications, Inc. and Xircom, Inc.
Douglas G. Smith has been a director and Vice-Chairman of VoiceStream since
February 2000 when it merged with Omnipoint. Mr. Smith founded Omnipoint in June
1987 and served as its Chairman, President and Chief Executive Officer until
February 2000. From 1985 to 1987, he was one of four professionals in a small
venture capital fund focusing on opportunities in the electronic information
industry. From 1980 to 1985, he founded and managed the Investment Data Systems
Division of Strategic Information (a division of Ziff-Davis Publishing).
Donald Guthrie has been a director of VoiceStream since April 1999 and has
been Vice Chairman since February 1998. He has also served as Vice Chairman of
Western Wireless since November 1995. From February 1997 to April 1999, he also
served as the Chief Financial Officer of Western Wireless. From 1986 to October
1995, he served as Senior Vice President and Treasurer of McCaw Cellular and,
from 1990 to October 1995, he served as Senior Vice President, Finance of LIN
Broadcasting.
Cregg B. Baumbaugh has been Executive Vice President, Finance, Strategy and
Development of VoiceStream since May 3, 1999. He served as Senior Vice
President, Corporate Development of VoiceStream and Western Wireless from 1994
to May 1999. From November 1989 through May 1999, he served in various positions
with Western Wireless and its predecessor, including Vice President, Business
Development.
Alan R. Bender has been Executive Vice President, General Counsel and
Secretary of VoiceStream since May 3, 1999. He also held the positions of
Executive Vice President and Secretary of Western Wireless until July 2000, and
was General Counsel of Western Wireless until February 2000. From 1990 to May
1999, he held various positions with Western Wireless, VoiceStream and their
respective predecessors, including serving as Senior Vice President and General
Counsel and Secretary since 1994.
Robert P. Dotson has been Executive Vice President, Marketing and Business
Operations since March 12, 2001. From May 3, 1999 to March 12, 2001 he served as
Senior Vice President, Marketing and Sales of VoiceStream. From 1996 to May
1999, he served as Vice President, Marketing of VoiceStream and Western
Wireless. Previously, Mr. Dotson held various marketing positions with PepsiCo's
KFC restaurant group, serving as Senior Director of Concept Development from
1994 to 1996, Director of International Marketing from 1993 to 1994, Divisional
Marketing Director from 1991 to 1993 and Manager of New Product Development and
Base Business Marketing from 1989 through 1991.
Timothy R. Wong has been Executive Vice President, Engineering and
Technical Operations since March 12, 2001. From May 3, 1999 to March 12, 2001 he
served as Senior Vice President, Engineering of VoiceStream. From 1996 to May
1999, he served as Vice President, Engineering of VoiceStream and Western
Wireless. From 1990 to 1995, Mr. Wong held various positions at US WEST
Cellular, serving as Executive Director, Engineering and Operations from 1994 to
1995, Director of Wireless Systems Engineering in 1993, Manager of International
Wireless Engineering in 1992 and Manage, Systems Design from 1990 to 1991.
Allyn P. Hebner has been Vice President, Controller and Principal
Accounting Officer since September 2000. From April 2000 to September 2000, he
served as a consultant to VoiceStream's accounting organization. From 1991 to
1998, Mr. Hebner served in various senior financial management positions with
Puget Sound Energy and its predecessors.
Patricia L. Miller has been Senior Vice President, Business Operations
since March 12, 2001. From September 2000 to March 2001 she served as Vice
President, Business Operations. From May 1999 to September 2000 she served as
Vice President, Controller and Principal Accounting Officer of VoiceStream. From
1998 to May 1999, she served as Controller and Principal Accounting Officer of
VoiceStream and
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Western Wireless. From 1993 to 1997, Ms. Miller held various accounting
positions with Western Wireless. Prior to 1993, Ms. Miller held various
accounting positions with a subsidiary of Weyerhaeuser Company.
Julie A. Pollard has been Senior Vice President, Customer Operations and
Systems since March 12, 2001. From May 1999 to March 12, 2001 she served as Vice
President, Customer Operations and Systems. From March 1995 to May 1999, she
served as Vice President, Customers Operations and Systems of VoiceStream and
Western Wireless. Prior to March 1995 she held positions in Finance and
Information Technology with AirTouch Cellular and Ernst and Young.
Cole J. Brodman has been Senior Vice President, Technology Development
since March 12, 2001. From May 1999 to March 12, 2001 he served as Vice
President, Technology Development. From October 1995 to May 1999, he served as
Vice President, Systems and Product Engineering of VoiceStream and Western
Wireless. Prior to October 1995, he was with Nortel Networks where he held
positions in product management, development, and product marketing in long
distance and wireless product organizations.
Mitchell R. Cohen has been a director of VoiceStream since February 1998.
He has also been a director of Western Wireless since its formation in 1994. Mr.
Cohen was a director of General Cellular from March 1992 to December 1995. Mr.
Cohen is a Managing Director of Hellman & Friedman, having joined Hellman &
Friedman as an associate in July 1989. From 1986 to 1989, Mr. Cohen was employed
by Shearson Lehman Hutton, Inc.
Daniel J. Evans has been a director of VoiceStream since February 1998. He
has also been a director of Western Wireless since 1997. Mr. Evans is the
Chairman of Daniel J. Evans Associates, a consulting firm. From 1965 through
1977, Mr. Evans was Governor of the State of Washington. In 1983 he was
appointed and then elected to the United States Senate to fill the seat of the
late Senator Henry M. Jackson. He serves as a director of Flow International
Corporation, Cray Computer Company and National Information Consortium, and
serves on the Board of Regents of the University of Washington.
Richard L. Fields has been a director of VoiceStream since February 2000.
Mr. Fields served as a director of Omnipoint from September 1991 to February
2000. Since February 1994, Mr. Fields has been a Managing Director and Executive
Vice President of Allen & Company Incorporated, and prior to such time he was a
Vice President of Allen & Company Incorporated. Mr. Fields is currently a
director of LivePerson, Inc. and the Telecommunications Development Fund.
Canning K.N. Fok has been a director of VoiceStream since February 1998.
For more than seven years, Mr. Fok has been Group Managing Director of Hutchison
Whampoa Limited. Other appointments include Chairman of Hutchison
Telecommunications (Australia) Limited and Partner Communications Company Ltd.,
Co-Chairman of Husky Energy Inc., Deputy Chairman of Cheung Kong Infrastructure
Holdings Limited and Hongkong Electric Holdings Limited and Director of Cheung
Kong (Holdings) Limited. Mr. Fok is a Chartered Accountant.
Jonathan M. Nelson has been a director of VoiceStream since February 1998.
He has also been a director of Western Wireless since its formation in 1994. Mr.
Nelson has been President of Providence Equity Partners Inc., an investment
advisor, since its inception in 1995 and is President of Providence Equity
Partners III L.L.C. which is the general partner of the general partner of
Providence Equity Partners III L.P. and Providence Equity Operating Partners III
L.P. He is also Co-Chairman of Providence Ventures Inc., an investment advisor
and a managing general partner of Providence Ventures L.P., which is the general
partner of Providence Media Partners L.P., a venture capital fund. Mr. Nelson is
currently a director of AT&T Canada.
Terence M. O'Toole has been a director of VoiceStream since February 1998.
He has also been a director of Western Wireless since it was formed in 1994. Mr.
O'Toole joined Goldman Sachs & Co. ("Goldman Sachs") in 1983 and became a Vice
President in 1987, a general partner in 1992 and a Managing Director in 1996. He
is currently a director of AMF Bowling, Inc. and Amscan Holdings, Inc.
James N. Perry, Jr. has been a director of VoiceStream since February 2000.
Mr. Perry was a Director of Omnipoint from August 1993 to February 2000. In
January 1993, he became Managing Director of Madison
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Dearborn Capital Partners L.P. Previously, Mr. Perry served in various positions
at First Capital Corporation of Chicago and its affiliates. Mr. Perry currently
serves as a director of Allegiance Telecom, Inc., Completel and Focal
Communications.
James J. Ross has been a director of VoiceStream since February 2000. Mr.
Ross was Vice-Chairman of the Omnipoint Corporation Board from 1989 to February
2000. Mr. Ross is a private venture investor. Since February 1995, Mr. Ross has
been of counsel in the law firm of Becker Ross Stone DeStefano & Klein and prior
to such time, he was a partner at such firm.
Hans R. Snook has been a director of VoiceStream since February 1998. For
more than five years, Mr. Snook has been Group Managing Director of Orange plc,
a telecommunications service provider in the United Kingdom.
Susan M.F. Woo Chow has been a director of VoiceStream since February 2000.
Ms. Chow has served as an Executive Director of Hutchison Whampoa Limited since
1993 and Deputy Group Managing Director of Hutchison Whampoa Limited since 1998.
She is also an Executive Director of Cheung Kong Infrastructure Holdings Limited
and a Director of Hongkong Electric Holdings Limited, Partner Communications
Company Ltd. and TOM.COM LIMITED.
Frank J. Sixt has been a director of VoiceStream since February 2000. Mr.
Sixt has served as an Executive Director of Hutchison Whampoa Limited since 1991
and Group Finance Director of Hutchison Whampoa Limited since 1998. He is also
the Chairman of TOM.COM LIMITED, an Executive Director of Cheung Kong
Infrastructure Holdings Limited and Hongkong Electric Holdings Limited and a
Director of Cheung Kong (Holdings) Limited, Hutchison Telecommunications
(Australia) Limited and Partner Communications Company Ltd.
Kaj-Erik Relander has been a director of VoiceStream since February 2000.
He has been the Executive Vice President, International Operations, Deputy Chief
Executive Officer since March 2000 and the Chief Financial Officer of Sonera
since 1999 and, since January 1, 2000, he has served as the head of Sonera's new
Mobile and Media Division. Since joining Sonera in 1994, Mr. Relander has also
served as its Group Business Controller and as Director, Finance and Business
Development. He has been appointed President and Chief Executive Officer of
Sonera effective January 1, 2001 and is currently a director of Turkcell
Iletisim Hizmfleri AS.
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ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation for services rendered
during 2000, 1999 and 1998 for our Chief Executive Officer and our next four
most highly compensated executive officers (collectively referred to herein as
the named executive officers). All such compensation was paid by Western
Wireless prior to May 1999, at which time VoiceStream was spun-off by Western
Wireless. In accordance with an agreement entered into at the time of the
spin-off, following the spin-off Messrs. Stanton, Guthrie and until July 2000,
Mr. Bender, divided their time and responsibilities in between VoiceStream and
Western Wireless as necessary and those two companies divided their compensation
as appropriate. Beginning in July 2000, Mr. Bender became a full time employee
of VoiceStream. The following table includes all compensation paid to the named
executive officers by both VoiceStream and Western Wireless.
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ----------------------
-------------------------------- RESTRICTED
FISCAL STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTIONS AWARDS($)(2) COMPENSATION($)(3)
--------------------------- ------ --------- ----------- ------- ------------ ------------------
John W. Stanton.......................... 2000 411,610 -- 1,000 -- --
Chairman and Chief 1999 295,000 1,000,000(5) 939 660,000 464,593
Executive Officer 1998 193,542 400,000 954 521,250 367,974
Robert R. Stapleton...................... 2000 355,306 -- 85,000 16,455,463 11,465,787
President and Director 1999 232,210 329,000 140,876 330,000 234,796
1998 165,667 200,000 124,407 260,625 186,487
Donald Guthrie........................... 2000 150,127 --(4) 35,000 6,624,215 4,620,876
Vice Chairman and Director 1999 212,865 180,000(5) 56,350 330,000 234,796
1998 165,667 150,000 57,263 260,625 186,487
Cregg B. Baumbaugh....................... 2000 215,449 -- 50,000 8,972,770 6,255,112
Executive Vice President -- Finance, 1999 169,064 170,000 75,134 220,000 158,197
Strategy and Development 1998 145,321 110,000 66,350 173,750 125,992
Alan R. Bender........................... 2000 189,227 --(4) 50,000 5,539,761 3,863,897
Executive Vice President, 1999 169,060 170,000(5) 37,567 220,000 158,197
General Counsel and Secretary 1998 145,321 110,000 38,175 173,750 125,992
---------------
(1) The bonuses for 2000 have not yet been determined.
(2) The shares awarded in 1998 and 1999 were of Western Wireless common stock,
which are restricted until predetermined performance goals are met,
including achieving levels of subscribers and achieving levels of cash flow
(provided that the Board of VoiceStream may modify performance goals in its
discretion). The value shown is based upon the market value of Western
Wireless common stock on the date of grant. The shares awarded in 2000 were
of VoiceStream common shares, which have vested and are no longer subject
to restriction based upon VoiceStream having reached certain performance
targets. The value shown is based upon the market value of the shares on
the date of grant.
(3) VoiceStream made payments to cover the taxes related to the grant of
restricted shares and paid matching contributions to VoiceStream's 401(k)
Profit Sharing Plan and Trust.
(4) The allocation of the bonuses for 2000 between VoiceStream and Western
Wireless will be determined at the time the 2000 bonuses are paid.
(5) Represents the aggregate bonuses paid by VoiceStream and Western Wireless,
of which 60% was paid by VoiceStream and 40% was paid by Western Wireless.
GRANTS OF STOCK OPTIONS
The following table summarizes options granted during 2000 to each of the
named executive officers.
POTENTIAL REALIZABLE
PERCENTAGE VALUE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATES OF
VOICESTREAM OPTIONS STOCK APPRECIATION
COMMON SHARES GRANTED TO EXERCISE OR FOR OPTION TERM(2)
UNDERLYING OPTIONS EMPLOYEES IN BASE PRICE -----------------------
NAME GRANTED(1) FISCAL YEAR PER SHARE EXPIRATION DATE 5%($) 10%($)
---- ------------------ ------------ ------------- ---------------- --------- ----------
John W. Stanton...... 1,000 .065 112.6875 January 14, 2010 70,869 179,596
Robert R.
Stapleton.......... 85,000 5.526 112.6875 January 14, 2010 6,023,897 15,265,672
Donald Guthrie....... 35,000 2.275 112.6875 January 14, 2010 2,480,428 6,285,865
Cregg B. Baumbaugh... 50,000 3.250 112.6875 January 14, 2010 3,543,468 8,979,807
Alan R. Bender....... 50,000 3.250 112.6875 January 14, 2010 3,543,468 8,979,807
---------------
(1) These options have terms of ten years from the date of grant, January 14,
2000, and become exercisable as to 25% of the shares on January 14, 2001
and an additional 25% of the original grant on January 14 of every year
thereafter until such options are fully exercisable.
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(2) Potential realizable value is based on an assumption that the stock price
of our common stock appreciates at the annual rate shown (compounded
annually) from the date of grant until the end of the option term. These
numbers are calculated based on the requirements of the SEC and do not
reflect our estimate of future stock price performance.
AGGREGATED OPTION VALUES
The following table summarizes on an aggregated basis the number and value
of our options granted to the named executive officers. We do not have any
outstanding stock appreciation rights.
AGGREGATE OPTION EXERCISES AND OPTION VALUES
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
NUMBER OF DECEMBER 31, 2000 AT DECEMBER 31, 2000($)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ----------- ------------- ----------- -------------
John W. Stanton.................... 720 78,804 -- 2,173 -- 105,725
Robert R. Stapleton................ 118,000 13,937,306 497,387 261,095 46,809,851 15,871,548
Donald Guthrie..................... 80,000 9,293,465 183,617 105,437 17,175,558 6,348,529
Cregg B. Baumbaugh................. 100,125 11,661,400 126,957 143,916 11,763,156 8,464,704
Alan R. Bender..................... 25,000 2,916,643 144,419 96,958 13,532,923 4,232,352
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In connection with the completion of the Omnipoint merger on February 25,
2000, Hutchison made an investment of $957 million in VoiceStream for common and
convertible preferred securities at a purchase price of $29 per common share. A
portion of this investment was made upon the signing of the merger agreement
with Omnipoint on June 23, 1999 when Hutchison invested $102.5 million in
Omnipoint preferred stock. An additional $47.5 million was invested in Omnipoint
preferred stock in October 1999. Upon closing of the merger, the Omnipoint
preferred stock was exchanged for VoiceStream common shares at a purchase of $29
per common share and Hutchison invested $196.4 million in exchange for
VoiceStream common shares and $610.6 million in exchange for VoiceStream 2.5%
convertible preferred stock. The convertible preferred stock was converted into
VoiceStream common shares during 2000 at a conversion price of $29 per share.
Susan M.F. Woo Chow, who has been a member of VoiceStream's Board of Directors
since February 2000 and who was a member of the Compensation Committee of the
Board of Directors of VoiceStream in 2000, is the Deputy Group Managing Director
of Hutchison.
On February 14, 2001, VoiceStream exchanged an aggregate of 4,321,334
VoiceStream common shares with Providence Media Partners, L.P., Providence
Equity Partners III, L.P. and Providence Equity Operating Partners III, L.P. for
their interests in Cook Inlet PCS and CIVS, as applicable. Jonathan Nelson, who
has been a member of VoiceStream's Board of Directors since February 1998 and
who is a member of the Compensation Committee of the Board of Directors of
VoiceStream, is a member and a managing director of Providence Equity Partners
III, LLC, an affiliate of Providence Equity Partners III, L.P. and Providence
Equity Operating Partners III, L.P. and is the managing general partner of
Providence Ventures L.P., an affiliate of Providence Media Partners, L.P.
DIRECTOR COMPENSATION
Each director of VoiceStream received 1,000 stock options for serving on
the Board of Directors in 2000. These options have terms of ten years from the
date of grant, January 14, 2000, and become exercisable as to 25% of the shares
on January 14, 2001, and an additional 25% of the original grant on January 14
of every year thereafter until such options are fully exercisable, provided that
such director remains continuously on the Board. Options granted to Mr. O'Toole
are held for the benefit of Goldman Sachs, options granted to Mr. Nelson are
held for the benefit of Providence Equity Partners, Inc. and options granted to
Mr. Cohen are held for the benefit of Hellman & Friedman Partners II, L.P.
Directors are also reimbursed for their out-of-pocket expenses incurred in
connection with attendance at meetings of, and other activities relating to
serving on, the Board and any committees thereof. Mr. Evans is further
compensated $6,000 per quarter and $1,500 for each Board meeting he attends.
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EMPLOYMENT AGREEMENTS
Mr. Stanton is the Chief Executive Officer of both VoiceStream and Western
Wireless. He has separate employment agreements with each company. His agreement
with VoiceStream provides for an annual base salary of $500,000 and an
opportunity to earn an annual bonus, as determined by the Board of Directors, of
100% of that amount.
Mr. Guthrie is an officer of both VoiceStream and Western Wireless and will
divide his time and responsibilities between the two companies but only has an
employment agreement with VoiceStream. Western Wireless has agreed to reimburse
VoiceStream for all executive compensation for Mr. Guthrie which is attributable
to time spent and services rendered for Western Wireless. His employment
agreement provides for an annual base salary of $250,000 and an opportunity to
earn an annual bonus, as determined by the Board of Directors, of 100% of that
amount.
Mr. Bender is an officer of VoiceStream, but he is not an officer or
employee of Western Wireless. His employment agreement provides for an annual
base salary of $225,000 and an opportunity to earn an annual bonus, as
determined by the Board of Directors, of 60% of that amount. From time to time,
Mr. Bender may render services to Western Wireless, and if he does so Western
Wireless has agreed to reimburse VoiceStream for the compensation paid to him
that is attributable to those services.
Messrs. Stapleton and Baumbaugh have employment agreements with VoiceStream
that provide for annual base salaries of $350,000 and $225,000, respectively,
and provide an opportunity to earn annual bonuses, as determined by the Board of
Directors, of 80% and 60%, respectively, of those amounts.
The employment agreements also provide that the contracting employee may be
terminated by VoiceStream, at any time, with or without cause (as such term is
defined in the employment agreements); however, in the event of an involuntary
termination (as defined therein) for other than cause (1) such executive officer
will be entitled to receive a severance payment in an amount equal to any
accrued but unpaid existing annual targeted incentive bonus through the date of
termination, 12 months of such executive's then base compensation, and an amount
equal to 12 months of such executive's existing annual targeted incentive bonus,
(2) the employer will, at its expense, make all specified insurance payment
benefits on behalf of such executive officer and his or her dependents for 12
months following such involuntary termination and (3) with respect to any stock
options previously granted to each executive officer (except for Mr. Stapleton)
that remain unvested at the time of involuntary termination, there shall be
immediate vesting of that portion of each such grant of any unvested stock
options equal to the product of the total number of such unvested options under
such grant multiplied by a fraction, the numerator of which is the sum of the
number of days from the date on which the last vesting of options under such
grant occurred to and including the date of termination plus 365, and the
denominator of which is the number of days remaining from the date on which the
last vesting of options under such grant occurred to and including the date on
which the final vesting under such grant would have occurred absent the
termination. Mr. Stapleton's agreement provides for an immediate vesting of all
options upon his involuntary termination. Among other things, an executive
officer's death or permanent disability will be deemed an involuntary
termination for other than cause. In addition, each employment agreement
provides for full vesting of all stock options granted upon a change of control,
as such term is defined in the stock option agreements with the executive
officer. Despite the foregoing provision, the options held by the named
executive officers will not become immediately fully vested and exercisable
because each of them has waived the acceleration of the vesting of their
options.
Pursuant to the terms of each of these employment agreements, each
executive officer agrees that during such executive officer's employment and for
one year following the termination of such executive officer's employment for
any reason, such executive officer will not engage in a business which is
substantially the same as or similar to the business of VoiceStream and which
competes within the applicable commercial mobile radio services markets serviced
by VoiceStream. Mr. Stanton's agreement provides that such prohibition shall not
preclude Mr. Stanton's investment in other companies engaged in the wireless
communications business or his ability to serve as a director of other companies
engaged in the wireless communications business, in each case subject to his
fiduciary duties as a director.
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INDEMNIFICATION AGREEMENTS
We have entered into an indemnification agreement with each of our
executive officers and directors, which will be separate from such executive
officer's employment agreement with Western Wireless, as the case may be.
Pursuant to this indemnification agreement, we will indemnify the executive
officer or director against certain liabilities arising by reason of the
executive officer's or the director's affiliation with us.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of VoiceStream common shares and vested options to purchase
VoiceStream common shares as of March 16, 2001, except as otherwise noted below,
including beneficial ownership by:
- each person who is known by VoiceStream to own beneficially 5% or more
of the outstanding VoiceStream common shares;
- each VoiceStream director;
- each of the executive officers named in the summary compensation table
in VoiceStream's annual report on Form 10-K for the fiscal year ended
December 31, 1999, which in this document we refer to as the "named
executive officers"; and
- all directors and executive officers as a group.
The information in the table below has been calculated in accordance with
Rule 13d-3 under the Exchange Act. Except as indicated in the footnotes to the
table, the persons named in the table have sole voting and investment power with
respect to all VoiceStream common shares shown as beneficially owned by them,
subject to community property laws where applicable. A person or entity is
considered to "beneficially own" any shares over which such person or entity
exercises sole or shared voting or investment power, or, which such person or
entity has the right to acquire at any time within 60 days of March 16, 2001. In
addition to the common share ownership information set forth below, on September
6, 2000, Deutsche Telekom acquired the entire class of outstanding VoiceStream
voting preferred shares, consisting of 3,906,250 shares. Each VoiceStream voting
preferred share entitles its holder to one vote, voting together as a single
class with the holders of VoiceStream common shares. The business address of
VoiceStream's directors, other than as
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noted below, and executive officers is: c/o VoiceStream Wireless Corporation,
12920 SE 38th Street, Bellevue, WA 98006.
VOICESTREAM
-----------------------------------------
COMMON SHARES PERCENT BENEFICIALLY
BENEFICIALLY OWNED OWNED
------------------ --------------------
Hutchison Whampoa Limited................................... 55,899,252 21.82%
22nd Floor, Hutchison House
10 Harcourt Road
Hong Kong
TDSI Corporation, a wholly-owned subsidiary of.............. 35,570,494 13.88%
Telephone & Data Systems, Inc
30 N. LaSalle Street, Suite 4000
Chicago, IL 60602
Sonera Corporation.......................................... 18,975,774 7.41%
Fin-00051-Tele
Sturenkatu 16, Helsinki
Finland
The Goldman Sachs Group, Inc.(a)(j)......................... 9,230,469 3.60%
and related investors
85 Broad Street, 10th Floor
New York, NY 10004
John W. Stanton and Theresa E. Gillespie(b)(c).............. 6,062,652 2.37%
12920 SE 38th Street
Bellevue, WA 98006
Douglas G. Smith(b)(d)...................................... 4,174,911 1.63%
3 Metrocenter, Suite 400
Bethesda, MD 20814
Jonathan M. Nelson(b)(e).................................... 2,286,258 *
50 Kennedy Plaza
Providence RI 02903
Richard L. Fields(b)(f)..................................... 2,129,703 *
711 Fifth Avenue
New York, NY 10022
James N. Perry, Jr.(b)(g)................................... 588,067 *
Three First National Plaza
Suite 1330
Chicago, IL 60602
Cregg B. Baumbaugh(b)....................................... 278,050 *
Alan R. Bender(b)........................................... 241,028 *
James J. Ross(b)(h)......................................... 995,406 *
Robert R. Stapleton(b)...................................... 786,703 *
Donald Guthrie(b)........................................... 425,980 *
Mitchell R. Cohen(b)(i)..................................... 25,610 *
Daniel J. Evans(b).......................................... 7,288 *
Terence M. O'Toole(b)(j).................................... 9,230,469 3.60%
Canning Fok(b)(k)........................................... 55,899,972 22.26%
Susan M. F. W. Chow(b)(k)................................... 55,899,502 22.26%
Frank J. Sixt(b)(k)......................................... 55,899,502 22.26%
Hans Snook(b)............................................... 3,685 *
Kaj-Erik Relander(b)(1)..................................... 18,976,024 7.41%
All directors and executive officers as a group (24
persons)(b)(m)............................................ 136,437,220 53.25%
---------------
* Less than 1% of the outstanding common shares.
NOTES TO BENEFICIAL OWNERSHIP TABLE
(a) Includes (1) 8,460,286 VoiceStream common shares held of record by GS
Capital Partners, L.P., (2) 442,847 VoiceStream common shares held of
record by Stone Street Fund 1992, L.P., (3) 257,075 VoiceStream common
shares held of record by Bridge Street Fund 1992, L.P., and (4) 68,821
VoiceStream common shares held of record by The Goldman Sachs Group, Inc.
Each of GS Capital, Stone Street and Bridge Street is an investment limited
partnership, the general partner, the managing general partner or the
managing partner of an affiliate of The Goldman Sachs Group, Inc. Goldman
Sachs and The Goldman Sachs Group, Inc. disclaims beneficial ownership of
shares held by such investment partnerships to the extent interests in such
partnerships are held by persons other than The Goldman Sachs Group, Inc.
and its affiliates. Also includes options to purchase 1,440 common shares
granted to Mr. Terence M. O'Toole that he holds for the benefit of The
Goldman Sachs Group, Inc. Mr. O'Toole, who is a managing director of
Goldman Sachs, disclaims beneficial ownership of these
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common shares. Excludes (i) common shares owned by Goldman Sachs which were
acquired in ordinary course trading activities and (ii) common shares held
in client accounts, for which Goldman Sachs exercises voting or investment
authority, or both. Goldman Sachs and The Goldman Sachs Group, Inc.
disclaim beneficial ownership of common shares held in these client
accounts.
(b) May include stock jointly or separately owned with or by a spouse or a
family trust.
(c) Mr. Stanton and Ms. Gillespie are husband and wife. Their beneficial
ownership includes (1) 1,686,069 VoiceStream common shares held of record
by PN Cellular, Inc., which is substantially owned and controlled by Mr.
Stanton and Ms. Gillespie; (2) 1,274,519 VoiceStream common shares held of
record by Stanton Communications Corporation which is substantially owned
and controlled by Mr. Stanton and Ms. Gillespie, as tenants in common; (3)
164,437 VoiceStream common shares held by The Stanton Family Trust; and (4)
35,000 VoiceStream common shares and 10,000 VoiceStream common shares held
of record by each of Mr. Stanton and Ms. Gillespie, respectively, pursuant
to the Western Wireless 1997 Executive Restricted Stock Plan. Mr. Stanton
and Ms. Gillespie share voting and investment power with respect to the
shares jointly owned by them, as well as the shares held of record by PN
Cellular, Stanton Communications Corporation and the Stanton Family Trust.
(d) Includes 27,896 VoiceStream common shares owned by Mr. Smith's minor
children, 2,348,630 common shares held by Avance Capital, Avance Capital
II, Avance Capital III, all sole proprietorships, and 428,572 VoiceStream
common shares held in a grantor trust. Mr. Smith does not exercise voting
or investment power over, and disclaims beneficial ownership of, the shares
held in the grantor trust. Of the total shares held in Mr. Smith's name and
in the name of Avance, 1,428,572 are held in a blind trust. While Mr. Smith
is the beneficial owner of these shares, he exercises no control over these
shares. The blind trust is free to sell, exchange, hedge, or otherwise
dispose of these shares at any time. Mr. Smith has voting and investment
power with respect to the other shares.
(e) Includes 2,156,024 VoiceStream common shares held by Providence Media
Services, Inc., Providence Media Partners, L.P., Providence Equity Partners
III, L.P., and Providence Equity Operating Partners III, L.P. and options
to purchase 250 VoiceStream common shares granted to Mr. Nelson that he
holds for the benefit of Providence Media Services, Inc. Mr. Nelson is
President of Providence Media Services, Inc. and Providence Equity Partners
III, LLC, which is the general partner of the general partner of Providence
Equity Partners III L.P. and Providence Equity Operating Partners III L.P.
Mr. Nelson disclaims beneficial ownership of the shares listed above except
to the extent of his pecuniary interest therein, if any.
(f) Includes 1,867,076 VoiceStream common shares owned by Allen & Company
Incorporated. Mr. Fields is a Managing Director of Allen & Company
Incorporated. Of such amounts, Mr. Fields does not exercise voting or
investment power over, and disclaims beneficial ownership of the 1,867,076
VoiceStream common shares owned by Allen & Company Incorporated.
(g) Includes 562,267 VoiceStream common shares owned by Madison Dearborn
Partners, L.P. and 8,307 VoiceStream common shares held in trust for Mr.
Perry's children. Mr. Perry is a member of the committee that manages
Madison Dearborn Partners, L.P. Mr. Perry may therefore be deemed to share
investment control with respect to the common shares owned by Madison
Dearborn Partners, L.P. and may therefore be deemed to have beneficial
ownership of shares of common shares owned by Madison Dearborn Partners,
L.P.
(h) Includes 256,724 VoiceStream common shares held in trust for Mr. Ross'
children. Mr. Ross may be deemed to be the beneficial owner of such shares.
(i) Includes options to purchase 485 VoiceStream common shares granted to Mr.
Cohen that he holds for the benefit of Hellman & Friedman Partners II, L.P.
Mr. Cohen disclaims beneficial ownership of these shares.
(j) Includes 9,230,469 VoiceStream common shares beneficially owned by Goldman
Sachs and its affiliates. Mr. O'Toole, who is a managing director of
Goldman Sachs, disclaims beneficial ownership of VoiceStream common shares,
which may be deemed to be beneficially owned by The Goldman Sachs Group,
Inc., except to the extent of his pecuniary interest therein, if any.
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(k) Includes 55,899,252 VoiceStream common shares owned by Hutchison Whampoa
Limited, as Mr. Fok is the Group Managing Director of Hutchison Whampoa
Limited, and each of Mrs. Chow and Mr. Sixt are executive directors of
Hutchison Whampoa Limited. Each of Mr. Fok, Mrs. Chow and Mr. Sixt disclaim
beneficial ownership of these shares.
(l) Kaj-Erik Relander, the director designated by Sonera Corporation, may be
deemed to be the owner of the VoiceStream common shares owned by Sonera
Corporation. Mr. Relander disclaims beneficial ownership of these shares.
(m) In determining the aggregate number of shares owned by VoiceStream executive
officers and directors, VoiceStream common shares as to which such executive
officers and directors share voting or investment power have not been
duplicated.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Goldman Sachs and its affiliates have a principal investment in VoiceStream
in the amount of 9,230,469 VoiceStream common shares representing approximately
four percent of the outstanding VoiceStream common shares, and have the right to
designate a nominee for election to VoiceStream's Board of Directors. Terence M.
O'Toole, a managing director of Goldman Sachs, is one of VoiceStream's
directors. VoiceStream has engaged in a number of transactions with Goldman
Sachs, as described below.
Pursuant to a letter agreement dated October 7, 1998, VoiceStream engaged
Goldman Sachs to act as VoiceStream's financial advisor in connection with the
acquisitions of Omnipoint and Aerial. As VoiceStream's financial advisor,
Goldman Sachs performed analyses and issued fairness opinions to VoiceStream's
Board of Directors in connection with those acquisitions. In accordance with the
letter agreement, VoiceStream paid Goldman Sachs $14,000,000 upon consummation
of the Omnipoint merger and $6,000,000 upon consummation of the Aerial merger.
In addition, VoiceStream reimbursed Goldman Sachs for its reasonable
out-of-pocket expenses, including attorney's fees, and agreed to indemnify
Goldman Sachs against certain liabilities, including certain liabilities under
the federal securities laws, in connection with those transactions. Goldman
Sachs' out-of-pocket expenses relating to the Omnipoint merger were
approximately $197,830 and its out-of-pocket expenses with respect to the Aerial
merger were approximately $94,538.
Pursuant to a letter agreement dated July 21, 2000, VoiceStream engaged
Goldman Sachs to act as VoiceStream's financial advisor in connection with the
currently proposed merger with Deutsche Telekom. As VoiceStream's financial
advisor, Goldman Sachs performed analyses and issued a fairness opinion to
VoiceStream's Board of Directors in connection with that proposed acquisition.
In accordance with the letter agreement, VoiceStream paid Goldman Sachs $10
million on completion of the sale of shares of VoiceStream's convertible voting
preferred stock to Deutsche Telekom pursuant to the Stock Subscription Agreement
between Deutsche Telekom and VoiceStream (which occurred on September 6, 2000)
and an additional $15 million on the date that VoiceStream's shareholders voted
to adopt the merger agreement with Deutsche Telekom (which occurred on March 13,
2001). VoiceStream has also agreed to pay Goldman Sachs a transaction fee equal
to $70 million upon completion of the merger with Deutsche Telekom, against
which transaction fee the $25 million paid in accordance with the preceding
sentence will be credited.
Finally, pursuant to a letter agreement dated May 8, 2000, VoiceStream
engaged Goldman Sachs to act as VoiceStream's financial advisor in connection
with the currently proposed merger with Powertel. As VoiceStream's financial
advisor, Goldman Sachs performed analyses and issued a fairness opinion to
VoiceStream's Board of Directors in connection with the proposed acquisition of
Powertel. In accordance with the letter agreement, VoiceStream has agreed to pay
Goldman Sachs $10 million on completion of the acquisition of Powertel.
With respect to both the Deutsche Telekom/VoiceStream merger and the
VoiceStream/Powertel merger, VoiceStream has agreed to reimburse Goldman Sachs
for its reasonable out-of-pocket expenses, including attorney's fees, and to
indemnify Goldman Sachs against certain liabilities, including certain
liabilities under the federal securities laws, in connection with those
transactions.
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With respect to each of the transactions described above, VoiceStream
selected Goldman Sachs as VoiceStream's financial advisor because it is a
nationally recognized investment banking firm that has substantial experience in
transactions similar to those transactions.
Goldman Sachs Credit Partners, L.P., an affiliate of Goldman Sachs, has
underwritten $500 million of VoiceStream's $3.25 billion credit facility.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and, in the course of its normal trading activities, may from time to
time effect transactions and hold securities, including derivative securities,
of VoiceStream for its own accounts and for the accounts of customers.
In connection with the completion of the Omnipoint merger on February 25,
2000, Hutchison made an investment of $957 million in VoiceStream for common and
convertible preferred securities at a purchase price of $29 per common share. A
portion of this investment was made upon the signing of the merger agreement
with Omnipoint on June 23, 1999 when Hutchison invested $102.5 million in
Omnipoint preferred stock. An additional $47.5 million was invested in Omnipoint
preferred stock in October 1999. Upon closing of the merger, the Omnipoint
preferred stock was exchanged for VoiceStream common shares at a purchase of $29
per common share and Hutchison invested $196.4 million in exchange for
VoiceStream common shares and $610.6 million in exchange for VoiceStream 2.5%
convertible preferred stock. The convertible preferred stock was converted into
VoiceStream common shares during 2000 at a conversion price of $29 per share.
On August 26, 2000, VoiceStream entered into a merger agreement with
Powertel. If that merger is completed, Powertel will become a wholly owned
subsidiary of VoiceStream. Sonera owns 13% of the outstanding Powertel common
stock.
On February 14, 2001, VoiceStream exchanged an aggregate of 4,321,334
VoiceStream common shares with Providence Media Partners, L.P., Providence
Equity Partners III, L.P. and Providence Equity Operating Partners III, L.P. for
their interests in Cook Inlet PCS and CIVS, as applicable. Jonathan Nelson, who
has been a member of VoiceStream's Board of Directors since February 1998 and
who is a member of the Compensation Committee of the Board of Directors of
VoiceStream, is a member and a managing director of Providence Equity Partners
III, LLC, an affiliate of Providence Equity Partners III, L.P. and Providence
Equity Operating Partners III, L.P. and is the managing general partner of
Providence Ventures L.P., an affiliate of Providence Media Partners, L.P.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(A)(1) Financial Statements and Financial Statement Schedules
The financial statements and schedule listed in the Index to
Consolidated Financial Statements on page F-1, which is incorporated
herein by reference, are filed as part of this Form 10-K.
(2) Exhibits
The exhibits listed in the Index to Exhibits, which appears
immediately following the signature pages on pages E-1 through E-6 and
is incorporated herein by reference, are filed as part of this Form
10-K.
(B) Reports on Form 8-K
On October 11, 2000, VoiceStream filed a Form 8-K under Item 5 to attach as
exhibits its Amended and Restated Bylaws and the Certificate Of Designation Of
The Powers, Preferences And Relative, Participating, Optional And Other Special
Rights And Qualifications, Limitations And Restrictions Thereof Of Convertible
Voting Preferred Stock Of VoiceStream Wireless Corporation.
On December 20, 2000, VoiceStream filed a Form 8-K under Item 5 announcing
the completion of transactions through which VoiceStream exchanged VoiceStream
common shares for the interests of SSPCS Corporation and affiliates of Cook
Inlet Region, Inc. in certain joint venture entities.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
VOICESTREAM WIRELESS CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 2000 and
1999...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998.......................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2000, 1999 and 1998.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
F-1
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To VoiceStream Wireless Corporation:
We have audited the accompanying consolidated balance sheets of VoiceStream
Wireless Corporation (a Delaware corporation) and subsidiaries as of December
31, 2000 and 1999, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 VoiceStream Wireless
Corporation and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Seattle, Washington
February 7, 2001
F-2
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VOICESTREAM WIRELESS CORPORATION
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
ASSETS
AS OF DECEMBER 31,
-------------------------
2000 1999
----------- ----------
Current assets:
Cash and cash equivalents................................. $ 1,154,896 $ 235,433
Short-term investments.................................... 1,175,636 --
Accounts receivable, net of allowance for doubtful
accounts of $100,600 and $17,482, respectively.......... 469,475 97,739
Inventory................................................. 340,284 63,072
Prepaid expenses and other current assets................. 223,634 14,332
----------- ----------
Total current assets................................ 3,363,925 410,576
Property and equipment, net of accumulated depreciation of
$740,956 and $284,670, respectively....................... 3,467,550 931,792
Goodwill, net of accumulated amortization of $348,575 and
$0, respectively.......................................... 9,075,605 --
Licensing costs and other intangible assets, net of
accumulated amortization of $118,923 and $21,815,
respectively.............................................. 3,827,317 450,261
Investments in and advances to unconsolidated affiliates.... 498,869 409,721
Other assets and investments................................ 44,477 19,563
----------- ----------
$20,277,743 $2,221,913
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 150,632 $ 22,878
Accrued liabilities....................................... 404,621 114,534
Deferred revenue.......................................... 60,272 4,275
Construction accounts payable............................. 207,462 61,398
Current portion of long-term debt......................... 32,113 --
----------- ----------
Total current liabilities........................... 855,100 203,085
Long-term debt.............................................. 5,719,886 2,011,451
Minority interest in equity of consolidated subsidiaries.... 16,563 --
Preferred stock of consolidated subsidiary.................. 312,513 --
VoiceStream convertible voting preferred stock; $0.001 par
value; 100,000,000 shares authorized; 3,906,250 shares
issued and outstanding.................................... 5,000,000 --
Commitments and contingencies (Note 9)...................... -- --
Shareholders' equity:
Common stock, $0.001 par value, and paid-in capital; 1.0
billion shares authorized, 250,791,145 and 96,305,360
shares issued and outstanding, respectively............. 11,572,083 1,095,539
Deferred compensation..................................... (8,412) (25,264)
Accumulated other comprehensive loss...................... (45,238) --
Deficit................................................... (3,144,752) (1,062,898)
----------- ----------
Total shareholders' equity.......................... 8,373,681 7,377
----------- ----------
$20,277,743 $2,221,913
=========== ==========
See accompanying notes to consolidated financial statements.
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VOICESTREAM WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
2000 1999 1998
----------- --------- ---------
Revenues:
Subscriber revenues....................................... $ 1,172,748 $ 364,307 $ 121,870
Prepaid revenues.......................................... 237,079 2,495 2,096
Roamer revenues........................................... 110,245 9,295 3,506
Equipment sales........................................... 283,168 78,025 40,490
Affiliate and other revenues.............................. 119,457 21,407 640
----------- --------- ---------
Total revenues...................................... 1,922,697 475,529 168,602
----------- --------- ---------
Operating expenses:
Cost of service (excludes stock-based compensation of
$3,758, $12,237 and $0, respectively)................... 514,117 114,007 51,618
Cost of equipment sales................................... 513,955 136,584 77,071
General and administrative (excludes stock-based
compensation of $44,138, $38,255 and $0,
respectively)........................................... 689,994 134,812 75,343
Sales and marketing (excludes stock-based compensation of
$3,133, $10,198 and $0, respectively)................... 796,272 211,399 85,447
Depreciation and amortization............................. 810,827 140,812 83,767
Stock-based compensation.................................. 51,029 60,690 --
----------- --------- ---------
Total operating expenses............................ 3,376,194 798,304 373,246
----------- --------- ---------
Operating loss.............................................. (1,453,497) (322,775) (204,644)
----------- --------- ---------
Other income (expense):
Interest and financing expense............................ (477,613) (103,461) (34,118)
Equity in net losses of unconsolidated affiliates......... (233,565) (37,514) (19,414)
Interest income and other, net............................ 99,939 9,011 3,910
Accretion of preferred stock of consolidated subsidiary... (17,118) -- --
----------- --------- ---------
Total other income (expense)........................ (628,357) (131,964) (49,622)
----------- --------- ---------
Net loss.................................................... (2,081,854) (454,739) (254,266)
2.5% junior preferred stock dividends....................... (12,535) -- --
----------- --------- ---------
Net loss attributable to common shareholders................ $(2,094,389) $(454,739) $(254,266)
=========== ========= =========
Basic and diluted loss per common share..................... $ (10.93) $ (4.75) $ (2.75)
=========== ========= =========
See accompanying notes to consolidated financial statements.
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VOICESTREAM WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands)
ACCUMULATED
PAR VALUE OTHER
AND COMPREHENSIVE
COMMON PAID-IN DEFERRED INCOME
STOCK CAPITAL COMPENSATION (LOSS) DEFICIT TOTAL
----------- ----------- ------------ ------------- ----------- -----------
Balance, January 1, 1998.............. 76,531,259 $ 750,000 $ -- $ -- $ (353,893) $ 396,107
Shares issued:...................... -- -- -- -- -- --
Private placement................. 19,010,364 244,789 -- -- -- 244,789
Net loss............................ -- -- -- -- (254,266) (254,266)
----------- ----------- -------- -------- ----------- -----------
Balance, December 31, 1998............ 95,541,623 994,789 -- -- (608,159) 386,630
Shares issued:
Stock compensation plans.......... 763,737 3,643 -- -- -- 3,643
Return of capital contribution...... -- (20,000) -- -- -- (20,000)
Deferred compensation............... -- 86,543 (85,954) -- -- 589
Vesting of deferred compensation.... -- -- 60,690 -- -- 60,690
Exchange rights granted............. -- 30,564 -- -- -- 30,564
Net loss............................ -- -- -- -- (454,739) (454,739)
----------- ----------- -------- -------- ----------- -----------
Balance, December 31, 1999............ 96,305,360 1,095,539 (25,264) -- (1,062,898) 7,377
Shares issued:
Stock compensation plans.......... 3,909,652 61,832 -- -- -- 61,832
Private placements, net........... 10,390,723 686,380 -- -- -- 686,380
Omnipoint acquisition............. 52,952,399 2,247,115 -- -- -- 2,247,115
Aerial acquisition................ 52,325,301 5,709,549 -- -- -- 5,709,549
Exercise of warrants.............. 328,762 55 -- -- -- 55
Restricted stock.................. 292,119 34,177 (34,177) -- -- --
Conversion of 2.5% junior
preferred....................... 26,227,586 773,135 -- -- -- 773,135
Conversion of preferred stock of
consolidated subsidiary......... 146,376 3,779 -- -- -- 3,779
Exercise of exchange rights....... 7,912,867 930,100 -- -- -- 930,100
Vesting of deferred compensation.... -- -- 51,029 -- -- 51,029
Exchange rights granted............. -- 42,957 -- -- -- 42,957
Accretion of 2.5% junior preferred
dividends......................... -- (12,535) -- -- -- (12,535)
Net unrealized loss on investment
securities........................ -- -- -- (16,738) -- (16,738)
Equity in unrealized loss on
investment securities held by
unconsolidated affiliate.......... -- -- -- (21,026) -- (21,026)
Foreign currency translation
adjustment........................ -- -- -- (7,474) -- (7,474)
Net loss............................ -- -- -- -- (2,081,854) (2,081,854)
----------- ----------- -------- -------- ----------- -----------
Balance, December 31, 2000............ 250,791,145 $11,572,083 $ (8,412) $(45,238) $(3,144,752) $ 8,373,681
=========== =========== ======== ======== =========== ===========
See accompanying notes to consolidated financial statements.
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VOICESTREAM WIRELESS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------
2000 1999 1998
----------- ----------- ---------
Operating activities:
Net loss.................................................. $(2,081,854) $ (454,739) $(254,266)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 810,827 140,812 83,767
Amortization of debt discount and premium............... 48,166 3,925 --
Equity in net losses of unconsolidated affiliates....... 233,565 37,514 19,414
Stock-based compensation................................ 51,029 60,690 --
Allowance for bad debts................................. 49,182 11,767 3,675
Other, net.............................................. 28,458 1,528 571
Changes in operating assets and liabilities, net of
effects from consolidating acquired interests:
Accounts receivable................................... (309,330) (84,740) (10,066)
Inventory............................................. (254,498) (42,890) 2,534
Prepaid expenses and other current assets............. (26,727) (6,296) 2,124
Accounts payable...................................... 110,081 6,706 13,669
Accrued liabilities................................... 126,675 70,465 20,941
----------- ----------- ---------
Net cash used in operating activities............... (1,214,426) (255,258) (117,637)
----------- ----------- ---------
Investing activities:
Purchases of property and equipment..................... (1,418,068) (401,621) (206,503)
Acquisitions of wireless properties, net of cash
acquired.............................................. (589,631) (152,517) --
Purchases of short-term investments, net................ (1,175,636) -- --
Investments in and advances to unconsolidated
affiliates............................................ (729,847) (356,030) (29,553)
FCC deposits............................................ (150,758) -- --
Other................................................... (9,721) (24,058) (12,871)
----------- ----------- ---------
Net cash used in investing activities............... (4,073,661) (934,226) (248,927)
----------- ----------- ---------
Financing activities:
Net proceeds from issuance of common and preferred
stock................................................. 6,358,865 3,643 244,789
Long-term debt borrowings............................... 3,540,000 2,622,526 540,000
Long-term debt repayments............................... (3,623,173) (1,155,000) (300,000)
Net payments to Western Wireless........................ -- (13,709) (105,446)
Deferred financing costs................................ (68,142) (40,600) (5,059)
----------- ----------- ---------
Net cash provided by financing activities........... 6,207,550 1,416,860 374,284
----------- ----------- ---------
Change in cash and cash equivalents......................... 919,463 227,376 7,720
Cash and cash equivalents, beginning of year................ 235,433 8,057 337
----------- ----------- ---------
Cash and cash equivalents, end of year...................... $ 1,154,896 $ 235,433 $ 8,057
=========== =========== =========
See accompanying notes to consolidated financial statements.
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VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
VoiceStream Wireless Corporation ("VoiceStream" or "we") provides personal
communication services ("PCS") in urban markets in the United States using the
Global System for Mobile Communications, or GSM, technology. VoiceStream was
incorporated in June 1999 as a Delaware corporation to act as the parent company
for business combinations involving our predecessor, now named VS Washington
Corporation ("VS Washington").
Prior to May 3, 1999, VS Washington was an 80.1% owned subsidiary of
Western Wireless Corporation ("Western Wireless"). The remaining 19.9% was owned
by Hutchison Telecommunications PCS (USA) Limited ("Hutchison"), a subsidiary of
Hutchison Whampoa Limited, a Hong Kong company. On May 3, 1999, VS Washington
was formally separated in a spin-off transaction from Western Wireless' other
operations.
On February 25, 2000, pursuant to a reorganization agreement approved by
the shareholders of VS Washington and Omnipoint Corporation ("Omnipoint"),
VoiceStream, as a holding company, became the parent of VS Washington and of
Omnipoint. On May 4, 2000, VoiceStream completed the acquisition by merger of
Aerial Communications, Inc. ("Aerial"). VoiceStream's current business
activities consist of the combined businesses of VS Washington, Omnipoint and
Aerial.
On July 24, 2000, we announced a definitive merger agreement with Deutsche
Telekom AG, a German telecommunication provider ("Deutsche Telekom"). Pursuant
to the Deutsche Telekom merger agreement, which was approved by the Boards of
Directors of both companies, each VoiceStream shareholder may elect to receive
3.2 Deutsche Telekom shares and $30 in cash for each VoiceStream common share,
or either an all-share or all-cash option, subject to the proration terms of the
Deutsche Telekom merger agreement and to certain adjustments necessary to
qualify the merger as a tax-free reorganization for VoiceStream shareholders
receiving Deutsche Telekom shares. In connection with the merger, Deutsche
Telekom will assume all of our outstanding debt, which at December 31, 2000
totaled $5.8 billion. The merger is subject to regulatory approvals and is
expected to be completed in the first half of 2001.
On August 28, 2000, we announced a definitive merger agreement with
Powertel, Inc. ("Powertel"), a GSM service provider based in West Point, Georgia
servicing the Southeastern United States. The VoiceStream merger with Powertel
is contingent upon the termination of our proposed merger with Deutsche Telekom.
Should our merger with Deutsche Telekom be consummated, Powertel will also merge
with Deutsche Telekom. Pursuant to the Powertel merger agreement, Powertel
shareholders will receive VoiceStream common shares at a conversion ratio
ranging from .65, if the average closing price of VoiceStream common shares is
$130.77 or above, to .75 if the average closing price of VoiceStream common
shares is $113.33 or below. Between these two prices the conversion ratio,
subject to adjustment, will be the quotient determined by dividing $85 by the
average closing price of VoiceStream common shares. The merger is subject to
regulatory approvals.
In December 2000, we acquired controlling interests in Cook
Inlet/VoiceStream PV/SS PCS LP ("Cook Inlet PCS"), Cook Inlet/VoiceStream PCS
LLC ("CIVS"), Cook Inlet/VS GSM II PCS, LLC ("CIVS II") and Cook Inlet/VS GSM
III LLC ("CIVS III") in exchange for approximately 7.9 million VoiceStream
common shares and $51 million in cash.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of VoiceStream
and its majority or wholly owned subsidiaries. All affiliate investments in
which VoiceStream has between a 20% and 50% interest or exercises significant
influence are accounted for using the equity method. For certain equity
investments,
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VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
where previous losses have reduced our investment to zero, we will record
further losses to the extent that we have committed to fund them. Investments in
which we own less than 20% and do not exercise significant influence are carried
at cost to the extent the entity is privately held. All significant intercompany
accounts and transactions have been eliminated.
Cash equivalents and short-term investments
Cash equivalents are stated at cost, which approximates market. We include
highly liquid interest-earning investments purchased with an original maturity
at time of purchase of three months or less as cash equivalents. Short-term
investments consist of certificates of deposits and commercial paper with
maturities between three months and twelve months from the date of purchase.
These short term investments are classified as trading securities and are
recorded at market.
Capitalized Interest
Our PCS licenses and wireless communications systems represent qualified
assets pursuant to Statement of Financial Accounting Standards ("SFAS") No. 34,
"Capitalization of Interest Cost." Our policy is to capitalize interest in new
markets during the build-out phase until service is initiated for customers. We
capitalized interest of $2.5 million in 2000, $2.5 million in 1999 and $1.8
million in 1998.
Intangible assets and amortization
Goodwill consists primarily of the excess of the purchase price over the
fair value of assets acquired in the Aerial and Omnipoint mergers (see Note 3)
and is being amortized over a useful life of 20 years. Licensing costs,
including those acquired from Aerial and Omnipoint, are amortized over a useful
life of 40 years.
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed of," VoiceStream
periodically evaluates whether there has been any indication of impairment of
its long-lived assets, including its licensing costs and other intangibles. As
of December 31, 2000, there has been no indication of such impairment.
Property and equipment and depreciation
Property and equipment are stated at cost. Major replacements and
improvements are capitalized while general repairs and maintenance are expensed
as incurred. 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 forty years.
Inventory
Inventory consists primarily of handsets and accessories. Inventory is
stated at the lower of cost or market, determined on an average cost basis where
market is replacement cost.
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 upon
delivery to the customer. Prepaid coupon sales are deferred until service is
provided.
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VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income taxes
Deferred tax assets and liabilities are recognized based on temporary
differences between the financial statements and the tax bases 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. For income tax purposes,
prior to VoiceStream's spin-off from Western Wireless on May 3, 1999,
VoiceStream's results were included in the consolidated federal income tax
return of Western Wireless. VoiceStream's provision/ benefit for income taxes
was computed as if VoiceStream filed a separate federal income tax return using
the tax rate applicable to Western Wireless on a consolidated basis. Subsequent
to the spin-off date, VoiceStream's results of operations are not included in
Western Wireless' consolidated tax return.
Advertising Expense
We expense costs of advertising as incurred. Advertising expense was $123.8
million, $23.4 million and $15.4 million in 2000, 1999 and 1998, respectively.
Loss per common share
Loss per common share is calculated using the weighted average number of
shares of outstanding common stock during the period. Pursuant to the
requirements of SFAS No. 128, "Earnings Per Share," the weighted average number
of shares outstanding was 191,553,000, 95,708,000 and 92,387,000 for the years
ended December 31, 2000, 1999 and 1998, respectively. Due to the net losses
incurred during the periods presented, all shares related to outstanding options
and warrants, convertible preferred shares and exchange rights, which totaled
48.4 million, 11.1 million and 0.9 million in 2000, 1999 and 1998 respectively,
are antidilutive. As a result, basic and diluted loss per share are the same for
each of the periods presented.
Stock-based compensation plans
We account for our stock-based compensation plans under Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." See Note 12 for discussion of the effect on net loss and other
related disclosures had we accounted for these plans under SFAS No. 123,
"Accounting for Stock-Based Compensation."
Fair value of 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 terms and maturities.
At December 31, 2000 and 1999, the fair values of cash, cash equivalents,
short-term investments, receivables and accounts payable approximated fair value
due to the short-term maturities of these instruments. The estimated fair values
of other financial instruments with a carrying value materially different from
their carrying value based on quoted market prices or rates for the same or
similar instruments, and the related carrying amounts are as follows (dollars in
thousands):
DECEMBER 31, 2000 DECEMBER 31, 1999
------------------------ ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
Long term debt, including current portion............... $5,751,999 $5,894,000 $2,011,451 $2,011,451
Preferred stock of consolidated subsidiary.............. $ 312,513 $ 848,000 $ -- $ --
VoiceStream convertible preferred stock................. $5,000,000 $3,200,000 $ -- $ --
F-9
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VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Under the terms of our credit facility, we are required to manage our
interest rate exposure pertaining to long-term debt through interest rate cap,
collar and swap contracts. At December 31, 2000 we have fixed or capped our
exposure to interest rates on variable lending totaling $990 million. The fair
value of these outstanding hedging instruments was $0.6 million at December 31,
2000. Our policy is to hold such contracts to maturity. Prior to January 1,
2001, 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.
Supplemental cash flow disclosure
Cash paid for interest (net of any amounts capitalized) was $401.8 million,
$77.5 million and $26.8 million for the years ended 2000, 1999 and 1998,
respectively. Non-cash investing and financing activities, other than those
discussed in Note 3, were as follows (dollars in thousands):
YEAR ENDED DECEMBER 31,
---------------------------
2000 1999 1998
-------- ------- ----
Debt exchanges.............................................. $ 35,850 $ -- $ --
2.5% junior preferred stock conversion...................... $773,135 $ -- $ --
2.5% junior preferred stock dividend........................ $ 12,535 $ -- $ --
Exchange rights............................................. $ 14,944 $30,564 $ --
Estimates used in financial statements
In preparing the consolidated financial statements in conformity with
accounting principles generally accepted in the United States, management has
made a number of estimates and assumptions relating to the reporting of assets
and liabilities and disclosures of contingent assets and liabilities at the date
of the financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Some of the more significant estimates
include the allowance for doubtful accounts, unbilled revenue accruals,
inventory valuation reserves, depreciation and amortization of long lived assets
and the deferred tax asset valuation allowance. Actual results could differ from
those estimates.
Deferred Compensation Plan
We have a Deferred Compensation Plan under Section 401(k) of the Internal
Revenue Code of 1986, as amended. Substantially all full-time employees are
eligible to participate. We match the participants' contributions to the Plan.
During the years ended December 31, 2000 and 1999, we made matching
contributions to the Profit Sharing Plan of $3.1 million and $1.7 million,
respectively.
Comprehensive Income
We follow SFAS No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS
130 requires companies to report a new, additional measure of income on
statement of operations or to create a new financial statement that shows the
new measure of income. Comprehensive income includes foreign currency
translation gains and losses and unrealized losses on equity securities that
have been previously excluded from net income and reflected instead in equity.
Segment Reporting
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS 131). SFAS 131 changes the way companies report selected segment
information in annual financial statements and requires companies to
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VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
report selected segment information. The Company operates solely in one segment,
wireless communication services. As of December 31, 2000, and 1999, the majority
of our assets are located in the United States. We have no significant sales to
international customers.
Recently issued accounting standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133," and SFAS 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." The statements establish accounting
and reporting standards requiring an entity to record all derivative instruments
(including certain embedded derivatives) as either an asset or liability
measured at fair value. The statements require that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge accounting
criteria are met. VoiceStream has adopted the provisions of these accounting
standards as of January 1, 2001. Adoption did not have a material impact on our
consolidated results of operations, financial condition or cash flows.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin Number 101, "Revenue Recognition in Financial
Statements." This bulletin was effective for the quarter ended December 31,
2000, with retroactive adoption to January 1, 2000. This bulletin establishes
more clearly defined revenue recognition criteria than previously existing
accounting pronouncements, and specifically addresses revenue recognition
requirements for non-refundable fees, such as activation fees collected by a
company upon entering into a contractual arrangement with a customer to provide
telecommunication services. Adoption of the guidance provided in this bulletin
did not have a material impact on our consolidated financial statements.
In July 2000, the FASB released Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation, an interpretation of APB
Opinion No. 25," which provides clarification of APB No. 25 for certain issues
such as the determination of an employee, the criteria for determining whether a
plan qualifies as a non-compensatory plan and the accounting consequences of
various modifications to the terms of a previously fixed stock option or award.
Our practices are in conformity with this guidance.
Reclassifications
Certain of the comparative figures in the 1999 and 1998 financial
statements have been reclassified to conform to the current period presentation.
3. MERGERS AND ACQUISITIONS
Cook Inlet Designated Entities
On December 14, 2000, certain of our joint venture partners in the
following Cook Inlet Designated Entities: Cook Inlet PCS, CIVS, CIVS II and CIVS
III exercised exchange rights held by them. In exchange for the issuance of
153,063 VoiceStream common shares and approximately $51 million in cash, we
increased our ownership interest in Cook Inlet PCS from 49.9% to 81.22%. In
exchange for the issuance of 4,009,804 VoiceStream common shares we increased
our ownership stake in CIVS from 49.9% to 74.98%. In exchange for 3,000,000 and
750,000 VoiceStream common shares, we increased our respective ownership
percentages in CIVS II and CIVS III from 49.9% to 100%, respectively. The
acquisitions were accounted for using the purchase method. We used the equity
method to account for these investments through 2000.
On February 14, 2001 (unaudited), the remaining minority interest holders
in Cook Inlet PCS and CIVS exercised their exchange rights. In return for
321,334 VoiceStream common shares we increased our
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VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. MERGERS AND ACQUISITIONS (CONTINUED)
ownership stake in Cook Inlet PCS from 81.22% to 100%. In return for 4,000,000
VoiceStream common shares we increased our ownership in CIVS from 74.98% to
100%.
Aerial and Omnipoint Mergers
On May 4, 2000, we completed the merger with Aerial and accordingly,
subsequent to this date, Aerial results of operations are included in
VoiceStream's consolidated results. Prior to the closing of the merger, Aerial
provided PCS service in urban United States markets including Columbus, OH,
Houston, TX, Kansas City, MO, Minneapolis, MN, Pittsburgh, PA, and Tampa-St.
Petersburg, FL. The merger was accounted for using the purchase method. Pursuant
to the merger agreement, we exchanged 0.455 of a share of VoiceStream common
stock for each outstanding share of Aerial Series A common stock.
On February 25, 2000, we completed the merger with Omnipoint and
accordingly, subsequent to this date, Omnipoint results of operations are
included in VoiceStream's consolidated results. Prior to the closing of the
merger, Omnipoint, directly and through joint ventures, provided PCS service in
urban markets including New York, NY, Detroit, MI, Boston, MA, Philadelphia, PA,
Miami, FL, and Indianapolis, IN. The merger was accounted for using the purchase
method. Pursuant to the merger agreement, we exchanged 0.825 of a share of
VoiceStream common stock plus $8.00 in cash for each outstanding Omnipoint
common share. Total consideration paid for the acquisition, including
liabilities assumed, was $6.2 billion. In conjunction with the merger agreement
signed on June 23, 1999, VoiceStream invested a total of $150.0 million in
Omnipoint, of which $102.5 million was invested in Omnipoint preferred stock
upon signing of the merger agreement in June 1999. The remaining $47.5 million
was invested in Omnipoint preferred stock on October 1, 1999.
In connection with the completion of the Omnipoint merger on February 25,
2000, Hutchison made an investment of $957 million in VoiceStream for common and
convertible preferred securities at a purchase price of $29 per common share. A
portion of this investment was made upon the signing of the merger agreement on
June 23, 1999 when Hutchison invested $102.5 million in Omnipoint preferred
stock. An additional $47.5 million was invested in Omnipoint preferred stock in
October 1999. Upon closing of the merger, the Omnipoint preferred stock was
exchanged for VoiceStream common shares at a purchase price of $29 per common
share and Hutchison invested $196.4 million in exchange for VoiceStream common
shares and $610.6 million in exchange for VoiceStream 2.5% convertible preferred
stock. The convertible preferred stock was converted into VoiceStream common
shares during 2000 at a conversion price of $29 per share. Additionally, Sonera
invested $500.0 million in VoiceStream at the time of the Omnipoint merger in
exchange for 8,771,930 VoiceStream common shares at $57 per share.
On June 27, 2000, we sold a wholly owned subsidiary, Omnipoint
Technologies, Inc. ("OTI"), to Xircom, Inc. ("Xircom"). Pursuant to the terms of
the sales agreement, we exchanged all of the outstanding common shares of OTI
for approximately 1.2 million common shares of Xircom. The sale was accounted
for as a tax-free reorganization and VoiceStream did not recognize any gain or
loss on the transaction. The Xircom shares received are included in other assets
at their fair value of $18.6 million at December 31, 2000. The operations of OTI
were immaterial to the consolidated operations of VoiceStream.
F-12
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VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. MERGERS AND ACQUISITIONS (CONTINUED)
The business combinations described above were accounted for using the
purchase method. The components of the purchase price of these transactions and
the purchase price allocations are as follows (dollars in thousands):
COOK INLET
DESIGNATED
AERIAL OMNIPOINT ENTITIES (B)
---------- ---------- ------------
Consideration and merger costs:
Total value of shares issued in merger(a)................. $5,703,500 $1,388,000 $ 930,100
Cash payments............................................. 113,900 627,000(c) 273,000
Fair value of options and warrants converted.............. 6,100 859,000 --
Liabilities assumed inclusive of minority interest........ 459,000 3,174,600 683,500
Hutchison preferred stock conversion...................... -- 150,000 --
Merger related costs...................................... 20,500 19,000 300
Cook Inlet exchange rights (See Note 6)................... -- 28,000 --
---------- ---------- ----------
Total consideration................................. 6,303,000 6,245,600 1,886,900
Purchase price allocations:
Current assets............................................ 94,700 212,800 100,300
Property, plant and equipment............................. 362,900 466,400 296,400
Investments in unconsolidated affiliates.................. 3,600 679,900 --
Licenses and other intangibles............................ 551,200 931,400 1,490,200
---------- ---------- ----------
Goodwill............................................ $5,290,600 $3,955,100 $ --
========== ========== ==========
---------------
(a) VoiceStream issued 52,325,301, 52,952,399, and 7,912,887 shares,
respectively, in conjunction with the Aerial and Omnipoint mergers and the
Cook Inlet Designated Entities exchange right conversions in 2000.
(b) The Cook Inlet Designated Entities referred to in this schedule include
Cook Inlet PCS, CIVS, CIVS II and CIVS III.
(c) Includes the $150 million invested in Omnipoint Series A preferred shares
in June and October of 1999, pursuant to the terms of the merger agreement.
The above allocations reflect the fair value of assets and liabilities
acquired.
Unaudited pro forma operating results, assuming the Aerial, Omnipoint and
Cook Inlet Designated Entities business combinations occurred on January 1 of
each of the following years (dollars in thousands, except per share data):
DECEMBER 31,
--------------------------
2000 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
Total revenues.............................................. $2,245,000 $ 1,061,000
Net loss.................................................... $(2,545,000) $(1,696,000)
Basic and diluted loss per common share..................... $ (11.06) $ (7.87)
F-13
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VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT
DECEMBER 31,
----------------------------
USEFUL LIVES 2000 1999
------------ ------------ ------------
(dollars in thousands)
Land, buildings and improvements............................ 5 - 40 years $ 108,510 $ 24,590
Wireless communications systems............................. 5 - 10 years 2,444,112 849,148
Furniture and equipment..................................... 3 - 5 years 361,909 109,576
----------- -----------
2,914,531 983,314
Accumulated depreciation.................................... (740,956) (284,670)
----------- -----------
2,173,575 698,644
Construction in progress.................................... 1,293,975 233,148
----------- -----------
$ 3,467,550 $ 931,792
=========== ===========
Depreciation expense was $390.0 million in 2000, $133.9 million in 1999 and
$77.6 million in 1998.
5. LICENSING COSTS AND OTHER INTANGIBLE ASSETS
DECEMBER 31,
----------------------------
USEFUL LIVES 2000 1999
------------ ------------ ------------
(dollars in thousands)
License costs............................................... 40 years $ 3,714,051 $ 323,272
Lease rights................................................ 15 years 57,066 101,376
Other intangible assets..................................... 3 - 40 years 175,123 47,428
----------- -----------
3,946,240 472,076
Accumulated amortization.................................... (118,923) (21,815)
----------- -----------
$ 3,827,317 $ 450,261
=========== ===========
Amortization expense was $420.8 million in 2000, $6.9 million in 1999 and
$6.2 million in 1998.
6. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
DECEMBER 31,
----------------------------
2000 1999
------------ ------------
(dollars in thousands)
Cook Inlet PCS.............................................. $ -- $ 61,879
CIVS........................................................ -- 181,743
CIVS IV..................................................... 212,209 --
CIVS V...................................................... 74,915 --
Microcell................................................... 209,758 --
Omnipoint................................................... -- 161,123
Other....................................................... 1,987 4,976
----------- -----------
$ 498,869 $ 409,721
=========== ===========
Cook Inlet Designated Entities
In connection with its authority to regulate the sale and use of radio wave
spectrum used to provide PCS service in the United States, the FCC adopted rules
that granted a narrow category of entities ("Designated Entities") the exclusive
right to bid for and own C and F Block licenses for the initial five year period
following award of the licenses. VoiceStream does not qualify as a Designated
Entity. In order to continue expansion of service to our customers, we obtained
49.9% minority interests in six Designated Entities controlled by Cook Inlet
Region, Inc. ("CIRI") directly and through its affiliates. In December 2000, we
acquired controlling interest in four of these Designated Entities: Cook Inlet
PCS, CIVS, CIVS II and CIVS III. At December 31, 2000, there are two remaining
Designated Entities controlled by CIRI: Cook
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VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES (CONTINUED)
Inlet/VS GSM IV PCS Holdings, LLC ("CIVS IV") and Cook Inlet/VS GSM V PCS
Holdings LLC ("CIVS V"). We expect that VoiceStream customers will be able to
obtain service in the Designated Entities' territories through reseller and
other contractual arrangements between VoiceStream and these Designated Entities
or their affiliates.
On entering into each of the ventures described below, the affiliates of
CIRI were granted exchange rights entitling them to certain rights, but no
obligation, to exchange their ownership interests for VoiceStream common shares.
The rights are conditioned upon the FCC's Designated Entity rules and
VoiceStream's legal ability to own the C and F block licenses at the time of the
exchange under such rules. The initial fair value of these exchange rights is
included in our investments in these entities and then amortized over the
remaining FCC restricted holding periods for the respective licenses.
Cook Inlet PCS
VoiceStream had an 81.22% and a 49.9% interest in Cook Inlet PCS at
December 31, 2000 and 1999, respectively. VoiceStream funds the operations of
Cook Inlet PCS through loans evidenced by promissory notes which bear interest
at 15% and are due 180 days after the date of issuance. Cook Inlet PCS has
operations in Spokane, WA and Tulsa, OK. All other PCS licenses held by Cook
Inlet PCS are not operating or operate under reseller agreements with
VoiceStream.
On December 14, 2000, Cook Inlet Telecommunications, Inc., a subsidiary of
CIRI, and the entity that controlled Cook Inlet PCS, and SSPCS Corporation
exercised their exchange rights. In return for 153,063 VoiceStream common shares
and approximately $51 million in cash, VoiceStream acquired an additional 31.32%
in Cook Inlet PCS resulting in a controlling interest of 81.22%. On February 14,
2001 (unaudited), Providence Media Partners, L.P. exercised its exchange rights.
In return for 321,334 VoiceStream common shares, VoiceStream acquired the
remaining 18.78% interest in Cook Inlet PCS. This investment was accounted for
under the equity method through 2000 until Cook Inlet Telecommunications, Inc.
and SSPCS exercised their exchange rights and VoiceStream acquired a controlling
interest.
CIVS
VoiceStream had a 74.98% and a 49.9% interest in CIVS at December 31, 2000
and 1999, respectively. VoiceStream initially funded the operations of CIVS
through loans evidenced by promissory notes which bear interest at 15% and are
due 180 days after the date of issuance. CIVS operates the Dallas, TX market,
which was launched in September 2000. All other PCS licenses held by CIVS are
not operating.
On December 14, 2000, Cook Inlet GSM, Inc. a subsidiary of CIRI, and the
entity that controlled CIVS, exercised its exchange rights. In return for
4,009,804 VoiceStream common shares, VoiceStream acquired an additional 25.08%
in CIVS resulting in a controlling interest of 74.98%. On February 14, 2001
(unaudited), Providence Equity Partners IV, L.P. and Providence Equity Operating
Partners III L.P. exercised their exchange rights. In return for 4,000,000
VoiceStream common shares, VoiceStream acquired the remaining 25.02% interest in
CIVS. This investment was accounted for under the equity method through 2000
until Cook Inlet GSM, Inc. exercised its exchange rights and VoiceStream
acquired a controlling interest.
CIVS II and CIVS III
Immediately prior to VoiceStream's merger with Omnipoint, Omnipoint's C and
F Block licenses, assets and liabilities associated with these licenses and
operations were transferred to CIVS II and CIVS III, which, at the date of the
transfer, were controlled by CIRI through Cook Inlet GSM, Inc., and qualified as
Designated Entities. VoiceStream funds the operations of CIVS II and III through
loans evidenced by promissory notes which bear interest at 15% and are due 180
days after the date of issuance. CIVS II operates
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VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES (CONTINUED)
the Philadelphia, PA, Atlantic City, NJ and Dover, DE markets. All other PCS
licenses held by CIVS II and CIVS III are not operating.
VoiceStream had a 100% interest in CIVS II and CIVS III at December 31,
2000. VoiceStream originally contributed a combination of non-cash assets and
liabilities for its 49.9% ownership. On December 14, 2000, CIRI exercised its
exchange rights in return for 3,000,000 and 750,000 VoiceStream common shares
for its 50.1% interest in CIVS II and CIVS III, respectively. These investments
were accounted for under the equity method through December 2000 when CIRI
exercised its exchange rights and VoiceStream acquired a 100% interest in these
entities.
CIVS IV
CIVS IV, a Delaware limited liability company, was formed in October 2000
for the purpose of acquiring and operating licenses subject to the FCC's
Designated Entity rules. CIVS IV is managed by Cook Inlet Mobile Corporation
("Cook Inlet Mobile"), a subsidiary of CIRI, which owns a 50.1% interest in CIVS
IV. Through a subsidiary, VoiceStream holds a 49.9% membership interest in CIVS
IV. In October 2000, VoiceStream, through is subsidiary, and Cook Inlet Mobile
made capital investments in CIVS IV commensurate with their respective ownership
percentages.
On entering into the agreement, VoiceStream granted Cook Inlet Mobile
exchange rights entitling Cook Inlet Mobile to certain rights, but no
obligation, to exchange its ownership interest for 382,657 VoiceStream common
shares. These rights are conditioned by the FCC's Designated Entity rules and
VoiceStream's legal ability to hold C and F block licenses at the time of the
exchange under such rules. The initial fair value of these exchange rights
totaled $14 million and was recorded as an increase to investments in and
advances to unconsolidated affiliates and additional paid-in capital. The
exchange rights will be amortized beginning in 2001 over the remaining FCC
restricted holding periods for the licenses. Additionally, VoiceStream loaned
$195 million to CIVS IV as evidenced by promissory notes, bearing interest at
the higher of 10% or LIBOR plus 5%, to fund the purchase of certain C block
licenses. Our total investment in CIVS IV, including advances under such
promissory notes, was $212.2 million at December 31, 2000. VoiceStream is using
the equity method to account for its investment in CIVS IV.
CIVS V
CIVS V, a Delaware limited liability company, was formed in October 2000
for the purposes of acquiring and operating licenses subject to the FCC's
Designated Entity rules. CIVS V is managed by Cook Inlet Wireless, Inc. ("Cook
Wireless"), a subsidiary of CIRI, which owns a 50.1% interest in CIVS V. Through
a subsidiary, VoiceStream holds a 49.9% membership interest in CIVS V. In
November 2000, VoiceStream, through its subsidiary, and Cook Wireless made
capital investments in CIVS V commensurate with their respective ownership
percentages.
Microcell Investment
On February 28, 2000, we invested $274.6 million in Class A shares of
Microcell Telecommunications Inc. ("Microcell"), a Canadian GSM service
provider. The per share transaction price was equal to the closing market price
of Microcell's publicly traded Class B Non-Voting shares on the Nasdaq National
Market System on January 6, 2000.
The Class A shares constitute approximately 15% of the issued and
outstanding equity securities of Microcell. Class A shares are non-voting but
are convertible at any time into common shares, which are voting (subject to
Canadian foreign ownership restrictions). If fully converted, these common
shares would represent a 22.6% voting interest in Microcell. Additionally,
VoiceStream is entitled to designate two members of
F-16
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VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES (CONTINUED)
Microcell's Board of Directors. The investment is being accounted for using the
equity method. Amortization expense recognized from February 28, 2000 through
December 31, 2000 was $10.9 million and is included in our equity in net losses
of unconsolidated affiliates.
Included in our other comprehensive loss for the twelve months ended
December 31, 2000 are $7.5 million in currency translation adjustments to our
recorded investment in Microcell due to the effect of changes in Canadian to
U.S. dollar exchange rates and $21.0 million in unrealized loss on investments
held by Microcell.
7. ACCRUED LIABILITIES
DECEMBER 31,
-----------------------
2000 1999
-------- --------
(dollars in thousands)
Accrued payroll and benefits................................ $182,827 $ 32,436
Accrued interest payable.................................... 51,154 18,652
Accrued property taxes and other taxes...................... 96,177 22,606
Other....................................................... 74,463 40,840
-------- --------
$404,621 $114,534
======== ========
8. LONG TERM DEBT
DECEMBER 31,
-----------------------
2000 1999
---------- ----------
(dollars in thousands)
Credit facilities:
Term loans................................................ $2,425,000 $ 250,000
Vendor facility........................................... 750,000 250,000
Revolvers................................................. 150,000 --
Senior Notes:
10 3/8% Senior Notes, due in 2009......................... 1,727,904 1,100,000
11 7/8% Senior Discount Notes, due in 2009................ 720,000 720,000
11 5/8 % Senior Discount Notes, due in 2006............... 4,582 --
11 1/2 Senior Discount Notes, due in 2009................. 205,000 --
FCC license obligations..................................... 32,113 --
---------- ----------
6,014,599 2,320,000
Unamortized discount and premium, net....................... (262,600) (308,549)
Current portion of long-term debt........................... (32,113) --
---------- ----------
$5,719,886 $2,011,451
========== ==========
Credit Facilities
VoiceStream Credit Facility
On February 25, 2000, immediately following the completion of the Omnipoint
merger, we entered into a credit facility with a consortium of lenders. Pursuant
to the credit facility, the lenders have made available revolving credit loans
and term loans in an aggregate principal amount totaling $3.25 billion. The
revolving credit portion of the credit facility is a $1.35 billion reducing
revolving credit. The term loan portion of the facility is comprised of a $900
million tranche and a $1 billion tranche. In addition, the credit facility
permits up to $1.5 billion of additional indebtedness through a vendor facility
of $1.0 billion and an incremental facility of up to $500 million. Total
borrowing permitted under the credit facility including the additional
indebtedness is $4.75 billion. The repayment of the $4.75 billion is secured by,
among other things, the grant of a security
F-17
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VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG TERM DEBT (CONTINUED)
interest in certain assets of VoiceStream and certain of its subsidiaries and in
the capital stock of certain of VoiceStream's subsidiaries.
Borrowings under the revolving credit portion and the $900 million Tranche
A term loan portion of the credit facility bear interest, at our option, at an
annual rate of interest equal to either (1) the greater of (a) the prime rate,
or (b) the Federal Funds rate plus 1/2%, or (2) a Eurodollar rate, in each
instance plus an applicable margin. Such applicable margin will range to a
maximum of 1.50%, in the case of loans based on the prime rate or Federal Funds
rate, and to a maximum of 2.75%, in the case of loans based on a Eurodollar
rate, in each case based upon certain factors including the ratio of total
indebtedness to operating cash flow, as defined in the credit facility. The
availability of the revolving credit portion of the credit facility declines
over the period commencing three years after the closing date through the eighth
anniversary of the closing date in the following percentages: 10% in year four,
15% in year five, 20% in year six, 20% in year seven and 35% in year eight, with
a final maturity on February 25, 2008. At December 31, 2000 $1.35 billion was
available through the revolving credit portion of the credit facility. The $900
million tranche is required to be amortized at the same rate that the
availability under the revolving credit portion of the credit facility reduces
with a final maturity on the eighth anniversary of the closing date.
The $1 billion Tranche B term loan portion of the credit facility bears
interest, at our option, at an annual rate of interest equal to either (1) the
greater of (a) the prime rate, or (b) the Federal Funds rate plus 1/2%, or (2) a
Eurodollar rate, plus an applicable margin. Such applicable margin is a fixed
percentage of 1.75%, in the case of loans based on the prime rate or Federal
Funds rate, and 3.0% in the case of loans based on a Eurodollar rate. The $1
billion tranche is required to be amortized in the following amounts during the
period commencing three years after the closing date through the ninth
anniversary: 1% million in each of years four through nine and a final maturity
of the remaining balance on February 25, 2009.
On April 28, 2000 we received a commitment for the vendor facility that
provides for up to $1.0 billion in senior credit facilities and requires us to
make certain equipment, software and services purchases. The facility became
part of the credit facility and is subject to the same covenants and is entitled
the same collateral on a pari passu basis. In 2000, $750 million was drawn under
this facility and an additional $250 million may be drawn under the vendor
facility through June 30, 2001. The applicable margin on the additional $250
million of the vendor facility may be subject to adjustment of any time before
disbursement of the funds. The vendor facility bears interest at the same rate
as Tranche B of the term loan discussed above and is required to be amortized in
the following percentages during the period commencing four years after the
closing date: 1% in each of years five through nine with a final maturity of the
remaining balance on June 30, 2009. The applicable margin on the additional $250
million of the vendor facility may be subject to adjustment at any time before
the disbursement of funds.
The credit facility contains affirmative and negative covenants, including
financial covenants, and provides for various events of default. As of December
31, 2000 we were in compliance with these affirmative and negative covenants.
CIVS Credit Facility
On January 13, 2000, an infrastructure equipment vendor agreed to provide
subsidiaries of CIVS with credit facilities up to $735 million, composed of a
$485 million loan facility (including a $160 million revolving loan and term
loans aggregating $325 million), $100 million of 13% Series A Senior Discount
Notes, and up to $150 million 13% Series A Subordinated Notes. The repayment of
the $485 million loan facility is secured by, among other things, the grant of a
security interest in the capital stock and assets of certain of CIVS's
subsidiaries. The net proceeds are being used to finance capital expenditures,
permitted investments, and for working capital in connection with our Chicago
and Dallas systems.
F-18
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VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG TERM DEBT (CONTINUED)
The term loan portion of the loan facility described above is divided into
a $125 million loan and $200 million loan. Advances under the revolving loan and
the $125 million term loan bear interest, at the borrower's option, at an annual
rate of interest equal to either (1) the greater of (a) the prime rate, or (b)
the Federal Funds rate plus 5/8%, or (2) a Eurodollar rate, in each instance
plus an applicable margin. Such applicable margin will range to a maximum of
2.75%, in the case of loans based on the prime rate or Federal Funds rate, and
to a maximum of 3.75%, in the case of loans based on a Eurodollar rate, in each
case based upon certain factors including the ratio of total indebtedness to
operating cash flow, as defined in the loan facility. Advances under the $200
million term loan bear interest, at the borrower's option, at an annual rate of
interest equal to either (1) the greater of (a) the prime rate, or (b) the
Federal Funds rate plus 5/8%, or (2) a Eurodollar rate, in each instance plus
an applicable margin. Such applicable margin will range to a maximum of 3.00%,
in the case of loans based on the prime rate or Federal Funds rate, and to a
maximum of 4.00%, in the case of loans based on a Eurodollar rate, in each case
based upon certain factors including the ratio of total indebtedness to
operating cash flow, as defined in the loan facility. The availability of the
revolving loan declines as follows: 17.5% in 2004, 20% in 2005, 25% in 2006 and
37.5% in 2007 with a final maturity of December 31, 2007. The $125 million term
loan is required to be amortized at the same rate as the availability of the
revolving loan declines. The $200 million term loan portion of this facility is
required to be amortized 1% in each of 2004 through 2007 with the remainder
maturing on December 31, 2008.
The CIVS loan facility contains affirmative and negative covenants,
including financial covenants, and provides for various events of default. As of
December 31, 2000, we were in compliance with these affirmative and negative
covenants of the CIVS loan facility and had $160 million available through the
revolving credit portion of the facility. The Series A Senior Discount Notes and
Series A Subordinated Notes have not been issued but may be issued at any time
before June 30, 2001.
CIVS II Credit Facility
On May 4, 2000, a wholly owned subsidiary of CIVS II entered into a $350
million loan facility for the purpose of financing the continued build-out of
networks and the operations of the Philadelphia, PA; Atlantic City, NJ; and
Dover, DE markets and refinancing of $145 million of prior indebtedness. The
CIVS II loan facility is collateralized by substantially all of the assets of
such subsidiary and its license subsidiaries, and a pledge of all capital stock
of each subsidiary.
The CIVS II loan facility consists of a revolving loan facility of up to
$150 million and a $200 million term loan. The principal amount of the CIVS II
revolving loan facility is payable in quarterly installments beginning in 2004
as follows: 11.25% in 2004, 18.75% in 2005, 23.75% in 2006, 36.25% in 2007, and
10% on final maturity of March 31, 2008. The principal amount of CIVS II term
loan facility is payable in quarterly installments beginning in 2004 as follows:
0.75% in 2004; 1% in each of 2005, 2006 and 2007; 72.25% in 2008 and 24% of the
loan facility is due on the final maturity date of March 31, 2009. Interest on
the CIVS II loan facility is payable at varying interest rates at a base rate
based either on the Federal Funds Rate plus 1/2% or the prime rate, or
Eurodollar plus, in each case, a set margin based on the borrowers leverage
ratio. The CIVS II loan facility contains affirmative and negative covenants,
including financial covenants, and provides for various events of default. As of
December 31, 2000, we had fully utilized the credit available under the CIVS II
loan facility. We were in compliance with all but one covenant, related
annualized EBITDA levels, but had obtained an appropriate waiver for this event
of non-compliance.
Both the CIVS and CIVS II credit facilities are included in our
consolidated balance sheet at December 31, 2000 after we acquired controlling
interests of these entities.
F-19
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VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG TERM DEBT (CONTINUED)
Senior Notes
Our 10 3/8% Senior Notes accrue interest at the rate of 10 3/8% per annum
payable semiannually and mature on November 15, 2009. Our 11 7/8% Senior
Discount Notes were issued at a discount which is being accreted to the full
principal value of $720 million over five years to November 15, 2004. Interest
is accrued at a rate of 11 7/8% per annum, and will be payable semiannually
commencing on May 15, 2005. The 11 7/8% Senior Discount Notes mature on November
25, 2009. Our 11 1/2% Senior Notes accrue interest at 11 1/2% payable
semiannually and mature on September 15, 2009. The Senior Note indentures
contain affirmative and negative covenants, including financial covenants and
provide for various events of default. As of December 31, 2000 we were in
compliance with these covenants.
During 2000, VoiceStream issued additional debt in exchange for certain
debt outstanding of Omnipoint (dollars in millions):
OMNIPOINT DEBT EXCHANGED VOICESTREAM DEBT ISSUED
------------------------------------------------- ---------------------------------------
BALANCE RATE DESCRIPTION DUE BALANCE RATE DESCRIPTION DUE
------------------------------------------------- ---------------------------------------
$142.8 14% Senior Notes 2003 $149.7 10 3/8% Senior Notes 2009
$102.3 11 1/2% Senior Notes 2009 $102.3 11 1/2% Senior Notes 2009
$200.0 11 5/8% Senior Notes 2006 $478.2 10 3/8% Senior Notes 2009
$245.4 11 5/8% Series A Senior Notes 2006
At December 31, 2000 following the completion of these exchanges $4.6
million of the Omnipoint 11 5/8% and Series A Senior Notes and $102.7 million of
the Omnipoint 11 1/2% Senior Notes remain outstanding. The Omnipoint 11 1/2%
Senior Notes accrue interest at an effective rate of 11.93%, payable
semiannually and mature on September 15, 2009. The Omnipoint 11 5/8% Series A
Senior Notes accrue interest at 11 5/8% payable semiannually and mature on
August 9, 2006. The differences in the total value of debt exchanged were
treated as Omnipoint purchase price adjustments.
Maturities
The aggregate amounts of principal maturities of long-term debt at December
31, 2000 are as follows (dollars in thousands):
Year ending December 31,
2001........................................................ $ 32,113
2002........................................................ --
2003........................................................ 100,000
2004........................................................ 187,250
2005........................................................ 247,125
Thereafter.................................................. 5,448,111
----------
$6,014,599
==========
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VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
Commitments
Future minimum payments required under operating leases and agreements that
have initial or remaining non-cancelable terms in excess of one year as of
December 31, 2000, are summarized below (dollars in thousands):
Year ending December 31,
2001........................................................ $141,772
2002........................................................ 136,996
2003........................................................ 134,961
2004........................................................ 130,405
2005........................................................ 119,177
Thereafter.................................................. 236,078
--------
$899,389
========
Aggregate rental expense for all operating leases was approximately $142.8
million in 2000, $32.1 million in 1999 and $21.3 million in 1998.
In order to ensure adequate supply and availability of certain
infrastructure equipment and services, VoiceStream has committed to purchase PCS
equipment from various suppliers. These commitments total approximately $1.6
billion as of December 31, 2000. At December 31, 2000, VoiceStream has ordered
approximately $1.3 billion under all of these agreements, of which approximately
$187.9 million has not been delivered.
VoiceStream and its affiliates have 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.
Contingencies
On May 3, 1999, Western Wireless distributed its entire 80.1% interest in
VoiceStream's common shares to its stockholders. Prior to this "spin-off,"
Western Wireless obtained a favorable ruling from the IRS indicating that the
spin-off would not result in the recognition of gain or taxable income to
Western Wireless or its stockholders. However, Western Wireless could still
recognize gain upon the spin-off, notwithstanding the favorable IRS ruling, if
it is determined that the spin-off was part of a "prohibitive plan," that is, a
plan or series of related transactions in which one or more persons acquire,
directly or indirectly 50% or more of VoiceStream's stock. Acquisitions of 50%
or more of VoiceStream's stock occurring during the four year period beginning
two years before the spin-off would give rise to a rebuttable presumption that
the spin-off was part of a prohibited plan. Although it is not assured,
VoiceStream believes that it should be able to establish that the spin-off, the
subsequent Omnipoint and Aerial mergers, certain investments by Hutchison and
Sonera and the potential VoiceStream/Powertel mergers are not pursuant to a
"prohibitive plan."
VoiceStream has agreed to indemnify Western Wireless on an after-tax basis
for any taxes, penalties, interest and various other expenses incurred by
Western Wireless if it is required to recognize such a gain. The amount of such
gain that Western Wireless would recognize would be equal to the difference
between the fair market value of VoiceStream common shares at the time of the
spin-off and Western Wireless' adjusted tax basis in such shares at the time.
The estimated range of possible liability of VoiceStream, not including interest
and penalties, if any, is from zero to $400 million.
F-21
96
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. PREFERRED STOCK
Convertible voting preferred stock
On September 6, 2000, VoiceStream issued and sold to Deutsche Telekom
3,906,250 shares of its Convertible Voting Preferred Stock, par value $0.001 per
share, for an aggregate purchase price of $5 billion. Each share of Convertible
Voting Preferred Stock has a liquidation preference of $1,280 per share. If the
Deutsche Telekom/VoiceStream merger agreement is terminated, each share of
Convertible Voting Preferred Stock will become convertible into the number of
shares of VoiceStream common stock equal to the liquidation preference divided
by $160. The liquidation preference and conversion price are adjustable for
splits of the Convertible Voting Preferred Stock or other comparable
transactions. Assuming no such adjustment, the total outstanding shares of
Convertible Voting Preferred Stock will become convertible into 31,250,000
shares of VoiceStream common stock in the event the Deutsche Telekom/VoiceStream
merger agreement is terminated.
Each share of Convertible Voting Preferred Stock is entitled to one vote.
The Convertible Voting Preferred Stock votes together with the VoiceStream
common stock as a single class and is entitled to receive dividends and other
distributions made by VoiceStream on its common stock on an as-converted basis.
Until the Deutsche Telekom/VoiceStream merger agreement is terminated, the
Convertible Voting Preferred Stock may only be transferred by Deutsche Telekom
to a controlled subsidiary. The Convertible Voting Preferred Stock ranks senior
in rights upon liquidation or dissolution to VoiceStream's common stock, and
will rank junior to any other VoiceStream Preferred Stock. VoiceStream may at
its option redeem the Convertible Voting Preferred Stock at the liquidation
preference thereof after December 31, 2020, and VoiceStream shall upon the
request of the holder thereof redeem the Convertible Voting Preferred Stock at
the liquidation preference thereof after December 31, 2030; provided, however,
that VoiceStream may not make such redemption if prohibited from doing so by law
or agreement or if doing so would make it insolvent.
Preferred stock of consolidated subsidiary
Preferred stock of consolidated subsidiary includes Omnipoint depositary
shares ("Depositary Shares"), each representing 1/20 of a share of 7% Cumulative
Convertible Preferred Stock ("Preferred Stock"). Each Depositary Share has a
liquidation preference of $50, equivalent to $1,000 per share of Preferred
Stock. The holder of each Depositary Share is entitled to a quarterly payment
from the Deposit Account in an amount equal to $0.268 per Depositary Share.
These dividends are reflected in the consolidated statements of operations as
accretion of preferred stock of consolidated subsidiary.
Each Depositary Share may be converted at any time at the option of the
holder into 1.3256 VoiceStream common shares plus $12.86. The Depositary Shares
may not be redeemed prior to May 2001. On or after May 2001, the Depositary
Shares may be redeemed, in whole or in part, at the option of the Company, in
cash or common stock or a combination thereof, plus all accrued and unpaid
dividends to the redemption date. The redemption price is $52 in 2001, declining
to $50 in 2005 and thereafter.
F-22
97
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES
Significant components of deferred income tax assets and liabilities, net
of tax, are as follows (dollars in thousands):
DECEMBER 31,
-----------------------
2000 1999
----------- --------
Deferred tax liabilities:
Intangible assets......................................... $ (705,809) $(34,423)
Property and equipment.................................... -- (40,992)
----------- --------
Total deferred liabilities.................................. $ (705,809) $(75,415)
=========== ========
Deferred tax assets:
Other..................................................... $ 15,145 $ 26,740
Property and equipment.................................... 1,904 --
Start-up expenditures capitalized for tax purposes........ 20,081 7,702
Allowance for doubtful accounts........................... 39,170 6,971
NOL....................................................... 2,202,264 459,459
Valuation reserve......................................... (1,572,755) (425,457)
----------- --------
Total deferred assets....................................... 705,809 75,415
----------- --------
Net deferred tax assets..................................... $ -- $ --
=========== ========
VoiceStream had approximately $5.52 billion in net operating loss ("NOL")
carryforwards at December 31, 2000. The NOLs will expire between 2010 and 2020.
The valuation allowance increased approximately $1.1 billion in 2000, $216.9
million in 1999 and $100.0 million in 1998.
Management believes that available objective evidence including recurring
operating losses resulting primarily from the development of VoiceStream's PCS
business creates sufficient uncertainty regarding the realization of the net
deferred tax assets. Accordingly, a valuation allowance has been provided for
the net deferred tax assets of VoiceStream.
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 VoiceStream is due to VoiceStream's full valuation allowance against
net deferred tax assets. VoiceStream's ability to utilize the NOL's in any given
year may be limited by certain events, including a significant change in
ownership interest.
12. STOCK-BASED COMPENSATION PLANS AND WARRANTS
Stock-based compensation plans
Prior to 1999, VoiceStream had no stock options outstanding. During 1999,
deferred compensation and compensation expense was recognized as a result of
restructuring employee stock options in connection with the spin-off from
Western Wireless on May 3, 1999. As of the date of the spin-off, all unvested
outstanding options of VoiceStream employees were converted from Western
Wireless options to VoiceStream options and all vested outstanding options were
issued an additional option in VoiceStream as well as maintaining the existing
option in Western Wireless. The number of options and related strike price
varied to maintain the original economic value to the employee.
In accordance with the provisions of EITF 90-9, "Changes to Fixed Employee
Stock Option Plans as a Result of Equity Restructuring," VoiceStream recorded
deferred compensation of $69.0 million as a result of this restructure. Of the
$69.0 million, $15.6 million and $50.4 million was recognized as expense during
2000 and 1999, respectively, to reflect the cost of options that have fully
vested. Additionally, deferred compensation of $34.2 million and $17.0 million
was recognized pursuant to fair market value adjustments for the underlying
shares in the Restricted Stock Plan in 2000 and 1999, respectively. Of these
amounts, $35.4 million
F-23
98
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCK-BASED COMPENSATION PLANS AND WARRANTS (CONTINUED)
and $10.3 million was recognized as expense during 2000 and 1999, respectively.
This plan is accounted for as a variable plan.
The Employee Stock Purchase Plan ("ESPP"), which has been effective since
1999, provides for the issuance of up to 1,500,000 shares of 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
VoiceStream 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.
The Management Incentive Stock Option Plan ("MISOP"), which has been
effective since 1999, provides for the issuance of up to 20,000,000 shares of
common stock as either Nonqualified Stock Options or as Incentive Stock Options.
The vesting period and option term is determined by the MISOP administrator.
Options typically vest over a four year period and have a term of up to 10
years.
VoiceStream accounts for its stock compensation plans following the
guidelines of APB Opinion No. 25 and related interpretations. Had compensation
cost 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,
VoiceStream's net loss and basic loss per share would have increased to the pro
forma amounts indicated below (dollars in thousands, except per share data):
YEAR ENDED DECEMBER 31,
------------------------
2000 1999
----------- ---------
Net loss:
As reported............................................... $(2,094,389) $(454,739)
Pro forma................................................. $(2,168,578) $(497,159)
Basic and diluted loss per share:
As reported............................................... $ (10.93) $ (4.75)
Pro forma................................................. $ (11.32) $ (5.19)
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:
2000 1999
-------------- -------------
Weighted average risk free interest rate.................... 5.56% to 6.48% 5.61% to 6.41%
Expected dividend yield..................................... 0% 0%
Expected volatility......................................... 87% 75%
Expected lives.............................................. 7.1 years 7.5 years
The Black-Scholes option-pricing model requires the input of highly
subjective assumptions and does not necessarily provide a reliable measure of
fair value.
F-24
99
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCK-BASED COMPENSATION PLANS AND WARRANTS (CONTINUED)
Options granted, exercised and canceled are summarized as follows (in
thousands, except per share data):
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2000 1999
----------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE PRICE AVERAGE PRICE
SHARES PER SHARE SHARES PER SHARE
------ ------------- ------ -------------
Outstanding, beginning of period.................. 4,135 $ 8.52 -- $ --
Options granted................................... 1,399 112.75 4,899 $8.00
Options assumed................................... 6,289 19.32 -- --
Options exercised................................. (3,910) 15.39 (764) 5.19
Options cancelled................................. (250) 29.16 -- --
------ ------- ----- -----
Outstanding, end of the period.................... 7,663 $ 34.02 4,135 $8.52
====== ======= ===== =====
Exercisable, end of period........................ 3,758 $ 13.57 2,232 $6.06
====== ======= ===== =====
The weighted average fair value of stock options granted was $92.10 in 2000
and $25.97 in 1999.
The following table summarizes information about stock options outstanding
and exercisable at December 31, 2000 (in thousands, except per share data):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF EXERCISE PRICE NUMBER REMAINING LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
----------------------- ------ -------------- -------------- ------ --------------
$ 0.02 - $ 7.31 1,950 5 yrs $ 5.41 1,761 $ 5.97
7.99 - 11.32 1,622 8 10.33 512 9.98
11.41 - 29.66 2,370 7 23.62 1,400 21.12
30.23 - 117.37 1,666 9 102.80 84 67.91
118.00 - 134.10 55 9 118.43 1 119.06
----- ----- ------- ----- -------
$ 0.02 - $134.10 7,663 7 yrs $ 34.02 3,758 $ 13.57
===== ===== ======= ===== =======
Warrants
Prior to the Omnipoint merger, VoiceStream had no stock warrants issued or
outstanding. Under the terms of the Omnipoint merger, we assumed outstanding
warrants from Omnipoint, which we recorded as additional merger consideration
(see Note 3). At December 31, 2000 165,257 warrants with an exercise price of
$1.546 per share and 109,587 warrants with an exercise price of $1.695 per share
to purchase VoiceStream common stock were outstanding. These warrants were fully
exercised in February 2001.
F-25
100
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SELECTED QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
Selected quarterly consolidated financial information for the years ended
December 31, 2000 and 1999 is as follows (dollars in thousands, except per share
data):
BASIC AND
DILUTED LOSS
TOTAL OPERATING PER COMMON
QUARTER ENDED REVENUES LOSS NET LOSS SHARE
------------- -------- --------- --------- ------------
March 31, 1999*.......................................... $ 67,712 $ (57,481) $ (77,186) $(0.81)
June 30, 1999*........................................... $109,050 $(105,933) $(132,817) $(1.39)
September 30, 1999*...................................... $134,932 $ (61,739) $ (93,034) $(0.97)
December 31, 1999........................................ $163,835 $ (97,622) $(151,702) $(1.58)
March 31, 2000........................................... $256,998 $(119,116) $(203,330) $(1.68)
June 30, 2000............................................ $453,557 $(264,149) $(414,224) $(2.16)
September 30, 2000....................................... $562,242 $(507,438) $(657,325) $(3.02)
December 31, 2000........................................ $649,900 $(562,794) $(806,975) $(3.49)
---------------
* Certain reclassifications have been made to the quarterly revenue amounts to
conform to the annual presentation.
14. RELATED PARTY TRANSACTIONS:
VoiceStream and the Cook Inlet Designated Entities are parties to technical
services agreements and reciprocal resale agreements which entitle each party to
utilize airtime on the other's spectrum, and/or utilize wireless system
infrastructure, in certain agreed upon markets. The agreements are structured
such that each party performs as a reseller for the other and related fees are
charged and paid between the parties. Through 2000, we earned revenues of $113.8
million and incurred expenses of $138.1 million related to these agreements as
compared to revenues of $22.5 million and expenses of $26.3 million for the year
ended December 31, 1999.
After the spin-off, the NOL carryforwards resulting from VoiceStream's
cumulative tax losses were transferred from Western Wireless to VoiceStream.
Pursuant to a tax sharing agreement entered into at the time of the Hutchison
investment, we paid Western Wireless $20.0 million for the estimated tax benefit
of NOLs generated while VoiceStream was a subsidiary of Western Wireless. This
was accounted for as a capital adjustment to Western Wireless in 1999. In 2001,
as a result of Western Wireless retaining a portion of the NOLs generated by
VoiceStream before the spin-off pursuant to the Tax Sharing agreement between
the companies, Western Wireless will pay VoiceStream approximately $24.5 million
(unaudited). This will also be treated as a capital adjustment.
15. SUBSEQUENT EVENTS
STPCS Asset and License Purchase
On January 22, 2001, VoiceStream and CIVS IV purchased certain D and F
block licenses owned by two subsidiaries of STPCS Joint Venture, LLC ("STPCS")
in Texas. A subsidiary of VoiceStream owned an 18% interest in STPCS. Under the
terms of the agreement, STPCS sold its D Block licenses in the Brownsville,
Laredo, Corpus Christi and McAllen BTA's and certain other owned assets to
VoiceStream for approximately $297 million. Additionally, STPCS sold its F block
licenses in the McAllen, Brownsville, Eagle Pass, Victoria and Laredo BTA's and
certain other owned assets to CIVS IV, a Designated Entity, for $9 million.
F-26
101
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SUBSEQUENT EVENTS (CONTINUED)
License exchange between AT&T Wireless and Omnipoint Holdings, LLC
On July 24, 2000, a VoiceStream subsidiary, Omnipoint Holdings, Inc.
("OHI"), entered into an agreement with AT&T Wireless PCS, LLC ("AT&T") for the
exchange of certain D and E block 10 MHz licenses held by OHI and other
VoiceStream subsidiaries in Detroit, MI and St. Louis, MO for portions of
certain A Block 10 MHz licenses held by AT&T in Phoenix, AZ and Puerto Rico. The
population covered by the AT&T licenses is approximately 7.2 million, as
compared to 8.7 million for the licenses traded by OHI. AT&T has agreed to pay
OHI $11.7 million as additional consideration for the additional covered
population of the licenses received from OHI. Under the terms of the agreement,
neither party assumes any liabilities related to the licenses being transferred.
The parties have filed applications with the FCC requesting approval of the
exchange, which have been granted. These transactions are anticipated to close
in the first quarter of 2001.
License exchange between VoiceStream and Cingular Wireless
In November 2000, several VoiceStream subsidiaries entered into an
agreement with Cingular Wireless ("Cingular") for the exchange of licenses
covering approximately 35 million people. Cingular will acquire from VoiceStream
10 MHz of spectrum for the New York, NY MTA, as well as 10 MHz in each of the
St. Louis, MO and Detroit, MI BTAs. VoiceStream will acquire from Cingular 10
MHz of spectrum in the Los Angeles and San Francisco MTA's, which include most
of the states of California and Nevada. The transaction is expected to close in
mid-2001, and is structured as a tax free exchange, and no cash or other
consideration is involved in the exchange. The agreement is subject to FCC
approval.
License Exchange Between AT&T and Omnipoint
On November 6, 2000, two wholly-owned VoiceStream subsidiaries, Omnipoint
Holdings, Inc (OHI) and Omnipoint Albany-Schenectady-Glens Falls E License, LLC
(OASG), entered into an agreement with AT&T for the exchange of the E Block
license in Albany, NY held by OASG for 10 MHz of the A Block within Bloomington,
IL and Little Rock, AR. The population covered by the AT&T licenses is
approximately 1.2 million, as compared to 1 million for the licenses traded by
OASG. These transactions are anticipated to close in April 2001.
BCN Communications
On January 24, 2001, CIVS IV purchased a 100% Class A membership interest
in BCN Communications LLC to acquire the Philadelphia, Atlantic City and Dover
C2 15 MHz licenses.
FCC Auction #35
On January 26, 2001, on completion of the latest FCC Auction # 35 1900 MHz
spectrum re-auction CIVS V and VoiceStream were high bidders on 41 additional
PCS licenses for $989 million. As part of the auction we deposited $150 million
with the FCC.
Pocket Communications and Leap Wireless (unaudited)
On February 12, 2001, CIVS IV purchased 12 C block licenses in Las Vegas,
NV, New Orleans, LA, Houma-Thibidaux, LA, Omaha, NE, Sandusky, OH, Adrian, MI,
Battle Creek, MI, Grand Rapids, MI, Jackson, MI, Muskegon, MI, Toledo, OH and
Pittsburgh-Parsons, KS from Pocket Communications for $195 million. In a
separate agreement, we have agreed to sell 8 of these licenses to Leap Wireless,
Inc. for $60 million.
F-27
102
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SUBSEQUENT EVENTS (CONTINUED)
UbiquiTel (unaudited)
On February 22, 2001, VoiceStream signed a definitive agreement with
UbiquiTel (a Sprint PCS Affiliate) to purchase licenses in Bakersfield (10 MHz
of A Block), Fresno, Merced, Modesto, Stockton, and Visalia (F Blocks) for
approximately $50 million. The population covered by these licenses is
approximately 3.4 million. This transaction is anticipated to close in the
second quarter of 2001.
Verizon Trustee (unaudited)
On February 26, 2001, VoiceStream entered into an agreement with a Verizon
Trustee to purchase licenses primarily in Cincinnati and Dayton (both 20 MHz of
B Block) for approximately $200 million. The population covered by these
licenses is approximately 3.4 million. This transaction is anticipated to close
in mid-2001.
16. CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
(dollars in thousands)
AS OF DECEMBER 31,
--------------------------
2000 1999
----------- -----------
Current assets.............................................. $ 2,011,526 $ 50,649
Licensing costs and other intangible assets, net of
accumulated amortization of $4,887 and $371............... 58,184 62,845
Investment in and advances to unconsolidated affiliates..... 14,144,258 1,430,593
----------- -----------
Total assets........................................ $16,213,968 $ 1,544,087
=========== ===========
Current liabilities......................................... $ 71,087 $ 25,259
Long-term debt, net of unamortized discount of $262,600 and
$308,549, due 2009........................................ 2,394,886 1,511,451
Minority interest in equity of consolidated subsidiaries.... 16,563 --
Preferred stock of consolidated subsidiary.................. 312,513 --
VoiceStream convertible voting preferred stock; $0.001 par
value; 100,000,000 shares authorized, 3,906,250 shares
issued and outstanding.................................... 5,000,000 --
Shareholders' equity:....................................... -- --
Common stock, $0.001 par value and paid-in capital, 1.0
billion shares authorized, 250,791,145 and 96,305,360
shares issued and outstanding, respectively............... 11,572,083 1,095,539
Deferred compensation....................................... (8,412) (25,264)
Deficit..................................................... (3,144,752) (1,062,898)
----------- -----------
Total liabilities and shareholders' equity.......... $16,213,968 $ 1,544,087
=========== ===========
See accompanying note to Parent Company only Condensed Financial Information
F-28
103
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) (CONTINUED)
CONDENSED STATEMENTS OF OPERATIONS
(dollars in thousands)
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
2000 1999 1998
----------- --------- ---------
Total revenues.............................................. $ 258 $ 3,603 $ --
Operating expenses.......................................... 84,121 76,101 354
----------- --------- ---------
Operating loss.............................................. $ (83,863) $ (72,498) $ (354)
Other income (expense):
Interest and financing expense............................ (242,607) (48,818) (540)
Equity in net losses of unconsolidated affiliates......... (1,904,571) (349,699) (259,755)
Other, net................................................ 149,187 16,276 6,383
----------- --------- ---------
Total other expense....................................... (1,997,991) (382,241) (253,912)
----------- --------- ---------
Net loss.................................................... $(2,081,854) $(454,739) $(254,266)
=========== ========= =========
CONDENSED STATEMENTS OF CASH FLOWS
(dollars in thousands)
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
2000 1999 1998
----------- ----------- ---------
Operating activities:
Net loss.................................................. $(2,081,854) $ (454,739) $(254,266)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Equity in net losses of unconsolidated affiliates....... 1,904,571 349,699 259,755
Stock-based compensation................................ 51,029 60,690 --
Amortization of debt discount and premium, net.......... 48,166 -- --
Accrued liabilities..................................... 63,122 21,929 --
Other................................................... 1,262 (1,871) 294
----------- ----------- ---------
Net cash provided by (used in) operating activities... (13,704) (24,292) 5,783
----------- ----------- ---------
Investing activities:
Purchases of property and equipment....................... (65,079) (61,473) (1,422)
Additions to licensing costs and other intangible
assets.................................................. -- (496) (8,744)
Purchases of short-term investments, net.................. (1,175,636) -- --
Acquisitions of wireless properties, net of cash
acquired................................................ (555,998) (152,517) --
Investments in and advances to unconsolidated
affiliates.............................................. (3,725,193) (1,176,856) (134,960)
Other..................................................... (9,730) -- --
----------- ----------- ---------
Net cash used in investing activities................. (5,531,636) (1,391,342) (145,126)
----------- ----------- ---------
Financing activities:
Net proceeds from issuance of common and preferred
stock................................................... 6,358,865 3,643 --
Long-term debt borrowings................................. -- 1,911,451 --
Long-term debt repayments................................. -- (400,000) --
Net payments to Western Wireless.......................... -- (13,709) (105,446)
Equity contributions...................................... -- -- 244,789
Deferred financing costs.................................. (28,863) (40,600) --
----------- ----------- ---------
Net cash provided by financing activities............. 6,330,002 1,460,785 139,343
----------- ----------- ---------
Change in cash and cash equivalents......................... 784,662 45,151 0
Cash and cash equivalents, beginning of year................ 45,151 -- --
----------- ----------- ---------
Cash and cash equivalents, end of year...................... $ 829,813 $ 45,151 $ --
=========== =========== =========
See accompanying note to Parent Company only Condensed Financial Information
F-29
104
VOICESTREAM WIRELESS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) (CONTINUED)
A. BASIS OF PRESENTATION:
The condensed financial information presented above is included in
accordance with Regulation SX Rule 4-08(e)3 and represents the condensed balance
sheets, statements of operations and cash flows of VoiceStream as if the
subsidiaries that are restricted under the outstanding credit facilities (see
Note 8) were unconsolidated entities. VoiceStream less these restricted
subsidiaries is referred to as "Parent Company Only". The Parent Company Only
ownership in such restricted subsidiaries has been reflected in the above
condensed financial information using the equity method. The condensed balance
sheets, statements of operations, and statements of cash flow for Parent Company
Only should be read in conjunction with the VoiceStream Consolidated Financial
Statements and Notes thereto.
17. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ACCOUNTS RECEIVABLE ALLOWANCE FOR DOUBTFUL ACCOUNTS
(dollars in thousands)
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES DEDUCTIONS(1) OTHER(2) PERIOD
---------- ---------- ------------- -------- ----------
Year ended December 31, 1998............................ $ 2,040 $ 12,780 $ (9,105) $ -- $ 5,715
======= ======== ========= ======= ========
Year ended December 31, 1999............................ $ 5,715 $ 37,000 $ (25,233) $ -- $ 17,482
======= ======== ========= ======= ========
Year ended December 31, 2000............................ $17,482 $162,800 $(113,618) $33,936 $100,600
======= ======== ========= ======= ========
---------------
(1) Write-offs, net of bad debt recovery.
(2) Recorded in purchase accounting adjustments.
F-30
105
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
March 23, 2001 VOICESTREAM WIRELESS CORPORATION
By /s/ JOHN W. STANTON
------------------------------------
John W. Stanton
Chairman of the Board, Director and
Chief Executive Officer
(Principal 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.
SIGNATURES TITLE DATE
---------- ----- ----
By: /s/ JOHN W. STANTON Chairman of the Board, March 23, 2001
---------------------------------------------------- Director and Chief Executive
John W. Stanton Officer (Principal Executive
Officer)
By: /s/ ROBERT R. STAPLETON President and Director March 23, 2001
----------------------------------------------------
Robert R. Stapleton
By: /s/ DONALD GUTHRIE Vice Chairman and Director March 23, 2001
---------------------------------------------------- (Principal Financial Officer)
Donald Guthrie
By: /s/ DOUGLAS G. SMITH Vice Chairman and Director March 23, 2001
----------------------------------------------------
Douglas G. Smith
By: /s/ ALLYN P. HEBNER Vice President and Controller March 23, 2001
---------------------------------------------------- (Principal Accounting
Allyn P. Hebner Officer)
By: /s/ MITCHELL R. COHEN Director March 23, 2001
----------------------------------------------------
Mitchell R. Cohen
By: /s/ DANIEL J. EVANS Director March 23, 2001
----------------------------------------------------
Daniel J. Evans
By: /s/ RICHARD L. FIELDS Director March 23, 2001
----------------------------------------------------
Richard L. Fields
By: /s/ CANNING K. N. FOK Director March 23, 2001
----------------------------------------------------
Canning K. N. Fok
By: /s/ JONATHAN M. NELSON Director March 23, 2001
----------------------------------------------------
Jonathan M. Nelson
106
SIGNATURES TITLE DATE
---------- ----- ----
By: /s/ TERENCE M. O'TOOLE Director March 23, 2001
----------------------------------------------------
Terence M. O'Toole
By: /s/ JAMES N. PERRY JR. Director March 23, 2001
----------------------------------------------------
James N. Perry Jr.
By: /s/ JAMES J. ROSS Director March 23, 2001
----------------------------------------------------
James J. Ross
By: /s/ HANS SNOOK Director March 23, 2001
----------------------------------------------------
Hans Snook
By: /s/ SUSAN M.F. WOO CHOW Director March 23, 2001
----------------------------------------------------
Susan M.F. Woo Chow
By: /s/ FRANK J. SIXT Director March 23, 2001
----------------------------------------------------
Frank J. Sixt
By: /s/ KAJ-ERIK RELANDER Director March 23, 2001
----------------------------------------------------
Kaj-Erik Relander
107
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 Agreement and Plan of Merger, dated as of July 23, 2000, as
amended and restated on February 8, 2001, among Deutsche
Telekom AG, VoiceStream Wireless Corporation and a Delaware
corporation formed by Deutsche Telekom AG (incorporated
herein by reference to Exhibit 2.1 of VoiceStream Wireless
Corporation's Registration Statement on Amendment No. 2 to
Form S-4 (File No. 333-47306), filed on February 9, 2001).
Schedules and certain other attachments to this Exhibit have
not been filed; upon request, VoiceStream will furnish
supplementally to the Securities and Exchange Commission a
copy of any omitted schedule or attachment.
2.2 Agreement and Plan of Reorganization, dated as of August 26,
2000, as amended and restated on February 8, 2001, among
VoiceStream Wireless Corporation, Powertel, Inc. and a
wholly-owned subsidiary of VoiceStream Wireless Corporation
(incorporated herein by reference to Exhibit 2.3 of
VoiceStream Wireless Corporation's Registration Statement on
Amendment No. 2 to Form S-4 (File No. 333-47306), filed on
February 9, 2001). Schedules and certain other attachments
to this Exhibit have not been filed; upon request,
VoiceStream will furnish supplementally to the Securities
and Exchange Commission a copy of any omitted schedule or
attachment.
3.1 Amended and Restated Certificate of Incorporation of
VoiceStream Wireless Corporation (incorporated herein by
reference to Annex H of VoiceStream Wireless Holding
Corporation's Registration Statement on Amendment No. 4 to
Form S-4 (File No. 333-89735), filed on January 24, 2000).
3.2 Amended and Restated Bylaws of VoiceStream Wireless
Corporation (incorporated herein by reference to Exhibit 3.1
to VoiceStream Wireless Corporation's Current Report on Form
8-K (File No. 000-29667), dated August 13, 2000).
4.1 Certificate of Designation for the VoiceStream Convertible
Voting Preferred Stock (incorporated herein by reference to
Exhibit 4.1 to VoiceStream Wireless Corporation's Current
Report on Form 8-K (File No. 000-29667), dated August 13,
2000).
10.1 2000 Management Incentive Stock Option Plan (incorporated
herein by reference to VoiceStream Wireless Holding
Corporation's Registration Statement on Form S-8 (File No.
333-31090), filed on February 25, 2000).*
10.2 2000 Executive Restricted Stock Plan (incorporated herein by
reference to VoiceStream Wireless Holding Corporation's
Registration Statement on Form S-8 (File No. 333-31088),
filed on February 25, 2000).*
10.3 Agreement and Plan of Distribution between Western Wireless
Corporation and VoiceStream Wireless Corporation, dated
April 9, 1999 (incorporated herein by reference to Exhibit
2.1 to VoiceStream Wireless Corporation's Form 10/A (File
No. 0-25441), filed on April 13, 1999).
10.4 Purchase Agreement by and among Western PCS Corporation,
Western Wireless Corporation, Hutchison Telecommunications
Limited and Hutchison Telecommunications PCS (USA) Limited,
dated October 14, 1997 (incorporated herein by reference to
Exhibit 10.53 to the Western Wireless Corporation Form 10-Q
for the quarter ended September 30, 1997 (File No. 0-28160),
filed on November 6, 1997).
10.5 Tax Sharing Agreement by and between Western Wireless
Corporation and Western PCS Corporation (incorporated herein
by reference to Exhibit 2.1 to VoiceStream Wireless
Corporation's Form 10/A (File No. 0-25441), filed on April
13, 1999) (contained as an exhibit to the Agreement and Plan
of Distribution).
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EXHIBIT
NUMBER DESCRIPTION
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10.6 First Amendment to Tax Sharing Agreement by and between
Western Wireless Corporation and VoiceStream Wireless
Corporation, dated May 3, 1999 (incorporated herein by
reference to Exhibit 2.1 to VoiceStream Wireless
Corporation's Form 10/A (File No. 0-25441), filed on April
13, 1999) (contained as an exhibit to the Agreement and Plan
of Distribution).
10.7 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
(incorporated herein by reference to Exhibit 10.41 to
VoiceStream Wireless Corporation's Form 10/A (File No.
0-25441), filed on April 13, 1999).
10.8 Stock Subscription Agreement, dated as of June 23, 1999, by
and among VoiceStream Wireless Corporation, Hutchison
Telecommunications Limited and Hutchison Telecommunications
PCS (USA) Limited (incorporated herein by reference to
Exhibit 4.1 to VoiceStream Wireless Corporation's Current
Report on Form 8-K (File No. 0-25441), dated June 23 1999).
10.9 Securities Purchase Agreement, dated as of June 23, 1999, by
and among VoiceStream Wireless Corporation, Hutchison
Communications PCS (USA) Limited and Omnipoint Corporation
(incorporated herein by reference to Exhibit 10.1 to
VoiceStream Wireless Corporation's Current Report on Form
8-K (File No. 00-25441), dated June 23, 1999).
10.10 Employment Agreement by and between Robert R. Stapleton and
Western Wireless Corporation, dated March 12, 1996
(incorporated herein by reference to Exhibit 10.26 to
Western Wireless Corporation's Registration Statement on
Form S-1 (File No. 333-2432), filed on March 15, 1996).*
10.11 Employment Agreement by and between Cregg B. Baumbaugh and
Western Wireless Corporation, dated March 12, 1996
(incorporated herein by reference to Exhibit 10.30 to
Western Wireless Corporation's Registration Statement on
Form S-1 (File No. 333-2432), filed on March 15, 1996).*
10.12 Employment Agreement by and between Timothy Wong and Western
Wireless Corporation, dated February 10, 1998 (incorporated
herein by reference to Exhibit 10.68 to Western Wireless
Corporation's Form 10-Q for the quarter ended March 31, 1998
(File No. 0-28160), filed on May 11, 1998).*
10.13 Employment Agreement by and between Robert Dotson and
Western Wireless Corporation, dated February 10, 1998
(incorporated herein by reference to Exhibit 10.69 to
Western Wireless Corporation's Form 10-Q for the quarter
ended March 31, 1998 (File No. 0-28160), filed on May 11,
1998).*
10.14 Assignment and Assumption Agreement by and between Western
Wireless Corporation and VoiceStream Wireless Corporation
with respect to the Employment Agreement of Robert R.
Stapleton, dated May 3, 1999 (incorporated herein by
reference to Exhibit 10.37 to VoiceStream Wireless
Corporation's Form 10/A (File No. 0-25441), filed on April
13, 1999).*
10.15 Assignment and Assumption Agreement by and between Western
Wireless Corporation and VoiceStream Wireless Corporation
with respect to the Employment Agreement of Cregg B.
Baumbaugh, dated May 3, 1999 (incorporated herein by
reference to Exhibit 10.38 to VoiceStream Wireless
Corporation's Form 10/A (File No. 0-25441), filed on April
13, 1999).*
10.16 Assignment and Assumption Agreement by and between Western
Wireless Corporation and VoiceStream Wireless Corporation
with respect to the Employment Agreement of Timothy Wong,
dated May 3, 1999 (incorporated herein by reference to
Exhibit 10.39 to VoiceStream Wireless Corporation's Form
10/A (File No. 0-25441), filed on April 13, 1999).*
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EXHIBIT
NUMBER DESCRIPTION
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10.17 Assignment and Assumption Agreement by and between Western
Wireless Corporation and VoiceStream Wireless Corporation
with respect to the Employment Agreement of Robert Dotson,
dated May 3, 1999 (incorporated herein by reference to
Exhibit 10.40 to VoiceStream Wireless Corporation's Form
10/A (File No. 0-25441), filed on April 13, 1999).*
10.18 Employment Agreement, dated as of January 1, 1999, by and
between Omnipoint and Douglas G. Smith (incorporated by
reference to Exhibit 10.59 to VoiceStream Wireless Holding
Corporation's Registration Statement on Form S-4/A (File No.
333-89735), filed on December 3, 1999).*
10.19 Employment Agreement, effective October 1, 1995, by and
between Omnipoint, Omnipoint Communications Inc. and George
F. Schmitt (incorporated herein by reference to Omnipoint
Corporation's Registration Statement on Form S-1 (File No.
33-98360).*
10.20 Amendment to Assignment and Assumption Agreements between
VoiceStream Wireless Corporation and Western Wireless
Corporation, dated as of July 23, 2000.*
10.21 Assignment and Assumption Agreement by and between Western
Wireless Corporation and VoiceStream Wireless Corporation
with respect to the employment agreement of John W. Stanton,
dated as of July 24, 2000.*
10.22 Assignment and Assumption Agreement by and between Western
Wireless Corporation and VoiceStream Wireless Corporation
with respect to the employment agreement of Alan Bender,
dated as of July 24, 2000.*
10.23 Assignment and Assumption Agreement by and between Western
Wireless Corporation and VoiceStream Wireless Corporation
with respect to the employment agreement of Don Guthrie,
dated as of July 24, 2000.*
10.24 Securities Purchase Agreement by and among VoiceStream
Wireless Corporation, Hutchison Telecommunications PCS (USA)
Limited and Omnipoint Corporation, dated as of June 23, 1999
(incorporated herein by reference to Exhibit 10.90 to
VoiceStream Wireless Holding Corporation's Registration
Statement on Form S-4 (File No. 333-89735), filed on October
27, 1999).
10.25 Tax Settlement Agreement dated March 12, 1999, by and
between Aerial, Aerial Operating Company, Inc. and Telephone
and Data Systems, Inc. (incorporated herein by reference to
Exhibit 10.22 to Aerial Communications, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1998 (File No.
0-28262), filed on March 31, 1996).
10.26 Stockholder Agreement dated as of September 17, 1999, among
Telephone and Data Systems, Inc., VoiceStream Wireless
Corporation and VoiceStream Wireless Holding Corporation
(incorporated herein by reference to Exhibit 99.3 to the
Telephone and Data Systems, Inc. Current Report on Form 8-K
(File No. 01-14157), dated September 17, 1999).
10.27 Indemnity Agreement, dated as of September 17, 1999, among
VoiceStream Wireless Corporation, VoiceStream Wireless
Holding Corporation, Aerial Communications, Inc., Aerial
Operating Company, Inc., and Telephone and Data Systems,
Inc. (incorporated herein by reference to Exhibit 99.4 to
the Telephone and Data Systems, Inc. Current Report on Form
8-K (File No. 01-14157), dated September 17, 1999).
10.28 Debt/Equity Replacement Agreement dated as of September 17,
1999, among Telephone and Data Systems, Inc., Aerial
Communications, Inc., Aerial Operating Company, Inc.,
VoiceStream Wireless Corporation, and VoiceStream Wireless
Holding Corporation (incorporated herein by reference to
Exhibit 99.5 to the Telephone and Data Systems, Inc. Current
Report on Form 8-K (File No. 01-14157), dated September 17,
1999).
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EXHIBIT
NUMBER DESCRIPTION
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10.29 Parent Stockholder Agreement dated as of September 17, 1999,
among Aerial Communications, Inc., Telephone and Data
Systems, Inc., VoiceStream Wireless Corporation, VoiceStream
Wireless Holding Corporation and the individuals and
entities set forth on Schedule I thereto (incorporated
herein by reference to Exhibit 99.6 to the Telephone and
Data Systems, Inc. Current Report on Form 8-K (File No.
01-14157), dated September 17, 1999).
10.30 Consent and Amendment dated as of November 12, 1999, by and
among Aerial Communications, Inc., Telephone and Data
Systems, Inc., VoiceStream Wireless Corporation, VoiceStream
Wireless Holding Corporation, and Hellman & Friedman Capital
Partners II, H&F Orchard Partners, L.P., H&F International
Partners, L.P., John W. Stanton, Theresa Gillespie, PN
Cellular, Inc., Stanton Family Trust, Stanton Communications
Corporation, GS Capital Partners, L.P., The Goldman Sachs
Group, Inc., Bridge Street Fund 1992, L.P., Stone Street
Fund 1992, L.P., Providence Media Partners, L.P., Hutchison
Telecommunications Holdings (USA) Limited, and Hutchison
Telecommunications PCS (USA) Limited (incorporated by
reference to Exhibit 10.97.1 to VoiceStream Wireless Holding
Corporation's Registration Statement on Form S-4/A (File No.
333-89735), filed on December 3, 1999).
10.31 Settlement Agreement and Release, entered into as of
September 17, 1999 among Sonera Ltd., Sonera Corporation
U.S., Telephone and Data Systems, Inc., Aerial
Communications, Inc., and Aerial Operating Company, Inc.
(incorporated herein by reference to Exhibit 99.7 to the
Telephone and Data Systems, Inc. Current Report on Form 8-K
(File No. 01-14157), dated September 17, 1999)
10.32 Stock Subscription Agreement, dated as of February 11, 2000,
by and among VoiceStream Wireless Corporation and Microcell
Telecommunications Inc. (incorporated herein by reference to
Exhibit 10.1 to VoiceStream Wireless Corporation's Current
Report on Form 8-K, dated February 28, 2000).
10.33 Shareholders Agreement of Microcell Telecommunications,
dated as of February 11, 2000 by and between VoiceStream
Wireless Corporation and Telesystem Enterprises (T.E.L.)
Ltd. (incorporated herein by reference to Exhibit 10.2 to
VoiceStream Wireless Corporation's Current Report on Form
8-K (File No. 0-29667), dated February 28, 2000).
10.34 Credit Agreement dated as of February 25, 2000, by and among
VoiceStream PCS Holdings L.L.C., Omnipoint Finance, L.L.C.,
Chase Securities Inc., Bank of America Securities L.L.C., TD
Securities (USA) Inc., Goldman Sachs Credit Partners L.P.,
Barclays Capital and SG Cowen, Toronto Dominion (Texas) Inc.
(incorporated herein by reference to Exhibit 10.85 to
VoiceStream Wireless Corporation's Annual Report on Form
10-K405/A for the year ended December 31, 1998 (File No.
0-28262), filed on April 6, 2000)
10.35 Stock Subscription Agreement, dated as of July 23, 2000,
between Deutsche Telekom AG and VoiceStream Wireless
Corporation (incorporated herein by reference to Exhibit
99.1 to VoiceStream Wireless Corporation's Current Report on
Form 8-K (File No. 0-29667), dated July 28, 2000). Certain
attachments to this Exhibit have not been filed; upon
request, VoiceStream Wireless Corporation will furnish
supplementally a copy of any omitted attachment.
10.36 Investor Agreement between Deutsche Telekom AG and
VoiceStream Wireless Corporation, dated as of July 23, 2000
(incorporated herein by reference to Exhibit 99.2 to
VoiceStream Wireless Corporation's Current Report on Form
8-K (File No. 0-29667), dated July 28, 2000). An annex to
this Exhibit has not been filed; upon request, VoiceStream
Wireless Corporation will furnish supplementally a copy of
the omitted annex.
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EXHIBIT
NUMBER DESCRIPTION
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10.37 First Amended and Restated Voting Agreement among
VoiceStream Wireless Corporation and the stockholders party
thereto, dated as of July 23, 2000 (incorporated herein by
reference to Exhibit 10.1 to VoiceStream Wireless
Corporation's Current Report on Form 8-K (File No.
000-29667), dated July 28, 2000).
10.38 Agreement among Cook Inlet GSM, Inc., Cook Inlet
Telecommunications, Inc., Deutsche Telekom AG, and
VoiceStream Wireless Corporation, dated as of July 23, 2000,
and Exhibit A (Form of Voting and Lock-up Agreement) thereto
(incorporated herein by reference to Exhibit 10.2 to
VoiceStream Wireless Corporation's Current Report on Form
8-K (File No. 000-29667), dated July 28, 2000).
10.39 Agreement among Providence Media Partners L.P., Providence
Equity Partners III, L.P., Providence Equity Operating
Partners III, L.P., Deutsche Telekom AG and VoiceStream
Wireless Corporation, dated as of July 23, 2000, and Exhibit
A (Form of Voting and Lock-up Agreement) thereto
(incorporated herein by reference to Exhibit 10.3 to
VoiceStream Wireless Corporation's Current Report on Form
8-K (File No. 000-29667), dated July 28, 2000).
10.40 Stockholder Agreement among VoiceStream Wireless
Corporation, Donald W. Burton, The Burton Partnership, L.P.,
The Burton Partnership (QP), L.P., South Atlantic Venture
Fund II, L.P., South Atlantic Venture Fund III, L.P., South
Atlantic Private Equity Fund IV, L.P. and South Atlantic
Private Equity Fund IV (QP), L.P., dated as of August 26,
2000 (incorporated herein by reference to Exhibit 2 to
VoiceStream Wireless Corporation's Schedule 13D filed on
October 10, 2000).
10.41 Stockholder Agreement between VoiceStream Wireless
Corporation and The American Water Works Company, dated as
of August 26, 2000 (incorporated herein by reference to
Exhibit 3 to VoiceStream Wireless Corporation's Schedule 13D
filed on October 10, 2000).
10.42 Stockholder Agreement between VoiceStream Wireless
Corporation and SCANA Communications Holdings, Inc., dated
as of August 26, 2000 (incorporated herein by reference to
Exhibit 4 to VoiceStream Wireless Corporation's Schedule 13D
filed on October 10, 2000).
10.43 Stockholder Agreement among VoiceStream Wireless
Corporation, ITC Holding Company, Inc., ITC Wireless Inc.
and ITC Service Company, dated as of August 26, 2000
(incorporated herein by reference to Exhibit 5 to
VoiceStream Wireless Corporation's Schedule 13D filed on
October 10, 2000).
10.44 Stockholder Agreement among VoiceStream Wireless
Corporation, Sonera Corporation and Sonera Holding, B.V.,
dated as of August 26, 2000 (incorporated herein by
reference to Exhibit 6 to VoiceStream Wireless Corporation's
Schedule 13D filed on October 10, 2000).
10.45 Stockholder Agreement among Powertel, Inc., VoiceStream
Wireless Corporation GS Capital Partners, L.P., The Goldman
Sachs Group, Inc., Bridge Street Fund 1992, L.P. and Stone
Street Fund 1992, L.P., dated as of August 26, 2000
(incorporated herein by reference to Exhibit 10.3 to
Powertel, Inc.'s Current Report on Form 8-K (File No.
0-23102), dated August 26, 2000).
10.46 Stockholder Agreement among Powertel, Inc., VoiceStream
Wireless Corporation, Hutchison Telecommunications PCS (USA)
Limited and Hutchison Telecommunications Holdings (USA)
Limited, dated as of August 26, 2000 (incorporated herein by
reference to Exhibit 10.5 to Powertel, Inc.'s Current Report
on Form 8-K (File No. 0-23102), dated August 26, 2000).
10.47 Stockholder Agreement among Powertel, Inc., VoiceStream
Wireless Corporation, Sonera Corporation and Sonera Holding,
B.V., dated as of August 26, 2000 (incorporated herein by
reference to Exhibit 10.2 to Powertel, Inc.'s Current Report
on Form 8-K (File No. 0-23102), dated August 26, 2000).
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EXHIBIT
NUMBER DESCRIPTION
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10.48 Stockholder Agreement among Powertel, Inc., VoiceStream
Wireless Corporation, John W. Stanton, Theresa E. Gillespie,
PN Cellular, Inc., Stanton Family Trust and Stanton
Communications Corporation, dated as of August 26, 2000
(incorporated herein by reference to Exhibit 10.1 to
Powertel, Inc.'s Current Report on Form 8-K (File No.
0-23102), dated August 26, 2000).
10.49 Stockholder Agreement among Powertel, Inc., VoiceStream
Wireless Corporation and Telephone & Data Systems, Inc.,
dated as of August 26, 2000 (incorporated herein by
reference to Exhibit 10.4 to Powertel, Inc.'s Current Report
on Form 8-K (File No. 0-23102), dated August 26, 2000).
10.50 Retention Agreement between Deutsche Telekom AG and
VoiceStream Wireless Corporation, dated as of December 22,
2000 (incorporated herein by reference to Exhibit 10.38 to
VoiceStream Wireless Corporation's Registration Statement on
Amendment No. 2 to Form S-4 (File No. 333-47306), filed on
February 9, 2001).
21 Subsidiaries of VoiceStream Wireless Corporation
23.1 Consent of Arthur Andersen LLP.
---------------
* Management contract or compensatory plan or arrangement.
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