ACC ACQUISITION LLC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q


[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended March 31, 2003

[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to

Commission file no. 333-59322 and 333-63454

ACC ACQUISITION LLC
(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		22-3043811 (I.R.S. Employer Identification No.)

14201 Wireless Way Oklahoma City, Oklahoma (Address of principal executive offices)		73134 (Zip Code)

(405) 529-8500
(Registrant’s telephone number, including area code)

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 [ ] No [X]

The registrant is not subject to filing requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, but files reports required by those sections pursuant to contractual obligations.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

TABLE OF CONTENTS


PART I.
FINANCIAL INFORMATION
	CONDENSED CONSOLIDATED BALANCE SHEETS
	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
	CONDENSED CONSOLIDATED STATEMENTS OF MEMBER’S DEFICIT
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8K
SIGNATURES
CERTIFICATIONS FOR FORM 10-Q

ACC ACQUISITION LLC

INDEX TO FORM 10-Q


Item
Number				Page

			PART I. FINANCIAL INFORMATION
	1	Condensed Consolidated Financial Statements:
		Condensed Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002			3
		Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2003 and 2002			4
		Condensed Consolidated Statement of Members’ Deficit for the Three Months Ended March 31, 2003			5
		Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002			6
		Notes to Condensed Consolidated Financial Statements			7
	2	Management’s Discussion and Analysis of Financial Condition and Results of Operations			11
	3	Quantitative and Qualitative Disclosure about Market Risk			19
	4	Controls and Procedures			19
			PART II. OTHER INFORMATION
	1	Legal Proceedings			20
	2	Changes in Securities and Use of Proceeds			20
	3	Defaults Upon Senior Securities			20
	4	Submission of Matters to a Vote of Security Holders			20
	5	Other Information			20
	6	Exhibits and Reports on Form 8-K			20

PART I.

FINANCIAL INFORMATION

Item 1. Financial Statements

ACC ACQUISITION LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


					March 31,			December 31,
					2003			2002

					(Unaudited)
				ASSETS
CURRENT ASSETS:
	Cash and cash equivalents				$	14,548,425		$	15,865,547
	Accounts receivable, net					35,009,677			38,545,920
	Restricted cash and investments					38,518,414			38,206,378
	Inventory					2,997,563			4,327,769
	Prepaid expenses and other					3,691,461			3,578,796

		Total current assets				94,765,540			100,524,410

PROPERTY, PLANT AND EQUIPMENT						184,770,546			185,935,029

OTHER ASSETS:
	Receivables — affiliates					874,796			1,278,034
	Restricted investments					—			4,122,232
	Wireless license acquisition costs					569,168,796			569,168,796
	Goodwill, net					285,107,091			285,107,091
	Deferred financing costs and other, net					39,435,305			41,007,037
	Customer list, net					18,128,626			20,562,127
	Other non-current assets					563,498			539,264

		Total other assets				913,278,112			921,784,581

			Total assets		$	1,192,814,198		$	1,208,244,020

				LIABILITIES AND MEMBERS’ DEFICIT
CURRENT LIABILITIES:
	Accounts payable				$	22,909,557		$	35,865,934
	Accrued expenses					948,132			1,140,021
	Accrued interest payable					31,037,048			14,499,071
	Accrued dividends payable					8,053,943			6,799,945
	Deferred revenue and customer deposits					10,937,061			11,014,222
	Current portion of long-term debt					1,573,956,198			1,588,509,275

		Total current liabilities				1,647,841,939			1,657,828,468

OTHER LIABILITIES:
	Deferred tax liabilities					41,907,710			43,690,897
	Commitments (Note 4)
	Series A preferred stock					35,000,000			35,000,000
MEMBERS’ DEFICIT:
	Members’ equity					797,827,565			797,827,565
	Retained deficit					(1,329,763,016	)		(1,326,102,910	)

		Total members’ deficit				(531,935,451	)		(528,275,345	)

			Total liabilities and members’ deficit		$	1,192,814,198		$	1,208,244,020

The accompanying notes are an integral part of these condensed consolidated financial statements.

ACC ACQUISITION LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


			For the Three Months Ended
			March 31,

			2003			2002

			(Unaudited)
OPERATING REVENUE:
	Service revenue		$	75,175,890		$	70,186,614
	Roaming revenue			27,679,746			26,593,463
	Equipment and other revenue			3,634,082			3,102,707

		Total operating revenue		106,489,718			99,882,784

OPERATING EXPENSES:
	Cost of service (exclusive of items shown separately below)			23,569,557			27,374,418
	Cost of equipment			8,908,568			7,445,819
	Marketing and selling			12,390,818			13,574,378
	General and administrative			17,693,980			16,681,680
	Depreciation and amortization			17,003,573			15,982,039

		Total operating expenses		79,566,496			81,058,334

OPERATING INCOME				26,923,222			18,824,450
OTHER INCOME (EXPENSE):
	Interest expense			(31,254,148	)		(40,540,745	)
	Other income (expense), net			320,867			(502,389	)

LOSS BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS				(4,010,059	)		(22,218,684	)
	Income tax benefit			1,603,951			8,887,474

LOSS FROM CONTINUING OPERATIONS				(2,406,108	)		(13,331,210	)
DISCONTINUED OPERATIONS: (Note 2)
	Loss from discontinued operations, net of income tax benefit of $435,838			—			(653,909	)
	Gain from sale of discontinued operations, net of income tax expense of $50,282,976			—			13,472,110

LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE				(2,406,108	)		(513,009	)
	Cumulative effect of change in accounting principle, net of income tax benefit of $187,760,000 (Note 6)			—			(281,640,000	)

NET LOSS				(2,406,108	)		(282,153,009	)
DIVIDENDS ON PREFERRED STOCK				(1,253,998	)		(1,114,161	)

NET LOSS APPLICABLE TO MEMBERS			$	(3,660,106	)	$	(283,267,170	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

ACC ACQUISITION LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF MEMBERS’ DEFICIT


							Total
		Members’		Retained			Members’
		Equity		Deficit			Deficit

	(Unaudited)
DECEMBER 31, 2002		$	797,827,565	$	(1,326,102,910	)	$	(528,275,345	)
Net loss			—		(2,406,108	)		(2,406,108	)
Preferred stock dividends			—		(1,253,998	)		(1,253,998	)

MARCH 31, 2003		$	797,827,565	$	(1,329,763,016	)	$	(531,935,451	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

ACC ACQUISITION LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


				For the Three Months Ended

				March 31,			March 31,
				2003			2002

				(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net loss from continuing operations			$	(2,406,108	)	$	(13,331,210	)
	Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities —
		Depreciation and amortization			17,003,573			15,982,039
		Amortization of bond premium and financing costs			1,571,806			1,351,193
		Deferred income taxes			(1,783,187	)		(3,498,914	)
		Cash used in operating activities of discontinued operations			—			(7,175,022	)
		Loss on ineffective hedge transaction			—			1,072,919
	Changes in current assets and liabilities —
		Accounts receivable			3,536,243			7,042,227
		Inventory			1,330,206			168,724
		Prepaid expenses and other			(427,754	)		(1,190,188	)
		Accounts payable			(12,956,377	)		15,807,124
		Accrued expenses			16,346,088			12,752,975
		Deferred revenue and customer deposits			(77,161	)		(513,433	)

			Net cash provided by operating activities		22,137,329			28,468,434

CASH FLOWS FROM INVESTING ACTIVITIES:
	Capital expenditures				(13,182,227	)		(13,214,939	)
	Decrease in receivable-affiliates				175,785			—
	Net proceeds from sale of discontinued operations				—			194,452,561
	Refund of funds held in escrow for contingencies on sold assets				4,126,876			—
	Other investing activities				(21,807	)		950,967

			Net cash (used in) provided by investing activities		(8,901,373	)		182,188,589

CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from long-term debt				—			87,000,000
	Repayments of long-term debt				(14,721,071	)		(299,297,699	)
	Other financing activities				167,993			(288,879	)

			Net cash used in financing activities		(14,553,078	)		(212,586,578	)

NET DECREASE IN CASH AND CASH EQUIVALENTS					(1,317,122	)		(1,929,555	)
CASH AND CASH EQUIVALENTS, beginning of period					15,865,547			5,962,148

CASH AND CASH EQUIVALENTS, end of period				$	14,548,425		$	4,032,593

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
	Cash paid for —
		Interest, net of amounts capitalized		$	12,976,462		$	28,079,845
		Income taxes		$	2,350,735		$	1,161,862
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
		Transfer of fixed assets from affiliates		$	227,453			—

The accompanying notes are an integral part of these condensed consolidated financial statements.

ACC ACQUISITION LLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The condensed consolidated balance sheets of ACC Acquisition LLC, and subsidiaries (the “Company”) as of March 31, 2003, the condensed consolidated statement of operations for the three months ended March 31, 2003 and 2002, the condensed consolidated statement of member’s deficit for the three months ended March 31, 2003 and the condensed consolidated statements of cash flows for the three months ended March 31, 2003 and 2002 are unaudited. In the opinion of management, such financial statements include all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of financial position, results of operations, and cash flows for the periods presented.

The condensed consolidated balance sheet data at December 31, 2002 was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The financial statements presented herein should be read in connection with the Company’s December 31, 2002 consolidated financial statements included in the Company’s Form 10-K for the fiscal year ended December 31, 2002.

1. Organization

The Company is a limited liability company equally owned by AT&T Wireless and Dobson Communications; it was originally formed on February 15, 2000, to acquire the operations of American Cellular Corporation and its subsidiaries (“American”). On February 25, 2000, the Company acquired American. The Company is a provider of rural and suburban wireless telephone services in portions of Illinois, Kansas, Kentucky, Michigan, Minnesota, New York, Ohio, Oklahoma, Pennsylvania, West Virginia and Wisconsin.

The Company operates in one business segment pursuant to Statement of Financial Accounting Standards, or SFAS, No. 131, “Disclosures about Segments of an Enterprise and Related Information.”

2. Discontinued Operations

On February 8, 2002, the Company completed the sale of Tennessee 4 RSA to Verizon Wireless for a total purchase price of $202.0 million. Proceeds from this transaction were primarily used to pay down bank debt. Tennessee 4 RSA covered a total population of approximately 290,800 and had a subscriber base of approximately 24,900. As a result of this sale, the results of operations for Tennessee 4 RSA during the periods presented are included in the Company’s consolidated financial statements as discontinued operations.

Pursuant to SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which replaced APB Opinion No. 30 for the disposal of segments of a business, the condensed consolidated financial statements have been reclassified for all periods presented to reflect the Tennessee 4 RSA operations, assets and liabilities as discontinued operations.

The net loss from discontinued operations was classified on the condensed consolidated statement of operations as “Loss from discontinued operations.” Summarized results of discontinued operations are as follows:


	For the Period From
	January 1, 2002
	Through February 8,
	2002

	($ in thousands)
Operating revenue	$	2,319
Loss before income taxes		(1,090	)
Income tax benefit		436
Loss from discontinued operations		(654	)

The long-term debt of the Company is at the consolidated level, and is not reflected by each individual market. Thus, the Company has allocated a portion of interest expense to the discontinued operations based on Tennessee 4 RSA’s pro rata population coverage, to properly reflect the interest that was incurred to finance the Tennessee 4 RSA operations. The interest expense allocated to these operations was $1.0 million for the period from January 1, 2002 through disposition (February 8, 2002).

The Company completed the sale of Tennessee 4 RSA on February 8, 2002, and recorded operating losses totaling $0.7 million incurred through February 8, 2002, and the related gain on the sale totaling $13.5 million, net of tax expense.

3. Long-Term Debt

The Company’s long-term debt consists of the following:


		March 31, 2003		December 31, 2002

		($ in thousands)
Credit facility		$	879,552	$	894,273
Senior Subordinated Notes, net of discount			694,404		694,236

	Total debt		1,573,956		1,588,509
Less — Current maturities			1,573,956		1,588,509

	Total long-term debt	$	—	$	—

Credit Facility

On February 25, 2000, the Company obtained a $1.75 billion credit facility to retire existing debt and complete the acquisition of American. This credit facility included a $300.0 million revolving credit facility and $1.45 billion of term loan facilities. On March 2, 2001, the Company and its lenders agreed to an amendment to the credit facility. This amendment became effective on March 14, 2001, when the Company permanently repaid $200.0 million of the term loans. The Company used proceeds from the issuance of its $450.0 million senior subordinated notes due 2009, to reduce the credit facility to $1.55 billion. On May 31, 2001, the Company and its lenders agreed to a second amendment to the credit facility. This amendment became effective on June 4, 2001, when the Company permanently repaid $201.3 million of the term notes under the credit facility with proceeds from the issuance of an additional $250.0 million senior subordinated notes due 2009, which reduced the credit facility to $1.34 billion. On September 27, 2001, the Company and its lenders agreed to a third amendment of the credit facility, which modified certain financial covenants (as described below). In addition to the Company’s financial covenants, the Company is required to make prepayments of proceeds received from significant asset sales, new borrowings and a portion of excess cash flow. Therefore, when the Company completed the sale of Tennessee 4 RSA to Veriz

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