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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 2002.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 005-58523
ALAMOSA (DELAWARE), INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2843707
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
5225 SOUTH LOOP 289, SUITE 120
LUBBOCK, TEXAS 79424
(Address of principal executive offices, including zip code)
(806) 722-1100
(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 [X] NO [ ]
- ----------------
As of August 14, 2002 approximately 100 shares of common stock, $0.01 par value
per share, were issued and outstanding.
The registrant meets the conditions set forth in General Instructions H(1)(a)
and (b) of Form 10-Q and is filing this form with the reduced disclosure
pursuant to General Instructions H(2)(b) and H(2)(c).
ALAMOSA (DELAWARE), INC.
TABLE OF CONTENTS
PAGE
-----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2002 (unaudited) and December 31, 2001................................. 3
Consolidated Statements of Operations for the three and six months ended June 30, 2002 and 2001, (unaudited)... 4
Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001, (unaudited)............. 5
Notes to the Consolidated Financial Statements................................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................... 24
Item 3. Quantitative and Qualitative Disclosures About Market Risk..................................................... 32
PART II OTHER INFORMATION
Item 1. Legal Proceedings.............................................................................................. 33
Item 2. Changes in Securities and Use of Proceeds...................................................................... 33
Item 3. Defaults Upon Senior Securities................................................................................ 33
Item 4. Submission of Matters to a Vote of Security Holders............................................................ 33
Item 5. Other Information.............................................................................................. 33
Item 6. Exhibits and Reports on Form 8-K............................................................................... 34
ALAMOSA (DELAWARE), INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share information)
JUNE 30, 2002 DECEMBER 31, 2001
----------------- -----------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 61,701 $ 104,672
Short term investments 1,300 1,300
Restricted cash 50,491 51,687
Customer accounts receivable, net 50,905 42,740
Receivable from Sprint 7,253 9,137
Interest receivable 1,559 2,393
Inventory 4,860 4,802
Prepaid expenses and other assets 4,784 4,749
Deferred customer acquisition costs 6,292 5,181
Deferred tax asset 8,112 8,112
-------------- --------------
Total current assets 197,257 234,773
Property and equipment, net 469,536 455,695
Debt issuance costs, net 34,376 36,654
Restricted cash 8,667 43,006
Goodwill 291,635 293,353
Intangible assets, net 508,706 528,840
Other noncurrent assets 7,280 6,087
-------------- --------------
Total assets $ 1,517,457 $ 1,598,408
============== ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 21,123 $ 44,012
Accrued expenses 27,672 29,291
Payable to Sprint 19,743 16,133
Interest payable 22,269 22,123
Deferred revenue 18,596 15,479
Current installments of capital leases 749 596
-------------- --------------
Total current liabilities 110,152 127,634
-------------- --------------
Long term liabilities:
Capital lease obligations 1,859 1,983
Other noncurrent liabilities 9,163 7,496
Senior secured debt 200,000 187,162
12 7/8% senior discount notes 252,539 237,207
12 1/2% senior notes 250,000 250,000
13 5/8% senior notes 150,000 150,000
Deferred tax liability 62,472 98,940
-------------- --------------
Total long term liabilities 926,033 932,788
-------------- --------------
Total liabilities 1,036,185 1,060,422
-------------- --------------
Commitments and contingencies -- --
Stockholder's equity:
Preferred stock, $.01 par value; 1,000 shares authorized; no
shares issued -- --
Common stock, $.01 par value; 9,000 shares authorized,
100 and 100 shares issued and outstanding, respectively -- --
Additional paid-in capital 800,696 800,293
Accumulated deficit (318,240) (261,371)
Accumulated other comprehensive income, net of tax (1,184) (936)
-------------- --------------
Total stockholder's equity 481,272 537,986
-------------- --------------
Total liabilities and stockholder's equity $ 1,517,457 $ 1,598,408
============== ==============
The accompanying notes are an integral part of the
consolidated financial statements.
3
ALAMOSA (DELAWARE), INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(dollars in thousands)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2002 2001 2002 2001
--------- -------- --------- --------
Revenues:
Subscriber revenues $ 92,580 $ 53,305 $ 186,078 $ 83,813
Roaming revenues 33,457 24,198 60,025 35,609
---------- ---------- ---------- ----------
Total service revenues 126,037 77,503 246,103 119,422
Product sales 4,752 6,032 13,073 9,947
---------- ---------- ---------- ----------
Total revenue 130,789 83,535 259,176 129,369
---------- ---------- ---------- ----------
Costs and expenses:
Cost of service and operations 85,289 54,446 163,818 86,915
Cost of products sold 9,113 10,526 23,230 18,559
Selling and marketing 26,960 24,281 55,857 42,563
General and administrative expenses (excluding
non-cash compensation of $0 and $0 for the
three months ended June 30, 2002 and 2001,
respectively, and $0 and $183 for the six months
ended June 30, 2002 and 2001, respectively) 3,053 3,351 6,788 7,074
Depreciation and amortization 26,344 25,235 51,207 37,171
Impairment of property and equipment 1,332 -- 1,332 --
Non-cash compensation -- -- -- 183
---------- ---------- ---------- ----------
Total costs and expenses 152,091 117,839 302,232 192,465
---------- ---------- ---------- ----------
Loss from operations (21,302) (34,304) (43,056) (63,096)
Interest and other income 871 2,467 2,204 8,188
Interest expense (25,820) (19,947) (50,674) (34,663)
---------- ---------- ---------- ----------
Net loss before income tax benefit and
extraordinary item (46,251) (51,784) (91,526) (89,571)
Income tax benefit 17,515 17,448 34,657 31,306
---------- ---------- ---------- ----------
Net loss before extraordinary item (28,736) (34,336) (56,869) (58,265)
Loss on debt extinguishment, (net of tax benefit
of $0 and $0 for the three months ended June 30, 2002
and 2001, respectively, and $0 and $1,969 for the six
months ended June 30, 2002 and 2001, respectively) -- -- -- (3,503)
---------- ---------- ---------- ----------
Net loss $ (28,736) $ (34,336) $ (56,869) $ (61,768)
========== ========== ========== ==========
The accompanying notes are an integral part of the
consolidated financial statements.
4
ALAMOSA (DELAWARE), INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands)
FOR THE SIX MONTHS ENDED JUNE 30,
-----------------------------------
2002 2001
---------------- -------------
Cash flows from operating activities:
Net loss $ (56,869) $ (61,768)
Adjustments to reconcile net loss to net cash used in
operating activities:
Non-cash compensation -- 183
Provision for bad debts 19,265 713
Non-cash interest expense on derivative instruments 113 --
Depreciation and amortization of property and
equipment 31,072 17,971
Amortization of intangible assets 20,135 19,200
Amortization of financing costs included in
interest expense 2,081 1,163
Amortization of discounted interest 198 --
Loss on debt extinguishment, net of tax -- 3,503
Deferred tax benefit (34,657) (31,306)
Interest accreted on discount notes 15,332 13,527
Impairment of property and equipment 1,332 --
(Gain) loss from asset disposition (21) 39
(Increase) decrease in, net of effects from
acquisitions:
Receivables (24,713) (15,995)
Inventory (58) 1,652
Prepaid expenses and other assets (2,420) (131)
Increase (decrease) in, net of effects from
acquisitions:
Accounts payable and accrued expenses 4,361 (9,165)
----------- --------------
Net cash used in operating activities (24,849) (60,414)
----------- --------------
Cash flows from investing activities:
Proceeds from sale of assets 1,673 --
Purchases of property and equipment (68,291) (72,852)
Repayment of notes receivable -- 11,860
Acquisition related costs -- (37,617)
Net change in short term investments -- 1,600
Other 58 --
----------- --------------
Net cash used in investing activities (66,560) (97,009)
----------- --------------
Cash flows from financing activities:
Proceeds from issuance of senior notes -- 242,500
Borrowings under senior secured debt 12,838 203,000
Repayments of borrowings under senior secured debt -- (223,584)
Debt issuance costs -- (13,404)
Capital contribution from parent 402 4
Payments on capital leases (337) (42)
Change in restricted cash 35,535 (70,727)
----------- --------------
Net cash provided by financing activities 48,438 137,747
----------- --------------
Net decrease in cash and cash equivalents (42,971) (19,676)
Cash and cash equivalents at beginning of period 104,672 141,768
----------- --------------
Cash and cash equivalents at end of period $ 61,701 $ 122,092
=========== ==============
Supplemental disclosure of non-cash financing and
investing activities:
Capitalized lease obligations incurred $ 365 $ --
Change in accounts payable for purchases of
property and equipment (20,759) (2,547)
The accompanying notes are an integral part of the
consolidated financial statements.
5
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except as noted)
1. BASIS OF PRESENTATION OF UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited consolidated balance sheet as of June 30, 2002, the
unaudited consolidated statements of operations for the three and six
months ended June 30, 2002 and 2001, the unaudited consolidated
statements of cash flows for the six months ended June 30, 2002 and
2001, and related footnotes, have been prepared in accordance with
accounting principles generally accepted in the United States of
America for interim financial information and Article 10 of Regulation
S-X. Accordingly, they do not include all the information and footnotes
required by accounting principles generally accepted in the United
States of America. The financial information presented should be read
in conjunction with the audited consolidated financial statements as of
and for the year ended December 31, 2001. In the opinion of management,
the interim data includes all adjustments (consisting of only normally
recurring adjustments) necessary for a fair statement of the results
for the interim periods. Operating results for the three and six months
ended June 30, 2002 are not necessarily indicative of results that may
be expected for the year ending December 31, 2002.
Certain reclassifications have been made to prior period balances to
conform to current period presentation.
2. ORGANIZATION AND BUSINESS OPERATIONS
Alamosa (Delaware), Inc. is a direct wholly owned subsidiary of Alamosa
PCS Holdings, Inc. and an indirect wholly owned subsidiary of Alamosa
Holdings, Inc. ("Alamosa Holdings"). Alamosa Holdings was formed in
July 2000. Alamosa Holdings is a holding company and through its
subsidiaries provides wireless personal communications services,
commonly referred to as PCS, in the Southwestern, Northwestern and
Midwestern United States. Alamosa (Delaware), Inc. ("Alamosa
(Delaware)"), was formed in October 1999 under the name "Alamosa PCS
Holdings, Inc." to operate as a holding company in anticipation of its
initial public offering. On February 3, 2000, Alamosa (Delaware)
completed its initial public offering. Immediately prior to the initial
public offering, shares of Alamosa (Delaware) were exchanged for
Alamosa PCS LLC's ("Alamosa") membership interests, and Alamosa became
wholly owned by Alamosa (Delaware). These financial statements are
presented as if the reorganization had occurred as of the beginning of
the periods presented. Alamosa (Delaware) and its subsidiaries are
collectively referred to in these financial statements as the
"Company."
On December 14, 2000, Alamosa (Delaware) formed a new holding company
pursuant to Section 251(g) of the Delaware General Corporation Law. In
that transaction, each share of Alamosa (Delaware) was converted into
one share of the new holding company, and the former public company,
which was renamed "Alamosa (Delaware), Inc." became a wholly owned
subsidiary of the new holding company, which was renamed "Alamosa PCS
Holdings, Inc."
On February 14, 2001, Alamosa Holdings became the new public holding
company of Alamosa PCS Holdings, Inc. ("Alamosa PCS Holdings") and its
subsidiaries pursuant to a reorganization transaction in which a wholly
owned subsidiary of Alamosa Holdings was merged with and into Alamosa
PCS Holdings. As a result of this reorganization, Alamosa PCS Holdings
became a wholly owned subsidiary of Alamosa Holdings, and each share of
Alamosa PCS Holdings common stock was converted into one share of
Alamosa Holdings common stock. Alamosa Holdings' common stock is quoted
on The New York Stock Exchange under the symbol "APS." Alamosa
(Delaware) remains the issuer of the Company's public debt.
6
ALAMOSA (DELAWARE), INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(dollars in thousands, except as noted)
3. LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations through
capital contributions from owners, through debt financing and through
proceeds generated from public offerings of Holdings common stock.
As of June 30, 2002, the Company had $63,001 in cash and cash
equivalents plus an additional $59,158 in restricted cash held in
escrow for debt service requirements. The Company also had $25,000
remaining on the revolving portion of the Senior Secured Credit
Facility. Management believes that this $147,159 in cash and available
borrowings is sufficient to fund working capital, capital expenditure
and debt service requirements through the point where the Company
generates free cash flow.
Management does not anticipate the need to raise additional capital in
the foreseeable future. The Company's funding status is dependent on a
number of factors influencing projections of operating cash flows
including those related to subscriber growth, average revenue per user
("ARPU"), churn and cost per gross addition ("CPGA"). Should actual
results differ significantly from these assumptions, the Company's
liquidity position could be adversely affected and the Company could be
in a position that would require it to raise additional capital which
may or may not be available on favorable terms.
4. MERGERS WITH ROBERTS WIRELESS COMMUNICATIONS, L.L.C., WASHINGTON OREGON
WIRELESS, LLC, AND SOUTHWEST PCS HOLDINGS, INC.
Alamosa Holdings completed the acquisitions of three Sprint PCS Network
Partners during the first quarter of 2001. On February 14, 2001,
Alamosa Holdings completed its acquisitions of Roberts Wireless
Communications, L.L.C. ("Roberts") and Washington Oregon Wireless, LLC
("WOW"). In connection with the Roberts and WOW acquisitions, Alamosa
Holdings entered into a new senior secured credit facility (the "Senior
Secured Credit Facility") for up to $280 million. On March 30, 2001,
Alamosa Holdings completed its acquisition of Southwest PCS Holdings,
Inc. ("Southwest"). In connection with the Southwest acquisition, the
Company increased the Senior Secured Credit Facility from $280 million
to $333 million. Each of these transactions was accounted for under the
purchase method of accounting and the results of the acquired companies
are included in these consolidated financial statements from the date
of acquisition.
The merger consideration in the Roberts acquisition consisted of 13.5
million shares of Alamosa Holdings' common stock and approximately $4.0
million in cash. The Company also assumed the net debt of Roberts in
the transaction, which amounted to approximately $57 million as of
February 14, 2001.
The merger consideration in the WOW acquisition consisted of 6.05
million shares of Alamosa Holdings' common stock and approximately
$12.5 million in cash. The Company also assumed the net debt of WOW in
the transaction, which amounted to approximately $31 million as of
February 14, 2001.
The merger consideration in the Southwest acquisition consisted of 11.1
million shares of Alamosa Holdings' common stock and approximately $5.0
million in cash. The Company also assumed the net debt of Southwest in
the transaction, which amounted to approximately $81 million as of
March 30, 2001.
The Company obtained independent valuations as of the date of
acquisition of Roberts, WOW and Southwest to allocate the purchase
price. The results of the allocations are as follows:
7
ALAMOSA (DELAWARE), INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(dollars in thousands, except as noted)
ROBERTS WOW SOUTHWEST TOTAL
---------- --------- ------------ -----------
Consideration:
Common stock issued $ 291,060 $ 130,438 $ 123,543 $ 545,041
Stock options granted 1,134 -- -- 1,134
Cash (including merger related costs) 8,940 15,962 12,715 37,617
---------- --------- ------------ -----------
Total 301,134 146,400 136,258 583,792
---------- --------- ------------ -----------
Allocated to:
Current assets 4,545 1,969 5,923 12,437
Property, plant and equipment 53,506 35,732 36,722 125,960
Intangible assets (other than goodwill) 258,300 116,400 187,000 561,700
Liabilities acquired (including deferred taxes) (185,452) (85,433) (152,955) (423,840)
---------- --------- ------------- -----------
Goodwill $ 170,235 $ 77,732 $ 59,568 $ 307,535
========== ========= ============ ==========
The unaudited pro forma condensed consolidated statement of operations
for the six months ended June 30, 2001 set forth below, presents the
results of operations as if the acquisitions had occurred at the
beginning of the period and are not necessarily indicative of future
results or actual results that would have been achieved had these
acquisitions occurred as of the beginning of the period.
FOR THE SIX MONTHS ENDED
JUNE 30, 2001
------------------
(UNAUDITED)
Total revenues $ 148,292
===================
Net loss before income tax benefit
and extraordinary item $ (113,306)
Income tax benefit 39,123
-------------------
Net loss before extraordinary item (74,183)
Loss on debt extinguishment, net of tax
benefit of $1,969 (3,503)
-------------------
Net loss $ (77,686)
===================
5. ACCOUNTS RECEIVABLE
Customer accounts receivable - Customer accounts receivable represent
amounts owed to the Company by subscribers for PCS service. The amounts
presented in the consolidated balance sheets are net of an allowance
for uncollectible accounts of $6.3 million and $5.9 million at June 30,
2002 and December 31, 2001, respectively.
Receivable from Sprint - Receivable from Sprint in the accompanying
consolidated balance sheets includes net roaming revenue receivable
from Sprint. This receivable also includes amounts billed by Sprint on
the Company's behalf to other communications providers for calls
terminated on the Company's network. In addition, this item includes
accruals for estimated unbilled revenue through the end of the period.
8
ALAMOSA (DELAWARE), INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(dollars in thousands, except as noted)
Receivable from Sprint consists of the following:
JUNE 30, 2002 DECEMBER 31, 2001
---------------- ----------------
(UNAUDITED)
Net roaming receivable $ 2,758 $ 1,731
Access and interconnect revenue receivable 486 3,252
Accrued service revenue 4,009 4,154
---------------- ----------------
$ 7,253 $ 9,137
================ ================
6. PROPERTY AND EQUIPMENT
Property and equipment are stated net of accumulated depreciation of
$91.8 million and $60.9 million at June 30, 2002 and December 31, 2001,
respectively.
7. GOODWILL AND INTANGIBLE ASSETS
In connection with the acquisitions completed during 2001 discussed in
Note 4, the Company allocated portions of the respective purchase
prices to identifiable intangible assets consisting of (i) the value of
the Sprint agreements in place at the acquired companies and (ii) the
value of the subscriber base in place at the acquired companies. In
addition to the identifiable intangibles, goodwill was recorded in the
amount by which the purchase price exceeded the fair value of the net
assets acquired including identified intangibles.
The value assigned to the Sprint agreements is being amortized using
the straight-line method over the remaining original terms of the
agreements that were in place at the time of acquisition or
approximately 17.6 years. The value assigned to the subscriber bases
acquired is being amortized using the straight-line method over the
estimated life of the acquired subscribers or approximately 3 years.
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," on
January 1, 2002. SFAS No. 142 primarily addresses the accounting for
goodwill and intangible assets subsequent to their initial recognition.
The provisions of SFAS No. 142 (i) prohibit the amortization of
goodwill and indefinite-lived intangible assets, (ii) require that
goodwill and indefinite-lived intangible assets be tested annually for
impairment (and in interim periods if certain events occur indicating
that the carrying value may be impaired), (iii) require that reporting
units be identified for the purpose of assessing potential future
impairments of goodwill and (iv) remove the forty year limitation on
the amortization period of intangible assets that have finite lives. As
of December 31, 2001, the Company had recorded $15.9 million in
accumulated amortization of goodwill. Upon the adoption of SFAS No. 142
the amortization of goodwill was discontinued.
SFAS No. 142 requires that goodwill and indefinite-lived intangible
assets be tested annually for impairment using a two-step process. The
first step is to identify a potential impairment by comparing the fair
value of reporting units to their carrying value and, upon adoption,
must be measured as of the beginning of the fiscal year. As of January
1, 2002, the results of the first step indicated no potential
impairment of the Company's goodwill. The Company will perform this
assessment annually during the third quarter beginning in the third
quarter of 2002. Should the results of the first step of the impairment
testing indicate a potential impairment, the second step would be
completed to measure the amount of any impairment loss.
The annual assessment as of July 31, 2002 will be performed by a
nationally recognized appraisal firm and is expected to be completed by
the time the quarterly report on Form 10-Q for the quarter ended
September 30, 2002 is filed. In performing the evaluation to determine
if an impairment exists, the appraisal firm is expected to use
information from various sources including, but not limited to, current
stock price of Alamosa Holdings, transactions involving similar
companies, the business plan prepared by management and current and
past operating results of the Company among other information. The
estimates used by the appraisal firm may be different from those used
by management in the preparation of its business plan or from the
current operating results of the Company and those differences may be
material. The assessment could be impacted by future events such as,
the stock price of Alamosa Holdings, being either higher or remaining
at current or lower prices for a significant period of time,
transactions announced or completed prior to the completion of the
evaluation, regulatory or other developments as well as the actual
operating results of the Company.
9
ALAMOSA (DELAWARE), INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(dollars in thousands, except as noted)
Goodwill and intangible assets consist of:
JUNE 30, 2002 DECEMBER 31, 2001
----------------- -----------------
(UNAUDITED)
Goodwill * $ 291,635 $ 293,353
========== ==========
Intangible assets:
Sprint affiliation and other agreements $ 532,200 $ 532,200
Accumulated amortization (40,876) (25,768)
---------- ----------
Subtotal 491,324 506,432
---------- ----------
Subscriber base acquired 29,500 29,500
Accumulated amortization (12,118) (7,092)
---------- ----------
Subtotal 17,382 22,408
---------- ----------
Intangible assets, net $ 508,706 $ 528,840
========== ==========
* The change in goodwill from December 31, 2001 to June 30, 2002
relates to a purchase price adjustment as no amortization has been
recorded upon adoption of SFAS 142.
Amortization expense relative to intangible assets was $10,203 and
$20,135 for the three and six months ended June 30, 2002 and will be
$20,284 for the remainder of 2002.
Aggregate amortization expense relative to intangible assets for the
periods shown will be as follows:
YEAR ENDED DECEMBER 31,
-----------------------
2002 $ 40,419
2003 40,067
2004 32,079
2005 30,234
2006 30,234
Thereafter 355,807
----------
$ 528,840
==========
10
ALAMOSA (DELAWARE), INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(dollars in thousands, except as noted)
The following tables present net loss before extraordinary item and net
loss as if the provisions of SFAS 142 had been adopted January 1, 2001:
FOR THE THREE MONTHS ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------- ---------------------------------
2002 2001 2002 2001
---------- ---------- ------------ ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Reported net loss before extraordinary $ (28,736) $ (34,336) $ (56,869) $ (58,265)
item
Add back: goodwill amortization -- 4,999 -- 6,169
---------- ---------- ---------- ----------
Adjusted net loss before extraordinary
item $ (28,736) $ (29,337) $ (56,869) $ (52,096)
========== ========== ========== ==========
Reported net loss $ (28,736) $ (34,336) $ (56,869) $ (61,768)
Add back: goodwill amortization -- 4,999 -- 6,169
---------- ---------- ---------- ----------
Adjusted net loss $ (28,736) $ (29,337) $ (56,869) $ (55,599)
========== ========== ========== ==========
8. LONG-TERM DEBT
Long-term debt consists of the following:
JUNE 30, 2002 DECEMBER 31, 2001
----------------- -----------------
(UNAUDITED)
Senior secured debt $ 200,000 $ 187,162
12 7/8% senior discount notes 252,539 237,207
12 1/2% senior notes 250,000 250,000
13 5/8% senior notes 150,000 150,000
---------- ----------
Total debt 852,539 824,369
Less current maturities -- --
---------- ----------
Long-term debt, excluding current maturities $ 852,539 $ 824,369
========== ==========
SENIOR SECURED CREDIT FACILITY
On February 14, 2001, Alamosa Holdings, Alamosa (Delaware) and Alamosa
Holdings, LLC, as borrower; entered into a $280 million senior secured
credit facility (the "Senior Secured Credit Facility") with Citicorp
USA, as administrative agent and collateral agent; Toronto Dominion
(Texas), Inc., as syndication agent; EDC as co-documentation agent;
First Union National Bank, as documentation agent; and a syndicate of
banking and financial institutions. On March 30, 2001, this credit
facility was amended to increase the facility to $333 million in
relation to the acquisition of Southwest. This credit facility was
again amended in August 2001 to reduce the maximum borrowing to $225
million consisting of a 7-year senior secured 12-month delayed draw
term loan facility of $200 million and a 7-year senior secured
revolving credit facility in an aggregate principal amount of up to $25
million. On February 11, 2002, the Company drew the remaining $12,838
on the term portion of the Senior Secured Credit Facility. No advances
have been taken on the revolving portion of the Senior Secured Credit
Facility.
Interest on the Senior Secured Credit Facility accrues at the option of
the Company at either (i) the London Interbank Offered Rate ("LIBOR")
adjusted for any statutory reserve, or (ii) the base rate which is
generally the higher of the administrative agent's base rate, the
federal funds effective rate plus 0.50% or the administrative agent's
base CD rate plus 0.50%, in each case plus an interest margin which is
initially 4.00% for LIBOR borrowings and 3.00% for base rate
borrowings. These margins are subject to adjustment under certain
conditions.
Repayment of amounts borrowed under the Senior Secured Credit Facility
will begin on May 14, 2004 and payment will be made quarterly
thereafter in amounts to be agreed upon by the Company and the lenders.
11
ALAMOSA (DELAWARE), INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(dollars in thousands, except as noted)
NORTEL/EDC CREDIT FACILITY
On February 14, 2001, the outstanding balance of $54,524 related to the
Nortel/EDC Credit Facility, which was originally entered into in 1999,
was paid in full plus accrued interest in the amount of $884 with
proceeds from the Senior Secured Credit Facility. The Company was
refunded $1,377 of the original issuance cost as a result of the early
extinguishment. The balance of unamortized cost totaling $5,472 was
written off and classified as an extraordinary item (net of an income
tax benefit of $1,969) in the quarter ended March 31, 2001.
12 7/8% SENIOR DISCOUNT NOTES
On December 23, 1999, Alamosa (Delaware) filed a registration statement
with the Securities and Exchange Commission for the issuance of $350
million face amount of senior discount notes (the "12 7/8% Senior
Discount Notes Offering"). The 12 7/8% Senior Discount Notes Offering
was completed on February 8, 2000 and generated net proceeds of
approximately $181 million after underwriters' commissions and expenses
of approximately $6.1 million. The 12 7/8% Senior Discount Notes mature
in ten years (February 15, 2010) and carry a coupon rate of 12 7/8%,
and provides for interest deferral for the first five years. The 12
7/8% Senior Discount Notes will accrete to their $350 million face
amount by February 8, 2005, after which, interest will be paid in cash
semiannually. The proceeds of the 12 7/8% Senior Discount Notes
Offering were used to prepay $75 million of the Nortel credit facility
that was in place at the time, to pay costs to build out the system, to
fund operating working capital needs and for other general corporate
purposes.
12 1/2% SENIOR NOTES
On January 31, 2001, Alamosa (Delaware) consummated the offering (the
"12 1/2% Senior Notes Offering") of $250 million aggregate principal
amount of Senior Notes (the "12 1/2% Senior Notes"). The 12 1/2% Senior
Notes mature in ten years (February 1, 2011), carry a coupon rate of 12
1/2%, payable semiannually on February 1 and August 1, beginning on
August 1, 2001. The net proceeds from the sale of the 12 1/2% Senior
Notes were approximately $241 million, after deducting the discounts
and commissions to the initial purchasers and offering expenses.
Approximately $59 million of the proceeds of the 12 1/2% Senior Notes
Offering were used by Alamosa (Delaware) to establish a security
account (with cash or U.S. government securities) to secure on a pro
rata basis the payment obligations under the 12 1/2% Senior Notes and
the 12 7/8% Senior Discount Notes, and the balance was used for general
corporate purposes of Alamosa (Delaware), including, accelerating
coverage within the existing territories of the Company; the build-out
of additional areas within its existing territories; expanding its
existing territories; and pursuing additional telecommunications
business opportunities or acquiring other telecommunications businesses
or assets.
13 5/8% SENIOR NOTES
On August 15, 2001, Alamosa (Delaware) issued $150 million face amount
of Senior Notes (the "13 5/8% Senior Notes"). The 13 5/8% Senior Notes
mature in ten years (August 15, 2011), and carry a coupon rate of 13
5/8% payable semiannually on February 15 and August 15, beginning on
February 15, 2002. The net proceeds from the sale of the 13 5/8% Senior
Notes were approximately $141.5 million, after deducting the discounts
and commissions to the initial purchasers and offering expenses.
Approximately $39.1 million of the proceeds of the 13 5/8% Notes
Offering were used by Alamosa (Delaware) to establish a security
account (with cash or U.S. government securities) to secure on a pro
rata basis the payment obligations under the 13 5/8% Senior Notes, the
12 1/2% Senior Notes and the 12 7/8% Senior Discount Notes.
Approximately $66 million of the proceeds were used to pay down a
portion of the Senior Secured Credit Facility. The balance will be used
for general corporate purposes.
12
ALAMOSA (DELAWARE), INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(dollars in thousands, except as noted)
9. INCOME TAXES
The income tax benefit represents the anticipated recognition of the
Company's deductible net operating loss carry forwards. This benefit is
being recognized based on an assessment of the combined expected future
taxable income of the Company and expected reversals of the temporary
differences from the Roberts, WOW and Southwest mergers.
10. HEDGING ACTIVITIES AND COMPREHENSIVE INCOME
The Company adopted SFAS No. 133, "Accounting for Derivatives and
Hedging Activities" on January 1, 2001. The statement requires the
Company to record all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through
earnings. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of the derivatives are either
recognized in earnings or are recognized in other comprehensive income
until the hedged item is recognized in earnings. Approximately $532 and
$1,059 in cash settlements under derivative instruments classified as
hedges is included in interest expense for the three and six months
ended June 30, 2002.
As of June 30, 2002, the Company has recorded $2,700 in "other
noncurrent liabilities" relative to the fair value of derivative
instruments including $1,915 representing derivative instruments that
qualify for hedge accounting under SFAS No. 133. In addition, the
Company has recorded $25 in "other noncurrent assets" at June 30, 2002
related to the fair value of derivative instruments. During the six
month period ended June 30, 2002, the Company recognized losses of $248
(net of income taxes of $151) in other comprehensive income. During the
six month period ended June 30, 2001, the Company recognized gains of
$166 (net of income taxes of $93) in other comprehensive income. Other
comprehensive income appears as a separate component of Stockholder's
Equity as "Accumulated other comprehensive income," as illustrated
below:
SIX MONTHS ENDED JUNE 30,
2002 2001
---------------- ----------
(unaudited) (unaudited)
Net loss $ (56,869) $ (61,768)
Change in fair values of derivative instruments,
net of tax effect of $151 and $93, respectively (248) 166
------------- ------------
Comprehensive loss $ (57,117) $ (61,602)
============= ============
11. COMMITMENTS AND CONTINGENCIES
ACCESS REVENUE REFUND - On July 3, 2002, the Federal Communications
Commission issued a ruling on a dispute between AT&T, as an
interexchange carrier ("IXC"), and Sprint Spectrum L.P., a Commercial
Mobile Radio Service ("wireless carrier"). This ruling addressed the
wireless carrier charging terminating access fees to the IXC for calls
terminated on a wireless network indicating such fees could be
assessed; however the IXC would only be obligated to pay such fees if a
contract was in place providing for the payment of access charges. As a
result of this ruling, Sprint has requested that the Company refund
approximately $5.4 million in amounts that had been previously paid to
the Company by Sprint relative to terminating access fees. Although the
Company intends to contest the refund of these amounts, an adjustment
was recorded in the second quarter of 2002 to reflect this charge as a
reduction of revenue and liability in the consolidated financial
statements as of June 30, 2002.
LITIGATION - The Company has been named as a defendant in a number of
purported securities class actions in the United States District Court
for the Southern District of New York, arising out of its initial
public offering (the "IPO"). Various underwriters of the IPO also are
named as defendants in the actions. The complaints allege, among other
things, that the registration statement and prospectus filed with the
Securities and Exchange Commission for purposes of the IPO were false
and misleading because they failed to disclose that the underwriters
allegedly (i) solicited and received commissions from certain investors
in exchange for allocating
13
ALAMOSA (DELAWARE), INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(dollars in thousands, except as noted)
to them shares of common stock in connection with the IPO, and (ii)
entered into agreements with their customers to allocate such stock to
those customers in exchange for the customers agreeing to purchase
additional Company shares in the aftermarket at pre-determined prices.
The Court has ordered that these putative class actions against the
Company, along with hundreds of IPO allocation cases against other
issuers, be transferred for coordinated pre-trial proceedings. At a
status conference held on September 7, 2001, the Court adjourned all
defendants' time to respond to the complaints until further order of
the Court. These cases remain at a preliminary stage and no discovery
proceedings have taken place.
On January 23, 2001, Jerry Brantley, President and COO of the Company,
terminated his employment with the Company at the unanimous request of
the board of directors. On April 29, 2002, Mr. Brantley initiated
litigation against the Company and the chairman of the Company, David
E. Sharbutt, alleging wrongful termination among other things. The
Company believes that there is no basis for Mr. Brantley's claim and
intends to vigorously defend the lawsuit.
The Company is involved in various claims and legal actions arising in
the ordinary course of business. The ultimate disposition of these
matters are not expected to have a material adverse impact on the
Company's financial position, results of operations or liquidity.
NYSE LISTING REQUIREMENTS - Alamosa Holdings is listed on the New York
Stock Exchange ("NYSE") and subject to various listing requirements set
forth by the NYSE. Based on recent market prices of Alamosa Holdings'
common stock, Alamosa Holdings would fall below the requirements to (1)
maintain an average closing price that is not less than $1.00 per share
over a consecutive 30 trading-day period and (2) to maintain an average
global market capitalization over a consecutive 30 trading-day period
of not less than $100 million. Alamosa Holdings fell below these
requirements in August 2002. Upon receiving notice from the NYSE and
subject to approval by the NYSE, Alamosa Holdings could have 6 months
to cure a closing stock price violation and up to 18 months to cure a
global market capitalization violation. Alamosa Holdings has not
received such notification from the NYSE.
12. EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No.
143 requires the fair value of a liability for an asset retirement
obligation to be recognized in the period that it is incurred if a
reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002. The adoption of SFAS No. 143 is not expected to
have a material impact on the Company's results of operations,
financial position or cash flows.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses financial
accounting and reporting for the impairment of long-lived assets and
for long-lived assets to be disposed of. The provisions of SFAS No. 144
are effective for financial statements issued for fiscal years
beginning after December 31, 2001. The adoption of SFAS No. 144
effective January 1, 2002 will not have a material impact on the
Company's results of operations, financial position or cash flows.
In April 2002, the FASB issued SFAS No. 145, "Recission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections as of April 2002," which rescinded or amended
various existing standards. One change addressed by this standard
pertains to treatment of extinguishments of debt as an extraordinary
item. SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses
from Extinguishment of Debt" and states that an extinguishment of debt
cannot be classified as an extraordinary item unless it meets the
unusual or infrequent criteria outlined in Accounting Principles Board
Opinion No. 30 "Reporting the Results of Operations -- Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions." The
provisions of this statement are effective for fiscal years beginning
after May 15, 2002 and extinguishments of debt that were previously
classified as an extraordinary item in prior periods that do not meet
the criteria in Opinion 30 for classification as an
14
ALAMOSA (DELAWARE), INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(dollars in thousands, except as noted)
extraordinary item shall be reclassified. The adoption of SFAS No. 145
is expected to result in a reclassification of the extinguishment of
debt that the Company previously reported in the three-month period
ended March 31, 2001.
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities," which requires companies
to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or
disposal plan. The provisions of this statement are effective for exit
or disposal activities initiated after December 31, 2002 and are not
expected to have a material impact on the Company's results of
operations, financial position or cash flows.
15
ALAMOSA (DELAWARE), INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(dollars in thousands, except as noted)
13. GUARANTOR FINANCIAL STATEMENTS
CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 2002
(UNAUDITED)
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiary Eliminations Consolidated
------------- -------------- ------------- -------------- ------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 2,569 $ 44,058 $ 15,074 $ -- $ 61,701
Short term investments 1,300 -- -- -- 1,300
Restricted cash 50,491 -- -- -- 50,491
Customer accounts receivable, net -- 50,905 -- -- 50,905
Receivable from Sprint -- 7,253 -- -- 7,253
Interest receivable 1,559 -- -- -- 1,559
Intercompany receivable 109,042 -- -- (109,042) --
Inventory -- 4,860 -- -- 4,860
Investment in subsidiary 959,893 -- -- (959,893) --
Prepaid expenses and other assets 25 4,759 -- -- 4,784
Deferred customer acquisition costs -- 6,292 -- -- 6,292
Deferred tax asset -- 8,112 -- -- 8,112
----------- ------------ ------------ ------------ -----------
Total current assets 1,124,879 126,239 15,074 (1,068,935) 197,257
Notes receivable -- 35,005 -- (35,005) --
Property and equipment, net -- 469,536 -- -- 469,536
Debt issuance costs, net 21,675 12,701 -- -- 34,376
Restricted cash 8,667 -- -- -- 8,667
Goodwill -- 291,635 -- -- 291,635
Intangible assets, net -- 508,706 -- -- 508,706
Other noncurrent assets -- 7,280 -- -- 7,280
----------- ------------ ------------ ------------ -----------
Total assets $ 1,155,221 $ 1,451,102 $ 15,074 $ (1,103,940) $ 1,517,457
=========== ============ ============ ============ ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ -- $ 21,123 $ -- $ -- $ 21,123
Accrued expenses 725 26,947 -- -- 27,672
Payable to Sprint -- 19,743 -- -- 19,743
Interest payable 20,685 1,584 -- -- 22,269
Deferred revenue -- 18,596 -- -- 18,596
Intercompany payable -- 94,353 14,689 (109,042) --
Current installments of capital
leases -- 749 -- -- 749
----------- ------------ ------------ ------------ -----------
Total current liabilities 21,410 183,095 14,689 (109,042) 110,152
Capital lease obligations -- 1,859 -- -- 1,859
Other noncurrent liabilities -- 44,168 -- (35,005) 9,163
Senior secured debt -- 200,000 -- -- 200,000
12 7/8% senior discount notes 252,539 -- -- -- 252,539
12 1/2% senior notes 250,000 -- -- -- 250,000
13 5/8% senior notes 150,000 -- -- -- 150,000
Deferred tax liability -- 62,472 -- -- 62,472
----------- ------------ ------------ ------------ -----------
Total liabilities 673,949 491,594 14,689 (144,047) 1,036,185
----------- ------------ ------------ ------------ -----------
Stockholder's Equity:
Preferred stock -- -- -- -- --
Common stock -- 485 -- (485) --
Additional paid-in capital 800,696 1,162,087 (4,000) (1,158,087) 800,696
Accumulated (deficit) earnings (318,240) (201,880) 4,385 197,495 (318,240)
Accumulated other comprehensive
income, net of tax (1,184) (1,184) -- 1,184 (1,184)
----------- ------------ ------------ ------------ ------------
Total stockholder's equity 481,272 959,508 385 (959,893) 481,272
----------- ------------ ------------ ------------ -----------
Total liabilities and
stockholder's equity $ 1,155,221 $ 1,451,102 $ 15,074 $ (1,103,940) $ 1,517,457
=========== ============ ============ ============ ===========
16
ALAMOSA (DELAWARE), INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(dollars in thousands, except as noted)
13. GUARANTOR FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2002
(UNAUDITED)
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiary Eliminations Consolidated
--------------- -------------- ------------- ------------- ----------------
Revenues:
Subscriber revenues $ -- $ 92,580 $ -- $ -- $ 92,580
Roaming revenues -- 33,457 -- -- 33,457
------------ ----------- ------------ ----------- ------------
Total service revenues -- 126,037 -- -- 126,037
Product sales -- 4,752 -- -- 4,752
------------ ----------- ------------ ----------- ------------
Total revenue -- 130,789 -- -- 130,789
Costs and expenses:
Cost of services and operations -- 85,289 -- -- 85,289
Cost of products sold -- 9,113 -- -- 9,113
Selling and marketing -- 26,960 -- -- 26,960
General and administrative
expenses 28 3,025 -- -- 3,053
Depreciation and amortization -- 26,344 -- -- 26,344
Impairment of property and
equipment -- 1,332 -- -- 1,332
----------- ----------- ------------ ----------- ------------
Loss from operations (28) (21,274) -- -- (21,302)
Equity in loss of subsidiaries (8,045) -- -- 8,045 --
Interest and other income 634 209 28 -- 871
Interest expenses (21,297) (4,523) -- -- (25,820)
----------- ----------- ------------ ----------- ------------
Net income (loss) before
income tax benefit (28,736) (25,588) 28 8,045 (46,251)
Income tax benefit -- 17,515 -- -- 17,515
----------- ----------- ------------ ----------- ------------
Net income (loss) $ (28,736) $ (8,073) $ 28 $ 8,045 $ (28,736)
=========== =========== ============ =========== ============
17
ALAMOSA (DELAWARE), INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(dollars in thousands, except as noted)
13. GUARANTOR FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(UNAUDITED)
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiary Eliminations Consolidated
--------------- -------------- ------------- ------------- ----------------
Revenues:
Subscriber revenues $ -- $ 186,078 $ -- $ -- $ 186,078
Roaming revenues -- 60,025 -- -- 60,025
------------ ----------- ------------ ----------- ------------
Total service revenues -- 246,103 -- -- 246,103
Product sales -- 13,073 -- -- 13,073
------------ ----------- ------------ ----------- ------------
Total revenue -- 259,176 -- -- 259,176
Costs and expenses:
Cost of services and operations -- 163,818 -- -- 163,818
Cost of products sold -- 23,230 -- -- 23,230
Selling and marketing -- 55,857 -- -- 55,857
General and administrative
expenses 91 6,697 -- -- 6,788
Depreciation and amortization -- 51,207 -- -- 51,207
Impairment of property and
equipment -- 1,332 -- -- 1,332
----------- ----------- ------------ ----------- ------------
Loss from operations (91) (42,965) -- -- (43,056)
Equity in loss of subsidiaries (15,784) -- -- 15,784 --
Interest and other income 1,356 789 59 -- 2,204
Interest expense (42,350) (8,324) -- -- (50,674)
------------ ----------- ------------ ----------- ------------
Net income (loss) before
income tax Benefit (56,869) (50,500) 59 15,784 (91,526)
Income tax benefit -- 34,657 -- -- 34,657
----------- ----------- ------------ ----------- ------------
Net income (loss) $ (56,869) $ (15,843) $ 59 $ 15,784 $ (56,869)
=========== =========== ============ =========== ============
18
ALAMOSA (DELAWARE), INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(dollars in thousands, except as noted)
13. GUARANTOR FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(UNAUDITED)
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiary
-------------- --------------- -------------
Cash flows from operating activities:
Net income (loss) $ (56,869) $ (15,843) $ 59
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Equity in loss of subsidiaries 15,784 -- --
Provision for bad debt -- 19,265 --
Non-cash interest expense on hedge
arrangements -- 113 --
Depreciation and amortization of property
and equipment -- 31,072 --
Amortization of intangible assets -- 20,135 --
Amortization of financing costs included in
interest expense 977 1,104 --
Amortization of discounted interest 198 -- --
Deferred tax benefit -- (34,657) --
Interest accreted on discount note 15,332 -- --
Impairment of property and equipment -- 1,332 --
Gain from asset disposition -- (21) --
(Increase) decrease in:
Receivables 833 (25,546) --
Inventory -- (58) --
Prepaid expenses and other assets (9) (2,411) --
Increase (decrease) in:
Accounts payable and accrued expenses 2 4,359 --
------------ ----------- -----------
Net cash provided by (used in) operating
activities (23,752) (1,156) 59
------------ ----------- -----------
Cash flows from investing activities:
Proceeds from sale of assets -- 1,673 --
Purchases of property and equipment -- (68,291) --
Intercompany receivable 99 (99) --
Other -- 58 --
------------ ----------- -----------
Net cash provided by (used in)
investing activities 99 (66,659) --
------------ ----------- -----------
Cash flows from financing activities:
Capital contributions -- 402 --
Borrowings under senior secured debt -- 12,838 --
Payments on capital leases -- (337) --
Change in restricted cash 23,681 11,854 --
------------ ----------- -----------
Net cash provided by financing activities 23,681 24,757 --
------------ ----------- -----------
Net increase (decrease) in cash and
cash equivalents 28 (43,058) 59
Cash and cash equivalents at beginning of
period 2,541 87,116 15,015
------------ ----------- -----------
Cash and cash equivalents at end of period $ 2,569 $ 44,058 $ 15,074
============ =========== ===========
Eliminations Consolidated
--------------- ------------
Cash flows from operating activities:
Net income (loss) $ 15,784 $ (56,869)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Equity in loss of subsidiaries (15,784) --
Provision for bad debt -- 19,265
Non-cash interest expense on hedge
arrangements -- 113
Depreciation and amortization of property
and equipment -- 31,072
Amortization of intangible assets -- 20,135
Amortization of financing costs included in
interest expense -- 2,081
Amortization of discounted interest -- 198
Deferred tax benefit -- (34,657)
Interest accreted on discount note -- 15,332
Impairment of property and equipment -- 1,332
Gain from asset disposition -- (21)
(Increase) decrease in:
Receivables -- (24,713)
Inventory -- (58)
Prepaid expenses and other assets -- (2,420)
Increase (decrease) in:
Accounts payable and accrued expenses -- 4,361
----------- ------------
Net cash provided by (used in) operating
activities -- (24,849)
----------- ------------
Cash flows from investing activities:
Proceeds from sale of assets -- 1,673
Purchases of property and equipment -- (68,291)
Intercompany receivable -- --
Other -- 58
----------- ------------
Net cash provided by (used in)
investing activities -- (66,560)
----------- ------------
Cash flows from financing activities:
Capital contributions -- 402
Borrowings under senior secured debt -- 12,838
Payments on capital leases -- (337)
Change in restricted cash -- 35,535
----------- ------------
Net cash provided by financing activities -- 48,438
----------- ------------
Net increase (decrease) in cash and
cash equivalents -- (42,971)
Cash and cash equivalents at beginning of
period -- 104,672
----------- ------------
Cash and cash equivalents at end of period $ -- $ 61,701
=========== ============
19
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(dollars in thousands, except as noted)
13. GUARANTOR FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2001
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiary Eliminations Consolidated
------------- -------------- ------------- -------------- ------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 2,541 $ 87,116 $ 15,015 $ -- $ 104,672
Short term investments 1,300 -- -- -- 1,300
Restricted cash 51,687 -- -- -- 51,687
Customer accounts receivable, net -- 42,740 -- -- 42,740
Receivable from Sprint -- 9,137 -- -- 9,137
Interest receivable 2,393 -- -- -- 2,393
Intercompany receivable 109,140 -- -- (109,140) --
Inventory -- 4,802 -- -- 4,802
Investment in subsidiary 975,523 -- -- (975,523) --
Prepaid expenses and other assets 16 4,733 -- -- 4,749
Deferred customer acquisition costs -- 5,181 -- -- 5,181
Deferred tax asset -- 8,112 -- -- 8,112
----------- ------------ ------------ ------------ -----------
Total current assets 1,142,600 161,821 15,015 (1,084,663) 234,773
Notes receivable -- 35,005 -- (35,005) --
Property and equipment, net -- 455,695 -- -- 455,695
Debt issuance costs, net 22,848 13,806 -- -- 36,654
Restricted cash 31,153 11,853 -- -- 43,006
Goodwill, net -- 293,353 -- -- 293,353
Intangible assets, net -- 528,840 -- -- 528,840
Other noncurrent assets -- 6,087 -- -- 6,087
----------- ------------ ------------ ------------ -----------
Total assets $ 1,196,601 $ 1,506,460 $ 15,015 $ (1,119,668) $ 1,598,408
=========== ============ ============ ============= ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ -- $ 44,012 $ -- $ -- $ 44,012
Accrued expenses 723 28,568 -- -- 29,291
Payable to Sprint -- 16,133 -- -- 16,133
Interest payable 20,685 1,438 -- -- 22,123
Deferred revenue -- 15,479 -- -- 15,479
Intercompany payable -- 94,451 14,689 (109,140) --
Current installments of capital
leases -- 596 -- -- 596
----------- ------------ ------------ ------------ -----------
Total current liabilities 21,408 200,677 14,689 (109,140) 127,634
Capital lease obligations -- 1,983 -- -- 1,983
Other noncurrent liabilities -- 42,501 -- (35,005) 7,496
Senior secured debt -- 187,162 -- -- 187,162
12 7/8% senior discount notes 237,207 -- -- -- 237,207
12 1/2% senior notes 250,000 -- -- -- 250,000
13 5/8% senior notes 150,000 -- -- -- 150,000
Deferred tax liability -- 98,940 -- -- 98,940
----------- ------------ ------------ ------------ -----------
Total liabilities 658,615 531,263 14,689 (144,145) 1,060,422
----------- ------------ ------------ ------------ -----------
Stockholder's Equity:
Preferred stock -- -- -- -- --
Common stock -- 485 -- (485) --
Additional paid-in capital 800,293 1,161,685 (4,000) (1,157,685) 800,293
Accumulated (deficit) earnings (261,371) (186,037) 4,326 181,711 (261,371)
Accumulated othe comprehensive
income, net of tax (936) (936) -- 936 (936)
----------- ------------ ------------ ------------ ------------
Total stockholder's equity 537,986 975,197 326 (975,523) 537,986
----------- ------------ ------------ ------------ -----------
Total liabilities and
stockholder's equity $ 1,196,601 $ 1,506,460 $ 15,015 $ (1,119,668) $ 1,598,408
=========== ============ ============ ============ ===========
20
ALAMOSA (DELAWARE), INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(dollars in thousands, except as noted)
13. GUARANTOR FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2001
(UNAUDITED)
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiary Eliminations Consolidated
-------------- ----------- ------------- ------------- -----------------
Revenues:
Subscriber revenues $ -- $ 53,305 $ -- $ -- $ 53,305
Travel and roaming revenues -- 24,198 -- -- 24,198
------------ ----------- ------------ ----------- ------------
Total services revenues -- 77,503 -- -- 77,503
Product sales -- 6,032 -- -- 6,032
------------ ----------- ------------ ----------- ------------
Total revenue -- 83,535 -- -- 83,535
Cost of services and operations -- 54,446 -- -- 54,446
Cost of products sold -- 10,526 -- -- 10,526
Selling and marketing -- 24,281 -- -- 24,281
General and administrative 122 3,229 -- -- 3,351
Depreciation and amortization -- 25,235 -- -- 25,235
----------- ----------- ------------ ----------- ------------
Loss from operations (122) (34,182) -- -- (34,304)
Equity in loss of subsidiaries (20,487) -- -- 20,487 --
Interest and other income 739 1,617 111 -- 2,467
Interest expense (14,466) (5,481) -- -- (19,947)
----------- ----------- ------------ ----------- ------------
Net income (loss) before income
tax benefit (34,336) (38,046) 111 20,487 (51,784)
Income tax benefit -- 17,448 -- -- 17,448
----------- ----------- ------------ ----------- ------------
Net income (loss) $ (34,336) $ (20,598) $ 111 $ 20,487 $ (34,336)
=========== =========== ============ =========== ============
21
ALAMOSA (DELAWARE), INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(dollars in thousands, except as noted)
13. GUARANTOR FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(UNAUDITED)
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiary Eliminations Consolidated
-------------- ----------- ------------- ------------- -----------------
Revenues:
Subscriber revenues $ -- $ 83,813 $ -- $ -- $ 83,813
Travel and roaming revenues -- 35,609 -- -- 35,609
------------ ----------- ------------ ----------- ------------
Total services revenues -- 119,422 -- -- 119,422
Product sales -- 9,947 -- -- 9,947
------------ ----------- ------------ ----------- ------------
Total revenue -- 129,369 -- -- 129,369
Cost of services and operations -- 86,915 -- -- 86,915
Cost of products sold -- 18,559 -- -- 18,559
Selling and marketing -- 42,563 -- -- 42,563
General and administrative
(excluding $183 non-cash
compensation) 485 6,577 12 -- 7,074
Depreciation and amortization -- 37,171 -- -- 37,171
Non-cash compensation -- 183 -- -- 183
----------- ----------- ------------ ----------- ------------
Loss from operations (485) (62,599) (12) -- (63,096)
Equity in loss of subsidiaries (37,214) -- -- 37,214 --
Interest and other income 2,162 3,795 2,231 -- 8,188
Interest expense (26,231) (8,432) -- -- (34,663)
----------- ----------- ------------ ----------- ------------
Net income (loss) before income
tax benefit and extraordinary
item (61,768) (67,236) 2,219 37,214 (89,571)
Income tax benefit -- 31,306 -- -- 31,306
----------- ----------- ------------ ----------- ------------
Net income (loss) before
extraordinary item (61,768) (35,930) 2,219 37,214 (58,265)
Loss on debt extinguishment, net
of tax benefit of $1,969 -- (3,503) -- -- (3,503)
----------- ------------ ------------ ----------- -------------
Net income (loss) $ (61,768) $ (39,433) $ 2,219 $ 37,214 $ (61,768)
=========== =========== ============ =========== ============
22
ALAMOSA (DELAWARE), INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(dollars in thousands, except as noted)
13. GUARANTOR FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(UNAUDITED)
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiary Eliminations Consolidated
-------------- --------------- ------------- --------------- -------------
Cash flows from operating activities:
Net income (loss) $ (61,768) $ (39,433) $ 2,219 $ 37,214 $ (61,768)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Equity in loss of subsidiaries 37,214 -- -- (37,214) --
Deferred tax benefit -- (31,306) -- -- (31,306)
Non-cash compensation expense 183 -- -- -- 183
Depreciation and amortization -- 17,971 -- -- 17,971
Amortization of goodwill and intangibles -- 19,200 -- -- 19,200
Bad debt expense -- 713 -- -- 713
Amortization of debt issuance costs 578 585 -- -- 1,163
Deferred interest expense 13,527 -- -- -- 13,527
Loss on debt extinguishment, net -- 3,503 -- -- 3,503
Loss from disposition of assets -- 39 -- -- 39
(Increase) decrease in, net of effects
from acquisitions:
Receivables -- (16,895) 900 -- (15,995)
Inventory -- 1,652 -- -- 1,652
Prepaid expenses and other assets 2,052 (3,229) 1,046 -- (131)
Increase (decrease) in, net of effects
from acquisitions:
Accounts payable and accrued expenses 13,704 (22,830) (39) -- (9,165)
----------- ------------- ----------- ----------- -------------
Net cash provided by (used in)
operating activities 5,490 (70,030) 4,126 -- (60,414)
----------- ------------- ----------- ----------- ------------
Cash flows from investing activities:
Purchases of property and equipment -- (72,852) -- -- (72,852)
Intercompany receivable 3,106 (1,222) (1,884) -- --
Equity investment in subsidiary (302,960) -- (4,000) 306,960 --
Equity investment from parent -- 306,960 -- (306,960) --
Repayment of notes receivable -- -- 11,860 -- 11,860
Acquisition related costs -- (37,617) -- -- (37,617)
Net change in short term investments 1,600 -- -- -- 1,600
----------- ------------ ----------- ----------- ------------
Net cash provided by (used in)
investing activities (298,254) 195,269 5,976 -- (97,009)
------------ ----------- ---------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of senior notes 242,500 -- -- -- 242,500
Borrowings under senior secured debt -- 203,000 -- -- 203,000
Repayment of borrowings under senior
secured debt -- (223,584) -- -- (223,584)
Debt issuance cost (845) (12,559) -- -- (13,404)
Change in restricted cash (59,069) (11,658) -- -- (70,727)
Capital contributions -- 4 -- -- 4
Payments on capital leases -- (42) -- -- (42)
----------- ------------ ----------- ----------- ------------
Net cash provided by (used in)
financing activities 182,586 (44,839) -- -- 137,747
----------- ------------- ----------- ----------- ------------
Net increase (decrease) in cash
and cash equivalents (110,178) 80,400 10,102 -- (19,676)
Cash and cash equivalents at beginning of
period 114,003 23,054 4,711 -- 141,768
----------- ------------ ----------- ----------- ------------
Cash and cash equivalents at end of period $ 3,825 $ 103,454 $ 14,813 $ -- $ 122,092
=========== ============ =========== =========== ============
23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), which can be identified by the use of
forward-looking terminology such as, "may," "might," "could," "would,"
"believe," "expect," "intend," "plan," "seek," "anticipate," "estimate,"
"project" or "continue" or the negative thereof or other variations thereon or
comparable terminology. These forward-looking statements are subject to various
risks and uncertainties and are made pursuant to the "safe-harbor" provisions of
the private Securities Litigation Reform Act of 1995. These statements are made
based on management's current expectations or beliefs as well as assumptions
made by, and information currently available to, management.
A variety of factors could cause actual results to differ materially
from those anticipated in our forward-looking statements, including the
following factors: our dependence on our affiliation with Sprint, shifts in
populations or network focus; changes or advances in technology; changes in
Sprint's national service plans or fee structure with us; change in population;
difficulties in network construction; increased competition in our markets;
failure to consummate anticipated acquisitions or financings; and adverse
changes in financial position, condition or results of operations. For a
detailed discussion of these and other cautionary statements and factors that
could cause actual results to differ from our forward-looking statements, please
refer to our filings with the Securities and Exchange Commission, "Item 1.
Business" and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation" of our Form 10-K for the year ended December
31, 2001.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof. We do not undertake any obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise after
the date hereof. Readers should carefully review the risk factors described in
other documents we file from time to time with the Securities and Exchange
Commission.
GENERAL
Since our inception in 1998, we have incurred substantial costs in
connection with negotiating our contracts with Sprint, obtaining our debt
financing, completing our public equity offerings, engineering our wireless PCS
network, developing our business infrastructure and building out our portion of
Sprint's PCS network. Prior to the launch of our first market in June 1999, we
did not have any markets in operation and we had no customers. At June 30, 2002,
we have approximately 571,000 subscribers. As of June 30, 2002, our accumulated
deficit