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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTER ENDED JUNE 30, 2003.
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
Incorporation or organization) Identification No.)
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES [ ] NO [X]
As of August 14, 2003, 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 THEREFORE IS FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
ALAMOSA (DELAWARE), INC.
TABLE OF CONTENTS
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2003 (unaudited) and December 31, 2002 3
Consolidated Statements of Operations for the three months and six months ended June 30, 2003 and 2002 (unaudited) 4
Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002 (unaudited) 5
Notes to the Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 25
Item 3. Quantitative and Qualitative Disclosures About Market Risk 37
Item 4. Controls and Procedures 37
PART II OTHER INFORMATION
Item 1. Legal Proceedings 38
Item 2. Changes in Securities and Use of Proceeds 38
Item 3. Defaults Upon Senior Securities 38
Item 4. Submission of Matters to a Vote of Security Holders 38
Item 5. Other Information 38
Item 6. Exhibits and Reports on Form 8-K 39
SIGNATURES 40
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALAMOSA (DELAWARE), INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(dollars in thousands, except share information)
JUNE 30, 2003 DECEMBER 31, 2002
-------------------- ---------------------
ASSETS
Current assets:
Cash and cash equivalents $ 87,624 $ 60,525
Restricted cash 9,748 34,725
Customer accounts receivable, net 27,656 27,926
Receivable from Sprint 22,704 30,322
Interest receivable 404 973
Inventory 5,421 7,410
Prepaid expenses and other assets 7,618 7,239
Deferred customer acquisition costs 8,414 7,312
Deferred tax asset 5,988 5,988
-------------------- ---------------------
Total current assets 175,577 182,420
Property and equipment, net 434,187 458,946
Debt issuance costs, net 30,916 33,351
Intangible assets, net 468,388 488,421
Other noncurrent assets 7,699 7,802
-------------------- ---------------------
Total assets $ 1,116,767 $ 1,170,940
==================== =====================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 9,601 $ 27,203
Accrued expenses 36,777 34,903
Payable to Sprint 25,921 24,649
Interest payable 22,317 22,242
Deferred revenue 21,892 18,901
Current maturities of long term debt 7,500 --
Current installments of capital leases 698 1,064
Payable to parent 96 --
-------------------- ---------------------
Total current liabilities 124,802 128,962
-------------------- ---------------------
Long term liabilities:
Capital lease obligations 973 1,355
Other noncurrent liabilities 9,598 10,641
Deferred tax liability 17,642 27,694
Senior secured debt 192,500 200,000
12 7/8% senior discount notes 286,239 268,862
12 1/2% senior notes 250,000 250,000
13 5/8% senior notes 150,000 150,000
-------------------- ---------------------
Total long term liabilities 906,952 908,552
-------------------- ---------------------
Total liabilities 1,031,754 1,037,514
-------------------- ---------------------
Commitments and contingencies (see Note 11) -- --
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 799,230 799,403
Accumulated deficit (712,933) (664,133)
Unearned compensation (215) (294)
Accumulated other comprehensive loss, net of tax (1,069) (1,550)
-------------------- ---------------------
Total stockholder's equity 85,013 133,426
-------------------- ---------------------
Total liabilities and stockholder's equity $ 1,116,767 $ 1,170,940
==================== =====================
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,
---------------------------- ------------------------------
2003 2002 2003 2002
------------ ------------ ------------- -------------
Revenues:
Subscriber revenues $ 114,550 $ 92,580 $ 218,574 $ 186,078
Roaming revenues 35,040 33,457 66,830 60,025
------------ ------------ ------------- -------------
Service revenues 149,590 126,037 285,404 246,103
Product sales 5,804 4,752 11,098 13,073
------------ ------------ ------------- -------------
Total revenue 155,394 130,789 296,502 259,176
------------ ------------ ------------- -------------
Costs and expenses:
Cost of service and operations (excluding non-cash
compensation of $4 and $0 for the three months
ended June 30, 2003 and 2002, respectively, and
$8 and $0 for the six months ended June 30, 2003
and 2002, respectively) 80,282 85,289 159,599 163,818
Cost of products sold 12,399 9,113 25,243 23,230
Selling and marketing (excluding non-cash
compensation of $4 and $0 for the three months
ended June 30, 2003 and 2002, respectively and $8
and $0 for the six months ended June 30, 2003 and
2002, respectively) 26,584 26,960 54,730 55,857
General and administrative expenses (excluding
non-cash compensation of $30 and $0 for the three
months ended June 30, 2003 and 2002, respectively,
and $63 and $0 for the six months ended June 30,
2003 and 2002, respectively) 5,808 3,053 9,333 6,788
Depreciation and amortization 27,419 26,344 54,301 51,207
Impairment of property and equipment 34 1,332 394 1,332
Non-cash compensation 38 -- 79 --
------------ ------------ ------------- -------------
Total costs and expenses 152,564 152,091 303,679 302,232
------------ ------------ ------------- -------------
Income (loss) from operations 2,830 (21,302) (7,177) (43,056)
Interest and other income 248 871 617 2,204
Interest expense (25,951) (25,820) (52,488) (50,674)
------------ ------------ ------------- -------------
Loss before income tax benefit (22,873) (46,251) (59,048) (91,526)
Income tax benefit 4,480 17,515 10,248 34,657
------------ ------------ ------------- -------------
Net loss $ (18,393) $ (28,736) $ (48,800) $ (56,869)
============ ============ ============= =============
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,
2003 2002
-------------- ---------------
Cash flows from operating activities:
Net loss $ (48,800) $ (56,869)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Non-cash compensation 79 --
Provision for bad debts 10,000 19,265
Non-cash interest expense (benefit) on derivative instruments (261) 113
Depreciation and amortization of property and equipment 34,268 31,072
Amortization of intangible assets 20,033 20,135
Amortization of financing costs included in interest expense 2,237 2,081
Amortization of discounted interest 198 198
Deferred tax benefit (10,248) (34,657)
Interest accreted on discount notes 17,377 15,332
Impairment of property and equipment 394 1,332
Increase (decrease) in:
Receivables (1,543) (24,713)
Inventory 1,989 (58)
Prepaid expenses and other assets (1,378) (2,420)
Increase (decrease) in:
Accounts payable and accrued expenses (4,608) 4,361
------------- --------------
Net cash provided by (used in) operating activities 19,737 (24,828)
------------- --------------
Cash flows from investing activities:
Proceeds from sale of assets 2,454 379
Purchases of property and equipment (19,196) (67,001)
Other -- 41
------------- --------------
Net cash used in investing activities (16,742) (66,581)
------------- --------------
Cash flows from financing activities:
Borrowings under senior secured debt -- 12,838
Capital contribution (distribution) (174) 402
Payments on capital leases (699) (337)
Change in restricted cash 24,977 35,535
------------- --------------
Net cash provided by financing activities 24,104 48,438
------------- --------------
Net increase (decrease) in cash and cash equivalents 27,099 (42,971)
Cash and cash equivalents at beginning of period 60,525 104,672
------------- --------------
Cash and cash equivalents at end of period $ 87,624 $ 61,701
============= ==============
Supplemental disclosure of non-cash financing
and investing activities:
Capitalized lease obligations incurred $ 73 $ 365
Change in accounts payable for purchases of
property and equipment $ (6,790) $ (20,759)
The accompanying notes are an integral part of the
consolidated financial statements.
5
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(dollars in thousands, except as noted)
1. BASIS OF PRESENTATION OF UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited consolidated balance sheet as of June 30, 2003, the
unaudited consolidated statements of operations for the three months
and six months ended June 30, 2003 and 2002, the unaudited consolidated
statements of cash flows for the six months ended June 30, 2003 and
2002, 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 of 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, 2002. 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
months and six months ended June 30, 2003 are not necessarily
indicative of results that may be expected for the year ending December
31, 2003.
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 LLC") membership interests, and Alamosa
LLC 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 Over-the-Counter Bulletin Board under the symbol "ALMO." Alamosa
(Delaware) remains the issuer of the Company's public debt.
6
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(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 common stock. The Company
has incurred substantial net losses and negative cash flow from
operations since inception. Expenses are expected to exceed revenues
until the Company establishes a sufficient subscriber base. Management
expects operating losses to continue for the foreseeable future.
However, management expects operating losses to decrease in the future
as the Company obtains more subscribers.
As of June 30, 2003, the Company had $87,624 in cash and cash
equivalents plus an additional $9,748 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 subject
to the restrictions discussed below.
On September 26, 2002 the Company entered into the sixth amendment to
the amended and restated credit agreement relative to the Senior
Secured Credit Facility, which among other things, modified certain
financial and statistical covenants as discussed in Note 8. As a result
of the amendment, the Company is required to maintain a minimum cash
balance of $10,000.
The September 26, 2002 amendment also placed restrictions on the
ability to draw on the $25,000 revolving portion of the Senior Secured
Credit Facility. The first $10,000 can be drawn if cash balances fall
below $15,000 and the Company substantiates through tangible evidence
the need for such advances. The remaining $15,000 is available only at
such time as the leverage ratio is less than or equal to 5.5 to 1. As
of June 30, 2003, the Company's leverage ratio was 9.35 to 1.
Although management does not currently anticipate the need to raise
additional capital in the upcoming year, the Company's funding status
is dependent on a number of factors influencing projections of earnings
and operating cash flows including average monthly revenue per user
("ARPU"), cash cost per user ("CCPU"), customer 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 terms
acceptable to the Company, if at all, and could have a material adverse
effect on the Company's ability to achieve its intended business
objectives.
4. STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its employee stock options. No
stock-based employee compensation cost is reflected in the consolidated
statements of operations for the three months or six months ended June
30, 2003 or 2002, as all options granted by Holdings to employees of
the Company had an exercise price equal to or greater than the market
value of the underlying common stock on the date of grant. Non-cash
compensation expense reflected in the consolidated statements of
operations for the three and six month periods ended June 30, 2003
relate to shares of Holdings restricted stock awarded to officers and
are not related to the granting of stock options. The following table
illustrates the effect on net loss if the Company had applied the fair
value recognition provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation,"
to stock-based employee compensation.
7
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------- ------------------------------------
2003 2002 2003 2002
----------------- ---------------- --------------- ----------------
(unaudited) (unaudited) (unaudited) (unaudited)
Net loss -- as reported $ (18,393) $ (28,736) $ (48,800) $ (56,869)
Less stock-based employee
compensation expense
determined under fair value
method for all awards, net of
related tax effects (1,917) (1,200) (3,348) (2,225)
----------------- ---------------- --------------- ----------------
Net loss -- pro forma $ (20,310) $ (29,936) $ (52,148) $ (59,094)
================= ================ =============== ================
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 $7.8 million and $8.5 million at June 30,
2003 and December 31, 2002, respectively.
RECEIVABLE FROM SPRINT - Receivable from Sprint in the accompanying
consolidated balance sheets consists of the following:
JUNE 30, 2003 DECEMBER 31, 2002
------------------------ -----------------------
(unaudited)
Net roaming receivable $ 7,136 $ 3,554
Access and interconnect revenue receivable (payable) (181) (188)
Accrued service revenue 3,203 3,345
Customer payments due from Sprint 11,959 21,136
Other amounts due from Sprint 587 2,475
------------------------ -----------------------
$ 22,704 $ 30,322
======================== =======================
Net roaming receivable includes net travel revenue due from Sprint
relative to PCS subscribers based outside of the Company's licensed
territory who utilize the Company's portion of the PCS network of
Sprint. The travel revenue receivable is net of amounts owed to Sprint
relative to the Company's subscribers who utilize the PCS network of
Sprint outside of the Company's licensed territory. In addition, net
roaming receivable also includes amounts due from Sprint which have
been collected from other PCS providers for their customers' usage of
the Company's portion of the PCS network of Sprint.
Access and interconnect revenue receivable represents net amounts due
from Sprint for calls originated by a local exchange carrier ("LEC") or
an interexchange carrier ("IXC") that terminate on the Company's
network. Under the Company's affiliation agreements with Sprint, Sprint
collects this revenue from other carriers and remits 92% of those
collections to the Company. The $181 and $188 amounts owed to Sprint at
June 30, 2003 and December 31, 2002, respectively, are the result of
rate adjustments on previously collected amounts.
Accrued service revenue receivable represents the Company's estimate of
airtime usage and other charges that have been earned but not billed at
the end of the period.
8
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
Customer payments due from Sprint relate to amounts that have been
collected by Sprint at the end of the period which were not remitted to
the Company until the subsequent period. Customer payments are
processed daily by Sprint and the Company receives its share of such
collections on a weekly basis under the terms of the affiliation
agreements.
Included in the December 31, 2002 balance of customer payments due from
Sprint is $12,209 in amounts that were due to the Company related to
payments that Sprint had collected from customers from April 2000 to
December 2002 that had not been passed on to the Company due to the
methodology that had been previously used by Sprint to allocate cash
received from customers. These amounts were collected in January and
February 2003.
Included in the June 30, 2003 balance of customer payments due from
Sprint is $3,907 in amounts that were due to the Company related to
payments that Sprint had collected from customers from April 2002 to
June 2003 that had not been passed on to the Company due to the
methodology that had been used by Sprint to allocate cash received from
customers.
6. PROPERTY AND EQUIPMENT
Property and equipment are stated net of accumulated depreciation of
$156.5 million and $122.9 million at June 30, 2003 and December 31,
2002, respectively.
7. INTANGIBLE ASSETS
In connection with acquisitions completed during 2001, 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.
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.
Intangible assets consist of:
JUNE 30, 2003 DECEMBER 31, 2002
--------------------- -----------------------
(unaudited)
Sprint affiliate and other agreements $ 532,200 $ 532,200
Accumulated amortization (70,575) (55,458)
--------------------- -----------------------
Subtotal 461,625 476,742
--------------------- -----------------------
Subscriber base acquired 29,500 29,500
Accumulated amortization (22,737) (17,821)
--------------------- -----------------------
Subtotal 6,763 11,679
--------------------- -----------------------
Intangible assets, net $ 468,388 $ 488,421
===================== =======================
9
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
Amortization expense relative to intangible assets was $20,033 for the
six months ended June 30, 2003 and will be $20,034 for the remainder of
2003.
Aggregate amortization expense relative to intangible assets for the
periods shown will be as follows:
YEAR ENDED DECEMBER 31,
-----------------------
2003 $ 40,067
2004 32,079
2005 30,234
2006 30,234
2007 30,234
Thereafter 325,573
---------------
$ 488,421
===============
8. LONG-TERM DEBT
Long-term debt consists of the following:
JUNE 30, 2003 DECEMBER 31, 2002
--------------------- -----------------------
(unaudited)
12 7/8% senior discount notes $ 286,239 $ 268,862
12 1/2% senior notes 250,000 250,000
13 5/8% senior notes 150,000 150,000
Senior secured debt 200,000 200,000
--------------------- -----------------------
Total debt 886,239 868,862
Less current maturities (7,500) --
--------------------- -----------------------
Long-term debt, excluding current maturities $ 878,739 $ 868,862
===================== =======================
SENIOR UNSECURED OBLIGATIONS
----------------------------
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% Notes Offering"). The 12 7/8% Notes Offering was
completed on February 8, 2000 and generated net proceeds of
approximately $181 million after underwriters' commissions and expenses
of approximate $6.1 million. The 12 7/8% senior discount notes ("12
7/8% Senior Discount Notes") mature in ten years (February 15, 2010)
and carry a coupon rate of 12 7/8% Senior Discount Notes, and provide
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 the existing credit facility, to pay costs
to build out additional areas within the Company's existing
territories, 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% 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%, and are 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 commissions and estimated offering
expenses.
10
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
Approximately $59.0 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 Alamosa (Delaware); 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 commissions and estimated offering expenses.
Approximately $66 million of the proceeds were used to pay down a
portion of the Senior Secured Credit Facility discussed below.
Approximately $39.1 million of the proceeds of the 13 5/8% Senior Notes
were used by Alamosa (Delaware) to establish a security account to
secure on a pro rata basis the payment obligations under all of the
Company's unsecured borrowings. The balance was used for general
corporate purposes.
SENIOR SECURED OBLIGATIONS
--------------------------
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; Export Development Corporation ("EDC") as co-documentation
agent; First Union National Bank, as documentation agent, and a
syndicate of banking and financial institutions. On March 30, 2001, the
Senior Secured Credit Facility was amended to increase the facility to
$333 million. The Senior Secured Credit Facility was again amended in
August 2001 concurrent with the issuance of the 13 5/8% Senior Notes 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 September 26, 2002, the Company further amended the Senior Secured
Credit Facility, to among other things, modify certain financial and
statistical covenants. Under the Senior Secured Credit Facility,
interest will accrue, at Alamosa Holdings, LLC's option: (i) at the
London Interbank Offered Rate adjusted for any statutory reserves
("LIBOR"), 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 was initially 4.00% for LIBOR
borrowings and 3.00% for base rate borrowings. The applicable interest
margins are subject to reductions under a pricing grid based on ratios
of Alamosa Holdings, LLC's total debt to its earnings before interest,
taxes, depreciation and amortization ("EBITDA"). The interest rate
margins will increase by an additional 200 basis points in the event
Alamosa Holdings, LLC fails to pay principal, interest or other amounts
as they become due and payable under the Senior Secured Credit
Facility. As of June 30, 2003 the interest margin was 4.00% for LIBOR
borrowings and 3.00% for base rate borrowings.
The weighted average interest rate on the outstanding borrowings under
this facility at June 30, 2003 is 5.35%. Alamosa Holdings, LLC is also
required to pay quarterly in arrears a commitment fee on the unfunded
portion of the commitment of each lender. The commitment fee accrues at
a rate per annum equal to (i) 1.50% on each day when the utilization
(determined by dividing the total amount of loans plus outstanding
letters of credit under the Senior Secured Credit Facility by the total
commitment amount under the Senior Secured Credit Facility) of the
Senior Secured Credit Facility is less than or equal to 33.33%, (ii)
1.25% on each day when utilization is greater than 33.33% but less than
or equal to 66.66% and (iii) 1.00% on each day when utilization is
greater than 66.66%. The Company has entered into derivative hedging
instruments to hedge a portion of the interest rate risk associated
with borrowings under the Senior Secured Credit Facility as discussed
in Note 10.
11
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
Alamosa Holdings, LLC is also required to pay a separate annual
administration fee and a fee on the aggregate face amount of
outstanding letters of credit, if any, under the revolving credit
facility.
As of June 30, 2003, Alamosa Holdings, LLC had drawn $200 million under
the term portion of the Senior Secured Credit Facility. Any amount
outstanding at the end of the 12-month period will amortize quarterly
beginning May 14, 2004. The first such quarterly principal reduction of
$7,500 will be due in May 2004 and is presented as a current liability
in the accompanying balance sheet. The September 26, 2002 amendment
placed restrictions on the ability to draw the $25 million revolving
portion. The first $10 million can be drawn if cash balances fall below
$15 million and the Company substantiates through tangible evidence the
need for such advances. The remaining $15 million is available only at
such time as the leverage ratio is less than or equal to 5.5 to 1. No
advances have been drawn on the revolving portion of the Senior Secured
Credit Facility. Any balance outstanding under the revolving portion of
the Senior Secured Credit Facility will begin reducing quarterly in
amounts to be agreed beginning May 14, 2004.
Pursuant to the Senior Secured Credit Facility, the Company is subject
to financial and statistical covenants, including covenants with
respect to the ratio of EBITDA to total cash interest expense. Stage I
covenants were applicable through March 31, 2003 and provided for:
o minimum numbers of subscribers;
o providing coverage to a minimum number of residents;
o minimum service revenue;
o minimum EBITDA;
o ratio of senior debt to total capital;
o ratio of total debt to total capital; and
o maximum capital expenditures.
As of March 31, 2003, the Company became subject to the following Stage
II covenants:
o ratio of senior debt to EBITDA; and
o ratio of total debt to EBITDA.
Beginning April 1, 2003, the Company became subject to the following
additional Stage II covenants:
o ratio of EBITDA to consolidated cash interest expense;
o ratio of EBITDA to total fixed charges (the sum of debt
service, capital expenditures and taxes); and
o ratio of EBITDA to pro forma debt service.
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 acquisitions closed in 2001. Due to the Company's
limited operating history and lack of positive taxable earnings, a
valuation allowance has been established during 2003 as the deferred
tax asset is expected to exceed the deferred tax liabilities. The
establishment of this valuation allowance in the six months ended June
30, 2003 has resulted in an effective tax rate of 17.36 percent
compared to 37.87 percent for the six months ended June 30, 2002.
10. HEDGING ACTIVITIES AND COMPREHENSIVE INCOME
The Company follows the provisions of SFAS No. 133, "Accounting for
Derivatives and Hedging Activities" in its accounting for hedging
activities. 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 $1,289 in cash settlements under
derivative instruments classified as hedges is included in interest
expense for the six months ended June 30, 2003.
12
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
As of June 30, 2003, the Company has recorded $2,679 in "other
noncurrent liabilities" relative to the fair value of derivative
instruments including $1,829 representing derivative instruments that
qualify for hedge accounting under SFAS No. 133. During the six month
period ended June 30, 2003, the Company recognized gains of $481 (net
of income tax benefit of $195) in other comprehensive income. During
the six month period ended June 30, 2002, the Company recognized losses
of $248 (net of income tax benefit of $151) in other comprehensive
income. Other comprehensive income appears as a separate component of
Stockholder's Equity as "Accumulated other comprehensive income," as
illustrated below:
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------- -------------------------------------
2003 2002 2003 2002
---------------- ----------------- ---------------- -----------------
Net loss $ (18,393) $ (28,736) $ (48,800) $ (56,869)
Change in fair values of
derivative instruments,
net of income tax expense
(benefit) of $80, $(330),
$195 and $(151),
respectively 293 (540) 481 (248)
---------------- ----------------- ---------------- -----------------
Comprehensive loss $ (18,100) $ (29,276) $ (48,319) $ (57,117)
================ ================= ================ =================
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 $1.4 million of a total $5.6 million in amounts
that had been previously paid to the Company by Sprint relative to
terminating access fees. Although the Company has contested the refund
of these amounts, a liability has been recorded relative to this
contingency in the consolidated financial statements as of June 30,
2003.
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 action against the Company is
one of more than 300 related class actions which have been consolidated
and are pending in the same court. The complainants seek to recover
damages and 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 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. On February
19, 2003, the Court granted motions by the Company and 115 other
issuers to dismiss the claims under Rule 10b-5 of the Exchange Act
which had been asserted against them. The Court denied the motions by
the Company and virtually all of the other issuers to dismiss the
claims asserted against them under Section 11 of the Securities Act.
The Company maintains insurance coverage which may mitigate its
exposure to loss in the event that this claim is not resolved in the
Company's favor.
On January 23, 2001, the board of directors, in a unanimous decision,
terminated the employment of Jerry Brantley, then President and COO of
the Company. On April 29, 2002, Mr. Brantley initiated litigation
against the Company and the Chairman of the Company, David E. Sharbutt
in the District Court of Lubbock County, Texas, 22nd Judicial District,
alleging wrongful termination among other things. On September 27,
2002, the Court entered an Agreed Order Compelling Arbitration. The
parties are in the process of selecting a panel of
13
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
three arbitrators. The Company believes that there is no basis for Mr.
Brantley's claim and intends to vigorously defend the lawsuit.
On January 8, 2003, a claim was made against the Company by Southwest
Antenna and Tower, Inc. ("SWAT") in the Second Judicial District Court,
County of Bernalillo, State of New Mexico, for monies due on an open
account. SWAT sought to recover approximately $2.0 million from the
Company relative to work performed by SWAT during 2000 for Roberts
Wireless Communications, LLC which was acquired by the Company in the
first quarter of 2001. This claim was settled for $0.875 million during
the second quarter of 2003.
In addition to the above, 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.
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. For the Company's leased telecommunication
facilities, primarily consisting of cell sites and switch site
operating leases, the Company has evaluated the impact of the adoption
of SFAS No. 143 as of January 1, 2003 and determined that a liability
cannot be reasonably estimated due to (1) the Company's inability to
reasonably assess the probability of the likelihood that a lessor would
enforce the remediation requirements upon expiration of the lease term
and therefore its impact on future cash outflows, (2) the Company's
inability to estimate a potential range of settlement dates due to its
ability to renew site leases after the initial lease expiration and (3)
the Company's limited experience in abandoning cell site locations and
actually incurring remediation costs. In addition to cell sites and
switch site operating leases, the Company also has leases for office
and retail locations that are subject to the provisions of SFAS No.
143. The adoption of SFAS No. 143 to leased office and retail locations
did not have a material impact on the Company's consolidated results of
operations, financial position or cash flows.
In April 2002, the FASB issued SFAS No. 145, "Rescission 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 extraordinary item
shall be reclassified. The adoption of SFAS No. 145 in the quarter
ending March 31, 2003 has resulted in a reclassification of the loss on
extinguishment of debt that the Company previously reported as an
extraordinary item for the year ended December 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 the
adoption of this statement did not have a material impact on the
Company's results of operations, financial position or cash flows.
14
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
In December 2002, the FASB issued SFAS No. 148 "Accounting for
Stock-Based Compensation-Transition and Disclosure," which is an
amendment of SFAS No. 123 "Accounting for Stock-Based Compensation."
This statement provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, this statement amends
the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The provisions of this
statement are effective for fiscal years ending after and interim
periods beginning after December 15, 2002. As the Company continues to
account for stock-based employee compensation using the intrinsic value
method under APB Opinion No. 25, the Company, as required, has only
adopted the revised disclosure requirements of SFAS No. 148 as of
December 31, 2002 as discussed in Note 4.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities," which amends and
clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This statement is
effective for contracts entered into or modified after June 30, 2003
and for hedging relationships designated after June 30, 2003 and is not
expected to have a material impact on the Company's results of
operations, financial position or cash flows.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity." This statement requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances) and is effective for financial instruments entered into
or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003,
except for mandatorily redeemable financial instruments of nonpublic
entities. The adoption of this statement is not expected to have a
material impact on the Company's results of operations, financial
position or cash flows.
The Emerging Issues Task Force ("EITF") of the FASB issued EITF
Abstract No. 00-21 "Accounting for Revenue Arrangements with Multiple
Deliverables" in January 2003. This abstract addresses certain aspects
of the accounting by a vendor for arrangements under which it will
perform multiple revenue-generating activities. Specifically, it
addresses how consideration should be measured and allocated to the
separate units of accounting in the arrangement. The guidance in this
abstract is effective for revenue arrangements entered into in fiscal
periods beginning after June 15, 2003 and the Company has evaluated the
impact of the adoption of the provisions of this abstract as of July 1,
2003.
The Company has elected to apply the accounting provisions of this
abstract on a prospective basis beginning July 1, 2003. Under the
accounting provisions of this abstract, the Company will allocate
amounts charged to customers between the sale of handsets and other
equipment and the sale of wireless telecommunication services. In many
cases, this will result in all amounts collected from the customer upon
activation of the handset being allocated to the sale of the handset.
As a result of this treatment, activation fees included in the
consideration at the time of sale will be recorded as handset revenue.
Prior to the adoption of the provisions of this abstract the Company
had deferred activation fee revenue as well as activation costs in a
like amount and amortized these revenues and costs over the average
life of the Company's subscribers. The existing deferred revenue and
costs at July 1, 2003 will continue to be amortized.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN
45"), "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others."
FIN 45 requires that upon issuance of a guarantee, a guarantor must
recognize a liability for the fair value of an obligation assumed under
a guarantee. FIN 45 also requires additional disclosures by a guarantor
in its interim and annual financial statements about the obligations
associated with guarantees issued. The recognition provisions of FIN 45
are effective for guarantees issued after December 31, 2002, while the
disclosure requirements were effective for financial statements for
periods ending after December 15, 2002.
15
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
At December 31, 2002, the Company had not entered into any material
arrangement that would be subject to the disclosure requirements of FIN
45. The adoption of FIN 45 did not have a material impact on the
Company's consolidated financial statements.
On January 17, 2003, the FASB issued FASB Interpretation No. 46 ("FIN
46" or the "Interpretation"), "Consolidation of Variable Interest
Entities, an interpretation of ARB 51." The primary objectives of FIN
46 are to provide guidance on the identification of entities for which
control is achieved through means other than through voting rights
("variable interest entities" or "VIEs") and how to determine when and
which business enterprise should consolidate the VIE (the "primary
beneficiary"). This new model for consolidation applies to an entity
which either (1) the equity investors (if any) do not have a
controlling financial interest or (2) the equity investment at risk is
insufficient to finance that entity's activities without receiving
additional subordinated financial support from other parties. In
addition, FIN 46 requires that both the primary beneficiary and all
other enterprises with a significant variable interest in a VIE make
additional disclosures. For public entities with VIEs created before
February 1, 2003, the implementation and disclosure requirements of FIN
46 are effective no later than the beginning of the first interim or
annual reporting period beginning after June 15, 2003. For VIEs created
after January 31, 2003, the requirements are effective immediately. The
Company does not believe that the adoption of FIN 46 will have a
material impact on its consolidated financial statements.
13. GUARANTOR FINANCIAL STATEMENTS
Set forth below are consolidating financial statements of the issuer
and guarantor subsidiaries and Alamosa Delaware Operations LLC
("Operations") which is the Company's non-guarantor subsidiary (the
"Non-Guarantor Subsidiary") of the 12 7/8% Senior Discounts Notes, the
12 1/2% Senior Notes and the 13 5/8% Senior Notes as of June 30, 2003
and December 31, 2002 and for the three and six months ended June 30,
2003 and 2002. Separate financial statements of each guarantor
subsidiary have not been provided because management has determined
that they are not material to investors, the guarantor subsidiaries
are wholly owned by the Company and the guarantee is full and
unconditional.
16
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 2003
(DOLLARS IN THOUSANDS)
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiary Eliminations Consolidated
------------- -------------- ------------- -------------- ------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 27,420 $ 60,181 $ 23 $ -- $ 87,624
Restricted cash 9,748 -- -- -- 9,748
Customer accounts receivable, net -- 27,656 -- -- 27,656
Receivable from Sprint -- 22,704 -- -- 22,704
Interest receivable 404 -- -- -- 404
Intercompany receivable 82,515 -- 394 (82,909) --
Inventory -- 5,421 -- -- 5,421
Investment in subsidiary 652,618 -- -- (652,618) --
Prepaid expenses and other assets 72 7,546 -- -- 7,618
Deferred customer acquisition costs -- 8,414 -- -- 8,414
Deferred tax asset -- 5,988 -- -- 5,988
----------- ------------ ------------ ------------ -----------
Total current assets 772,777 137,910 417 (735,527) 175,577
Property and equipment, net -- 434,187 -- -- 434,187
Debt issuance costs, net 19,275 11,641 -- -- 30,916
Intangible assets, net -- 468,388 -- -- 468,388
Other noncurrent assets -- 7,699 -- -- 7,699
----------- ------------ ------------ ------------ -----------
Total assets $ 792,052 $ 1,059,825 $ 417 $ (735,527) $ 1,116,767
=========== ============ ============ ============ ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ -- $ 9,601 $ -- $ -- $ 9,601
Accrued expenses 115 36,662 -- -- 36,777
Payable to Sprint -- 25,921 -- -- 25,921
Interest payable 20,685 1,632 -- -- 22,317
Deferred revenue -- 21,892 -- -- 21,892
Intercompany payable -- 82,909 -- (82,909) --
Payable to parent -- 96 -- -- 96
Current maturities of long term debt -- 7,500 -- -- 7,500
Current installments of capital
leases -- 698 -- -- 698
----------- ------------ ------------ ------------ -----------
Total current liabilities 20,800 186,911 -- (82,909) 124,802
Capital lease obligations -- 973 -- -- 973
Other noncurrent liabilities -- 9,598 -- -- 9,598
Deferred tax liability -- 17,642 -- -- 17,642
Senior secured debt -- 192,500 -- -- 192,500
12 7/8% senior discounts notes 286,239 -- -- -- 286,239
12 1/2% senior notes 250,000 -- -- -- 250,000
13 5/8% senior notes 150,000 -- -- -- 150,000
----------- ------------ ------------ ------------ -----------
Total liabilities 707,039 407,624 -- (82,909) 1,031,754
----------- ------------ ------------ ------------- -----------
Stockholder's Equity:
Preferred stock -- -- -- -- --
Common stock -- -- -- -- --
Additional paid-in capital 799,230 -- -- -- 799,230
LLC member's equity -- 652,201 417 (652,618) --
Accumulated (deficit) earnings (712,933) -- -- -- (712,933)
Unearned compensation (215) -- -- -- (215)
Accumulated other comprehensive
loss, net of tax (1,069) -- -- -- (1,069)
----------- ------------ ------------ ------------ ------------
Total stockholder's equity 85,013 652,201 417 (652,618) 85,013
----------- ------------ ------------ ------------ -----------
Total liabilities and
stockholder's equity $ 792,052 $ 1,059,825 $ 417 $ (735,527) $ 1,116,767
=========== ============ ============ ============ ===========
17
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2003
(DOLLARS IN THOUSANDS)
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiary Eliminations Consolidated
--------------- --------------- ------------- -------------- ----------------
Revenues:
Subscriber revenues $ -- $ 114,550 $ -- $ -- $ 114,550
Roaming revenues -- 35,040 -- -- 35,040
------------ ----------- ------------ ----------- ------------
Service revenues -- 149,590 -- -- 149,590
Product sales -- 5,804 -- -- 5,804
------------ ----------- ------------ ----------- ------------
Total revenue -- 155,394 -- -- 155,394
Costs and expenses:
Cost of services and operations -- 80,282 -- -- 80,282
Cost of products sold -- 12,399 -- -- 12,399
Selling and marketing -- 26,584 -- -- 26,584
General and administrative
expenses 410 5,398 -- -- 5,808
Depreciation and amortization -- 27,419 -- -- 27,419
Impairment of property and -- 34 -- -- 34
equipment
Non-cash compensation -- 38 -- -- 38
----------- ----------- ------------ ----------- ------------
Income (loss) from operations (410) 3,240 -- -- 2,830
Equity in loss of subsidiaries 4,196 -- -- (4,196) --
Interest and other income 174 74 -- -- 248
Interest expense (22,353) (3,598) -- -- (25,951)
------------ ------------ ------------ ----------- -------------
Loss before income tax benefit (18,393) (284) -- (4,196) (22,873)
Income tax benefit -- 4,480 -- -- 4,480
----------- ----------- ------------ ----------- ------------
Net income (loss) $ (18,393) $ 4,196 $ -- $ (4,196) $ (18,393)
=========== =========== ============ ============ ============
18
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(DOLLARS IN THOUSANDS)
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiary Eliminations Consolidated
--------------- --------------- ------------- -------------- ----------------
Revenues:
Subscriber revenues $ -- $ 218,574 $ -- $ -- $ 218,574
Roaming revenues -- 66,830 -- -- 66,830
------------ ----------- ------------ ----------- ------------
Service revenues -- 285,404 -- -- 285,404
Product sales -- 11,098 -- -- 11,098
------------ ----------- ------------ ----------- ------------
Total revenue -- 296,502 -- -- 296,502
Costs and expenses:
Cost of services and operations -- 159,599 -- -- 159,599
Cost of products sold -- 25,243 -- -- 25,243
Selling and marketing -- 54,730 -- -- 54,730
General and administrative
expenses 498 8,835 -- -- 9,333
Depreciation and amortization -- 54,301 -- -- 54,301
Impairment of property and -- 394 -- -- 394
equipment
Non-cash compensation -- 79 -- -- 79
----------- ----------- ------------ ----------- ------------
Loss from operations (498) (6,679) -- -- (7,177)
Equity in loss of subsidiaries (4,311) -- -- 4,311 --
Interest and other income 439 178 -- -- 617
Interest expense (44,430) (8,058) -- -- (52,488)
----------- ------------ ------------ ----------- ------------
Loss before income tax benefit (48,800) (14,559) -- 4,311 (59,048)
Income tax benefit -- 10,248 -- -- 10,248
----------- ----------- ------------ ----------- ------------
Net loss $ (48,800) $ (4,311) $ -- $ 4,311 $ (48,800)
=========== ============ ============ =========== ============
19
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2003
(DOLLARS IN THOUSANDS)
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiary Eliminations Consolidated
-------------- --------------- ------------- --------------- ------------
Cash flows from operating activities:
Net loss $ (48,800) $ (4,311) $ -- $ 4,311 $ (48,800)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Equity in loss of subsidiaries 4,311 -- -- (4,311) --
Non-cash compensation expense -- 79 -- -- 79
Provision for bad debts -- 10,000 -- -- 10,000
Non-cash interest benefit on derivative
instruments -- (261) -- -- (261)
Depreciation and amortization of property
and equipment -- 34,268 -- -- 34,268
Amortization of intangibles assets -- 20,033 -- -- 20,033
Amortization of financing costs included in
interest expense 1,011 1,226 -- -- 2,237
Amortization of discounted interest 198 -- -- -- 198
Deferred tax benefit -- (10,248) -- -- (10,248)
Interest accreted on discount notes 17,377 -- -- -- 17,377
Impairment of property and equipment -- 394 -- -- 394
(Increase) decrease in:
Receivables 569 (2,112) -- -- (1,543)
Inventory -- 1,989 -- -- 1,989
Prepaid expenses and other assets (72) (1,306) -- -- (1,378)
Decrease in:
Accounts payable and accrued expenses 113 (4,721) -- -- (4,608)
------------ ----------- ----------- ----------- ------------
Net cash provided by (used in) operating
activities (25,293) 45,030 -- -- 19,737
------------ ----------- ----------- ----------- ------------
Cash flows from investing activities:
Proceeds from sale of assets -- 2,454 -- -- 2,454
Purchases of property and equipment -- (19,196) -- -- (19,196)
Change in intercompany balances 10,089 (10,089) -- -- --
------------ ----------- ----------- ----------- ------------
Net cash provided by (used in) investing
activities 10,089 (26,831) -- -- (16,742)
------------ ----------- ----------- ----------- ------------
Cash flows from financing activities:
Capital distribution to parent (174) -- -- -- (174)
Payments on capital leases -- (699) -- -- (699)
Change in restricted cash 24,977 -- -- -- 24,977
------------ ----------- ----------- ----------- ------------
Net cash provided by (used in) financing
activities 24,803 (699) -- -- 24,104
------------ ----------- ----------- ----------- ------------
Net increase in cash and cash equivalents 9,599 17,500 -- -- 27,099
Cash and cash equivalents at beginning of period 17,821 42,681 23 -- 60,525
------------ ----------- ----------- ----------- ------------
Cash and cash equivalents at end of period $ 27,420 $ 60,181 $ 23 $ -- $ 87,624
============ =========== =========== =========== ============
20
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
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 expense (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)
=========== =========== ============ =========== ============
21
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
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)
=========== =========== ============ =========== ============
22
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(UNAUDITED)
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiary Eliminations Consolidated
-------------- -------------- ------------- --------------- ------------
Cash flows from operating activities:
Net income (loss) $ (56,869) $ (15,843) $ 59 $ 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 -- -- (15,784) --
Provision for bad debt -- 19,265 -- -- 19,265
Non-cash interest expense on hedge arrangements -- 113 -- -- 113
Depreciation and amortization of property
and equipment -- 31,072 -- -- 31,072
Amortization of intangible assets -- 20,135 -- -- 20,135
Amortization of financing costs included in
interest expense 977 1,104 -- -- 2,081
Amortization of discounted interest 198 -- -- -- 198
Deferred tax benefit -- (34,657) -- -- (34,657)
Interest accreted on discount note 15,332 -- -- -- 15,332
Impairment of property and equipment -- 1,332 -- -- 1,332
(Increase) decrease in:
Receivables 833 (25,546) -- -- (24,713)
Inventory -- (58) -- -- (58)
Prepaid expenses and other assets (9) (2,411) -- -- (2,420)
Increase (decrease) in:
Accounts payable and accrued expenses 2 4,359 -- -- 4,361
------------ ----------- ----------- ----------- ------------
Net cash provided by (used in) operating
activities (23,752) (1,135) 59 -- (24,828)
------------ ----------- ----------- ----------- ------------
Cash flows from investing activities:
Proceeds from sale of assets -- 379 -- -- 379
Purchases of property and equipment -- (67,001) -- -- (67,001)
Intercompany receivable 99 (99) -- -- --
Other -- 41 -- -- 41
------------ ----------- ----------- ----------- ------------
Net cash provided by (used in) investing
activities 99 (66,680) -- -- (66,581)
------------ ----------- ----------- ----------- ------------
Cash flows from financing activities:
Capital contributions -- 402 -- -- 402
Borrowings under senior secured debt -- 12,838 -- -- 12,838
Payments on capital leases -- (337) -- -- (337)
Change in restricted cash 23,681 11,854 -- -- 35,535
------------ ----------- ----------- ----------- ------------
Net cash provided by financing activities 23,681 24,757 -- -- 48,438
------------ ----------- ----------- ----------- ------------
Net increase (decrease) in cash and
cash equivalents 28 (43,058) 59 -- (42,971)
Cash and cash equivalents at beginning of
period 2,541 87,116 15,015 -- 104,672
------------ ----------- ----------- ----------- ------------
Cash and cash equivalents at end of period $ 2,569 $ 44,058 $ 15,074 $ -- $ 61,701
============ =========== =========== =========== ============
23
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2002
(DOLLARS IN THOUSANDS)
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiary Eliminations Consolidated
------------- -------------- ------------- -------------- ------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 17,821 $ 42,681 $ 23 $ -- $ 60,525
Restricted cash 34,725 -- -- -- 34,725
Customer accounts receivable, net -- 27,926 -- -- 27,926
Receivable from Sprint -- 30,322 -- -- 30,322
Interest receivable 973 -- -- -- 973
Intercompany receivable 93,191 587 394 (94,172) --
Inventory -- 7,410 -- -- 7,410
Investment in subsidiary 656,369 -- -- (656,369) --
Prepaid expenses and other assets -- 7,239 -- -- 7,239
Deferred customer acquisition costs -- 7,312 -- -- 7,312
Deferred tax asset -- 5,988 -- -- 5,988
----------- ------------ ------------ ------------ -----------
Total current assets 803,079 129,465 417 (750,541) 182,420
Notes receivable -- 35,005 -- (35,005) --
Property and equipment, net -- 458,946 -- -- 458,946
Debt issuance costs, net 20,484 12,867 -- -- 33,351
Intangible assets, net -- 488,421 -- -- 488,421
Other noncurrent assets -- 7,802 -- -- 7,802
----------- ------------ ------------ ------------ -----------
Total assets $ 823,563 $ 1,132,506 $ 417 $ (785,546) $ 1,170,940
=========== ============ ============ ============ ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ -- $ 27,203 $ -- $ -- $ 27,203
Accrued expenses 3 34,900 -- -- 34,903
Payable to Sprint -- 24,649 -- -- 24,649
Interest payable 20,685 1,557 -- -- 22,242
Deferred revenue -- 18,901 -- -- 18,901
Intercompany payable 587 93,585 -- (94,172) --
Current installments of capital
leases -- 1,064 -- -- 1,064
----------- ------------ ------------ ------------ -----------
Total current liabilities 21,275 201,859 -- (94,172) 128,962
Capital lease obligations -- 1,355 -- -- 1,355
Other noncurrent liabilities -- 45,646 -- (35,005) 10,641
Deferred tax liability -- 27,694 -- -- 27,694
Senior secured debt -- 200,000 -- -- 200,000
12 7/8% senior discounts notes 268,862 -- -- -- 268,862
12 1/2% senior notes 250,000 -- -- -- 250,000
13 5/8% senior notes 150,000 -- -- -- 150,000
----------- ------------ ------------ ------------ -----------
Total liabilities 690,137 476,554 -- (129,177) 1,037,514
----------- ------------ ------------ ------------ -----------
Stockholder's Equity:
Preferred stock -- -- -- -- --
Common stock -- -- -- -- --
Additional paid-in capital 799,403 -- -- -- 799,403
LLC member's equity -- 655,952 417 (656,369) --
Accumulated (deficit) earnings (664,133) -- -- -- (664,133)
Unearned compensation (294) -- -- -- (294)
Accumulated other comprehensive
income, net of tax (1,550) -- -- -- (1,550)
----------- ------------ ------------ ------------ ------------
Total stockholder's equity 133,426 655,952 417 (656,369) 133,426
----------- ------------ ------------ ------------ -----------
Total liabilities and
stockholder's equity $ 823,563 $ 1,132,506 $ 417 $ (785,546) $ 1,170,940
=========== ============ ============ ============ ===========