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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 QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________
TO ____________
COMMISSION FILE NUMBER: 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 [ ]
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 November 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 September 30, 2003 (unaudited) and December 31, 2002 3
Consolidated Statements of Operations for the three months and nine
months ended September 30, 2003 and 2002 (unaudited) 4
Consolidated Statements of Cash Flows for the nine months ended September 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 28
Item 3. Quantitative and Qualitative Disclosures About Market Risk 42
Item 4. Controls and Procedures 42
PART II OTHER INFORMATION
Item 1. Legal Proceedings 43
Item 2. Changes in Securities and Use of Proceeds 43
Item 3. Defaults Upon Senior Securities 43
Item 4. Submission of Matters to a Vote of Security Holders 44
Item 5. Other Information 44
Item 6. Exhibits and Reports on Form 8-K 44
SIGNATURES 45
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALAMOSA (DELAWARE), INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(dollars in thousands, except share information)
SEPTEMBER 30, 2003 DECEMBER 31, 2002
------------------ -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 97,687 $ 60,525
Restricted cash 1 34,725
Customer accounts receivable, net 28,307 27,926
Receivable from Sprint 26,018 32,576
Interest receivable -- 973
Inventory 6,020 7,410
Prepaid expenses and other assets 8,018 7,239
Deferred customer acquisition costs 8,354 7,312
Deferred tax asset 5,988 5,988
----------- -----------
Total current assets 180,393 184,674
Property and equipment, net 429,052 458,946
Debt issuance costs, net 29,692 33,351
Intangible assets, net 458,371 488,421
Other noncurrent assets 7,119 7,802
----------- -----------
Total assets $ 1,104,627 $ 1,173,194
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 16,741 $ 27,203
Accrued expenses 40,943 34,903
Payable to Sprint 27,692 26,903
Interest payable 9,152 22,242
Deferred revenue 22,494 18,901
Current maturities of long term debt 15,000 --
Current installments of capital leases 592 1,064
Payable to parent 365 --
----------- -----------
Total current liabilities 132,979 131,216
----------- -----------
Long term liabilities:
Capital lease obligations 894 1,355
Other noncurrent liabilities 10,092 10,641
Deferred tax liability 12,439 27,694
Senior secured debt 185,000 200,000
12 7/8% senior discount notes 295,345 268,862
12 1/2% senior notes 250,000 250,000
13 5/8% senior notes 150,000 150,000
----------- -----------
Total long term liabilities 903,770 908,552
----------- -----------
Total liabilities 1,036,749 1,039,768
----------- -----------
Commitments and contingencies (see Note 12) -- --
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 (730,340) (664,133)
Unearned compensation (170) (294)
Accumulated other comprehensive loss, net of tax (842) (1,550)
----------- -----------
Total stockholder's equity 67,878 133,426
----------- -----------
Total liabilities and stockholder's equity $ 1,104,627 $ 1,173,194
=========== ===========
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Revenues:
Subscriber revenues $ 116,665 $ 103,642 $ 335,239 $ 289,720
Roaming revenues 41,126 39,129 107,956 99,154
--------- --------- --------- ---------
Service revenues 157,791 142,771 443,195 388,874
Product sales 8,599 4,657 19,697 17,730
--------- --------- --------- ---------
Total revenues 166,390 147,428 462,892 406,604
--------- --------- --------- ---------
Costs and expenses:
Cost of service and operations (excluding non-cash
compensation of $4 and $0 for the three months ended
September 30, 2003 and 2002, respectively, and $12 and
$0 for the nine months ended September 30, 2003 and
2002, respectively) 83,313 92,560 242,912 256,378
Cost of products sold 14,913 12,904 40,156 36,134
Selling and marketing expenses (excluding non-cash
compensation of $4 and $0 for the three months ended
September 30, 2003 and 2002, respectively and $12 and
$0 for the nine months ended September 30, 2003 and
2002, respectively) 29,801 32,503 84,531 88,360
General and administrative expenses (excluding
non-cash compensation of $37 and $0 for the three
months ended September 30, 2003 and 2002,
respectively, and $100 and $0 for the nine months
ended September 30, 2003 and 2002, respectively) 6,312 4,102 15,645 10,890
Depreciation and amortization 28,235 26,897 82,536 78,104
Impairment of goodwill -- 291,635 -- 291,635
Impairment of property and equipment 291 -- 685 1,332
Non-cash compensation 45 -- 124 --
--------- --------- --------- ---------
Total costs and expenses 162,910 460,601 466,589 762,833
--------- --------- --------- ---------
Income (loss) from operations 3,480 (313,173) (3,697) (356,229)
Interest and other income 186 678 803 2,882
Interest expense (26,519) (26,158) (79,007) (76,832)
--------- --------- --------- ---------
Loss before income tax benefit (22,853) (338,653) (81,901) (430,179)
Income tax benefit 5,446 17,806 15,694 52,463
--------- --------- --------- ---------
Net loss $ (17,407) $(320,847) $ (66,207) $(377,716)
========= ========= ========= =========
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 NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------------
2003 2002
---------------- ---------------
Cash flows from operating activities:
Net loss $ (66,207) $ (377,716)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Non-cash compensation 124 --
Provision for bad debts 11,100 32,765
Non-cash interest expense (benefit) on derivative instruments (468) 503
Accretion of asset retirement obligations 524 --
Depreciation and amortization of property and equipment 52,486 47,702
Amortization of intangible assets 30,050 30,402
Amortization of financing costs included in interest expense 3,362 3,148
Amortization of discounted interest 297 297
Deferred tax benefit (15,694) (52,463)
Interest accreted on discount notes 26,483 23,365
Impairment of property and equipment 685 1,332
Impairment of goodwill -- 291,635
(Increase) decrease in:
Receivables (3,950) (40,170)
Inventory 1,390 (915)
Prepaid expenses and other assets (1,138) (2,825)
Increase (decrease) in:
Accounts payable and accrued expenses (6,400) 1,357
---------------- ---------------
Net cash provided by (used in) operating activities 32,644 (41,583)
---------------- ---------------
Cash flows from investing activities:
Proceeds from sale of assets 2,496 409
Purchases of property and equipment (31,645) (79,776)
Net change in short term investments -- 1,300
Change in restricted cash 34,724 59,705
Other -- 189
---------------- ---------------
Net cash provided by (used in) investing activities 5,575 (18,173)
---------------- ---------------
Cash flows from financing activities:
Borrowings under senior secured debt -- 12,838
Debt issuance costs -- (1,350)
Capital contributions (distributions) (173) 577
Payments on capital leases (884) (570)
---------------- ---------------
Net cash provided by (used in) financing activities (1,057) 11,495
---------------- ---------------
Net increase (decrease) in cash and cash equivalents 37,162 (48,261)
Cash and cash equivalents at beginning of period 60,525 104,672
---------------- ---------------
Cash and cash equivalents at end of period $ 97,687 $ 56,411
================ ===============
Supplemental disclosure of non-cash financing and investing activities:
Capitalized lease obligations incurred $ 73 $ 613
Asset retirement obligations capitalized $ 1,243 $ --
Change in accounts payable for purchases of
property and equipment $ (7,065) $ (24,368)
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 at September 30, 2003, the
unaudited consolidated statements of operations for the three months
and nine months ended September 30, 2003 and 2002, the unaudited
consolidated statements of cash flows for the nine months ended
September 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 nine months ended September 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. Changes in restricted cash have
been reclassified from cash flows from financing activities to cash
flows from investing activities for all periods presented.
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," "we," "us" or "our".
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.
At September 30, 2003, the Company had $97,687 in cash and cash
equivalents plus an additional $1 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 relating 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 Company's leverage ratio is less than or equal to 5.5
to 1. At September 30, 2003, the Company's leverage ratio was 7.21 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.
7
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
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 nine months ended
September 30, 2003 or 2002, as all options granted by Alamosa 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 nine month periods ended
September 30, 2003 relate to shares of Alamosa 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.
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------- ------------------------------------
2003 2002 2003 2002
----------------- ---------------- --------------- ----------------
(unaudited) (unaudited) (unaudited) (unaudited)
Net loss - as reported $ (17,407) $ (320,847) $ (66,207) $ (377,716)
Less stock-based employee
compensation expense
determined under fair value
method for all awards, net of
related tax effects 172 (1,305) (3,172) (3,531)
----------------- ---------------- --------------- ----------------
Net loss - pro forma $ (17,235) $ (322,152) $ (69,379) $ (381,247)
================= ================ =============== ================
5. ACCOUNTS RECEIVABLE
CUSTOMER ACCOUNTS RECEIVABLE - Customer accounts receivable represents
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 $7.5 million and $8.5 million at
September 30, 2003 and December 31, 2002, respectively.
RECEIVABLE FROM SPRINT - Receivable from Sprint in the accompanying
consolidated balance sheets consists of the following:
SEPTEMBER 30, 2003 DECEMBER 31, 2002
------------------------ -----------------------
(unaudited)
Net roaming receivable $ 8,172 $ 5,808
Access and interconnect revenue receivable (payable) (25) (188)
Accrued service revenue 2,882 3,345
Customer payments due from Sprint 14,351 21,136
Other amounts due from Sprint 638 2,475
------------------------ -----------------------
$ 26,018 $ 32,576
======================== =======================
8
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
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 $25 and $188 amounts owed to Sprint at
September 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.
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 September 30, 2003 balance of customer payments due
from Sprint is $3,601 in amounts that were due to the Company related
to payments that Sprint had collected from customers from April 2000 to
September 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
$173.7 million and $122.9 million at September 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 three
years.
9
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
Intangible assets consist of:
SEPTEMBER 30, 2003 DECEMBER 31, 2002
---------------------- -----------------------
(unaudited)
Sprint affiliate and other agreements $ 532,200 $ 532,200
Accumulated amortization (78,133) (55,458)
---------------------- -----------------------
Subtotal 454,067 476,742
---------------------- -----------------------
Subscriber base acquired 29,500 29,500
Accumulated amortization (25,196) (17,821)
---------------------- -----------------------
Subtotal 4,304 11,679
---------------------- -----------------------
Intangible assets, net $ 458,371 $ 488,421
====================== =======================
Amortization expense relative to intangible assets was $10,017 and
$10,267 for the three months ended September 30, 2003 and 2002,
respectively, and was $30,050 and $30,402 for the nine months ended
September 30, 2003 and 2002, respectively. Amortization expense
relative to intangible assets will be $10,017 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
===============
The current trends in the wireless telecommunications industry that
drove the Company's decision to launch an exchange offer for its
publicly traded debt as discussed in Note 9 were deemed to be a
"triggering event" requiring impairment testing of the Company's
long-lived assets, including intangibles, under SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-lived Assets." In
performing this test, assets are grouped according to identifiable cash
flow streams and the undiscounted cash flow over the life of the asset
group is compared to the carrying value of the asset group. No
impairment was indicated as a result of this test.
10
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
8. LONG-TERM DEBT
Long-term debt consists of the following:
SEPTEMBER 30, 2003 DECEMBER 31, 2002
---------------------- -----------------------
(unaudited)
12 7/8% senior discount notes $ 295,345 $ 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 895,345 868,862
Less current maturities (15,000) --
---------------------- -----------------------
Long-term debt, excluding current maturities $ 880,345 $ 868,862
====================== =======================
SENIOR UNSECURED OBLIGATIONS
SENIOR DISCOUNT NOTES - On December 23, 1999, Alamosa (Delaware) filed
a registration statement with the U. S. 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), carry a coupon rate of 12 7/8%, 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.
Approximately $59.0 million of the proceeds of the 12 1/2% Senior Notes
Offering was 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. As of September 30, 2003, the security account balance
related to the 12 1/2% Senior Notes Offering was $1.
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
issuance was 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
11
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
borrowings. The balance was used for general corporate purposes. As of
September 30, 2003, the security account balance related to the 13 5/8%
Senior Notes was $0.
SENIOR SECURED OBLIGATIONS
SENIOR SECURED CREDIT FACILITY - On February 14, 2001, the Company,
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. At September 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 September 30, 2003 is 5.19%. 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 11.
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.
At September 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 $7.5 million 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 Company's 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.
12
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
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. DEBT RESTRUCTURING
In an effort to proactively manage its capital structure and align it
with recent operating trends in the wireless telecommunications
industry, the Company launched an offer to exchange its publicly traded
debt on September 12, 2003. The offer, as amended on October 15, 2003
(as so amended, the "Exchange Offer"), sought to exchange all of the
Company's existing 12 7/8% Senior Discount Notes, 12 1/2% Senior Notes
and 13 5/8% Senior Notes for a combination of new notes and convertible
Alamosa Holdings preferred stock. The Exchange Offer was successful and
expired on November 10, 2003.
Holders of the 12 7/8% Senior Discount Notes due 2010 (the "Discount
Notes") who tendered their Discount Notes will receive for each $1,000
accreted amount of the Discount Notes tendered, as of the expiration of
the Exchange Offer, (1) $650 in original issue amount of new 12% Senior
Discount Notes due 2009 (the "New Discount Notes") and (2) one share of
Series B Convertible Preferred Stock of Alamosa Holdings with a
liquidation preference of $250 per share (the "Preferred Stock").
Holders of the 12 1/2% Senior Notes due 2011 and the 13 5/8% Senior
Notes due 2011 (collectively, the "Old Cash Pay Notes" and, together
with the Discount Notes, the "Old Notes") who tendered their Old Cash
Pay Notes will receive, for each $1,000 principal amount of the Old
Cash Pay Notes tendered, (1) $650 in principal amount of new 11% Senior
Notes due 2010 (the "New Cash Pay Notes" and, together with the New
Discount Notes, the "New Notes") and (2) one share of Preferred Stock.
Fractional shares of Preferred Stock will not be issued under the
Exchange Offer and New Notes will be issued only in denominations that
are integral multiples of $1,000. With respect to any holder of Old
Notes who would otherwise receive a fractional share of Preferred Stock
or New Notes in an amount that is not an integral multiple of $1,000,
the Company will round down to the nearest whole share of Preferred
Stock or $1,000 of New Notes, as applicable, and substitute a cash
payment equal to the liquidation preference allocable to the fractional
share of Preferred Stock or the amount by which the amount of New Notes
is reduced.
13
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
The New Discount Notes will accrete at 12 percent, compounded
semi-annually through July 31, 2005. Cash interest on the accreted
value will then be paid semi-annually at 12 percent beginning on
January 31, 2006 until maturity on July 31, 2009. The New Cash Pay
Notes will require cash payment of interest semi-annually beginning
January 31, 2004 until maturity on July 31, 2010.
Holders of Preferred Stock will be entitled to receive cumulative
dividends at an annual rate of 7.5 percent of the $250 per share
liquidation preference. Dividends will be payable quarterly in arrears
on the last calendar day of each January, April, July and October.
Until July 31, 2008, Alamosa Holdings will have the option to pay
Preferred Stock dividends in (i) cash, (ii) shares of Alamosa Holdings
Series C Convertible Preferred Stock ("Dividend Preferred Stock" and,
together with the Preferred Stock, the "Preferred Shares"), (iii)
shares of Alamosa Holdings common stock or (iv) a combination thereof.
After July 31, 2008, all Preferred Stock dividends will be payable in
cash only. The Dividend Preferred Stock will have essentially the same
terms as the Preferred Stock with the exception of the conversion rate,
as discussed below.
Each share of Preferred Stock and Dividend Preferred Stock will be
convertible at the holder's option and at any time into shares of
Alamosa Holdings common stock. The Preferred Stock will be convertible
at $3.40 per share and the Dividend Preferred Stock will be convertible
at $4.25 per share.
Beginning on the third anniversary of the date of original issuance of
the Preferred Stock, Alamosa Holdings has the option to redeem
outstanding Preferred Shares for cash. The initial redemption price
will be 125 percent of the $250 per share liquidation preference,
reduced by 5 percent annually thereafter until 2011 after which time
the redemption price will remain at 100 percent. All outstanding
Preferred Shares must be redeemed by Alamosa Holdings on July 31, 2013.
Upon the expiration of the Exchange Offer on November 10, 2003, the
Company had received tenders from existing noteholders amounting to
approximately $343.6 million or 98 percent of the Discount Notes,
$238.4 million or 95 percent of the 12 1/2% Senior Notes and $147.5
million or 98 percent of the 13 5/8% Senior Notes. The consummation of
the Exchange Offer will be accounted for under the provisions of SFAS
No. 15, "Accounting by Debtors and Creditors for Troubled Debt
Restructurings." In accordance with the provisions of SFAS No. 15, the
New Notes and Preferred Stock will be recorded at fair value. The
excess of the carrying value of the existing debt tendered by
noteholders over the fair value of the New Notes and Preferred Stock
will reduce interest expense over the life of the New Notes due to the
fact that the total cash flows associated with the New Notes exceeds
the carrying value of the Old Notes.
In contemplation of the Exchange Offer, Alamosa (Delaware), on
September 11, 2003, amended the terms of the respective indentures
governing its existing 12 7/8% Senior Discount Notes, 12 1/2% Senior
Notes and 13 5/8% Senior Notes to add Alamosa Holdings as a guarantor
under the indentures. The Company further amended the indentures
governing these notes on October 29, 2003, after receiving the
requisite consents from the holders of the notes, to eliminate
substantially all covenant protection under such indentures.
Concurrently with the closing of the Exchange Offer, the Company
entered into amendments to certain of its agreements with Sprint (the
"Sprint Amendments") and to the credit facility governing the Senior
Secured Credit Facility (the "Bank Amendment"). The Company entered
into the Sprint Amendments to (i) simplify the manner in which
financial settlements are determined and settled between the Company
and Sprint, (ii) settle outstanding disputed charges between the
Company and Sprint and (iii) provide clarity with respect to access to
information between the Company and Sprint. The Company entered into
the Bank Amendment to, among other things, modify the financial
maintenance ratios in the credit agreement and obtain the requisite
consent to the execution of Sprint Amendments, the consummation of
the Exchange Offer, and the issuance of the New Notes and Preferred
Stock.
10. 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 nine months ended
September 30, 2003 has resulted in an effective tax rate of 19.0
percent. The effective tax rate was 12.2 percent for the nine months
ended September 30, 2002 due to the goodwill impairment charge of
$291,635 which was not deductible for income tax purposes.
11. 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 $1,961 in cash settlements under
derivative instruments classified as
14
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
hedges is included in interest expense for the nine months ended
September 30, 2003.
As of September 30, 2003, the Company has recorded $2,003 in "other
noncurrent liabilities" relative to the fair value of derivative
instruments, including $1,359 representing derivative instruments that
qualify for hedge accounting under SFAS No. 133. During the nine month
period ended September 30, 2003, the Company recognized gains of $707
(net of income tax expense of $439) in other comprehensive income.
During the nine month period ended September 30, 2002, the Company
recognized losses of $704 (net of income tax benefit of $431) 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------- -------------------------------------
2003 2002 2003 2002
---------------- ----------------- ---------------- -----------------
(unaudited) (unaudited) (unaudited) (unaudited)
Net loss $ (17,407) $ (320,847) $ (66,207) $ (377,716)
Change in fair values of
derivative instruments,
net of income tax expense
(benefit) of $244, $(279),
$439 and $(431),
respectively 226 (456) 707 (704)
---------------- ----------------- ---------------- -----------------
Comprehensive loss $ (17,181) $ (321,303) $ (65,500) $ (378,420)
================ ================= ================ =================
12. 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 relating 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 at September 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 U. S. 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.
15
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
The issuers in the IPO cases, including the Company, have reached an
agreement in principle with the plaintiffs to settle the claims
asserted by the plaintiffs against them. Under the terms of the
proposed settlement, the insurance carriers for the issuers will pay
the plaintiffs the difference between $1 billion and all amounts which
the plaintiffs recover from the underwriter defendants by way of
settlement or judgment. Accordingly, no payment on behalf of the
issuers under the proposed settlement will be made by the issuers
themselves. The claims against the issuers will be dismissed, and the
issuers and their officers and directors will receive releases from the
plaintiffs. Under the terms of the proposed settlement, the issuers
will also assign to plaintiffs certain claims which they may have
against the underwriters arising out of the IPOs, and the issuers will
also agree not to assert certain other claims which they may have
against the underwriters, without plaintiffs' consent. The proposed
settlement is subject to the approval of the Court.
On January 23, 2001, the Company's 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. A panel of three arbitrators has been selected. 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 relating 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 is not expected to have a material adverse
impact on the Company's financial position, results of operations or
liquidity.
13. EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (the "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 and operating leases for retail and office
space, the Company has adopted SFAS No. 143 as of January 1, 2003.
As previously disclosed, upon adoption of SFAS No. 143, the Company had
concluded that, for its leased telecommunication facilities, a
liability could not 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.
It is the Company's understanding that further clarification has been
provided by the U. S. Securities and Exchange Commission ("SEC")
regarding the accounting for asset retirement obligations and
specifically relating to factors to consider in determining the
estimated settlement dates and the probability of enforcement of the
remediation obligation. Based on this information, the Company has
revised certain of the estimates used in its original analysis and
calculated an asset retirement obligation for its leased
telecommunication facilities. The Company determined that the
aforementioned asset retirement obligations did not have a material
impact
16
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
on its consolidated results of operations, financial position or cash
flows for the three and nine month periods ended September 30, 2003, as
well as for each of the three month periods ended March 31 and June 30,
2003. As such, the Company has recorded the asset retirement
obligations in the three month period ended September 30, 2003.
As a result, an initial asset retirement obligation of $1,243 has been
recorded and classified in other non-current liabilities as of
September 30, 2003. In addition, the Company also recorded a
corresponding increase in property and equipment of $1,243 as of
September 30, 2003. The effect on the Company's statement of operations
for the three and nine month periods ended September 30, 2003 related
to accretion of the asset retirement obligation and depreciation of the
corresponding asset through September 30, 2003. Included in costs of
services and operations in the consolidated statement of operations for
the three and nine month periods ended September 30, 2003 is a charge
of $524 related to the accretion of the asset retirement obligations.
Included in depreciation and amortization in the consolidated statement
of operations for the three and nine month periods ended September 30,
2003 is a charge of $456 related to the depreciation of the assets
recorded in connection with the asset retirement obligations. For
purposes of determining the aforementioned asset retirement
obligations, the Company has assigned a 100% probability of enforcement
to the remediation obligations and has assumed an average settlement
period of 20 years.
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.
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
17
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003 and did not 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 did not 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 "Revenue Arrangements with Multiple Deliverables,"
in May 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 became
effective for revenue arrangements entered into in fiscal periods
beginning after June 15, 2003, and the Company has adopted 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 those
transactions in distribution channels controlled by the Company. 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 all 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 along with that
portion of activation fees generated by customers outside of
distribution channels controlled by the Company. The impact of the
adoption of these accounting provisions was not material to the
Company.
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. 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.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"
or the "Interpretation"), "Consolidation of Variable Interest Entities,
an interpretation of ARB No. 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,
18
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
2003. For VIEs created after January 31, 2003, the requirements are
effective immediately. The adoption of FIN 46 did not have a material
impact on the Company's consolidated financial statements.
14. GUARANTOR FINANCIAL STATEMENTS
Set forth below are consolidating financial statements of Alamosa
(Delaware), Alamosa Delaware Operations LLC ("Operations") which is the
Company's non-guarantor subsidiary (the "Non-Guarantor Subsidiary") and
the guarantor subsidiaries of the 12 7/8% Senior Discounts Notes, the
12 1/2% Senior Notes and the 13 5/8% Senior Notes as of September 30,
2003 and December 31, 2002 and for the three and nine months ended
September 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.
19
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 2003
(DOLLARS IN THOUSANDS)
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiary Eliminations Consolidated
------------- -------------- ------------- ------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 27,481 $ 70,183 $ 23 $ -- $ 97,687
Restricted cash 1 -- -- -- 1
Customer accounts receivable, net -- 28,307 -- -- 28,307
Receivable from Sprint -- 26,018 -- -- 26,018
Interest receivable -- -- -- -- --
Intercompany receivable 66,543 -- 394 (66,937) --
Inventory -- 6,020 -- -- 6,020
Investment in subsidiary 658,329 -- -- (658,329) --
Prepaid expenses and other assets 406 7,612 -- -- 8,018
Deferred customer acquisition costs -- 8,354 -- -- 8,354
Deferred tax asset -- 5,988 -- -- 5,988
------------- -------------- ------------- ------------- ------------
Total current assets 752,760 152,482 417 (725,266) 180,393
Property and equipment, net -- 429,052 -- -- 429,052
Debt issuance costs, net 18,663 11,029 -- -- 29,692
Intangible assets, net -- 458,371 -- -- 458,371
Other noncurrent assets -- 7,119 -- -- 7,119
------------- -------------- ------------- ------------- ------------
Total assets $ 771,423 $ 1,058,053 $ 417 $ (725,266) $ 1,104,627
============= ============== ============= ============= ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ -- $ 16,741 $ -- $ -- $ 16,741
Accrued expenses 437 40,506 -- -- 40,943
Payable to Sprint -- 27,692 -- -- 27,692
Interest payable 7,763 1,389 -- -- 9,152
Deferred revenue -- 22,494 -- -- 22,494
Intercompany payable -- 66,937 -- (66,937) --
Payable to parent -- 365 -- -- 365
Current maturities of long term debt -- 15,000 -- -- 15,000
Current installments of capital leases -- 592 -- -- 592
------------- -------------- ------------- ------------- ------------
Total current liabilities 8,200 191,716 -- (66,937) 132,979
Capital lease obligations -- 894 -- -- 894
Other noncurrent liabilities -- 10,092 -- -- 10,092
Deferred tax liability -- 12,439 -- -- 12,439
Senior secured debt -- 185,000 -- -- 185,000
12 7/8% senior discount notes 295,345 -- -- -- 295,345
12 1/2% senior notes 250,000 -- -- -- 250,000
13 5/8% senior notes 150,000 -- -- -- 150,000
------------- -------------- ------------- ------------- ------------
Total liabilities 703,545 400,141 -- (66,937) 1,036,749
------------- -------------- ------------- ------------- ------------
Stockholder's Equity:
Preferred stock -- -- -- -- --
Common stock -- -- -- -- --
Additional paid-in capital 799,230 -- -- -- 799,230
LLC member's equity -- 657,912 417 (658,329) --
Accumulated deficit (730,340) -- -- -- (730,340)
Unearned compensation (170) -- -- -- (170)
Accumulated other comprehensive loss, net
of tax (842) -- -- -- (842)
------------- -------------- ------------- ------------- ------------
Total stockholder's equity 67,878 657,912 417 (658,329) 67,878
------------- -------------- ------------- ------------- ------------
Total liabilities and stockholder's equity $ 771,423 $ 1,058,053 $ 417 $ (725,266) $ 1,104,627
============= ============== ============= ============= ============
20
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 -- 32,576 -- -- 32,576
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 803,079 131,719 417 (750,541) 184,674
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 $ 1,134,760 $ 417 $ (785,546) $ 1,173,194
============= ============== ============= ============= ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ -- $ 27,203 $ -- $ -- $ 27,203
Accrued expenses 3 34,900 -- -- 34,903
Payable to Sprint -- 26,903 -- -- 26,903
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 21,275 204,113 -- (94,172) 131,216
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 discount 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 690,137 478,808 -- (129,177) 1,039,768
------------- -------------- ------------- ------------- ------------
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 (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 $ 1,134,760 $ 417 $ (785,546) $ 1,173,194
============= ============== ============= ============= ============
21
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 SEPTEMBER 30, 2003
(DOLLARS IN THOUSANDS)
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiary Eliminations Consolidated
-------------- ------------- ------------- ------------ -------------
Revenues:
Subscriber revenues $ -- $ 116,665 $ -- $ -- $ 116,665
Roaming revenues -- 41,126 -- -- 41,126
-------------- ------------- ------------- ------------ -------------
Service revenues -- 157,791 -- -- 157,791
Product sales -- 8,599 -- -- 8,599
-------------- ------------- ------------- ------------ -------------
Total revenues -- 166,390 -- -- 166,390
Costs and expenses:
Cost of services and operations -- 83,313 -- -- 83,313
Cost of products sold -- 14,913 -- -- 14,913
Selling and marketing -- 29,801 -- -- 29,801
General and administrative expenses 334 5,978 -- -- 6,312
Depreciation and amortization -- 28,235 -- -- 28,235
Impairment of property and -- 291 -- -- 291
equipment
Non-cash compensation -- 45 -- -- 45
-------------- ------------- ------------- ------------ -------------
Income (loss) from operations (334) 3,814 -- -- 3,480
Equity in earnings of subsidiaries 5,439 -- -- (5,439) --
Interest and other income 128 58 -- -- 186
Interest expense (22,640) (3,879) -- -- (26,519)
-------------- ------------- ------------- ------------ -------------
Loss before income tax benefit (17,407) (7) -- (5,439) (22,853)
Income tax benefit -- 5,446 -- -- 5,446
-------------- ------------- ------------- ------------ -------------
Net income (loss) $ (17,407) $ 5,439 $ -- $ (5,439) $ (17,407)
============== ============= ============= ============ =============
22
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(DOLLARS IN THOUSANDS)
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiary Eliminations Consolidated
-------------- ------------- ------------- ------------ -------------
Revenues:
Subscriber revenues $ -- $ 335,239 $ -- $ -- $ 335,239
Roaming revenues -- 107,956 -- -- 107,956
-------------- ------------- ------------- ------------ -------------
Service revenues -- 443,195 -- -- 443,195
Product sales -- 19,697 -- -- 19,697
-------------- ------------- ------------- ------------ -------------
Total revenues -- 462,892 -- -- 462,892
Costs and expenses:
Cost of services and operations -- 242,912 -- -- 242,912
Cost of products sold -- 40,156 -- -- 40,156
Selling and marketing -- 84,531 -- -- 84,531
General and administrative expenses 832 14,813 -- -- 15,645
Depreciation and amortization -- 82,536 -- -- 82,536
Impairment of property and -- 685 -- -- 685
equipment
Non-cash compensation -- 124 -- -- 124
-------------- ------------- ------------- ------------ -------------
Loss from operations (832) (2,865) -- -- (3,697)
Equity in earnings of subsidiaries 1,128 -- -- (1,128) --
Interest and other income 567 236 -- -- 803
Interest expense (67,070) (11,937) -- -- (79,007)
-------------- ------------- ------------- ------------ -------------
Loss before income tax benefit (66,207) (14,566) -- (1,128) (81,901)
Income tax benefit -- 15,694 -- -- 15,694
-------------- ------------- ------------- ------------ -------------
Net loss $ (66,207) $ 1,128 $ -- $ (1,128) $ (66,207)
============== ============= ============= ============ =============
23
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 SEPTEMBER 30, 2002
(UNAUDITED)
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiary Eliminations Consolidated
------------- ------------- ------------- ------------ -------------
Revenues:
Subscriber revenues $ -- $ 103,642 $ -- $ -- $ 103,642
Roaming revenues -- 39,129 -- -- 39,129
------------- ------------- ------------- ------------ -------------
Total service revenues -- 142,771 -- -- 142,771
Product sales -- 4,657 -- -- 4,657
------------- ------------- ------------- ------------ -------------
Total revenues -- 147,428 -- -- 147,428
Costs and expenses:
Cost of service and operations -- 92,560 -- -- 92,560
Cost of products sold -- 12,904 -- -- 12,904
Selling and marketing -- 32,503 -- -- 32,503
General and administrative expenses 42 4,060 -- -- 4,102
Depreciation and amortization -- 26,897 -- -- 26,897
Impairment of goodwill -- 291,635 -- -- 291,635
------------- ------------- ------------- ------------ -------------
Loss from operations (42) (313,131) -- -- (313,173)
Equity in loss of subsidiaries (299,733) -- -- 299,733 --
Interest and other income 476 185 17 -- 678
Interest expense (21,548) (4,610) -- -- (26,158)
------------- ------------- ------------- ------------ -------------
Net income (loss) before income tax
benefit (320,847) (317,556) 17 299,733 (338,653)
Income tax benefit -- 17,806 -- -- 17,806
------------- ------------- ------------- ------------ -------------
Net income (loss) $ (320,847) $ (299,750) $ 17 $ 299,733 $ (320,847)
============= ============= ============= ============ =============
24
ALAMOSA (DELAWARE), INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(dollars in thousands, except as noted)
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
Guarantor Non-Guarantor
Issuer Subsidiaries Subsidiary Eliminations Consolidated
------------- ------------- ------------- ------------ -------------
Revenues:
Subscriber revenues $ -- $ 289,720 $ -- $ -- $ 289,720
Roaming revenues -- 99,154 -- -- 99,154
------------- ------------- ------------- ------------ -------------
Total service revenues -- 388,874 -- -- 388,874
Product sales -- 17,730 -- -- 17,730
------------- ------------- ------------- ------------ -------------
Total revenues -- 406,604 -- -- 406,604
Costs and expenses:
Cost of service and operations -- 256,378 -- -- 256,378
Cost of products sold -- 36,134 -- -- 36,134
Selling and marketing -- 88,360 -- -- 88,360
General and administrative expenses 133 10,757 -- -- 10,890
Depreciation and amortization -- 78,104 -- -- 78,104
Im