UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 2001.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER: 005-58523
ALAMOSA HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2890997
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
5225 SOUTH LOOP 289, SUITE 120
LUBBOCK, TEXAS 79424
(Address of principal executive offices, including zip code)
(806) 722-1100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
As of November 13, 2001, approximately 92,066,502 shares of common stock, $0.01
par value per share, were issued and outstanding.
ALAMOSA HOLDINGS, INC.
TABLE OF CONTENTS
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 2001
(unaudited) and December 31, 2000............................ 3
Consolidated Statements of Operations for the three and nine
months ended September 30, 2001 and 2000, (unaudited)....... 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 2001 and 2000, (unaudited)............... 5
Notes to the Consolidated Financial Statements............... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 17
PART II OTHER INFORMATION
Item 1. Legal Proceedings............................................ 18
Item 2. Changes in Securities and Use of Proceeds.................... 19
Item 3. Defaults Upon Senior Securities.............................. 19
Item 4. Submission of Matters to a Vote of Security Holders.......... 19
Item 5. Other Information............................................ 19
Item 6. Exhibits Index............................................... 19
ALAMOSA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share information)
September 30, 2001 December 31, 2000
------------------ -----------------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 103,079 $ 141,768
Short-term investments -- 1,600
Accounts receivable, net of allowance
for doubtful accounts of $5,841 and $1,503, respectively 53,428 14,747
Inventory 6,918 2,753
Prepaid expenses and other assets 6,419 3,027
Restricted cash 51,688 --
Deferred tax asset 1,762 --
Interest receivable 435 1,046
--------------- -------------
Total current assets 223,729 164,941
Property and equipment, net 427,790 228,983
Notes receivable -- 46,865
Debt issuance costs, net 37,608 13,108
Restricted cash 44,648 --
Goodwill and intangible assets, net 849,088 --
Other noncurrent assets 5,738 4,501
--------------- -------------
Total assets $ 1,588,601 $ 458,398
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 94,485 $ 61,167
Accrued interest payable 9,275 219
Current installments of capital leases 433 36
--------------- -------------
Total current liabilities 104,193 61,422
12 7/8% senior discount notes 229,894 209,280
12 1/2% senior notes 250,000 --
13 5/8% senior notes 150,000 --
Senior secured credit facility 137,162 --
EDC credit facility -- 54,524
Deferred tax liability 129,950 --
Capital lease obligations, noncurrent 2,237 1,039
Other noncurrent liabilities 7,539 735
--------------- -------------
Total liabilities 1,010,975 327,000
--------------- -------------
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized; no
shares issued -- --
Common stock, $.01 par value; 290,000,000 shares authorized,
92,064,752 and 61,359,856 issued and outstanding, respectively 921 614
Additional paid-in capital 792,290 245,845
Accumulated deficit (213,427) (113,948)
Accumulated other comprehensive loss, net of tax benefit (1,228) --
Unearned compensation (930) (1,113)
--------------- -------------
Total stockholders' equity 577,626 131,398
--------------- -------------
Total liabilities and stockholders' equity $ 1,588,601 $ 458,398
=============== =============
The accompanying notes are an integral part of the
consolidated financial statements.
3
ALAMOSA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(dollars in thousands, except per share amounts)
For the three months ended For the nine months ended
September 30, September 30,
----------------------------- ----------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenues:
Subscriber revenues $ 67,559 $ 16,146 $ 151,372 $ 35,662
Roaming and travel revenues 31,594 4,828 67,204 10,973
----------- ----------- ----------- -----------
Total service revenues 99,153 20,974 218,576 46,635
Product sales 8,721 2,229 18,668 6,001
----------- ----------- ----------- -----------
Total revenue 107,874 23,203 237,244 52,636
----------- ----------- ----------- -----------
Costs and expenses:
Cost of service and operations
(including non-cash compensation of $0 and
$159 for the three months ended September 30, 2001
and 2000, respectively, and $0 and $774 for
the nine months ended September 30,
2001 and 2000, respectively) 67,698 15,139 154,620 34,104
Cost of product sold 16,591 4,605 35,150 11,637
Selling and marketing 31,367 11,569 73,929 25,762
General and administrative expenses
(including non-cash compensation of $0 and $352
for the three months ended September 30, 2001 and
2000, respectively, and $183 and $4,631 for the
nine months ended September 30,
2001 and 2000, respectively) 3,535 3,495 10,785 11,848
Depreciation and amortization 27,305 3,015 64,476 7,763
----------- ----------- ----------- -----------
Total costs and expenses 146,496 37,823 338,960 91,114
----------- ----------- ----------- -----------
Loss from operations (38,622) (14,620) (101,716) (38,478)
Interest and other income 2,531 4,111 10,718 10,834
Interest expense (23,626) (6,961) (58,289) (18,314)
----------- ----------- ----------- -----------
Net loss before income tax benefit and
extraordinary item (59,717) (17,470) (149,287) (45,958)
Income tax benefit 22,005 -- 53,311 --
----------- ----------- ----------- -----------
Net loss before extraordinary item (37,712) (17,470) (95,976) (45,958)
Loss on debt extinguishment, net of tax
benefit of $1,969 -- -- (3,503) --
----------- ----------- ----------- -----------
Net loss $ (37,712) $ (17,470) $ (99,479) $ (45,958)
=========== =========== =========== ===========
Basic and diluted net loss per common share
before extraordinary item $ (0.41) $ (0.28) $ (1.13) $ (0.77)
=========== =========== =========== ===========
Basic and diluted net loss per common share
on debt extinguishment $ -- $ -- $ (0.04) $ --
=========== =========== =========== ===========
Basic and diluted net loss per common share $ (0.41) $ (0.28) $ (1.17) $ (0.77)
=========== =========== =========== ===========
Basic and diluted weighted average
common shares 92,030,496 61,354,715 85,287,918 59,808,408
=========== =========== =========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
4
ALAMOSA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(dollars in thousands)
Nine months ended September 30,
------------------------------------
2001 2000
-------------- --------------
Cash flows from operating activities:
Net loss $ (99,479) $ (45,958)
Adjustments to reconcile net loss to net cash used in
operating activities:
Income tax benefit (55,280) --
Non-cash compensation expense 183 5,405
Depreciation and amortization 30,745 7,763
Amortization of goodwill 33,731 --
Amortization of debt issuance costs 2,231 1,024
Deferred interest expense 20,679 16,599
Loss on debt extinguishment 5,472 --
Loss from disposition of interest rate cap agreements -- 266
Loss from disposition of assets 39 54
(Increase) decrease in asset accounts, net of
effects from acquisitions
Accounts receivable (28,078) (7,987)
Inventory (842) 3,199
Prepaid expenses and other assets (3,283) (51)
Increase (decrease) in liability accounts,
net of effects from acquisitions:
Accounts payable and accrued expenses (4,533) 5,020
-------------- --------------
Net cash used in operating activities (98,415) (14,666)
-------------- --------------
Cash flows from investing activities:
Additions to property and equipment (101,462) (98,209)
Repayment (issuance) of notes receivable 11,860 (22,096)
Payments for acquisitions, net of cash acquired (37,617) --
Sale of short term investments 1,600 --
Acquisition related costs -- (1,737)
Purchase of minority interest in subsidiary -- (255)
-------------- --------------
Net cash used in investing activities (125,619) (122,297)
Cash flows from financing activities:
Equity offering proceeds -- 208,589
Equity offering costs -- (13,599)
Issuance of 12 7/8% senior discount notes -- 187,096
Issuance of 12 1/2% senior notes 242,500 --
Issuance of senior secured credit facility 203,000 --
Issuance of 13 5/8% senior notes 141,546 --
Repayment of debt assumed through acquisitions (169,060) --
Debt issuance costs (16,315) (10,763)
Stock options exercised 211 624
Proceeds from issuance of long-term debt -- 7,758
Repayments of long-term debt (54,524) (76,239)
Repayment of senior secured credit facility (65,838) --
Change in restricted cash (96,336) 518
Proceeds from employee stock purchase plan 366 --
Payments on capital leases (205) (16)
Interest rate cap premiums -- (27)
-------------- --------------
Net cash provided by financing activities 185,345 303,941
-------------- --------------
Net increase (decrease) in cash and cash equivalents (38,689) 166,978
Cash and cash equivalents at beginning of period 141,768 5,656
-------------- --------------
Cash and cash equivalents at end of period $ 103,079 $ 172,634
============== ==============
The accompanying notes are an integral part of the
consolidated financial statements.
5
ALAMOSA HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1. BASIS OF PRESENTATION OF UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited consolidated balance sheet as of September 30, 2001, the
unaudited consolidated statements of operations for the three and nine
months ended September 30, 2001 and 2000, the unaudited consolidated
statements of cash flows for the nine months ended September 30, 2001 and
2000, and related footnotes, have been prepared in accordance with generally
accepted accounting principles for interim financial information and Article
10 of Regulation S-X. Accordingly, they do not include all the information
and footnotes required by generally accepted accounting principles. The
financial information presented should be read in conjunction with the
audited consolidated financial statements for the year ended December 31,
2000. 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 nine months ended September 30, 2001 are not necessarily
indicative of results that may be expected for the year ending December 31,
2001.
Certain reclassifications have been made to prior period balances to conform
to current period presentation.
2. ORGANIZATION AND BUSINESS OPERATIONS
Alamosa Holdings, Inc. ("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)"), a subsidiary of Alamosa Holdings, 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), Inc. completed its initial public offering.
Immediately prior to the initial public offering, shares of Alamosa
(Delaware) were exchanged for Alamosa PCS LLC's ("Alamosa") membership
interests, and Alamosa became wholly owned by Alamosa (Delaware). These
financial statements are presented as if the reorganization had occurred as
of the beginning of the periods presented. Alamosa Holdings 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 Nasdaq National Market under
the same symbol previously used by Alamosa PCS Holdings, "APCS." On that day
the Company also completed its acquisitions of two Sprint PCS affiliates,
Roberts Wireless Communications, L.L.C. ("Roberts") and Washington Oregon
Wireless, LLC ("WOW"). On March 30, 2001, the Company acquired Southwest PCS
Holdings, Inc. ("Southwest").
3. MERGERS WITH ROBERTS WIRELESS COMMUNICATIONS, L.L.C., WASHINGTON OREGON
WIRELESS, LLC, AND SOUTHWEST PCS HOLDINGS, INC.
As of the end of the first quarter of 2001, Alamosa Holdings completed the
acquisitions of three Sprint PCS network partners. On February 14, 2001,
Alamosa Holdings completed its acquisition of Roberts and WOW. In connection
with the Roberts and WOW acquisitions, Alamosa Holdings entered into a new
senior secured credit facility for up to $280 million. On March 30, 2001,
Alamosa Holdings completed its acquisition of Southwest. In connection with
the Southwest acquisition, Alamosa Holdings increased the senior secured
credit facility from $280 million to $333 million. Each of these
transactions was accounted for under the purchase method of accounting.
6
ALAMOSA HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The merger consideration in the Roberts acquisition consisted of 13.5
million common shares of Alamosa Holdings and approximately $4.0 million in
cash. Alamosa Holdings also assumed the net debt of Roberts in the
transaction, which amounted to approximately $57 million as of February 14,
2001.
The merger consideration in the WOW acquisition consisted of 6.05 million
common shares of Alamosa Holdings and approximately $12.5 million in cash.
Alamosa Holdings also assumed the net debt of WOW in the transaction, which
amounted to approximately $31 million as of February 14, 2001.
The merger consideration in the Southwest acquisition consisted of 11.1
million common shares of Alamosa Holdings and approximately $5.0 million in
cash. Alamosa Holdings also assumed the net debt of Southwest in the
transaction, which amounted to approximately $81 million as of March 30,
2001.
The Company has obtained independent valuations of Roberts, WOW and
Southwest to allocate the purchase price. The results of the valuations are
as follows (in thousands):
Current assets $ 15,357
Property, plant and equipment 125,149
Goodwill 136,970
Sprint affiliation and other agreements 532,200
Subscriber base acquired 29,500
----------
Net book value of assets acquired, including intangibles $ 839,176
==========
As a result of the acquisitions, the Company recorded goodwill and
intangibles of $882.8 million. This amount includes a deferred tax liability
of $184.1 million which was recorded for the differences between the
estimated fair value and tax bases of the assets acquired and liabilities
assumed. Additionally, this amount includes $29.5 million which is
attributable to the subscribers acquired with the mergers. The subscriber
base will be amortized over 3 years, which approximates the average life of
the Company's customer and the remaining goodwill and other intangibles will
be amortized over 18 years, which approximates the remaining life of the
initial term of the assumed Sprint PCS contracts.
The unaudited pro forma condensed consolidated statements of operations for
the nine months ended September 30, 2001 and 2000 set forth below, present
the results of operations as if the acquisitions had occurred at the
beginning of each period and are not necessarily indicative of future
results or actual results that would have been achieved had these
acquisitions occurred as of the beginning of the period.
For the nine months ended
September 30,
---------------------------
2001 2000
----------- -----------
(in thousands)
Total revenues $ 256,166 $ 79,818
=========== ===========
Net loss before income tax benefit
and extraordinary item $ (173,023) $ (129,766)
Income tax benefit 61,128 30,965
----------- -----------
Net loss before extraordinary item (111,895) (98,801)
Loss on debt extinguishment, net of tax
benefit of $1,969 (3,503) --
----------- -----------
Net loss $ (115,398) $ (98,801)
=========== ===========
Basic and diluted net loss per share
before extraordinary item $ (1.22) $ (1.09)
============ ===========
Basic and diluted net loss per share $ (1.25) $ (1.09)
============ ===========
4. ACCUMULATED DEPRECIATION AND AMORTIZATION
Property and equipment are stated net of accumulated depreciation of $45.9
million and $15.6 million at September 30, 2001 and December 31, 2000,
respectively. Additionally, goodwill and other intangibles are stated net of
accumulated amortization of $33.7 million and $0 at September 30, 2001 and
December 31, 2000, respectively.
7
ALAMOSA HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
September 30, 2001 December 31, 2000
------------------ -----------------
12 7/8% senior discount notes $ 229,894 $ 209,280
12 1/2% senior notes 250,000 --
Senior secured credit facility 137,162 --
13 5/8% senior notes 150,000 --
EDC credit facility -- 54,524
---------- ----------
Total debt 767,056 263,804
Less current maturities -- --
---------- ----------
Long-term debt, excluding current maturities $ 767,056 $ 263,804
========== ==========
12 7/8% SENIOR DISCOUNT NOTES
On December 23, 1999, Alamosa (Delaware) filed a registration statement with
the Securities and Exchange Commission for the issuance of $350 million face
amount of senior discount notes (the "12 7/8% Senior Discount Notes
Offering"). The 12 7/8% Senior Discount Notes Offering was completed on
February 8, 2000 and generated net proceeds of approximately $181 million
after underwriters' commissions and expenses of approximately $6.1 million.
The 12 7/8% Senior Discount Notes mature in ten years (February 15, 2010)
and carry a coupon rate of 12 7/8%, and provides for interest deferral for
the first five years. The 12 7/8% Senior Discount Notes will accrete to
their $350 million face amount by February 8, 2005, after which, interest
will be paid in cash semiannually. The proceeds of the 12 7/8% Senior
Discount Notes Offering were used to prepay $75 million of the Nortel credit
facility, to pay costs to build out the system, to fund operating working
capital needs and for other general corporate purposes.
12 1/2% SENIOR NOTES
On January 31, 2001, Alamosa (Delaware) consummated the offering (the "12
1/2% Senior Notes Offering") of $250 million aggregate principal amount of
Senior Notes (the "12 1/2% Senior Notes"). The 12 1/2% Senior Notes mature
in ten years (February 1, 2011), carry a coupon rate of 12 1/2%, payable
semiannually on February 1 and August 1, beginning on August 1, 2001. The
net proceeds from the sale of the 12 1/2% Senior Notes were approximately
$241 million, after deducting the discounts and commissions to the initial
purchasers and estimated offering expenses.
Approximately $59 million of the proceeds of the 12 1/2% 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 will be used for general corporate purposes of
Alamosa (Delaware), including, accelerating coverage within the existing
territories of the Company; the build-out of additional areas within its
existing territories; expanding its existing territories; and pursuing
additional telecommunications business opportunities or acquiring other
telecommunications businesses or assets.
SENIOR SECURED CREDIT FACILITY
On February 14, 2001, Alamosa Holdings, Alamosa (Delaware) and Alamosa
Holdings, LLC, as borrower; entered into a $280 million senior secured
credit facility (the "Senior Secured Credit Facility") with Citicorp USA, as
administrative agent and collateral agent; Toronto Dominion (Texas), Inc.,
as syndication agent; EDC as co-documentation agent; First Union National
Bank, as documentation agent; and a syndicate of banking and financial
institutions. On March 30, 2001, this credit facility was amended to
increase the facility to $333 million in relation to the acquisition of
Southwest. At that time, all covenants were amended to reflect this increase
and the inclusion of Southwest.
8
ALAMOSA HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
As of September 30, 2001, Alamosa Holdings, LLC borrowed $137 million under
the new term loan facility while an additional $88 million in term debt will
be available for multiple drawings in amounts to be agreed for a period of
12 months thereafter.
The Senior Secured Credit Facility was amended on July 19, 2001 to extend
the period prior to which Alamosa Holdings, LLC can borrow $50.0 million of
term loans from August 14, 2001 to December 31, 2001.
In conjunction with the closing of the 13 5/8% Senior Notes (as discussed
below) the Senior Secured Credit Facility was amended to reduce the amount
of the facility from $333.0 million to $225.0 million and modify the
financial covenants.
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), will carry a coupon rate of 13 5/8% payable
semiannually on February 15 and August 15, beginning on February 15, 2002.
The net proceeds from the sale of the 13 5/8% Senior Notes were
approximately $141.5 million, after deducting the discounts and commissions
to the initial purchasers and estimated offering expenses.
Approximately $39.1 million of the proceeds of the 13 5/8% Notes Offering
were used by Alamosa (Delaware) to establish a security account (with cash
or U.S. government securities) to secure on a pro rata basis the payment
obligations under the 13 5/8% Senior Notes, the 12 1/2% Senior Notes and the
12 7/8% Senior Discount Notes. Approximately $66 million of the proceeds
were used to pay down a portion of the Senior Secured Credit Facility. The
balance will be used for general corporate purposes.
NORTEL/EDC CREDIT FACILITY
On February 14, 2001, the outstanding balance of $54,524 was paid in full
plus accrued interest in the amount of $884 with proceeds from the Senior
Secured Credit Facility. The Company was refunded $1,377 of the original
issuance cost as a result of the early extinguishment. The balance of
unamortized cost totaling $5,472 was written off and classified as an
extraordinary item.
6. INCOME TAXES
The income tax benefit represents the anticipated recognition of the
Company's deductible net operating loss carry forwards. This benefit is
being recognized based on an assessment of the combined expected future
taxable income of the Company and expected reversals of the temporary
differences from the Roberts, WOW and Southwest mergers.
7. HEDGING ACTIVITIES AND COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivatives and Hedging Activities" on January 1, 2001.
The statement requires the Company to record all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to
fair value through earnings. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of the derivatives are either
recognized in earnings or are recognized in other comprehensive income until
the hedged item is recognized in earnings. During the quarter ended
September 30, 2001, the Company recorded approximately $2,636 in "other
noncurrent liabilities" representing the change in the fair market value of
the interest rate hedge instruments that expire in 2004. In addition, the
Company recognized a loss of $1,228 net of tax effect, in other
comprehensive income, which appears as a separate component of Stockholders'
Equity as "Accumulated other comprehensive loss," as illustrated below:
9
ALAMOSA HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Nine months ended September 30,
--------------------------------
2001 2000
---------- ----------
Net loss $ (99,479) $ (45,958)
Change in fair value of derivatives
(net of tax benefit of $680) (1,228) --
---------- ----------
Comprehensive loss $ (100,707) $ (45,958)
========== ==========
8. SUPPLEMENTAL DISCLOSURE TO STATEMENTS OF CASH FLOW
Accounts payable at September 30, 2001 and 2000 include $29.8 million and
$23.5 million, respectively, of property and equipment additions. Additions
to property and equipment of $101.5 million in the consolidated statements
of cash flows for the nine months ended September 30, 2001 include payments
of accounts payable outstanding at December 31, 2000.
During the quarter ended September 30, 2001, the Company entered into
capital leases totaling $1.8 million.
9. LONG-TERM INCENTIVE PLAN
A vote of shareholders on February 14, 2001 increased the number of shares
of the Company's common stock reserved for issuance under the long-term
incentive plan by 6,000,000 shares, from 7,000,000 shares to 13,000,000
shares.
10. EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets." The provisions of SFAS No.
141 will apply to all business combinations initiated after June 30, 2001,
and will also apply to all business combinations accounted for by the
purchase method that are completed after June 30, 2001. SFAS No. 142 should
be applied in fiscal years beginning after December 15, 2001 to all goodwill
and other intangible assets recognized in an entity's statement of financial
position at that date, regardless of when those assets were initially
recognized. Certain provisions of SFAS No. 142 will be effective for
business combinations completed after June 30, 2001. The Company is in the
process of evaluating the effect of the adoption of these pronouncements.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." The provisions of SFAS No. 143 are effective for
financial statements issued for fiscal years beginning after June 15, 2002.
The Company is in the process of evaluating the effect of the adoption of
this pronouncement.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The provisions of SFAS No. 144
are effective for financial statements issued for fiscal years beginning
after December 15, 2001, and interim periods within those fiscal years. The
Company is in the process of evaluating the effect of the adoption of this
pronouncement.
11. SUBSEQUENT EVENTS
On September 28, 2001, the Securities and Exchange Commission declared
effective our registration statement in connection with the resale of
30,649,990 shares of our common stock by certain stockholders. The Company
did not receive any proceeds from the sale of shares by the selling
stockholders.
On November 7, 2001, certain stockholders of Alamosa Holdings offered to
sell 4,800,000 shares of Alamosa Holding's common stock. The Company did not
receive any proceeds from the sale of shares by the selling stockholders.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended
(the "Securities Act"), and Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), which can be identified by the use of
forward-looking terminology such as, "may," "might," "could," "would,"
"believe," "expect," "intend," "plan," "seek," "anticipate," "estimate,"
"project" or "continue" or the negative thereof or other variations thereon
or comparable terminology. These forward-looking statements are subject to
various risks and uncertainties and are made pursuant to the "safe-harbor"
provisions of the private Securities Litigation Reform Act of 1995. These
statements are made based on management's current expectations or beliefs as
well as assumptions made by, and information currently available to,
management.
A variety of factors could cause actual results to differ materially from
those anticipated in our forward-looking statements, including the following
factors: our dependence on our affiliation with Sprint PCS; shifts in
populations or network focus; changes or advances in technology; changes in
Sprint's national service plans or fee structure with us; change in
population; difficulties in network construction; increased competition in
our markets; failure to consummate anticipated acquisitions or financings;
and adverse changes in financial position, condition or results of
operations. For a detailed discussion of these and other cautionary
statements and factors that could cause actual results to differ from our
forward-looking statements, please refer to our filings with the Securities
and Exchange Commission, "Item 1. Business" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operation" of
our Form 10-K for the year ended December 31, 2000 and the "risk factors"
sections of our subsequent filings with the Securities and Exchange
Commission.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis only as of the date hereof.
We do not undertake any obligation to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the date
hereof. Readers should carefully review the risk factors described in other
documents we file from time to time with the Securities and Exchange
Commission.
OVERVIEW
Since our inception, we have incurred substantial costs to negotiate our
contracts with Sprint PCS and our debt financing, to raise funds in the
public market, to engineer our wireless system, to develop our business
infrastructure and distribution channels and to build-out our portion of the
Sprint PCS network. As of September 30, 2001, our accumulated deficit was
$213.4 million. Through September 30, 2001, we incurred $473.8 million of
capital expenditures and construction in progress including capital
expenditures related to the build-out of our portion of the Sprint PCS
network, including costs connected to the acquisition of Roberts, WOW and
Southwest. While we anticipate operating losses to continue, we expect
revenue to continue to increase substantially as the base of Sprint PCS
subscribers located in our territories increases.
On July 17, 1998, we entered into our affiliation agreements with Sprint
PCS. We subsequently amended our affiliation agreements with Sprint PCS to
expand our territories so that as of September 30, 2001 it included
approximately 10.8 million covered residents, including the acquisitions of
Roberts, WOW and Southwest.
As a Sprint PCS affiliate, we have the exclusive right to provide wireless
mobility communications network services under the Sprint and Sprint PCS
brand names in our territories. We are responsible for building, owning and
managing the portion of the Sprint PCS network located in our territories.
We market wireless products and services in our territories under the Sprint
and Sprint PCS brand names. We offer national plans designed by Sprint PCS
and specialized local plans tailored to our market demographics. Our portion
of the Sprint PCS network is designed to offer a seamless connection with
Sprint PCS's 100% digital wireless network. We market wireless products and
services through a number of distribution outlets located in our
11
territories, including our own Sprint PCS stores, major national
distributors and third party local representatives.
We recognize 100% of revenues from Sprint PCS subscribers based in our
territories, proceeds from the sales of handsets and accessories and fees
from Sprint PCS and other wireless service providers when their customers
roam onto our portion of the Sprint PCS network. Sprint PCS handles our
billing and collections and retains 8% of all collected revenue from Sprint
PCS subscribers based in our territories and fees from wireless service
providers other than Sprint PCS when their subscribers roam onto our portion
of the Sprint PCS network. We report the amount retained by Sprint PCS as an
operating expense.
As part of our affiliation agreements with Sprint PCS, we have the option of
contracting with Sprint PCS to provide back office services such as customer
activation, handset logistics, billing, customer service and network
monitoring services. We have elected to delegate the performance of these
services to Sprint PCS to take advantage of Sprint PCS's economies of scale,
to accelerate our build-out and market launches and to lower our initial
capital requirements. The cost for these services is primarily calculated on
a per subscriber and per transaction basis and is recorded as an operating
expense.
As of the end of the first quarter of 2001, we completed the acquisitions of
three Sprint PCS network partners. On February 14, 2001, we completed our
acquisition of Roberts and WOW. In connection with the Roberts and WOW
acquisitions, we entered into a new Senior Secured Credit Facility for up to
$280 million. On March 30, 2001, we completed our acquisition of Southwest.
Each of these transactions was accounted for under the purchase method of
accounting. In connection with the Southwest acquisition, we increased the
Senior Secured Credit Facility from $280 million to $333 million. On August
15, 2001, Alamosa (Delaware) issued $150 million in 13 5/8% Senior Notes. In
conjunction with this notes issuance, the Senior Secured Credit Facility was
reduced to $225 million.
On February 14, 2001, as part of the reorganization transaction in which we
acquired Roberts and WOW, Alamosa Sub I, Inc., our wholly owned subsidiary,
merged with Alamosa PCS Holdings, with Alamosa PCS Holdings surviving the
merger and Alamosa PCS Holdings became our wholly owned subsidiary. Each
share of Alamosa PCS Holdings common stock issued and outstanding
immediately prior to the merger was converted into the right to receive one
share of our common stock.
We launched Sprint PCS service in our first market, Laredo, Texas, in June
1999, and have since commenced service in 87 additional markets including
acquisitions, through September 30, 2001. At September 30, 2001 our systems,
including acquisitions, covered approximately 10.8 million residents out of
approximately 15.6 million total residents in those markets. The number of
residents covered by our systems does not represent the number of Sprint PCS
subscribers that we expect to be based in our territories. As of September
30, 2001, approximately 404,000 Sprint PCS subscribers were based in our
territories.
SEASONALITY
Our business is subject to seasonality because the wireless industry is
heavily dependent on fourth quarter results. Among other things, the
industry relies on significantly higher customer additions and handset sales
in the fourth quarter as compared to the other three fiscal quarters. A
number of factors contribute to this trend, including:
o the increasing use of retail distribution, which is dependent upon the
year-end holiday shopping season;
o the timing of new product and service announcements and introductions;
o competitive pricing pressures; and
o aggressive marketing and promotions.
12
RESULTS OF OPERATIONS
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE QUARTER
AND NINE MONTHS ENDED SEPTEMBER 30, 2000
NET LOSS. Our net loss for the quarter ended September 30, 2001 was
$37.7 million as compared to a net loss of $17.5 million for the quarter ended
September 30, 2000. Net loss for the nine months ended September 30, 2001 was
$99.5 million compared to a net loss of $46.0 million for the nine months ended
September 30, 2000. These losses were the result of the continued incurrence of
start-up expenses relative to the preparation of markets for commercial launch,
significant subscriber growth and the operation of markets in service.
SERVICE REVENUES. Service revenues are comprised of subscriber revenue,
Sprint PCS roaming revenue, non-Sprint PCS roaming revenue and long distance
revenue, all of which initially began accruing to us at or near our first
initial commercial launch in June 1999. Subscriber revenue consists of payments
received from Sprint PCS subscribers based in our territories for monthly Sprint
PCS service under a variety of service plans. These plans generally reflect the
terms of national plans offered by Sprint PCS. We receive Sprint PCS travel
revenue at a per minute rate from Sprint PCS or another Sprint PCS affiliate
when Sprint PCS subscribers based outside of our territories use our portion of
the Sprint PCS network. This reciprocal rate was 20 cents per minute for travel
from inception through May 31, 2001. Pursuant to our affiliation agreements with
Sprint PCS, Sprint PCS can change this per minute rate. Sprint and the Company
agreed to change the reciprocal travel rate to 15 cents effective June 1, 2001
and to 12 cents effective October 1, 2001. Beginning January 1, 2002 and
continuing throughout the remaining term of the affiliate agreements with Sprint
PCS, the rate will be adjusted to provide a fair and reasonable return on the
cost of the underlying network, which we expect to be approximately 10 cents per
minute. The long distance rate of 6 cents per minute remains unchanged. Service
revenues were $99.2 million for the quarter ended September 30, 2001 compared to
$21 million for the quarter ended September 30, 2000. Service revenues were
$218.6 million for the nine months ended September 30, 2001, and $46.6 million
for the nine months ended September 30, 2000. These increases are due to the
continued growth in our subscribers and the approximately 90,000 subscribers
acquired in the first quarter of 2001, resulting from the closing of the mergers
with WOW, Roberts and Southwest.
Non-Sprint PCS roaming revenue primarily consists of fees collected
from Sprint PCS customers based in our territories when they roam on non-Sprint
PCS networks. These fees are based on rates specified in the customers'
contracts. However, it is possible that in some cases these fees may be less
than the amount we must pay to other wireless service providers that provide
service to Sprint PCS customers based in our territories. Non-Sprint PCS roaming
revenue also includes payments from wireless service providers, other than
Sprint PCS, when those providers' customers roam on our portion of the Sprint
PCS network. For the quarter ended September 30, 2001 our average monthly
revenue per user ("ARPU") including roaming revenue was approximately $92
compared to approximately $88 for the same quarter of 2000. For the nine months
ended September 30, 2001, ARPU for Sprint PCS customers in our territories,
including roaming revenue, was approximately $90 and was approximately $85 for
the nine months ended September 30, 2000. For the quarter ended September 30,
2001, ARPU without roaming was approximately $63 compared to approximately $68
for the quarter ended September 30, 2000. Without roaming, our ARPU was
approximately $62 and $65 for the nine months ended September 30, 2001 and 2000,
respectively.
PRODUCT SALES. 100% of the revenue from the sale of handsets and
accessories through our retail stores and to our local indirect distributors are
recorded, net of an allowance for returns, as product sales. Product sales for
the quarter ended September 30, 2001 totaled $ 8.7 million compared to $2.2
million for the same quarter of 2000. The amount recorded for the nine months
ended September 30, 2001 totaled $18.7 million as compared to $6.0 million for
the nine months ended September 30, 2000. The increase in product sales, for
both the quarter and the nine months can be attributed to the opening of retail
stores and the addition of local indirect distributors in markets launched in
the last half of 2000 and the acquisitions of WOW, Roberts and Southwest in the
first quarter of 2001. Our handset return policy allows customers to return
their handsets for a full refund within 14 days of purchase. When handsets are
returned to us, we may be able to reissue the handsets to customers at little
additional cost to us. However, when handsets are returned to Sprint PCS for
refurbishing, we receive a credit from Sprint PCS, which is less than the amount
we originally paid for the handset.
COST OF SERVICE AND OPERATIONS. These expenses include the cost of
operations for our network (such as fees related to data transfer via T-1 and
other transport lines and inter-connection fees), Sprint PCS and non-Sprint PCS
13
roaming fees, long distance, the affiliation fee paid to Sprint PCS of 8% of
collected service revenues, and customer care, billing and service fees paid to
Sprint PCS. Cost of service and operations totaled $67.7 million and $15.1
million for the quarters ended September 30, 2001 and 2000, respectively. Cost
of service and operations totaled $154.6 million for the nine months ended
September 30, 2001 and $34.1 million for the nine months ended September 30,
2000. The increase is primarily attributable to the increase in subscribers in
2001 as compared to 2000. We pay Sprint PCS travel fees when Sprint PCS
subscribers based in our territories use the Sprint PCS network outside of our
territories. Pursuant to our affiliation agreements with Sprint PCS, Sprint PCS
can change this per minute rate. Sprint and the Company agreed to change the
reciprocal travel rate to 15 cents effective June 1, 2001 and to 12 cents
effective October 1, 2001. Beginning January 1, 2002 and continuing throughout
the remaining term of the affiliate agreements with Sprint PCS, the rate will be
adjusted to provide a fair and reasonable return on the cost of the underlying
network, which we expect to be approximately 10 cents per minute. We pay
non-Sprint PCS roaming fees to other wireless service providers when Sprint PCS
customers based in our territories use their network.
COST OF PRODUCTS SOLD. The cost of products sold through our retail
stores and to our local indirect retailers totaled $16.6 million for the quarter
ended September 30, 2001 as compared to $4.6 million for the quarter ended
September 30, 2000. Cost of products sold was $35.2 million and $11.6 million
for the nine months ended September 30, 2001 and 2000, respectively. The
increase was due to growth in our subscribers activated through our retail and
local indirect channels between September 30, 2000 and September 30, 2001. These
amounts include the cost of accessories and the cost of handsets sold through
our retail stores including sales to local indirects. We expect the cost of
handsets to exceed the retail sales price because we subsidize the price of
handsets for competitive reasons. The handset subsidy included in cost of
products sold through our retail stores totaled $8.1 million for the quarter
ended September 30, 2001 and $2.4 million for the quarter ended September 30,
2000. For the nine months ended September 30, 2001, handset subsidy through our
retail stores was $17.3 million compared to $5.7 million for the same period of
2000.
SELLING AND MARKETING. Selling and marketing expenses totaled $31.4
million for the quarter ended September 30, 2001 and $11.6 million for the
quarter ended September 30, 2000. Selling and marketing expenses were $73.9
million and $25.8 million for the nine months ended September 30, 2001 and 2000,
respectively. Selling and marketing expenses include advertising expenses,
promotion costs, sales commissions and expenses related to our distribution
channels and handset subsidy paid to Sprint PCS for customers based in our
territories that purchase handsets through Sprint PCS or its national retailers.
The amount of handset subsidy from channels other than our retails stores, such
as E-commerce, telemarketing, and Sprint PCS national retailers, and sales to
local indirects included in selling and marketing totaled $5.3 million and $1.1
million for the quarters ended September 30, 2001 and 2000, respectively. For
the nine months ended September 30, 2001 the amount of handset subsidy from
channels other than our retail stores and sales to local indirects included in
selling and marketing totaled $9.7 million as compared to $3.4 million for the
nine months ended September 30, 2000.
GENERAL AND ADMINISTRATIVE EXPENSES. For the quarters ended September
30, 2001 and 2000, general and administrative expenses totaled $3.5 million and
$3.5 million, respectively. For the nine months ended September 30, 2001, these
expenses totaled $10.8 million compared to $11.8 million for the nine months
ended September 30, 2000. General and administrative expenses include corporate
costs and expenses such as administration, human resources and accounting and
finance. Also included in general and administrative expenses is non-cash
compensation expense related to the Company's stock option plans of $0.4 million
for the quarter ended September 30, 2000. No non-cash compensation expense was
recorded for the quarter ended September 30, 2001. For the nine months ended
September 30, 2001, $0.2 million of non-cash compensation expense was recorded
as compared to $4.6 million for the nine months ended September 30, 2000.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
quarter ended September 30, 2001 totaled $27.3 million as compared to $3.0
million for the quarter ended September 30, 2000. For the nine months ended
September 30, 2001 and September 30, 2000, depreciation and amortization totaled
$64.5 million and $7.8 million, respectively. Included in depreciation and
amortization for the quarter ended September 30, 2001 and the nine months
September 30, 2001, was $14.5 million and $33.7 million, respectively, of
amortization of goodwill and identified intangibles that resulted from the
mergers with Roberts, WOW and Southwest. Depreciation is calculated using the
straight-line method over the useful life of the asset. We begin to depreciate
the assets for each market only after we launch that market. The increase in
depreciation expense is due to the significant increase in network
infrastructure we built and launched since September 2000.
14
INTEREST AND OTHER INCOME. Interest and other income totaled $2.5
million for the quarter ended September 30, 2001 and $4.1 million for the
quarter ended September 30, 2000. Interest and other income totaled $10.7
million and $10.8 million for the nine months ended September 30, 2001 and 2000,
respectively. This income generally has been generated from the investment of
equity and loan proceeds held in liquid accounts waiting to be deployed.
INTEREST EXPENSE. Interest expense totaled $23.6 million for the
quarter ended September 30, 2001 and $7.0 million for the quarter ended
September 30, 2000. For the nine months ended September 30, 2001, interest
expense was $58.3 million compared to $18.3 million for the nine months ended
September 30, 2000. During the first quarter of 2001, we issued new senior notes
and a new credit facility for a combined total of approximately $453 million.
The increase from 2000 to 2001 is due to higher average outstanding debt
balances due to business acquisitions and network construction.
INCOME TAX BENEFIT. For the quarter and nine months ended September 30,
2001, income tax benefit totaled $22.0 million and $55.3 million, respectively.
The income tax benefit represents the anticipated recognition of the Company's
deductible net operating loss carry forward. This benefit is being recognized
based on an assessment of the combined expected future taxable income of the
Company and expected reversals of the temporary differences from the Roberts,
WOW and Southwest mergers.
LOSS ON DEBT EXTINGUISHMENT. For the nine months ended September 30,
2001, a loss on extinguishment of debt of $5.5 million, net of tax benefit of
$2.0 million was recorded to write off debt issuance costs associated with the
Nortel/EDC Credit Facility. This credit facility was replaced with the Senior
Secured Credit Facility, which was entered into on February 14, 2001. No such
loss was incurred for the period ended September 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations through capital
contributions from our owners, through debt financing and through proceeds
generated from our initial public offering. We entered into a credit agreement
with Nortel effective June 10, 1999, which was amended and restated on February
8, 2000. On June 23, 2000, Nortel assigned the entirety of its loans and
commitments to EDC, and Alamosa (Delaware) and EDC entered into the credit
facility with EDC (the "EDC Credit Facility").
The EDC Credit Facility was reduced by $75.0 million from the issuance
of the 12 7/8% Senior Discount Notes. Following the completion of that offering,
the EDC Credit Facility provided for advancing term loan facilities in the
aggregate principal amount of $175.0 million. The terms and conditions of the
EDC Credit Facility were substantially the same as the terms and conditions of
the Nortel credit agreement before the assignment and the amendments. On
February 14, 2001, we repaid the total amount outstanding on the facility in the
amount of $54.5 million plus accrued interest of $884 with the proceeds from our
Senior Secured Credit Facility.
On February 8, 2000, Alamosa (Delaware), our wholly owned subsidiary,
issued $350 million face amount of Senior Discount Notes (the "12 7/8% Senior
Discount Notes"). The 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.
On January 31, 2001, Alamosa (Delaware) issued $250 million face amount
of Senior Notes (the "12 1/2% Senior Notes"). The 12 1/2% Senior Notes mature in
ten years (February 1, 2011), carry a coupon rate of 12 1/2%, payable
semiannually on February 1 and August 1, beginning on August 1, 2001.
On February 14, 2001, Alamosa Holdings, Alamosa (Delaware) and Alamosa
Holdings, LLC, as borrower; entered into a $280.0 million Senior Secured Credit
Facility (the "Senior Secured Credit Facility") with Citicorp USA, as
administrative agent and collateral agent Toronto Dominion (Texas), Inc., as
syndication agent; EDC as co-documentation agent; First Union National Bank, as
documentation agent; and a syndicate of banking and financial institutions. On
March 30, 2001, this credit facility was amended to increase the facility to
$333.0 million in relation to the acquisition of Southwest. At that time, all
covenants were amended to reflect this increase and the inclusion of Southwest.
The Senior Secured Credit Facility was amended on July 19, 2001 to extend the
period prior to which Alamosa Holdings, LLC must borrow $50.0 million of term
loans from August 14, 2001 to December 31, 2001.
15
On August 15, 2001, our wholly owned subsidiary, Alamosa (Delaware)
issued $150 million of face amount of senior notes (the "13 5/8% Senior Notes").
The 13 5/8% Senior Notes mature in ten years (August 15, 2011) and carry a
coupon rate of 13 5/8% payable semiannually on February 15 and August 15,
beginning on February 15, 2002. The net proceeds from the sale of the 13 5/8%
Senior Notes were approximately $141.5 million, after deducting the discounts
and commissions to the initial purchasers and offering expenses.
Approximately $39 million of the proceeds of the offering of the 13
5/8% Senior Notes 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 13 5/8% Senior Notes, the 12 1/2% Senior Notes and
the 12 7/8% Senior Discount Notes. Approximately $66 million of the proceeds
were used to pay down a portion of the Senior Secured Credit Facility. The
balance will be used for general corporate purposes.
The Senior Secured Credit Facility was amended simultaneously with the
closing of the offering of the 13 5/8% Senior Notes to, among other things,
reduce the amount of the Senior Secured Credit Facility from $333.0 million to
$225.0 million and modify the financial covenants. As of September 30, 2001, our
total outstanding debt, excluding unused commitments made by lenders, was
approximately $769.3 million.
Net cash used in operating activities was $98.4 million for the nine
months ended September 30, 2001. Net cash used in operating activities was $14.7
million for the nine months ended September 30, 2000. Cash used in operating
activities was attributable to operating losses and working capital needs.
Net cash used in investing activities was $125.6 million for the nine
months ended September 30, 2001, and $122.3 million for the nine months ended
September 30, 2000. In 2001, we invested $101.5 million in our network
infrastructure and $37.6 million in the acquisitions of Roberts, WOW and
Southwest. The expenditures in 2000 were related primarily to the purchase of
network infrastructure needed to construct our portion of the Sprint PCS
network.
Net cash provided by financing activities was $185.3 million for the
nine months ended September 30, 2001 and consisted primarily of the net proceeds
from our issuance of the 12 1/2% Senior Notes, borrowings under the Senior
Secured Credit Facility, less repayment of long-term debt of $223.6 million,
$169.1 million of which was assumed through acquisitions. Additionally, we had
net proceeds of $141.5 million from our issuance of the 13 5/8% Senior Notes,
less repayment of long term debt of $66.0 million. As of September 30, 2001, we
have set aside restricted cash of $84.5 million to secure on a pro rata basis
the payment obligations under the 12 7/8% Senior Discount Notes, the 12 1/2%
Senior Notes and the 13 5/8% Senior Notes and $11.8 million as interest
collateral for the Senior Secured Credit Facility. Net cash provided by
financing activities was $303.9 million for the nine months ended September 30,
2000 consisting primarily of net proceeds from our initial public offering of
approximately $194.3 million and net proceeds from our issuance of 12 7/8%
Senior Discount Notes of approximately $187.1 million less repayments of
long-term debt of $76.2 million.
As of September 30, 2001, our primary sources of liquidity were
approximately $103.0 million in cash and cash equivalents and $87.8 million of
unused capacity under the Senior Secured Credit Facility.
We estimate that we will require approximately $46.8 million to
complete the current build-out plan and fund working capital losses through the
remainder of the year 2001. The actual funds required to build-out our portion
of the Sprint PCS network and to fund operating losses and working capital needs
may vary materially from this estimate and additional funds could be required.
We include capital leases related to network equipment and build-out in
construction in progress until service has commenced in their respective
markets. Once that service has commenced, those capital leases are reclassified
to property and equipment. At September 30, 2001, capital leases totaled $2.7
million and included long-term capital lease obligations of $2.2 million. At
December 31, 2000 the capital leases totaled $1.1 million.
For a complete description of our indebtedness, please refer to Note 5
included in Item 1. FINANCIAL STATEMENTS.
16
INFLATION
Management believes that inflation has not had, and is not likely to
have, a material adverse effect on our results of operations.
EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." The provisions of SFAS No. 141 will apply to all business
combinations initiated after June 30, 2001, and will also apply to all business
combinations accounted for by the purchase method that are completed after June
30, 2001. SFAS No. 142 should be applied in fiscal years beginning after
December 15, 2001 to all goodwill and other intangible assets recognized in an
entity's statement of financial position at that date, regardless of when those
assets were initially recognized. Certain provisions of SFAS No. 142 will be
effective for business combinations completed after June 30, 2001. The Company
is in the process of evaluating the effect of the adoption of these
pronouncements.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." The provisions of SFAS No. 143 are effective for
financial statements issued for fiscal years beginning after June 15, 2002. The
Company is in the process of evaluating the effect of the adoption of this
pronouncement.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The provisions of SFAS No. 144 are
effective for financial statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years. The Company is
in the process of evaluating the effect of the adoption of this pronouncement.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not engage in commodity futures trading activities and do not
enter into derivative financial instrument transactions for trading or other
speculative purposes. We also do not engage in transactions in foreign
currencies that could expose us to market risk.
We are subject to some interest rate risk on our financing from the
Senior Secured Credit Facility and any future floating rate financing.
The following table presents the estimated future outstanding long-term
debt at the end of each year and future required annual principal payments for
each year then ended associated with the 12 7/8% Senior Discount Notes, the 12
1/2% Senior Notes, the 13 5/8% Senior Notes, capital leases and the Senior
Secured Credit Facility financing based on our projected level of long-term
indebtedness:
17
YEAR ENDING DECEMBER 31,
--------------------------------------------------------------------
2001 2002 2003 2004 2005 THEREAFTER
---- ---- ---- ---- ---- ----------
Fixed rate instruments:
12 7/8 senior discount notes............ $ 237 $ 269 $ 305 $ 345 $ 350 $ 350
Fixed interest rate.................. 12.875% 12.875% 12.875% 12.875% 12.875% 12.875%
Principal payments................... -- -- -- -- -- $ 350
12 1/2% senior notes..................... $ 250 $ 250 $ 250 $ 250 $ 250 $ 250
Fixed interest rate.................. 12.5% 12.5% 12.5% 12.5% 12.5% 12.5%
Principal payment.................... -- -- -- -- -- $ 250
13 5/8% senior notes.................... $ 150 $ 150 $ 150 $ 150 $ 150 $ 150
Fixed interest rate.................. 13.625% 13.625% 13.625% 13.625% 13.625% 13.625%
Principal payment.................... -- -- -- -- -- $ 150
Capital leases--annual minimum:
Lease payments (1)................... $ 0.336 $ 0.922 $ 0.479 $ 0.247 $ 0.70 $ 0.820
Average interest rate ............... 11.35% 11.35% 11.35% 11.35% 11.35% 11.35%
Variable rate instruments:
Senior secured credit facility (2)... $ 187 $ 225 $ 225 $ 200 $ 149 $ --
Average interest rate (3)............ 9.00% 9.00% 9.00% 9.00% 9.00% 9.00%
Principal payments................. -- -- -- $ 25 $ 51 $ 149
(1) These amounts represent the estimated minimum annual payments due under our
estimated capital lease obligations for the periods presented.
(2) The amounts represent estimated year-end balances under the Senior Secured
Credit Facility based on a projection of the funds borrowed under that
facility pursuant to our current plan of network build-out.
(3) Interest rate under the Senior Secured Credit Facility equals, at our
option, either the London Interbank Offered Rate ("LIBOR") + 4.0%, or the
prime or base rate of Citibank, N.A. plus 3.0%. LIBOR is assumed to equal
5.0% for all periods presented.
Our primary market risk exposure relates to:
o the interest rate risk on long-term and short-term borrowings;
o our ability to refinance the 12 7/8% Senior Discount Notes at
maturity at market rates; and
o the impact of interest rate movements on our ability to meet
interest expense requirements and meet financial covenants.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We and our subsidiaries are not parties to any pending legal
proceedings that we believe would, if adversely determined, individually or in
the aggregate have a material adverse effect on our, or our subsidiaries',
financial condition or results of operations.
On October 29, 2001, we learned through press reports that a law firm
had announced that it had initiated securities actions against one of more of
several companies, including us, requesting class action status and alleging
violations of federal securities laws and/or that possible claims exist against
one or more of such companies for conduct occuring during specified periods. We
have not been served with, nor have we otherwise been able to obtain, a copy of
any complaint against us relating to these matters. We believe our prior actions
have been in accordance with applicable securities laws, and we expect to defend
any claims that ultimately may be brought against us vigorously.
18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are included herein:
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
4.13 Indenture for 13 5/8% Senior Notes due 2011, dated August
15, 2001, among Alamosa (Delaware), the Subsidiary
Guarantors party thereto, and Wells Fargo Bank Minnesota,
N.A., as trustee, filed as Exhibit 4.12 to the Registration
Statement on Form S-4, dated August 28, 2001 (Registration
No. 333-68538) of Alamosa (Delaware), Inc., which exhibit is
incorporated herein by reference.
4.14 Form of Global Note relating to the 13 5/8% Senior Notes due
2011, filed as Exhibit 4.13 to the Registration Statement on
Form S-4, dated August 28, 2001 (Registration No. 333-68538)
of Alamosa (Delaware), Inc., which exhibit is incorporated
herein by reference.
4.15 Registration Rights Agreement, dated August 7, 2001, by and
among Alamosa (Delaware), Salomon Smith Barney Inc., TD
Securities (USA) Inc., First Union Securities, Inc., and
Scotia Capital (USA) Inc., relating to the 13 5/8% Senior
Notes due 2011, filed as Exhibit 4.14 to the Registration
Statement on Form S-4, dated August 28, 2001 (Registration
No. 333-68538) of Alamosa (Delaware), Inc., which exhibit is
incorporated herein by reference.
10.56 Third Amendment and Waiver, dated as of July 19, 2001, to
the Amended and Restated Credit Agreement, among Alamosa
Holdings, Inc., Alamosa (Delaware), Inc., Alamosa Holdings,
LLC, Export Development Corporation, as co-documentation
agent, First Union National Bank, as documentation agent,
Toronto Dominion (Texas), Inc. as syndication agent and
Citicorp USA, Inc., as administrative and collateral agent
as an amendment to Exhibit 10.23 above, filed as Exhibit
10.56 to the Registration Statement on Form S-1, dated July
31, 2001 (Registration No. 333-66358) of Alamosa Holdings,
Inc. and incorporated herein by reference.
19
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
10.57 Fourth Amendment and Waiver, dated as of August 6, 2001, to
the Amended and Restated Credit Agreement, among Alamosa
Holdings, Inc., Alamosa (Delaware), Inc., Alamosa Holdings,
LLC, the Lenders party thereto (the "Lenders"), Export
co-documentation agent, First Union National Bank, as
documentation agent, Toronto Dominion (Texas), Inc., as
syndication agent, and Citicorp USA, Inc., as administrative
Agent and collateral Agent, as an amendment to Exhibit 10.23
above, filed as Exhibit 10.55 to the Registration Statement
on Form S-4, dated August 28, 2001 (Registration No.
333-68538) of Alamosa (Delaware), Inc., which exhibit is
incorporated herein by reference.
10.58 Fifth Amendment and Consent, dated as of August 7, 2001, to
the Amended and Restated Credit Agreement, among Alamosa
Holdings, Inc., Alamosa(Delaware), Inc., Alamosa Holdings,
LLC, the Lenders party thereto (the "Lenders"), Export
Development Corporation, as co-documentation agent, First
Union National Bank, as documentation agent, Toronto
Dominion (Texas), Inc., as syndication agent, and Citicorp
USA, Inc., as administrative Agent and collateral Agent, as
an amendment to Exhibit 10.23 above, filed as Exhibit 10.56
to the Registration Statement on Form S-4, dated August 28,
2001 (Registration No. 333-68538) of Alamosa (Delaware),
Inc., which exhibit is incorporated herein by reference.
10.59 Security agreement, dated as of August 15, 2001, among
Alamosa (Delaware), Inc., a Delaware corporation, Wells
Fargo Bank Minnesota, N.A., as security agent, Wells Fargo
Bank Minnesota, N.A., as collateral agent for Wells Fargo
Bank Minnesota, N.A., as trustee under the August 2001
Indenture (as to paragraph 6(b)), for Wells Fargo Bank
Minnesota, N.A., as trustee under the January 2001 Indenture
(as to paragraph 6(b)), and for Wells Fargo Bank Minnesota,
N.A., as trustee under the 2000 Indenture (as to paragraph
6(b)), filed as Exhibit 10.57 to the Registration Statement
on Form S-4, dated August 28, 2001 (Registration No.
333-68538) of Alamosa (Delaware), Inc., which exhibit is
incorporated herein by reference.
(b) There were no reports on Form 8-K filed during the quarter ended
September 30, 2001.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALAMOSA HOLDINGS, INC.
Registrant
/s/ David E. Sharbutt
------------------------------------
David E. Sharbutt
Chairman of the Board of Directors and
Chief Executive Officer
(Principal Executive Officer)
/s/ Kendall W. Cowan
------------------------------------
Kendall W. Cowan
Chief Financial Officer
(Principal Financial and Accounting Officer)
20