UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 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 August 9, 2001, approximately 92,012,291 shares of common stock, $0.01 par
value per share, were issued and outstanding.
ALAMOSA HOLDINGS, INC.
TABLE OF CONTENTS
PAGE
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2001 (unaudited) and December 31, 2000.................................3
Consolidated Statements of Operations for the three and six months ended June 30, 2001 and 2000, (unaudited)...4
Consolidated Statements of Cash Flows for the six months ended June 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..........................12
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....................................................18
PART II OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................................18
Item 2. Changes in Securities and Use of Proceeds......................................................................18
Item 3. Defaults Upon Senior Securities................................................................................18
Item 4. Submission of Matters to a Vote of Security Holders............................................................18
Item 5. Other Information..............................................................................................18
Item 6. Exhibits and Reports on Form 8-K...............................................................................19
ALAMOSA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share information)
June 30, 2001 December 31, 2000
---------------- ---------------------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 122,092 $ 141,768
Short-term investments -- 1,600
Accounts receivable, net of allowance for doubtful accounts of
$3,801 and $1,503, respectively 39,906 14,747
Inventory 4,425 2,753
Prepaid expenses and other assets 4,539 3,027
Deferred tax asset 1,762 --
Interest receivable 1,169 1,046
--------------- -------------
Total current assets 173,893 164,941
Property and equipment, net 410,432 228,983
Notes receivable -- 46,865
Debt issuance costs, net 27,378 13,108
Restricted cash 70,727 --
Goodwill and intangible assets, net 856,141 --
Other noncurrent assets 4,117 4,501
--------------- -------------
Total assets $ 1,542,688 $ 458,398
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 78,450 $ 61,167
Accrued interest payable 15,001 219
Current installments of capital leases 138 36
--------------- -------------
Total current liabilities 93,589 61,422
12 7/8% senior discount notes 222,807 209,280
12 1/2% senior notes 250,000 --
Senior secured credit facility 203,000 --
EDC credit facility -- 54,524
Deferred tax liability 153,294 --
Capital lease obligations, noncurrent 1,506 1,039
Other noncurrent liabilities 3,040 735
--------------- -------------
Total liabilities 927,236 327,000
--------------- -------------
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,
92,010,296 and 61,359,856 issued and outstanding, respectively 920 614
Additional paid-in capital 791,012 245,845
Accumulated deficit (175,716) (113,948)
Accumulated other comprehensive income, net of tax 166 --
Unearned compensation (930) (1,113)
--------------- -------------
Total stockholders' equity 615,452 131,398
--------------- -------------
Total liabilities and stockholders' equity $ 1,542,688 $ 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 six months ended
June 30, June 30,
--------------------------- --------------------------
2001 2000 2001 2000
-------------- ------------ ------------ -----------
Revenues:
Subscriber revenues $53,305 $ 11,734 $ 83,813 $ 19,514
Roaming and travel revenues 24,198 3,630 35,609 6,147
------- ---------- ----------- -----------
Total service revenues 77,503 15,364 119,422 25,661
Product sales 6,032 2,189 9,947 3,772
------- ---------- ----------- -----------
Total revenue 83,535 17,553 129,369 29,433
------- ---------- ----------- -----------
Costs and expenses:
Cost of service and operations
(including non-cash compensation of $0
and $159 for the three months ended
June 30, 2001 and 2000, respectively,
and $0 and $615 for the six months
ended June 30, 2001 and
2000, respectively) 53,933 11,208 86,202 19,066
Cost of product sold 10,526 3,705 18,559 7,032
Selling and marketing 24,794 8,058 43,276 14,709
General and administrative expenses
(including non-cash compensation of $0 and
$762 for the three months ended
June 30, 2001 and 2000, respectively,
and $183 and $4,279 for the six
months ended June 30, 2001
and 2000, respectively) 3,351 2,835 7,257 7,736
Depreciation and amortization 25,235 2,491 37,171 4,748
------- ---------- ----------- -----------
Total costs and expenses 117,839 28,297 192,465 53,291
------- ---------- ----------- -----------
Loss from operations (34,304) (10,744) (63,096) (23,858)
Interest and other income 2,467 4,408 8,188 6,722
Interest expense (19,947) (6,572) (34,663) (11,352)
------- ---------- ----------- -----------
Net loss before income tax benefit and
extraordinary item (51,784) (12,908) (89,571) (28,488)
Income tax benefit 17,448 -- 31,306 --
------- ---------- ----------- -----------
Net loss before extraordinary item (34,336) (12,908) (58,265) (28,488)
Loss on debt extinguishment, net of tax
benefit of $1,969 -- -- (3,503) --
------- ---------- ----------- -----------
Net loss $(34,336) $ (12,908) $ (61,768) $ (28,488)
======== ========== =========== ===========
Basic and diluted net loss per common share
before extraordinary item $ (0.37) $ (0.21) $ (0.71) $ (0.48)
======== ========== ============ ============
Basic and diluted net loss per common share
on debt extinguishment $ -- $ -- $ (0.04) $ --
======== ========== ============ ===========
Basic and diluted net loss per common share $ (0.37) $ (0.21) $ (0.75) $ (0.48)
======== ========== ============ ============
Basic and diluted weighted average
common shares 92,009,977 61,354,606 81,860,743 59,026,759
========== ========== =========== ===========
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)
Six months ended June 30,
-------------------------------------
2001 2000
------------------ ---------------
Cash flows from operating activities:
Net loss $ (61,768) $ (28,488)
Adjustments to reconcile net loss to net cash used in
operating activities:
Income tax benefit (33,275) --
Non-cash compensation expense 183 4,894
Depreciation and amortization 17,971 4,748
Amortization of goodwill 19,200 --
Bad debt expense 713 514
Amortization of debt issuance costs 1,163 653
Deferred interest expense 13,527 10,346
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 (15,995) (158)
Inventory 1,652 3,626
Prepaid expenses and other assets (131) (116)
Increase (decrease) in liability accounts, net of effects from acquisitions:
Accounts payable and accrued expenses (9,165) 891
-------------- --------------
Net cash used in operating activities (60,414) (2,770)
--------------- ---------------
Cash flows from investing activities:
Additions to property and equipment (72,852) (44,049)
Repayment of notes receivable 11,860 100
Cash paid for business acquisitions (37,617) --
Sale (purchase) of short term investments 1,600 (21,841)
-------------- --------------
Net cash used in investing activities (97,009) (65,790)
-------------- --------------
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 --
Repayment of debt assumed through acquisitions (169,060) --
Debt issuance costs (13,404) (10,763)
Stock options exercised 4 619
Proceeds from issuance of long-term debt -- 7,758
Repayments of long-term debt (54,524) (76,239)
Change in restricted cash (70,727) 518
Payments on capital leases (42) (10)
Interest rate cap premiums -- (27)
-------------- ---------------
Net cash provided by financing activities 137,747 303,942
-------------- --------------
Net increase (decrease) in cash and cash equivalents (19,676) 235,382
Cash and cash equivalents at beginning of period 141,768 5,656
-------------- --------------
Cash and cash equivalents at end of period $ 122,092 $ 241,038
============== ==============
The accompanying notes are an integral part of the
consolidated financial statements.
5
ALAMOSA HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION OF UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited consolidated balance sheet as of June 30, 2001, the
unaudited consolidated statements of operations for the three and six
months ended June 30, 2001 and 2000, the unaudited consolidated
statements of cash flows for the six months ended June 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 six
months ended June 30, 2001 are not necessarily indicative of results
that may be expected for the year ending December 31, 2001.
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., 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. ("Alamosa
(Delaware)") completed its initial public offering. Immediately prior
to the initial public offering, shares of Alamosa (Delaware) were
exchanged for Alamosa PCS LLC's ("Alamosa") membership interests, and
Alamosa became wholly owned by Alamosa (Delaware). These financial
statements are presented as if the reorganization had occurred as of
the beginning of the periods presented. Alamosa 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. The Company acquired
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. NOTES RECEIVABLE
ROBERTS - On July 31, 2000, Alamosa Holdings' subsidiary, Alamosa
Operations, Inc. ("Operations") entered into a loan agreement with
Roberts whereby Operations agreed to lend up to $26.6 million to be
used only for the purpose of funding Roberts' working capital needs
from July 31, 2000 through the completion of the Roberts merger, as
described in Note 4. Also on July 31, 2000, Operations entered into a
loan agreement with the owners of Roberts for $15 million, which was
fully repaid at February 14, 2001, when the merger closed.
STATEMENTS - CONTINUED
WOW - Also, on July 31, 2000, WOW and Operations entered into a loan
agreement whereby Operations agreed to lend up to $11 million to WOW to
be used only for the purposes of (a) satisfying certain capital
6
ALAMOSA HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
contribution requirements under WOW's operating agreement, and (b)
funding WOW's working capital needs from July 31, 2000 through the
completion of the WOW merger.
4. 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.
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 preliminary independent valuations of Roberts
and WOW to allocate the purchase price and is in the process of
obtaining an independent valuation of Southwest. The results of the
preliminary valuations are as follows (in thousands):
Current assets $ 15,357
Property, plant and equipment 129,154
Goodwill 127,440
Sprint affiliation and other agreements 525,488
Subscriber base acquired 37,700
-----------------
Net book value of assets acquired, including intangibles $ 835,139
=================
As a result of the acquisitions, the Company recorded goodwill and
intangibles of $875.3 million. This amount includes a deferred tax
liability of $184.7 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 $37.7
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 income for
the three and six months ended June 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.
7
ALAMOSA HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
For the six months ended
June 30,
----------------------------
2001 2000
----------- ------------
(in thousands)
Total revenues $ 148,292 $ 43,767
=========== ===========
Net loss before income tax benefit
and extraordinary item $ (113,306) $ (80,830)
Income tax benefit 39,123 20,643
----------- -----------
Net loss before extraordinary item (74,183) (60,187)
Loss on debt extinguishment, net of tax
benefit of $1,969 (3,503) --
------------ -----------
Net loss $ (77,686) $ (60,187)
============ ===========
Basic and diluted net loss per share
before extraordinary item $ (0.81) $ (0.67)
=========== ===========
Basic and diluted net loss per share $ (0.84) $ (0.67)
=========== ===========
5. ACCUMULATED DEPRECIATION AND AMORTIZATION
Property and equipment are stated net of accumulated depreciation of
$33.4 million and $15.6 million at June 30, 2001 and December 31, 2000,
respectively. Additionally, goodwill and other intangibles are stated
net of accumulated amortization of $19.2 million and $0 at June 30,
2001 and December 31, 2000, respectively.
6. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
June 30, 2001 December 31, 2000
------------- -----------------
12 7/8% senior discount notes $ 222,807 $ 209,280
12 1/2% senior notes 250,000 --
Senior secured credit facility 203,000 --
EDC credit facility -- 54,524
---------- ----------
Total debt 675,807 263,804
Less current maturities -- --
---------- ----------
Long-term debt, excluding current maturities $ 675,807 $ 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 approximate $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 commission to the initial purchasers and estimated offering
expenses.
8
ALAMOSA HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 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.
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.
As of June 30, 2001, Alamosa Holdings, LLC borrowed $203 million under
the new term loan facility while an additional $130 million in term
debt will be available for multiple drawings in amounts to be agreed
for a period of 12 months thereafter.
DEBT COVENANT WAIVER
As of March 31, 2001, we did not meet the maximum negative EBITDA
covenant under the Senior Secured Credit Facility. During the quarter
ended March 31, 2001, we reported an EBITDA loss of $16.7 million which
exceeded the maximum negative EBITDA covenant by $7.0 million.
On May 8, 2001, we obtained a waiver of any default or event of default
arising from the failure to comply with the maximum negative EBITDA
covenant for the quarter ended March 31, 2001 from the lending
institutions under the Senior Secured Credit Facility.
The Company met its negative EBITDA covenant for the quarter ended June
30, 2001 and we believe that the EBITDA covenants will be met for the
next twelve months. Our EBITDA is directly impacted by the up front
selling and marketing expenses we incur in order to grow our subscriber
base. As such, greater than expected subscriber growth may impact our
EBITDA negatively.
See Note 12, Subsequent Events, for additional information on the
restructuring of the Senior Secured Credit Facility and the resetting
of the related financial covenants.
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. As a result, $5,472 of unamortized
issuance costs were written off and classified as an extraordinary
item. The Company was refunded $1,377 of these costs as a result of the
early extinguishment.
7. 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.
9
ALAMOSA HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
8. 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 June 30, 2001, the
Company recorded approximately $388 in "other noncurrent assets" and
$128 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 $166 net of tax effect, in
other comprehensive income, which appears as a separate component of
Stockholder's Equity as "Accumulated other comprehensive income", as
illustrated below:
Six months ended June 30,
--------------------------------
2000 2001
---------- -----------
Net loss $ (61,768) $ (28,488)
Change in fair value of derivatives
(net of tax effect of $93) 166 --
--------- ----------
Comprehensive loss $ (61,602) $ (28,488)
========== ==========
9. SUPPLEMENTAL DISCLOSURE TO STATEMENTS OF CASH FLOW
Accounts payable at June 30, 2001 and 2000 include $26,269 and $27,356,
respectively, of property and equipment additions. Additions to
property and equipment of $72,852 in the consolidated statements of
cash flows for the six months ended June 30, 2001 include payments of
accounts payable outstanding at December 31, 2000.
10. 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.
11. 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.
12. SUBSEQUENT EVENTS
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.
On August 7, 2001, the Company announced that Alamosa (Delaware) will
issue $150 million face amount of senior notes (the "13 5/8% Senior
Notes"). The 13 5/8% Senior Notes will 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 will be
approximately $140.5 million, after deducting the discounts and
commissions to the initial purchasers and estimated offering expenses.
Approximately $39 million of the proceeds of the 13 5/8% Notes Offering
will be 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. The balance will be
used to pay down a portion of the Senior Secured Credit Facility and
for general corporate purposes.
10
ALAMOSA HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Senior Secured Credit Facility will be 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.
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 June 30, 2001, our accumulated
deficit was $175.7 million. Through June 30, 2001, we incurred $443.8
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 June 30, 2001 it
included approximately 10.0 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
12
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. In connection with the
Southwest acquisition, we 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.
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 62 additional markets
including acquisitions, through June 30, 2001. At June 30, 2001 our
systems, including acquisitions, covered approximately 10.0 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 June 30, 2001, approximately 316,000
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.
13
RESULTS OF OPERATIONS
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO THE QUARTER AND
SIX MONTHS ENDED JUNE 30, 2000
NET LOSS. Our net loss for the quarter ended June 30, 2001 was $34.3
million as compared to a net loss of $12.9 million for the quarter ended June
30, 2000. Net loss for the six months ended June 30, 2001 was $61.8 million
compared to a net loss of $28.5 million for the six months ended June 30, 2000.
These losses were the result of the continued incurrence of start-up expenses
relative to the preparation of markets for commercial launch 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 roaming
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
recently agreed to change the reciprocal roaming rate to 15 cents effective June
1, 2001, 12 cents effective October 1, 2001, and 10 cents effective January 1,
2002 and thereafter. The long distance rate of 6 cents per minute remains
unchanged. Service revenues were $77.5 million for the quarter ended June 30,
2001 compared to $15.4 million for the quarter ended June 30, 2000. Service
revenues were $119.4 million for the six months ended June 30, 2001, and $25.7
million for the six months ended June 30, 2000. These increases are due to the
growth in our subscribers and the approximately 90,000 subscribers acquired in
the first quarter of 2001, resulting from the closing of the merger 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 June 30, 2001 our average monthly revenue per
user ("ARPU") including roaming and long distance revenue was approximately $91
compared to approximately $85 for the same quarter of 2000. For the six months
ended June 30, 2001, ARPU for Sprint PCS customers in our territories, including
long distance and roaming revenue, was approximately $88 and was approximately
$85 for the six months ended June 30, 2000. For the quarter ended June 30, 2001,
ARPU without roaming was approximately $62 compared to $65 for the quarter ended
June 30, 2000. Without roaming, our ARPU was approximately $61 and $64 for the
six months ended June 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 June 30, 2001 totaled $6.0 million compared to $2.2 million
for the same quarter of 2000. The amount recorded for the six months ended June
30, 2001 totaled $9.9 million as compared to $3.8 million for the six months
ended June 30, 2000. The increase in product sales, for both the quarter and the
year 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
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 $53.9 million and $11.2
million for the quarters ended June 30, 2001 and 2000, respectively. Cost of
service and operations totaled $86.2 million for the six
14
months ended June 30, 2001 and $19.1 million for the six months ended June 30,
2000, related to providing wireless services to customers and are included in
cost of services and operations. The increase is primarily attributable to the
increase in subscribers in 2001 as compared to 2000. Also included is non-cash
compensation expense related to the Company's stock option plans of $159 for the
quarter ended June 30, 2000. No non-cash compensation expense was recognized in
the 2001 for service and operations. We pay Sprint PCS roaming 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 recently agreed to
change the reciprocal roaming rate which has been 20 cents to 15 cents effective
June 1, 2001, 12 cents effective October 1, 2001, and 10 cents effective January
1, 2002 and thereafter. 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 $10.5 million for the quarter
ended June 30, 2001 as compared to $3.7 million for the quarter ended June 30,
2000. Cost of products sold was $18.6 million and $7.0 million for the six
months ended June 30, 2001 and 2000, respectively. The increase was due to
growth in our subscribers between June 30, 2000 and June 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 $4.8 million for the quarter ended June 30,
2001 and $1.6 million for the quarter ended June 30, 2000. For the six months
ended June 30, 2001, handset subsidy through our retail stores was $9.1 million
compared to $3.3 million for the same period of 2000.
SELLING AND MARKETING. Selling and marketing expenses totaled $24.8
million for the quarter ended June 30, 2001 and $8.1 million for the quarter
ended June 30, 2000. Selling and marketing expenses were $43.3 million and $14.7
million for the six months ended June 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 and sales to local indirects
included in selling and marketing totaled $2.7 million and $1.1 million for the
quarters ended June 30, 2001 and 2000, respectively. For the six months ended
June 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
$4.4 million as compared to $2.3 million for the six months ended June 30, 2000.
GENERAL AND ADMINISTRATIVE EXPENSES. For the quarters ended June 30,
2001 and 2000, general and administrative expenses totaled $3.4 million and $2.8
million, respectively. For the six months ended June 30, 2001, these expenses
totaled $7.3 million compared to $7.7 million for the six months ended June 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 $762 for the quarter ended June
30, 2000. No non-cash compensation expense was recorded for the quarter ended
June 30, 2001. For the six months ended June 30, 2001, $183 of non-cash
compensation expense was recorded as compared to $4.3 million for the six months
ended June 30, 2000.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
quarter ended June 30, 2001 totaled $25.2 million as compared to $2.5 million
for the quarter ended June 30, 2000. For the six months ended June 30, 2001 and
June 30, 2000, depreciation and amortization totaled $37.2 million and $4.7
million, respectively. Included in depreciation and amortization for the quarter
ended June 30, 2001 and the six months June 30, 2001, was $14.6 million and
$19.2 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 June
2000.
INTEREST AND OTHER INCOME. Interest and other income totaled $2.5
million for the quarter ended June 30, 2001 and $4.4 million for the quarter
ended June 30, 2000. Interest and other income totaled $8.2 million and $6.7
million for the six months ended June 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.
15
INTEREST EXPENSE. Interest expense totaled $19.9 million for the
quarter ended June 30, 2001 and $6.6 million for the quarter ended June 30,
2000. For the six months ended June 30, 2001, interest expense was $34.7 million
compared to $11.4 million for the six months ended June 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 six months ended June 30, 2001,
income tax benefit totaled $17.4 million and $31.3 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 six months ended June 30, 2001, a
loss on extinguishment of debt of $5.4 million, net of tax benefit of $1.9
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 June 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 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 Company's 12 7/8% Senior Discount Notes, such that 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. As of December 31, 2000,
approximately $54.5 million of the $175.0 million EDC Credit Facility had been
drawn. 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 of $333 million.
Pursuant to the equipment agreement with Nortel, we are required to
purchase a total of $167 million of equipment and services from Nortel. As of
June 30, 2001, this commitment has been fully satisfied. These purchases from
Nortel were financed pursuant to the EDC Credit Facility prior to the closing of
the Senior Secured Credit Facility, and, after the closing of the Senior Secured
Credit Facility, have been pursuant to such facility.
On February 4, 2000, we 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, we 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 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.
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.
16
Net cash used in operating activities was $60.4 million for the six
months ended June 30, 2001. Net cash used in operating activities was $2.8
million for the six months ended June 30, 2000. Cash used in operating
activities was attributable to operating losses and working capital needs.
Net cash used in investing activities was $97.0 million for the six
months ended June 30, 2001, and $65.8 million for the six months ended June 30,
2000. In 2001, we invested $72.9 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 and investment in short-term
liquid investments of $21.8 million.
Net cash provided by financing activities was $137.7 million for the
six months ended June 30, 2001 and consisted primarily of the net proceeds from
our issuance of the 12 1/2% Senior Notes and 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. We also set aside $70.7
million in restricted cash primarily for escrow of two years of interest on the
12 1/2% Senior Notes. Net cash provided by financing activities was $303.9
million for the six months ended June 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
$181 million less repayments of long-term debt of $76.2 million.
As of June 30, 2001, our primary sources of liquidity were
approximately $122 million in cash and cash equivalents and $130 million of
unused capacity under the Senior Secured Credit Facility.
We estimate that we will require approximately $87.0 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 June 30, 2001, capital leases totaled $1.6 million
and included long-term capital lease obligations of $1.5 million. At December
31, 2000 the capital leases totaled $1.1 million.
DEBT COVENANT WAIVER
As of March 31, 2001, we did not meet the maximum negative EBITDA
covenant under the Senior Secured Credit Facility. During the quarter ended
March 31, 2001, we reported an EBITDA loss of $16.7 million which exceeded the
maximum negative EBITDA covenant by $7.0 million.
On May 8, 2001, we obtained a waiver of any default or event of default
arising from the failure to comply with the maximum negative EBITDA covenant for
the quarter ended March 31, 2001 from the lending institutions under the Senior
Secured Credit Facility. See the following comment regarding the changes in the
Senior Secured Credit Facility and the resetting of the covenants behind the
credit.
The Company met its negative EBITDA covenant for the quarter ended June
30, 2001 and we believe that the EBITDA covenants will be met for the next
twelve months. Our EBITDA is directly impacted by the up front selling and
marketing expenses we incur in order to grow our subscriber base. As such,
greater than expected subscriber growth may impact our EBITDA negatively.
NEW NOTES OFFERING
On August 7, 2001, the Company announced that Alamosa (Delaware) will
issue $150 million face amount of senior notes (the "13 5/8% Senior Notes"). The
13 5/8% Senior Notes will 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 will be approximately $140.5 million, after deducting the discounts
and commissions to the initial purchasers and estimated offering expenses.
Approximately $39 million of the proceeds of the 13 5/8% Notes Offering
will be 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. The balance will be used to pay down a portion of
the Senior Secured Credit Facility and for general corporate purposes.
17
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.
For a complete description of our indebtedness, please refer to Note 6
included in Item 1. FINANCIAL STATEMENTS.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For the quarter ended June 30, 2001, we did not experience any material
changes in market risk exposures that affect the quantitative and qualitative
disclosures presented in our 2000 Annual Report on Form 10-K.
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.
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
18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
3.1 Amended and Restated Certificate of Incorporation of Alamosa Holdings, Inc., filed
as Exhibit 1.1 to the Registration Statement on Form 8-A, dated February 14, 2001
(SEC File No. 000-32357) of Alamosa Holdings, Inc., which exhibit is
incorporated herein by reference.
3.2 Amended and Restated Bylaws of Alamosa Holdings, Inc., filed as Exhibit 1.2 to the
Registration Statement on Form 8-A, dated February 14, 2001 (SEC File No.
000-32357) of Alamosa Holdings, Inc., which exhibit is incorporated herein by
reference.
4.1 Specimen Common Stock Certificate, filed as Exhibit 1.3 to the Registration
Statement on Form 8-A, dated February 14, 2001 (SEC File No. 000-32357) of Alamosa
Holdings, Inc., which exhibit is incorporated herein by reference.
10.1 Second Amendment, dated as of June 7, 2001, to the Amended and Restated Credit
Agreement, among Alamosa Holdings, Inc., Alamosa (Delaware), Inc., Alamosa
Holdings, LLC, the Lenders party thereto, 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, filed as Exhibit 10.55 to the Registration
Statement on Form S-1, dated July 31, 2001 (SEC File No. 333-66358) of Alamosa
Holdings, Inc., which exhibit is incorporated herein by reference.
10.2 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,
filed as Exhibit 10.56 to the Registration Statement on Form S-1, dated July 31,
2001 (SEC File No. 333-66358) of Alamosa Holdings, Inc., which exhibit is
incorporated herein by reference.
(b) Current Reports on Form 8-K filed during the second quarter of 2001
are as follows:
On April 5, 2001, Alamosa Holdings, Inc. filed a Current Report stating
that on March 30, 2001 it had completed the acquisition of Southwest PCS
Holdings, Inc.
On April 30, 2001, Alamosa Holdings, Inc. filed a Current Report
amending the initial Current Report on Form 8-K filed on February 28, 2001.
On May 2, 2001, Alamosa Holdings, Inc. filed a Current Report amending
the initial Current Report on Form 8-K filed on February 28, 2001.
19
On May 15, 2001, Alamosa Holdings, Inc. filed a Current Report
amending the initial Current Report on Form 8-K filed on April 5, 2001.
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SIGNATURES
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)
EXHIBIT INDEX
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EXHIBIT
NUMBER EXHIBIT TITLE
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3.1 Amended and Restated Certificate of Incorporation of Alamosa Holdings, Inc., filed
as Exhibit 1.1 to the Registration Statement on Form 8-A, dated February 14, 2001
(SEC File No. 000-32357) of Alamosa Holdings, Inc., which exhibit is incorporated
herein by reference.
3.2 Amended and Restated Bylaws of Alamosa Holdings, Inc., filed as Exhibit 1.2 to the
Registration Statement on Form 8-A, dated February 14, 2001 (SEC File No.
000-32357) of Alamosa Holdings, Inc., which exhibit is incorporated herein by
reference.
4.1 Specimen Common Stock Certificate, filed as Exhibit 1.3 to the Registration
Statement on Form 8-A, dated February 14, 2001 (SEC File No. 000-32357) of Alamosa
Holdings, Inc., which exhibit is incorporated herein by reference.
10.1 Second Amendment, dated as of June 7, 2001, to the Amended and Restated Credit
Agreement, among Alamosa Holdings, Inc., Alamosa (Delaware), Inc., Alamosa
Holdings, LLC, the Lenders party thereto, 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, filed as Exhibit 10.55 to the Registration
Statement on Form S-1, dated July 31, 2001 (SEC File No. 333-66358) of Alamosa
Holdings, Inc., which exhibit is incorporated herein by reference.
10.2 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,
filed as Exhibit 10.56 to the Registration Statement on Form S-1, dated July 31,
2001 (SEC File No. 333-66358) of Alamosa Holdings, Inc., which exhibit is
incorporated herein by reference.
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