<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK 1)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 005-58523
ALAMOSA PCS HOLDINGS, INC.
ALAMOSA PCS, INC.
ALAMOSA DELAWARE GP, LLC
ALAMOSA WISCONSIN GP, LLC
ALAMOSA WISCONSIN LIMITED PARTNERSHIP
TEXAS TELECOMMUNICATIONS, LP
(Exact name of registrant as specified in its charter)
DELAWARE 75-2843707
DELAWARE 74-2938804
DELAWARE 74-2938804
WISCONSIN 74-2938804
WISCONSIN 74-2938839
TEXAS 75-2851320
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5225 S. 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 [ ]
61,354,606 shares of Common Stock, $0.01 par value per share, were outstanding
as of August 1, 2000.
1
<PAGE> 2
ALAMOSA PCS HOLDINGS, INC.
TABLE OF CONTENTS
QUARTER ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
<S> <C>
PART I FINANCIAL INFORMATION 3
Item 1. Financial Statements:
Consolidated Balance Sheets at June 30, 2000 (unaudited) and December 31, 1999 3
Consolidated Statements of Operations (unaudited) for the three
months ended June 30, 2000 and 1999 and the six months ended June
30, 2000 and 1999 4
Consolidated Statement of Stockholders' Equity (unaudited) for the six months ended June 30, 2000 5
Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2000 and 1999 6
Notes to the Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
PART II OTHER INFORMATION 20
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
</TABLE>
2
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALAMOSA PCS HOLDINGS, INC. AND SUBSIDIARIES AND PREDECESSORS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
2000 December 31,
(unaudited) 1999
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 241,038,281 $ 5,655,711
Short-term investments 21,840,763 --
Accounts receivable, net of allowance for doubtful accounts 6,605,823 1,675,636
Inventory 2,151,772 5,777,375
Prepaid expenses and other assets 551,071 882,516
------------- -------------
Total current assets 272,187,710 13,991,238
Property and equipment, net 142,219,575 84,713,724
Debt issuance costs, net 13,853,077 3,743,308
Restricted cash -- 518,017
Other noncurrent assets 431,023 1,525,912
------------- -------------
Total assets $ 428,691,385 $ 104,492,199
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 42,140,014 $ 15,203,103
Accounts payable to related parties 1,834,723 1,182,225
Current installments of capital leases 22,932 21,818
Bank line of credit -- 363,665
Microwave relocation obligations 527,715 3,578,155
------------- -------------
Total current liabilities 44,525,384 20,348,966
Long-term debt 201,098,342 71,876,379
Capital lease obligations, noncurrent 815,272 827,024
------------- -------------
Total liabilities 246,438,998 93,052,369
------------- -------------
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,
61,354,606 and 48,500,008 issued and outstanding at
June 30, 2000 and December 31, 1999, respectively 613,546 485,000
Additional paid-in capital 245,949,316 50,824,876
Accumulated deficit (62,247,356) (33,759,681)
Unearned compensation (2,063,119) (6,110,365)
------------- -------------
Total stockholders' equity 182,252,387 11,439,830
------------- -------------
Total liabilities and stockholders' equity $ 428,691,385 $ 104,492,199
============= =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
<PAGE> 4
ALAMOSA PCS HOLDINGS, INC. AND SUBSIDIARIES AND PREDECESSORS
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30 June 30
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Service revenue $ 15,044,154 $ 1,504 $ 25,146,175 $ 1,504
Product sales 2,189,066 33,588 3,772,424 33,588
------------ ------------ ------------ ------------
Total revenue 17,233,220 35,092 28,918,599 35,092
------------ ------------ ------------ ------------
Costs and expenses:
Cost of service and operations 10,856,488 668,319 18,125,782 668,319
Cost of service and operations - related
parties 192,217 -- 324,780 --
Cost of products sold 2,063,279 32,458 3,674,997 32,458
Selling and marketing 9,237,252 866,066 17,339,722 866,066
Selling and marketing - related parties 143,131 89,812 212,374 89,812
General and administrative expenses
(excluding non-cash compensation expense)
1,830,523 423,003 3,078,147 1,290,463
Equity participation compensation expense
921,116 1,802,578 4,893,746 2,793,832
General and administrative - related
parties 241,913 27,515 379,053 135,340
Depreciation and amortization 2,490,990 118,432 4,747,937 127,056
------------ ------------ ------------ ------------
Total costs and expenses 27,976,909 4,028,183 52,776,538 6,003,346
------------ ------------ ------------ ------------
Loss from operations (10,743,689) (3,993,091) (23,857,939) (5,968,254)
------------ ------------ ------------ ------------
Interest and other income 4,407,978 103,803 6,722,463 341,071
Interest expense (6,572,090) (128,285) (11,352,199) (135,379)
------------ ------------ ------------ ------------
Net loss $(12,907,801) $ (4,017,573) $(28,487,675) $ (5,762,562)
============ ============ ============ ============
Net loss per common share, basic and
diluted $ (0.21) $ (0.08) $ (0.48) $ (0.12)
============ ============ ============ ============
Weighted average common shares
outstanding, basic and diluted 61,354,606 48,500,008 59,026,759 48,500,008
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE> 5
ALAMOSA PCS HOLDINGS, INC. AND SUBSIDIARIES AND PREDECESSORS
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
---------------------------------- ----------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance, January 1,
2000 -- $ -- 48,500,008 $ 485,000
Initial public -- -- 12,321,100 123,211
offering
Exercise of
stock options -- -- 533,498 5,335
Amortization of
unearned
compensation -- -- -- --
Unearned
compensation -- -- -- --
Net loss -- -- --
------------- ------------- ------------- -------------
Balance, June 30,
2000 -- $ -- 61,354,606 $ 613,546
============= ============= ============= =============
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED UNEARNED
CAPITAL DEFICIT COMPENSATION TOTAL
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance, January 1,
2000 $ 50,824,876 $ (33,759,681) $ (6,110,365) $ 11,439,830
Initial public 193,664,076 -- -- 193,787,287
offering
Exercise of
stock options 613,864 -- -- 619,199
Amortization of
unearned
compensation -- -- 4,893,746 4,893,746
Unearned
compensation 846,500 -- (846,500) --
Net loss -- (28,487,675) -- (28,487,675)
------------- ------------- ------------- -------------
Balance, June 30,
2000 $ 245,949,316 $ (62,247,356) $ (2,063,119) $ 182,252,387
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
<PAGE> 6
ALAMOSA PCS HOLDINGS, INC. AND SUBSIDIARIES AND PREDECESSORS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended Six months ended
June 30, 2000 June 30, 1999
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (28,487,675) $ (5,762,562)
Adjustments to reconcile net loss to net cash used in operating
activities:
Non-cash compensation expense 4,893,746 2,793,832
Depreciation and amortization 4,747,937 127,056
Amortization of debt issuance costs 652,845 --
Deferred interest expense 10,346,126 10,859
Loss from disposition of interest rate cap premiums 266,178 --
Loss from asset disposition 54,130 --
(Increase) decrease in asset accounts:
Accounts receivable 356,284 (1,230)
Inventory 3,625,603 (1,245,915)
Prepaid expenses and other assets (115,582) (163,436)
Increase (decrease) in liability accounts:
Accounts payable and accrued expenses 890,742 1,135,275
------------- -------------
Net cash used in operating activities (2,769,666) (3,106,121)
------------- -------------
Cash flows from investing activities:
Additions to property and equipment (44,048,794) (5,314,605)
Issuance of notes receivable from officer 100,000 (100,000)
Purchase of short-term investments (21,840,763) --
Change in restricted cash 518,017 (500,000)
------------- -------------
Net cash used in investing activities (65,271,540) (5,914,605)
------------- -------------
Cash flows from financing activities:
Equity offering proceeds 208,589,367 --
Equity offering costs (13,598,942) --
Issuance of Senior Discount Notes 187,096,000 --
Debt issuance costs (10,762,613) (234,371)
Stock options exercised 619,199 --
Capital contributions -- 3,818,751
Proceeds from issuance of long-term debt 7,758,175 --
Repayments of long-term debt (76,239,373) --
Payments on capital leases (10,637) (15,636)
Interest rate cap premiums (27,400) --
------------- -------------
Net cash used in financing activities 303,423,776 3,568,744
------------- -------------
Net increase (decrease) in cash and cash equivalents 235,382,570 (5,451,982)
Cash and cash equivalents at beginning of period 5,655,711 13,529,077
------------- -------------
Cash and cash equivalents at end of period $ 241,038,281 $ 8,077,095
============= =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
6
<PAGE> 7
ALAMOSA PCS HOLDINGS, INC. AND SUBSIDIARIES AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION OF UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited consolidated balance sheet as of June 30, 2000, the
unaudited consolidated statements of operations for the three months and
six months ended June 30, 2000 and 1999, the unaudited consolidated
statement of stockholders' equity for the six months ended June 30, 2000,
and the unaudited consolidated statements of cash flows for the six
months ended June 30, 2000 and 1999, 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. In the opinion of
management, the interim data includes all adjustments (consisting of only
normally recurring adjustments) necessary for a fair statement of the
results for the interim periods. Operating results for the three months
and six months ended June 30, 2000 are not necessarily indicative of
results that may be expected for the year ending December 31, 2000.
Certain reclassifications of prior period amounts have been made to
conform to current period presentation.
2. ORGANIZATION AND BUSINESS OPERATIONS
Alamosa PCS Holdings Inc. ("Holdings") was formed in October 1999 in
anticipation of an initial public offering which occurred in February
2000. Immediately prior to the offering, shares of Holdings, the
registrant, were exchanged for Alamosa PCS LLC's ("Alamosa") membership
interests, and Alamosa became wholly owned by Holdings. These financial
statements are presented as if the reorganization had occurred as of the
beginning of the periods presented. There were no activities within
Holdings prior to the reorganization. Holdings and its subsidiaries,
including Alamosa, are collectively referred to as the "Company." Other
subsidiaries formed include Texas Telecommunications LP ("Texas"),
Alamosa Wisconsin Limited Partnership ("Wisconsin"), Alamosa Wisconsin
GP, LLC, Alamosa Finance, LLC, Alamosa Limited, LLC, Alamosa Delaware GP,
LLC, and Alamosa PCS, Inc.
Alamosa and its successor Alamosa PCS, Inc., referred to in these
financial statements as "Alamosa," was formed in July 1998 as a Texas
limited liability company. In July 1998, Alamosa entered into affiliation
agreements with Sprint PCS, the PCS Group of Sprint Corporation. These
affiliation agreements provided Alamosa with the exclusive right to
build, own and manage a wireless voice and data services network in
markets with over 5.2 million residents located in Texas, New Mexico,
Arizona and Colorado under the Sprint PCS brand. Alamosa amended its
affiliation agreements with Sprint PCS in December 1999 to expand its
services network so that it will include 8.4 million residents. Alamosa
is required to build out the wireless network according to Sprint PCS
specifications. The affiliation agreements are in effect for a term of 20
years with three 10-year renewal options unless terminated by either
party under provisions outlined in the affiliation agreements. The
affiliation agreements include indemnification clauses between Alamosa
and Sprint PCS to indemnify each other against claims arising from
violations of laws or the affiliation agreements, other than liabilities
resulting from negligence or willful misconduct of the party seeking to
be indemnified.
Holdings and Alamosa were in the development stage from July 1998 through
December 31, 1999. This stage was characterized by significant
expenditures for the design and construction of the wireless network and
no significant operating revenue.
3. NET LOSS PER COMMON SHARE
Net loss per share is calculated by dividing net loss by the weighted
average number of shares of common stock. Weighted average shares
outstanding is computed after giving effect to the reorganization of the
Company described in Note 2. The calculation was made in accordance with
SFAS No. 128, "Earnings Per Share." Weighted average shares outstanding
at June 30, 2000 exclude incremental potential common shares from stock
options because inclusion would have been antidilutive.
7
<PAGE> 8
ALAMOSA PCS HOLDINGS, INC. AND SUBSIDIARIES AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Land and buildings $ 3,028,239 $ 2,817,426
Network equipment 107,512,125 76,867,836
Vehicles 788,781 477,353
Furniture and office equipment 4,350,670 2,266,966
------------- -------------
115,679,815 82,429,581
Accumulated depreciation (7,618,048) (2,974,674)
------------- -------------
Subtotal 108,061,767 79,454,907
------------- -------------
Microwave relocation costs 3,742,014 3,578,155
Accumulated amortization (175,051) (84,312)
------------- -------------
Subtotal 3,566,963 3,493,843
------------- -------------
Construction in progress:
Network equipment 28,346,310 374,680
Leasehold improvements 2,244,535 1,390,294
------------- -------------
Subtotal 30,590,845 1,764,974
------------- -------------
Total $ 142,219,575 $ 84,713,724
============= =============
</TABLE>
5. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Debt outstanding under credit facilities:
Senior Discount Notes $ 196,574,501 $ --
Nortel/EDC Credit Facility 4,523,841 71,876,379
Bank line of credit -- 363,665
------------- -------------
Total debt 201,098,342 72,240,044
Less current maturities -- 363,665
------------- -------------
Long-term debt, excluding current maturities $ 201,098,342 $ 71,876,379
============= =============
</TABLE>
Senior Discount Notes - On December 23, 1999, Holdings filed a
registration statement with the SEC for the issuance of $350 million face
amount of Senior Discount Notes (the "Notes Offering"). The Notes
Offering
8
<PAGE> 9
ALAMOSA PCS HOLDINGS, INC. AND SUBSIDIARIES AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
was completed on February 4, 2000 and generated net proceeds of
approximately $181 million after underwriters' commissions and expenses
of approximately $6.5 million. The Senior Discount Notes (the "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 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
Notes Offering were used to prepay $75 million of the Nortel/EDC Credit
Facility, and the balance will be used to pay costs to build out the
system, to fund operating working capital needs and for other general
corporate purposes. Significant terms of the Notes include:
Ranking - The Notes are senior unsecured obligations of Holdings,
equal in right of payment to all future senior debt of Holdings and
senior in right of payment to all future subordinated debt of
Holdings;
Guarantees - The Notes are unsecured obligations and rank equally
with all existing and future senior debt and senior to all existing
and future subordinate debt. The Notes are fully and unconditionally,
jointly and severally guaranteed on a subordinated, unsecured basis,
by all the existing and any future restricted subsidiaries of
Holdings. In addition, Holdings has no assets or operations other
than its investments in Alamosa PCS Inc., and there are no
significant non-guarantor subsidiaries. Therefore, financial
statements of guarantor subsidiaries have been omitted.
Optional Redemption - During the first thirty six (36) months after
the Notes Offering, we may use net proceeds of an equity offering to
redeem up to 35% of the accreted value of the notes at a redemption
price of 112 7/8%;
Change of Control - Upon a change of control as defined by the Notes
Offering, we will be required to make an offer to purchase the Notes
at a price equal to 101% of the accreted value (original principal
amount plus accrued interest) before February 15, 2005, or 101% of
the principal amount at maturity thereafter; and
Restrictive Covenants - The indenture governing the Notes contain
covenants that, among other things and subject to important
exceptions, limit our ability and the ability of our subsidiaries to
incur additional debt, issue preferred stock, pay dividends, redeem
capital stock or make other restricted payments or investments as
defined by the Notes Offering, create liens on assets, merge,
consolidate or dispose of assets, or enter into transactions with
affiliates and change lines of business.
Nortel/EDC Credit Facility - On February 8, 2000 Alamosa entered into an
Amended and Restated Credit Agreement with Nortel Networks Inc., and on
June 23, 2000, Nortel assigned the entirety of its loans and commitments
under the Amended and Restated Credit Agreement to Export Development
Corporation (the "Nortel/EDC Credit Facility"). The proceeds of the
Nortel/EDC Credit Facility are used to purchase equipment, to fund the
construction of the Company's portion of the Sprint PCS network, and to
pay associated financing costs. The financing terms permitted Alamosa to
borrow $250 million (which was subsequently reduced to $175 million as a
result of the prepayment of $75 million outstanding) under three
commitment tranches through February 18, 2002, and requires minimum
equipment purchases.
The Nortel/EDC Credit Facility is collateralized by all of Alamosa's
current and future assets and capital stock. Alamosa is required to
maintain certain financial ratios and other financial conditions
including minimum levels of revenue and wireless subscribers. In
addition, Alamosa is required to maintain a $1 million cash balance as
collateral against the facility. At December 31, 1999, Alamosa was not in
compliance with this agreement; however, a waiver of this requirement was
obtained from Nortel.
Alamosa may borrow money under the Nortel/EDC Credit Facility as either a
base rate loan with an interest rate of prime plus 2.75%, or a Eurodollar
loan with an interest rate of the London interbank offered rate, commonly
referred to as LIBOR, plus 3.75%. The LIBOR interest rate was 6.778% at
June 30, 2000. In addition, an annual unused facility fee of 0.75% will
be charged beginning August 8, 2000 on the portion of
9
<PAGE> 10
ALAMOSA PCS HOLDINGS, INC. AND SUBSIDIARIES AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the available credit that has not been borrowed. Interest accrued through
the two-year anniversary from the closing date can be added to the
principal amount of the loan. Thereafter, interest is payable monthly in
the case of base rate loans and at the end of the applicable interest
period, not to exceed three months, in the case of Eurodollar loans.
Interest expense for the period ended June 30, 2000 totaled $948,345.
Principal is payable in 20 quarterly installments beginning September 30,
2002 (except that installments of principal must be paid beginning March
31, 2001 if we have not borrowed an additional approximately $45.5
million by February 8, 2001. Alamosa may voluntarily prepay any of the
loans at any time, but any amount repaid may not be reborrowed since
there are no revolving credit features. Alamosa must make mandatory
prepayments under certain circumstances, including 50% of the excess cash
flow, as computed under the Nortel/EDC Credit Facility, after March 31,
2003 and any amount in excess of $250,000 received for asset sales
outside the ordinary course of business or insurance proceeds, to the
extent not reinvested in property or assets within a stated period of
time. Mandatory prepayments of excess cash flow will be required sooner
if Alamosa has not borrowed an additional approximately $45.5 million by
February 8, 2001, or if Alamosa fully borrows all amounts that it is
entitled to borrow under the Tranche A commitment before March 31, 2002.
All prepayments are applied to the outstanding loan balances pro rata in
the inverse order of maturity, except where there is a borrowing base
shortage, in which case prepayments are first applied there, and then pro
rata among all three commitment tranches.
The original commitment terms provided for warrants representing 2% of
the outstanding common stock of Holdings. These warrants were eliminated,
by prior agreement, when Alamosa used $75 million of the equity
contribution from Holdings to prepay, in February 2000, amounts
previously borrowed under the Nortel/EDC Credit Facility.
In addition to the $75 million prepayment, in conjunction with the
closing of the new facility, Alamosa also paid accrued interest of
approximately $852,500 and origination fees and expenses of $3,995,000.
As a condition of the financing, Sprint PCS has entered into a consent
and agreement with Nortel that modifies Sprint PCS's rights and remedies
under its affiliation agreements with Alamosa. Among other things, Sprint
PCS consented to the pledge of substantially all of Alamosa's assets to
Nortel, including the affiliation agreements. In addition, Sprint PCS may
not terminate the affiliation agreements with Alamosa and must maintain
10 MHz of PCS spectrum in Alamosa's markets until the Nortel/EDC Credit
Facility is satisfied or Alamosa's assets are sold pursuant to the terms
of the consent and agreement with Nortel.
Alamosa incurred approximately $8,256,000 of costs associated with
obtaining the Nortel/EDC Credit Facility. Those costs consisted of loan
origination fees, legal fees and other debt issuance costs that have been
capitalized and are being amortized to interest expense using the
straight-line method over the term of the Nortel/EDC Credit Facility.
On June 23, 2000, Nortel assigned the entirety of its loans and
commitments under the Nortel/EDC Credit Facility to Export Development
Corporation ("EDC"). This assignment provides for the advancement of term
loan facilities in the aggregate principal amount of $175,000,000. The
proceeds of the Nortel/EDC Credit Facility will be used to finance a
portion of the Company's costs to construct and operate its PCS systems.
Terms and conditions of the Nortel/EDC Credit Facility after the
assignment on June 23, 2000 are essentially the same as before the
assignment. However, the Company is no longer required to maintain a $1
million cash balance as collateral against the Nortel/EDC Credit
Facility.
6. STOCK-BASED COMPENSATION
Holdings adopted an Incentive Stock Option Plan (the "Plan") effective
November 12, 1999, which provides for the granting of either incentive
stock options or nonqualified stock options to purchase shares of
10
<PAGE> 11
ALAMOSA PCS HOLDINGS, INC. AND SUBSIDIARIES AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Holdings' common stock and for other stock-based awards to officers,
directors and key employees for the direction and management of the
Company and to non-employee consultants and independent contractors. At
December 31, 1999, 7,000,000 shares of common stock were reserved for
issuance under the Plan. The compensation committee of the board of
directors administers the Plan and determines grant prices and vesting
periods.
The Company applies APB No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its employee and
non-employee director stock options and applies SFAS No. 123, "Accounting
for Stock Based Compensation" and related interpretations in accounting
for other non-employee options. Total non-cash compensation expense of
$2,793,832 was recorded as of June 30, 1999. As of June 30, 2000, the
Company has recorded compensation of $15,156,376. This amount is being
recognized over the vesting period in accordance with FASB Interpretation
No. 28 when applicable. As of June 30, 2000, non-cash compensation of
$4,893,746 and $921,116 has been recognized for the year and quarter,
respectively.
The following summarizes activity under the Company's stock option plans:
<TABLE>
<CAPTION>
Number of options
------------------------------
Six months
ended Year ended
June 30, December 31,
2000 1999
---------- ------------
<S> <C> <C>
Options outstanding at beginning of period 5,282,000 873,000
Granted 209,900 5,282,000
Exercised -- --
Cancelled (25,000) (873,000)
---------- ----------
Options outstanding at the end of the period 5,466,900 5,282,000
========== ==========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
On December 21, 1998, Alamosa entered into a three-year agreement with
Nortel to purchase network equipment and infrastructure. Pursuant to that
agreement, Nortel also agreed to provide installation and optimization
services, such as network engineering and radio frequency engineering,
for the equipment and to grant Alamosa a nonexclusive license to use the
software associated with the Nortel equipment. Under the original
agreement, Alamosa committed to purchase $82.0 million worth of equipment
and services from Nortel, and Nortel agreed to finance these purchases
pursuant to the Nortel/EDC Credit Facility. Under the agreement, Alamosa
received a discount on the network equipment and services because of the
Company's affiliation with Sprint PCS, but paid a premium on any
equipment and services financed by Nortel. If Alamosa's affiliation with
Sprint PCS ends, Nortel has the right to either terminate the agreement
or, with Alamosa's consent, modify the agreement to establish new prices,
terms and conditions. On February 8, 2000, the Company amended its
equipment purchase contract with Nortel and increased its purchase
commitment to $167 million. In addition, the requirement to pay a premium
for purchases financed by Nortel was eliminated.
Contract for towers - On February 22, 2000, the Company entered into a
Master Design Build Agreement with a tower contractor to provide towers
in the expansion areas including Wisconsin.
11
<PAGE> 12
ALAMOSA PCS HOLDINGS, INC. AND SUBSIDIARIES AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. STOCKHOLDERS' EQUITY
On October 29, 1999, Holdings filed a registration statement with the
Securities and Exchange Commission for the sale of 10,714,000 shares of
its common stock (the "Stock Offering"). The Stock Offering became
effective and the shares were issued on February 3, 2000 at the initial
price of $17.00 per share. Subsequently, the underwriters exercised their
over-allotment option of 1,607,100 shares. Holdings received net proceeds
of $193.8 million after commissions of $13.3 million and expenses of
approximately $1.5 million. The proceeds of the Stock Offering are to be
used for the build out of the system, to fund operating working capital
needs and for other general corporate purposes.
9. INCOME TAXES
Prior to February 1, 2000, the Company's predecessor operated as a
limited liability company (LLC) under which losses for income tax
purposes were utilized by the LLC members on their income tax returns.
Subsequent to January 31, 2000, the Company became a C-Corp for federal
income tax purposes and therefore subsequent losses became net operating
loss ("NOL") carry forwards of the Company.
No benefit for federal income tax has been recorded for the six months
ended June 30, 2000 as the net deferred tax asset if fully reserved
because of the uncertainties regarding the Company's ability to utilize
the asset in future years.
10. SUPPLEMENTAL DISCLOSURE TO STATEMENTS OF CASH FLOWS
Accounts payable at December 31, 1999 and June 30, 2000 include
$9,096,776 and $27,355,920, respectively, of property and equipment
additions. Additions to Property and Equipment of $44,048,794 in the
consolidated statements of cash flows for the six months ended June 30,
2000 include payments of accounts payable outstanding at December 31,
1999.
Capital lease obligations of $146,379 were incurred during the six months
ended June 30, 1999.
11. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On December 3, 1999, the SEC released Staff Accounting Bulletin 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). This bulletin
established more clearly defined revenue recognition criteria than
previously existing accounting pronouncements, and specifically addresses
revenue recognition requirements for nonrefundable fees, such as
activation fees, collected by a company upon entering into an arrangement
with a customer, such as an arrangement to provide telecommunications
services. On June 26, 2000, the SEC released SAB 101B, which delays the
required implementation of SAB 101 until no later than the fourth quarter
of fiscal years ending December 31, 2000. The Company believes that the
effects of this bulletin will not be material to its financial position,
results of operations or cash flows.
The Company does not believe that any other recently issued accounting
pronouncements will have a material impact on its financial position,
results of operations or cash flows.
12. SUBSEQUENT EVENTS
On July 31, 2000, Holdings signed definitive agreements to merge two
Sprint PCS affiliates, Roberts Wireless Communications, LLC ("Roberts")
and Washington Oregon Wireless, LLC ("WOW") into its operations. Roberts
has a management agreement with Sprint PCS to provide personal
communications services to approximately 2.5 million residents primarily
in the state of Missouri. WOW has a similar management agreement with
Sprint PCS to provide services to approximately 1.5 million people
primarily in Washington and Oregon.
12
<PAGE> 13
ALAMOSA PCS HOLDINGS, INC. AND SUBSIDIARIES AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consummation of these transactions contemplates a merger of the
Company, pursuant to which the Company, Roberts and WOW will become
subsidiaries of a new holding company, Alamosa Holdings, Inc. ("New
Holdings"), and the Company's stockholders will become stockholders of
New Holdings.
Roberts' owners will exchange 100 percent ownership interest in Roberts
for 13.5 million shares of New Holdings and approximately $4.0 million in
cash. New Holdings will assume the net debt of Roberts in the
transaction, which amounted to $56.0 million as of June 30, 2000.
WOW owners will exchange 100 percent ownership of WOW for 6.05 million
shares of New Holdings and $12.5 million in cash. Holdings will assume
the net debt of WOW in the transaction, which amounted to $10 million as
of June 30, 2000.
Each of these agreements is subject to the customary conditions to
closing, and there is no guarantee that they will close on schedule or at
all.
On July 31, 2000, Holdings received a financing commitment from an
investment banking firm for a new $200 million senior secured credit
facility, to be made to a subsidiary of New Holdings ("Borrower"). The
facility is to be used for the working capital and build-out needs for
the Roberts and WOW acquisitions, including the repayment of any debt
assumed. The term of the facility, which is composed of two tranches, is
for seven years and the interest rate is to be determined. The facility
requires a commitment fee and arrangement fees as well as warrants
representing two percent of New Holdings' stock. These warrants, which
will have a strike price of 20% over the Company's stock price at the
date of closing, can be eliminated by the infusion of an additional $75
million of equity into the subsidiary. The facility will require New
Holdings and Borrower and/or Borrower's subsidiaries to maintain certain
financial covenants.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
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 risks and uncertainties
that could cause actual results to differ materially from those referred
to in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in "Item 1.
Business" and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation" of the Company's 1999 Annual Report
on Form 10-K.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as
of the date hereof. The Company does 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 the Company files
from time to time with the Securities and Exchange Commission.
OVERVIEW
As a development stage enterprise, we had very limited operations, very
limited revenues, significant losses, substantial future capital
requirements and an expectation of continued losses. As of January 1,
2000, we are no longer considered to be in a development stage. As a
result of significant operational results reflected in the June 30, 2000
financial statements presented in this quarterly report on Form 10-Q, a
comparison of these results to the same period for 1999 may not be
meaningful.
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 begin the build-out of
our portion of the Sprint PCS network. As of June 30, 2000, our
accumulated deficit was $62.2 million. Through June 30, 2000, we incurred
$142.0 million of capital expenditures and construction in progress
related to the build-out of our portion of the Sprint PCS network. While
we anticipate operating losses to continue, we expect revenue to increase
substantially as the base of Sprint PCS subscribers located in our
territory 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 territory so that it will include approximately 8.4 million
residents.
As a Sprint PCS affiliate, we have the exclusive right to provide digital
wireless personal communication services under the Sprint and Sprint PCS
brand names in our territory. We are responsible for building, owning and
managing the portion of the Sprint PCS network located in our territory.
We market wireless products and services in our territory under the
Sprint and Sprint PCS brand names. We offer national plans designed by
Sprint PCS and intend to offer 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 territory, including our own Sprint
PCS stores, major national distributors and third party local
representatives.
14
<PAGE> 15
We launched Sprint PCS service in our first market, Laredo, Texas, in
June 1999, and have since commenced service in twelve additional markets:
Albuquerque, Santa Fe and Las Cruces, New Mexico, and El Paso, Lubbock,
Amarillo, Midland, Odessa, Abilene, San Angelo, Eagle Pass and Del Rio,
Texas. Our systems cover approximately 3.1 million residents out of
approximately 4.1 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 territory. As of June
30, 2000, 69,569 Sprint PCS subscribers were based in our territory.
We recognize 100% of revenues from Sprint PCS subscribers based in our
territory, 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 retains 8% of
all collected revenue from Sprint PCS subscribers based in our territory
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 outsource 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.
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:
the increasing use of retail distribution, which is dependent upon
the year-end holiday shopping season;
the timing of new product and service announcements and
introductions;
competitive pricing pressures; and
aggressive marketing and promotions.
RESULTS OF OPERATIONS
FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE QUARTER AND
SIX MONTHS ENDED JUNE 30, 1999
Alamosa launched its first wireless PCS network in Laredo, Texas, on June
21, 1999. Because of this very limited time of operations for the quarter
and six months ended June 30, 1999, comparisons with the same period of
2000 may not be meaningful.
Net Loss. Our net loss for the quarter ended June 30, 2000 was
$12,907,801 compared to our net loss of $4,017,753 for the quarter ended
June 30, 1999. Our net loss for the six months ended June 30, 2000 was
$28,487,675 compared to our net loss of $5,762,562 for the six months
ended June 30, 1999.
Service Revenues. Service revenues during the quarter and six months
ended June 30, 2000 in the amounts of $15,044,154 and $25,146,175,
respectively, were comprised of subscriber revenue of $10,733,552 and
$17,830,119, respectively, and roaming revenue of $4,310,602 and
$7,316,055, respectively. Subscriber revenue consists of payments
received from Sprint PCS subscribers based in our territory for monthly
Sprint
15
<PAGE> 16
PCS service in our territory under a variety of service plans. These
plans generally reflect the terms of national plans offered by Sprint PCS
and are issued on a month-to-month basis. 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 territory use
our portion of the Sprint PCS network.
Non-Sprint PCS roaming revenue primarily consists of fees collected from
Sprint PCS customers based in our territory 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 territory.
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 six months ended June 30, 2000, average monthly revenue per user
including roaming revenue was approximately $83. Without roaming revenue,
average monthly revenue per unit was $59. For the quarter ended June 30,
2000, our average monthly revenue per user including roaming revenue, was
approximately $83 and without roaming revenue was approximately $60.
Product Sales. 100% of the revenue from the sale of handsets and
accessories net of an allowance for returns, are recorded as product
sales. The amount recorded during the quarter ended June 30, 2000 totaled
$2,189,066 as compared to $33,588 for the quarter ended June 30, 1999.
For the six months ended June 30, 2000, product sales totaled $3,772,424
compared to $33,588 for the same period of 1999. Sprint PCS's 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. Expenses totaling $11,048,705 during the
quarter ended June 30, 2000 related to providing wireless services to
customers. These expenses totaled $668,319 for the quarter ended June 30,
1999. For the six months ended June 30, 2000 and 1999, these expenses
totaled $18,450,562 and $668,319, respectively. Among these costs are the
cost of operations, fees related to data transfer via T-1 and other
transport lines, inter-connection fees, Sprint PCS roaming fees,
non-Sprint PCS roaming fees and other expenses related to operations. We
pay Sprint PCS roaming fees when Sprint PCS subscribers based in our
territory use the Sprint PCS network outside of our territory. Pursuant
to our affiliation agreements with Sprint PCS, Sprint PCS can change this
per minute rate. We pay non-Sprint PCS roaming fees to other wireless
service providers when Sprint PCS customers based in our territory use
their network.
Cost of Products Sold. The cost of products sold totaled $2,063,279
during the quarter ended June 30, 2000 and $32,458 for the quarter ended
June 30, 1999. The cost of products sold totaled $3,674,997 and $32,458
for the six months ended June 30, 2000 and 1999, respectively. These
amounts include the total cost of accessories and the cost of handsets up
to the retail sales price. The cost of handsets exceeds the retail sales
price because we subsidize the price of handsets for competitive reasons.
We recognize any excess of the cost of handsets over the retail sales
price as selling and marketing expense.
Selling and Marketing. Selling and marketing expenses totaled $9,380,383
during the quarter ended June 30, 2000 and $955,878 during the quarter
ended June 30, 1999. For the six months ended June 30, 2000 and 1999,
selling and marketing expenses totaled $17,552,096 and $955,878,
respectively. Sales and marketing expenses include advertising expenses,
promotion costs, sales commissions and expenses related to our
distribution channels. For the quarter ended June 30, 2000, the handset
subsidy totaled $2,758,617 and $42,723 for the quarter ended June 30,
1999. Handset subsidy for the six months ended June 30, 2000 totaled
$5,618,843 as compared to $42,723 for the six months ended June 30, 1999.
General and Administrative Expenses. General and administrative expenses
include corporate costs and expenses other than those related to Cost of
Operations and Selling and Marketing. These expenses totaled $2,072,436
for the quarter ended June 30, 2000 and $450,518 for the quarter ended
June 30, 1999. For the six months ended June 30, 2000, these expenses
amounted to $3,457,200 and $1,425,893 for the six months
16
<PAGE> 17
ended June 30, 1999. During the quarter ended June 30, 1999, we incurred
significant general and administrative expenses related to the
development of our system. Virtually all of these expenses related to the
start-up of the business and were expensed according to American
Institute of Certified Public Accountants Statement of Position 98-5,
"Reporting on the Costs of Start-up Activities."
Non-cash Compensation Expense. Non-cash compensation expense totaled
$921,116 for the quarter ended June 30, 2000 and $1,802,578 for the
quarter ended June 30, 1999. For employees and non-employee directors,
this expense was determined using the provisions of Accounting Principles
Board Opinion No. 25 "Accounting for Stock Issued to Employees" and was
based on the estimated intrinsic value of the options at the measurement
date. The estimated intrinsic value represents the excess of the
estimated fair value over the exercise price of the option. For other
non-employees, this expense was determined using provisions of SFAS No.
123, "Accounting for Stock Based Compensation." Total non-cash
compensation expense recognized for the six months ended June 30, 2000
was $4,893,746 and $2,793,832 for the six months ended June 30, 1999.
Related Party Expenses. Related party expenses totaled $577,261 for the
quarter ended June 30, 2000 and $117,327 for the quarter ended June 30,
1999. Related party expenses totaled $916,207 and $225,152 for the six
month periods ended June 30, 2000 and 1999, respectively, and was
primarily comprised of information technology and other professional
consulting expenses incurred in connection with a contract between us and
a telecommunications engineering and consulting firm. Several key
officers and owners of this consulting firm have an equity ownership
interest in us.
Depreciation and Amortization. Depreciation and amortization during the
quarter ended June 30, 2000 totaled $2,490,990 and $118,432 for the
quarter ended June 30, 1999. For the six month periods ended June 30,
2000 and 1999, depreciation and amortization expenses totaled $4,747,937
and $127,056, respectively. 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.
Interest and Other Income. Interest and other income totaled $4,407,978
and $103,803 during the quarters ended June 30, 2000 and 1999,
respectively, and $6,722,463 and $341,071 for the six months ended June
30, 2000 and 1999, respectively. Interest and other income generally have
been generated from the investment of equity and loan proceeds held in
liquid accounts waiting to be deployed.
Interest Expense. Interest expense totaled $6,572,090 during the quarter
ended June 30, 2000 and $128,285 for the quarter ended June 30, 1999. For
the six months ended June 30, 2000, interest expense totaled $11,352,199
as compared to $135,379 for the same period of 1999. Interest expense in
2000 is primarily due to the accretion of interest related to the Senior
Discount Notes. Interest expense in 1999 was the result of debt
outstanding on a bank line of credit.
INCOME TAXES
We account for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The deferred
tax asset generated, primarily from temporary differences related to the
treatment of start-up costs, unearned compensation and from net operating
loss carry forwards, was offset by a full valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations through capital contributions from our
owners, through debt financing and through proceeds generated by our
initial public offering. On February 8, 2000 Alamosa entered into an
Amended and Restated Credit Agreement with Nortel Networks, Inc., and on
June 23, 2000, Nortel assigned the entirety of its loans and commitments
under the Amended and Restated Credit Agreement to Export Development
Corporation (the "Nortel/EDC Credit Facility").
17
<PAGE> 18
The Nortel/EDC Credit Facility was reduced by $75 million from the
issuance of Senior Discount Notes, such that the Nortel/EDC Credit
Facility provides advancing term loan facilities in the aggregate
principal amount of $175 million. Terms and conditions of the Nortel/EDC
Credit Facility after the assignment to EDC are substantially the same as
those before the assignment. However, the Company is no longer required
to maintain a $1 million cash balance as collateral against the
Nortel/EDC Credit Facility.
As of June 30, 2000, approximately $4.5 million of the $175 million
Nortel/EDC Credit Facility had been drawn. The terms of the facility do
not require cash interest payments until after the earlier of:
February 8, 2001, if we have not borrowed at least an additional
approximately $45.5 million under the Nortel/EDC Credit Facility by
that time;
February 8, 2002; and
the date the Tranche C Commitment is fully funded.
Principal payments are scheduled to begin on:
March 31, 2001, if we have not borrowed at least an additional
approximately $45.5 million under the Nortel/EDC Credit Facility by
February 8, 2001; or
September 30, 2002.
Our financing with EDC will be used to purchase equipment, pay interest
and cover approved working capital costs. With the Nortel/EDC Credit
Facility of $175 million, we are required to purchase a total of $167.0
million of equipment and services from Nortel, and as of June 30, 2000,
we had remaining commitments of $64.5 million.
The Senior Discount Notes (the "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 Notes will accrete to their $350 million
face amount by February 8, 2005, after which, interest will be paid in
cash semiannually.
Net cash used in operating activities was $2,769,666 and $3,106,121 for
the six months ended June 30, 2000 and 1999, respectively, and were
primarily attributable to operating losses and working capital needs.
Net cash used in investing activities was $65,271,540 for the six months
ended June 30, 2000, and $5,914,605 for the six months ended June 30,
1999. The cash used for the six months ended June 30, 2000 was related
primarily to the purchase of office equipment, and network infrastructure
needed to construct our portion of the Sprint PCS network and the
purchase of short-term investments of $21,840,763. The cash used for the
six months ended June 30, 1999 was primarily related to constructing our
portion of the Sprint PCS network and office equipment.
Net cash provided by financing activities for the six months ended June
30, 2000 was $303,423,776, consisting primarily of net proceeds of
approximately $195.0 million from our initial public offering and net
proceeds of approximately $181.0 million related to the issuance of
Senior Discount Notes, both of which occurred in February, 2000. Net cash
provided by financing activities was $3,568,744 for the six months ended
June 30, 1999 and was primarily related to capital contributions by our
investors.
As of June 30, 2000, the primary sources of liquidity for Alamosa were
approximately $261.8 million in cash and short-term investments, and
approximately $170 million of unused capacity under the $175.0 million
Nortel/EDC Credit Facility.
We believe that we have sufficient funds available through cash and
investments and available borrowings to complete the current build-out
plan and fund working capital losses through the year 2001. The actual
funds
18
<PAGE> 19
required to build-out our portion of the Sprint PCS network and to fund
operating losses and working capital needs may vary materially from our
estimates, and additional funds could be required.
On July 31, 2000, the Company signed definitive agreements to merge two
Sprint PCS affiliates, Roberts Wireless Communications, LLC ("Roberts")
and Washington Oregon Wireless, LLC ("WOW") into its operations. Roberts
has a management agreement with Sprint PCS to provide personal
communications services to approximately 2.5 million residents primarily
in the state of Missouri. WOW has a similar management agreement with
Sprint PCS to provide services to approximately 1.2 million people
primarily in Washington and Oregon.
Roberts' owners will exchange 100 percent ownership interest in Roberts
for 13.5 million shares of New Holdings and approximately $4.0 million in
cash. Holdings will assume the net debt of Roberts in the transaction,
which amounted to $56.0 million as of June 30, 2000.
WOW owners will exchange 100 percent ownership of WOW for 6.05 million
shares of New Holdings and $12.5 million in cash. Holdings will assume
the net debt of WOW in the transaction, which amounted to $10 million as
of June 30, 2000.
Each of these agreements is subject to the customary conditions to
closing, and there is no guarantee that they will close on schedule or at
all.
On July 31, 2000, the Company received a financing commitment from an
investment banking firm for a new $200 million senior secured credit
facility, to be made to a subsidiary of a newly formed holding company of
the Company. The facility is to be used for the working capital and
build-out needs for the Roberts and WOW acquisitions, including the
repayment of any debt assumed. The term of the facility, which is
composed of two tranches, is for seven years and the interest rate is to
be determined. The facility requires a commitment fee and arrangement
fees as well as warrants representing two percent of the Company's stock.
These warrants, which will have a sticker price of 20% over the Company's
stock price at the date of closing, can be eliminated by the infusion of
an additional $75 million of equity into the subsidiary. The facility
will require the Company and/or its subsidiary to maintain certain
financial covenants.
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
On December 3, 1999, the Securities and Exchange Commission ("SEC")
released Staff Accounting Bulletin 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). This bulletin established more clearly defined
revenue recognition criteria than previously existing accounting
pronouncements, and specifically addresses revenue recognition
requirements for nonrefundable fees, such as activation fees, collected
by a company upon entering into an arrangement with a customer, such as
an arrangement to provide telecommunications services. On June 26, 2000,
the SEC released SAB 101B, which delays the required implementation of
SAB 101 until no later than the fourth quarter of fiscal years ending
December 31, 2000. We believe that the effects of this bulletin will not
be material to our financial position, results of operations or cash
flows.
We do not believe that any other recently issued accounting
pronouncements will have a material impact on our financial position,
results of operations or cash flows.
DESCRIPTION OF OUR INDEBTEDNESS
We entered into the original Nortel/EDC Credit Facility effective June
10, 1999 with Nortel for $123 million. On February 8, 2000, we entered
into an Amended and Restated Credit Agreement with Nortel to increase the
19
<PAGE> 20
Nortel/EDC Credit Facility to $250.0 million. As of June 23, 2000, we had
borrowed $79.6 million under the facility and repaid $75 million, which
reduced the facility to $175 million. We agreed that this $75 million
would not be reborrowed from Nortel. On June 23, 2000, Nortel assigned
the entirety of its loans and commitments under the Amended and Restated
Credit Agreement to Export Development Corporation ("EDC"). Pursuant to
our equipment agreement with Nortel, we are required to purchase a total
of $167.0 million of equipment and services from Nortel, $112.2 million
of which we were still required to purchase as of June 30, 2000.
On December 23, 1999, Holdings filed a registration statement with the
SEC for the issuance of $350 million face amount of Senior Discount Notes
(the "Notes Offering"). The Notes Offering was completed on February 4,
2000 and generated net proceeds of approximately $181 million after
underwriters' commissions and expenses of approximately $6.5 million.
For more information regarding the Nortel/EDC Credit Facility, the
consent and agreement between Sprint PCS and Nortel regarding the rights
and remedies of Sprint PCS and Nortel, and our senior discount notes, see
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation" of the Company's 1999 Annual Report on Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For the quarter ended June 30, 2000, we did not experience any material
changes in market risk exposures that affect the quantitative and
qualitative disclosures presented in our 1999 Annual Report on Form 10-K.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
We commenced our initial public offering on February 3, 2000 pursuant to
a Registration Statement on Form S-1, file no. 333-89995, that was
declared effective on February 2, 2000. On February 8, 2000, we
consummated the offering. In the offering, we registered and sold an
aggregate of 12,321,100 shares of our common stock, including 1,607,100
shares of common stock pursuant to the exercise of the underwriters'
over-allotment option. The aggregate price of the shares offered and sold
was approximately $208.6 million. Our net proceeds, after accounting for
approximately $13.6 million in underwriting discounts, commissions and
other related expenses, were approximately $195 million.
We commenced our sale of the senior discount notes on February 3, 2000
pursuant to a Registration Statement on Form S-1, file no. 333-93499,
that was declared effective on February 2, 2000. On February 8, 2000, we
consummated the offering. In the offering, we registered and sold $350
million aggregate principal amount at maturity of the senior discount
notes at an aggregate price to the public of $187.1 million. Our net
proceeds from the sale of the senior discount notes, after accounting for
approximately $6.5 million in underwriting discounts and commissions and
other offering expenses, were approximately $181 million.
As of July 20, 2000, approximately $125 million of the net proceeds from
the sales of the registered securities had been used, including $75
million of indebtedness outstanding under the Nortel/EDC Credit Facility,
$4 million of origination fees in connection with the Nortel/EDC Credit
Facility and $46 million for capital expenditures and working capital
purposes. The balance of the net proceeds were invested in short-term
interest-bearing investment grade securities.
20
<PAGE> 21
None of the net offering proceeds was, directly or indirectly, paid by us
to our directors or officers or their associates, persons owning 10% or
more of any class of our securities, or our affiliates, except that
portions of the proceeds of the offering will be paid to CHR Solutions in
connection with the build out of our network. Mr. David Sharbutt, New
Holdings' chairman and chief executive officer, is also a senior
consultant, director and shareholder of CHR Solutions. For the year to
date 2000, the Company has paid approximately $3.1 million to CHR
Solutions.
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) Reports on Form 8-K:
None
(b) Exhibits:
27.1 Financial Data Schedule*
-----------------------
* Filed herewith.
21
<PAGE> 22
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 PCS 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)
August 14, 2000
22
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27.1 Financial Data Schedule*
</TABLE>
-----------------------
* Filed herewith.
