<PAGE>
Exhibit 99.4.4
INDEPENDENT AUDITOR'S REPORT
To the Management Committee
Virginia PCS Alliance, L.C.
Waynesboro, Virginia
We have audited the accompanying balance sheets of Virginia PCS Alliance, L.C.
as of December 31, 1999 and 1998, and the related statements of operations,
members' equity (deficit) and cash flows for each of the years in the three-
year period ended December 31, 1999. These financial statements are the
responsibility of the Alliance's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Virginia PCS Alliance, L.C.
as of December 31, 1999 and 1998, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1999, in conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen LLP
Richmond, Virginia
February 17, 2000
1
<PAGE>
VIRGINIA PCS ALLIANCE, L.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS (Note 2)
Current Assets
Cash and cash equivalents........................ $ 64,052 $ 59,814
Accounts receivable, net of allowance of $561,861
($194,958 in 1998).............................. 1,790,159 570,893
Account receivable, other........................ 867,376 373,952
Inventories...................................... 5,996,148 2,271,572
Prepaid expenses................................. 522,798 371,924
------------ ------------
Total current assets........................... 9,240,533 3,648,155
------------ ------------
Subordinated Capital Certificates.................. 4,522,811 3,838,366
------------ ------------
Property and Equipment
Land and building................................ 1,864,318 1,220,533
Network plant and equipment...................... 73,920,705 63,311,713
Furniture, fixtures and other equipment.......... 5,913,845 4,057,770
Radio spectrum licenses.......................... 32,714,384 32,714,384
------------ ------------
Total in service............................... 114,413,252 101,304,400
Under construction............................... 6,991,159 2,565,479
------------ ------------
121,404,411 103,869,879
Less accumulated depreciation.................... 14,989,390 7,257,206
------------ ------------
106,415,021 96,612,673
------------ ------------
Other Assets....................................... 663,374 216,705
------------ ------------
$120,841,739 $104,315,899
============ ============
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable................................. $ 3,737,845 $ 8,437,551
Due to affiliates (Note 6)....................... 2,900,955 2,260,982
Dividends payable (Note 3)....................... 229,138 229,138
Customer deposits................................ 152,758 56,187
Advance billings................................. 80,702 71,518
Accrued interest................................. 355,970 726,992
Accrued payroll.................................. 98,680 150,515
Accrued taxes.................................... 39,676 35,878
Other accrued liabilities........................ 37,075 22,129
------------ ------------
Total current liabilities...................... 7,632,799 11,990,890
------------ ------------
Long-Term Debt (Note 2)............................ 131,478,017 90,301,358
------------ ------------
Redeemable Series A Preferred Membership Interests
(Note 3).......................................... 15,191,674 14,345,128
------------ ------------
Commitments (Note 5)
Members' Equity (Deficit) (Note 4)
Series B preferred membership interests.......... 15,094,337 10,860,376
Common membership interests...................... (48,555,088) (23,181,853)
------------ ------------
(33,460,751) (12,321,477)
------------ ------------
$120,841,739 $104,315,899
============ ============
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
VIRGINIA PCS ALLIANCE, L.C.
STATEMENTS OF OPERATIONS
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Operating revenues:
Subscriber revenue.................. $ 7,957,059 $ 1,738,543 $ 72,519
Wholesale revenue................... 3,903,356 2,175,733 2,400
Equipment sales..................... 1,516,240 730,356 43,552
------------ ------------ -----------
13,376,655 4,644,632 118,471
------------ ------------ -----------
Operating expenses:
Cost of sales....................... 5,863,735 3,009,537 315,017
Maintenance and support............. 6,638,337 5,166,427 756,992
Depreciation and amortization....... 7,769,480 7,040,676 685,826
Customer operations................. 8,684,604 5,729,097 1,444,291
Corporate operations................ 2,517,056 2,111,408 234,154
------------ ------------ -----------
31,473,212 23,057,145 3,436,280
------------ ------------ -----------
Loss before interest and preferred
dividends........................ (18,096,557) (18,412,513) (3,317,809)
Interest income (expense):
Interest income..................... 262,094 -- --
Senior credit facility.............. (6,390,325) (4,131,445) (163,067)
Redeemable preferred interest....... (1,914,486) (1,870,988) (471,119)
------------ ------------ -----------
Net loss.............................. $(26,139,274) $(24,414,946) $(3,951,995)
============ ============ ===========
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
VIRGINIA PCS ALLIANCE, L.C.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss............................ $(26,139,274) $(24,414,946) $ (3,951,995)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation...................... 6,914,324 6,527,202 634,568
Amortization...................... 855,156 513,474 51,258
Changes in assets and liabilities:
(Increase) in:
Accounts receivable............. (1,712,690) (845,973) (98,872)
Inventories..................... (3,724,576) (1,412,802) (858,770)
Prepaid expenses................ (150,874) (128,132) (243,792)
Increase (decrease) in:
Accounts payable, trade......... 515,676 (4,119,974) 1,811,698
Advance billings and customer
deposits....................... 105,755 98,099 29,606
Accrued interest................ (371,022) 132,406 163,067
Accrued dividends on Series A
Preferred Membership
Interests...................... 814,587 771,087 415,398
Other accrued liabilities....... (33,091) 192,993 (51,634)
------------ ------------ ------------
Net cash used in operating
activities................... (22,926,029) (22,686,566) (2,099,468)
------------ ------------ ------------
Cash Flows From Investing Activities
Purchase of property and
equipment........................ (22,749,914) (34,826,975) (23,531,184)
Increase in patronage capital
certificates..................... (466,833) -- --
Purchase of radio specturm
licenses......................... -- -- (1,927,154)
Decrease in deferred charges...... 14,827 -- (473,575)
------------ ------------ ------------
Net cash used in investing
activities................... (23,201,920) (34,826,975) (25,931,913)
------------ ------------ ------------
Cash Flows From Financing Activities
Capital contributions, net........ 5,000,000 3,000,000 1,623,514
Advances from affiliates.......... 639,973 1,600,599 127,080
Borrowings on revolving credit
agreements, net.................. 27,487,693 273,024 1,881,695
Proceeds from long-term
borrowings....................... 13,004,521 52,540,650 20,609,405
------------ ------------ ------------
Net cash provided by financing
activities................... 46,132,187 57,414,273 24,241,694
------------ ------------ ------------
Net increase (decrease) in
cash and cash equivalents.... 4,238 (99,268) (3,789,687)
Cash and Cash Equivalents
Beginning......................... 59,814 159,082 3,948,769
------------ ------------ ------------
Ending............................ $ 64,052 $ 59,814 $ 159,082
============ ============ ============
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
VIRGINIA PCS ALLIANCE, L.C.
STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- -----------
<S> <C> <C> <C>
Supplemental Schedule of Noncash Investing
and Financial Activities
Noncash increase in radio spectrum licenses
consisting primarily of accrued
dividends................................. $ -- $ -- $ 431,519
========== ========== ===========
Supplemental Schedule of Noncash Investing
and Financing Activities
Noncash increases in property and equipment
consisting primarily of accrued
construction costs, accounts payable,
accrued dividends, and capitalization of
other intangible costs.................... $ 829,430 $6,044,812 $26,808,718
========== ========== ===========
Subordinated capital certificates acquired
by long-term borrowings................... $ 684,445 $2,765,302 $ 1,073,064
========== ========== ===========
Supplemental Disclosure of Cash Flow
Information
Cash payments for interest................. $7,064,868 $4,419,430 $ 517,490
========== ========== ===========
Cash payments for redeemable preferred
interest.................................. $1,099,899 $1,099,896 $ 870,754
========== ========== ===========
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
VIRGINIA PCS ALLIANCE, L.C.
STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Series B
Preferred Common
Membership Membership
Interests Interests Total
----------- ------------ ------------
<S> <C> <C> <C>
Balance as of January 1, 1997.......... $ 7,820,000 $ 3,601,950 $ 11,421,950
Capital contributions................ -- 1,638,050 1,638,050
Issuance costs....................... -- (14,536) (14,536)
Conversion of Common Membership
Interest............................ 500,000 (500,000) --
Net loss............................. -- (3,951,995) (3,951,995)
----------- ------------ ------------
Balance as of December 31, 1997........ 8,320,000 773,469 9,093,469
Capital contributions................ 2,540,376 459,624 3,000,000
Net loss............................. -- (24,414,946) (24,414,946)
----------- ------------ ------------
Balance as of December 31, 1998........ 10,860,376 (23,181,853) (12,321,477)
Capital contributions................ 4,233,961 766,039 5,000,000
Net loss............................. -- (26,139,274) (26,139,274)
----------- ------------ ------------
Balance as of December 31, 1999........ $15,094,337 $(48,555,088) $(33,460,751)
=========== ============ ============
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
VIRGINIA PCS ALLIANCE, L.C.
NOTES TO FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies
The Virginia PCS Alliance, L.C. ("Alliance") was organized in 1994 pursuant to
the provisions of the Virginia Limited Liability Company Act. The Alliance was
formed to fund, establish and operate a business to design, construct, own,
operate and maintain a personal communications system to provide personal
communications services ("PCS") in central and western Virginia. Operations
commenced during September 1997, prior to which the Alliance was in the
development stage. Its major activities through September 1997 were limited to
acquiring PCS radio spectrum licenses, designing and constructing a personal
communications system and obtaining equity capital.
CFW Wireless Inc., a wholly-owned subsidiary of CFW Communications Company, is
responsible for managing and operating the Alliance pursuant to the terms and
conditions of the service agreement and within the framework of the approved
operating and capital business plan.
The following is a summary of the Alliance's significant accounting policies:
Accounting estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Cash and cash equivalents: The Alliance considers all highly liquid cash
investments with a purchased maturity of three months or less to be cash
equivalents. At times such investments may be in excess of federally-
insured amounts.
Inventories: Inventories include PCS telephone equipment held for sale and
are stated at the lower of average cost or market.
Property and equipment: Property and equipment is stated at cost and
depreciated using the straight-line method over their estimated useful
lives. Buildings are depreciated over a 50-year life. Network plant and
equipment are depreciated over various lives ranging from 5 to 17 years,
with an average life of approximately 10 years for the category. Furniture,
fixtures and other equipment are depreciated over various lives ranging
from 3 to 24 years. Radio spectrum licenses, which are for areas where the
licenses are being used in operations, are amortized over a life of 40
years. The Alliance includes radio spectrum licenses in other assets until
such licenses are placed in service. Assets under construction represent
costs incurred for the construction of cell sites, including allocated
overhead costs.
Revenue recognition: The Alliance earns revenue by providing access to and
usage of its personal communications network. Local service and airtime
revenues are recognized as services are provided. Wholesale revenues are
earned by providing switch access and other switching services, including
roamer management, to other wireless carriers. Wholesale prices are based
on actual annual fixed and variable costs. Other revenues for equipment
sales are recognized at the point of sale. Handset equipment is sold at
prices below cost. Prices are based on the service contract period. The
Alliance recognizes the entire cost of the handsets at the point of sale,
rather than deferring such costs over the service contract period.
7
<PAGE>
VIRGINIA PCS ALLIANCE, L.C.
NOTES TO FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies (Continued)
Fair value of financial instruments: The fair value of financial
instruments recorded on the balance sheets are not significantly different
than the carrying amounts.
Income taxes: The Alliance is treated as a partnership for income tax
purposes. The Internal Revenue Code and applicable state statutes provide
that income and expenses of a partnership are not separately taxable, but
rather accrue directly to the members as provided by agreement.
Accordingly, no provision for federal or state income taxes has been made
in the financial statements.
Financial statement classifications: Certain amounts on the 1998 and 1997
financial statements have been reclassified, with no effect on net loss or
members' equity (deficit) to conform with classifications adopted in 1999.
Note 2. Long-Term Debt
Long-term debt consists of the following as of December 31:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Vendor Supported Loan................................. $ 75,000,000 $71,139,502
Supplemental Loan..................................... 15,456,231 5,627,763
Line of Credit........................................ 29,642,412 2,154,719
U. S. Department of the Treasury, FCC................. 11,154,374 11,154,374
Other................................................. 225,000 225,000
------------ -----------
$131,478,017 $90,301,358
============ ===========
</TABLE>
In September 1996, the Alliance entered into two 7.00% installment notes with
the Federal Communications Commission ("FCC") related to licenses awarded in
the PCS radio spectrum Block "C" auction. Interest only is payable quarterly
through September 30, 2002. Commencing December 31, 2002, principal and
interest is payable in equal quarterly installments of $805,341 through June
30, 2006. The entire unpaid principal amount, together with accrued and unpaid
interest, is due September 17, 2006 ("Maturity Date").
The Alliance has a $146.0 million Senior Secured Credit Facility with the
Rural Telephone Financing Cooperative ("RTFC" or "Lender"). This credit
facility was entered into in 1999 and replaced the Alliance's previous $89
million senior secured credit facility. The available facilities consist of a
7-year term loan ("Vendor Supported Loan") in the amount of $75.0 million, a
7-year term loan ("Supplemental Loan") in the amount of $36.0 million, and a
7-year revolving line of credit loan ("Line of Credit") in the amount of $35.0
million.
The Vendor Supported Loan is to finance up to $71.25 million of Motorola
("Vendor") supplied PCS equipment and engineering services, nonvendor related
capital expenditures, microwave relocation expenses and working capital, and
to purchase up to $3.75 million of RTFC subordinated capital certificates
("SCCs"). The Supplemental Loan is to finance up to $34.2 million of
nongovernment-funded PCS license costs, microwave relocation expenses, non-
Motorola related capital expenditures and working capital, and to purchase up
to $1.8 million of RTFC SCCs.
8
<PAGE>
VIRGINIA PCS ALLIANCE, L.C.
NOTES TO FINANCIAL STATEMENTS
Note 2. Long-Term Debt (Continued)
The RTFC SCC's are nonmarketable securities and are stated at historical cost.
As the RTFC loans are repaid, the SCCs will be refunded through a cash payment
to maintain a 5% SCCs-to-outstanding loan balance ratio.
Interest only is payable through four years for the Vendor Supported and
Supplemental Loans. After this time, principal is payable in quarterly
installments, plus accrued interest, with 10% of the principal due in year
five, 15% due per year in years six and seven, and the final 60% is due at the
maturity date, October 15, 2006.
As borrowings occur, the Alliance can choose between several fixed and
variable rate interest options. The variable interest rate in effect on the
nonfixed portions of the Vendor Supported and Supplemental Loans at December
31, 1999 and 1998 was 7.45% and 6.60%, respectively. In January 1998, the
Alliance converted $15.0 million of the Vendor Supported Loan to a fixed rate
of 7.25%. This rate is in effect until January 2003, at which time the loan
will revert to the variable rate. In September 1998, the Alliance converted
$27.0 million of the Vendor Supported Loan to a fixed rate of 6.55%. This rate
is in effect until September 2001, at which time the loan will revert to the
variable rate.
The credit facility includes a line of credit to supplement the Alliances
general short-term cash requirements. The line of credit is to be repaid on
October 15, 2006. The interest rate on the Line of Credit is the RTFC's
standard monthly quoted line of credit rate plus 0.5%. The interest rate in
effect on the Line of Credit at December 31, 1999, 1998, and 1997 was 8.10%,
7.20% and 7.75%, respectively.
Interest costs in 1999 were approximately $6.7 million of which $6.4 was
expensed and $0.3 million was capitalized. Interest costs in 1998 were
approximately $4.5 million of which $4.1 million was expensed and $0.4 million
was capitalized. Interest costs in 1997 were approximately $1.1 million, of
which $0.2 million was expensed and $0.9 million was capitalized.
All of the Alliance's present and future assets are pledged as security for
the RTFC loans. In addition, each member of the Alliance has entered into an
irrevocable unsecured pro rata guaranty with the RTFC for up to $68.3 million
in the aggregate. As additional credit support for the Vendor Supported Loan
and the supplemental loan, Motorola has entered into a guaranty agreement with
the RTFC for up to $77.7 million of the Alliance's outstanding indebtedness.
The loan agreements contain various restrictive covenants, including negative
covenants, related to additional indebtedness, payment of dividends,
redemption of membership interests and payment of management fees. The
agreements also contain financial covenants related to cash flows, population
coverage and number of subscribers.
9
<PAGE>
VIRGINIA PCS ALLIANCE, L.C.
NOTES TO FINANCIAL STATEMENTS
Note 2. Long-Term Debt (Continued)
Long-term debt maturities of amounts of Vendor Supported and Supplemental
loans outstanding at December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000 through 2002.................................................. $ --
2003............................................................... 4,522,812
2004............................................................... 11,307,029
Thereafter......................................................... 115,648,176
------------
Total............................................................ $131,478,017
============
</TABLE>
The RTFC allocates a large percentage of its annual margins to its patrons. A
majority portion of the allocation is returned to the borrowers in cash. The
remainder is issued to borrowers in the form of patronage capital
certificates, which are retired in cash on an RTFC board approved cycle. In
1999, the Alliance received a cash distribution for 1998 patronage capital in
the amount of $123,993. A $419,260 receivable for the 1999 cash distribution
was recorded and is reflected in Other receivables on the Alliance's balance
sheet. The net present value of the total patronage capital certificates was
$466,833 at December 31, 1999 and is reflected in Other assets on the
Alliance's balance sheet. The Alliance records Patronage Capital as a
reduction in interest expense.
Note 3. Series A Preferred Membership Interests
The Series A Preferred Membership Interests consists of 1,294,000 units issued
on December 30, 1996 at $10.00 per unit (stated value). Total proceeds were
$12,940,000 before issuance costs. These units are entitled to cumulative, but
not compounded, cash distributions at 8.5% per annum. This amount is payable
quarterly for five years from the date contributed, at which time a "true up"
amount is payable for the difference between an amount computed based on a 14%
compounded annualized rate of return and the cumulative amount described above
at 8.5%. At December 31, 1999, 1998 and 1997, accrued current dividends were
approximately $229,000 for each date and accrued "true up" dividends were
approximately $2,316,000, $1,501,000 and $730,000, respectively. Accrued "true
up" dividends are included on the balance sheet with "Redeemable Series A
Preferred Membership Interests."
At any time after the fifth anniversary of the capital contribution date, each
Series A Preferred Member may put all, but not less than all, of its Preferred
Series A Membership Interest to the Alliance in exchange for cash equivalent
to the stated value, plus any accrued distributions. If such put takes place,
additional Common Membership Interests may be acquired at $10.00 per unit for
88.1% of the put amount by CFW Communications Company and for 11.9% of the put
amount by R&B Communications, Inc., both Common Members.
For any Series A Preferred Membership Interests not put to the Alliance as of
the fifth anniversary date as well as any "true up" amounts due, the annual
cash distribution rate will be changed to the lesser of 7% or LIBOR plus 1
1/2%, payable quarterly. After ten years from the Series A capital
contribution date, the Alliance may redeem at any time any or all of the
Series A Preferred Membership Interests still outstanding at the Stated Value
plus any accrued distributions.
10
<PAGE>
VIRGINIA PCS ALLIANCE, L.C.
NOTES TO FINANCIAL STATEMENTS
Note 4. Members' Equity (Deficit)
Members' equity (deficit) consists of the following classes of membership
interests:
Series B Preferred Membership Interests: This consists of 782,000 units
issued on September 30, 1996 at $10.00 per unit (stated value), 50,000
units converted from Common Units on August 27, 1997 at $10.00 per unit
(stated value), 115,471.6 units issued on January 6, 1998 at $22.00 per
unit (stated value), and 192,452.7 units issued on January 4, 1999 at
$22.00 per unit (stated value). Dividends are payable beginning after the
tenth year from the capital contribution date at 8% per annum, payable
quarterly and are cumulative, but not compounded. After the fourth year
from the capital contribution date, the Series B units are convertible into
Common Membership Interests on a unit-for-unit basis.
Common Membership Interests: Common membership interests consist of a
440,363.8 Common Units. Additional future cash contributions may be
required from the Common Members on the same terms and conditions of their
initial Capital Contribution. If any Common Member fails to make the
additional contributions, their existing capital account balance may be
redeemed at 25% and amounts forfeited would be allocated among the
remaining Common Members.
Equity Subscriptions: The members entered into equity subscription
agreements that obligate them to contribute $30 million in the aggregate of
which $8 million had been contributed as of December 31, 1999. The
remaining additional equity contributions are scheduled to be contributed
over three years: $10 million in 2000; $10 million in 2001 and $2 million
in 2002. Such contributions shall be for the purchase, at fair market
value, of Common Membership or Series B Preferred Membership units.
In January 2000, the members contributed $5.0 million to the Alliance,
purchasing 34,820 Common Units for $0.8 million and 192,452.7 Series B
Preferred Membership Units for approximately $4.2 million.
Note 5. Commitments
Leases: The Alliance leases property for cell site locations and retail
stores. Leases for cell site locations vary in term from five to twenty
years. Leases for retail store locations vary in term from three to five
years. Certain cell site location leases have been prepaid and are being
amortized on a straight-line basis over the total lease term. Total annual
lease expense for the years ended December 31, 1999, 1998 and 1997 was
approximately $1,571,000, $1,169,000 and $212,000, respectively. The total
amount committed under these lease agreements is $1,353,576 in 2000,
$1,320,316 in 2001, $1,159,081 in 2002, $853,706 in 2003, $569,760 in 2004
and $2,040,167 for the years thereafter.
Equipment: The Alliance had outstanding purchase commitments of
approximately $2.2 million at December 31, 1999.
11
<PAGE>
VIRGINIA PCS ALLIANCE, L.C.
NOTES TO FINANCIAL STATEMENTS
Note 6. Related Party Transactions
All transactions of the Alliance are administered by the managing partner. CFW
Wireless, a subsidiary of CFW Communications Company, provided engineering,
construction, sales management, billing, customer care and other general and
administrative services to the Alliance in accordance with the service
contract, which totalled $4,751,731 in 1999, $3,015,260 in 1998 and $1,757,204
in 1997. Of the total 1999 charges, $4,253,119 ($2,684,701 in 1998 and
$815,899 in 1997) was expensed and $498,612 ($330,559 in 1998 and $941,305 in
1997) was capitalized. CFW Communications Company also provided certain
corporate services for the Alliance in the amount of $2,094,421 in 1999,
$1,310,486 in 1998 and $336,650 in 1997. All corporate services were expensed
in 1999 and 1998, and of the total 1997 charges, $161,281 was expensed and
$175,369 was capitalized during the construction and startup period. Corporate
services include executive, finance, accounting, human resources, information
management and marketing services. Such services are charged to the Alliance
at cost. In addition, the managing partner advances funds to the Alliance to
cover expenditures incurred. These advances are included in due to affiliates
in the accompanying balance sheets. Interest on outstanding advances was
$240,627 in 1999.
Switch access and switching services are provided at cost to the West Virginia
PCS Alliance L.C. and the Virginia RSA6 Cellular Limited Partnership, both
affiliated through common ownership and management. Such services have been
recorded as wholesale revenue and totaled $1,454,228 in 1999, $1,639,595 in
1998 and $47,400 in 1997.
12
<PAGE>
VIRGINIA PCS ALLIANCE L.C.
CONDENSED BALANCE SHEETS
March 31, 2000 and December 31, 1999
<TABLE>
<CAPTION>
March 31,
2000 December 31, 1999
------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................... $ 64,925 $ 64,052
Accounts receivable, net of allowance....... 1,611,596 1,790,159
Accounts receivable, other.................. 420,606 867,376
Inventories................................. 9,098,151 5,996,148
Prepaid expenses............................ 427,509 522,798
------------ ------------
Total current assets...................... 11,622,787 9,240,533
Subordinated Capital Certificates............. 4,529,491 4,522,811
Property and Equipment
Land and building........................... 1,901,773 1,864,318
Network plant and equipment................. 65,364,765 73,920,705
Furniture, fixtures and other equipment..... 6,008,035 5,913,845
Radio spectrum licenses..................... 32,714,384 32,714,384
------------ ------------
Total in service.......................... 105,988,957 114,413,252
Under construction.......................... 9,490,962 6,991,159
------------ ------------
115,479,919 121,404,411
Less accumulated depreciation............... 16,097,619 14,989,390
------------ ------------
99,382,300 106,415,021
Other Assets.................................. 837,099 663,374
------------ ------------
$116,371,677 $120,841,739
============ ============
LIABILITIES AND MEMBER'S EQUITY (DEFICIT)
Current Liabilities
Accounts payable............................ $ 5,659,097 $ 3,737,845
Due to affiliates........................... 4,351,376 2,900,955
Dividends payable........................... 229,138 229,138
Customer deposits........................... 426,455 152,758
Advance billings............................ 104,035 80,702
Accrued interest............................ 208,277 355,970
Accrued payroll............................. 98,707 98,680
Accrued taxes............................... 135,837 39,676
Other accrued liabilities................... 52,010 37,075
------------ ------------
Total current liabilities................. 11,264,932 7,632,799
Long-Term Liabilities
Long-term debt.............................. 116,118,994 131,478,017
Other long term liabilities................. 9,363,321 --
------------ ------------
125,482,315 131,478,017
Redeemable Series A Preferred Membership
Interests.................................... 15,410,392 15,191,674
Members' Equity (Deficit)
Series B preferred membership interests..... 19,328,298 15,094,337
Common membership interests................. (55,114,260) (48,555,088)
------------ ------------
(35,785,962) (33,460,751)
------------ ------------
$116,371,677 $120,841,739
============ ============
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
VIRGINIA PCS ALLIANCE L.C.
CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2000, and 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
(Unaudited) ---
<S> <C> <C> <C>
Operating revenues:
Subscriber revenue.............................. $ 2,626,820 $ 1,600,770
Wholesale revenue............................... 1,739,504 824,212
Equipment revenue............................... 422,220 359,651
----------- -----------
4,788,544 2,784,633
----------- -----------
Operating expense:
Cost of sales................................... 2,209,551 1,725,950
Maintenance and support......................... 1,980,616 1,340,693
Depreciation and amortization................... 2,075,387 2,167,619
Customer operations............................. 2,392,483 1,718,654
Corporate operations............................ 774,670 641,597
----------- -----------
9,432,707 7,594,513
----------- -----------
Operating Loss................................ (4,644,163) (4,809,880)
Interest expense
Interest expense................................ (2,195,346) (1,249,110)
Redeemable preferred interest................... (485,702) (474,449)
----------- -----------
(2,681,048) (1,723,559)
----------- -----------
Net Loss.......................................... $(7,325,211) $(6,533,439)
=========== ===========
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
VIRGINIA PCS ALLIANCE L.C.
CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
------------ -----------
(Unaudited)
<S> <C> <C>
Cash Flows From Operating Activities
Net loss.......................................... $ (7,325,211) $(6,533,439)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation.................................... 1,859,514 1,953,830
Amortization.................................... 215,873 213,790
Changes in assets and liabilities
(Increase) in:
Accounts receivable........................... 625,333 (2,194,145)
Inventories................................... (3,102,003) (1,713,763)
Prepaid expenses.............................. 95,289 3,287
Increase (decrease) in:
Accounts payable, trade....................... 1,351,784 986,182
Advance billings and customer deposits........ 297,030 (36,741)
Accrued interest.............................. (147,693) (111,518)
Accrued dividends on Series A Preferred....... 210,727 199,475
Other accrued liabilities..................... 111,124 126,817
------------ -----------
Net cash used in operating activities....... (5,808,233) (7,106,225)
------------ -----------
Cash Flows From Investing Activities
Purchase of property and equipment................ (2,842,799) (7,496,227)
Proceeds of sale of towers........................ 17,744,333 --
Increase in patronage capital certificates........ (195,535) --
Decrease in deferred charges...................... 18,391 170,000
------------ -----------
Net cash provided by (used in) investing
activities................................... 14,724,390 (7,326,227)
------------ -----------
Cash Flows From Financing Activities
Capital contributions, net........................ 5,000,000 5,000,000
Advances from (payments to) affiliates............ 1,450,419 (232,205)
Borrowings (Repayments) on revolving credit
agreements, net.................................. (15,492,613) 1,845,281
Proceeds from long-term borrowings................ 126,910 7,821,101
------------ -----------
Net cash provided by (used in) financing
activities................................... (8,915,284) 14,434,177
------------ -----------
Net increase in cash and cash equivalents..... 873 1,725
Cash and Cash Equivalents:
Beginning......................................... 64,052 59,814
------------ -----------
Ending............................................ $ 64,925 $ 61,539
============ ===========
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
VIRGINIA PCS ALLIANCE L.C.
CONDENSED STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Series B
Preferred Common
Membership Membership
Interests Interests Total
----------- ------------ ------------
<S> <C> <C> <C>
Balance as of January 1, 1999.......... $10,860,376 $(23,181,853) $(12,321,477)
Capital contributions................ 4,233,961 766,039 5,000,000
Net loss............................. -- (6,533,439) (6,533,439)
----------- ------------ ------------
Balance as of March 31, 1999........... 15,094,337 (28,949,253) (13,854,916)
Net loss............................. -- (7,112,357) (7,112,357)
----------- ------------ ------------
Balance as of June 30, 1999............ 15,094,337 (36,061,610) (20,967,273)
Net loss............................. -- (6,244,336) (6,244,336)
----------- ------------ ------------
Balance as of September 30, 1999....... 15,094,337 (42,305,946) (27,211,609)
Net loss............................. -- (6,249,142) (6,249,142)
----------- ------------ ------------
Balance as of December 31, 1999........ 15,094,337 (48,555,088) (33,460,751)
Capital contributions................ 4,233,961 766,039 5,000,000
Net loss............................. -- (7,325,211) (7,325,211)
----------- ------------ ------------
Balance as of March 31, 2000........... $19,328,298 $(55,114,260) $(35,785,962)
=========== ============ ============
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
VIRGINIA PCS ALLIANCE, L.C.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) In the opinion of the managing member of the Alliance, the accompanying
financial statements which are unaudited, except for the balance sheet
dated December 31, 1999, contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial
position as of March 31, 2000 and December 31, 1999 and the results of
operations for the three months ended March 31, 2000 and 1999 and cash
flows for the three months ended March 31, 2000 and 1999. The results of
operations for the three months ended March 31, 2000 and 1999 are not
necessarily indicative of the results to be expected for the full year.
(2) In March 2000, the Alliance sold 56 towers for $17.9 million to Crown
Castle International Corp (Crown). In April 2000, the Alliances sold a
total of 3 towers for $1.0 million to Crown. In connection with these
transactions, the Alliance has certain future leaseback and other
commitments. Accordingly, these gains have been deferred for book purposes
and will be amortized over the life of the leaseback agreement.
(3) In January 2000, the members contributed $5.0 million to the Alliance,
purchasing 34,820 Common Membership Units for $0.8 million and 192,452.7
Series B Preferred Membership Units for approximately $4.2 million.
17
