FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION FILE NO.: 333-66358
ALAMOSA HOLDINGS, INC.
30,649,990 SHARES OF COMMON STOCK
----------------
SUPPLEMENT NO. 5 TO
PROSPECTUS
----------------
This prospectus supplement relates to the resale by selling stockholders of
up to 30,649,990 shares of our common stock that the selling stockholders
acquired from us in connection with our acquisitions of companies formerly owned
by them. We will not receive any of the proceeds from the sale of any of these
shares by the selling stockholders.
You should read this prospectus supplement in conjunction with the
prospectus dated September 28, 2001, filed by us with the Securities and
Exchange Commission, prospectus supplement no. 1, filed by us with the
Securities and Exchange Commission on October 18, 2001, prospectus supplement
no. 2, filed by us with the Securities and Exchange Commission on October 30,
2001, prospectus supplement no. 3, filed by us with the Securities and Exchange
Commission on November 14, 2001 and prospectus supplement no. 4, filed by us
with the Securities and Exchange Commission on February 28, 2002. All terms used
in this prospectus supplement have the meaning assigned to them in the
prospectus. Our common stock is traded on The New York Stock Exchange under the
symbol "APS." On March 28, 2002, the last reported sale price of one share of
our common stock was $5.03.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
This supplement is part of the prospectus and must accompany the prospectus
to satisfy prospectus delivery requirements under the Securities Act of 1933, as
amended.
The date of this prospectus supplement is March 29, 2002.
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001
On March 29, 2002, we filed with the Securities and Exchange Commission the
attached Annual Report on Form 10-K for the year ended December 31, 2001.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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COMMISSION FILE NUMBER: 0-32357
ALAMOSA HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2890997
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
5225 SOUTH LOOP 289, LUBBOCK, TEXAS 79424
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (806) 722-1100
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS:
------------------------------------------------------------------------
ALAMOSA HOLDINGS, INC. COMMON STOCK, PAR VALUE $.01 PER SHARE
ALAMOSA HOLDINGS, INC. PREFERRED STOCK PURCHASE RIGHTS
----------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
As of March 27, 2002, 92,915,470 shares of common stock of the registrant were
issued and outstanding. The aggregate market value of voting common stock (based
on the closing stock price on March 27, 2002) held by non-affiliates was
approximately $427,200,000. (For purposes of determination of the foregoing
amount, only directors, executive officers and 10% or greater stockholders have
been deemed affiliates.)
The registrant's proxy statement for its 2002 annual meeting is hereby
incorporated by reference into Part III of this Form 10-K. [X]
TABLE OF CONTENTS
PAGE
PART I
ITEM 1. BUSINESS.......................................................3
ITEM 2. PROPERTIES....................................................25
ITEM 3. LEGAL PROCEEDINGS.............................................25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........25
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS...........................................25
ITEM 6. SELECTED FINANCIAL DATA.......................................26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION............................28
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....46
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...........................48
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............48
ITEM 11. EXECUTIVE COMPENSATION........................................48
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT....................................................48
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................48
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K......................................................48
PART I
THIS ANNUAL REPORT CONTAINS FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K 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. All statements other than statements of historical fact included in
this annual report on Form 10-K, including without limitation, the statements
under "Item 1. Business" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation" and located elsewhere herein
regarding our financial position and liquidity are forward-looking statements.
These forward-looking statements also include:
o forecasts of growth in the number of consumers using wireless
personal communications services and in estimated populations;
o statements regarding our anticipated revenues, expense levels,
liquidity and capital resources and operating losses; and
o statements regarding expectations or projections about markets in
our territories.
Although we believe that the expectations reflected in such
forward-looking statements are reasonable, we can give no assurance that such
expectations will prove to have been correct. Important factors with respect to
any such forward-looking statements, including certain risks and uncertainties
that could cause actual results to differ materially from our expectations
("Cautionary Statements") are disclosed in this annual report on Form 10-K.
Important factors that could cause actual results to differ materially from
those in the forward-looking statements included herein include, but are not
limited to:
o our dependence on our affiliation with Sprint;
o the ability of Sprint to alter fees paid or charged to us under
our affiliation agreements;
o our limited operating history and anticipation of future losses;
o our dependence on Sprint's back office services;
o potential fluctuations in our operating results;
o changes or advances in technology;
o competition in the industry and markets in which we operate;
o our ability to attract and retain skilled personnel;
o our potential need for additional capital or the need for
refinancing existing indebtedness;
o our potential inability to expand our services and related
products in the event of substantial increases in demand for these
services and related products;
o changes in government regulation;
o future acquisitions; and
o general economic and business conditions.
2
All subsequent written and oral forward-looking statements attributable
to us or persons acting on our behalf are expressly qualified in their entirety
by the Cautionary Statements.
ITEM 1. BUSINESS.
References in this annual report on Form 10-K to us as a provider of
wireless personal communications services or similar phrases generally refer to
our building, owning and managing our portion of Sprint's PCS network pursuant
to our affiliation agreements with Sprint. Sprint holds the spectrum licenses
and controls the network through its agreements with us.
All references contained in this annual report on Form 10-K to resident
population and residents ("POPs") are based on year-end 2000 population counts
compiled by the U.S. Census Bureau.
OVERVIEW
We are the largest Sprint PCS Network Partner in terms of subscribers
and revenues of Sprint PCS, the personal communications services group of Sprint
Corporation. We have the exclusive right to provide wireless mobility
communications network services under the Sprint brand name in a territory
encompassing over 15.6 million residents primarily located in Texas, New Mexico,
Arizona, Colorado, Wisconsin, Illinois, Oklahoma, Kansas, Missouri, Washington
and Oregon. For the year ended December 31, 2001, we generated approximately
$357.1 million in revenue and ended the period with approximately 503,000
subscribers.
We launched Sprint PCS services in Laredo, Texas, in June 1999, and
through December 31, 2001, have commenced service in 86 additional basic trading
areas ("BTAs"), including markets in territories serviced by companies that we
acquired in 2001. At December 31, 2001, our systems covered approximately 11.2
million residents out of approximately 15.6 million total residents in those
markets. We have substantially completed the network build-out requirements
required by Sprint by the end of 2001. The number of residents covered by our
system does not represent the number of Sprint PCS subscribers that we expect to
be based in our territories.
Over the past year we have grown our business significantly. During the
first quarter of 2001, we completed our acquisitions of three Sprint PCS Network
Partners. We acquired Roberts Wireless Communications, L.L.C. ("Roberts") and
Washington Oregon Wireless, LLC ("WOW") on February 14, 2001. We acquired
Southwest PCS Holdings, Inc. ("Southwest") on March 30, 2001. The acquisitions
added territories with a total of approximately 6.8 million residents and added
approximately 90,000 subscribers.
OUR BACKGROUND
Alamosa (Delaware), Inc. ("Alamosa Delaware") (formerly known as
Alamosa PCS Holdings, Inc.) was formed in October 1999 to operate as a holding
company and closed its initial public offering in February 2000. Immediately
prior to Alamosa (Delaware)'s initial public offering, the members of Alamosa
PCS LLC received shares of Alamosa (Delaware) common stock in the same
proportion to their membership interest in Alamosa PCS LLC.
On December 14, 2000, Alamosa (Delaware) formed a new holding company
pursuant to Section 251(g) of the Delaware General Corporation Law. In that
transaction, each share of Alamosa (Delaware) was converted into one share of
the new holding company, and the former public company, which was renamed
Alamosa (Delaware), Inc. became a wholly owned subsidiary of the new holding
company, which was renamed Alamosa PCS Holdings, Inc.
We were formed in July 2000 to operate as a holding company. On
February 14, 2001, Alamosa Sub I, Inc., our wholly owned subsidiary, merged with
and into Alamosa PCS Holdings, with Alamosa PCS Holdings surviving the merger
and becoming our wholly owned subsidiary. Each share of Alamosa PCS Holdings
common stock issued and outstanding immediately prior to the merger was
converted into the right to receive one share of our common stock.
On February 14, 2001, we also completed our acquisition of Roberts and
WOW. Roberts' service area, which included 2.5 million people, including the
market areas surrounding Kansas City, the world headquarters of Sprint, and St.
Louis and the Interstate 70 corridor connecting the two cities. At December 31,
2000, Roberts' network covered approximately 1.1 million people. WOW's service
area, which included 1.5 million people, including the market areas of
Ellenburg, Yakima and Kennewick, Washington and key travel corridors within
Washington and Oregon. At December 31, 2000, WOW's network covered approximately
800,000 residents.
3
On March 30, 2001, we completed our acquisition of Southwest.
Southwest's service area, which included 2.8 million people, including market
areas in Texas, Oklahoma, Kansas and Arkansas, encompassing over 2,100 highway
miles. At December 31, 2000, Southwest had launched service in 18 markets
covering approximately 1.5 million residents and had approximately 40,000
subscribers.
In connection with the Roberts and WOW acquisitions, we entered into a
new Senior Secured Credit Facility (the "Senior Secured Credit Facility") for up
to $280.0 million. In connection with the acquisition of Southwest, we increased
the amount of the Senior Secured Credit Facility from $280.0 million to $333.0
million. The Senior Secured Credit Facility was reduced to $225.0 million
concurrently with the issuance of the $150.0 million face amount of senior notes
(the "13 5/8 Senior Notes") on August 15, 2001.
OUR RELATIONSHIP WITH SPRINT PCS
Sprint PCS is a wholly owned tracking group of Sprint Corporation and
operates the largest 100% digital, 100% PCS nationwide network in the United
States with licenses to provide services to an area of more than 280 million
residents in the United States, Puerto Rico and the U.S. Virgin Islands.
Sprint's PCS network uses code division multiple access ("CDMA") technology
nationwide. Sprint PCS directly operates its PCS network in major markets
throughout the United States and has entered into independent agreements with
various affiliates such as us, under which the affiliate has agreed to construct
and manage PCS networks in smaller metropolitan areas and along major highways.
We are the largest Sprint PCS Network Partner based on subscribers and
revenues, and our territories adjoin several major Sprint PCS markets. The
build-out of our territories has significantly extended Sprint's PCS coverage in
the Southwestern, Northwestern and Midwestern United States. Due to our
relationship with Sprint, we benefit from:
BRAND RECOGNITION - We market products and services directly under the
Sprint brand name. We benefit from the recognizable Sprint brand name and
national advertising as we open markets. We offer pricing plans, promotional
campaigns and handset and accessory promotions of Sprint PCS.
EXISTING DISTRIBUTION CHANNELS - We benefit from relationships with
major national retailers who distribute Sprint PCS products and services under
existing Sprint contracts. These national retailers have approximately 790
retail outlets in our territories. Furthermore, we benefit from sales made by
Sprint PCS to customers in our territories through its national telemarketing
sales force, national account sales team and Internet sales capability. These
existing distribution channels provide immediate access to customers as our
services become available in their area. For more information on our
distribution plan, see "--Sales and Distribution."
SPRINT'S PCS NATIONWIDE NETWORK - We offer access to Sprint's
nationwide PCS network. Sprint's PCS network offers service in metropolitan
markets across the country representing over 247 million people. We derive
additional revenue from Sprint when its customers based outside of our
territories roam on our portion of Sprint's PCS network.
HIGH CAPACITY NETWORK - Sprint built its PCS network around CDMA
digital technology, which we believe provides advantages in capacity,
voice-quality, security and handset battery life. For more information on the
benefits of this technology, see "--Technology--Code Division Multiple Access."
SPRINT'S LICENSED SPECTRUM - Sprint has invested in the wireless
mobility communications network service licenses in our territories and to pay
costs to remove sources of microwave signals that interfere with the licensed
spectrum, a process generally referred to as microwave clearing.
BETTER EQUIPMENT AVAILABILITY AND PRICING - We are able to acquire
handsets and network equipment more quickly and at a lower cost than we would
without our affiliation with Sprint. For example, Sprint will use commercially
reasonable efforts to obtain for us the same discounted volume-based pricing on
wireless-related products and warranties as Sprint receives from its vendors.
ESTABLISHED BACK OFFICE SUPPORT SERVICES - We have contracted with
Sprint to provide critical back office services, including customer activation,
handset logistics, billing, customer care and network monitoring services.
Because we do not have to establish and operate these systems, we are able to
capitalize upon Sprint's economies of scale.
4
ACCESS TO THE SPRINT PCS WIRELESS WEB - We support the Sprint PCS
Wireless Web service in our portion of Sprint's PCS network. For more
information on the Sprint PCS Wireless Web, see "-Products and Services - Access
to the Sprint PCS Wireless Web."
THIRD GENERATION (3G) TECHNOLOGY - We along with Sprint will make the
next step towards 3G data services in the first half of 2002. We benefit from
Sprint's research and development in connection with this nationwide rollout.
For more information, see "-Products and Services - Third Generation (3G)
Services.
Statements in this Form 10-K regarding Sprint are derived from
information contained in our affiliation agreements with Sprint and periodic
reports and other documents filed with the Securities and Exchange Commission
by, or press releases issued by, Sprint.
MARKETS
We believe part of our success is attributable to the strategic
attractiveness of our markets. We believe our markets are attractive for several
reasons:
o PROXIMITY TO MAJOR SPRINT PCS MARKETS - Our markets are located
near or around several major Sprint PCS markets, including Dallas,
San Antonio, Kansas City, St. Louis, Phoenix, Seattle, Portland,
Milwaukee, Minneapolis, Tulsa and Wichita.
o FEWER COMPETITORS - We believe we face a smaller number of
competitors in our markets than the typical Sprint PCS market and
fewer competitors than is generally the case for service providers
operating in more urban areas.
o MEXICO / U.S. BORDER - Our territories include more than 75% of
the Mexico / U.S. border area.
o HIGH POPULATION GROWTH MARKETS - The overall population growth
rate in our territories has been approximately 37% above the
national average for the past ten years.
The following table lists the location, BTA number, megahertz of
spectrum, estimated total residents and estimated covered residents for each of
the BTAs that comprise our territories under our affiliation agreements with
Sprint PCS at December 31, 2001. The number of estimated covered residents does
not represent the number of Sprint PCS subscribers that we expect to be based in
our territories.
ESTIMATED TOTAL ESTIMATED COVERED
LOCATION BTA NO.(1) MHZ OF SPECTRUM RESIDENTS (2) RESIDENTS (3)
--------------------------------------------------------------------------------------------------------
ARKANSAS
Fayetteville-Springdale-Rogers .... 140 30 325,600 261,900
Fort Smith ........................ 153 30 326,700 175,400
Little Rock (4) ................... 257 30 9,000 12,500
Russellville ...................... 387 30 95,700 60,600
ARIZONA
Flagstaff ......................... 144 30 116,300 69,300
Las Vegas, NV (Arizona side) (4) .. 245 30 143,100 88,700
Prescott .......................... 362 30 167,500 130,200
Phoenix (4) ....................... 347 30 15,900 200
Sierra Vista-Douglas .............. 420 30 117,800 67,000
Tucson (4) ........................ 447 30 1,800 600
Yuma .............................. 486 30 158,700 137,800
CALIFORNIA
El Centro-Calexico .............. 124 30 143,700 127,100
San Diego (4) ................... 402 30 4,200 0
COLORADO
Colorado Springs (4) ............ 89 30 1,300 100
Farmington, NM-Durango, CO ..... 139 10 208,300 103,200
Grand Junction ................. 168 30 246,100 144,700
Pueblo ......................... 366 30 312,800 175,600
5
ILLINOIS
Carbondale-Marion ............... 67 30 214,200 135,700
KANSAS
Pittsburgh-Parsons .............. 349 30 92,500 34,000
Emporia ........................ 129 30 47,800 33,100
Hutchinson (4) .................. 200 30 29,500 21,200
Manhattan-Junction City ......... 275 30 117,900 89,300
Salina .......................... 396 30 144,300 67,700
MINNESOTA
La Crosse, WI-Winona, MN ....... 234 30 321,000 219,000
Minneapolis-St. Paul (4) ....... 298 30 87,800 50,300
MISSOURI
Cape Girardeau-Sikeston ......... 66 30 189,200 155,500
Columbia ........................ 90 30 216,800 185,900
Jefferson City .................. 217 30 164,300 130,300
Kirksville ...................... 230 30 57,400 38,800
Poplar Bluff .................... 355 30 154,200 45,300
Quincy, IL-Hannibal ............. 367 30 184,900 124,700
Rolla ........................... 383 30 104,700 71,300
St. Joseph ...................... 393 30 196,500 137,200
Sedalia ......................... 414 30 78,800 49,200
Springfield ..................... 428 30 660,100 478,500
West Plains ..................... 470 30 77,000 15,700
NEW MEXICO
Albuquerque ..................... 8 10 832,200 712,500
Carlsbad ........................ 68 10 51,700 49,900
Clovis .......................... 87 30 75,300 66,500
Gallup .......................... 162 10 143,800 38,000
Hobbs ........................... 191 30 55,500 47,900
Roswell ......................... 386 10 80,800 72,500
Santa Fe ........................ 407 10 218,900 148,800
Las Cruces ...................... 244 10 250,100 180,200
OKLAHOMA
Joplin, MO-Miami ................ 220 30 247,200 216,300
Ada ............................. 4 30 54,100 28,500
Ardmore ......................... 19 30 90,900 47,300
Bartlesville .................... 31 30 49,000 42,700
Enid ............................ 130 30 85,700 51,700
Lawton-Duncan ................... 248 30 181,000 143,700
McAlester ....................... 267 30 54,800 28,600
Muskogee ........................ 311 30 164,200 93,000
Oklahoma City (4) ............... 329 30 577,500 202,700
Ponca City ...................... 354 30 49,900 35,800
Stillwater ...................... 433 30 79,400 59,600
Tulsa (4) ....................... 448 30 277,300 98,900
OREGON
Bend ............................ 38 30 153,600 141,300
Coos Bay-North Bend ............. 97 30 83,900 29,600
Klamath Falls ................... 231 30 80,600 48,300
Medford-Grants Pass ............. 288 30 257,000 225,500
Portland (4) .................... 358 30 80,500 51,700
Roseburg ........................ 385 30 100,400 77,500
Walla Walla, WA-Pendleton, OR.... 460 30 174,400 126,100
TEXAS
Eagle Pass-Del Rio .............. 121 30 117,400 90,000
El Paso ......................... 128 20 748,200 708,900
Laredo .......................... 242 30 216,400 191,500
Wichita Falls ................... 473 30 222,300 150,900
Abilene ......................... 3 30 261,700 180,100
Amarillo ........................ 13 30 410,300 306,400
Big Spring ...................... 40 30 35,800 32,400
Lubbock ......................... 264 30 409,200 362,900
Midland ......................... 296 30 120,700 120,000
Odessa .......................... 327 30 209,100 131,600
San Angelo ...................... 400 30 161,900 97,200
WASHINGTON
Kennewick-Pasco-Richland......... 228 30 191,800 181,800
Wenatchee ....................... 468 30 213,200 128,200
Yakima .......................... 482 30 256,000 236,100
6
WISCONSIN
Appleton-Oshkosh ................ 18 30 452,800 389,900
Eau Claire ...................... 123 30 195,400 158,000
Fond du Lac ..................... 148 30 97,300 87,800
Green Bay ....................... 173 30 355,700 299,700
Madison (4) ..................... 272 30 143,300 99,800
Manitowoc ....................... 276 30 82,900 64,900
Milwaukee (4) ................... 297 30 85,900 55,900
Sheboygan ....................... 417 30 112,600 110,200
Stevens Point-Marshfield-Wisconsin
Rapids ........................ 432 30 214,500 136,400
Wausau-Rhinelander .............. 466 30 244,000 147,800
---------- ----------
TOTAL ........................... 15,641,500 11,171,100
========== ==========
(1) BTA No. refers to the basic trading area number assigned to that market
by the Federal Communications Commission (" FCC") for the purposes of
issuing licenses for wireless services.
(2) Estimated total residents is based on estimates of 2000 population
counts compiled by the U.S. Census Bureau.
(3) Estimated covered residents is based on our actual or projected network
coverage using estimates of 2000 population counts compiled by the U.S.
Census Bureau.
(4) Total residents, covered residents and actual customers for these
markets reflect only those residents or customers contained in our
licensed territories, not the total residents, covered residents and
actual customers in the entire basic trading area.
Pursuant to our affiliation agreements with Sprint, we have agreed to
cover a minimum percentage of the resident population in our territories within
specified time periods. We have substantially complied with these build-out
requirements. As of December 31, 2001, we had 503,000 Sprint PCS subscribers.
NETWORK OPERATIONS
The effective operation of our portion of Sprint's PCS network
requires:
o public switched and long distance interconnection;
o the implementation of roaming arrangements; and
o the development of network monitoring systems.
Our network connects to the public switched telephone network to
facilitate the origination and termination of traffic between our network and
both local exchange and long distance carriers. Sprint provides preferred rates
for long distance services. Through our arrangements with Sprint and Sprint's
arrangements with other wireless service providers, Sprint PCS subscribers based
in our territories have roaming capabilities on other networks. We monitor our
portion of Sprint's PCS network during normal business hours. For after hours
monitoring, Sprint PCS Network Operating Centers provides 24 hours, seven days a
week monitoring of our portion of Sprint's PCS network and notification to our
designated personnel.
As of December 31, 2001, our portion of Sprint's PCS network included
1,391 base stations and nine switching centers.
PRODUCTS AND SERVICES
We offer products and services throughout our territories under the
Sprint brand name. Our services are designed to mirror the service offerings of
Sprint PCS and to integrate with Sprint's PCS network. The Sprint PCS service
packages we currently offer include the following:
100% DIGITAL WIRELESS NETWORK WITH SERVICE ACROSS THE COUNTRY - We are
part of the largest 100% digital wireless personal communications services
network in the country. Sprint PCS customers based in our territories may access
Sprint PCS services throughout Sprint's PCS network, which includes more than
4,000 cities and communities
7
across the United States. Dual-band/dual-mode handsets allow roaming on wireless
networks where Sprint has roaming agreements.
ACCESS TO THE SPRINT PCS WIRELESS WEB - We support the Sprint PCS
Wireless Web in our portion of Sprint's PCS network. The Sprint PCS Wireless Web
allows customers with data capable handsets to connect their portable computers
or personal digital assistants to the Internet. Sprint PCS customers with data
capable handsets also have the ability to receive periodic information updates
such as stock prices, sports scores and weather reports. Sprint PCS customers
with web-browser enabled handsets have the ability to connect to and browse
specially designed text-based Internet sites on an interactive basis.
THIRD GENERATION (3G) SERVICES - CDMA technology will allow existing
CDMA networks to be upgraded to the next generation in a timely and cost
efficient manner. With this upgrade to one times radio transmission technology
("1XRTT") we anticipate that we and Sprint will be able to offer data speeds of
up to 144 kilobits per second (consistent through put is estimated to be 60 - 70
kilobits per second) with always-on internet connectivity and high quality video
and audio, and voice capacity improvements of over 50%. We expect to deploy
1XRTT technology concurrently with Sprint in the first half of 2002.
CLEAR PAY/ACCOUNT SPENDING LIMIT - Under the Sprint PCS service plans,
customers who do not meet certain credit criteria can nevertheless select any
plan offered subject to an account spending limit ("ASL") to control credit
exposure. Prior to May 2001, these customers were required to make a deposit
ranging from $125 to $200 that could be credited against future billings. In May
2001, the deposit requirement was eliminated on certain credit classes,
("NDASL"). Since the modification in May 2001 to create NDASL (which was
subsequently renamed as Clear Pay), a majority of our new customer additions
have been under the Clear Pay/NDASL program. On February 24, 2002, we
reinstituted the deposit requirement for certain credit classes that was in
place prior to May 2001 in an effort to limit our exposure to bad debt relative
to these credit classes. Sprint has the right to end or materially change the
terms of the ASL, NDASL/Clear Pay or any other program in its sole discretion.
If Sprint chooses to do away with the ASL or NDASL/Clear Pay program or
reintroduce the deposit requirement nationwide, the growth rate we have
experienced could decrease and the decrease may be significant.
OTHER SERVICES - In addition to these services, we may also offer
wireless local loop services in our territories, but only where Sprint is not a
local exchange carrier. Wireless local loop is a wireless substitute for the
landline-based telephones in homes and businesses. We also believe that new
features and services will be developed on Sprint's PCS network to take
advantage of code division multiple access technology. Sprint conducts ongoing
research and development to produce innovative services that are intended to
give Sprint a competitive advantage. We may incur additional expenses in
modifying our technology to provide these additional features and services.
ROAMING
SPRINT PCS ROAMING - Sprint PCS roaming includes both inbound Sprint
PCS roaming, when a Sprint PCS subscriber based outside of our territories uses
our portion of Sprint's PCS network, and outbound Sprint PCS roaming, when a
Sprint PCS subscriber based in our territories uses Sprint's PCS network outside
of our territories. Sprint pays us a per minute fee for inbound Sprint PCS
roaming. This roaming fee is not subject to the 8% affiliation fee. We have a
reciprocal per minute fee with Sprint for inbound and outbound Sprint PCS
roaming. The rate was reduced from 20 cents per minute to 15 cents per minute
effective June 1, 2001, and to 12 cents per minute effective October 1, 2001.
Beginning January 1, 2002 and continuing throughout the remaining term of the
affiliate agreements with Sprint, the rate will be adjusted to provide a fair
and reasonable return on the cost of the underlying network which will be
approximately 10 cents for 2002.
NON-SPRINT PCS ROAMING - Non-Sprint PCS roaming includes both inbound
non-Sprint PCS roaming, when a non-Sprint PCS subscriber uses our portion of
Sprint's PCS network, and outbound non-Sprint PCS roaming, when a Sprint PCS
subscriber based in our territories uses a non-Sprint PCS network. Pursuant to
roaming agreements between Sprint and other wireless service providers, when
another wireless service provider's subscriber uses our portion of Sprint's PCS
network, we earn inbound non-Sprint PCS roaming revenue. These wireless service
providers must pay fees for their subscribers' use of our portion of Sprint's
PCS network, and as part of our collected revenues, we are entitled to 92% of
these fees. Currently, pursuant to our services agreement with Sprint, Sprint
bills these wireless service providers for these fees. When another wireless
service provider provides service to one of the Sprint PCS subscribers based in
our territories, we pay outbound non-Sprint PCS roaming fees. Sprint, pursuant
to our current services agreement with Sprint, then bills the Sprint PCS
subscriber for use of that provider's network at rates specified
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in his or her contract and pays us 100% of this outbound non-Sprint PCS roaming
revenue collected from that subscriber on a monthly basis. We bear the
collection risk for all service.
MARKETING STRATEGY
Our marketing strategy is to complement Sprint's national marketing
strategies with techniques tailored to each of the specific markets in our
territories.
USE SPRINT'S BRAND EQUITY - We feature exclusively and prominently the
nationally recognized Sprint brand name in our marketing and sales efforts. From
the customers' point of view, they use our portion of Sprint's PCS network and
the rest of Sprint's PCS network as a unified national network.
ADVERTISING AND PROMOTIONS - Sprint promotes its products through the
use of national as well as regional television, radio, print, outdoor and other
advertising campaigns. In addition to Sprint's national advertising campaigns,
we advertise and promote Sprint PCS products and services on a local level in
our markets at our cost. We have the right to use any promotion or advertising
materials developed by Sprint and only have to pay the incremental cost of using
those materials, such as the cost of local radio and television advertisement
placements, and material costs and incremental printing costs. We also benefit
from any advertising or promotion of Sprint PCS products and services by third
party retailers in our territories, such as RadioShack, Circuit City and Best
Buy. We must pay the cost of specialized Sprint PCS print advertising by third
party retailers. Sprint also runs numerous promotional campaigns which provide
customers with benefits such as additional features at the same rate or free
minutes of use for limited time periods. We offer these promotional campaigns to
potential customers in our territories.
SALES FORCE WITH LOCAL PRESENCE - We have established local sales
forces to execute our marketing strategy through direct business-to-business
contacts, our company-owned retail stores, local distributors and other
channels. Our market teams also participate in local clubs and civic
organizations such as the Chamber of Commerce, Rotary and Kiwanis.
SALES AND DISTRIBUTION
Our sales and distribution plan is designed to exploit Sprint's
multiple channel sales and distribution plan and to enhance it through the
development of local distribution channels. Key elements of our sales and
distribution plan consist of the following:
SPRINT RETAIL STORES - As of December 31, 2001, we owned and operated
59 Sprint stores and 10 kiosks at military base or other locations. These stores
provide us with a local presence and visibility in the markets within our
territories. Following the Sprint model, these stores are designed to facilitate
retail sales, activation, bill collection and customer service.
SPRINT STORE WITHIN A RADIOSHACK STORE - Sprint has an arrangement with
RadioShack to install a "store within a store." This arrangement benefits us to
the extent that RadioShack has locations within our territories. As of December
31, 2001, RadioShack had approximately 275 stores in our territories.
OTHER NATIONAL THIRD PARTY RETAIL STORES - In addition to RadioShack,
we benefit from the distribution agreements established by Sprint with other
national and regional retailers such as Best Buy, Circuit City and Target. As of
December 31, 2001, these retailers had approximately 515 stores in our
territories.
ELECTRONIC COMMERCE - Sprint's PCS division maintains an Internet site,
www.sprintpcs.com, which contains information on Sprint PCS products and
services. A visitor to Sprint PCS' Internet site can order and pay for a handset
and select a rate plan. Sprint PCS customers visiting the site can review the
status of their account, including the number of minutes used in the current
billing cycle. We will recognize the revenues generated by Sprint PCS customers
in our territories who purchase products and services over the Sprint PCS
Internet site.
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:
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o the increasing use of retail distribution, which is dependent upon
the year-end holiday shopping season;
o the timing of new product and service announcements and
introductions;
o competitive pricing pressures; and
o aggressive marketing and promotions.
TECHNOLOGY
GENERAL - In 1993, the FCC allocated the 1900 MHz frequency block of
the radio spectrum for wireless personal communications services. Wireless
personal communications services differ from traditional analog cellular
telephone service principally in that wireless personal communications services
systems operate at a higher frequency and employ advanced digital technology.
Analog-based systems send signals in which the transmitted signal resembles the
input signal, the caller's voice. Digital systems convert voice or data signals
into a stream of digits that permit a single radio channel to carry multiple
simultaneous transmissions. Digital systems also achieve greater frequency reuse
than analog systems resulting in greater capacity than analog systems. This
enhanced capacity, along with enhancements in digital protocols, allows
digital-based wireless technologies, whether using wireless personal
communications services or cellular frequencies, to offer new and enhanced
services, including greater call privacy and more robust data transmission, such
as facsimile, electronic mail and connecting notebook computers with
computer/data networks.
Wireless digital signal transmission is accomplished through the use of
various forms of frequency management technology or "air interface protocols."
The FCC has not mandated a universal air interface protocol for wireless
personal communications services systems. Wireless personal communications
systems operate under one of three principal air interface protocols; CDMA, time
division multiple access ("TDMA"), or global system for mobile communications
("GSM"). TDMA and GSM communications are both time division multiple access
systems but are incompatible with each other. CDMA is incompatible with both GSM
and TDMA systems. Accordingly, a subscriber of a system that utilizes CDMA
technology is unable to use a CDMA handset when traveling in an area not served
by CDMA based wireless personal communications services operators, unless the
customer carries a dual-band/dual-mode handset that permits the customer to use
the analog cellular system in that area. The same issue would apply to users of
TDMA or GSM systems. All of the wireless personal communications services
operators now have dual-mode or tri-mode handsets available to their customers.
Because digital networks do not cover all areas in the country, these handsets
will remain necessary for segments of the subscriber base.
CODE DIVISION MULTIPLE ACCESS TECHNOLOGY
Sprint's PCS network and the network of Sprint PCS Network Partners all
use digital CDMA technology. We believe that CDMA provides important system
performance benefits such as:
GREATER CAPACITY - We believe, based on studies by CDMA manufacturers,
that CDMA systems can provide system capacity that is approximately seven to ten
times greater than that of current analog technology and approximately three
times greater than TDMA and GSM systems.
PRIVACY AND SECURITY - One of the benefits of CDMA access technology is
that it combines a constantly changing coding scheme with a low power signal to
enhance call security and privacy.
SOFT HAND-OFF - CDMA systems transfer calls throughout the CDMA network
using a technique referred to as a soft hand-off, which connects a mobile
customer's call with a new base station while maintaining a connection with the
base station currently in use. CDMA networks monitor the quality of the
transmission received by multiple base stations simultaneously to select a
better transmission path and to ensure that the network does not disconnect the
call in one cell unless replaced by a stronger signal from another base station.
Analog, TDMA and GSM networks use a "hard hand-off" and disconnect the call from
the current base station as it connects with a new one without any simultaneous
connection to both base stations.
SIMPLIFIED FREQUENCY PLANNING - Frequency planning is the process used
to analyze and test alternative patterns of frequency used within a wireless
network to minimize interference and maximize capacity. Unlike TDMA and GSM
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based systems, CDMA based systems can reuse the same subset of allocated
frequencies in every cell, substantially reducing the need for costly frequency
reuse patterning and constant frequency plan management.
LONGER BATTERY LIFE - Due to their greater efficiency in power
consumption, CDMA handsets can provide longer standby time and more talk time
availability when used in the digital mode than handsets using alternative
digital or analog technologies.
EFFICIENT MIGRATION PATH - CDMA technology has an efficient and
incremental migration path to 3G voice and data services. The incremental
investment in each step along the migration path is an advantage of this
technology. The first step along this path is the conversion to 1XRTT in the
first half of 2002 which will be completed for less than $3 per covered POP.
Additional steps, beyond 1XRTT can be taken as demand develops for similar
capital investment levels.
COMPETITION
Competition in the wireless communications services industry is
intense. We compete with a number of wireless service providers in our markets.
We believe that our primary competition is with national wireless providers such
as AT & T Wireless Services, Cingular, Voicestream Wireless, Verizon and Altel.
We also face competition from resellers, which provide wireless
services to customers but do not hold FCC licenses or own facilities. Instead,
the resellers buy blocks of wireless telephone numbers and capacity from a
licensed carrier and resell services through their own distribution network to
the public. The FCC currently requires all cellular and wireless personal
communications services licensees to permit resale of carrier services to a
reseller.
In addition, we compete with existing communications technologies such
as paging, enhanced specialized mobile radio service dispatch and conventional
landline telephone companies in our markets. Potential users of wireless
personal communications services systems may find their communications needs
satisfied by other current and developing technologies. One or two-way paging or
beeper services that feature voice messaging and data display as well as
tone-only service may be adequate for potential customers who do not need to
speak to the caller.
In the future, we expect to face increased competition from entities
providing similar services using other communications technologies, including
satellite-based telecommunications and wireless cable systems. While some of
these technologies and services are currently operational, others are being
developed or may be developed in the future.
Many of our competitors have significantly greater financial and
technical resources and subscriber bases than we do. Some of our competitors
also have established infrastructures, marketing programs and brand names. In
addition, some of our competitors may be able to offer regional coverage in
areas not served by Sprint's PCS network, or, because of their calling volumes
or relationships with other wireless providers, may be able to offer regional
roaming rates that are lower than those we offer. Wireless personal
communications services operators will likely compete with us in providing some
or all of the services available through Sprint's PCS network and may provide
services that we do not. Additionally, we expect that existing cellular
providers will continue to upgrade their systems to provide digital wireless
communication services competitive with Sprint. Recently, there has been a trend
in the wireless communications industry towards consolidation of wireless
service providers through joint ventures, mergers and acquisitions. We expect
this consolidation to lead to larger competitors over time. These larger
competitors may have substantial resources or may be able to offer a variety of
services to a large customer base.
Over the past several years the FCC has auctioned and will continue to
auction large amounts of wireless spectrum that could be used to compete with
Sprint PCS services. Based upon increased competition, we anticipate that market
prices for two-way wireless services generally will decline in the future. We
will compete to attract and retain customers principally on the basis of:
o the strength of the Sprint brand name, services and features;
o nationwide network;
o our network coverage and reliability; and
o CDMA technology.
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Our ability to compete successfully will also depend, in part, on our
ability to anticipate and respond to various competitive factors affecting the
industry, including:
o new services and technologies that may be introduced;
o changes in consumer preferences;
o demographic trends;
o economic conditions; and
o discount pricing strategies by competitors.
INTELLECTUAL PROPERTY
The Sprint diamond design logo is a service mark registered with the
United States Patent and Trademark Office. The service mark is owned by Sprint.
We use the Sprint brand name, the Sprint diamond design logo and other service
marks of Sprint in connection with marketing and providing wireless services
within our territories. Under the terms of the trademark and service mark
license agreements with Sprint, we do not pay a royalty fee for the use of the
Sprint brand name and Sprint service marks.
Except in certain instances and other than in connection with the
national distribution agreements, Sprint has agreed not to grant to any other
person a right or license to use the licensed marks in our territories. In all
other instances, Sprint reserves the right to use the licensed marks in
providing its services within or without our territories.
The trademark license agreements contain numerous restrictions with
respect to the use and modification of any of the licensed marks. See "Our
Affiliation Agreements with Sprint - The Trademark and Service Mark License
Agreements" for more information on this topic.
ENVIRONMENTAL COMPLIANCE
Our environmental compliance expenditures primarily result from the
operation of standby power generators for our telecommunications equipment and
compliance with various environmental rules during network build-out and
operations. The expenditures arise in connection with standards compliance or
permits which are usually related to generators, batteries or fuel storage. Our
environmental compliance expenditures have not been material to our financial
statements or to our operations and are not expected to be material in the
future.
EMPLOYEES
As of December 31, 2001, we employed 808 full-time employees. None of
our employees are represented by a labor union. We believe that our relations
with our employees are good.
OUR AFFILIATION AGREEMENTS WITH SPRINT
We initially entered into four major affiliation agreements with
Sprint:
o a management agreement;
o a services agreement; and
o two trademark and service mark license agreements with different
Sprint entities.
We entered into one set of these agreements with Sprint for our
territories in the Southwestern part of the United States and another set of
these agreements for our territories in Wisconsin. Roberts entered into a set of
these agreements for its territories in Illinois, Kansas and Missouri, which we
have assumed pursuant to our acquisition of Roberts. WOW entered into a set of
these agreements for its territories in Washington and Oregon, which we have
assumed pursuant to our acquisition of WOW. Southwest entered into a set of
these agreements for its territories in
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Oklahoma, Kansas, Texas and Arkansas which we have assumed pursuant to our
acquisition of Southwest. As used herein, the term "operating subsidiaries"
refers to each of our subsidiaries that have entered into affiliation agreements
with Sprint. Unless otherwise indicated below, the description of our
affiliation agreements applies to the affiliation agreements for all of our
territories.
Under our affiliation agreements with Sprint, we have the exclusive
right to provide wireless mobility communications network services under the
Sprint brand name in our territories. Sprint holds the spectrum licenses and
controls the network through our agreements with Sprint. Our affiliation
agreements with Sprint require us to interface with Sprint's PCS network by
building our portion of Sprint's PCS network to operate on the 10, 20 or 30 MHZ
of wireless personal communications services frequencies licensed to Sprint in
the 1900 MHZ range.
The following is a description of the material terms and provisions of
our affiliation agreements and the consent and agreement with Sprint and
Citicorp, that modifies our management agreements for the benefit of Citicorp,
as administrative agent, and the holders of the Senior Secured Credit Facility
and any refinancing thereof. See "Consent and Agreement for the Benefit of the
Holders of the Senior Secured Credit Facility."
A breach or event of termination, as the case may be, under any of our
affiliation agreements by one of our operating subsidiaries will also constitute
a breach or event of termination, as the case may be, by all other operating
subsidiaries of the same provision of the applicable affiliation agreement to
which each operating subsidiary is a party. Each operating subsidiary only has
the right to cure its breach and has no right to cure any breach or event of
termination by another operating subsidiary.
THE MANAGEMENT AGREEMENTS
We entered into one set of management agreements with Sprint for our
territories in the Southwestern part of the United States and another set of
these agreements for our territories in Wisconsin. Roberts entered into a
management agreement for its territories in Illinois, Kansas and Missouri, which
we have assumed pursuant to our acquisition of Roberts. WOW entered into a
management agreement for its territories in Washington and Oregon, which we have
assumed pursuant to our acquisition of WOW. Southwest entered into a management
agreement for its territories in Oklahoma, Kansas, Texas and Arkansas which we
have assumed pursuant to our acquisition of Southwest. Unless otherwise
indicated below, the description of our management agreements applies to the
management agreements for all of our territories.
Under our management agreements with Sprint, we have agreed to:
o own, construct and manage a wireless personal communications
services network in our territories in compliance with FCC license
requirements and other technical requirements contained in our
management agreements;
o distribute Sprint PCS products and services;
o use Sprint's and our own distribution channels in our territories;
o conduct advertising and promotion activities in our territories;
and
o manage that portion of Sprint's PCS customer base assigned to our
territories.
Sprint will supervise our wireless personal communications services
network operations and has the right to unconditional access to our portion of
Sprint's PCS network, including the right to test and monitor any of our
facilities and equipment.
EXCLUSIVITY - We are designated as the only person or entity that can
manage or operate a wireless mobility communications network for Sprint in our
territories. Sprint is prohibited from owning, operating, building or managing
another wireless mobility communications network in our territories while our
management agreements are in place and no event has occurred that would permit
such agreements to terminate. Sprint is permitted to make national sales to
companies in our territories and, as required by the FCC, to permit resale of
the Sprint PCS products and services in our territories. Our management
agreements prohibit us from interfering with others who resell Sprint PCS
products and services in our territories.
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If Sprint decides to expand the geographic size of our build-out within
our territories, Sprint must provide us with written notice of the proposed
expansion.
Under our management agreements for our original territories in the
Southwest, Wisconsin, and the territories we assumed pursuant to our
acquisitions of Roberts and Southwest, we have a 90-day right of first refusal
to build out the proposed expansion area. If we choose not to build out the
proposed area, then Sprint may build out the area itself or allow another Sprint
PCS Network Partner to do so.
Under our management agreement for the territories we assumed pursuant
to our acquisition of WOW, we have agreed to build out any proposed expansion
area. Sprint has agreed not to require any new coverage during the first two
years of such management agreement or to require coverage that exceeds the
capacity and footprint parameters that Sprint has adopted for all its comparable
markets. The management agreement also contains a mechanism for us to appeal to
Sprint if the build-out is not economically advantageous for us. If we fail to
build out the proposed expansion area, Sprint has the termination rights
described below under "-Termination of Our Management Agreements."
NETWORK BUILD-OUT - Our management agreements specify the terms of the
Sprint affiliation, including the required network build-out plan. We have
agreed to cover a specified percentage of the population within each of the
markets, which make up our territories by specified dates. Our current build-out
plans will satisfy the network build-out requirements set forth in our
management agreements.
If technically feasible and commercially reasonable, we have agreed to
provide for a seamless handoff of a call initiated in our territories to a
neighboring portion of Sprint's PCS network. Our management agreements require
us to reimburse Sprint one-half of the microwave clearing costs for our
territories.
PRODUCTS AND SERVICES - Our management agreements identify the products
and services that we can offer in our territories. These services include, but
are not limited to, Sprint PCS consumer and business products and services
available as of the date of the agreements, or as modified by Sprint. We are
allowed to sell wireless products and services that are not Sprint PCS products
and services if those additional products and services do not cause distribution
channel conflicts or, in Sprint's sole determination, consumer confusion with
Sprint PCS products and services. We also cannot sell non-Sprint PCS products
and services if it would hamper our build-out of the network. Under our
management agreement for our Wisconsin territories, if Sprint begins to offer
nationally a product or service that we already offer, then that product or
service will be considered to be a Sprint PCS product or service.
We may also sell services such as specified types of long distance
service, Internet access, handsets, and prepaid phone cards with Sprint and
other Sprint PCS Network Partners. If we decide to use third parties to provide
these services, we must give Sprint an opportunity to provide the services on
the same terms and conditions. We cannot offer wireless local loop services
specifically designed for the competitive local exchange market in areas where
Sprint owns the local exchange carrier unless we name the Sprint-owned local
exchange carrier as the exclusive distributor or Sprint approves the terms and
conditions. Sprint does not own the local exchange carrier in a majority of the
markets in our territories.
NATIONAL SALES PROGRAMS - We must participate in the Sprint PCS sales
programs for national sales to customers, and will pay the expenses and receive
the compensation from Sprint PCS sales to national accounts located in our
territories. We must use Sprint's long distance service, which we can buy at the
best prices offered to comparably situated Sprint customers.
SERVICE PRICING, ROAMING AND FEES - We must offer Sprint PCS subscriber
pricing plans designated for regional or national offerings, including Sprint
PCS' "Free & Clear" plans. We are permitted to establish our own local price
plans for Sprint PCS products and services offered only in our territories,
subject to Sprint's approval. We are entitled to receive a weekly fee from
Sprint equal to 92% of "collected revenues" for all obligations under our
management agreements, adjusted by the cost of customer services provided to us
by Sprint. "Collected revenues" include revenue from Sprint PCS subscribers
based in our territories and inbound non-Sprint PCS roaming. Sprint will retain
8% of the collected revenues. Outbound non-Sprint PCS roaming revenue, inbound
and outbound Sprint PCS roaming fees, proceeds from the sales of handsets and
accessories, proceeds from sales not in the ordinary course of business, amounts
collected with respect to taxes and proceeds from sales of our products and
services, are not considered collected revenues. Except in the case of taxes, we
will retain 100% of these revenues. Many Sprint PCS subscribers purchase bundled
pricing plans that allow Sprint PCS roaming anywhere on
14
Sprint's PCS network without incremental Sprint PCS roaming charges. However, we
will earn Sprint PCS roaming revenue for every minute that a Sprint PCS
subscriber from outside our territories enters our territories and uses our
services. We will earn revenue from Sprint based on a per minute rate
established by Sprint when Sprint's or its affiliates' subscribers roam on our
portion of Sprint's PCS network. Similarly, we will pay the same rate for every
minute Sprint PCS subscribers who are based in our territories use Sprint's PCS
network outside our territories. The analog roaming rate onto a non-Sprint PCS
provider's network is set under Sprint's third party roaming agreements.
VENDOR PURCHASE AGREEMENTS - We may participate in discounted
volume-based pricing on wireless-related products and warranties Sprint receives
from its vendors. Sprint will use commercially reasonable efforts to obtain for
us the same prices as Sprint receives from its vendors.
ADVERTISING AND PROMOTIONS - Sprint uses national as well as regional
television, radio, print, outdoor and other advertising campaigns to promote its
products. We benefit from the national advertising at no additional cost to us.
In addition to Sprint's national advertising campaigns, we advertise and promote
Sprint PCS products and services on a local level in our markets at our cost. We
have the right to use any promotion or advertising materials developed by Sprint
and only have to pay the incremental cost of using those materials, such as the
cost of local radio and television advertisement placements and incremental
printing costs. Sprint also runs numerous promotional campaigns, which provide
customers with benefits such as additional features at the same rate or free
minutes of use for, limited time periods. We offer these promotional campaigns
to potential customers in our territories.
PROGRAM REQUIREMENTS - We must comply with Sprint's program
requirements for technical standards, customer service standards, roaming
coverage and national and regional distribution and national accounts programs.
Sprint can adjust the program requirements at any time. We have the right to
appeal to the management of Sprint if adjustments to program requirements will:
o cause us to incur a cost exceeding 5% of the sum of our
stockholders' equity plus our outstanding long term debt; or
o cause our operating expenses on a per-unit basis using a ten year
time frame to increase by more than 10% on a net present value
basis.
If Sprint denies our appeal and we fail to comply with the program
adjustment, Sprint has the termination rights described below under
"-Termination of Our Management Agreements."
Under our management agreements for our Wisconsin and Southwest
territories, Sprint has agreed that it will use commercial reasonableness to
adjust the Sprint PCS retail store and customer service requirements for cities
located within those territories that have a population of less than 100,000.
NON-COMPETITION - We may not offer Sprint PCS products and services
outside our territories without the prior written approval of Sprint. We may
offer, market or promote telecommunications products and services within our
territories only under the Sprint brand, our own brand, brands of our related
parties or other products and services approved under our management agreements,
except that no brand of a significant competitor of Sprint or its related
parties may be used for those products and services. To the extent we have or
will obtain licenses to provide wireless personal communications services
outside our territories, we may not use the spectrum to offer Sprint PCS
products and services without prior written consent from Sprint.
INABILITY TO USE NON-SPRINT BRAND - We may not market, promote,
advertise, distribute, lease or sell any of the Sprint PCS products and services
on a non-branded, "private label" basis or under any brand, trademark or trade
name other than the Sprint brand, except for sales to resellers or as otherwise
permitted under the Trademark and Service Mark License Agreements.
TRANSFER OF SPRINT'S PCS NETWORK - Sprint can sell, transfer or assign
its wireless personal communications services network to a third party if the
third party agrees to be bound by the terms of our management agreements and our
services agreements.
CHANGE IN CONTROL - Sprint must approve our change in control, but this
consent cannot be unreasonably withheld.
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RIGHTS OF FIRST REFUSAL - Sprint has rights of first refusal, without
further stockholder approval, to buy our assets upon a proposed sale of all or
substantially all of our assets used in the operation of our portion of Sprint's
PCS network.
TERM - Each of our management agreements has an initial term of 20
years with three 10-year renewal options, which would lengthen each of our
management agreements to a total term of 50 years. The three 10-year renewal
terms automatically occur unless either Sprint or we provide the other with two
years prior written notice to terminate the agreement or unless we are in
material default of its obligations under such agreement.
TERMINATION OF OUR MANAGEMENT AGREEMENTS - Our management agreements
can be terminated as a result of the following events:
o termination of Sprint's spectrum licenses;
o an uncured breach under our management agreements;
o bankruptcy of a party to our management agreements;
o our management agreements not complying with any applicable law in
any material respect; or
o the termination of any of our trademark and service mark license
agreements.
The termination or non-renewal of our management agreements triggers
some of our rights and some of those of Sprint. The right of either party to
require the other party to purchase or sell the operating assets is discussed
below.
If we have the right to terminate our management agreements because of
an event of termination caused by Sprint, generally we may:
o require Sprint to purchase all of our operating assets used in
connection with our portion of Sprint's PCS network for an amount
equal to at least 80% of our "entire business value" as defined
below;
o in all areas in our territories where Sprint is the licensee for
20 MHZ or more of the spectrum on the date it terminates our
management agreements, require Sprint to assign to us, subject to
governmental approval, up to 10 MHZ of licensed spectrum for an
amount equal to the greater of either the original cost to Sprint
of the license plus any microwave clearing costs paid by Sprint or
9% of our "entire business value;" or
o choose not to terminate our management agreements and sue Sprint
for damages or submit the matter to arbitration.
If Sprint has the right to terminate our management agreements because
of an event of termination caused by us, generally Sprint may:
o require us, without further stockholder approval, to sell our
operating assets to Sprint for an amount equal to 72% of our
"entire business value;"
o require us to purchase, subject to governmental approval, the
licensed spectrum in our territories for an amount equal to the
greater of either the original cost to Sprint of the license plus
any microwave relocation costs paid by Sprint or 10% of our
"entire business value;"
o take any action as Sprint deems necessary to cure its breach of
our management agreements, including assuming responsibility for,
and operating, our portion of Sprint's PCS network; or
o not terminate our management agreements and sue us for damages or
submit the matter to arbitration.
In connection with the Senior Secured Credit Facility, Sprint entered
into a consent and agreement with Citicorp, that modifies Sprint's rights and
remedies under our affiliation agreements for the benefit of Citicorp, as
administrative agent, and the holders of the Senior Secured Credit Facility and
any refinancing thereof. The consent and
16
agreement with Citicorp provides, among other things, that our affiliation
agreements generally may not be terminated by Sprint until all our outstanding
indebtedness under the Senior Secured Credit Facility is satisfied in full
pursuant to the terms of the consent and agreement. See "Consent and Agreement
for the Benefit of the Holders of the Senior Secured Credit Facility."
NON-RENEWAL - If Sprint gives us timely notice that it does not intend
to renew our management agreements, we may:
o require Sprint to purchase all of our operating assets used in
connection with our portion of Sprint's PCS network for an amount
equal to 80% of our "entire business value;" or
o in all areas in our territories where Sprint is the licensee for
20 MHZ or more of the spectrum on the date it terminates such
management agreement, require Sprint to assign to us, subject to
governmental approval, up to 10 MHZ of licensed spectrum for an
amount equal to the greater of either the original cost to Sprint
of the license plus any microwave relocation costs paid by Sprint
or 10% of our "entire business value."
If we give Sprint timely notice of non-renewal, or we and Sprint both
give notice of non-renewal, or any of our management agreements expire with
neither party giving a written notice of non-renewal, or if any of our
management agreements can be terminated for failure to comply with legal
requirements or regulatory considerations, Sprint may:
o purchase all of our operating assets, without further stockholder
approval, for an amount equal to 80% of our "entire business
value;" or
o require us to purchase, subject to governmental approval, the
licensed spectrum in our territories for an amount equal to the
greater of either the original cost to Sprint of the license plus
any microwave clearing costs paid by Sprint or 10% of our "entire
business value."
DETERMINATION OF ENTIRE BUSINESS VALUE - If our "entire business value"
is to be determined, Sprint and we will each select one independent appraiser
and the two appraisers will select a third appraiser. The three appraisers will
determine our "entire business value" on a going concern basis using the
following principles:
o the "entire business value" is based on the price a willing buyer
would pay a willing seller for the entire on-going business;
o The entire business value will not be calculated in a manner
that double counts the operating assets of one or more of
our affiliates;
o then-current customary means of valuing a wireless
telecommunications business will be used;
o the business is conducted under the Sprint brand and our
affiliation agreements with Sprint;
o that we own the spectrum and frequencies presently owned by Sprint
and subject to our affiliation agreements with Sprint; and
o the valuation will not include any value for businesses not
directly related to the Sprint PCS products and services, and
those businesses will not be included in the sale.
INSURANCE - We are required to obtain and maintain with financially
reputable insurers who are licensed to do business in all jurisdictions where
any work is performed under our management agreement and who are reasonably
acceptable to Sprint PCS, workers' compensation insurance, commercial general
liability insurance, business automobile insurance, umbrella excess liability
insurance and "all risk" property insurance.
INDEMNIFICATION - We have agreed to indemnify Sprint and its directors,
employees and agents and related parties of Sprint and their directors,
employees and agents against any and all claims against any of the foregoing
arising from our violation of any law, a breach by us of any representation,
warranty or covenant contained in our management agreements or any other
agreement between us and Sprint, our ownership of the operating assets or the
actions or the failure to act of anyone employed or hired by us in the
performance of any work under such agreement, except we will not be obligated to
indemnify Sprint for any claims arising solely from the negligence or willful
misconduct of Sprint. Sprint has agreed to indemnify us and our directors,
employees and agents against all claims against any of the foregoing arising
from Sprint's violation of any law and from Sprint's breach of any
representation, warranty or covenant
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contained in our management agreements or any other agreement between us and
Sprint, except Sprint will not be obligated to indemnify us for any claims
arising solely from our negligence or willful misconduct.
DISPUTE RESOLUTION - If the parties cannot resolve any dispute between
themselves and our management agreements do not provide a remedy, then either
party may require that any dispute be resolved by a binding arbitration.
THE SERVICES AGREEMENTS
We entered into one set of services agreements with Sprint for our
territories in the Southwestern part of the United States and another set of
these agreements for our territories in Wisconsin. Roberts entered into a
services agreement for its territories in Illinois, Kansas and Missouri, which
we have assumed pursuant to our acquisition of Roberts. WOW entered into a
services agreement for its territories in Washington and Oregon, which we have
assumed pursuant to our acquisition of WOW. Southwest entered into a services
agreement for its territories in Oklahoma, Kansas, Texas and Arkansas, which we
have assumed pursuant to our acquisition of Southwest. Unless otherwise
indicated below, the description of our services agreements applies to the
services agreements for all of our territories.
Our services agreements outline various back office services provided
by Sprint and available to us for an additional fee. Sprint can change the
amount of adjustment for any or all of the services one time in any twelve month
period. We have the option to cancel a service upon notification of a fee
increase, and if we decide to cancel the service, then Sprint, at our option,
must continue to provide that service for nine months at the original price.
Some of the available services include: billing, customer care, activation,
credit checks, handset logistics, home locator record, voice mail, prepaid
services, directory assistance, operator services, roaming fees, roaming
clearinghouse fees, interconnect fees and inter-territory fees. Sprint offers
three packages of available services. Each package identifies which services
must be purchased from Sprint and which may be purchased from a vendor or
provided in-house. Essentially, services such as billing, activation and
customer care must all be purchased from Sprint or none may be purchased from
Sprint. We have chosen to initially delegate the performance of these services
to Sprint, but we may develop an independent capability with respect to these
services over time. Sprint may contract with third parties to provide expertise
and services identical or similar to those to be made available or provided to
us. We have agreed not to use the services performed by Sprint in connection
with any other business or outside our territories. We may discontinue use of
any service upon three months' prior written notice, while Sprint must give nine
months notice if it will no longer offer any service.
We have agreed with Sprint to indemnify each other as well as
affiliates, officers, directors and employees for violations of law or the
services agreements except for any liabilities resulting from the negligence or
willful misconduct of the person seeking to be indemnified or its
representatives. Our services agreements also provide that no party will be
liable to the other party for special, indirect, incidental, exemplary,
consequential or punitive damages, or loss of profits arising from the
relationship of the parties or the conduct of business under, or breach of, such
services agreement except as may otherwise be required by the indemnification
provisions. Our services agreements automatically terminate upon termination of
our management agreements, and neither party may terminate the services
agreements for any reason other than the termination of the management
agreements.
THE TRADEMARK AND SERVICE MARK LICENSE AGREEMENTS
We entered into one set of trademark and service mark license
agreements with Sprint for our territories in the Southwestern part of the
United States and another set of these agreements for our territories in
Wisconsin. Roberts entered into a trademark and service mark license agreement
for its territories in Illinois, Kansas and Missouri, which we have assumed
pursuant to our acquisition of Roberts. WOW entered into a trademark and service
mark license agreement for its territories in Washington and Oregon, which we
have assumed pursuant to our acquisition of WOW. Southwest entered into a
trademark and service mark license agreement for its territories in Oklahoma,
Kansas, Texas and Arkansas, which we have assumed pursuant to our acquisition of
Southwest. Unless otherwise indicated below, the description of the trademark
and service mark license agreements applies to the trademark and service mark
license agreements for all of our territories.
We have a non-transferable license to use, at no additional cost to us,
the Sprint brand name and "diamond" symbol, and several other U.S. trademarks
and service marks such as "The Clear Alternative to Cellular" and "Clear Across
the Nation" on Sprint PCS products and services. We believe that the Sprint
brand name and symbols enjoy a high degree of recognition, providing us an
immediate benefit in the market place. Our use of the licensed marks is subject
to our adherence to quality standards determined by Sprint and use of the
licensed marks in a manner, which
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would not reflect adversely on the image of quality symbolized, by the licensed
marks. We have agreed to promptly notify Sprint of any infringement of any of
the licensed marks within our territories of which we become aware and to
provide assistance to Sprint in connection with Sprint's enforcement of their
rights. We have agreed with Sprint that we will indemnify the other for losses
incurred in connection with a material breach of the trademark license
agreements between Sprint and us. In addition, we have agreed to indemnify
Sprint from any loss suffered by reason of our use of the licensed marks or
marketing, promotion, advertisement, distribution, lease or sale of any Sprint
products and services other than losses arising solely out of our use of the
licensed marks in compliance with certain guidelines.
Sprint can terminate our trademark and service mark license agreements
if we file for bankruptcy or materially breach our agreement or if our
management agreements are terminated. We can terminate our trademark and service
mark license agreements upon Sprint's abandonment of the licensed marks or if
Sprint files for bankruptcy or our management agreements are terminated.
However, Sprint can assign their interests in the licensed marks to a third
party if that third party agrees to be bound by the terms of our trademark and
service mark license agreements.
CONSENT AND AGREEMENT FOR THE BENEFIT OF THE HOLDERS OF THE SENIOR SECURED
CREDIT FACILITY
Sprint entered into a consent and agreement with Citicorp, as
administrative agent, that modifies Sprint's rights and remedies under our
affiliation agreements with Sprint, for the benefit of Citicorp and the holders
of the Senior Secured Credit Facility and any refinancing thereof.
The consent and agreement between Sprint and Citicorp generally
provides, among other things, the following:
o Sprint's consent to the pledge of substantially all of our assets,
including our rights in our affiliation agreements with Sprint;
o that our affiliation agreements with Sprint may not be terminated
by Sprint until all outstanding obligations under the Senior
Secured Credit Facility are satisfied in full pursuant to the
terms of the consent and agreement, unless our operating
subsidiaries or assets are sold to a purchaser who does not
continue to operate the business as a Sprint PCS Network Partner,
which sale requires the approval of Citicorp;
o Sprint may not exercise its right under our management agreements
to purchase our assets until all obligations pursuant to the
Senior Secured Credit Facility have been paid in full in cash and
all commitments to advance credit under such facility have been
terminated or have expired. However, Sprint retains the option to
purchase our assets if it first pays all obligations under the
Senior Secured Credit Facility and such facility is terminated in
connection with such payment;
o for redirection of payments due to us under our management
agreements from Sprint to Citicorp during the continuation of any
default by us under the Senior Secured Credit Facility;
o for Sprint and Citicorp to provide to each other notices of
default by us under our management agreements and the Senior
Secured Credit Facility, respectively;
o the ability to appoint interim replacements, including Sprint or a
designee of the administrative agent under the Senior Secured
Credit Facility, to operate our portion of Sprint's PCS network
under our affiliation agreements after an event of default under
the Senior Secured Credit Facility or an event of termination
under our affiliation agreements;
o subject to certain requirements and limitations, the ability of
Sprint to assign our affiliation agreements with Sprint and sell
our assets or the partnership interests, membership interests or
other equity interests of our operating subsidiaries to a
qualified purchaser that is not a major competitor of Sprint, free
of the restrictions on assignment and change of control in our
management agreements, if our obligations under the Senior Secured
Credit Facility have been accelerated after a default by us; and
o subject to certain requirements and limitations, that if Sprint
enters into consent and agreement documents with
similarly-situated lenders that have provisions that are more
favorable to the lender, Sprint will give Citicorp written notice
of the amendments and will amend our consent and agreement with
Citicorp in the
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same manner at Citicorp's request; consequently, from time to
time, Citicorp and Sprint may modify our consent and agreement so
that it will contain terms and conditions more favorable to
Citicorp.
SPRINT'S RIGHT TO PURCHASE ON ACCELERATION OF AMOUNTS OUTSTANDING UNDER
THE SENIOR SECURED CREDIT FACILITY - Subject to the requirements of applicable
law, so long as the Senior Secured Credit Facility remains outstanding, Sprint
has the right to purchase our operating assets or the partnership interests,
membership interests or other equity interests of our operating subsidiaries,
upon its receipt of notice of an acceleration of the Senior Secured Credit
Facility, under the following terms:
o Sprint elects to make such a purchase within a specified period;
o the purchase price is the greater of an amount equal to 72% of our
"entire business value" or the amount we owe under the Citicorp
Senior Secured Credit Facility;
o if Sprint has given notice of its intention to exercise the
purchase right, then the administrative agent is prohibited for a
specified period after the acceleration, or until Sprint rescinds
its intention to purchase, from enforcing its security interest;
and
o if we receive a written offer that is acceptable to us to purchase
our operating assets or the partnership interests, membership
interests or other equity interests of our operating subsidiaries
after the acceleration, then Sprint has the right to purchase our
operating assets or the partnership interests, membership
interests or other equity interests of our operating subsidiaries,
as the case may be, on terms at least as favorable to us as the
offer we receive. Sprint must agree to purchase the operating
assets or the partnership interests, membership interests or other
equity interests of our operating subsidiaries within 14 business
days of its receipt of the offer, on acceptable conditions, and in
an amount of time acceptable to us and Citicorp.
Upon acceleration of the Senior Secured Credit Facility, Sprint also
has the right to purchase the obligations under the Senior Secured Credit
Facility by repaying such obligations in full in cash.
SALE OF OPERATING ASSETS OR THE PARTNERSHIP INTERESTS, MEMBERSHIP
INTERESTS OR OTHER EQUITY INTERESTS OF OUR OPERATING SUBSIDIARIES TO THIRD
PARTIES - If Sprint does not purchase our operating assets or the partnership
interests, membership interests or other equity interests of our operating
subsidiaries after an acceleration of the obligations under the Senior Secured
Credit Facility, then Citicorp may sell our operating assets or the partnership
interests, membership interests or other equity interests of our operating
subsidiaries. Subject to the requirements of applicable law, including the law
relating to foreclosures of security interests, Citicorp has two options:
o to sell our operating assets or the partnership interests,
membership interests or other equity interests of our operating
subsidiaries to an entity that meets the requirements to be our
successor under our affiliation agreements with Sprint; or
o to sell our operating assets or the partnership interests,
membership interests or other equity interests of our operating
subsidiaries to any third party, subject to specified conditions.
REGULATORY ENVIRONMENT
REGULATION OF THE WIRELESS TELECOMMUNICATIONS INDUSTRY
The FCC can have a substantial impact upon entities that manage
wireless personal communications service systems and/or provide wireless
personal communications services because the FCC regulates the licensing,
construction, operation, acquisition and interconnection arrangements of
wireless telecommunications systems in the United States.
The FCC has promulgated, and is in the process of promulgating, a
series of rules, regulations and policies to, among other things:
o grant or deny licenses for wireless personal communications
service frequencies;
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o grant or deny wireless personal communications service license
renewals;
o rule on assignments and/or transfers of control of wireless
personal communications service licenses;
o govern the interconnection of wireless personal communications
service networks with other wireless and wireline service
providers;
o establish access and universal service funding provisions;
o impose fines and forfeitures for violations of any of the FCC's
rules; and
o regulate the technical standards of wireless personal
communications services networks.
Through rules that went into effect on February 13, 2002, the FCC
increased its spectrum cap for Commercial Mobile Radio Services ("CMRS") which
include broadband wireless personal communications services, cellular and
specialized mobile radio ("SMR") from 45 MHz to 55 MHz in any geographic area
until January 1, 2003, when the CMRS spectrum cap will sunset. This spectrum cap
prohibits a single entity from having an attributable interest (defined as any
general partnership interest of 20% or greater equity or voting interest or
certain other business relationships) totaling more than 55 MHz. The spectrum
cap did not change for overlaps involving cellular rural service areas, which
had already been 55 MHz. The 20% threshold is raised to 40% where the owner is
an investment company, a small business or a rural telephone company. The
geographic areas at issue are PCS licensed service areas where there are
overlaps involving 10% or more of the population of such service area. An
entity, such as us, that manages the operations of a broadband PCS, cellular, or
SMR licenses pursuant to a management agreement is also considered to have an
attributable interest in the system it manages. Also effective as of February
13, 2002, the FCC eliminated its rule which prohibited a party from owning
interests in both cellular systems in the same Metropolitan Statistical Areas
("MSAs") though it retained the cross-interest prohibition for less populous
Rural Service Areas ("RSAs"). The Commission's new rules blur the "bright line"
of these spectrum caps, however, and require a case-by-case analysis to
determine that any proposed CMRS spectrum combination will not have an
anticompetitive effect.
TRANSFERS AND ASSIGNMENTS OF WIRELESS PERSONAL COMMUNICATIONS SERVICES LICENSES
The FCC must give prior approval to the assignment of, or transfers
involving, substantial changes in ownership or control of a wireless personal
communications service license. This means that we and our stockholders will
receive advance notice of any and all transactions involved in transferring
control of Sprint or the assignment of some or all of the wireless personal
communications service licenses held by Sprint. The FCC proceedings afford us
and our stockholders an opportunity to evaluate proposed transactions well in
advance of closing, and to take actions necessary to protect their interests.
Non-controlling interests in an entity that holds a wireless personal
communications service license or operates wireless personal communications
service networks generally may be bought or sold without prior FCC approval. In
addition, the FCC requires only post-consummation notification of pro forma
assignments or transfers of control of certain commercial mobile radio service
licenses.
CONDITIONS OF WIRELESS PERSONAL COMMUNICATIONS SERVICES LICENSES
All wireless personal communications service licenses are granted for
ten year terms conditioned upon timely compliance with the FCC's build-out
requirements. Pursuant to the FCC's build-out requirements, all 30 MHZ broadband
wireless personal communications service licensees must construct facilities
that offer coverage to one-third of the population in their licensed areas
within five years and to two-thirds of the population in such areas within ten
years, and all 10 MHZ broadband wireless personal communications services
licensees must construct facilities that offer coverage to at least one-quarter
of the population in their licensed areas within five years or make a showing of
"substantial service" within that five-year period.
If the build-out requirements are not met, wireless personal
communications service licenses could be forfeited. The FCC also requires
licensees to maintain control over their licenses. Our affiliation agreements
with Sprint reflect management agreements that the parties believe meet the FCC
requirements for licensee control of licensed spectrum.
If the FCC were to determine that our affiliation agreements with
Sprint need to be modified to increase the level of licensee control, we have
agreed with Sprint to use our best efforts to modify the agreements to the
extent necessary to cause the agreements to comply with applicable law and to
preserve to the extent possible the economic
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arrangements set forth in the agreements. If the agreements cannot be so
modified, the agreements may be terminated pursuant to their terms. The FCC
could also impose monetary penalties on Sprint, and possibly revoke one or more
of the Sprint PCS licenses.
WIRELESS PERSONAL COMMUNICATIONS SERVICES LICENSE RENEWAL
Wireless personal communications service licensees can renew their
licenses for additional ten year terms. Wireless personal communications service
renewal applications are not subject to auctions. However, under the FCC's
rules, third parties may oppose renewal applications and/or file competing
applications. If one or more competing applications are filed, a renewal
application will be subject to a comparative renewal hearing. The FCC's rules
afford wireless personal communications services renewal applicants involved in
comparative renewal hearings with a "renewal expectancy." The renewal expectancy
is the most important comparative factor in a comparative renewal hearing and is
applicable if the wireless personal communications service renewal applicant
has:
o provided "substantial service" during its license term; and
o substantially complied with all applicable laws and Federal
Communications Commission rules and policies.
The FCC's rules define "substantial service" in this context as service
that is sound, favorable and substantially above the level of mediocre service
that might minimally warrant renewal. The FCC's renewal expectancy and
procedures make it very likely that Sprint will retain the wireless personal
communications service licenses that we manage for the foreseeable future.
INTERCONNECTION
The FCC has the authority to order interconnection between commercial
mobile radio services, commonly referred to as CMRS, providers and incumbent
local exchange carriers. The FCC has ordered local exchange carriers to provide
reciprocal compensation to commercial mobile radio service providers for the
termination of traffic. Using these rules, we will assist Sprint in the
negotiation of interconnection agreements for Sprint's PCS network in their
market area with all of the Bell operating companies, including Verizon and
several smaller independent local exchange carriers. Interconnection agreements
are negotiated on a state-wide basis.
If an agreement cannot be reached, parties to interconnection
negotiations can submit outstanding disputes to state authorities for
arbitration. Negotiated interconnection agreements are subject to state
approval. The FCC rules and rulings, as well as the state arbitration
proceedings, will directly impact the nature and cost of the facilities
necessary for interconnection of the Sprint PCS systems with local, national and
international telecommunications networks. They will also determine the nature
and amount of revenues that we and Sprint can receive for terminating calls
originating on the networks of local exchange and other telecommunications
carriers.
OTHER FCC REQUIREMENTS
In June 1996, the FCC adopted rules that prohibit broadband wireless
personal communications services providers from unreasonably restricting or
disallowing resale of their services or unreasonably discriminating against
resellers. Resale obligations will automatically expire on November 24, 2002.
These existing resale requirements and their expiration may somewhat affect the
number of resellers competing with Sprint and its managers and Network Partners
in various markets. However, to date, wireless resellers have not significantly
impacted wireless service providers. Any losses in retail customers have been
offset, in major part, by increases in wireless customers, traffic and wholesale
revenues.
CMRS providers, including Sprint, are required to permit manual roaming
on their systems. With manual roaming, any user whose mobile phone is
technically capable of connecting with a carrier's system must be able to make a
call by providing a credit card number or making some other arrangement for
payment. The FCC is currently considering changes in its rules that may
terminate the manual roaming requirement and may impose automatic roaming
obligations, under which users with capable equipment would be permitted to
originate or terminate calls without taking action other than turning on the
mobile phone.
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FCC rules require local exchange and most commercial mobile radio
services providers to program their networks to allow customers to change
service providers without changing telephone numbers, which is referred to as
service provider number portability ("SPNP"). The FCC requires most commercial
mobile radio service providers to implement wireless service provider number
portability where requested in the 100 largest metropolitan areas in the United
States by November 24, 2002. The FCC currently requires most commercial mobile
radio service providers to be able to deliver calls from their networks to
ported numbers anywhere in the country, and to contribute to the Local Number
Portability Fund. Implementation of wireless service provider number portability
will require wireless personal communications service providers like us and
Sprint, to purchase more expensive switches and switch upgrades. However, it
will also enable existing cellular customers to change to wireless personal
communications services without losing their existing wireless telephone
numbers, which should make it easier for wireless personal communications
service providers to market their services to existing cellular users.
FCC rules permit broadband wireless personal communications service and
other commercial mobile radio service providers to provide wireless local loop
and other fixed services that would directly compete with the wireline services
of local exchange carriers. This may create new markets and revenue
opportunities for Sprint and its managers and Network Partners and other
wireless providers.
FCC rules require broadband personal communications services and other
commercial mobile radio services providers to implement enhanced emergency 911
capabilities. The FCC has approved a plan proposed by Sprint under which it
began selling specially equipped telephone handsets on or before October 1,
2001, with a rollout of such handsets continuing until December 31, 2002, when
all new handsets activated nationwide must be specially equipped. By December
31, 2005, 95% of Sprint PCS subscriber handsets in service must be equipped for
Sprint PCS' enhanced 911 service. In addition, Sprint must complete its PCS
network upgrade to support enhanced 911 service by December 31, 2002, and it
must begin providing a specified level of enhanced 911 service by June 30, 2002.
As the required equipment becomes more functional and less expensive, emergency
911 services may afford wireless carriers substantial and attractive new service
and marketing opportunities.
FCC rules include several measures designed to remove obstacles to
competitive access to customers and facilities in commercial multiple tenant
environments, including the following:
o Telecommunications carriers in commercial settings may not enter
into exclusive contracts with building owners, including contracts
that effectively restrict premises owners or their agents from
permitting access to other telecommunications service providers.
o Utilities, including LECs, must afford telecommunications carriers
and cable service providers reasonable and nondiscriminatory
access to conduits and rights-of-way located in customer buildings
and campuses, to the extent such conduits and rights-of-way are
owned or controlled by the utility.
The FCC has also issued a further notice of proposed rulemaking seeking
comment on whether it should adopt additional rules in this area, including
extending certain regulations to include residential as well as commercial
buildings. The final result of this proceeding could affect the availability and
pricing of sites for our antennae and those of our competitors.
COMMUNICATIONS ASSISTANCE FOR LAW ENFORCEMENT
The Communications Assistance for Law Enforcement Act ("CALEA") enacted
in 1994, requires wireless personal communications service and other
telecommunications service providers to meet capability and capacity
requirements needed by federal, state and local law enforcement to preserve
their electronic surveillance capabilities. Wireless personal communications
service providers were generally required to comply with the current industry
CALEA capability standard, known as J-STD-025, by June 30, 2000, and with
certain additional standards by September 30, 2001. Wireless personal
communications service providers were also required to implement a "packet-mode"
capability by November 19, 2001. Various other capability requirements
established by the Department of Justice and Federal Bureau of Investigation
have been temporarily suspended pending further review b the FCC. Most wireless
personal communications service providers are ineligible for federal
reimbursement for the software and hardware upgrades necessary to comply with
the CALEA capability and capacity requirements. In addition, the FCC is
considering petitions from numerous parties to establish and implement technical
compliance standards pursuant to CALEA requirements. In sum, CALEA capability
and capacity requirements are likely to impose some additional switching and
network costs upon Sprint and its managers and Network Partners and other
wireless entities.
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The USA Patriot Act of 2001 included certain provisions that enable law
enforcement agencies and other branches of the government to more easily acquire
records and information regarding certain uses of communications facilities from
telecommunications carriers, including PCS carriers.
OTHER FEDERAL REGULATIONS
Sprint and its managers and Network Partners must bear the expense of
compliance with FCC and Federal Aviation Administration regulations regarding
the siting, lighting and construction of transmitter towers and antennas. In
addition, FCC environmental regulations may cause some of the Company's base
station locations to become subject to the additional expense of regulation
under the National Environmental Policy Act. The FCC is required to implement
this Act by requiring service providers to meet land use and radio emissions
standards.
REVIEW OF UNIVERSAL SERVICE REQUIREMENTS
The FCC and certain states have established "universal service"
programs to ensure that affordable, quality telecommunications services are
available to all Americans. Sprint is required to contribute to the federal
universal service program as well as existing state programs. The FCC has
determined that Sprint's "contribution" to the federal universal service program
is a variable percentage of "end-user telecommunications revenues." Although
many states are likely to adopt a similar assessment methodology, the states are
free to calculate telecommunications service provider contributions in any
manner they choose as long as the process is not inconsistent with the FCC's
rules. At the present time it is not possible to predict the extent of the
Sprint total federal and state universal service assessments or its ability to
recover from the universal service fund. However, some wireless entities are
seeking state commission designation as "eligible telecommunications carriers,"
enabling them to receive federal and state universal service support, and are
preparing to compete aggressively with wireline telephone companies for
universal service revenue. Because we manage substantial rural areas for
Sprint's PCS division, it is likely to receive revenues in the future from
federal and state universal service support funds that are much greater than the
reductions in its revenues due to universal service contributions paid by
Sprint.
PARTITIONING; DISAGGREGATION
FCC rules allow broadband wireless personal communications services
licensees to partition their market areas and/or to disaggregate their assigned
spectrum and to transfer partial market areas or spectrum assignments to
eligible third parties. These rules may enable us to purchase wireless personal
communications service spectrum from Sprint and other wireless personal
communications services licensees as a supplement or alternative to the existing
management arrangements.
WIRELESS FACILITIES SITING
States and localities are not permitted to regulate the placement of
wireless facilities so as to "prohibit" the provision of wireless services or to
"discriminate" among providers of those services. In addition, so long as a
wireless system complies with the FCC's rules, states and localities are
prohibited from using radio frequency health effects as a basis to regulate the
placement, construction or operation of wireless facilities. These rules are
designed to make it possible for Sprint and its managers and Network Partners
and other wireless entities to acquire necessary tower sites in the face of
local zoning opposition and delays. The FCC is considering numerous requests for
preemption of local actions affecting wireless facilities siting.
EQUAL ACCESS
Wireless providers are not required to provide long distance carriers
with equal access to wireless customers for the provision of toll services. This
enables us and Sprint to generate additional revenues by reselling the toll
services of Sprint PCS and other interexchange carriers from whom we can obtain
favorable volume discounts. However, the FCC is authorized to require unblocked
access to toll service providers subject to certain conditions.
STATE REGULATION OF WIRELESS SERVICE
Section 332 of the Communications Act preempts states from regulating
the rates and entry of commercial mobile radio service providers. Section 332
does not prohibit a state from regulating the other terms and conditions of
24
commercial mobile services, including consumer billing information and
practices, billing disputes and other consumer protection matters. However,
states may petition the FCC to regulate those providers and the FCC may grant
that petition if the state demonstrates that:
o market conditions fail to protect subscribers from unjust and
unreasonable rates or rates that are unjustly or unreasonably
discriminatory; or
o such market conditions exist and commercial mobile radio service
is a replacement for a substantial portion of the landline
telephone service within the state.
To date, the FCC has granted no such petition. To the extent Sprint and
its managers and Network Partners provide fixed wireless service, we may be
subject to additional state regulation. These standards and rulings have
prevented states from delaying the entry of wireless personal communications
services and other wireless carriers into their jurisdictions via certification
and similar requirements, and from delaying or inhibiting aggressive or flexible
wireless price competition after entry.
ITEM 2. PROPERTIES.
Our headquarters are located in Lubbock, Texas and we lease space in a
number of locations, primarily for our retail stores, base stations and
switching centers. As of December 31, 2001, we leased 59 retail stores and 9
switching centers. As of December 31, 2001, we leased space on 1,368 towers and
owned 4 towers. We collocate with other wireless service providers on
approximately 45% of our towers. We believe that our facilities are adequate for
our current operations and that additional leased space can be obtained if
needed on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS.
We have been named as a defendant in a number of purported securities
class actions in the United States District Court for the Southern District of
New York, arising out of our initial public offering (the "IPO"). Various
underwriters of the IPO also are named as defendants in the actions. The
complaints allege, among other things, that the registration statement and
prospectus filed with the Securities and Exchange Commission for purposes of the
IPO were false and misleading because they failed to disclose that the
underwriters allegedly (i) solicited and received commissions from certain
investors in exchange for allocating to them shares of Alamosa common stock in
connection with the IPO, and (ii) entered into agreements with their customers
to allocate such stock to those customers in exchange for the customers agreeing
to purchase additional Alamosa shares in the aftermarket at pre-determined
prices.
The Court has ordered that these putative class actions against us,
along with hundreds of IPO allocation cases against other issuers, be
transferred to Judge Scheindlin for coordinated pre-trial proceedings. At a
status conference held on September 7, 2001, Judge Scheindlin adjourned all
defendants' time to respond to the complaints until further order of the Court.
These cases remain at a preliminary stage and no discovery proceedings
have taken place. We believe the claims asserted against us in these cases are
without merit and intend to defend vigorously against them.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of shareholders during the fourth
quarter of 2001.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock has traded on The New York Stock Exchange under the
symbol "APS" since December 6, 2001. Prior to that date, our common stock was
traded on The Nasdaq National Market under the symbol "APCS." Prior to February
3, 2000, there was no public market for our common stock. No quoted market
prices for our common stock are available for the year ended December 31, 1999.
The following table sets forth, for the periods indicated, the range of high and
low sales prices for our common stock as reported on The Nasdaq National Market
and The New York Stock Exchange.
25
PRICE RANGE OF
COMMON STOCK
------------------------------------
HIGH LOW
----------------- --------------
Fiscal year ended December 31, 2001:
Fourth quarter $ 18.70 $ 10.57
Third quarter $ 20.00 $ 10.90
Second quarter $ 17.20 $ 9.69
First quarter $ 17.13 $ 7.25
Fiscal year ended December 31, 2000:
Fourth quarter $ 16.88 $ 6.13
Third quarter $ 27.50 $ 12.50
Second quarter $ 41.00 $ 11.81
First quarter $ 43.63 $ 22.19
On March 27, 2002, the last reported sales price of our common stock as
reported on The New York Stock Exchange was $5.16 per share. On March 27, 2002,
there were 275 holders of record of our common stock.
We have never declared or paid any cash dividends on our common stock
or other securities. We do not expect to pay cash dividends on our capital stock
in the foreseeable future. We currently intend to retain our future earnings, if
any, to fund the development and growth of our business. Future dividends, if
any, will be determined by our board of directors and will depend upon our
results of operations, financial condition and capital expenditure plans, as
well as other factors that our board of directors considers relevant. In
addition, the terms of the indentures governing our Senior Notes may limit our
ability to pay dividends in the future.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data presented below under the captions
"Statement of Operations Data," "Per Share Data," and "Balance Sheet Data" have
been derived from the consolidated balance sheets at December 31, 2001, 2000,
1999 and 1998, and the related statements of operations for the years ended
December 31, 2001, 2000 and 1999, and the period from July 16, 1998 (inception)
to December 31, 1998, and the notes thereto appearing elsewhere herein, as
applicable.
The acquisitions of Roberts, WOW and Southwest took place on February
14, February 14 and March 30, 2001, respectively. These acquisitions were
accounted for under the purchase method of accounting such that the results of
operations for the acquired entities are included in our consolidated operating
results from the date of acquisition.
It is important that you also read "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operation" and the financial
statements for the periods ended December 31, 2001, 2000, 1999 and 1998, and the
related notes.
26
FOR THE PERIOD
FOR THE YEAR ENDED JULY 16, 1998
----------------------------------------------------------------- (INCEPTION) THROUGH
DECEMBER 31, 2001 DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- ----------------- ----------------- -----------------
STATEMENT OF OPERATIONS DATA:
(DOLLARS IN THOUSAND EXCEPT PER SHARE DATA AND OTHER DATA)
Revenues:
Service revenues $ 330,358 $ 73,500 $ 6,534 $ --
Product sales 26,781 9,201 2,450 --
--------------- -------------- ----------- -----------
357,139 82,701 8,984 --
--------------- -------------- ----------- -----------
Cost and expenses:
Cost of service and operations 237,843 55,701 7,601 --
Cost of product sales 53,911 20,524 5,939 --
Selling and marketing 110,052 45,407 10,650 --
General and administration 13,853 9,538 4,209 956
Depreciation and amortization 94,722 12,530 3,057 2
Terminated merger and acquisition
costs -- 2,247 -- --
Non-cash compensation (916) 5,651 8,200 --
--------------- -------------- ----------- -----------
509,465 151,598 39,656 958
--------------- -------------- ----------- -----------
Operating loss (152,326) (68,897) (30,672) (958)
Net loss (147,423) (80,189) (32,836) (924)
PER SHARE DATA:
Basic and diluted net loss per
share of common stock (1) $ (1.69) $ (1.33) N/A N/A
Basic and diluted pro forma net loss
per share of common stock (1) N/A N/A (.68)(2) (.02)(2)
OTHER DATA:
Number of subscribers at end of period 503,000 133,000 32,000 --
AS OF DECEMBER 31,
---------------------------------------------------------------------------------
2001 2000 1999 1998
--------------- -------------- --------------- -------------
BALANCE SHEET DATA:
Cash and cash equivalents $ 104,672 $ 141,768 $ 5,656 $ 13,529
Property and equipment, net 455,695 228,983 84,714 2,093
Total assets 1,598,408 458,650 104,492 15,674
Short-term debt (3) 596 36 385 44
Long-term debt 826,352 264,843 72,753 708
Total liabilities 1,060,422 327,252 93,052 1,598
Equity 537,986 131,398 11,440 14,076
(1) Diluted weighted average shares outstanding exclude the common shares
issuable on the exercise of stock options because inclusion would have
been antidilutive. The presentation of the pro forma net loss per share
of common stock gives effect to adjustments for federal and state
income taxes as if Alamosa had been taxed as a C Corporation for the
year ended December 31, 1999 and for the period July 16, 1998
(inception) through December 31, 1998.
(2) Reflects the February 2000 reorganization of Alamosa PCS, LLC from a
limited liability company to a corporation as if it had occurred upon
inception.
(3) Reflects capital lease obligations of $596 and $36 as of December 31,
2001 and 2000, respectively. Reflects notes payable of $363 and capital
lease obligations of $22 as of December 31, 1999 and notes payable of
$24 and capital lease obligations of $20 as of December 31, 1998.
27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
FORWARD LOOKING INFORMATION
You should read the following discussion and analysis when you read the
consolidated financial statements and the related notes included in this annual
report on Form 10-K beginning on page F-1. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from the results anticipated in these
forward-looking statements as a result of factors including, but not limited to,
those under "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation - Risk Factors" and "This Annual Report Contains
Forward-Looking Statements."
GENERAL
Since our inception in 1998, we have incurred substantial costs in
connection with negotiating our contracts with Sprint, obtaining our debt
financing, completing our public equity offerings, engineering our wireless PCS
network, developing our business infrastructure and building out our portion of
Sprint's PCS network. Prior to the launch of our first market in June 1999, we
did not have any markets in operation and we had no customers. At December 31,
2001, we have approximately 503,000 subscribers. As of December 31, 2001, our
accumulated deficit is $261.4 million and we have spent a cumulative total of
approximately $584 million in capital expenditures (including that spent by
Roberts, WOW and Southwest prior to our acquisition) in connection with
constructing our portion of Sprint's PCS network and developing our business
infrastructure including the establishment of our retail distribution channels.
While we anticipate operating losses to continue, we expect revenue to continue
to increase substantially as our subscriber base increases.
On July 17, 1998, we entered into our original affiliation agreements
with Sprint. We subsequently amended our original agreements in 1999 to add
additional territories to our licensed area. In the first quarter of 2001, we
completed the acquisitions of Roberts, WOW and Southwest bringing our total
licensed POPs to approximately 15.6 million at December 31, 2001.
As a Sprint PCS Network Partner, we have the exclusive right to provide
wireless, mobility communications network services under the Sprint brand name
in our licensed territory. We are responsible for building, owning and managing
the portion of Sprint's PCS network located in our territory. We offer national
plans designed by Sprint and intend to offer local plans tailored to our market
demographics. Our portion of Sprint's PCS network is designed to offer a
seamless connection with Sprint's 100% digital PCS nationwide wireless network.
We market wireless products and services through a number of distribution
outlets located in our territories, including our own retail stores, major
national distributors and local third party distributors.
We recognize revenues from Sprint PCS subscribers based in our
territories, proceeds from the sales of handsets and accessories through
channels controlled by us and fees from Sprint and other wireless service
providers when their customers roam onto our portion of Sprint's PCS network.
Sprint retains 8% of all collected service revenue from our subscribers (not
including products sales) and fees collected from other wireless service
providers when their customers roam onto our portion of Sprint's PCS network. We
report the amount retained by Sprint as an operating expense.
As part of our affiliation agreements with Sprint, we have the option
of contracting with Sprint to provide back office services such as customer
activation, handset logistics, billing, customer care and network monitoring
services. We have elected to delegate the performance of these services to
Sprint to take advantage of their 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 on a per subscriber and per transaction
basis and is recorded as an operating expense.
CRITICAL ACCOUNTING POLICIES
The fundamental objective of financial reporting is to provide useful
information that allows a reader to comprehend the business activities of an
entity. To aid in that understanding, we have identified our "critical
accounting policies." These policies have the potential to have a more
significant impact on our consolidated financial statements, either because of
the significance of the financial statement item to which they relate, or
because they require judgment and estimation due to the uncertainty involved in
measuring, at a specific point in time, events which are continuous in nature.
28
ALLOWANCE FOR DOUBTFUL ACCOUNTS - Estimates are used in determining our
allowance for bad debts and are based on our historical collection experience,
current trends, credit policy and a percentage of our accounts receivable by
aging category. In determining the allowance, we look at historical write-offs
of our receivables and our history is limited. We also look at current trends in
the credit quality of our customer base as well as changes in the credit
policies. Under Sprint PCS service plans, customers who do not meet certain
credit criteria can nevertheless select any plan offered, subject to an account
spending limit, referred to as ASL, to control credit exposure. Account spending
limits range from $125 to $200 that could be credited against future billings.
In May 2001, the deposit requirement was eliminated on certain, but not all,
credit classes ("NDASL"). As a result, a significant amount of our new customer
additions have been under the NDASL program. The NDASL program was replaced by
the "Clear Pay" program in November 2001, which reinstated the deposit
requirement for certain of the lowest credit class customers, and features
increased back office controls with respect to collection efforts. We have
reinstated the deposit for customers in certain credit classes on the Clear Pay
program as of February 24, 2002, and we believe that this policy will reduce our
future bad debt exposure.
REVENUE RECOGNITION - We record equipment revenue for the sale of
handsets and accessories to customers in our retail stores and to local
resellers in our territories. We do not record equipment revenue on handsets and
accessories purchased by our customers from national resellers or directly from
Sprint. Our customers pay an activation fee when they initiate service. We defer
this activation fee and record activation fee revenue over the estimated average
life of our customers which ranges from 12 to 36 months depending on credit
class and based on our past experience. We recognize revenue from our customers
as they use the service. Additionally, we provide a reduction of recorded
revenue for billing adjustments and billing corrections.
We record revenue for products sales in connection with our sales of
handsets and accessories through our retail stores and our local indirect
retailers. The cost of handsets sold generally exceeds the retail sales price as
we subsidize the price of handsets for competitive reasons. We reimburse Sprint
for the amount of subsidy incurred by them on handsets sold through channels
controlled by them.
ACCOUNTING FOR GOODWILL AND INTANGIBLE ASSETS - In connection with our
acquisitions of Roberts, WOW and Southwest in the first quarter of 2001, we
recorded certain intangible assets including both identifiable intangibles and
goodwill. Identifiable intangibles consist of the Sprint agreements and the
respective subscriber bases in place at the time of acquisition. The
unidentifiable goodwill and the intangible assets related to the Sprint
agreements are being amortized over the remaining original term of the
underlying Sprint agreements or approximately 17.6 years. The subscriber base
intangible asset is being amortized over the estimated life of the acquired
subscribers or approximately 3 years. See our discussion of recently issued
accounting pronouncements within this item for changes in amortization of
goodwill beginning in 2002.
LONG-LIVED ASSET RECOVERY - Long-lived assets, consisting primarily of
property, plant and equipment and intangibles, comprise approximately 80 percent
of our total assets. Changes in technology or in our intended use of these
assets may cause the estimated period of use or the value of these assets to
change. In addition, changes in general industry conditions such as increased
competition, lower ARPU, etc., could cause the value of certain of these assets
to change. We carefully monitor the appropriateness of the estimated useful
lives of these assets. Whenever events or changes in circumstances indicate that
the carrying amounts of these assets may not be recoverable, we review the
respective assets for impairment. Estimates and assumptions used in both
estimating the useful life and evaluating potential impairment issues require a
significant amount of judgment. See our discussion of recently issued accounting
pronouncements within this document for additional information as to the impact
of such pronouncements as they pertain to long-lived assets.
INCOME TAXES - We utilize an asset and liability approach to accounting
for income taxes, wherein deferred taxes are provided for book and tax basis
differences for assets and liabilities. In the event differences exist between
book and tax basis of our assets and liabilities that result in a deferred
assets, an evaluation of the probability of being able to realize the future
benefits indicated by such assets is made. A valuation allowance is provided for
the portion of deferred tax assets for which there is sufficient uncertainty
regarding our ability to recognize the benefits of those assets in future years.
Deferred taxes are provided for those items reported in different
periods for income tax and financial reporting purposes. The net deferred tax
asset was fully reserved through December 31, 2000 because of uncertainty
regarding our ability to recognize the benefit of the asset in future years. In
connection with the acquisitions in 2001, a significant deferred tax liability
was recorded relative to goodwill and other intangibles. The reversal of the
timing differences
29
which gave rise to the deferred tax liability will allow us to benefit from the
deferred tax asset. As such, the valuation allowance against the deferred tax
asset was reduced in 2001 to account for the expected benefit to be realized.
Prior to February 1, 2000, our 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, we
became a C-Corp for federal income tax purposes and therefore subsequent losses
became net operating loss carryforwards to us. We continue to evaluate the
likelihood of realizing the benefits of deferred tax items. Should events or
circumstances indicate that it is warranted, a valuation allowance will again be
established.
CONSOLIDATED RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31,
2000
The acquisitions of Roberts, WOW and Southwest took place on February
14, February 14, and March 30, 2001, respectively. These acquisitions were
accounted for under the purchase method of accounting such that the results of
operations for the acquired entities are included in our consolidated operating
results only from the date of acquisition. This, coupled with our substantial
growth during 2001 in terms of subscribers and network coverage, impacts the
comparison of 2001 operating results to those reported in 2000.
SUBSCRIBER GROWTH AND KEY PERFORMANCE INDICATORS - We had total
subscribers of approximately 503,000 at December 31, 2001 compared to
approximately 133,000 at December 31, 2000. This growth includes approximately
90,000 subscribers acquired in the acquisitions which closed in the first
quarter of 2001. The additional 280,000 subscribers came as a result of
increasing our network coverage from 4.5 million to 11.2 million covered POPs
during 2001 providing additional marketing opportunities. Monthly churn (rate of
deactivation of existing subscribers) for 2001 was approximately 2.7 percent
compared to approximately 2.9 percent for 2000. This improvement in churn is due
to more subscribers signing up under plans with contracts as well as improved
coverage areas as we built out our network. Increases in churn negatively impact
our operations as we incur significant up front costs in acquiring customers.
Our cost per gross addition ("CPGA") includes handset subsidies, and selling and
marketing costs and was approximately $349 per gross addition in 2001 compared
to $430 in 2000. This improvement is a result of spreading our fixed marketing
costs over a larger number of gross additions.
SERVICE REVENUE - Service revenues consist of revenue from subscribers
and roaming revenue earned when customers from other carriers roam onto our
portion of Sprint's PCS network. Subscriber revenue consists of payments
received from our subscribers for monthly service under their service plans.
Subscriber revenue also includes activation fees and charges for the use of
various features including the wireless web, voice activated dialing, etc.
Subscriber revenues were $231,145 for the year ended December 31, 2001
compared to $56,154 for the year ended December 31, 2000. This increase of 312
percent was due to the increase in our subscriber base from approximately
133,000 subscribers at December 31, 2000 to approximately 503,000 subscribers at
December 31, 2001. Average revenue per user ("ARPU") before roaming revenue
decreased in 2001 to $61 compared to $65 in 2000. This decrease is attributable
to lower monthly recurring charges for plans with larger buckets of minutes
being offered in 2001 compared to 2000.
Roaming revenue is primarily comprised of revenue from other Sprint PCS
subscribers based outside of our territories that roam onto our portion of
Sprint's PCS network. We have a reciprocal roaming rate arrangement with Sprint
where per minute charges for inbound and outbound roaming are identical. This
rate declined during 2001 from 20 cents per minute at January 1 to 15 cents per
minute on June 1 to 12 cents per minute on October 1. The decline in rates was
offset by significant increases in roaming minutes due to the fact that we added
approximately 1,000 cell sites during 2001, including 531 added through
acquisitions, which allowed us to capture this additional roaming traffic. This
accounted for the 472 percent increase in roaming revenue to $99,213 in 2001
from $17,346 in 2000.
PRODUCT SALES - We record revenue from the sale of handsets and
accessories, net of an allowance for returns, as product sales. Sprint'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 for refurbishing, we receive a credit from
Sprint, which is less than the amount we originally paid for the handset.
Product sales revenue for 2001 was $26,781 compared to $9,201 for 2000. This
increase of 191 percent is attributable to the increase in the number of
activations during 2001 due to the additional markets launched as well as the
markets acquired in the acquisitions during the first quarter.
30
COST OF SERVICE AND OPERATIONS - Cost of service and operations
includes the costs of operating our portion of Sprint's PCS network. These costs
include items such as outbound roaming fees, long distance charges, tower leases
and maintenance as well as backhaul costs. In addition, it includes the fees we
pay to Sprint for our 8 percent affiliation fee, back office services such as
billing and customer care as well as our provision for estimated uncollectible
accounts. Expenses of $237,843 in 2001 were 327 percent higher than the $55,701
incurred in 2000. This increase in cost is the result of the completion of the
build out of our network as well as the addition of the networks of the acquired
companies in the first quarter of 2001 which drove an increase in the number of
subscribers using our network.
COST OF PRODUCTS SOLD - Cost of products sold includes the cost of
handsets and accessories sold through our retail stores as well as those sold to
our local indirect agents. The cost of handsets sold generally exceeds the
retail sales price as we subsidize the price of handsets for competitive
reasons. Expenses of $53,911 for 2001 were 163 percent higher than the $20,524
incurred in 2000. This increase is attributable to the increase in the number of
activations during 2001 due to the additional markets launched as well as the
markets acquired in the acquisitions during the first quarter.
SELLING AND MARKETING - Selling and marketing expenses include
advertising, promotion, sales commissions and expenses related to our
distribution channels including our retail store expenses. In addition, we
reimburse Sprint for the subsidy on handsets sold through national retail stores
due to the fact that these retailers purchase their handsets from Sprint. This
subsidy is recorded as a selling and marketing expense. The amount of handset
subsidy included in selling and marketing was $14,575 and $4,846 in 2001 and
2000, respectively. Total selling and marketing expenses of $110,052 in 2001 was
142 percent higher than the $45,407 incurred in 2000 due to the expansion of our
distribution channels resulting from the additional markets launched during 2001
and the markets acquired in connection with the acquisitions in the first
quarter of 2001.
GENERAL AND ADMINISTRATIVE EXPENSES - General and administrative
expenses include corporate costs and expenses such as our corporate finance and
sales and marketing organizations. General and administrative expenses of
$13,853 in 2001 were 45 percent higher than the $9,538 incurred in 2000 due to
the three acquisitions which were consummated in the first quarter of 2001.
Although the three acquisitions more than doubled the size of our licensed
territory, the corporate costs did not increase by the same level due to
efficiencies gained by leveraging our corporate costs and eliminating large
amounts of corporate costs relative to the acquired companies.
DEPRECIATION AND AMORTIZATION - Depreciation and amortization includes
depreciation of our property, plant and equipment as well as amortization of
intangibles. Depreciation is calculated on the straight line method over the
estimated useful lives of the underlying assets and totaled $45,963 in 2001 as
compared to $12,530 in 2000. This increase of 267 percent is due to the increase
in depreciable costs as a result of our capital expenditures in 2001 of $146,817
and the assets acquired in connection with the three acquisitions closed in the
first quarter totaling $125,960.
Amortization expense of $48,759 in 2001 relates to intangible assets
recorded in connection with the acquisitions closed in the first quarter of
2001. We recorded two identifiable intangibles in connection with each of the
acquisitions consisting of values assigned to the agreements with Sprint and the
customer base acquired in connection with each of the three acquisitions. We had
no such intangible assets during 2000 such that no amortization was recorded in
2000.
NON-CASH COMPENSATION - Non-cash compensation expense related to stock
options that were granted to employees with exercise prices that were below then
current market prices. This expense was being recorded over the vesting period
of the underlying options. Compensation expense relative to these options was
$5,651 in 2000. Compensation expense for 2001 was a negative $916 due to the
forfeiture of remaining options relative to a terminated employee.
TERMINATED MERGER AND ACQUISITION COSTS - Terminated merger and
acquisition costs recorded in 2000 related to costs incurred in connection with
due diligence performed on potential acquisitions for which agreements were not
reached. No such costs were incurred in 2001.
OPERATING LOSS - Our operating loss for 2001 was $152,326 compared to
$68,897 for 2000. This increase is primarily attributable to the significant
amount of selling and marketing costs incurred in connection with the
acquisition of customers driven by our significant subscriber growth in 2001.
INTEREST AND OTHER INCOME - Interest and other income represents
amounts earned on the investment of excess equity and debt offering proceeds.
Income of $11,664 in 2001 was 19 percent less than the $14,483 earned in 2000
due
31
to declining interest rates and the fact that excess cash and investments were
liquidated during 2001 in connection with funding our capital expenditures and
operating cash flow losses.
INTEREST EXPENSE - Interest expense for 2001 includes non-cash interest
accreted on our 12 7/8% Senior Discount Notes of $27,927 as well as interest
accrued on the two senior notes issued during 2001 and interest on our senior
secured debt. The increase in total interest expense to $81,730 from $25,775 in
2000 is due to the increased level of debt after the two issuances of senior
notes in 2001 and the increased level of advances under senior secured
borrowings.
EXTRAORDINARY ITEM - In connection with the closing of our Senior
Secured Credit Facility in February 2001, we drew down on that facility and used
the proceeds to repay the Nortel/EDC credit facility which was in place at the
time. We had originally capitalized loan costs in connection with obtaining the
Nortel/EDC credit facility that had a remaining unamortized balance of $5,472.
The extraordinary loss recorded in 2001 represents the $5,472 in unamortized
loan costs written off, net of a tax benefit of $1,969 relative to this loss.
FOR THE YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31,
1999
Prior to January 1, 2000, we were a development stage company and had
very limited operations, very limited revenues, significant losses, substantial
future capital requirements and an expectation of continued losses. As a result,
comparison of the results of operations for the year ended December 31, 2000 to
the year ended December 31, 1999 may not be meaningful.
SUBSCRIBER GROWTH AND KEY PERFORMANCE INDICATORS - We had total
subscribers of approximately 133,000 at December 31, 2000 compared to
approximately 32,000 at December 31, 1999. This growth of approximately 101,000
subscribers was due to the launch of additional markets in 2000 and increasing
our coverage area from 2.7 million to 4.5 million covered POPs during 2000. CPGA
for 2000 was $430 compared to $428 for 1999.
SERVICE REVENUES - Subscriber revenue of $56,154 in 2000 was
significantly higher than the $4,399 for 1999 due to the level of subscriber
growth in 2000. We began 2000 with approximately 32,000 subscribers and ended
the year with approximately 133,000 subscribers. Roaming revenue of $17,346 in
2000 was significantly higher than the $2,135 for 1999 due to the significant
progress made in the build out of our network during 2000.
PRODUCT SALES - Product sales for 2000 were $9,201 compared to $2,450
in 1999 due to the increased level of handset activations in 2000 as a result of
our launch of additional markets during the year.
COST OF SERVICE AND OPERATIONS - Expenses of $55,701 in 2000 were
significantly higher than the $7,601 incurred in 1999 due to the significant
expansion in the size of our network which drove subscriber growth. We began
2000 with 2.7 million covered POPs and ended the year with 4.5 million covered
POPs.
COST OF PRODUCTS SOLD - Costs of products sold in 2000 were $20,524
compared to $5,939 in 1999. This increase was driven by a higher level of
customer activations resulting from our launching additional markets during
2000.
SELLING AND MARKETING - Selling and marketing expenses of $45,407 in
2000 were significantly higher than the $10,650 incurred in 1999 as a result of
our launch of additional markets during the year and significantly higher
subscriber activations.
GENERAL AND ADMINISTRATIVE EXPENSES - General and administrative
expenses of $9,538 in 2000 were significantly higher than the $4,209 incurred in
1999 primarily due to the increase in the size of the corporate staff in 2000.
General and administrative expenses in 1999 primarily consist of costs incurred
in connection with starting the business that were expensed in accordance with
the provisions of SOP 98-5.
OPERATING LOSS - Our operating loss for 2000 was $68,897 compared to
$30,672 for 1999. This increase is primarily attributable to the costs incurred
as we were launching markets during the year as discussed above, as well as
additional general and administrative expenses related to developing our
corporate infrastructure.
DEPRECIATION AND AMORTIZATION - Depreciation for 2000 of $12,530 was
significantly higher than the $3,057 incurred in 1999 due to the significant
growth in the size of our network during 2000 which resulted in an increase in
depreciable network assets.
32
NON-CASH COMPENSATION - Non-cash compensation was $5,651 in 2000
compared to $8,200 in 1999. This decrease was due to the fact that a larger
number of options vested in 1999 than did in 2000.
TERMINATED MERGER AND ACQUISITION COSTS - Terminated merger and
acquisition costs recorded in 2000 related to costs incurred in connection with
due diligence performed on potential acquisitions for which agreements were not
reached. No such costs were incurred in 1999.
INTEREST AND OTHER INCOME - Interest and other income of $14,483 in
2000 was significantly higher than the $477 earned in 1999. This increase was
due to earnings on our IPO and senior discount note offering proceeds which were
received in February 2000.
INTEREST EXPENSE - Interest expense of $25,775 in 2000 includes $23,052
in accreted interest on our senior discount notes which were issued in February
2000. Interest expense for 1999 of $2,641 represents interest on our secured
borrowings as well as capital leases.
INCOME TAXES
We account for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes." As of December 31,
2000, the net deferred tax asset consisted primarily of temporary differences
related to the treatment of start-up costs, unearned compensation, interest
expense and net operating loss carry forwards. The net deferred tax asset was
fully offset by a valuation allowance as of December 31, 2000 because there was
sufficient uncertainty as to whether we would recognize the benefit of those
deferred taxes in future periods. In connection with the mergers completed in
the first quarter of 2001, we recorded significant deferred tax liabilities due
to differences in the book and tax basis of the net assets acquired particularly
due to the intangible assets recorded in connection with the acquisitions.
The reversal of the timing differences which gave rise to these
deferred tax liabilities will allow us to realize the benefit of timing
differences which gave rise to the deferred tax asset. As a result, we released
the valuation allowance with a corresponding reduction to goodwill during 2001.
Prior to 2001, all deferred tax benefit had been fully offset by an increase in
the valuation allowance such that there was no financial statement impact with
respect to income taxes. With the reduction of the valuation allowance in 2001,
we began to reflect a net deferred tax benefit in our consolidated statement of
operations.
Our financial statements for the periods ended December 31, 1999 did
not report any effect for federal and state income taxes since we had elected to
be taxed as a partnership. For 1999, the partners recorded tax losses on their
separate income tax returns.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES - Operating cash flows decreased $84,435 in 2001
and $12,129 in 2000. The 2001 decrease is primarily due to our increased net
loss before non-cash items in 2001 of $43,524 as well as a significant increase
in our customer receivables due to the growth of our subscriber base. The 2000
decrease is primarily due to our increased net loss before non-cash items in
2000 of $17,085 partially offset by an increase in accounts payable balances.
INVESTING ACTIVITIES - Our investing cash flows were a negative
$169,188 in 2001 compared to a negative $188,680 in 2000. Our capital
expenditures for 2001 totaled $146,817 of which $143,731 were cash expenditures
while our capital expenditures for 2000 totaled $157,047 of which $136,904 were
cash expenditures. In 2000, we also issued notes receivable to Roberts and WOW
while we were operating those companies under a management agreement which
accounts for the additional cash outflows in 2000.
FINANCING ACTIVITIES - Our financing cash flows decreased in 2001 to
$245,745 from $354,010 in 2000. In 2000, we received net proceeds from our
initial public offering of approximately $195,000 and net proceeds from our 12
7/8% senior discount notes offering of approximately $187,000. In 2001, we
received net proceeds from debt offerings of approximately $621,000 and repaid
debt of approximately $290,000.
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CAPITAL REQUIREMENTS
Our 2002 capital expenditure requirements are expected to be
approximately $85 million which includes upgrading our portion of Sprint's PCS
network to 1XRTT. Operating cash flow is expected to be positive for the first
time in 2002 as we begin to realize the benefits of the subscriber growth that
we have experienced over the past two years. We expect to be free cash flow
positive (operating cash flow less capital expenditures and cash interest
expense) for the first time in 2003 and believe we are fully funded to that
point as discussed below.
LIQUIDITY
Since inception, we have financed our operations through capital
contributions from our owners, through debt financing and through proceeds
generated from public offerings of our common stock.
We entered into a credit agreement with Nortel effective June 10, 1999,
which was amended and restated on February 8, 2000. On June 23, 2000, Nortel
assigned the entirety of its loans and commitments to EDC, and Alamosa and EDC
entered into the credit facility with EDC (the "EDC Credit Facility"). The EDC
Credit Facility was paid in full in the first quarter of 2001 with proceeds from
the Senior Secured Credit Facility.
On October 29, 1999, we filed a registration statement with the
Securities and Exchange Commission for the sale of 10,714,000 shares of our
common stock (the "Initial Offering"). The Initial 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 for
an additional 1,607,100 shares. We received net proceeds of approximately $193.8
million after commissions of $13.3 million and expenses of approximately $1.5
million. The proceeds of the Initial Offering were used for the build out of our
portion of Sprint's PCS network, to fund operating capital needs and for other
corporate purposes.
On February 8, 2000, we issued $350.0 million face amount of senior
discount notes (the "12 7/8% Senior Discount Notes"). The 12 7/8% Senior
Discount Notes mature in ten years (February 15, 2010), carry a coupon rate of
12 7/8%, and provide for interest deferral for the first five years. The 12 7/8%
Senior Discount Notes will accrete to their $350 million face amount by February
8, 2005, after which interest will be paid in cash semiannually.
On January 31, 2001, we issued $250.0 million face amount of senior
notes (the "12 1/2% Senior Notes"). The 12 1/2% Senior Notes mature in ten years
(February 1, 2011), carry a coupon rate of 12 1/2%, payable semiannually on
February 1 and August 1, beginning on August 1, 2001.
On February 14, 2001, we entered into a $280.0 million Senior Secured
Credit Facility with Citicorp USA, as administrative agent and collateral agent;
Toronto Dominion (Texas), Inc., as syndication agent; First Union National Bank,
as documentation agent; EDC as co-documentation agent; and a syndicate of
banking and financial institutions. The Senior Secured Credit Facility was
closed and initial funding of $150 million was made on February 14, 2001 in
connection with the completion of the Roberts and WOW mergers. A portion of the
proceeds of the Senior Secured Credit Facility were used (i) to pay the cash
portion of the merger consideration for the Roberts and WOW mergers, (ii) to
refinance existing indebtedness under our credit facility with EDC and under
Roberts' and WOW's existing credit facilities, and (iii) to pay transaction
costs. The remaining proceeds will be used for general corporate purposes,
including funding capital expenditures, subscriber acquisition and marketing
costs, purchase of spectrum and working capital needs. This facility was amended
in March 2001 to increase the maximum borrowings to $333 million as a result of
the acquisition of Southwest and was again amended in August 2001 to reduce the
maximum borrowing to $225 million of which $187 million is outstanding as of
December 31, 2001. The terms of this credit facility contain numerous financial
and other covenants the violation of which could be deemed an event of default
by the lenders. Should we be deemed to be in default, the lenders can declare
the entire outstanding borrowings immediately due and payable or exercise other
rights and remedies. Such an event would likely have a material adverse impact
to us.
On August 15, 2001, we issued $150.0 million face amount of senior
notes (the "13 5/8% Senior Notes"). The 13 5/8% Senior Notes mature in ten years
(August 15, 2011), carry a coupon rate of 13 5/8%, payable semiannually on
February 15 and August 15, beginning on February 15, 2002. The Senior Secured
Credit Facility was amended simultaneously with the closing of the 13 5/8%
Senior Notes offering to, among other things, permit the 13 5/8% Senior Notes
offering, reduce the amount of the Senior Secured Credit Facility to $225
million and modify the financial covenants.
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On November 13, 2001, we completed an underwritten secondary offering
of our common stock pursuant to which certain of our stockholders sold an
aggregate of 4,800,000 shares at a public offering price of $14.75 per share. We
did not receive any proceeds from the sale of these shares, however the
underwriters were granted an option to purchase up to 720,000 additional shares
of common stock to cover over-allotments. This option was also exercised on
November 16, 2001 and we received net proceeds from the sale of these shares
after offering costs of approximately $9.1 million which will be used for
general corporate purposes.
Our future contractual obligations related to long-term debt, capital
lease obligations, and non-cancellable operating leases at December 31, 2001
were as follows:
Payments due by period
-----------------------------------------------------------------------------
Less than 1 - 3 4 - 5 After 5
One year Years Years Years Total
-------- ----- ----- ----- -----
Long-term debt $ -- $ 75,938 $ 129,375 $ 769,687 $ 975,000
Capital lease obligations 875 1,552 324 857 3,608
Operating leases 27,807 82,859 54,543 71,393 236,602
----------- ----------- ---------- ------------ -----------
$ 28,682 $ 160,349 $ 184,242 $ 841,937 $1,215,210
=========== ============ ========== ============ ==========
As of December 31, 2001, we had $104,672 in cash and cash equivalents
plus an additional $94,693 in restricted cash held in escrow for debt service
requirements. We also had $12,838 remaining on the term portion of our Senior
Secured Credit Facility as well as the entire balance of the $25,000 revolving
portion of our Senior Secured Credit Facility. The remaing term portion was
drawn on February 11, 2002. We believe that this $237,203 in cash and available
borrowings is sufficient to fund our working capital, capital expenditure and
debt service requirements through 2003, when we expect to generate positive free
cash flow.
We do not anticipate the need to raise additional capital in the
foreseeable future. We believe our operations can be funded through operating
cash flow. Our funding status is dependent on a number of factors influencing
our projections of operating cash flows including those related to subscriber
growth, ARPU, churn and CPGA. Should actual results differ significantly from
these assumptions, our liquidity position could be adversely affected and we
could be in a position that would require us to raise additional capital which
may not be available or may not be available on favorable terms.
INFLATION - We believe that inflation has not had a significant impact
in the past and is not likely to have a significant impact in the foreseeable
future on our results of operations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141 "Business Combinations," and No. 142 "Goodwill and Other Intangible
Assets," collectively referred to as the "Standards". SFAS No. 141 supersedes
Accounting Principles Board Opinion ("APB") No. 16, "Business Combinations." The
provisions of SFAS No. 141 (1) require that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001, (2) provide
specific criteria for the initial recognition and measurement of intangible
assets apart from goodwill, and (3) require that unamortized negative goodwill
be written off immediately as an extraordinary gain instead of being deferred
and amortized. SFAS No. 141 also requires that upon adoption of SFAS No. 142 we
reclassify the carrying amounts of certain intangible assets into or out of
goodwill, based on certain criteria. SFAS No. 142 supersedes APB 17, "Intangible
Assets," and is effective for fiscal years beginning after December 15, 2001.
SFAS No. 142 primarily addresses the accounting for goodwill and intangible
assets subsequent to their initial recognition. The provisions of SFAS No. 142
(1) prohibit the amortization of goodwill and indefinite-lived intangible
assets, (2) require that goodwill and indefinite-lived intangibles assets be
tested annually for impairment (and in interim periods if certain events occur
indicating that the carrying value of goodwill and/or indefinite-lived
intangible assets may be impaired), (3) require that reporting units be
identified for the purpose of assessing potential future impairments of
goodwill, and (4) remove the forty-year limitation on the amortization period of
intangible assets that have finite lives.
We will adopt the provisions of SFAS No. 142 in our first quarter ended
March 31, 2002. We are in the process of preparing for our adoption of SFAS No.
142 and have made the determinations as to what our reporting units are and what
amounts of goodwill, intangible assets, other assets, and liabilities should be
allocated to those reporting units. In connection with the adoption of SFAS No.
142, we expect to reclassify none of our goodwill balances to various
35
intangible asset classifications, as all intangibles had been identified in
connection with the acquisitions that were completed during 2001. We expect that
we will no longer record approximately $17.5 million annually of amortization
relating to our existing goodwill. We will also evaluate the useful lives
assigned to our intangible assets and anticipate no changes to the useful lives.
SFAS No. 142 requires that goodwill be tested annually for impairment
using a two-step process. The first step is to identify a potential impairment
and, in transition, this step must be measured as of the beginning of the fiscal
year. However, a company has six months from the date of adoption to complete
the first step. We have completed that first step of the goodwill impairment
test which did not indicate a potential impairment. The second step of the
goodwill impairment test, if applicable, measures the amount of the impairment
loss (measured as of the beginning of the year of adoption), if any, and must be
completed by the end of our fiscal year. Subsequent to the transitional testing
discussed above, we will perform annual testing of goodwill for potential
impairment. We are in the process of determining the annual testing date which
will be used beginning in 2002.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires the fair value of a liability for
an asset retirement obligation to be recognized in the period that it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS No. 143 is effective for fiscal years beginning after
June 15, 2002. The adoption of SFAS No. 143 is not expected to have a material
impact on our results of operations, financial position or cash flows.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of. The provisions of SFAS No. 144 are
effective for financial statements issued for fiscal years beginning after
December 31, 2001. The adoption of SFAS No. 144 is not expected to have a
material impact on our results of operations, financial position or cash flows.
RISK FACTORS
RISKS RELATING TO OUR BUSINESS, STRATEGY AND OPERATIONS
WE HAVE A VERY LIMITED OPERATING HISTORY AND WE MAY NOT ACHIEVE OR
SUSTAIN OPERATING PROFITABILITY OR POSITIVE CASH FLOWS, WHICH MAY LIKELY RESULT
IN A DROP IN OUR STOCK PRICE.
We have a limited operating history. Through the year ended December
31, 2001, we continued to incur significant operating losses and to generate
significant negative cash flow from operating activities. However, we expect to
recognize positive EBITDA in the first half of 2002. Our operating profitability
and expected cash flow from operating activities will depend upon many factors,
including, among others, our ability to market Sprint PCS services, achieve
projected market penetration and manage customer turnover rates. We will have to
dedicate a substantial portion of any cash flow from operations to make interest
and principal payments on our consolidated debt, which will reduce funds
available for other purposes. If we do not achieve and maintain positive cash
flow from operations on a timely basis, our stock price could fall and you could
lose all or part of your investment.
IF WE RECEIVE LESS REVENUES OR INCUR MORE FEES THAN WE ANTICIPATE FOR
SPRINT PCS ROAMING, OUR RESULTS OF OPERATIONS MAY BE NEGATIVELY AFFECTED.
We are paid a fee from Sprint or a Sprint PCS Network Partner for every
minute that a Sprint PCS subscriber based outside of our territories uses
Sprint's PCS network in our territories. Similarly, we pay a fee to Sprint for
every minute that a Sprint PCS subscriber based in our territories uses Sprint's
PCS network outside our territories. Sprint PCS customers from our territories
may spend more time in other Sprint PCS coverage areas than we anticipate, and
Sprint PCS customers from outside our territories may spend less time in our
territories or may use our services less than we anticipate. In addition, on
April 27, 2001, we reached an agreement with Sprint providing for a reduction in
the reciprocal rate exchanged between Sprint and us for each other's customers
that travel into territories covered by the other party's portion of Sprint's
PCS network. Depending on the pattern of usage by our subscribers and Sprint PCS
subscribers, the rate reductions may result in lower revenues for us, which may
negatively affect our results of operations.
36
WE ARE A CONSUMER BUSINESS AND A RECESSION IN THE UNITED STATES
INVOLVING SIGNIFICANTLY LOWERED CONSUMER SPENDING COULD NEGATIVELY AFFECT OUR
RESULTS OF OPERATIONs.
Our primary customer base is individual consumers, and in the event
that the economic downturn that the United States and other countries have
recently experienced becomes more pronounced or lasts longer than currently
expected and spending by individual consumers drops significantly, our business
may be negatively affected.
OUR ROAMING ARRANGEMENTS MAY NOT BE COMPETITIVE WITH OTHER WIRELESS
SERVICE PROVIDERS, WHICH MAY RESTRICT OUR ABILITY TO ATTRACT AND RETAIN
CUSTOMERS AND THUS MAY ADVERSELY AFFECT OUR OPERATIONS.
We rely on roaming arrangements with other wireless service providers
for coverage in some areas. Some risks related to these arrangements are as
follows:
o the quality of the service provided by another provider during a
roaming call may not approximate the quality of the service
provided by Sprint PCS;
o the price of a roaming call may not be competitive with prices
charged by other wireless companies for roaming calls;
o customers may have to use a more expensive dual-band/dual mode
handset with diminished standby and talk time capacities;
o customers must end a call in progress and initiate a new call when
leaving Sprint's PCS network and entering another wireless
network; and
o Sprint PCS customers may not be able to use Sprint PCS advanced
features, such as voicemail notification, while roaming. If Sprint
PCS customers are not able to roam instantaneously or efficiently
onto other wireless networks, we may lose current Sprint PCS
subscribers and Sprint PCS services will be less attractive to
potential new customers.
THE TECHNOLOGY THAT WE USE MAY BECOME OBSOLETE, WHICH WOULD LIMIT OUR
ABILITY TO COMPETE EFFECTIVELY WITHIN THE WIRELESS INDUSTRY.
The wireless telecommunications industry is experiencing significant
technological change. We employ CDMA digital technology, the digital wireless
communications technology selected by Sprint for its nationwide network. CDMA
technology may not ultimately provide all of the advantages expected by us or
Sprint. If another technology becomes the preferred industry standard, we would
be at a competitive disadvantage and competitive pressures may require Sprint to
change its digital technology, which in turn could require us to make changes to
our network at substantial costs. We may be unable to respond to these pressures
and implement new technology on a timely basis or at an acceptable cost.
UNAUTHORIZED USE OF, OR INTERFERENCE WITH, SPRINT'S PCS NETWORK COULD
DISRUPT OUR SERVICE AND INCREASE OUR COSTS.
We may incur costs associated with the unauthorized use of Sprint's PCS
network, including administrative and capital costs associated with detecting,
monitoring and reducing the incidence of fraud. Fraudulent use of Sprint's PCS
network may impact interconnection costs, capacity costs, administrative costs,
fraud prevention costs and payments to other carriers for fraudulent roaming. In
addition, some of our border markets are susceptible to uncertainties related to
areas not governed by the FCC. For example, unauthorized microwave radio signals
near the border in Mexico could disrupt our service in the United States.
POTENTIAL ACQUISITIONS MAY REQUIRE US TO INCUR SUBSTANTIAL ADDITIONAL
DEBT AND INTEGRATE NEW TECHNOLOGIES, OPERATIONS AND SERVICES, WHICH MAY BE
COSTLY AND TIME CONSUMING.
We intend to continually evaluate opportunities for the acquisition of
businesses that are intended to complement or extend our existing operations. If
we acquire additional businesses, we may encounter difficulties that may be
costly and time-consuming, may slow our growth or may affect the market price of
our common stock. Examples of such difficulties are that we may have to:
37
o assume and/or incur substantial additional debt to finance the
acquisitions and fund the ongoing operations of the acquired
companies;
o integrate new operations with our existing operations; or
o divert the attention of our management from other business
concerns.
OUR FAILURE TO OBTAIN ADDITIONAL CAPITAL, IF NEEDED TO EXPAND OUR
PORTION OF SPRINT'S PCS NETWORK, COULD CAUSE DELAY OR ABANDONMENT OF OUR
DEVELOPMENT PLANS.
Our current network does not cover all areas of our territories, which
could make it difficult to maintain a profitable customer base. We currently
cover approximately 71.4% of the resident population in our territories. As a
result, our network may not adequately serve the needs of the potential
customers in our territories or attract enough subscribers to operate our
business successfully. To correct this potential problem, we may have to cover a
greater percentage of our territories than we currently anticipate. Further, we
may contract with Sprint to develop additional market or meet additional Sprint
technical requirements. Our continued growth could require additional capital
expenditures and increase our capital requirements. Therefore, we may need to
raise additional equity or debt capital. These additional funds may not be
available. Even if these funds are available, we may not be able to obtain them
on a timely basis, on terms acceptable to us or within limitations permitted
under the covenants contained in the documents governing our debt. Failure to
obtain additional funds, should the need for funds develop, could result in the
delay or abandonment of our development and expansion plans.
RISKS RELATED TO OUR INDEBTEDNESS
OUR SUBSTANTIAL LEVERAGE COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH.
We are highly leveraged. As of December 31, 2001, our total outstanding
debt, including capital lease obligations and excluding unused commitments made
by lenders, was approximately $826.9 million. As of that date, such total
long-term indebtedness represents approximately 61% of our total capitalization.
The Senior Secured Credit Facility and the indentures governing the 12 7/8%
Senior Discount Notes, the 12 1/2% Senior Notes and the 13 5/8% Senior Notes
permit us to incur additional indebtedness subject to certain limitations. Our
substantial indebtedness could adversely affect our financial health by, among
other things:
o increasing our vulnerability to adverse economic conditions or
increases in prevailing interest rates, particularly with respect
to any of our borrowings at variable interest rates;
o limiting our ability to obtain any additional financing we may
need to operate, develop and expand our business;
o requiring us to dedicate a substantial portion of any cash flow
from operations to service our debt, which reduces the funds
available for operations and future business opportunities; and
o potentially making us more highly leveraged than our competitors,
which could potentially decrease our ability to compete in our
industry.
The ability to make payments on our debt will depend upon our future
operating performance which is subject to general economic and competitive
conditions and to financial, business and other factors, many of which we cannot
control. If the cash flow from our operating activities is insufficient, we may
take actions, such as delaying or reducing capital expenditures, attempting to
restructure or refinance our debt, selling assets or operations or seeking
additional equity capital. Any or all of these actions may not be sufficient to
allow us to service our debt obligations. Further, we may be unable to take any
of these actions on satisfactory terms, in a timely manner or at all. The Senior
Secured Credit Facility and the indentures for the 12 7/8% Senior Discount
Notes, for the 12 1/2% Senior Notes and for the 13 5/8% Senior Notes may limit
our ability to take several of these actions. Our failure to generate sufficient
funds to pay our debts or to successfully undertake any of these actions could,
among other things, materially adversely affect the market price of our common
stock.
38
THE TERMS OF OUR DEBT PLACE RESTRICTIONS ON US AND OUR SUBSIDIARIES
WHICH MAY LIMIT OUR OPERATING FLEXIBILITY.
The indentures governing the 12 7/8% Senior Discount Notes, the 12 1/2%
Senior Notes and the 13 5/8% Senior Notes, impose material operating and
financial restrictions on us and our subsidiaries. These restrictions, subject
in certain cases to ordinary course of business exceptions, may limit our
ability and the ability of our subsidiaries to engage in some transactions,
including the following:
o designated types of mergers or consolidations;
o paying dividends or other distributions to our stockholders;
o making investments;
o selling or encumbering assets;
o repurchasing our common stock;
o changing lines of business;
o borrowing additional money; and
o engaging in transactions with affiliates.
These restrictions could limit our ability to obtain debt financing,
repurchase stock, refinance or pay principal or interest on our outstanding
debt, complete acquisitions for cash or debt, or react to changes in our
operating environment. The Senior Secured Credit Facility contains numerous
affirmative and negative covenants customary for credit facilities of a similar
nature, including, but not limited to, negative covenants imposing limitations
on our ability to, among other things, (1) declare dividends or repurchase
stock; (2) prepay, redeem or repurchase debt; (3) incur liens and engage in
sale-leaseback transactions; (4) make loans and investments; (5) incur
additional debt, hedging agreements and contingent obligations; (6) issue
preferred stock of subsidiaries; (7) engage in mergers, acquisitions and asset
sales; (8) engage in certain transactions with affiliates; (9) amend, waive or
otherwise alter material agreements or enter into restrictive agreements; and
(10) alter the businesses we conduct. Pursuant to the Senior Secured Credit
Facility, until December 31, 2002 we are also subject to financial and
statistical covenants with respect to the following:
o minimum numbers of Sprint PCS subscribers;
o providing coverage to a minimum number of residents;
o minimum service revenue;
o maximum negative EBITDA or minimum EBITDA;
o senior debt to net property, plant and equipment;
o minimum cash and cash equivalents;
o ratio of senior debt to total capital;
o ratio of total debt to total capital; and
o maximum capital expenditures.
After December 31, 2002, we will be subject to financial and
statistical covenants with respect to the following:
o ratio of senior debt to EBITDA;
o ratio of total debt to EBITDA;
39
o ratio of EBITDA to total fixed charges (the sum of debt service,
capital expenditures and taxes);
o ratio of EBITDA to total cash interest expense; and
o ratio of EBITDA to pro forma debt service.
In addition, we may not satisfy the financial and statistical covenants
under the Senior Secured Credit Facility due to events that are beyond our
control. If we fail to satisfy any of the financial and statistical covenants,
we could be in default under the Senior Secured Credit Facility, or we may be
limited in our ability to access additional funds under the Senior Secured
Credit Facility. As of March 31, 2001, we did not meet the maximum negative
EBITDA covenant under the Senior Secured Credit Facility, which had an
outstanding balance at the time of $203.0 million. During the quarter ended
March 31, 2001, we reported an EBITDA loss of $16.7 million which exceeded the
maximum negative EBITDA covenant by $7.0 million. On May 8, 2001, we obtained a
waiver of any default or event of default arising from the failure to comply
with the covenant for the quarter ended March 31, 2001 from the lenders under
the Senior Secured Credit Facility. We met the negative EBITDA covenant for the
quarters ended June 30, 2001, September 30, 2001 and December 31, 2001. We
believe that the EBITDA covenants in the Senior Secured Credit Facility will be
met for the next twelve months. We expect to recognize positive EBITDA in the
first half of 2002. Our EBITDA is directly impacted by the upfront selling and
marketing expenses we incur in order to increase our subscriber base, so in the
event we experience greater than expected subscriber growth there is a material
risk that we will not achieve our publicly forecasted results.
IF WE DEFAULT UNDER THE SENIOR SECURED CREDIT FACILITY, THE LENDERS MAY
DECLARE THE DEBT IMMEDIATELY DUE AND SPRINT WILL HAVE THE RIGHT TO EITHER
PURCHASE OUR ASSETS OR PURCHASE THE OUTSTANDING DEBT OBLIGATIONS UNDER THE
SENIOR SECURED CREDIT FACILITY AND FORECLOSE ON OUR ASSETS.
The Senior Secured Credit Facility requires us and our subsidiaries to
comply with specified financial ratios and other performance covenants. If we
fail to comply with these covenants or default on our obligations under the
Senior Secured Credit Facility, the lenders may accelerate the maturity of the
debt. If the lenders accelerate the debt, Sprint will have the right to either:
o purchase our operating assets for an amount equal to the greater
of (i) 72% of our "entire business value" and (ii) the aggregate
amount of the outstanding debt under the Senior Secured Credit
Facility; or
o purchase the obligations under the Senior Secured Credit Facility
by repaying the lenders in full in cash.
To the extent Sprint purchases these obligations from the lenders,
Sprint's rights as a senior lender would enable it to foreclose on the assets
securing the Senior Secured Credit Facility in a manner not otherwise permitted
under our affiliation agreements with Sprint. If Sprint does not exercise either
of these options, the lenders under the Senior Secured Credit Facility may
foreclose on and sell the assets securing the facility to third parties. In
addition, if Sprint provides notice to the lenders under the Senior Secured
Credit Facility that we are in breach of our management agreements with Sprint
and, as a result, our obligations under the Senior Secured Credit Facility are
accelerated and Sprint does not elect to operate our business, the lenders under
the Senior Secured Credit Facility may designate a third party to operate our
business.
RISKS RELATED TO THE RELATIONSHIPS WITH SPRINT
IF WE MATERIALLY BREACH OUR MANAGEMENT AGREEMENTS WITH SPRINT, AND AN
ACCELERATION IS DECLARED UNDER THE SENIOR SECURED CREDIT FACILITY, SPRINT MAY
HAVE THE RIGHT TO PURCHASE OUR OPERATING ASSETS AT A DISCOUNT TO MARKET VALUE.
Our affiliation agreements with Sprint require that we provide network
coverage to a minimum network coverage area within specified time frames and
that we meet Sprint's technical and customer service requirements. As of
December 31, 2001, we have substantially completed the network build-out
requirements required by Sprint. We may amend our agreements with Sprint in the
future to expand this network coverage. A failure by us to meet the expanded
build-out requirements for any one of the individual markets in our territories
or to meet Sprint's technical or customer service requirements contained in the
affiliation agreements would constitute a material breach of the agreements,
which could lead to its termination. Our affiliation agreements provide that
upon the occurrence of an event of termination,
40
Sprint has the right to purchase our operating assets without further
stockholder approval and for a price equal to 72% of our "entire business
value." The "entire business value" includes our spectrum licenses, business
operations and other assets. Sprint's right to purchase our assets following an
event of termination under our affiliation agreements is currently subject to
the provisions of a consent and agreement entered into by Sprint for the benefit
of the lenders under the Senior Secured Credit Facility. Pursuant to the terms
of this consent and agreement, Sprint may not purchase our operating assets
until all of our obligations under the Senior Secured Credit Facility have been
paid in full in cash and all commitments to advance credit under the Senior
Secured Credit Facility have been terminated or have expired. Accordingly,
Sprint may foreclose on our assets if it first pays all obligations due under
the Senior Secured Credit Facility and the Senior Secured Credit Facility is
terminated in connection with such payment. Alternatively, Sprint also has the
right to purchase our assets upon receipt of a notice of acceleration under the
Senior Secured Credit Facility following an event of default thereunder. Such
right to purchase is subject to time limitations, and the purchase price must be
the greater of an amount equal to 72% of our "entire business value" or the
amount owed under the Senior Secured Credit Facility.
IF SPRINT DOES NOT COMPLETE THE CONSTRUCTION OF ITS NATIONWIDE PCS
NETWORK, WE MAY NOT BE ABLE TO ATTRACT AND RETAIN CUSTOMERS.
Sprint currently intends to cover a significant portion of the
population of the United States, Puerto Rico and the U.S. Virgin Islands by
creating a nationwide PCS network through its own construction efforts and those
of its Network Partners. Sprint is still constructing its nationwide network and
does not offer PCS services, either on its own network or through its roaming
agreements, in every city in the United States. Sprint has entered into, and
anticipates entering into, management agreements similar to ours with companies
in other markets under its nationwide PCS build-out strategy. Our results of
operations are dependent on Sprint's national network and, to a lesser extent,
on the networks of Sprint's other Network Partners. Sprint's PCS network may not
provide nationwide coverage to the same extent as its competitors, which could
adversely affect our ability to attract and retain customers.
SPRINT'S VENDOR DISCOUNTS MAY BE DISCONTINUED, WHICH COULD INCREASE
OUR EQUIPMENT COSTS
We intend to continue to purchase infrastructure equipment under
Sprint's vendor agreements that include significant volume discounts. If Sprint
were unable to continue to obtain vendor discounts for its affiliates, the loss
of vendor discounts could increase our equipment costs for our new markets.
SPRINT MAY MAKE DECISIONS THAT COULD INCREASE OUR EXPENSES AND/OR OUR
CAPITAL EXPENDITURE REQUIREMENTS, REDUCE OUR REVENUES OR MAKE OUR AFFILIATE
RELATIONSHIPS WITH SPRINT LESS COMPETITIVE.
Sprint, under our affiliation agreements has a substantial amount of
control over factors which significantly affect the conduct of our business.
Accordingly, Sprint may make decisions that adversely affect our business, such
as the following:
o Sprint prices its national plans based on its own objectives and
could set price levels or change other characteristics of their
plans in a way that may not be economically sufficient for our
business. See "Business - Products and Services - Clear
Pay/Account Spending Limit."
o Sprint could further change the per minute rate for Sprint PCS
roaming fees and increase the costs for Sprint to perform back
office services. See "Business - Roaming - Sprint PCS Roaming."
o Sprint may alter its network and technical requirements or request
that we build out additional areas within our territories, which
could result in increased equipment and build-out costs or in
Sprint building out that area itself or assigning it to another
Sprint PCS Network Partner.
THE TERMINATION OF OUR AFFILIATION AGREEMENTS WITH SPRINT WOULD
SEVERELY RESTRICT OUR ABILITY TO CONDUCT OUR BUSINESS.
Our relationship with Sprint is governed by our affiliation agreements
with Sprint. Since we do not own any licenses to operate a wireless network, our
business depends on the continued effectiveness of these affiliation agreements.
However, Sprint may be able to terminate our affiliation agreements if we
materially breach the agreements. Among other things, a failure by us to meet
the expanded build-out requirements for any one of the individual markets in our
territories or to meet Sprint's technical or customer service requirements
contained in the affiliation agreements
41
would constitute a material breach of the agreements, which could lead to its
termination. On more than one occasion in the last year, we failed to meet the
requirements of the Sprint build-out schedule due to force majeure conditions in
particular territories. In the event that we have a similar failure and Sprint
disagrees with us over the presence of a force majeure condition, Sprint may
choose to attempt to terminate one or more of our affiliation agreements. If
Sprint terminates the affiliation agreements, we may not continue to be a part
of Sprint's PCS network and we would have extreme difficulty conducting our
business.
IF SPRINT DOES NOT RENEW OUR AFFILIATION AGREEMENTS, OUR ABILITY TO
CONDUCT OUR BUSINESS WOULD BE SEVERELY RESTRICTED.
Our affiliation agreements with Sprint are not perpetual, and will
eventually expire. Sprint can choose not to renew these agreements at the
expiration of their 20 year initial terms or any ten year renewal term. If
Sprint decides not to renew our affiliation agreements, we may no longer be a
part of Sprint's PCS network and we would have extreme difficulty conducting our
business.
CERTAIN PROVISIONS OF OUR AFFILIATION AGREEMENTS WITH SPRINT MAY
DIMINISH OUR VALUE AND RESTRICT THE SALE OF OUR BUSINESS.
Under specific circumstances and without further stockholder approval,
Sprint may purchase our operating assets or capital stock at a discount. In
addition, Sprint must approve any change of control of our ownership and must
consent to any assignment by us of our affiliation agreements. Sprint also has a
right of first refusal if we decide to sell our operating assets to a third
party. We are also subject to a number of restrictions on the transfer of our
business, including a prohibition on the sale of us or our operating assets to
competitors of Sprint. These restrictions and other restrictions contained in
these affiliation agreements with Sprint, may limit our ability to sell our
business, may reduce the value a buyer would be willing to pay for our business
and may reduce our "entire business value," each of which could adversely affect
the market price of our common stock.
PROBLEMS EXPERIENCED BY SPRINT WITH ITS INTERNAL SUPPORT SYSTEMS COULD
LEAD TO CUSTOMER DISSATISFACTION OR INCREASE OUR COSTS.
We rely on Sprint's internal support systems, including customer care,
billing and back office support. As Sprint has expanded, its internal support
systems have been subject to increased demand and, in some cases, suffered a
degradation in service. We cannot assure you that Sprint will be able to
successfully add system capacity or that its internal support systems will be
adequate. It is likely that problems with Sprint's internal support systems
could cause:
o delays or problems in our operations or services;
o delays or difficulty in gaining access to customer and financial
information;
o a loss of Sprint PCS customers; and
o an increase in the costs of customer care, billing and back office
services.
OUR COSTS FOR INTERNAL SUPPORT SYSTEMS MAY INCREASE IF SPRINT
TERMINATES ALL OR PART OF OUR SERVICES AGREEMENTS.
The costs for the services provided by Sprint under our services
agreements relative to billing, customer care and other back-office functions in
the year 2001 was approximately $32.5 million. We expect this number to
significantly increase as our number of subscribers increases. Our services
agreements with Sprint provide that, upon nine months' prior written notice,
Sprint may terminate any service provided under such agreements. We do not
expect to have a contingency plan if Sprint terminates any such service. If
Sprint terminates a service for which we have not developed a cost-effective
alternative or increases the amount it charges for these services, our operating
costs may increase beyond our expectations and our operations may be interrupted
or restricted.
42
IF SPRINT DOES NOT MAINTAIN CONTROL OVER ITS LICENSED SPECTRUM, THE
AFFILIATION AGREEMENTS WITH SPRINT MAY BE TERMINATED.
Sprint, not us, owns the licenses necessary to provide wireless
services in our territories. The FCC requires that licensees like Sprint
maintain control of their licensed systems and not delegate control to third
party operators or managers. Our affiliation agreements with Sprint reflect an
arrangement that the parties believe meets the FCC requirements for licensee
control of licensed spectrum. However, if the FCC were to determine that any of
our affiliation agreements with Sprint need to be modified to increase the level
of licensee control, we have agreed with Sprint to use our best efforts to
modify the agreements to comply with applicable law. If we cannot agree with
Sprint to modify the agreements, those agreements may be terminated. If the
agreements are terminated, we would no longer be a part of Sprint's PCS network
and we would not be able to conduct our business.
THE FCC MAY FAIL TO RENEW THE SPRINT PCS LICENSES UNDER CERTAIN
CIRCUMSTANCES, WHICH WOULD PREVENT US FROM PROVIDING WIRELESS SERVICES.
We do not own any licenses to operate a wireless network. We are
dependent on Sprint's PCS licenses, which are subject to renewal and revocation
by the FCC. Sprint's PCS licenses in our territories will expire in 2005 or 2007
but may be renewed for additional ten-year terms. The FCC has adopted specific
standards that apply to wireless personal communications services license
renewals. Any failure by Sprint or us to comply with these standards could
result in the nonrenewal of the Sprint licenses for our territories.
Additionally, if Sprint does not demonstrate to the FCC that Sprint has met the
five-year and ten-year construction requirements for each of its wireless
personal communications services licenses, it can lose those licenses. If Sprint
loses its licenses in our territories for any of these reasons, we and our
subsidiaries would not be able to provide wireless services without obtaining
rights to other licenses.
RISKS RELATED TO OUR COMMON STOCK
FUTURE SALES OR THE POSSIBILITY OF FUTURE SALES OF A SUBSTANTIAL AMOUNT
OF OUR COMMON STOCK MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
Future sales of substantial amounts of shares of our common stock in
the public market could adversely affect prevailing market prices and the market
price of our common stock and could impair our ability to raise capital through
future sales of our equity securities. Currently we have approximately 92.8
million shares issued and outstanding. We have agreed in the past to issue
shares of our common stock in connection with acquisitions and may issue shares
of our common stock from time to time as consideration for future acquisitions
and investments. In the event any such acquisition or investment is significant,
the number of shares that we may issue may in turn be significant. In addition,
we may also grant registration rights covering those shares in connection with
any such acquisitions and investments.
OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND AMENDED AND
RESTATED BYLAWS INCLUDE PROVISIONS THAT MAY DISCOURAGE A CHANGE OF CONTROL
TRANSACTION OR MAKE REMOVAL OF MEMBERS OF THE BOARD OF DIRECTORS MORE DIFFICULT.
Some provisions of our amended and restated certificate of
incorporation and amended and restated bylaws could have the effect of delaying,
discouraging or preventing a change in control of us or making removal of
members of the Board of Directors more difficult. These provisions include the
following:
o a classified board, with each board member serving a three-year
term;
o no authorization for stockholders to call a special meeting;
o no ability of stockholders to remove directors without cause;
o prohibition of action by written consent of stockholders; and
o advance notice for nomination of directors and for stockholder
proposals.
These provisions, among others, may have the effect of discouraging a
third party from making a tender offer or otherwise attempting to obtain control
of us, even though a change in ownership might be economically beneficial to us
and our stockholders.
43
THE PRICE OF OUR COMMON STOCK MAY BE VOLATILE, AND THIS MAY ADVERSELY
AFFECT OUR STOCKHOLDERS.
The market price of telecommunications and technology stocks recently
have experienced volatility. The market price of our common stock is likely to
be highly volatile and could be subject to wide fluctuations in response to
factors such as the following, some of which are beyond our control:
o quarterly variations in our operating results;
o operating results that vary from the expectations of securities
analysts and investors;
o changes in expectations as to our future financial performance,
including financial estimates by securities analysts and
investors;
o changes in our relationship with Sprint;
o changes in laws and regulations;
o announcements by third parties of significant claims or
proceedings against us;
o changes in market valuations of telecommunications and other PCS
companies, including Sprint and Sprint PCS Network Partners;
o announcements of technological innovations or new services by us
or our competitors;
o announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
o announcements by Sprint concerning developments or changes in its
business, financial condition or results of operations, or in its
expectations as to future financial performance;
o additions or departures of key personnel;
o release of "lock-up" or other transfer restrictions on our
outstanding shares of common stock or sales of additional shares
of our common stock; and
o general stock market price and volume fluctuations.
RISKS RELATED TO THE WIRELESS PERSONAL COMMUNICATIONS SERVICES INDUSTRY
WE MAY EXPERIENCE A HIGH RATE OF CUSTOMER TURNOVER WHICH WOULD INCREASE
OUR COSTS OF OPERATIONS AND REDUCE OUR REVENUE.
The wireless personal communications services industry in general has
experienced a higher rate of customer turnover as compared to cellular industry
averages. In particular, the customer turnover experienced by us may be high
because:
o Sprint does not require its customers to sign long-term contracts;
and
o Sprint's handset return policy allows customers to return used
handsets within 14 days of purchase and receive a full refund.
A high rate of customer turnover could adversely affect our competitive
position, results of operations and our costs of, or losses incurred in,
obtaining new subscribers, especially because our subsidiaries subsidize some of
the costs of initial purchases of handsets by customers.
44
A HIGH RATE OF CUSTOMER CHURN WOULD LIKELY IMPAIR OUR FINANCIAL PERFORMANCE.
Customer churn in the fourth quarter of 2001 was higher than it was in
the third quarter of 2001, and we believe that customer churn may be higher in
the first quarter of 2002. Some of the increased rate of churn may result from
the introduction of the NDASL/Clear Pay program. Current strategies to reduce
customer churn may not be successful. A high rate of customer churn would impair
our ability to increase the revenues of, or cause a deterioration in the
operating margin of, our company as a whole.
REGULATION BY GOVERNMENT AGENCIES AND TAXING AUTHORITIES MAY INCREASE
OUR COSTS OF PROVIDING SERVICE OR REQUIRE US TO CHANGE OUR SERVICES.
Our operations and those of Sprint may be subject to varying degrees of
regulation by the FCC, the Federal Trade Commission, the Federal Aviation
Administration, the Environmental Protection Agency, the Occupational Safety and
Health Administration and state and local regulatory agencies and legislative
bodies. Adverse decisions or regulations of these regulatory bodies could
negatively impact Sprint's operations and our costs of doing business. For
example, changes in tax laws or the interpretation of existing tax laws by state
and local authorities could subject us to increased income, sales, gross
receipts or other tax costs or require us to alter the structure of our current
relationship with Sprint.
CONCERNS OVER HEALTH RISKS POSED BY THE USE OF WIRELESS HANDSETS MAY
REDUCE THE CONSUMER DEMAND FOR OUR SERVICES.
Media reports have suggested that radio frequency emissions from
wireless handsets may:
o be linked to various health problems resulting from continued or
excessive use, including cancer;
o interfere with various electronic medical devices, including
hearing aids and pacemakers; and
o cause explosions if used while fueling an automobile.
Widespread concerns over radio frequency emissions may expose us to
potential litigation or discourage the use of wireless handsets. Any resulting
decrease in demand for these services could impair our ability to profitably
operate our business.
SIGNIFICANT COMPETITION IN THE WIRELESS COMMUNICATIONS SERVICES
INDUSTRY MAY RESULT IN OUR COMPETITORS OFFERING NEW SERVICES OR LOWER PRICES,
WHICH COULD PREVENT US FROM OPERATING PROFITABLY.
Competition in the wireless communications services industry is
intense. We anticipate that competition will cause the market prices for two-way
wireless products and services to decline in the future. Our ability to compete
will depend, in part, on our ability to anticipate and respond to various
competitive factors affecting the telecommunications industry. Our dependence on
Sprint to develop competitive products and services and the requirement that we
obtain Sprint's consent for our subsidiaries to sell non-Sprint approved
equipment may limit our ability to keep pace with our competitors on the
introduction of new products, services and equipment. Some of our competitors
are larger than us, possess greater resources and more extensive coverage areas,
and may market other services, such as landline telephone service, cable
television and Internet access, with their wireless communications services. In
addition, we may be at a competitive disadvantage since we may be more highly
leveraged than some of our competitors. Furthermore, there has been a recent
trend in the wireless communications industry towards consolidation of wireless
service providers through joint ventures, reorganizations and acquisitions. We
expect this consolidation to lead to larger competitors over time. We may be
unable to compete successfully with larger competitors who have substantially
greater resources or who offer more services than we do.
45
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We do not engage in commodity futures trading activities and do not
enter into derivative financial instrument transactions for trading or other
speculative purposes. We also do not engage in transactions in foreign
currencies that could expose us to market risk.
We are subject to some interest rate risk on our senior Secured Credit
Facility and any future floating rate financing.
GENERAL HEDGING POLICIES - We enter into interest rate swap and collar
agreements to manage our exposure to interest rate changes on our variable rate
Senior Secured Credit Facility. We seek to minimize counterparty credit risk
through stringent credit approval and review processes, the selection of only
the most creditworthy counterparties, continual review and monitoring of all
counterparties, and through legal review of contracts. We also control exposure
to market risk by regularly monitoring changes in interest rate positions under
normal and stress conditions to ensure that they do not exceed established
limits. Our derivative transactions are used for hedging purposes only and
comply with Board-approved policies. Senior management receives frequent status
updates of all outstanding derivative positions.
INTEREST RATE RISK MANAGEMENT - Our interest rate risk management
program focuses on minimizing exposure to interest rate movements, setting an
optimal mixture of floating- and fixed-rate debt. We utilize interest rate swaps
and collars to adjust our risk profile relative to our floating rate Senior
Secured Credit Facility. We have hedges in place on approximately 42 percent of
the outstanding advances under our Senior Secured Credit Facility at December
31, 2001.
The following table presents the estimated future outstanding long-term
debt at the end of each year and future required annual principal payments for
each year then ended associated with the senior discount notes, capital leases
and the credit facility financing based on our projected level of long-term
indebtedness:
YEARS ENDING DECEMBER 31,
---------------------------------------------------------------
2002 2003 2004 2005 2006 THEREAFTER
------- ------- ------- ------- ------- ----------
(DOLLARS IN MILLIONS)
Fixed Rate Instruments............
12 7/8% senior discount notes... $ 269 $ 305 $ 345 $ 350 $ 350 $ --
Fixed interest rate........... 12.875% 12.875% 12.875% 12.875% 12.875% 12.875%
Principal payments............ -- -- -- -- -- 350
12 1/2% senior notes............ 250 250 250 250 250 --
Fixed interest rate........... 12.500% 12.500% 12.500% 12.500% 12.500% 12.500%
Principal payments............ -- -- -- -- -- 250
13 5/8% senior notes............ 150 150 150 150 150 --
Fixed interest rate........... 13.625% 13.625% 13.625% 13.625% 13.625% 13.625%
Principal payments............ -- -- -- -- -- 150
Capital leases....................
Annual minimum lease payments (1) $ 0.875 $ 1.055 $ 0.336 $ 0.161 $ 0.162 $ 1.019
Average Interest Rate........... 12.000% 12.000% 12.000% 12.000% 12.000% 12.000%
Variable Rate Instruments:
Senior Secured Credit Facility (2) $ 225 $ 225 $ 200 $ 149 $ 93 $ --
Average Interest Rate (3)....... 9.44% 9.44% 9.44% 9.44% 9.44% 9.44%
Principal payments............ $ -- $ -- $ 25 $ 51 $ 56 $ 93
(1) These amounts represent the estimated minimum annual payments due under
our estimated capital lease obligations for the periods presented.
(2) The amounts represent estimated year-end balances under the credit
facility based on a projection of the funds borrowed under that
facility pursuant to our current plan of network build-out.
(3) Interest rate on the Senior Secured Credit Facility advances equal, at
our option, either (i) the London Interbank Offered Rate adjusted for
any statutory reserves ("LIBOR"), or (ii) the base rate which is
generally the higher of the administrative agent's base rate, the
federal funds effective rate plus 0.50% or the administrative agent's
base CD rate plus 0.50%, in each case plus an interest margin which is
initially 4.00% for LIBOR borrowings and 3.00% for base rate
borrowings. The applicable interest margins are subject to reductions
under a pricing grid based on ratios of our total debt to our earnings
before interest, taxes, depreciation and amortization ("EBITDA"). The
interest rate margins will increase by an additional 200 basis points
in the event we fail to pay principal, interest or other amounts as
they become due and payable under the Senior Secured Credit Facility.
46
We are also required to pay quarterly in arrears a commitment fee on
the unfunded portion of the commitment of each lender. The commitment fee
accrues at a rate per annum equal to (i) 1.50% on each day when the utilization
(determined by dividing the total amount of loans plus outstanding letters of
credit under the Senior Secured Credit Facility by the total commitment amount
under the Senior Secured Credit Facility) of the Senior Secured Credit Facility
is less than or equal to 33.33%, (ii) 1.25% on each day when utilization is
greater than 33.33% but less than or equal to 66.66% and (iii) 1.00% on each day
when utilization is greater than 66.66%. We have entered into derivative hedging
instruments to hedge a portion of the interest rate risk associated with
borrowings under the Senior Secured Credit Facility. For purposes of this table,
we have used an assumed average interest rate of 9.44%.
Our primary market risk exposure relates to:
o the interest rate risk on long-term and short-term borrowings;
o our ability to refinance our senior discount notes at maturity at
market rates;
o the impact of interest rate movements on our ability to meet
interest expense requirements and meet financial covenants; and
The 12 7/8% Senior Discount Notes have a carrying value of $237 million
and a fair value which approximates $217 million. The 12 1/2% Senior Notes have
a carrying value of $250 million and a fair value which approximates $255
million. The 13 5/8% Senior Notes have a carrying value of $150 million and a
fair value which approximates $158 million.
As a condition to the Senior Secured Credit Facility, we must maintain
one or more interest rate protection agreements in an amount equal to a portion
of the total debt under the credit facility. We do not hold or issue financial
or derivative financial instruments for trading or speculative purposes. While
we cannot predict our ability to refinance existing debt or the impact that
interest rate movements will have on our existing debt, we continue to evaluate
our financial position on an ongoing basis.
At December 31, 2001, we had entered into the following interest rate
swaps.
INSTRUMENT NOTIONAL TERM FAIR VALUE
---------- -------- ---- ----------
4.9475% Interest rate swap $21,690 3 years $ (650)
4.9350% Interest rate swap $28,340 3 years (865)
----------
$ (1,515)
==========
These swaps are designated as cash flow hedges such that the fair value
is recorded as a liability in the December 31, 2001 consolidated balance sheet
with changes in fair value (net of tax) shown as a component of other
comprehensive income.
We also entered into an interest rate collar with the following terms:
NOTIONAL MATURITY CAP STRIKE PRICE FLOOR STRIKE PRICE FAIR VALUE
-------- -------- ---------------- ------------------ ----------
$28,340 5/15/04 7.00% 4.12% $ (656)
This collar does not receive hedge accounting treatment such that the
fair value is reflected as a liability in the December 31, 2001 consolidated
balance sheet and the change in fair value has been reflected as an adjustment
to interest expense.
These fair value estimates are subjective in nature and involve
uncertainties and matters of considerable judgment and therefore, cannot be
determined with precision. Changes in assumptions could significantly affect
these estimates.
47
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our financial statements required by this item are submitted as a
separate section of this annual report on Form 10-K. See "Financial Statements"
commencing on page F-1 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information called for by Item 10 of Form 10-K is set forth under the
headings "Election of Directors" and "Executive Officers" in our proxy statement
for our 2002 annual meeting of shareholders (the "Proxy Statement"), which is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information called for by Item 11 of Form 10-K is set forth under the
heading "Executive Compensation" in the Proxy Statement, which is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information called for by Item 12 of Form 10-K is set forth under the
heading "Security Ownership of Certain Beneficial Owners and Management" in the
Proxy Statement, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information called for by Item 13 of Form 10-K is set forth under the
heading "Certain Relationships and Related Transactions" in the Proxy Statement,
which is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this annual report on
Form 10-K:
1. Financial Statements
Report of Independent Accountants, Consolidated Balance
Sheets as of December 31, 2001 and 2000, Consolidated
Statements of Operations for the years ended December 31,
2001, 2000 and 1999, Consolidated Statements of Stockholders'
Equity for the years ended December 31, 2001, 2000 and 1999,
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999, Notes to Consolidated
Financial Statements
2. Financial Statement Schedules
Report of Independent Accountants on Financial Statement
Schedule
Consolidated Valuation and Qualifying Accounts
3. Exhibits
(a) See the Exhibit Index immediately preceding the exhibits
filed with this Report.
48
(b) Alamosa Holdings, Inc. did not file any Current Reports
on Form 8-K during the fourth quarter of 2001.
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 29, 2002 ALAMOSA HOLDINGS, INC.
By: /s/ DAVID E. SHARBUTT
-------------------------------
David E. Sharbutt
Chairman of the Board of Directors and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934
thereunto, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ DAVID E. SHARBUTT Chairman of the Board of Directors March 29, 2002
-------------------------- and Chief Executive Officer
David E. Sharbutt (Principal Executive Officer)
/s/ KENDALL W. COWAN Chief Financial Officer March 29, 2002
-------------------------- (Principal Financial and
Kendall W. Cowan Accounting Officer)
Director
--------------------------
Michael R. Budagher
/s/ RAY M. CLAPP, JR. Director March 29, 2002
--------------------------
Ray M. Clapp, Jr.
/s/ SCOTTY HART Director March 29, 2002
--------------------------
Scotty Hart
Director
--------------------------
Thomas Hyde
Director
--------------------------
Schuyler B. Marshall
/s/ TOM M. PHELPS Director March 29, 2002
--------------------------
Tom M. Phelps
/s/ THOMAS F. RILEY, JR. Director March 29, 2002
--------------------------
Thomas F. Riley, Jr.
/s/ JIMMY R. WHITE Director March 29, 2002
--------------------------
Jimmy R. White
Director
--------------------------
Michael V. Roberts
Director
--------------------------
Steven C. Roberts
50
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
2.1 Amended and Restated Agreement and Plan of Reorganization, dated
as of December 14, 2000, by and among Alamosa PCS Holdings, Inc.,
Alamosa Holdings, Inc., Alamosa (Delaware), Inc. and Alamosa Sub
I, Inc., filed as Exhibit 2.1 to Amendment No. 1 to the
Registration Statement on Form S-4, dated January 12, 2001
(Registration No. 333-47916) of Alamosa Holdings, Inc., which
exhibit is incorporated herein by reference.
2.2 Amended and Restated Agreement and Plan of Reorganization, dated
as of July 31, 2000, by and among Alamosa PCS Holdings, Inc.,
Alamosa Holdings, Inc., Alamosa Sub I, Inc., Roberts Wireless
Communications, L.L.C., and Members of Roberts Wireless
Communications, L.L.C., filed as Exhibit 2.2 to Amendment No. 1 to
the Registration Statement on Form S-4, dated January 12, 2001
(Registration No. 333-47916) of Alamosa Holdings, Inc., which
exhibit is incorporated herein by reference.
2.3 Amended and Restated Agreement and Plan of Reorganization, dated
as of July 31, 2000, by and among Alamosa PCS Holdings, Inc.,
Alamosa Holdings, Inc., Alamosa Sub I, Inc., Washington Oregon
Wireless, LLC, Members of Washington Oregon Wireless, LLC and WOW
Holdings, LLC, filed as Exhibit 2.3 to Amendment No. 1 to the
Registration Statement on Form S-4, dated January 12, 2001
(Registration No. 333-47916) of Alamosa Holdings, Inc., which
exhibit is incorporated herein by reference.
2.4 Agreement and Plan of Merger, dated as of December 13, 2000, by
and among Alamosa PCS Holdings, Inc., Twenty Holdings, Inc. and
Ten Acquisition, Inc., filed as Exhibit 2.4 to Form 10-K of
Alamosa Holdings, Inc. for the year ended December 31, 2000, dated
March 27, 2001, which exhibit is incorporated herein by reference.
2.5 Agreement and Plan of Merger, dated as of March 9, 2001, by and
among Alamosa PCS Holdings, Inc., Forty Acquisition, Inc.,
Southwest PCS Holdings, Inc. ("Southwest") and the stockholders of
Southwest, filed as Exhibit 2.1 to the Current Report on Form 8-K,
dated April 5, 2001, of Alamosa Holdings, Inc., which exhibit is
incorporated herein by reference.
3.1 Amended and Restated Certificate of Incorporation of Alamosa
Holdings, Inc., filed as Exhibit 1.1 to the Registration Statement
on Form 8-A, dated February 14, 2001 (SEC File No. 000-32357) of
Alamosa Holdings, Inc., which exhibit is incorporated herein by
reference.
3.2 Amended and Restated Bylaws of Alamosa Holdings, Inc., filed as
Exhibit 1.2 to the Registration Statement on Form 8-A, dated
February 14, 2001 (SEC File No. 000-32357) of Alamosa Holdings,
Inc., which exhibit is incorporated herein by reference.
4.1 Specimen Common Stock Certificate, filed as Exhibit 1.3 to the
Registration Statement on Form 8-A, dated February 14, 2001 (SEC
File No. 000-32357) of Alamosa Holdings, Inc., which exhibit is
incorporated herein by reference.
51
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
4.2 Form of Indenture for 12?% Senior Discount Notes due 2010, by and
among Alamosa PCS Holdings, Inc., the Subsidiary Guarantors party
thereto and Norwest Bank Minnesota, N.A., as trustee, filed as
Exhibit 4.1 to Amendment No. 2 to the Registration Statement on
Form S-1, dated February 1, 2000 (Registration No. 333-93499) of
Alamosa (Delaware), Inc. (formerly Alamosa PCS Holdings, Inc.),
which exhibit is incorporated herein by reference.
4.3 Form of Global Note relating to the Senior Discount Notes due
2010, filed as Exhibit 4.2 to Amendment No. 2 to the Registration
Statement on Form S-1, dated February 1, 2000 (Registration No.
333-93499) of Alamosa (Delaware), Inc. (formerly Alamosa PCS
Holdings, Inc.), which exhibit is incorporated herein by
reference.
4.4 Indenture for 12 1/2% Senior Notes due 2011, dated as of January
31, 2001, by and among Alamosa (Delaware), Inc., the Subsidiary
Guarantors party thereto and Wells Fargo Bank Minnesota, N.A., as
trustee, filed as Exhibit 4.4 to Form 10-K of Alamosa Holdings,
Inc. for the year ended December 31, 2000, dated March 27, 2001,
which exhibit is incorporated herein by reference.
4.5 Form of Global Note relating to the Senior Notes due 2011, filed
as Exhibit 4.5 to Form 10-K of Alamosa Holdings, Inc. for the year
ended December 31, 2000, dated March 27, 2001, which exhibit is
incorporated herein by reference.
4.6 First Supplemental Indenture for 12?% Senior Discount Notes due
2010, dated as of January 31, 2001, among Alamosa Finance, LLC,
LLC, Alamosa Limited, LLC and Wells Fargo Bank Minnesota, N.A.,
(formerly known as Norwest Bank Minnesota, N.A.), as trustee,
filed as Exhibit 4.6 to Form 10-K of Alamosa Holdings, Inc. for
the year ended December 31, 2000, dated March 27, 2001, which
exhibit is incorporated herein by reference.
4.7 First Supplemental Indenture for 12 1/2% Senior Notes due 2011,
dated as of February 14, 2001, among Roberts Wireless
Communications, L.L.C., Roberts Wireless Properties, LLC,
Washington Oregon Wireless, LLC, Alamosa Holdings, LLC, Alamosa
Properties, L.P., Alamosa (Wisconsin) Properties, LLC, Washington
Oregon Wireless Properties, LLC, Washington Oregon Wireless
Licenses, LLC and Wells Fargo Bank Minnesota, N.A., (formerly
known as Norwest Bank Minnesota, N.A.), as trustee, filed as
Exhibit 4.7 to Form 10-K of Alamosa Holdings, Inc. for the year
ended December 31, 2000, dated March 27, 2001, which exhibit is
incorporated herein by reference.
4.8 Second Supplemental Indenture for 12?% Senior Discount Notes due
2010, dated as of February 14, 2001, among Roberts Wireless
Communications, L.L.C., Roberts Wireless Properties, LLC,
Washington Oregon Wireless, LLC, Alamosa Holdings, LLC, Alamosa
Properties, L.P., Alamosa (Wisconsin) Properties, LLC, Washington
Oregon Wireless Properties, LLC, Washington Oregon Wireless
Licenses, LLC and Wells Fargo Bank Minnesota, N.A., (formerly
known as Norwest Bank Minnesota, N.A.), as trustee, filed as
Exhibit 4.8 to Form 10-K of Alamosa Holdings, Inc. for the year
ended December 31, 2000, dated March 27, 2001, which exhibit is
incorporated herein by reference.
52
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
4.9 Registration Rights Agreement, dated as of January 24, 2001, by
and among Alamosa (Delaware), Inc. and Salomon Smith Barney Inc.,
TD Securities (USA) Inc., Credit Suisse First Boston Corporation,
First Union Securities, Inc., Lehman Brothers Inc., Scotia Capital
(USA) Inc., filed as Exhibit 4.9 to Form 10-K of Alamosa Holdings,
Inc. for the year ended December 31, 2000, dated March 27, 2001,
which exhibit is incorporated herein by reference.
4.10 Rights Agreement, dated as of February 14, 2001, by and between
Alamosa Holdings, Inc. and Mellon Investors Services LLC, as
Rights Agent, including the form of Certificate of Designation,
Preferences and Rights of Series A Preferred Stock attached as
Exhibit A thereto and the form of Rights Certificate attached as
Exhibit B thereto, filed as Exhibit 1.4 to the Registration
Statement on Form 8-A, dated February 14, 2001 (Registration No.
000-32357) of Alamosa Holdings, Inc., which exhibit is
incorporated herein by reference.
4.11 Third Supplemental Indenture for 12?% Senior Discount Notes due
2010, dated as of March 30, 2001, among SWLP, L.L.C., SWGP,
L.L.C., Southwest PCS, L.P., Southwest PCS Properties, LLC,
Southwest PCS Licenses, LLC and Wells Fargo Bank Minnesota, N.A.,
as trustee, filed as Exhibit 4.10 to the Registration Statement on
Form S-4, dated May 9, 2001 (Registration No. 333-60572) of
Alamosa (Delaware), Inc., which exhibit is incorporated herein by
reference.
4.12 Second Supplemental Indenture for 12 1/2% Senior Notes due 2011,
dated as of March 30, 2001, among SWLP, L.L.C., SWGP, L.L.C.,
Southwest PCS, L.P., Southwest PCS Properties, LLC, Southwest PCS
Licenses, LLC and Wells Fargo Bank Minnesota, N.A., as trustee,
filed as Exhibit 4.11 to the Registration Statement on Form S-4,
dated May 9, 2001 (Registration No. 333-60572) of Alamosa
(Delaware), Inc., which exhibit is incorporated herein by
reference.
4.13 Indenture for 13?% Senior Notes due 2011, dated August 15, 2001,
among Alamosa (Delaware), the Subsidiary Guarantors party thereto,
and Wells Fargo Bank Minnesota, N.A., as trustee, filed as Exhibit
4.12 to the Registration Statement on Form S-4, dated August 28,
2001 (Registration No. 333-68538) of Alamosa (Delaware), Inc.,
which exhibit is incorporated herein by reference.
4.14 Form of Global Note relating to the 13?% Senior Notes due 2011,
filed as Exhibit 4.13 to the Registration Statement on Form S-4,
dated August 28, 2001 (Registration No. 333-68538) of Alamosa
(Delaware), Inc., which exhibit is incorporated herein by
reference.
4.15 Registration Rights Agreement, dated August 7, 2001, by and among
Alamosa (Delaware), Salomon Smith Barney Inc., TD Securities (USA)
Inc., First Union Securities, Inc., and Scotia Capital (USA) Inc.,
relating to the 13?% Senior Notes due 2011, filed as Exhibit 4.14
to the Registration Statement on Form S-4, dated August 28, 2001
(Registration No. 333-68538) of Alamosa (Delaware), Inc., which
exhibit is incorporated herein by reference.
5.1* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP.
53
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
10.1 CDMA 1900 SprintCom Additional Affiliate Agreement dated as of
December 21, 1998 by and between Alamosa PCS, LLC and Northern
Telecom, Inc., filed as Exhibit 10.1 to Amendment No. 3 to the
Registration Statement on Form S-1, dated February 1, 2000
(Registration No. 333-89995) of Alamosa (Delaware), Inc. (formerly
Alamosa PCS Holdings, Inc.), which exhibit is incorporated herein
by reference.
10.2 Amendment No. 1 to DMS-MTX Cellular Supply Agreement dated as of
January 12, 1999 by and between Alamosa PCS, LLC and Nortel
Networks Inc. as an amendment to Exhibit 10.1 described above,
filed as Exhibit 10.2 to Amendment No. 3 to the Registration
Statement on Form S-1, dated February 1, 2000 (Registration No.
333-89995) of Alamosa (Delaware), Inc. (formerly Alamosa PCS
Holdings, Inc.), which exhibit is incorporated herein by
reference.
10.3 Amendment No. 2 to DMS-MTX Cellular Supply Agreement, dated as of
March 1, 1999 by and between Alamosa PCS, LLC and Nortel Networks
Inc. as an amendment to Exhibits 10.1 and 10.2 described above,
filed as Exhibit 10.3 to Amendment No. 3 to the Registration
Statement on Form S-1, dated February 1, 2000 (Registration No.
333-89995) of Alamosa (Delaware), Inc. (formerly Alamosa PCS
Holdings, Inc.), which exhibit is incorporated herein by
reference.
10.4 Amendment No. 3 to DMS-MTX Cellular Supply Agreement, dated as of
August 11, 1999 by and between Alamosa PCS, LLC and Nortel
Networks Inc. as an amendment to Exhibits 10.1, 10.2 and 10.3
described above, filed as Exhibit 10.4 to Amendment No. 1 to the
Registration Statement on Form S-1, dated December 22, 1999
(Registration No. 333-89995) of Alamosa (Delaware), Inc. (formerly
Alamosa PCS Holdings, Inc.), which exhibit is incorporated herein
by reference.
10.5 Sprint PCS Management Agreement (Wisconsin), as amended by
Addendum I, dated as of December 6, 1999 by and between Sprint
Spectrum, LP, WirelessCo, LP and Alamosa Wisconsin Limited
Partnership, filed as Exhibit 10.10 to Amendment No. 3 to the
Registration Statement on Form S-1, dated February 1, 2000
(Registration No. 333-89995) of Alamosa (Delaware), Inc. (formerly
Alamosa PCS Holdings, Inc.), which exhibit is incorporated herein
by reference.
10.6 Sprint PCS Services Agreement (Wisconsin,) dated as of December 6,
1999, by and between Sprint Spectrum, LP and Alamosa Wisconsin
Limited Partnership, filed as Exhibit 10.11 to Amendment No. 3 to
the Registration Statement on Form S-1, dated February 1, 2000
(Registration No. 333-89995) of Alamosa (Delaware), Inc. (formerly
Alamosa PCS Holdings, Inc.), which exhibit is incorporated herein
by reference.
54
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
10.7 Sprint Trademark and Service Mark License Agreement (Wisconsin),
dated as of December 6, 1999, by and between Sprint Communications
Company, LP and Alamosa Wisconsin Limited Partnership, filed as
Exhibit 10.12 to Amendment No. 3 to the Registration Statement on
Form S-1, dated February 1, 2000 (Registration No. 333-89995) of
Alamosa (Delaware), Inc. (formerly Alamosa PCS Holdings, Inc.),
which exhibit is incorporated herein by reference.
10.8 Sprint Spectrum Trademark and Service Mark License Agreement
(Wisconsin), dated as of December 6, 1999, by and between Sprint
Spectrum, LP and Alamosa Wisconsin Limited Partnership, filed as
Exhibit 10.13 to Amendment No. 3 to the Registration Statement on
Form S-1, dated February 1, 2000 (Registration No. 333-89995) of
Alamosa (Delaware), Inc. (formerly Alamosa PCS Holdings, Inc.),
which exhibit is incorporated herein by reference.
10.9 Engineering Service Contract, System Design and Construction
Inspection, dated as of July 27, 1998, as amended, by and between
Alamosa PCS, LLC and Hicks & Ragland Engineering Co., Inc., filed
as Exhibit 10.14 to Amendment No. 1 to the Registration Statement
on Form S-1, dated December 22, 1999 (Registration No. 333-89995)
of Alamosa (Delaware), Inc. (formerly Alamosa PCS Holdings, Inc.),
which exhibit is incorporated herein by reference.
10.10 Master Site Development and Lease Agreement, as amended, dated as
of August 1998, by and between Alamosa PCS, LLC and Specialty
Capital Services, Inc., filed as Exhibit 10.15 to Amendment No. 3
to the Registration Statement on Form S-1, dated December 22, 1999
(Registration No. 333-89995) of Alamosa (Delaware), Inc. (formerly
Alamosa PCS Holdings, Inc.), which exhibit is incorporated herein
by reference.
10.11+ Employment Agreement, effective as of October 1, 1999, by and
between Alamosa PCS LLC and David E. Sharbutt, filed as Exhibit
10.20 to Amendment No. 2 to the Registration Statement on Form
S-1, dated January 19, 2000 (Registration No. 333-89995) of
Alamosa (Delaware), Inc. (formerly Alamosa PCS Holdings, Inc.),
which exhibit is incorporated herein by reference.
10.12+ Employment Agreement, effective as of December 1, 1999, by and
between Alamosa PCS, LLC and Kendall W. Cowan, filed as Exhibit
10.21 to Amendment No. 2 to the Registration Statement on Form
S-1, dated January 19, 2000 (Registration No. 333-89995) of
Alamosa (Delaware), Inc. (formerly Alamosa PCS Holdings, Inc.),
which exhibit is incorporated herein by reference.
10.13 Sprint PCS Management Agreement, as amended by Addendum I, dated
as of December 23, 1999, by and between Sprint Spectrum, LP,
WirelessCo, LP, Cox Communications PCS, L.P., Cox CPS License,
LLC, SprintCom, Inc. and Alamosa PCS, LLC, filed as Exhibit 10.22
to Amendment No. 3 to the Registration Statement on Form S-1,
dated January 19, 2000 (Registration No. 333-89995) of Alamosa
(Delaware), Inc. (formerly Alamosa PCS Holdings, Inc.), which
exhibit is incorporated herein by reference.
55
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
10.14 Sprint PCS Services Agreement, dated as of December 23, 1999, by
and between Sprint Spectrum, LP and Alamosa PCS, LLC, filed as
Exhibit 10.23 to Amendment No. 2 to the Registration Statement on
Form S-1, dated January 19, 2000 (Registration No. 333-89995) of
Alamosa (Delaware), Inc. (formerly Alamosa PCS Holdings, Inc.),
which exhibit is incorporated herein by reference.
10.15 Sprint Trademark and Service Mark License Agreement, dated as of
December 23, 1999 by and between Sprint Communications Company, LP
and Alamosa PCS, LLC, filed as Exhibit 10.24 to Amendment No. 2 to
the Registration Statement on Form S-1, dated January 19, 2000
(Registration No. 333-89995) of Alamosa (Delaware), Inc. (formerly
Alamosa PCS Holdings, Inc.), which exhibit is incorporated herein
by reference.
10.16 Sprint Spectrum Trademark and Service Mark Agreement, dated as of
December 23, 1999, by and between Sprint Spectrum, LP and Alamosa
PCS, LLC, filed as Exhibit 10.25 to Amendment No. 2 to the
Registration Statement on Form S-1, dated January 19, 2000
(Registration No. 333-89995) of Alamosa (Delaware), Inc. (formerly
Alamosa PCS Holdings, Inc.), which exhibit is incorporated herein
by reference.
10.17 Amendment No. 4 to DMS-MTX Cellular Supply Agreement by and
between Alamosa PCS, LLC and Nortel Networks Inc. as an amendment
to Exhibits 10.1, 10.2, 10.3 and 10.4 described above, effective
as of February 8, 2000, filed as Exhibit 10.20 to Form 10-K of
Alamosa (Delaware), Inc. (formerly Alamosa PCS Holdings, Inc.),
for the year ended December 31, 1999, dated March 23, 2000 which
exhibit is incorporated herein by reference.
10.18+ Amended and Restated Employment Agreement effective as of October
1, 1999 by and between Alamosa PCS, LLC and Jerry Brantley, filed
as Exhibit 10.29 to Amendment No. 2 to the Registration Statement
on Form S-1, dated January 19, 2000 (Registration No. 333-89995)
of Alamosa (Delaware), Inc. (formerly Alamosa PCS Holdings, Inc.),
which exhibit is incorporated herein by reference.
10.19+ Amended and Restated Employment Agreement, effective as of October
1, 1999, by and between Alamosa PCS, LLC and W. Don Stull, filed
as Exhibit 10.21 to the Registration Statement on Form S-4, dated
October 12, 2000 (Registration No. 333-47916) of Alamosa Holdings,
Inc., which exhibit is incorporated herein by reference.
10.20 Amended and Restated Master Design Build Agreement, dated as of
March 21, 2000, by and between Texas Telecommunications, L.P. and
Alamosa Wisconsin Limited Partnership and SBA Towers, Inc., filed
as Exhibit 10.23 to Form 10-K of Alamosa (Delaware), Inc.
(formerly Alamosa PCS Holdings, Inc.), for the year ended December
31, 1999, dated March 23, 2000, which exhibit is incorporated
herein by reference.
56
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
10.21+ Employment Agreement effective as of June 1, 2000, by and between
Alamosa, Texas Telecommunications, LP and Loyd Rinehart, filed as
Exhibit 10.25 to the Registration Statement on Form S-4, dated
October 12, 2001 (Registration No. 333-47916) of Alamosa Holdings,
Inc., which exhibit is incorporated herein by reference.
10.22 Security Agreement, dated as of January 31, 2001, by and among
Alamosa (Delaware), Inc., Wells Fargo Bank Minnesota, N.A., as
security agent, Wells Fargo Bank Minnesota, N.A., as collateral
agent, Wells Fargo Bank Minnesota, N.A., as trustee under the 2001
Indenture (as to paragraph 6(b) and Wells Fargo Bank Minnesota,
N.A., as trustee under the 2000 Indenture (as to paragraph 6(b)),
filed as Exhibit 10.22 to Form 10-K of Alamosa Holdings, Inc. for
the year ended December 31, 2000, dated March 27, 2001, which
exhibit is incorporated herein by reference.
10.23 Amended and Restated Credit Agreement, dated as of March 30, 2001,
by and among Alamosa Holdings, LLC, Alamosa Holdings, Inc.,
Alamosa (Delaware), Inc., the lenders party thereto, Citicorp USA,
Inc., as administrative and collateral agent, Export Development
Corporation, as co-documentation agent, First Union National Bank,
as documentation agent, Toronto Dominion (Texas), Inc. as
syndication agent, Export Development Corporation and First Union
Securities, Inc., as lead arrangers and Salomon Smith Barney Inc.
and TD Securities (USA) Inc. as joint lead arrangers and joint
book managers, for a $333,000,000 credit facility, as amended by
the First Amendment and Waiver dated May 8, 2001 (attached
thereto), filed as Exhibit 10.23 to the Amendment No. 1 to the
Registration Statement on Form S-4, dated June 8, 2001
(Registration No. 333-60572) of Alamosa (Delaware), Inc., which
exhibit is incorporated herein by reference.
10.24 Amended and Restated Security Agreement, dated as of March 30,
2001, by and among Alamosa (Delaware), Inc., Alamosa Holdings,
LLC, each subsidiary of Alamosa (Delaware), Inc. listed on
Schedule I thereto, and Citicorp USA, Inc., as collateral agent,
filed as Exhibit 10.24 to the Registration Statement on Form S-4,
dated May 9, 2001 (Registration No. 333-60572) of Alamosa
(Delaware), Inc., which exhibit is incorporated herein by
reference.
10.25 Amended and Restated Pledge Agreement, dated as of March 30, 2001,
among Alamosa (Delaware), Inc., Alamosa Holdings, LLC, each
Subsidiary of Alamosa (Delaware), Inc. listed on Schedule I
thereto and Citicorp USA, Inc., as collateral agent, filed as
Exhibit 10.25 to the Registration Statement on Form S-4, dated May
9, 2001 (Registration No. 333-60572) of Alamosa (Delaware), Inc.,
which exhibit is incorporated herein by reference.
10.26 Amended and Restated Consent and Agreement, dated as of March 30,
2001, by and among Sprint Spectrum L.P., SprintCom, Inc., Sprint
Communications Company, L.P., Cox Communications PCS, L.P., Cox
PCS License, LLC, WirelessCo, L.P., and Citicorp USA, Inc., as
administrative agent, filed as Exhibit 10.26 to the Registration
Statement on Form S-4, dated May 9, 2001 (Registration No.
333-60572) of Alamosa (Delaware), Inc., which exhibit is
incorporated herein by reference.
57
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
10.27 Addendum II to Sprint PCS Management Agreement (Wisconsin), dated
as of February 8, 2000, by and between Sprint Spectrum L.P.,
WirelessCo, L.P., Sprint Communications Company, L.P., and Alamosa
Wisconsin Limited Partnership as an amendment to Exhibit 10.5
above, filed as Exhibit 10.27 to Form 10-K of Alamosa Holdings,
Inc. for the year ended December 31, 2000, dated March 27, 2001,
which exhibit is incorporated herein by reference.
10.28 Addendum III to Sprint PCS Management Agreement (Wisconsin), dated
as of April 25, 2000, by and between Sprint Spectrum L.P.,
WirelessCo, L.P., Sprint Communications Company, L.P., and Alamosa
Wisconsin Limited Partnership as an amendment to Exhibit 10.5
above, filed as Exhibit 10.28 to Form 10-K of Alamosa Holdings,
Inc. for the year ended December 31, 2000, dated March 27, 2001,
which exhibit is incorporated herein by reference.
10.29 Addendum IV to Sprint PCS Management Agreement (Wisconsin), dated
as of June 23, 2000, by and between Sprint Spectrum L.P.,
WirelessCo, L.P., Sprint Communications Company, L.P., and Alamosa
Wisconsin Limited Partnership as an amendment to Exhibit 10.5
above, filed as Exhibit 10.29 to Form 10-K of Alamosa Holdings,
Inc. for the year ended December 31, 2000, dated March 27, 2001,
which exhibit is incorporated herein by reference.
10.30 Addendum V to Sprint PCS Management Agreement (Wisconsin), dated
as of February 14, 2001, by and between Sprint Spectrum L.P.,
WirelessCo, L.P., Sprint Communications Company, L.P., and Alamosa
Wisconsin Limited Partnership as an amendment to Exhibit 10.5
above, filed as Exhibit 10.30 to Form 10-K of Alamosa Holdings,
Inc. for the year ended December 31, 2000, dated March 27, 2001,
which exhibit is incorporated herein by reference.
10.31 Addendum II to Sprint PCS Management Agreement, dated as of
February 8, 2000, by and between Sprint Spectrum L.P., WirelessCo,
L.P., Sprint Communications Company, L.P., and Texas
Telecommunications, LP as an amendment to Exhibit 10.13 above,
filed as Exhibit 10.31 to Form 10-K of Alamosa Holdings, Inc. for
the year ended December 31, 2000, dated March 27, 2001, which
exhibit is incorporated herein by reference.
10.32 Addendum III to Sprint PCS Management Agreement, dated as of April
25, 2000, by and between Sprint Spectrum L.P., WirelessCo, L.P.,
Sprint Communications Company, L.P., and Texas Telecommunications,
LP as an amendment to Exhibit 10.13 above, filed as Exhibit 10.32
to Form 10-K of Alamosa Holdings, Inc. for the year ended December
31, 2000, dated March 27, 2001, which exhibit is incorporated
herein by reference.
10.33 Addendum IV to Sprint PCS Management Agreement, dated as of June
23, 2001, by and between Sprint Spectrum L.P., WirelessCo, L.P.,
Sprint Communications Company, L.P., and Texas Telecommunications,
LP as an amendment to Exhibit 10.13 above, filed as Exhibit 10.33
to Form 10-K of Alamosa Holdings, Inc. for the year ended December
31, 2000, dated March 27, 2001, which exhibit is incorporated
herein by reference.
58
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
10.34 Addendum V to Sprint PCS Management Agreement, dated as of January
8, 2001, by and between Sprint Spectrum L.P., WirelessCo, L.P.,
Sprint Communications Company, L.P., and Texas Telecommunications,
LP as an amendment to Exhibit 10.13 above, filed as Exhibit 10.34
to Form 10-K of Alamosa Holdings, Inc. for the year ended December
31, 2000, dated March 27, 2001, which exhibit is incorporated
herein by reference.
10.35 Addendum VI to Sprint PCS Management Agreement, dated as of
February 14, 2001, by and between Sprint Spectrum L.P.,
WirelessCo, L.P., Sprint Communications Company, L.P., and Texas
Telecommunications, LP as an amendment to Exhibit 10.13 above,
filed as Exhibit 10.35 to Form 10-K of Alamosa Holdings, Inc. for
the year ended December 31, 2000, dated March 27, 2001, which
exhibit is incorporated herein by reference.
10.36 Sprint PCS Management Agreement, dated as of June 8, 1998, as
amended by Addendum I - VIII, between Sprint Spectrum L.P.,
SprintCom, Inc. and Roberts Wireless Communications, L.L.C., filed
as Exhibit 10.36 to Form 10-K of Alamosa Holdings, Inc. for the
year ended December 31, 2000, dated March 27, 2001, which exhibit
is incorporated herein by reference.
10.37 Sprint PCS Services Agreement, dated as of June 8, 1998, between
Sprint Spectrum L.P. and Roberts Wireless Communications, L.L.C.,
filed as Exhibit 10.37 to Form 10-K of Alamosa Holdings, Inc. for
the year ended December 31, 2000, dated March 27, 2001, which
exhibit is incorporated herein by reference.
10.38 Sprint Trademark and Service Mark License Agreement, dated as of
June 8, 1998, between Sprint Communications Company, L.P. and
Roberts Wireless Communications, L.L.C., filed as Exhibit 10.38 to
Form 10-K of Alamosa Holdings, Inc. for the year ended December
31, 2000, dated March 27, 2001, which exhibit is incorporated
herein by reference.
10.39 Sprint Spectrum Trademark and Service Mark License Agreement,
dated as of June 8, 1998, between Sprint Spectrum L.P. and Roberts
Wireless Communications, L.L.C., filed as Exhibit 10.39 to Form
10-K of Alamosa Holdings, Inc. for the year ended December 31,
2000, dated March 27, 2001, which exhibit is incorporated herein
by reference.
10.40 Sprint PCS Management Agreement, dated as of January 25, 1999, as
amended by Addendum I - III, between Sprint Spectrum L.P.,
WirelessCo, L.P. and Washington Oregon Wireless, LLC, filed as
Exhibit 10.40 to Form 10-K of Alamosa Holdings, Inc. for the year
ended December 31, 2000, dated March 27, 2001, which exhibit is
incorporated herein by reference.
10.41 Sprint PCS Services Agreement, dated as of January 25, 1999,
between Sprint Spectrum L.P. and Washington Oregon Wireless, LLC,
filed as Exhibit 10.41 to Form 10-K of Alamosa Holdings, Inc. for
the year ended December 31, 2000, dated March 27, 2001, which
exhibit is incorporated herein by reference.
59
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
10.42 Sprint Trademark and Service Mark License Agreement, dated as of
January 25, 1999, between Sprint Communications Company, L.P. and
Washington Oregon Wireless, LLC, filed as Exhibit 10.42 to Form
10-K of Alamosa Holdings, Inc. for the year ended December 31,
2000, dated March 27, 2001, which exhibit is incorporated herein
by reference.
10.43 Sprint Spectrum Trademark and Service Mark License Agreement,
dated as of January 25, 1999, between Sprint Spectrum L.P. and
Washington Oregon Wireless, LLC, filed as Exhibit 10.42 to Form
10-K of Alamosa Holdings, Inc. for the year ended December 31,
2000, dated March 27, 2001, which exhibit is incorporated herein
by reference.
10.44+ Employment Agreement, effective as of July 24, 2000, by and
between Alamosa PCS Holdings, Inc. and Anthony Sabatino, filed as
Exhibit 10.44 to Form 10-K of Alamosa Holdings, Inc. for the year
ended December 31, 2000, dated March 27, 2001, which exhibit is
incorporated herein by reference.
10.45+ Alamosa Holdings, Inc. 1999 Long Term Incentive Plan, filed as
Exhibit 4.4 to the Registration Statement on Form S-8, dated March
2, 2001 (Registration No. 333- 56430) of Alamosa Holdings, Inc.,
which exhibit is incorporated herein by reference.
10.46+ Alamosa Holdings, Inc. Employee Stock Purchase Plan, filed as
Exhibit 4.5 to the Registration Statement on Form S-8, dated March
2, 2001 (Registration No. 333- 56430) of Alamosa Holdings, Inc.,
which exhibit is incorporated herein by reference.
10.47 Addendum VI to Sprint PCS Management Agreement (Wisconsin), dated
March 30, 2001, by and between Sprint Spectrum L.P., WirelessCo,
L.P., Sprint Communications Company, L.P. and Alamosa Wisconsin
Limited Partnership, as an amendment to Exhibit 10.5 above, filed
as Exhibit 10.45 to the Registration Statement on Form S-4, dated
May 9, 2001 (Registration No. 333-60572) of Alamosa (Delaware),
Inc., which exhibit is incorporated herein by reference.
10.48 Addendum VII to Sprint PCS Management Agreement, dated as of March
30, 2001, by and between Sprint Spectrum L.P., WirelessCo, L.P.,
Sprint Communications Company, L.P. and Texas Telecommunications,
LP, as an amendment to Exhibit 10.13 above, filed as Exhibit 10.46
to the Registration Statement on Form S-4, dated May 9, 2001
(Registration No. 333-60572) of Alamosa (Delaware), Inc., which
exhibit is incorporated herein by reference.
10.49 Addendum IX to Sprint PCS Management Agreement, dated as of March
30, 2001, by and between Sprint Spectrum L.P., WirelessCo, L.P.,
Sprint Communications Company, L.P. and Roberts Wireless
Communications, as an amendment to Exhibit 10.36 above, filed as
Exhibit 10.47 to the Registration Statement on Form S-4, dated May
9, 2001 (Registration No. 333-60572) of Alamosa (Delaware), Inc.,
which exhibit is incorporated herein by reference.
60
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
10.50 Addendum IV to Sprint PCS Management Agreement, dated as of March
30, 2001, by and between Sprint Spectrum L.P., WirelessCo, L.P.,
Sprint Communications Company, L.P. and Washington Oregon
Wireless, LLC, as an amendment to Exhibit 10.40 above, filed as
Exhibit 10.48 to the Registration Statement on Form S-4, dated May
9, 2001 (Registration No. 333-60572) of Alamosa (Delaware), Inc.,
which exhibit is incorporated herein by reference.
10.51 Sprint PCS Management Agreement, dated March 30, 2001, as amended
by Addendum IV, by and between Sprint Spectrum, L.P., SprintCom,
Inc. and Southwest PCS, L.P., filed as Exhibit 10.49 to the
Registration Statement on Form S-4, dated May 9, 2001
(Registration No. 333-60572) of Alamosa (Delaware), Inc., which
exhibit is incorporated herein by reference.
10.52 Sprint PCS Services Agreement, dated July 10, 1998, between Sprint
Spectrum L.P. and Southwest PCS, L.P., filed as Exhibit 10.50 to
the Registration Statement on Form S-4, dated May 9, 2001
(Registration No. 333-60572) of Alamosa (Delaware), Inc., which
exhibit is incorporated herein by reference.
10.53 Sprint Trademark and Service Mark License Agreement, dated July
10, 1998, between Sprint Communications Company, L.P. and
Southwest PCS, L.P., filed as Exhibit 10.51 to the Registration
Statement on Form S-4, dated May 9, 2001 (Registration No.
333-60572) of Alamosa (Delaware), Inc., which exhibit is
incorporated herein by reference.
10.54 Sprint Spectrum Trademark and Service Mark License Agreement,
dated July 10, 1998, between Sprint Spectrum L.P. and Southwest
PCS, L.P., filed as Exhibit 10.52 to the Registration Statement on
Form S-4, dated May 9, 2001 (Registration No. 333-60572) of
Alamosa (Delaware), Inc., which exhibit is incorporated herein by
reference.
10.55 Second Amendment, dated as of June 7, 2001, to the Amended and
Restated Credit Agreement, among Alamosa Holdings, Inc., Alamosa
(Delaware), Inc., Alamosa Holdings, LLC, the Lenders party
thereto, Export Development Corporation, as co-documentation
agent, First Union National Bank, as documentation agent, Toronto
Dominion (Texas), Inc. as syndication agent and Citicorp USA,
Inc., as administrative and collateral agent, as an amendment to
Exhibit 10.23 above, filed as Exhibit 10.55 to the Registration
Statement on Form S-1, dated July 31, 2001 (Registration No.
333-66358) of Alamosa Holdings, Inc. and incorporated herein by
reference.
10.56 Third Amendment and Waiver, dated as of July 19, 2001, to the
Amended and Restated Credit Agreement, among Alamosa Holdings,
Inc., Alamosa (Delaware), Inc., Alamosa Holdings, LLC, Export
Development Corporation, as co-documentation agent, First Union
National Bank, as documentation agent, Toronto Dominion (Texas),
Inc. as syndication agent and Citicorp USA, Inc., as
administrative and collateral agent as an amendment to Exhibit
10.23 above, filed as Exhibit 10.56 to the Registration Statement
on Form S-1, dated July 31, 2001 (Registration No. 333-66358) of
Alamosa Holdings, Inc. and incorporated herein by reference.
61
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
10.57 Fourth Amendment and Waiver, dated as of August 6,2001, to the
Amended and Restated Credit Agreement, among Alamosa Holdings,
Inc., Alamosa (Delaware), Inc., Alamosa Holdings, LLC, the Lenders
party thereto (the "Lenders"), Export co-documentation agent,
First Union National Bank, as documentation agent, Toronto
Dominion (Texas), Inc., as syndication agent, and Citicorp USA,
Inc., as administrative Agent and collateral Agent, as an
amendment to Exhibit 10.23 above, filed as Exhibit 10.55 to the
Registration Statement on Form S-4, dated August 28, 2001
(Registration No. 333-68538) of Alamosa (Delaware), Inc., which
exhibit is incorporated herein by reference.
10.58 Fifth Amendment and Consent, dated as of August 7, 2001, to the
Amended and Restated Credit Agreement, among Alamosa Holdings,
Inc., Alamosa (Delaware), Inc., Alamosa Holdings, LLC, the Lenders
party thereto (the "Lenders"), Export Development Corporation, as
co-documentation agent, First Union National Bank, as
documentation agent, Toronto Dominion (Texas), Inc., as
syndication agent, and Citicorp USA, Inc., as administrative Agent
and collateral Agent, as an amendment to Exhibit 10.23 above,
filed as Exhibit 10.56 to the Registration Statement on Form S-4,
dated August 28, 2001 (Registration No. 333-68538) of Alamosa
(Delaware), Inc., which exhibit is incorporated herein by
reference.
10.59 Security agreement, dated as of August 15, 2001, among Alamosa
(Delaware), Inc., a Delaware corporation, Wells Fargo Bank
Minnesota, N.A., as security agent, Wells Fargo Bank Minnesota,
N.A., as collateral agent for Wells Fargo Bank Minnesota, N.A., as
trustee under the August 2001 Indenture (as to paragraph 6(b)),
for Wells Fargo Bank Minnesota, N.A., as trustee under the January
2001 Indenture (as to paragraph 6(b)), and for Wells Fargo Bank
Minnesota, N.A., as trustee under the 2000 Indenture (as to
paragraph 6(b)), filed as Exhibit 10.57 to the Registration
Statement on Form S-4, dated August 28, 2001 (Registration No.
333-68538) of Alamosa (Delaware), Inc., which exhibit is
incorporated herein by reference.
10.60+ Employment Agreement effective as of February 3, 2000 by and
between Alamosa PCS, Inc. and Margaret Couch.
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
+ Exhibit is a management contract or compensatory plan.
62
ALAMOSA HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants....................................... F-2
Consolidated Balance Sheets as of December 31, 2001 and
December 31, 2000....................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999........................................ F-4
Consolidated Statements of Stockholders' Equity for the period from
December 31, 1998 to December 31, 2001.................................. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999........................................ F-6
Notes to Consolidated Financial Statements.............................. F-7
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Alamosa Holdings, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Alamosa
Holdings, Inc. and its subsidiaries at December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Dallas, Texas
February 27, 2002
F-2
ALAMOSA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
DECEMBER 31,
--------------------------------------
2001 2000
------------------ ----------------
ASSETS
Current assets:
Cash and cash equivalents $ 104,672 $ 141,768
Short term investments 1,300 1,600
Restricted cash 51,687 --
Customer accounts receivable, net 42,740 11,093
Receivable from Sprint 9,137 1,554
Interest receivable 2,393 1,046
Inventory 4,802 2,753
Prepaid expenses and other assets 4,749 4,276
Deferred customer acquisition costs 5,181 1,103
Deferred tax asset 8,112 --
-------------- --------------
Total current assets 234,773 165,193
Property and equipment, net 455,695 228,983
Notes receivable -- 46,865
Debt issuance costs, net 36,654 13,108
Restricted cash 43,006 --
Goodwill, net 293,353 --
Intangible assets, net 528,840 --
Other noncurrent assets 6,087 4,501
-------------- --------------
Total assets $ 1,598,408 $ 458,650
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 44,012 $ 13,628
Accrued expenses 29,291 36,411
Payable to Sprint 16,133 8,668
Interest payable 22,123 219
Deferred revenue 15,479 2,712
Current installments of capital leases 596 36
-------------- --------------
Total current liabilities 127,634 61,674
-------------- --------------
Long term debt:
Capital lease obligations 1,983 1,039
Other noncurrent liabilities 7,496 735
Senior secured debt 187,162 54,524
12 7/8% senior discount notes 237,207 209,280
12 1/2% senior notes 250,000 --
13 5/8% senior notes 150,000 --
Deferred tax liability 98,940 --
-------------- --------------
Total long term debt 932,788 265,578
-------------- --------------
Total liabilities 1,060,422 327,252
-------------- --------------
Commitments and contingencies (see Note 17)
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized; no
shares issued -- --
Common stock, $.01 par value; 290,000,000 shares authorized,
92,786,497 and 61,359,856 shares issued and outstanding,
respectively 927 613
Additional paid-in capital 799,366 245,845
Accumulated deficit (261,371) (113,948)
Unearned compensation -- (1,112)
Accumulated other comprehensive income, net of tax (936) --
-------------- --------------
Total stockholders' equity 537,986 131,398
-------------- --------------
Total liabilities and stockholders' equity $ 1,598,408 $ 458,650
============== ==============
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
ALAMOSA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2001 2000 1999
---------------- --------------- ----------------
Revenues:
Subscriber revenues $ 231,145 $ 56,154 $ 4,399
Roaming revenues 99,213 17,346 2,135
-------------- -------------- --------------
Service revenues 330,358 73,500 6,534
Product sales 26,781 9,201 2,450
-------------- -------------- --------------
Total revenue 357,139 82,701 8,984
-------------- -------------- --------------
Costs and expenses:
Cost of service and operations (excluding
non-cash compensation of $0, $836 and $1,260
for 2001, 2000 and 1999, respectively) 237,843 55,701 7,601
Cost of products sold 53,911 20,524 5,939
Selling and marketing 110,052 45,407 10,650
General and administrative expenses
(excluding non-cash compensation of $(916),
$4,815 and $6,940 for 2001, 2000 and 1999,
respectively) 13,853 9,538 4,209
Depreciation and amortization 94,722 12,530 3,057
Terminated merger and acquisition costs -- 2,247 --
Non-cash compensation (916) 5,651 8,200
--------------- -------------- --------------
Total costs and expenses 509,465 151,598 39,656
-------------- -------------- --------------
Loss from operations (152,326) (68,897) (30,672)
Interest and other income 11,664 14,483 477
Interest expense (81,730) (25,775) (2,641)
-------------- -------------- --------------
Net loss before income tax benefit and
extraordinary item (222,392) (80,189) (32,836)
Income tax benefit 78,472 -- --
-------------- -------------- --------------
Net loss before extraordinary item (143,920) (80,189) (32,836)
Loss on debt extinguishment, net of tax benefit
of $1,969, $0 and $0 (3,503) -- --
-------------- -------------- --------------
Net loss $ (147,423) $ (80,189) $ (32,836)
============== ============== ==============
Net loss per common share, basic and diluted:
Net loss before extraordinary item $ (1.65) $ (1.33)
Loss on debt extinguishment, net of tax (0.04) --
--------------- --------------
Net loss $ (1.69) $ (1.33)
=============== ==============
Weighted average common shares outstanding,
basic and diluted 87,077,350 60,198,390
============== ==============
Pro forma information:
Net loss $ (32,836)
Pro forma income tax adjustment:
Income tax benefit 10,854
Deferred tax valuation allowance (10,854)
--------------
Pro forma net loss $ (32,836)
==============
Pro forma basic and diluted weighted
average common shares outstanding 48,500,008
==============
Basic and diluted pro forma net loss per
common share $ (0.68)
==============
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
ALAMOSA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands )
FOR THE PERIOD FROM DECEMBER 31, 1998 TO DECEMBER 31, 2001
Preferred Stock Common Stock Additional
Comprehensive --------------------------- --------------------------- Paid-In
Income Shares Amount Shares Amount Capital
------------- ------------- ------------- ------------ ------------ ---------------
Balance December 31, 1998 -- $ -- 48,500,008 $ 485 $ 14,515
Net loss $ (32,836)
---------
Total comprehensive
income (loss) $ (32,836)
=========
Members contributions 22,000
Stock options awarded 14,310
Amortization of
unearned compensation
---------- ---------- ----------- --------- ------------
Balance December 31, 1999 -- -- 48,500,008 485 50,825
Net loss $ (80,189)
---------
Total comprehensive
income (loss) $ (80,189)
=========
Initial public offering 12,321,100 123 193,664
Exercise of stock options 538,748 5 703
Amortization of
unearned compensation
Unearned compensation 653
---------- ---------- ----------- --------- ------------
Balance December 31, 2000 -- -- 61,359,856 613 245,845
Net loss $(147,423)
Net change in fair value of
derivative instruments
qualifying as cash flow
hedges, net of tax benefit
of $540 (936)
---------
Total comprehensive
income (loss) $(148,359)
=========
Stock issued and options granted
in connection with acquisitions 30,649,990 307 545,868
Shares issued to employee
stock purchase plan 40,706 -- 365
Issuance of shares in
secondary offering 720,000 7 9,055
Exercise of stock options 15,945 -- 261
Amortization of unearned
compensation
Unearned compensation (2,028)
---------- ---------- ----------- --------- ------------
Balance December 31, 2001 -- $ -- 92,786,497 $ 927 $ 799,366
========== ========== =========== ========= ============
Accumulated Other
Accumulated Unearned Comprehensive
Deficit Compensation Income Total
----------- -------------- --------------- ----------
Balance December 31, 1998 $ (923) $ -- $ -- $ 14,077
Net loss (32,836) (32,836)
Total comprehensive
income (loss)
Members contributions 22,000
Stock options awarded (14,310) --
Amortization of
unearned compensation 8,200 8,200
---------- ---------- ----------- ---------
Balance December 31, 1999 (33,759) (6,110) -- 11,441
Net loss (80,189) (80,189)
Total comprehensive
income (loss)
Initial public offering 193,787
Exercise of stock options 708
Amortization of
unearned compensation 5,651 5,651
Unearned compensation (653) --
---------- ---------- ----------- ---------
Balance December 31, 2000 (113,948) (1,112) -- 131,398
Net loss (147,423) (147,423)
Net change in fair value of
derivative instruments
qualifying as cash flow
hedges, net of tax benefit
of $540 (936) (936)
Total comprehensive
income (loss)
Stock issued and options granted
in connection with acquisitions 546,175
Shares issued to employee stock
purchase plan 365
Issuance of shares in
secondary offering 9,062
Exercise of stock options 261
Amortization of unearned
compensation (916) (916)
Unearned compensation 2,028 --
----------- ------------ --------------- -----------
Balance December 31, 2001 $ (261,371) $ -- $ (936) $ 537,986
=========== ============ =============== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
ALAMOSA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2001 2000 1999
----------------- ---------------- ----------------
Cash flows from operating activities:
Net loss $ (147,423) $ (80,189) $ (32,836)
Adjustments to reconcile net loss to net cash used in
operating activities:
Non-cash compensation (916) 5,651 8,200
Provision for bad debts 17,490 1,107 160
Depreciation and amortization of property and
equipment 45,963 12,530 3,057
Amortization of goodwill and intangibles 48,759 -- --
Amortization of financing costs included in
interest expense 3,274 1,664 331
Amortization of discounted interest 165 -- --
Loss on debt extinguishment, net of tax 3,503 -- --
Deferred tax benefit (78,472) -- --
Interest accreted on discount notes 27,927 23,052 2,069
Loss from asset disposition 102 81 --
(Increase) decrease in, net of effects from
acquisitions:
Receivables (47,895) (14,178) (1,836)
Inventory 1,275 3,024 (5,777)
Prepaid expenses and other assets (6,752) (4,296) (594)
Increase in, net of effects from acquisitions:
Accounts payable and accrued expenses 19,347 22,336 10,137
-------------- -------------- --------------
Net cash used in operating activities (113,653) (29,218) (17,089)
-------------- -------------- --------------
Cash flows from investing activities:
Purchases of property and equipment (143,731) (136,904) (76,601)
Repayment (issuance) of notes receivable 11,860 (46,865) --
Acquisition related costs (37,617) (3,156) --
Net change in short term investments 300 (1,600) --
Repayment (issuance) of note receivable from
officer -- 100 (100)
Purchase of minority interest in subsidiary -- (255) --
-------------- -------------- --------------
Net cash used in investing activities (169,188) (188,680) (76,701)
-------------- -------------- --------------
Cash flows from financing activities:
Equity offering proceeds 10,034 208,589 --
Equity offering costs (972) (13,599) (1,360)
Proceeds from issuance of senior discount notes -- 187,096 --
Proceeds from issuance of senior notes 384,046 -- --
Capital contributions -- -- 22,000
Borrowings under senior secured debt 253,000 57,758 66,357
Repayments of borrowings under senior secured debt (289,421) (76,239) --
Debt issuance costs (16,503) (10,763) (234)
Stock options exercised 238 708 --
Shares issued to employee stock purchase plan 365 -- --
Payments on capital leases (349) (31) (26)
Change in restricted cash (94,693) 518 (518)
Interest rate cap premiums -- (27) (302)
-------------- -------------- --------------
Net cash provided by financing activities 245,745 354,010 85,917
-------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents (37,096) 136,112 (7,873)
Cash and cash equivalents at beginning of period 141,768 5,656 13,529
-------------- -------------- --------------
Cash and cash equivalents at end of period $ 104,672 $ 141,768 $ 5,656
============== ============== ==============
Supplemental disclosure - cash paid for interest $ 28,460 $ 1,731 $ 218
============== ============== ==============
Supplemental disclosure of non-cash investing and
financing activities:
Capitalized lease obligations incurred $ 1,242 $ 257 $ 146
Liabilities assumed in connection with purchase of
property and equipment 1,844 23,464 5,352
Liabilities assumed in connection with debt
issuance costs 15,954 -- 3,840
Liabilities assumed in connection with microwave
relocation -- -- 3,578
Stock issued in connection with acquisitions 545,041 -- --
Stock options issued in connection with
acquisitions 1,134 -- --
Obligations assumed in connection with
acquisitions 253,686 -- --
The accompanying notes are an integral part of the
consolidated financial statements
F-6
ALAMOSA HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS OPERATIONS
Alamosa Holdings, Inc. ("Alamosa Holdings") was formed in July 2000.
Alamosa Holdings is a holding company and through its subsidiaries
provides wireless personal communications services, commonly referred
to as PCS, in the Southwestern, Northwestern and Midwestern United
States. Alamosa (Delaware), Inc. ("Alamosa (Delaware)"), a subsidiary
of Alamosa Holdings, was formed in October 1999 under the name "Alamosa
PCS Holdings, Inc." to operate as a holding company in anticipation of
its initial public offering. On February 3, 2000, Alamosa (Delaware)
completed its initial public offering. Immediately prior to the initial
public offering, shares of Alamosa (Delaware) were exchanged for
Alamosa PCS LLC's ("Alamosa") membership interests, and Alamosa became
wholly owned by Alamosa (Delaware). These financial statements are
presented as if the reorganization had occurred as of the beginning of
the periods presented. Alamosa Holdings and its subsidiaries are
collectively referred to in these financial statements as the
"Company."
On December 14, 2000, Alamosa (Delaware) formed a new holding company
pursuant to Section 251(g) of the Delaware General Corporation Law. In
that transaction, each share of Alamosa (Delaware) was converted into
one share of the new holding company, and the former public company,
which was renamed "Alamosa (Delaware), Inc." became a wholly owned
subsidiary of the new holding company, which was renamed "Alamosa PCS
Holdings, Inc."
On February 14, 2001, Alamosa Holdings became the new public holding
company of Alamosa PCS Holdings, Inc. ("Alamosa PCS Holdings") and its
subsidiaries pursuant to a reorganization transaction in which a wholly
owned subsidiary of Alamosa Holdings was merged with and into Alamosa
PCS Holdings. As a result of this reorganization, Alamosa PCS Holdings
became a wholly owned subsidiary of Alamosa Holdings, and each share of
Alamosa PCS Holdings common stock was converted into one share of
Alamosa Holdings common stock. Alamosa Holdings' common stock is quoted
on The New York Stock Exchange under the symbol "APS."
2. LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations through
capital contributions from owners, through debt financing and through
proceeds generated from public offerings of common stock.
As of December 31, 2001, the Company had $104,672 in cash and cash
equivalents plus an additional $94,693 in restricted cash held in
escrow for debt service requirements. The Company also had $12,838
remaining on the term portion of the Senior Secured Credit Facility as
well as the entire balance of the $25,000 revolving portion of the
Senior Secured Credit Facility. Management believes that this $237,203
in cash and available borrowings is sufficient to fund working capital,
capital expenditure and debt service requirements through the point
where the Company generates positive free cash flow which is expected
to be in 2003.
Management does not anticipate the need to raise additional capital in
the foreseeable future. The Company's funding status is dependent on a
number of factors influencing projections of operating cash flows
including those related to subscriber growth, average revenue per user
("ARPU"), churn and cost per gross addition ("CPGA"). Should actual
results differ significantly from these assumptions, the Company's
liquidity position could be adversely affected and the Company could be
in a position that would require it to raise additional capital which
may not be available or may not be available on favorable terms.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its subsidiaries. All
intercompany accounts and transactions are eliminated.
F-7
ALAMOSA HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash,
money market funds, and commercial paper with minimal interest rate
risk and original maturities of three months or less at the date of
acquisition.
The carrying amount approximates fair value.
SHORT-TERM INVESTMENTS - The Company invests in highly liquid debt
instruments with strong credit ratings. Commercial paper investments
with a maturity greater than three months, but less than one year, at
the time of purchase are considered to be short-term investments. The
carrying amount of the investments approximates fair value due to their
short maturity. The Company maintains cash and cash equivalents and
short-term investments with certain financial institutions. The Company
performs periodic evaluations of the relative credit standing of those
financial institutions that are considered in the Company's investment
strategy.
INVENTORY - Inventory consists of handsets and related accessories.
Inventories purchased for resale are carried at the lower of cost or
market using the first-in first-out method. Market is determined using
replacement cost which is consistent with industry practices. The
Company also performs an analysis to identify obsolete or excess
handset inventory for models that are no longer manufactured or are
technologically obsolete and records a reserve, as appropriate. As of
December 31, 2001 and 2000, the reserve for obsolete inventory was $0.
RESTRICTED CASH - Restricted cash of $94.7 million at December 31, 2001
is held in escrow to secure payment on certain of the Company's debt
obligations. The amount expected to be liquidated during 2002 is
classified as a current asset in the accompanying consolidated balance
sheets.
PROPERTY AND EQUIPMENT - Property and equipment are reported at cost
less accumulated depreciation. Cost incurred to design and construct
the wireless network in a market are classified as construction in
progress. When the wireless network for a particular market is
completed and placed into service, the related costs begin to be
depreciated. Repair and maintenance costs are charged to expense as
incurred; significant renewals and betterments are capitalized. When
depreciable assets are retired or otherwise disposed of, the related
costs and accumulated depreciation are removed from the respective
accounts, and any gains or losses on disposition are recognized in
income. Property and equipment are depreciated using the straight-line
method based on estimated useful lives of the assets.
Asset lives are as follows:
Buildings 20 years
Network equipment 5-10 years
Vehicles 5 years
Furniture and office equipment 5-7 years
Leasehold improvements are depreciated over the shorter of the
remaining term of the lease or the estimated useful life of the
improvement.
Interest is capitalized in connection with the construction of the
wireless network. The capitalized interest is recorded as part of the
asset to which it relates and will be amortized over the asset's
estimated useful life. During 2001, approximately $1,752 in interest
costs were capitalized. No interest costs were capitalized during 2000.
During 1999, approximately $657 in interest costs were capitalized. The
remaining unamortized balance of capitalized interest was approximately
$2,082 as of December 31, 2001.
Microwave relocation includes costs and the related obligation's
incurred to relocate incumbent microwave frequencies in the Company's
service area. Microwave relocation costs are amortized on a
straight-line basis over 20 years beginning upon commencement of
services in respective markets. The amortization of microwave
relocation costs was approximately $231, $189 and $84 for the years
ended December 31, 2001, 2000 and 1999, respectively.
F-8
ALAMOSA HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SOFTWARE COSTS - In accordance with Statement of Position ("SOP") 98-1,
"Accounting for Costs of Computer Software Developed or Obtained for
Internal Use," certain costs related to the development or purchase of
internal-use software are capitalized and amortized over the estimated
useful life of the software. During fiscal 2001, 2000 and 1999, the
Company capitalized approximately $1,228, $1,626 and $411,
respectively, in software costs under SOP 98-1, which are being
amortized over a five-year life. The Company amortized computer
software costs of approximately $533, $225 and $40 during 2001, 2000
and 1999, respectively.
ADVERTISING COSTS - Advertising costs are expensed as incurred.
Advertising expenses totaled approximately $25,857, $14,118 and $3,664
during 2001, 2000 and 1999, respectively.
INCOME TAXES. - The Company presents income taxes pursuant to Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"). SFAS No. 109 uses an asset and liability
approach to account for income taxes, wherein deferred taxes are
provided for book and tax basis differences for assets and liabilities.
In the event differences between the financial reporting basis and the
tax basis of the Company's assets and liabilities result in deferred
tax assets, an evaluation of the probability of being able to realize
the future benefits indicated by such assets is required. A valuation
allowance is provided for a portion or all of the deferred tax assets
when there is sufficient uncertainty regarding the Company's ability to
recognize the benefits of the assets in future years. See Note 12.
REVENUE RECOGNITION - The Company recognizes revenue as services are
performed. Sprint handles the Company's billings and collections and
retains 8% of collected service revenues from Sprint PCS subscribers
based in the Company's territories and from non-Sprint PCS subscribers
who roam onto the Company's network. The amount retained by Sprint is
recorded in Cost of Service and Operations. Revenues generated from the
sale of handsets and accessories and from roaming services provided to
Sprint PCS customers who are not based in the Company's territories are
not subject to the 8% retainage.
The Company defers customer activation fee revenue and an equal amount
of customer acquisition related expenses. These deferred amounts are
amortized over a three or one-year period depending on the credit class
of the respective customer, which approximates the average life of that
customer. Prior to October 1, 2000, the Company was not charging
activation fees to its customers. For the year ended December 31, 2000,
the Company deferred approximately $1,180 of activation fee revenue and
acquisition related expenses and amortized approximately $77. For the
year ended December 31, 2001, the Company deferred approximately
$11,544 of activation fee revenue and acquisition related expenses.
Amortization of deferred activation fees and acquisition related
expenses for the year ended December 31, 2001 was approximately $2,315.
At December 31, 2001, approximately $5,228 of the remaining deferral
was classified as long-term.
Sprint pays the Company a roaming fee for each minute that a Sprint PCS
subscriber based outside of the Company's territories roams on the
Company's portion of Sprint's PCS network. Revenue from these services
is recognized as the services are performed. Similarly, the Company
pays roaming fees to Sprint, when a Sprint PCS subscriber based in the
Company's territories roams on Sprint's PCS network outside of the
Company's territories. These costs are recorded as a cost of service
when incurred.
Product revenues, consisting of proceeds from sales of handsets and
accessories, are recorded net of an allowance for sales returns. The
allowance is estimated based on Sprint's handset return policy that
allows customers to return handsets for a full refund within 14 days of
purchase. When handsets are returned to the Company, the Company may be
able to reissue the handsets to customers at little additional cost.
However, when handsets are returned to Sprint for refurbishing, the
Company will receive a credit from Sprint, which will be less than the
amount the Company originally paid for the handset. The cost of
products sold includes the total cost of accessories and handsets sold
through the Company's retail stores (including sales to local indirect
retailers). The cost of handsets exceeds the retail sales price because
the Company subsidizes the price of handsets for competitive reasons.
For handsets sold through national indirect retailers (such as Radio
Shack, Circuit City, Best Buy, etc.) and other channels controlled by
Sprint, the Company reimburses
F-9
ALAMOSA HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Sprint for the subsidy incurred on such handsets activated within the
Company's territory and this cost is reflected in selling and marketing
expenses.
GOODWILL AND INTANGIBLE ASSETS - Goodwill and other intangible assets
were recorded in connection with the acquisitions discussed in Note 4.
Goodwill is being amortized over approximately 17.6 years which
represents the remaining initial term of the underlying contracts with
Sprint which were assumed relative to the three acquisitions. Other
intangibles include value assigned to the underlying contracts with
Sprint which are being amortized over approximately 17.6 years and
value assigned to the acquired customer base which is being amortized
over three years which represents the estimated average life of the
subscriber base acquired. See "Effects of recent accounting
pronouncements."
IMPAIRMENT OF LONG-LIVED ASSETS - If facts or circumstances indicate
the possibility of impairment of long-lived assets, including
intangibles, the Company will prepare a projection of future operating
cash flows, undiscounted and without interest. If based on this
projection, the Company does not expect to recover its carrying cost,
an impairment loss equal to the difference between the fair value of
the asset and its carrying value will be recognized in operating
income. See "Effects of recent accounting pronouncements."
STOCK BASED COMPENSATION - The Company has elected to follow Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees" and related interpretations in accounting for its
employee stock options. The Company has implemented the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock Based Compensation."
See Note 15.
EARNINGS (LOSS) PER SHARE - Basic and diluted net loss per share of
common stock is computed by dividing net loss for each period by the
weighted-average outstanding common shares. No conversion of common
stock equivalents has been assumed in the calculations since the effect
would be antidilutive (see Note 15). As a result, the number of
weighted-average outstanding common shares as well as the amount of net
loss per share are the same for basic and diluted net loss per share
calculations for all periods presented.
USE OF 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 on the date of the financial statements and the
reported amounts of expenses during the period. The most significant of
such estimates include:
o Allowance for uncollectible accounts;
o Estimated customer life in terms of amortization of deferred
revenue and direct costs of acquisition;
o Likelihood of realizing benefits associated with temporary
differences giving rise to deferred tax assets; and
o Impairment of long-lived assets.
Actual results could differ from those estimates.
CONCENTRATION OF RISK - The Company maintains cash and cash equivalents
in accounts with financial institutions in excess of the amount insured
by the Federal Deposit Insurance Corporation. The Company monitors the
financial stability of these institutions regularly and management does
not believe there is significant credit risk associated with deposits
in excess of federally insured amounts.
The Company relies on Sprint to provide certain back-office functions
such as billing and customer care, activation of new subscribers,
handset logistics and technology development. Should Sprint be unable
to provide these services, the Company could be negatively impacted.
F-10
ALAMOSA HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS - The Company enters into derivative
financial instruments for the purpose of hedging specific exposures as
part of its risk management program and holds all derivatives for
purposes other than trading. To date, the Company's use of such
instruments has been limited to interest rate swaps and collars. The
Company currently uses hedge accounting as prescribed in SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" with
respect to its interest rate swaps. As such, the fair values of these
arrangements are recorded in the consolidated balance sheet with
changes in fair value being reported as a component of other
comprehensive income.
The interest rate collar arrangement does not qualify for hedge
accounting under SFAS No. 133 and as such, the fair value of the
respective asset and liability is recorded in the consolidated balance
sheet with any change during the period being reflected in the
consolidated statement of operations.
RECLASSIFICATION - Certain reclassifications have been made to prior
year balances to conform to the current year presentation. These
reclassifications had no effect on the results of operations or
stockholders' equity as previously reported.
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS - In June 2001, the
Financial Accounting Standards Board ("FASB") issued SFAS No. 141
"Business Combinations," and No. 142 "Goodwill and Other Intangible
Assets," collectively referred to as the "Standards". SFAS No. 141
supersedes Accounting Principles Board Opinion ("APB") No. 16,
"Business Combinations." The provisions of SFAS No. 141 (1) require
that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, (2) provide specific
criteria for the initial recognition and measurement of intangible
assets apart from goodwill, and (3) require that unamortized negative
goodwill be written off immediately as an extraordinary gain instead of
being deferred and amortized. SFAS No. 141 also requires that upon
adoption of SFAS No. 142 the Company reclassify the carrying amounts of
certain intangible assets into or out of goodwill, based on certain
criteria. SFAS No. 142 supersedes APB 17, "Intangible Assets," and is
effective for fiscal years beginning after December 15, 2001. SFAS No.
142 primarily addresses the accounting for goodwill and intangible
assets subsequent to their initial recognition. The provisions of SFAS
No. 142 (1) prohibit the amortization of goodwill and indefinite-lived
intangible assets, (2) require that goodwill and indefinite-lived
intangibles assets be tested annually for impairment (and in interim
periods if certain events occur indicating that the carrying value of
goodwill and/or indefinite-lived intangible assets may be impaired),
(3) require that reporting units be identified for the purpose of
assessing potential future impairments of goodwill, and (4) remove the
forty-year limitation on the amortization period of intangible assets
that have finite lives.
The Company will adopt the provisions of SFAS No. 142 in its first
quarter ended March 31, 2002. The Company is in the process of
preparing for its adoption of SFAS No. 142 and has made the
determinations as to what its reporting units are and what amounts of
goodwill, intangible assets, other assets, and liabilities should be
allocated to those reporting units. In connection with the adoption of
SFAS No. 142, the Company expects to reclassify none of its goodwill
balances to various intangible asset classifications, as all
intangibles had been identified in connection with the acquisitions
that were completed during 2001. The Company expects that it will no
longer record approximately $17.5 million annually of amortization
relating to its existing goodwill. The Company will also evaluate the
useful lives assigned to its intangible assets and anticipates no
changes to the useful lives.
SFAS No. 142 requires that goodwill be tested annually for impairment
using a two-step process. The first step is to identify a potential
impairment and, in transition, this step must be measured as of the
beginning of the fiscal year. However, a company has six months from
the date of adoption to complete the first step. The Company has
completed that first step of the goodwill impairment test which did not
indicate a potential impairment. The second step of the goodwill
impairment test measures the amount of the impairment loss (measured as
of the beginning of the year of adoption), if any, and must be
completed by the end of the Company's fiscal year. Intangible assets
deemed to have an indefinite life will be tested for impairment using a
one-step process which compares the fair value to the carrying amount
of the asset as of the beginning of the fiscal year, and pursuant to
the requirements of SFAS No. 142 has been completed as of January 1,
2002.
F-11
ALAMOSA HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires the fair value of a
liability for an asset retirement obligation to be recognized in the
period that it is incurred if a reasonable estimate of fair value can
be made. The associated asset retirement costs are capitalized as part
of the carrying amount of the long-lived asset. SFAS No. 143 is
effective for fiscal years beginning after June 15, 2002. The adoption
of SFAS No. 143 is not expected to have a material impact on the
Company's results of operations, financial position or cash flows.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses financial
accounting and reporting for the impairment of long-lived assets and
for long-lived assets to be disposed of. The provisions of SFAS No. 144
are effective for financial statements issued for fiscal years
beginning after December 31, 2001. The adoption of SFAS No. 144 is not
expected to have a material impact on the Company's results of
operations, financial position or cash flows.
4. MERGERS AND ACQUISITIONS
The Company completed the acquisitions of three Sprint PCS Network
Partners during 2001. On February 14, 2001, the Company completed its
acquisitions of Roberts Wireless Communications, L.L.C. ("Roberts") and
Washington Oregon Wireless, LLC ("WOW"). In connection with the Roberts
and WOW acquisitions, the Company entered into a new senior secured
credit facility (the "Senior Secured Credit Facility") for up to $280
million. On March 30, 2001, the Company completed its acquisition of
Southwest PCS Holdings, Inc. ("Southwest"). In connection with the
Southwest acquisition, the Company increased the Senior Secured Credit
Facility from $280 million to $333 million. Each of these transactions
was accounted for under the purchase method of accounting and the
results of the acquired companies are included in these consolidated
financial statements from the date of acquisition.
The merger consideration in the Roberts acquisition consisted of 13.5
million shares of the Company's common stock and approximately $4.0
million in cash. The Company also assumed the net debt of Roberts in
the transaction, which amounted to approximately $57 million as of
February 14, 2001.
The merger consideration in the WOW acquisition consisted of 6.05
million shares of the Company's common stock and approximately $12.5
million in cash. The Company also assumed the net debt of WOW in the
transaction, which amounted to approximately $31 million as of February
14, 2001.
The merger consideration in the Southwest acquisition consisted of 11.1
million shares of the Company's common stock and approximately $5.0
million in cash. The Company also assumed the net debt of Southwest in
the transaction, which amounted to approximately $81 million as of
March 30, 2001.
F-12
ALAMOSA HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. MERGERS AND ACQUISITIONS (CONTINUED)
The Company obtained independent valuations of Roberts, WOW and
Southwest to allocate the purchase price. The results of the
allocations are as follows (in thousands):
ROBERTS WOW SOUTHWEST TOTAL
---------- --------- ------------ -----------
Consideration:
Common stock issued $ 291,060 $ 130,438 $ 123,543 $ 545,041
Stock options granted 1,134 -- -- 1,134
Cash (including merger related costs) 8,940 15,962 12,715 37,617
---------- --------- ------------ -----------
Total 301,134 146,400 136,258 583,792
---------- --------- ------------ -----------
Allocated to:
Current assets 4,545 1,969 5,923 12,437
Property, plant and equipment 53,506 35,732 36,722 125,960
Intangible assets (other than goodwill) 258,300 116,400 187,000 561,700
Liabilities acquired (including deferred taxes) (185,267) (85,864) (154,426) (425,557)
---------- --------- ------------ -----------
Goodwill $ 170,050 $ 78,163 $ 61,039 $ 309,252
========== ========= ============ ===========
The unaudited pro forma condensed consolidated statements of operations
for the years ended December 31, 2001 and 2000 set forth below, present
the results of operations as if the acquisitions had occurred at the
beginning of each period and are not necessarily indicative of future
results or actual results that would have been achieved had these
acquisitions occurred as of the beginning of the period.
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------
2001 2000
----------- ----------
(unaudited)
(in thousands)
Total revenues $ 376,061 $ 131,203
=========== ===========
Net loss before income tax benefit
and extraordinary item $ (246,128) $ (204,742)
Income tax benefit 86,289 71,660
----------- -----------
Net loss before extraordinary item (159,839) (133,082)
Loss on debt extinguishment, net of tax
benefit of $1,969 (3,503) --
----------- -----------
Net loss $ (163,342) $ (133,082)
=========== ===========
Basic and diluted net loss per share
before extraordinary item $ (1.74) $ (1.45)
=========== ==========
Basic and diluted net loss per share $ (1.77) $ (1.45)
=========== ==========
5. ACCOUNTS RECEIVABLE
CUSTOMER ACCOUNTS RECEIVABLE - Customer accounts receivable represent
amounts owed to the Company by subscribers for PCS service. The amounts
presented in the consolidated balance sheets are net of an allowance
for uncollectible accounts of $5.9 million and $1.5 million at December
31, 2001 and 2000, respectively.
F-13
ALAMOSA HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
5. ACCOUNTS RECEIVABLE (CONTINUED)
RECEIVABLE FROM SPRINT - Receivable from Sprint in the accompanying
consolidated balance sheets includes net roaming revenue receivable
from Sprint. This receivable also includes amounts billed by Sprint on
the Company's behalf to other communications providers for calls
terminated on the Company's network. In addition, this item includes
accruals for estimated unbilled revenue through the end of the period.
Receivable from Sprint consists of the following (dollars in
thousands):
DECEMBER 31,
-------------------------------------
2001 2000
-------------- --------------
Net Sprint PCS roaming receivable $ 1,731 $ 252
Access revenue receivable 3,252 184
Accrued service revenue 4,154 1,118
-------------- --------------
$ 9,137 $ 1,554
============== ==============
6. NOTES RECEIVABLE
ROBERTS - On July 31, 2000, Alamosa Operations, Inc. ("Operations")
entered into a loan agreement with Roberts whereby Operations agreed to
lend up to $26.6 million to be used only for the purpose of funding
Roberts' working capital needs from July 31, 2000 through the
completion of the Roberts merger, as described in Note 4. Also on July
31, 2000, Operations entered into a loan agreement with the owners of
Roberts for $15 million. As of December 31, 2000, approximately $37
million had been funded under the loan agreements. The loans were
repaid during 2001.
WOW - On July 31, 2000, WOW and Operations entered into a loan
agreement whereby Operations agreed to lend up to $11 million to WOW to
be used only for the purposes of (a) satisfying certain capital
contribution requirements under WOW's operating agreement, and (b)
funding WOW's working capital needs from July 31, 2000 through the
completion of the WOW merger. As of December 31, 2000, approximately
$10 million had been funded under the loan agreement. The loan was
repaid during 2001.
F-14
ALAMOSA HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
7. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (dollars in thousands):
DECEMBER 31,
-------------------------
2001 2000
----------- -----------
Land and buildings $ 11,492 $ 5,668
Network equipment 463,440 159,982
Vehicles 1,787 1,584
Furniture and office equipment 16,826 10,130
----------- -----------
493,545 177,364
Accumulated depreciation (60,414) (15,290)
----------- -----------
Subtotal 433,131 162,074
----------- -----------
Microwave relocation costs 5,639 4,103
Accumulated amortization (504) (273)
----------- -----------
Subtotal 5,135 3,830
----------- -----------
Construction in progress:
Network equipment 16,126 60,597
Leasehold improvements 1,303 2,482
----------- -----------
Subtotal 17,429 63,079
----------- -----------
Total $ 455,695 $ 228,983
=========== ===========
8. GOODWILL AND INTANGIBLE ASSETS
In connection with the acquisitions completed during 2001 discussed in
Note 4, the Company allocated portions of the respective purchase price
to identifiable intangible assets consisting of (i) the value of the
Sprint agreements in place at the acquired companies and (ii) the value
of the subscriber base in place at the acquired companies. In addition
to the identifiable intangibles discussed above, goodwill was recorded
in the amount by which the purchase price exceeded the fair value of
the net assets acquired including identified intangibles.
The value assigned to the Sprint agreements will be amortized using the
straight-line method over the remaining original terms of the
agreements that were in place or approximately 17.6 years. The value
assigned to the subscriber base acquired will be amortized using the
straight-line method over the estimated life of the acquired
subscribers or approximately 3 years. Goodwill is being amortized over
17.6 years. Beginning January 1, 2002, goodwill will no longer be
amortized due to the adoption of the provisions of SFAS No. 142 as
discussed in Note 3.
F-15
ALAMOSA HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. GOODWILL AND INTANGIBLE ASSETS (CONTINUED)
Goodwill and intangible assets consist of the following at December 31,
2001 (dollars in thousands):
Goodwill $ 309,252
Accumulated amortization (15,899)
--------------
Subtotal 293,353
--------------
Sprint affiliation and other agreements 532,200
Accumulated amortization (25,768)
--------------
Subtotal 506,432
--------------
Subscriber base acquired 29,500
Accumulated amortization (7,092)
--------------
Subtotal 22,408
--------------
Goodwill and intangible assets, net $ 822,193
==============
9. LEASES
OPERATING LEASES - The Company has various operating leases, primarily
related to rentals of tower sites and offices. These leases range from
5 to 10 years in length and generally provide for annual rent
escalation based on pre-determined amounts or percentages. The
estimated increases in rent are being recognized over the term of the
leases using the straight-line method. Rental expense was $26,548,
$6,177 and $1,925 for 2001, 2000 and 1999, respectively. At December
31, 2001, the aggregate minimum rental commitments under noncancelable
operating leases for the periods shown are as follows (dollars in
thousands):
YEARS:
2002 $ 27,807
2003 27,739
2004 27,679
2005 27,441
2006 27,347
Thereafter 98,589
----------
Total $ 236,602
==========
CAPITAL LEASES - Capital leases consist of leases for rental of retail
space and switch usage. The net present value of the leases was $2,579
and $1,074 at December 31, 2001 and 2000, respectively, and was
included in property and equipment. Accumulated amortization recorded
under these leases was $292 and $134 at December 31, 2001 and 2000,
respectively. At December 31, 2001 the future payments under capital
lease obligations, less imputed interest, are as follows (dollars in
thousands):
F-16
ALAMOSA HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9. LEASES (CONTINUED)
YEARS:
2002 $ 875
2003 1,055
2004 336
2005 161
2006 162
Thereafter 1,019
--------------
Total minimum lease payments 3,608
Less: imputed interest (1,029)
--------------
Present value of minimum lease payments 2,579
Less: current installments (596)
--------------
Long-term capital lease obligations
at December 31, 2001 $ 1,983
==============
10. LONG-TERM DEBT
Long-term debt consists of the following (dollars in thousands):
DECEMBER 31,
-------------------------
2001 2000
--------- ---------
12 7/8% Senior Discount Notes, net of discount $ 237,207 $ 209,280
12 1/2% Senior Notes 250,000 --
13 5/8% Senior Notes 150,000 --
Senior Secured Credit Facility 187,162 --
Nortel/EDC Credit Facility -- 54,524
--------- ---------
Total debt 824,369 263,804
Less current maturities -- --
--------- ---------
Long term debt, excluding current maturities $ 824,369 $ 263,804
========= =========
SENIOR UNSECURED OBLIGATIONS
SENIOR DISCOUNT NOTES - On December 23, 1999, Alamosa (Delaware) filed
a registration statement with the Securities and Exchange Commission
for the issuance of $350 million face amount of Senior Discount Notes
(the "12 7/8% Notes Offering"). The 12 7/8% Notes Offering was
completed on February 8, 2000 and generated net proceeds of
approximately $181 million after underwriters' commissions and expenses
of approximate $6.1 million. The 12 7/8% senior discount notes ("12
7/8% Senior Discount Notes") mature in ten years (February 15, 2010)
and carry a coupon rate of 12 7/8% Senior Discount Notes, and provide
for interest deferral for the first five years. The 12 7/8% Senior
Discount Notes will accrete to their $350 million face amount by
February 8, 2005, after which, interest will be paid in cash
semiannually. The proceeds of the 12 7/8% Senior Discount Notes
Offering were used to prepay the existing credit facility, to pay costs
to build out additional areas within the Company's existing
territories, to fund operating working capital needs and for other
general corporate purposes.
12 1/2% SENIOR NOTES - On January 31, 2001, Alamosa (Delaware)
consummated the offering (the "12 1/2% Notes Offering") of $250 million
aggregate principal amount of senior notes (the "12 1/2% Senior
Notes"). The 12 1/2% Senior Notes mature in ten years (February 1,
2011), carry a coupon rate of 12 1/2%, payable semiannually on February
1 and August 1, beginning on August 1, 2001. The net proceeds from the
sale of the 12 1/2% Senior Notes were approximately $241 million, after
deducting the discounts and commission to the initial purchasers and
estimated offering expenses.
F-17
ALAMOSA HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. LONG-TERM DEBT (CONTINUED)
Approximately $59.0 million of the proceeds of the 12 1/2% Senior Notes
Offering were used by Alamosa (Delaware) to establish a security
account (with cash or U.S. government securities) to secure on a pro
rata basis the payment obligations under the 12 1/2% Senior Notes and
the 12 7/8% Senior Discount Notes, and the balance was used for general
corporate purposes of Alamosa (Delaware), including, accelerating
coverage within the existing territories of Alamosa (Delaware); the
build-out of additional areas within its existing territories expanding
its existing territories; and pursuing additional telecommunications
business opportunities or acquiring other telecommunications businesses
or assets.
13 5/8% SENIOR NOTES - On August 15, 2001, Alamosa (Delaware) issued
$150 million face amount of Senior Notes (the "13 5/8% Senior Notes").
The 13 5/8% Senior Notes mature in ten years (August 15, 2011) and
carry a coupon rate of 13 5/8% payable semiannually on February 15 and
August 15, beginning on February 15, 2002. The net proceeds from the
sale of the 13 5/8% Senior Notes were approximately $141.5 million,
after deducting the discounts and commissions to the initial purchasers
and estimated offering expenses. Approximately $66 million of the
proceeds were used to pay down a portion of the Senior Secured Credit
Facility. Approximately $39.1 million of the proceeds of the 13 5/8%
Senior Notes were used by Alamosa (Delaware) to establish a security
account to secure on a pro rata basis the payment obligations under all
of the Company's unsecured borrowings. The balance will be used for
general corporate purposes.
Significant terms of the senior unsecured obligations include:
o RANKING - The senior unsecured obligations of Alamosa (Delaware)
are equal in right of payment to all future senior debt of Alamosa
(Delaware) and senior in right of payment to all future
subordinated debt of Alamosa (Delaware).
o GUARANTEES - The senior unsecured obligations will rank equally
with all existing and future senior debt and senior to all
existing and future subordinated debt. The obligations are fully
and unconditionally, jointly and severally guaranteed on a senior
subordinated, unsecured basis, by all the existing and any future
restricted subsidiaries of Alamosa (Delaware) with the exception
of Operations, a wholly owned subsidiary of Alamosa (Delaware).
The financial statements of Alamosa (Delaware), Inc. and financial
information related to its guarantor subsidiaries are included in
Alamosa (Delaware)'s Form 10-K.
o OPTIONAL REDEMPTION - During the first thirty-six months after the
respective Notes offerings, the Company 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 112.875%, 112.500% and 113.625% for
the 12 7/8% Senior Discount Notes, 12 1/2% Senior Notes and 13
5/8% Senior Notes, respectively.
Additionally, the senior unsecured obligations contain call
options as follows:
REDEMPTION PRICE
-----------------------------------------------------------------------------------------------
SENIOR DISCOUNT NOTES 12 1/2% SENIOR NOTES 13 5/8% SENIOR NOTES
------------------------------ ---------------------------- ----------------------------
YEAR ENDING FEBRUARY 15, YEAR ENDING JANUARY 31, YEAR ENDING AUGUST 15,
------------------------------ ---------------------------- ----------------------------
2006 106.438% N/A N/A
2007 104.292% 106.250% 106.813%
2008 102.146% 104.167% 104.542%
2009 100.000% 102.083% 102.271%
Thereafter 100.000% 100.000% 100.000%
o CHANGE OF CONTROL - Upon a change of control as defined by the
respective offerings, we will be required to make an offer to
purchase the notes at a price equal to 101% of the accreted value
for the 12 7/8% Senior Discount Notes and 101% of the face amount
for the 12 1/2% Senior Notes and 13 5/8% Senior Notes.
F-18
ALAMOSA HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. LONG-TERM DEBT (CONTINUED)
o RESTRICTIVE COVENANTS - The indentures governing the senior
unsecured obligations 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 indentures,
create liens on assets, merge, consolidate or dispose of assets,
or enter into transactions with affiliates and change lines of
business. The indentures contain cross-default provisions relative
to other material indebtedness.
o SECURITY AGREEMENT - Concurrently with the closing of the 12 1/2%
Senior Notes, Alamosa (Delaware) deposited $59.0 million with the
collateral agent, to secure on a pro rata basis the payment
obligations of Alamosa (Delaware) under the 12 1/2% Senior Notes
and the 12 7/8% Senior Discount Notes. The amount deposited in the
security account, together with the proceeds from the investment
thereof, will be sufficient to pay when due the first four
interest payments on the 12 1/2% Senior Notes. Funds will be
released from the security account to make interest payments on
the 12 1/2% Senior Notes or the 12 7/8% Senior Discount Notes as
they become due, so long as there does not exist an event of
default with respect to the 12 1/2% Senior Notes or the 12 7/8%
Senior Discount Notes. Approximately $39.1 million of the proceeds
of the 13 5/8% Notes Offering were used to establish a security
account to secure on a pro rata basis the payment obligations
under the 13 5/8% Senior Notes, the 12 1/2% Senior Notes and the
12 7/8% Senior Discount Notes.
SENIOR SECURED OBLIGATIONS
SENIOR SECURED CREDIT FACILITY - On February 14, 2001, the Company,
Alamosa (Delaware) and Alamosa Holdings, LLC, as borrower, entered into
the $280.0 million senior secured credit facility with Citicorp USA, as
administrative agent, and collateral agent, Toronto Dominion (Texas),
Inc., as syndication agent; EDC as co-documentation agent; First Union
National Bank, as documentation agent, and a syndicate of banking and
financial institutions. This facility was subsequently amended in March
2001 to increase the maximum borrowings to $333 million and again
amended in August 2001 to reduce the maximum borrowing to $225 million.
The following is a summary of the principal terms of the Senior Secured
Credit Facility.
The Senior Secured Credit Facility consists of:
o a 7-year senior secured 12-month delayed draw term loan facility
in an aggregate principal amount of up to $200.0 million; and
o 7-year senior secured revolving credit facility (the "Revolving
Credit Facility") in an aggregate principal amount of up to $25.0
million, part of which will be available in the form of letters of
credit.
Under the Senior Secured Credit Facility, interest will accrue, at
Alamosa Holdings, LLC's option: (i) at the London Interbank Offered
Rate adjusted for any statutory reserves ("LIBOR"), or (ii) the base
rate which is generally the higher of the administrative agent's base
rate, the federal funds effective rate plus 0.50% or the administrative
agent's base CD rate plus 0.50%, in each case plus an interest margin
which is initially 4.00% for LIBOR borrowings and 3.00% for base rate
borrowings. The applicable interest margins are subject to reductions
under a pricing grid based on ratios of Alamosa Holdings, LLC's total
debt to its earnings before interest, taxes, depreciation and
amortization ("EBITDA"). The interest rate margins will increase by an
additional 200 basis points in the event Alamosa Holdings, LLC fails to
pay principal, interest or other amounts as they become due and payable
under the Senior Secured Credit Facility.
The weighted average interest rate on the outstanding borrowings under
this facility at December 31, 2001 is 6.03%. Alamosa Holdings, LLC is
also required to pay quarterly in arrears a commitment fee on the
unfunded
F-19
ALAMOSA HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. LONG-TERM DEBT (CONTINUED)
portion of the commitment of each lender. The commitment fee accrues at
a rate per annum equal to (i) 1.50% on each day when the utilization
(determined by dividing the total amount of loans plus outstanding
letters of credit under the Senior Secured Credit Facility by the total
commitment amount under the Senior Secured Credit Facility) of the
Senior Secured Credit Facility is less than or equal to 33.33%, (ii)
1.25% on each day when utilization is greater than 33.33% but less than
or equal to 66.66% and (iii) 1.00% on each day when utilization is
greater than 66.66%. The Company has entered into derivative hedging
instruments to hedge a portion of the interest rate risk associated
with borrowings under the Senior Secured Credit Facility as discussed
in Note 16.
Alamosa Holdings, LLC is also required to pay a separate annual
administration fee and a fee on the aggregate face amount of
outstanding letters of credit, if any, under the new revolving credit
facility.
As of December 31, 2001, Alamosa Holdings, LLC had drawn $187 million
under the term portion of the Senior Secured Credit Facility. No
advances have been drawn on the revolving portion of the Senior Secured
Credit Facility. Any amount outstanding at the end of the 12-month
period will amortize quarterly beginning May 14, 2004. The revolving
portion of the Senior Secured Credit Facility of $25.0 million will be
available for multiple drawings prior to its final maturity, provided
that no amounts under the new revolving credit facility will be
available until all amounts under the new term facility have been fully
drawn. The revolving portion of the Senior Secured Credit Facility will
begin reducing quarterly in amounts to be agreed beginning May 14,
2004.
Loans under the term loan portion of the Senior Secured Credit Facility
will be subject to mandatory prepayments from 50% of excess cash flow
for each fiscal year commencing with the fiscal year ending December
31, 2003, 100% of the net cash proceeds (subject to exceptions and
reinvestment rights of asset sales or other dispositions, including
insurance and condemnation proceeds) of property by Alamosa (Delaware)
and its subsidiaries, and 100% of the net proceeds of issuances of debt
obligations of Alamosa (Delaware) and its subsidiaries (subject to
exceptions). After the term loans are repaid in full, mandatory
prepayments will be applied to permanently reduce commitments under the
revolving portion of the Senior Secured Credit Facility.
All obligations of Alamosa Holdings, LLC under the Senior Secured
Credit Facility are unconditionally guaranteed on a senior basis by the
Company, Alamosa (Delaware) and, subject to certain exceptions, by each
current and future direct and indirect subsidiary of Alamosa
(Delaware), including Alamosa PCS, Inc., Roberts, WOW and Southwest.
The Senior Secured Credit Facility is secured by a first priority
pledge of all of the capital stock of Alamosa Holdings, LLC and subject
to certain exceptions, each current and future direct and indirect
subsidiary of Alamosa (Delaware), as well as a first priority security
interest in substantially all of the assets (including all five of the
Sprint affiliation agreements with the Company) of Alamosa (Delaware)
and, subject to certain exceptions, each current and future direct and
indirect subsidiary of Alamosa (Delaware).
The Senior Secured Credit Facility contains customary events of
default, including, but not limited to:
o the non-payment of the principal, interest and other obligations
under the new Senior Secured Credit Facility;
o the inaccuracy of representations and warranties contained in the
credit agreement or the violation of covenants contained in the
credit agreement;
o cross default and cross acceleration to other material
indebtedness;
o bankruptcy;
F-20
ALAMOSA HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. LONG-TERM DEBT (CONTINUED)
o material judgments and certain events relating to compliance with
the Employee Retirement Income Security Act of 1974 and related
regulations;
o actual or asserted invalidity of the security documents or
guaranties of the Senior Secured Credit Facility;
o the occurrence of a termination event under the management,
licenses and other agreements between any of the Company, WOW,
Roberts, Southwest and their subsidiaries and Sprint or a breach
or default under the consent and agreement entered into between
Citicorp USA, Inc., as administrative agent for the lenders, and
Sprint;
o loss of rights to benefit of or the occurrence of any default
under other material agreements that could reasonably be expected
to result in a material adverse effect on Alamosa Holdings, LLC;
o the occurrence of a change of control;
o any termination, revocation or non-renewal by the FCC of one or
more material licenses; and
o the failure by Alamosa (Delaware) to make a payment, if that could
reasonably be expected to result in the loss, termination,
revocation, non-renewal or material impairment of any material
licenses or otherwise result in a material adverse affect on
Alamosa Holdings, LLC.
The Senior Secured Credit Facility contains numerous affirmative and
negative covenants customary for credit facilities of a similar nature,
including, but not limited to, negative covenants imposing limitations
on the ability of Alamosa (Delaware), Alamosa Holdings, LLC and their
subsidiaries, and as appropriate, Superholdings, to, among other things
(i) declare dividends or repurchase stock; (ii) prepay, redeem or
repurchase debt; (iii) incur liens and engage in sale-leaseback
transactions; (iv) make loans and investments; (v) incur additional
debt, hedging agreements and contingent obligations; (vi) issue
preferred stock of subsidiaries; (vii) engage in mergers, acquisitions
and asset sales; (viii) engage in certain transactions with affiliates;
(ix) amend, waive or otherwise alter material agreements or enter into
restrictive agreements; and (x) alter the businesses they conduct.
Alamosa (Delaware) is also subject to the following financial and
statistical covenants, which will apply until December 31, 2002:
o minimum numbers of Sprint PCS subscribers;
o providing coverage to a minimum number of residents;
o minimum service revenue;
o maximum negative EBITDA or minimum EBITDA;
o ratio of senior debt to total capital;
o ratio of total debt to total capital;
o maximum capital expenditures;
o senior debt to net property, plant and equipment; and
o minimum cash and cash equivalents.
F-21
10. LONG-TERM DEBT (CONTINUED)
After December 31, 2002, the financial and statistical covenants will
be the following:
o ratio of senior debt to EBITDA;
o ratio of total debt to EBITDA;
o ratio of EBITDA to total fixed charges (the sum of debt service,
capital expenditures and taxes);
o ratio of EBITDA to total cash interest expense; and
o ratio of EBITDA to pro forma debt service.
Unless waived by the Senior Secured Credit Facility lenders, the
failure of the Company, Alamosa Holdings, LLC and their subsidiaries to
satisfy or comply with any of the financial or other covenants, or the
occurrence of an event of default under the Senior Secured Credit
Facility, will entitle the lenders to declare the outstanding
borrowings under the Senior Secured Credit Facility immediately due and
payable and exercise all or any of their other rights and remedies. Any
such acceleration or other exercise of rights and remedies would likely
have a material adverse effect on the Company, Alamosa (Delaware),
Alamosa Holdings, LLC and their subsidiaries.
CONSENT AND AGREEMENT FOR THE BENEFIT OF THE HOLDERS OF THE SENIOR
SECURED CREDIT FACILITY
Sprint entered into a consent and agreement with Citicorp, that
modifies Sprint's rights and remedies under our affiliation agreements
with Sprint, for the benefit of Citicorp and the holders of the Senior
Secured Credit Facility and any refinancing thereof. The consent and
agreement with Citicorp generally provide, among other things, Sprint's
consent to the pledge of substantially all of our assets, including our
rights in our affiliation agreements with Sprint, and that our
affiliation agreements with Sprint generally may not be terminated by
Sprint until the Senior Secured Credit Facility is satisfied in full
pursuant to the terms of the consents and agreement.
Subject to the requirements of applicable law, so long as the Senior
Secured Credit Facility remains outstanding, Sprint has the right to
purchase our operating assets or the partnership interests, membership
interests or other equity interests of our operating subsidiaries, upon
its receipt of notice of an acceleration of the Senior Secured Credit
Facility, under certain terms
If Sprint does not purchase our operating assets or the partnership
interests, membership interests or other equity interests of our
operating subsidiaries after an acceleration of the obligations under
the Senior Secured Credit Facility, then the administrative agent may
sell the operating assets or the partnership interests, membership
interests or other equity interests of our operating subsidiaries.
NORTEL/EDC CREDIT FACILITY - The Company entered into a credit facility
effective June 10, 1999 with Nortel for $123.0 million. On February 8,
2000, the Company 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 were
used to purchase equipment, to fund the construction of the Company's
portion of Sprint's PCS network, and to pay associated financing costs.
The financing terms permitted the Company 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 required minimum equipment purchases.
F-22
ALAMOSA HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. LONG-TERM DEBT (CONTINUED)
The Company could 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 original commitment terms provided for warrants representing 2% of
the outstanding common stock of the Company. These warrants were
eliminated, by prior agreement, when the Company used $75 million of
the IPO proceeds 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, the Company also paid accrued interest of approximately $853
and origination fees and expenses of $3,995.
The Company incurred approximately $8,256 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 had
been capitalized and were being amortized to interest expense using the
straight-line method over the term of the Nortel/EDC Credit Facility.
The Nortel/EDC credit facility was paid in full in February 2001 with
proceeds from the Senior Secured Credit Facility discussed below. At
that time, remaining unamortized debt issuance costs relative to the
Nortel/EDC credit facility were $5,472. The write-off of these
remaining costs (net of income taxes of $1,969) is presented as an
extraordinary loss in the accompanying consolidated statements of
operations.
Aggregate minimum annual principal payments due on all issues of
long-term debt for the next five years are as follows (dollars in
thousands):
YEARS ENDING DECEMBER 31,
-------------------------------
2002 $ --
2003 --
2004 25,313
2005 50,625
2006 56,250
Thereafter 842,812
------------
$ 975,000
============
The maturity schedule above assumes that all borrowings under the
Senior Secured Credit Facility have been drawn at the point when
amortization begins in 2004.
On February 11, 2002 the Company drew the remaining $12,838 on the
term portion of the Senior Secured Credit Facility.
11. STOCKHOLDERS' EQUITY
The Company is authorized to issue 10,000,000 shares of preferred
stock, $0.01 par value, of which no shares have been issued since
inception. The Company is authorized to issue 290,000,000 shares of
common stock, $0.01 par value of which 92,786,497 shares issued and
outstanding at December 31, 2001.
On October 29, 1999, Alamosa (Delaware) 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 2, 2000 at the
initial price of $17.00 per share. Subsequently, the underwriters
exercised their over-allotment option of 1,607,100 shares. The Company
received net proceeds of approximately $193.8 million after commissions
of $13.3 million and expenses of approximately $1.5 million. The
proceeds of the Stock Offering were used for the build out of the
system, to fund operating capital needs and for other corporate
purposes.
F-23
ALAMOSA HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. STOCKHOLDERS' EQUITY (CONTINUED)
On November 13, 2001, the Company completed an underwritten secondary
offering of common stock pursuant to which certain of the existing
stockholders sold an aggregate of 4,800,000 shares at a public offering
price of $14.75 per share. The Company did not receive any proceeds
from the sale of these shares; however, the underwriters were granted
an option to purchase up to 720,000 additional share of common stock to
cover over-allotments. This option was exercised on November 16, 2001
and the Company received net proceeds from the sale of these shares
after offering costs of approximately $9.1 million.
12. INCOME TAXES
Income tax expense (benefit) is comprised of the following (dollars in
thousands):
YEAR ENDED DECEMBER 31,
---------------------------------
2001 2000 1999
--------- --------- ---------
Current:
U.S. Federal $ 0 $ 0 $ 0
Foreign 0 0 0
State 0 0 0
--------- --------- ---------
Total current expense 0 0 0
--------- --------- ---------
Deferred:
U.S. Federal (68,842) 0 0
Foreign 0 0 0
State (9,630) 0 0
--------- --------- ---------
Total deferred expense (benefit) (78,472) 0 0
--------- --------- ---------
Total income taxes expense (benefit) $ (78,472) $ 0 $ 0
========== ========= =========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below (dollars in thousands):
DECEMBER 31,
------------------------
2001 2000
---------- ----------
Deferred tax assets:
Net operating loss carryforwards $ 101,890 $ 25,626
Original issue discount 18,795 7,691
Non-cash compensation 1,741 2,067
Start-up expenses 781 1,007
Deferred rent 2,128 588
Bad debt allowance 3,622 443
Capitalized loan costs 3,227 --
Deferred revenue 1,969 --
Other comprehensive income 580 --
Other 828 600
---------- -----------
Gross deferred tax assets 135,561 38,022
Deferred Tax liabilities:
Intangible assets 200,959 --
Depreciation 25,383 10,996
Other 47 41
---------- -----------
Net deferred tax assets (liabilities) (90,828) 26,985
Valuation allowance -- (26,985)
---------- -----------
Deferred tax balance $ (90,828) $ --
========== ===========
F-24
ALAMOSA HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. INCOME TAXES (CONTINUED)
The net deferred tax asset was fully reserved as of December 31, 2000
because of uncertainty regarding the Company's ability to recognize the
benefit of the asset in future years. In connection with the
acquisitions in 2001 discussed in Note 4, a significant deferred tax
liability was recorded. The reversal of the timing differences which
gave rise to the deferred tax liability will allow the Company to
benefit from the deferred tax assets. As such, the valuation allowance
was released in 2001 with a corresponding reduction to goodwill
associated with the acquisitions. 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 separate income tax returns. Subsequent to January 31,
2000, the Company became a C-Corp for federal income tax purposes and
therefore subsequent losses from operations became net operating loss
carryforwards of the Company.
The provision for income taxes is different than the amount computed
using the applicable statutory federal income tax rate due to the
differences summarized below:
YEAR ENDED DECEMBER 31,
-------------------------
2001 2000
---------- ----------
Federal tax benefit at statutory rate (35.00%) (35.00%)
========== ==========
Permanent differences 2.51% --
State taxes (2.79%) --
Predecessor Limited Liability Company -- 1.45%
Adjustment due to increase in valuation allowance -- 33.40%
Other (0.01%) 0.15%
---------- ----------
Provision (benefit) for income taxes (35.29%) 0.00%
========== ==========
As of December 31, 2001, the Company has available net operating loss
carryforwards totaling approximately $268 million which expire
beginning in 2020. Utilization of net operating loss carryforwards may
be limited by ownership changes which may have occurred or could occur
in the future.
13. RELATED PARTY TRANSACTIONS
AGREEMENTS WITH CHR SOLUTIONS, INC. - The Company has entered into a
number of agreements with CHR Solutions, Inc. ("CHR") to perform
various consulting and engineering services. CHR resulted from a merger
between Hicks & Ragland Engineering Co., Inc., and Cathey, Hutton &
Associates, Inc. effective as of November 1, 1999. David Sharbutt, the
Company's Chairman and Chief Executive Officer, was at the time the
agreements were executed, the President and Chief Executive Officer of
Hicks & Ragland. As of December 2000, Mr. Sharbutt resigned his
position on the Board of CHR, and is no longer an employee of CHR.
Total amounts paid under the above agreements totaled $3,596, $6,334
and $3,842 for the years ended December 31, 2001, 2000 and 1999,
respectively. Amounts included in accounts payable for the above
agreement totaled $423 and $1,489 at December 31, 2001 and 2000,
respectively.
AGREEMENTS WITH TECH TELEPHONE COMPANY - The Company entered into a
telecommunications service agreement with Tech Telephone Company
Limited Partnership, an affiliate of CHR, to install and provide
telecommunications lines between Sprint PCS and the Company's
Lubbock-based operations and between the Company's Lubbock-based
operations and other markets. The original term of the agreement is
three years, but the agreement automatically renews upon expiration for
additional successive 30-day terms by either party. The Company has
also entered into a distribution agreement with Tech Telephone Company,
authorizing it to become a third party distributor of Sprint PCS
products and services for the Company in Lubbock. The total amount paid
for these contracts was $1,315, $1,707 and $213 during the years ended
December 31, 2001, 2000 and 1999, respectively. The amounts included in
accounts payable relative to these contracts were $92, and $147 at
December 31, 2001 and 2000, respectively.
F-25
ALAMOSA HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
13. RELATED PARTY TRANSACTIONS (CONTINUED)
AGREEMENTS WITH MESSRS. MICHAEL V. ROBERTS AND STEVEN C. ROBERTS
In connection with the acquisition of Roberts, the Company entered into
a number of arrangements with Messrs. Michael V. Roberts and Steven C.
Roberts and certain companies affiliated with them as described in more
detail below. Michael V. Roberts and Steven C. Roberts became directors
of the Company in February 2001.
JOINT VENTURE DEVELOPMENT AGREEMENT - On October 30, 2000, the Company
entered into a joint venture development agreement with Messrs. Michael
V. Roberts and Steven C. Roberts. Pursuant to the agreement, if either
Mr. Michael V. Roberts or Mr. Steven C. Roberts undertakes an
international telecommunications business venture and desire for the
Company to be involved in that project, then before either Mr. Michael
V. Roberts or Mr. Steven C. Roberts enters into a letter of intent or
binding agreement of any nature with another person regarding the
project, they must give the Company written notice and has 60 days to
notify them of the Company desire to participate in the project. During
such 60-day period, the Company has the exclusive right with respect to
the project. Promptly after the Company gives a notice of
participation, the Company and either Mr. Michael V. Roberts or Mr.
Steven C. Roberts shall form a project entity and shall execute an
agreement setting forth the terms, covenants, conditions and provisions
for the purpose, ownership, management, financing and operation of the
project. Unless the Company and either Mr. Michael V. Roberts or Mr.
Steven C. Roberts agree to a different arrangement, the Company will
have a 50% interest in each project entity and will have full
managerial control of each project entity. Except as described above,
neither the Company nor Messrs. Michael V. Roberts and Steven C.
Roberts is obligated to bring to the other any opportunity to
participate in a project or any activity, domestic or international.
CONSULTING AGREEMENTS - On January 29, 2001, the Company entered into
five-year consulting agreements with each of Messrs. Michael V. Roberts
and Steven C. Roberts. The consulting agreements provide each of them
with an annual compensation of $125, which is paid monthly.
RIGHT OF FIRST NEGOTIATION AGREEMENT - On February 14, 2001, the
Company entered into a right of first negotiation agreement with
Roberts Tower which grants Roberts Tower a right to negotiate tower
leases on a "build-to-suit" basis with the Company's present and future
territory. During the term of the agreement, whenever the Company or
one of its subsidiaries is required to "build to suit" communications
towers within the present or future territories in which the Company
operates, the Company must notify Roberts Tower and Roberts Tower will
have the exclusive right for a period of 30 days to negotiate with the
company to provide such towers. After such 30-day period, if the
Company has not reached an agreement with Roberts Tower, the Company
may obtain such tower sites from other third parties. The term of this
agreement is five years.
RESALE AGREEMENT - On February 14, 2001, the Company entered into a
resale agreement with Messrs. Michael V. Roberts and Steven C. Roberts
which permits Messrs. Michael V. Roberts and Steven C. Roberts to buy
air time at a discount for resale on a basis no less favorable than any
other similar agreement to which the Company may be a party. Messrs.
Michael V. Roberts and Steven C. Roberts may resell such airtime
anywhere where such resales are permitted under applicable law. Any
arrangement between the Company and Messrs. Michael V. Roberts and
Steven C. Roberts for resales and use of air time will be subject to
all required approvals of Sprint, Sprint Spectrum and Sprint PCS and/or
any other applicable Sprint entities.
MASTER LEASE AGREEMENT - On February 14, 2001, Roberts and Roberts
Tower entered into a master lease agreement which provides for the
lease from Roberts Tower by Roberts of certain buildings, towers, tanks
and/or improvements thereon for the purpose of installing, operating
and maintaining communications facilities and services thereon. The
initial term of the master lease agreement expires in February 2006,
and Roberts has the right to extend the initial term of the lease for
four additional terms of five years each. The agreement provides for
monthly payments aggregating to approximately $17 per tower per year,
subject to an annual adjustment of 4% per annum. Roberts subsequently
assigned all of its right, title and interest in the master lease
F-26
ALAMOSA HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
13. RELATED PARTY TRANSACTIONS (CONTINUED)
agreement to its wholly owned subsidiary, Alamosa Missouri Properties,
LLC (formerly Roberts Wireless Properties, L.L.C). During the year
ended December 31, 2001, approximately $2,625 was paid under this
agreement.
OTHER RELATED PARTY TRANSACTIONS - In November 1998, the Company
entered into an agreement to lease space for telephone switching
equipment in Albuquerque with SASR Limited Partnership, 50% owned by
one of the Company's directors and a manager of West Texas PCS, LLC,
and Budagher Family LLC, two of the Company's stockholders. The lease
has a term of five years with two optional five-year terms. The lease
provides for monthly payments aggregating to $19 per year with 10%
increase at the beginning of the two option periods, as well as a pro
rata portion of real estate taxes on the property.
In connection with the Company's distribution and sales of Sprint PCS
wireless communications equipment, on December 28, 1998, the Company
entered into a long-term agreement to lease space for a retail store in
Lubbock, Texas with Lubbock HLH, Ltd., principally owned by one of
Holding's directors and the general manager of South Plains Advance
Communications & Electronics, Inc. ("SPACE"). SPACE is a stockholder of
the Company. This lease has a term of 15 years and provides for monthly
payments subject to adjustment based on the Consumer Price Index on the
first day of the sixth lease year and on the first day of the eleventh
lease year. During 1999, $73 was paid under this lease. During 2000,
$101 was paid under this lease. No amount was payable at December 31,
2000. During 2001, $148 was paid under this lease. No amount was
payable at December 31, 2001.
14. EMPLOYEE BENEFITS
Effective November 13, 1998, the Company elected to participate in the
NTCA Savings Plan, a defined contribution employee savings plan
sponsored by the National Telephone Cooperative Association under
Section 401(k) of the Internal Revenue Code. No employer contributions
were made to this plan for the period ended December 31, 2000 or 1999.
Effective July 1, 2000, the Company formed the Alamosa PCS
Contributions Savings Plan ("Company Plan"), a defined contribution
employee savings plan sponsored by the Company under Section 401(k) of
the Internal Revenue Code. Existing balances held in the NTCA Savings
Plan were transferred to the Company Plan on July 1, 2000 and all
contributions to the NTCA Savings Plan ceased at that time. During the
years ended December 31, 2001 and 2000, the Company made contributions
of $900 and $188, respectively to the Company Plan.
In connection with the acquisition of WOW discussed in Note 4,
employees who were formerly employees of WOW continue to participate in
the Washington Oregon Wireless 401(k) Savings & Investment Plan, a
defined contribution employee savings plan sponsored by the Company
under Section 401(k) of the Internal Revenue Code. During the year
ended December 31, 2001, the Company made contributions of $41 to the
WOW plan.
Effective March 1, 2001, the Company adopted the Alamosa Holdings, Inc.
Employee Stock Purchase Plan ("ESPP"). The ESPP provides that eligible
employees may contribute up to 10% of their earnings towards the
purchase of Company common stock. The employee per share purchase price
is 85% of the fair market value of Company shares on (i) the offering
date or (ii) the exercise date, whichever is lower. During 2001, 40,706
shares were issued under the ESPP at a price of $8.93 per share. As of
December 31, 2001, 559,294 shares were reserved for issuance under the
ESPP.
15. STOCK-BASED COMPENSATION
The Company 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 Alamosa Holdings' common stock and for other stock-based
awards to officers, directors and key employees
F-27
ALAMOSA HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. STOCK-BASED COMPENSATION (CONTINUED)
for the direction and management of the Company and to non-employee
consultants and independent contractors. At December 31, 2001,
6,939,429 shares of common stock were reserved for issuance under the
Plan. The stock option committee of the board of directors administers
the Plan and determines grant prices and vesting periods. Generally,
the options under each plan vest in varying increments over a three to
five-year period, expire ten years from the date of grant and are
issued at exercise prices no less than 100% of the fair market value of
common stock at the time of the grant.
The Company applies APB No. 25, "Accounting for Stock Issued to
Employees" and related interpretation, in accounting for its employee
stock options. The Company has recorded unearned compensation totaling
$14,963. This amount was being recognized over the vesting period in
accordance with FASB Interpretation No. 28 when applicable. For the
year ended December 31, 2000 and 1999, non-cash compensation of $5,651
and $8,200 has been recognized, respectively. Non-cash compensation for
2001 was a negative $916 due to the forfeiture of unvested options.
As discussed in Note 3, the Company has adopted the disclosure-only
provisions of SFAS No. 123. Had compensation cost for the Company's
stock option plans been determined based on the fair value provisions
of SFAS No. 123, the Company's net loss and net loss per share would
have been increased to the pro forma amounts indicated below:
YEAR ENDED DECEMBER 31,
-----------------------------------------------
2001 2000 1999
------------ ----------- -----------
Net loss - as reported............ $ (147,423) $ (80,189) $ (32,836)
Net loss - pro forma.............. $ (153,978) $ (86,777) $ (32,836)
Net loss per share - as reported..
Basic and Diluted............ $ (1.69) $ (1.33) $ (0.68)
Net loss per share - pro forma....
Basic and Diluted............ $ (1.77) $ (1.44) $ (0.68)
The pro forma disclosures provided are not likely to be representative
of the effects on reported net income or loss for future years due to
future grants and the vesting requirements of the Company's stock
option plans.
The weighted-average fair value for all stock options granted in 1999,
2000 and 2001 was $13.04, $12.18 and $9.01, respectively. The fair
value of each stock option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
YEAR ENDED DECEMBER 31,
------------------------------------------
2001 2000 1999
---- ---- ----
Dividend yield............... 0% 0% 0%
Expected volatility.......... 81% 72% 70%
Risk-free rate of return..... 4.6% 6.3% 5.5%
Expected life................ 4.00 years 4.07 years 5.53 years
The following summarizes activity under the Company's stock option
plans:
WEIGHTED AVERAGE EXERCISE
NUMBER OF OPTIONS PRICE PER SHARE
----------------------------------------- -------------------------------
YEAR END DECEMBER 31, YEAR END DECEMBER 31,
----------------------------------------- -------------------------------
2001 2000 1999 2001 2000 1999
--------- --------- --------- -------- -------- --------
Options outstanding at beginning
of the period......... 6,788,752 5,282,000 873,000 $ 16.87 $ 12.47 $ 1.18
Granted.................... 635,061 2,131,750 5,282,000 14.87 17.17 12.47
Exercised.................. (15,945) (538,748) -- (14.95) (1.48) --
Canceled/forfeited......... (1,901,990) (86,250) (873,000) (16.85) (12.35) (1.18)
--------- --------- --------- -------- -------- --------
Options outstanding at the end
of the period......... 5,505,878 6,788,752 5,282,000 $ 16.55 $ 16.87 $ 12.47
========= ========= ========= ======== ======== ========
Options exercisable at end
of the period......... 2,602,368 1,615,502 48,498 $ 16.33 $ 16.75 $ 1.27
========= ========= ========= ======== ======== ========
F-28
ALAMOSA HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. STOCK-BASED COMPENSATION (CONTINUED)
The following table summarizes information for stock options at
December 31, 2001:
OUTSTANDING EXERCISABLE
------------------------------------------------- ----------------------------------
WEIGHTED WEIGHTED
NUMBER OF AVERAGE REMAINING NUMBER OF AVERAGE
RANGE OF OPTIONS EXERCISE CONTRACTUAL OPTIONS EXERCISE
EXERCISE PRICES PRICE LIFE PRICE
---------------------- ----------- ------------- -------------------- ----------- -----------------
$ 1.13 - 1.42 57,001 $ 1.27 7.8 57,001 $ 1.27
$ 8.00 - 10.75 97,327 $ 9.85 9.0 72,397 $ 10.03
$ 12.31 - 18.44 5,128,550 $16.56 7.6 2,408,670 $ 16.70
$ 20.00 - 28.50 220,000 $23.19 8.6 63,300 $ 22.70
$ 35.63 - 35.63 3,000 $35.63 8.2 1,000 $ 35.63
-------------- ----------- ------------------ ------------- ------------------
5,505,878 $16.55 7.7 2,602,368 $ 16.33
============== =========== ================== ============= ==================
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts payable, and accrued expenses
approximate fair value because of the short maturity of these items.
The carrying amount of the debt issued pursuant to the Nortel/EDC
Credit Facility approximates fair value at December 31, 2000 because
the interest rate changed with market interest rates.
The carrying amount of the Senior Secured Credit Facility entered into
during 2001 approximates fair value at December 31, 2001 because the
interest rate changes with market interest rates.
Selected information related to the Company's senior notes is a follows
(dollars in thousands):
DECEMBER 31,
---------------------------------
2001 2000
-------------- --------------
Book value $ 637,207 $ 209,280
Fair value 629,500 215,558
-------------- --------------
Net unrecognized gain (loss) $ 7,707 $ (6,278)
============== ==============
The Company utilized interest rate cap agreements to limit the impact
of increases in interest rates on its floating rate debt in 2000. The
interest rate cap agreements required premium payments to
counterparties based upon a notional principal amount. Interest rate
cap agreements entitled the Company to receive from the counterparties
the amounts, if any, by which the selected market interest rates
exceeded the strike rates stated in the agreements. The Company had one
interest rate cap agreement in place at December 31, 2000 which was
closed out in the first quarter of 2001. The fair value of the interest
rate cap agreement was estimated by obtaining quotes from brokers and
represented the cash requirement if the existing contract had been
settled at the balance sheet date. As of January 1, 2001, the
unrecognized loss on the derivative instrument was immaterial.
The Company adopted the provisions of SFAS No. 133, "Accounting for
Derivatives and Hedging Activities," effective January 1, 2001. This
statement requires that all derivatives be recorded on the balance
sheet at fair value. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of the derivatives are
either recognized in earnings or are recognized in other comprehensive
income until the hedged item is recognized in earnings.
In order to manage interest costs and exposure to changing interest
rates, the Company enters into interest rate hedges to hedge exposure
to variable interest rates on a portion of the Senior Secured Credit
Facility. At December 31, 2001, the Company had entered into the
following interest rate swaps.
F-29
ALAMOSA HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
16. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
INSTRUMENT NOTIONAL TERM FAIR VALUE
---------- -------- ---- ----------
4.9475% Interest rate swap $21,690 3 years (650)
4.9350% Interest rate swap $28,340 3 years (865)
-------
$(1,515)
=======
These swaps are designated as cash flow hedges such that the fair value
is recorded as a liability in the December 31, 2001 consolidated
balance sheet with changes in fair value (net of tax) shown as a
component of other comprehensive income. Approximately $1,286 in
settlements under the above swaps is included in interest expense for
the year ended December 31, 2001.
The Company also maintains an interest rate collar with the following
terms:
NOTIONAL MATURITY CAP STRIKE PRICE FLOOR STRIKE PRICE FAIR VALUE
-------- -------- ---------------- ------------------ ----------
$28,340 5/15/04 7.00% 4.12% $(656)
This collar does not receive hedge accounting treatment such that the
fair value is reflected as a liability in the accompanying December 31,
2001 consolidated balance sheet and the $656 change in fair value has
been reflected as an increase to interest expense.
These fair value estimates were obtained from the institutions the
Company entered into the agreements with and are subjective in nature
and involve uncertainties and matters of considerable judgment and
therefore, cannot be determined with precision. Changes in assumptions
could significantly affect these estimates.
17. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS - On October 14, 1998, the then Board of Members
of the Company approved an Incentive Ownership Plan. The plan consisted
of 3,500 units comprised of 1,200 Series 8, 1,150 Series 15 and 1,150
Series 25 units. The exercise price for each series was based on a
pre-defined strike price which increased by an annual rate of 8%, 15%
or 25% compounded monthly beginning July 1, 2000. The initial exercise
prices were $564.79, $623.84 and $711.88 for Series 8, Series 15 and
Series 25 options, respectively. Each unit provided the holder an
option to purchase an interest in the Company. Vested units could have
been exercised any time from July 1, 2000 to December 31, 2006.
On October 29, 1998, under an employment agreement with the Company's
then Chief Technology Officer, 300 units were granted under this plan.
The options to acquire membership interests described above were to be
exchanged for options to acquire an equivalent number of common shares:
48,500 at $1.13 per share, 48,500 at $1.25 per share and 48,500 at
$1.42 per share. Effective as of the IPO, these options were converted
into options of Holdings and were amended such that the original
options with exercise prices that increased by an annual rate of 8%,
15%, or 25% (compounded monthly beginning July 1, 2000) were exchanged
for options to purchase an equivalent number of common shares at fixed
exercise prices equal to $1.13, $1.25 and $1.42 per share, which will
not increase over the term of the options. These amendments resulted in
a new measurement date. The Company recorded compensation expense
totaling $2,096 in connection with these options. Compensation expense
recorded for the year ended December 31, 2000 and 1999 was $836 and
$1,260, respectively.
Effective October 1, 1999, the Company entered into a three-year
employment agreement with its Chief Executive Officer ("CEO"), and
Chairman of the Board. In addition, in December 1999, the Company
granted
F-30
ALAMOSA HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. COMMITMENTS AND CONTINGENCIES (CONTINUED)
options to the CEO to acquire 242,500 common shares at an exercise
price of $1.15 per share which vested immediately prior to the
completion of the initial public offering and 1,455,000 shares at an
exercise price equal to the initial public offering price which vest
33% per year beginning September 30, 2000. The options expire January
5, 2009. The Company recognized compensation expense of $3,116 related
to the 242,500 options issued with an exercise price below the initial
public offering price over the options vesting period. Compensation
expense recorded for the years ended December 31, 2000 and 1999 was
$2,765 and $351, respectively. No compensation expense was recorded in
2001.
On October 2, 1998, the Company entered into an employment agreement
with its then Chief Operating Officer ("COO"). The agreement provided
for the granting of stock options in three series. The initial exercise
price was determined based on the following formula: $48,500, committed
capital at September 30, 1998, multiplied by the percentage interest
represented by the option exercised. The exercise price for each series
increased by an annual rate of 8%, 15% or 25% compounded monthly
beginning at the date of grant as specified by the agreement. Options
could be exercised any time from January 1, 2004 to January 5, 2008.
The options vested over a three-year period. During 1998, one option
from each series was granted under this agreement. The options to
acquire membership interests described above were to be exchanged for
options in Holdings to acquire an equivalent number of common shares:
242,500 at $1.08 per share, 242,500 at $1.15 per share and 242,500 at
$1.25 per share. Effective December 1999, the Company amended the COO's
options such that each of the COO's three series of original options
were exchanged for two options to acquire a total of 1,697,500 shares
of common stock. The first option to acquire 242,500 shares of common
stock had a fixed exercise price of $1.15 per share and vested
immediately prior to completion of the initial public offering. The
second option to acquire 1,455,000 shares of common stock had an
exercise price equal to the initial public offering price and vested
25% per year beginning September 30, 2000. The expiration date of all
of the COO's options was extended from January 5, 2008 to January 5,
2009. These amendments resulted in a new measurement date. The Company
was to record compensation expense totaling $9,341 in connection with
these options. Compensation expense recorded for the years ended
December 31, 2000 and 1999 was $1,640 and $6,589, respectively. This
individual left the Company in January 2001 and forfeited all
unexercised options. As such, compensation expense in 2001 was negative
$916 due to the forfeiture of these option.
Effective December 1, 1999, the Company entered into a five-year
employment agreement with its Chief Financial Officer ("CFO"). In
addition, the Company granted the CFO options to purchase 1,455,000
shares at the initial public offering price and that will expire
January 5, 2009. There is no compensation cost related to these
options.
LITIGATION - The Company has been named as a defendant in a number of
purported securities class actions in the United States District Court
for the Southern District of New York, arising out of its initial
public offering (the "IPO"). Various underwriters of the IPO also are
named as defendants in the actions. The complaints allege, among other
things, that the registration statement and prospectus filed with the
Securities and Exchange Commission for purposes of the IPO were false
and misleading because they failed to disclose that the underwriters
allegedly (i) solicited and received commissions from certain investors
in exchange for allocating to them shares of common stock in connection
with the IPO, and (ii) entered into agreements with their customers to
allocate such stock to those customers in exchange for the customers
agreeing to purchase additional Company shares in the aftermarket at
pre-determined prices.
The Court has ordered that these putative class actions against the
Company, along with hundreds of IPO allocation cases against other
issuers, be transferred for coordinated pre-trial proceedings. At a
status conference held on September 7, 2001, the Court adjourned all
defendants' time to respond to the complaints until further order of
the Court. These cases remain at a preliminary stage and no discovery
proceedings have taken place.
The Company is involved in various claims and legal actions arising in
the ordinary course of business. The ultimate disposition of these
matters are not expected to have a material adverse impact on the
Company's financial position, results of operations or liquidity.
F-31
ALAMOSA HOLDINGS, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
18. UNAUDITED PRO FORMA INFORMATION
The unaudited pro forma information reflects certain assumptions
regarding transactions and their effects that occurred as a result of
the corporate restructuring described in Note 1.
UNAUDITED PRO FORMA INCOME INFORMATION - The unaudited pro forma
information as shown on the statements of operations is presented to
show the effects of income taxes related to the Company's subsequent
termination of its limited liability company status. The unaudited pro
forma income tax adjustment is presented as if the Company had been a C
Corporation subject to federal and state income taxes at an effective
tax rate of 34% for the year ended December 31, 1999. Application of
the provisions of SFAS No. 109, "Accounting for Income Taxes" would
have resulted in a deferred tax asset primarily from temporary
differences related to the treatment of start-up costs and from net
operating loss carryforwards. The deferred tax asset would have been
offset by a full valuation allowance, as there was not at the time
sufficient positive evidence as required by SFAS No. 109 to
substantiate recognition of the asset.
The pro forma information is presented for informational purposes only
and is not necessarily indicative of operating results that would have
occurred had the Company elected to terminate its limited liability
company status as of the beginning of 1999, nor are they necessarily
indicative of future operating results.
UNAUDITED PRO FORMA NET LOSS PER SHARE - Pro forma net loss per share
is calculated by dividing pro forma net loss by the weighted average
number of shares of common stock which would have been outstanding
before the initial public offering after giving effect to the
reorganization of the Company as a corporation as described in Note 1.
UNAUDITED PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING - Unaudited pro
forma weighted average shares outstanding is computed after giving
effect to the reorganization of the Company as a corporation as
described in Note 1. The calculation was made in accordance with SFAS
No. 128, "Earnings Per Share." Diluted weighted average shares
outstanding at December 31, 1999 exclude 141,042 incremental potential
common shares from stock options because inclusion would have been
antidilutive.
19. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations (unaudited) for 1999, 2000 and 2001
per quarter are as follows:
QUARTER ENDED
--------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- ---------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
1999:
Net sales $ -- $ 35 $ 1,965 $ 6,984
Operating loss (1,963) (4,005) (11,279) (13,425)
Net loss (1,745) (4,018) (11,926) (15,147)
Basic and diluted pro
forma net loss per share $ (.02) $ (.08) $ (.25) $ (.31)
2000:
Net sales $ 11,880 $ 17,553 $ 23,203 $ 30,064
Operating loss (13,114) (10,744) (14,621) (30,418)
Net loss (15,580) (12,908) (17,470) (34,230)
Basic and diluted net loss
per share $ (0.27) $ (0.21) $ (0.28) $ (0.57)
2001:
Net sales $ 45,834 $ 83,535 $ 107,874 $ 119,895
Operating loss (28,792) (34,304) (38,622) (50,610)
Net loss before extraordinary item (23,929) (34,336) (37,712) (47,944)
Extraordinary loss, net of tax (3,503) -- -- --
Net loss (27,432) (34,336) (37,712) (47,944)
Basic and diluted net loss per share
before extraordinary item $ (0.33) $ (0.37) $ (0.41) $ (0.52)
Basic and diluted net loss
per share $ (0.38) $ (0.37) $ (0.41) $ (0.52)
F-32
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Alamosa Holdings, Inc.:
Our audits of the consolidated financial statements referred to in our report
dated February 27, 2002 appearing in the 2001 Annual Report to Shareholders of
Alamosa Holdings Inc. also included an audit of the financial statement schedule
listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
PricewaterhouseCoopers LLP
Dallas, Texas
February 27, 2002
F-33
SCHEDULE II
ALAMOSA HOLDINGS, INC.
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE PERIOD DECEMBER 31, 1999 THROUGH
DECEMBER 31, 2001 (IN THOUSANDS)
ADDITIONS ADDITIONS
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
CLASSIFICATION PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
-------------------------------- ---------------- --------------- ------------- ------------ ----------------
December 31, 1999
Allowance for doubtful accounts........ $ -- $ 162 $ -- $ -- $ 162
Deferred tax valuation allowance (2) -- -- -- -- --
December 31, 2000
Allowance for doubtful accounts........ $ 162 $ 1,341 $ -- $ -- $1,503
Deferred tax valuation allowance -- 26,985 -- -- 26,985
December 31, 2001
Allowance for doubtful accounts........ $ 1,503 $17,490 $ 1,213(1) $(14,314) $5,892
Deferred tax valuation allowance 26,985 -- 2,313(3) (29,298)(4) --
This schedule should be read in conjunction with the Company's audited
consolidated financial statements and related notes thereto that appear in this
annual report on Form 10-K.
(1) For the year ended December 31, 2001, amount represents allowance for
doubtful accounts recorded in connection with acquisitions accounted
for under the purchase method of accounting.
(2) For the year ended December 31, 1999, the Company was taxed as a
partnership such that all tax items were reflected on the individual
returns of the partners.
(3) Addition represents increase in valuation allowance due to the increase
in the effective tax rate applied to deferred tax items.
(4) This amount represents the reversal of the valuation allowance recorded
by the Company against goodwill as a result of the business
combinations with Roberts, WOW and Southwest (see Note 12).
F-34