Exhibit 99.3.4
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA OF
THE VIRGINIA ALLIANCE
You should read "Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Virginia Alliance" and such entity's financial
statements and notes thereto included in this document for a further explanation
of the financial data summarized below.
Virginia Alliance
We have set forth below selected historical financial data of the Virginia
Alliance:
. as of, and for the years ended, December 31, 1997, 1998 and 1999, derived
from the audited financial statements and notes thereto of the Virginia
Alliance, which have been audited by McGladrey & Pullen, LLP; and
. as of, and for the three-month periods ended, March 31, 1999 and 2000,
derived from the unaudited financial statements and notes thereto, of the
Virginia Alliance, which, in the opinion of its management, include all
adjustments necessary for a fair presentation of the financial position
and results of operations for these periods. Operating results for three-
month periods are not necessarily indicative of results that might be
expected for the entire fiscal year.
Three Months
Year Ended December 31, Ended March 31,
--------------------------- ------------------
1997 1998 1999 1999 2000
------- -------- -------- -------- --------
(in thousands)
(unaudited)
Statement of Operations:
Operating revenues:
Subscriber revenues......... $ 72 $ 1,739 $ 7,957 $ 1,601 $ 2,627
Wholesale revenues.......... 2 2,176 3,904 824 1,740
Equipment revenues.......... 44 730 1,516 360 422
------- -------- -------- -------- --------
Total operating revenues... 118 4,645 13,377 2,785 4,789
------- -------- -------- -------- --------
Operating expenses:
Cost of sales............... 315 3,010 5,864 1,726 2,210
Maintenance and support..... 757 5,167 6,638 1,341 1,981
Depreciation and
amortization............... 686 7,041 7,770 2,168 2,075
Customer operations......... 1,444 5,729 8,685 1,719 2,392
Corporate operations........ 234 2,111 2,517 641 775
------- -------- -------- -------- --------
Total operating expenses... 3,436 23,058 31,474 7,595 9,433
------- -------- -------- -------- --------
Operating loss................ (3,318) (18,413) (18,097) (4,810) (4,644)
Interest income (expense):
Interest income............. -- -- 262 -- --
Interest expense............ (163) (4,131) (6,390) (1,249) (2,195)
Series A redeemable
preferred interest......... (471) (1,871) (1,914) (474) (486)
------- -------- -------- -------- --------
Net loss................... $(3,952) $(24,415) $(26,139) $ (6,533) $ (7,325)
======= ======== ======== ======== ========
Balance Sheet Data (end of
period):
Cash and cash equivalents.... $ 159 $ 60 $ 64 $ 62 $ 65
Total assets................. 92,160 104,316 120,842 116,818 116,372
Long-term debt............... 34,722 90,301 131,478 100,379 125,482
Series A redeemable preferred
stock....................... 13,542 14,345 15,192 14,553 15,410
Members' equity (deficit).... 9,093 (12,321) (33,461) (13,855) (35,786)
1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THE VIRGINIA ALLIANCE
The following discussion and analysis should be read in conjunction with
"Selected Historical Financial and Operating Data of the Virginia Alliance"
and other financial statements and the notes thereto included elsewhere in
this document. Much of the discussion in this section involves forward-
looking statements. Actual results may differ significantly from the results
suggested by these forward-looking statements.
Overview
The Virginia PCS Alliance, L.C. was organized in 1994 to offer personal
communications services in central and western Virginia. Operations commenced in
September 1997, prior to which the Virginia Alliance was in the developmental
stage. Its major activities through September 1997 were limited to acquiring PCS
radio spectrum licenses, designing and constructing a personal communications
system and obtaining equity capital. The Virginia Alliance owns PCS radio
spectrum licenses for markets covering 1.7 million POPs. The Virginia Alliance
has generated significant operating losses since it began operations and
anticipates continued operating losses at least through 2000.
Revenues
The Virginia Alliance's revenues are generated from:
. subscriber revenues, including monthly access, usage, long distance and
service fees billed to users of its digital wireless network;
. wholesale revenues derived from providing access to its PCS network to
other communications services providers; and
. sales revenues from direct sales of handsets and accessories.
Operating Expenses
The Virginia Alliance's expenses include the following:
. cost of sales, including equipment costs, usage-based access charges,
including long distance, roaming charges, and other direct costs;
. maintenance and support expenses, including PCS network operations and
construction, switching, engineering, and related general and
administrative costs;
. depreciation and amortization costs;
. customer operations expenses, including sales and marketing, selling
expenses and commissions, product management, product advertising,
billing, and customer services; and
. corporate operations expenses, including taxes other than income,
executive, planning, information management, accounting and finance,
human resources, external relations, legal, purchasing, and general and
administrative costs.
Other Income (Expenses)
The Virginia Alliance's other income (expenses) are generated (incurred)
from interest income and expenses.
1
Results of Operations
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31,
1999
Overview
Net loss increased $.8 million, or 12%, from a loss of $6.5 million for the
three months ended March 31, 1999 to a loss of $7.3 million for the three
months ended March 31, 2000. Operating revenues increased $2.0 million, or
71%, from $2.8 million for the three months ended March 31, 1999 to $4.8
million for the three months ended March 31, 2000. EBITDA improved $.1
million, or 3%, from negative EBITDA of $2.6 million for the three months
ended March 31, 1999 to negative EBITDA of $2.5 million for the three months
ended March 31, 2000. Operating loss improved $.2 million, or 4%, from a loss
of $4.8 million for the three months ended March 31, 1999 to a loss of $4.6
million for three months ended March 31, 2000.
These results reflect subscriber growth of approximately 19,400, or 110%,
from 17,600 subscribers as of March 31, 1999 to 37,000 subscribers as of March
31, 2000 and internal growth throughout our areas of operation. Start-up
losses and customer acquisition costs associated with the addition of new
subscribers slowed improvement in EBITDA. Network operations and support cost
increased as a result of significant network expansion.
Operating Revenues
Total operating revenue increased $2.0 million, or 71%, from $2.8 million
for the three months ended March 31, 1999 to $4.8 million for the three months
ended March 31, 2000.
Subscriber Revenues. Subscriber revenues increased $1.0 million, or 64%,
from $1.6 million for the three months ended March 31, 1999 to $2.6 million
for the three months ended March 31, 2000. This increase was primarily due to
subscriber growth. ARPU decreased $5.49, or 12%, from $46.37 for the three
months ended March 31, 1999 to $40.88 for the three months ended March 31,
2000. This decline in ARPU was primarily the result of pricing pressures
caused by increased competition, changes in rate plans and growth in prepay
calling plans.
Wholesale Revenues. Wholesale revenues increased $.9 million, or 111%, from
$.8 million for the three months ended March 31, 1999 to $1.7 million for the
three months ended March 31, 2000. This increase was primarily due to an
increase in wholesale minutes associated with new wholesale agreements entered
into in the third quarter of 1999. Wholesale agreements with other PCS service
providers increased revenues because the Virginia Alliance became the
preferred provider of roaming services for certain wireless providers.
Equipment Revenues. Equipment revenues remained relatively constant for the
three months ended March 31, 1999 and the three months ended March 31, 2000 as
the Virginia Alliance had an increase in gross subscriber additions of
approximately 800, offset by lower unit revenues.
Operating Expenses
Operating expenses increased $1.8 million, or 24%, from $7.6 million for the
three months ended March 31, 1999 to $9.4 million for the three months ended
March 31, 1999. Variable network operating costs, together with customer
acquisition expenses related to subscriber growth, represented $.5 million of
the increase. Network operating and maintenance expenses increased $.6 million
due to the addition of 57 cell sites and other network enhancements.
Marketing, sales, billing and customer services increased $.7 million.
Cost of Sales. Cost of sales increased $.5 million, or 29%, from $1.7
million for the three months ended March 31, 1999 to $2.2 million for the
three months ended March 31, 2000. Equipment costs for handsets and
accessories accounted for $.3 million of the period to period increase. Usage
costs including access, roaming and long distance charges increased $.2
million. The increase in these volume related costs was partially offset by
negotiation of improved rates for long distance services.
2
Maintenance and Support Expense. Maintenance and support expenses increased
$.7 million, or 48%, from $1.3 million for the three months ended March 31,
1999 to $2.0 million for the three months ended March 31, 2000. This increase
was primarily due to increases in access, rents and maintenance costs
associated with a 33% increase in the number of cell sites and other network
enhancements.
Depreciation and Amortization Expense. Depreciation and amortization
expenses decreased $.1 million, or 4%, from $2.2 million for the three months
ended March 31, 1999 to $2.1 million for the three months ended March 31,
2000. This decrease was primarily due to the sale of 56 towers, with a book
value of $8.4 million, to Crown Castle in March, 2000. The gain on the tower
sale was deferred and will be recognized, for book purposes, over a ten-year
period. This decrease was partially offset by continued network construction
during the period.
Customer Operations Expense. Customer operations expenses increased $.7
million, or 39%, from $1.7 million for the three months ended March 31, 1999
to $2.4 million for the three months ended March 31, 2000. This increase was
incurred to support subscriber additions and a growing subscriber base.
Advertising and marketing activities increased $.3 million, selling expenses
including commissions and retail store operating costs increased $.2 million.
Billing and customer service costs, increased $.2 million to support customer
growth and expansion to 24-hour customer service.
Corporate Operations Expense. Corporate operations expenses increased $.2
million, or 21%, from $.6 million for the three months ended March 31, 1999 to
$.8 million for the three months ended March 31, 2000. Increases in executive,
accounting and information management costs totaling $.2 million were
partially offset by a reduction in other operating taxes. The operating tax
reduction was primarily related to lower property taxes due to the sale of our
tower assets.
1999 Compared to 1998
Overview
The Virginia Alliance commenced operations in late September 1997. 1998
represented the first full year of operations during which the Virginia
Alliance experienced significant expansion of its PCS network and subscriber
growth.
Net losses increased $1.7 million, or 7%, from net losses of $24.4 million
in 1998 to net losses of $26.1 million in 1999. Operating revenues increased
$8.8 million, from $4.6 million in 1998 to $13.4 million in 1999. EBITDA
improved $1.1 million, or 9%, from negative EBITDA of $11.4 million in 1998 to
negative EBITDA of $10.3 million in 1999. Operating losses improved $.3
million, or 2%, from a loss of $18.4 million in 1998 to a loss of $18.1
million in 1999.
These results reflect an increase in total subscribers of 19,900, or 163%,
from 12,200 in 1998 to 32,100 in 1999. This growth occurred throughout all
areas of operation as a direct result of marketing and sales activities.
Network expansion continued with the addition of 50 cell sites, switching
equipment up-grades and other enhancements. Start-up costs, handset subsidies,
network operation and maintenance, and customer services, contributed to a
rise in operating expenses. These items increased as a result of an increased
number of subscribers and the support of a growing subscriber base.
Operating Revenues
Total operating revenues increased $8.8 million, or 188%, from $4.6 million
in 1998 to $13.4 million in 1999.
Subscriber Revenues. Subscriber revenues increased $6.3 million, from $1.7
million in 1998 to $8.0 million in 1999. This increase was primarily due to
significant subscriber growth. Significant increases in sales of our prepay
product through agent channels resulted in a decline in average subscriber
revenue. ARPU
3
decreased $2.43, or 5%, from $47.52 in 1998 to $45.09 in 1999. This decline in
ARPU was primarily the result of pricing pressures caused by increased
competition, changes in rate plans and growth in prepay calling plans.
Wholesale Revenues. Wholesale revenues increased $1.7 million, or 79%, from
$2.2 million in 1998 to $3.9 million in 1999. This increase was primarily due
to an increase in wholesale minutes associated with new wholesale agreements
entered into in the third quarter of 1999. Wholesale agreements with other PCS
service providers increased revenues because the Virginia Alliance became the
preferred provider of roaming services for certain wireless providers.
Equipment Revenues. Equipment revenues increased $.8 million, or 108%, from
$.7 million in 1998 to $1.5 million in 1999. This increase was due to an
increase in gross subscriber additions of 14,600 from 1998 to 1999.
Operating Expenses
Operating expenses increased $8.4 million, or 37%, from $23.1 in 1998 to
$31.5 million in 1999. The total cost of handsets and accessories increased
primarily as a result additional sales. The volume related increase was
partially offset by a slight decline in average handset prices. Sales,
marketing and customer support expenses increased to support the significant
increase in the subscriber base. Five retail stores were opened during 1999
and our customer care operations expanded coverage to 24-hours per day, 7-days
per week. Network operating and maintenance expenses associated with the
addition of 50 cell sites, repeaters and switching equipment also contributed
to this increase.
Cost of Sales. Cost of sales increased $2.9 million, or 95%, from $3.0
million in 1998 to $5.9 million in 1999. Equipment costs related to the growth
in subscribers accounted for $1.5 million of the increase. Roaming charges
paid to other carriers increased $.9 million as a result of the growth in the
subscriber base and increased usage due to the broader coverage available
through the roaming partners. Other variable costs including access, long
distance and directory assistance increased $.5 million due to volume
increases related to subscriber growth and increased roaming traffic on the
Virginia Alliance network.
Maintenance and Support Expense. Maintenance and support expense increased
$1.4 million, or 28%, from $5.2 million in 1998 to $6.6 million in 1999. This
increase was primarily related to increases in access, rents and maintenance
costs associated with a 31% increase in the number of cell sites and other
network enhancements.
Depreciation and Amortization Expense. Depreciation and amortization
increased $.7 million, or 10%, from $7.0 million in 1998 to $7.7 million in
1999 associated with continued capital investment in the expansion and
enhancement of the PCS network. Fifty cell sites were constructed and placed
in service, upgrades to switching equipment were completed, central base
station controllers were added and five retail stores were opened during the
period.
Customer Operations Expense. Customer operations expense increased $3.0
million, or 52%, from $5.7 million in 1998 to $8.7 million in 1999.
Advertising and marketing activities increased $.9 million, selling expenses
including commissions and retail operations grew $1.4 million and customer
care and billing services increased $.7 million.
Corporate Operations Expense. Corporate operations expense increased $.4
million, or 19%, from $2.1 million in 1998 to $2.5 million in 1999. Other
taxes, primarily property taxes, increased $.2 million. The $.2 million
increase in other corporate services was principally related to an increase in
human resources and information management to support the increases in
personnel and subscribers.
4