Exhibit 99.3.5
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA OF
THE WEST VIRGINIA ALLIANCE
You should read "Management's Discussion and Analysis of Financial Condition
and Results of Operations of the West 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 .
West Virginia Alliance
We have set forth below selected historical financial data of the West
Virginia Alliance:
. as of, and for the years ended, December 31, 1998 and 1999, derived from
the audited financial statements and notes thereto of the West 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
West 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 Ended
Year Ended December 31, March 31,
------------------------- --------------------
1998 1999 1999 2000
----------- ------------ --------- ---------
(in thousands)
(unaudited)
Statement of Operations:
Operating revenues:
Subscriber revenue....... $ 46 $ 2,308 $ 143 $ 1,671
Wholesale revenue........ -- -- -- 320
Equipment revenue........ 66 681 90 467
----------- ------------ --------- ---------
Total operating
revenues.............. 112 2,989 233 2,458
----------- ------------ --------- ---------
Operating expenses:
Cost of sales............ 219 3,065 251 2,167
Maintenance and support.. 610 4,130 785 1,405
Depreciation and
amortization............ 259 2,068 268 702
Customer operations...... 1,309 4,094 692 1,682
Corporate operations..... 818 1,744 408 459
----------- ------------ --------- ---------
Total operating
expenses.............. 3,215 15,101 2,404 6,415
----------- ------------ --------- ---------
Operating loss............. (3,103) (12,112) (2,171) (3,957)
Interest income (expense):
Interest income.......... -- -- 154 48
Interest expense......... -- (1,175) (162) (896)
----------- ------------ --------- ---------
Net loss............... $ (3,103) $ (13,287) $ (2,179) $ (4,805)
=========== ============ ========= =========
Balance Sheet Data (end of
period):
Cash and cash equivalents.. $ 10 $ 8 $ 11 $ 15,071
Total assets............... 31,132 53,497 33,622 66,258
Long-term debt............. 9,237 51,125 17,651 51,547
Members' equity (deficit).. 11,162 (704) 10,404 (4,089)
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THE WEST VIRGINIA ALLIANCE
The following discussion and analysis should be read in conjunction with
"Selected Historical Financial and Operating Data of the West 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 West Virginia PCS Alliance, L.C. was organized in 1997. The West
Virginia Alliance was formed to fund, establish and operate a business to
design, construct, own, operate and maintain a personal communications system
to provide personal communications services in West Virginia. Operations
commenced during September 1998, prior to which the West Virginia Alliance was
in its development stage. Its major activities prior to September 1998 were
limited to acquiring PCS radio spectrum licenses, designing and constructing a
personal communications system and obtaining equity capital. The West Virginia
Alliance completed its first full year of operations in 1999. The West
Virginia Alliance owns PCS radio spectrum licenses for markets covering
2.2 million POPs. The West Virginia Alliance has generated significant
operating losses since it began operations and anticipates continued losses at
least through 2000.
Revenues
The West Virginia Alliance's revenues are generated from:
. subscriber revenues, including monthly access, usage, long distance and
service fees billed to users of our digital wireless network;
. wholesale revenues derived from providing access to its PCS network to
other communication services providers; and
. sales revenues derived from direct sales of handsets and accessories.
Operating Expenses
The West Virginia Alliance's operating expenses include:
. cost of sales, including equipment costs, usage-based access charges,
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 of property and equipment, PCS spectrum
licenses and other deferred costs;
. customer operations expenses, including sales and marketing, 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 West Virginia Alliance's other income (expenses) are generated
(incurred) from interest income and expenses.
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Results of Operations
Three Months Ended March 31, 2000 Compared to the Three Months Ended March 31,
1999
Overview
Net loss increased $2.6 million, or 120%, from a loss of $2.2 million for
the three months ended March 31, 1999 to a loss of $4.8 million for the three
months ended March 31, 2000. EBITDA improved $1.4 million, or 71%, from
negative EBITDA of $1.9 million for the three months ended March 31, 1999 to
negative EBITDA of $3.3 million for the three months ended March 31, 2000.
Operating loss increased $1.8 million, or 82%, from a loss of $2.2 million for
the three months ended March 31, 1999 to a loss of $4.0 million for the three
months ended March 31, 2000.
These results reflect an increase in subscribers of 15,700, from 1,600
subscribers as of March 31, 1999 to 17,300 subscribers as of March 31, 2000.
This growth came from internal expansion in the West Virginia Alliance's
markets. Start-up losses and customer acquisition costs associated with the
addition of new subscribers slowed improvement in operating cash flows.
Network operations and support costs increased as a result of significant
network expansion.
Operating Revenues
Operating revenues increased $2.3 million, from $.2 million for the three
months ended March 31, 1999 to $2.5 for the three months ended March 31, 2000.
Subscriber Revenues. Subscriber revenues increased $1.6 million, from $.1
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
subscriber growth. ARPU decreased $2.41, or 5%, from $45.19 for the three
months ended March 31, 1999 to $42.78 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 $.3 million, from no
revenues during the three months ended March 31, 1999 to $.3 million for the
three months ended March 31, 2000. This increase was primarily due to
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 West Virginia Alliance became the preferred
provider of roaming services for Sprint and Horizon.
Equipment Revenues. Equipment revenues increased $.4 million, from $.1
million for the three months ended March 31, 1999 to $.5 million for the three
months ended March 31, 2000. The increase was due to an increase in gross
subscriber additions.
Operating Expenses
Operating expenses increased $4.0 million, or 167%, from $2.4 million for
the three months ended March 31, 1999 to $6.4 million for the three months
ended March 31, 2000. Handset and other equipment costs together with
additional customer support expenses related to subscriber growth represented
the increase. Network expansion and enhancement also contributed to the period
to period change.
Cost of Sales. Cost of sales increased $1.9 million, from $.3 million for
the three months ended March 31, 1999 to $2.2 million for the three months
ended March 31, 2000. Handset and accessory costs related to subscriber growth
represented $1.5 million of the increase. Variable operating costs including
usage based access, long distance and directory assistance increased $.2
million. Roaming charges paid to other carriers increased $.2 million.
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Maintenance and Support Expense. Maintenance and support expense increased
$.6 million, or 79%, from $.8 million for the three months ended March 31,
1999 to $1.4 million for the three months ended March 31, 2000. This increase
was primarily due to increases in access, rents and maintenance costs
associated with the addition of 66 cell sites. Other network enhancements
included the addition of a central base station controller.
Depreciation and Amortization. Depreciation and amortization increased $.4
million, or 162%, from $.3 million for the three months ended March 31, 1999
to $.7 million for the three months ended March 31, 2000. The increase was due
to significant expansion in network construction, which included cell-site
additions in the central West Virginia markets of Charleston and Huntington,
and the build-out and commencement of operations in the northern corridor of
West Virginia.
Customer Operations Expense. Customer operations expense increased $1.0
million, or 143%, from $.7 million for the three months ended March 31, 1999
to $1.7 million for the three months ended March 31, 2000. Advertising and
marketing expenses increased $.2 million. Selling expenses including
commissions, retail store operations and warehousing grew $.6 million. The
growth included the addition of four retail stores in the northern corridor.
Customer service costs increased $.2 million to support the significant
increase in subscribers.
Corporate Operations Expense. Corporate operations expenses increased $.1
million, or 13%, from $.4 million for the three months ended March 31, 1999 to
$.5 million for the three months ended March 31, 2000. The increase was due to
increases in the number of personnel and subscribers.
1999 Compared to 1998
Overview
Net losses increased $10.2 million, from net losses of $3.1 million for 1998
to net losses of $13.3 million for 1999. Operating revenues increased $2.9
million, from $.1 million in 1998 to $3.0 million in 1999. EBITDA decreased
$7.2 million, from negative EBITDA of $2.8 million in 1998 to negative EBITDA
of $10.0 million in 1999. Operating losses for 1998 increased to $12.1 million
in 1999.
These results reflect an increase of 10,500 subscribers to a total of 11,300
as of December 31, 1999. This growth reflects 12 months of operations in the
central region in 1999 as compared to four months of operations in 1998, and
commencement of services in the West Virginia Alliance's northern market in
the second quarter of 1999. Start-up losses and customer support costs
associated with the addition of new subscribers are reflected in the increased
operating expenses for the year. Network operations and support costs
increased as a result of significant network expansion.
Operating Revenues
The total operating revenue increased $2.9 million, from $.1 million in 1998
to $3.0 million in 1999. This increase reflected subscriber growth and the
impact of a full year of operation.
Subscriber Revenues. Subscriber revenues increased $2.3 million, from
$46,000 in 1998 to $2.3 million in 1999. This increase was primarily due to
significant subscriber growth.
Equipment Revenues. Equipment revenues increased $.6 million, from $.1
million in 1998 to $.7 million in 1999. This increase was due to an increase
in gross subscriber additions of 11,200.
Operating Expenses
Operating expenses increased $11.9 million, from $3.2 million in 1998 to
$15.1 million in 1999. The change is representative of a full year of
operation compared to four months in 1998. Network expansion and enhancement
also contributed to the period to period change.
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Cost of Sales. Cost of sales increased $2.8 million, from $.2 million in
1998 to $3.0 million in 1999. Handset and accessory costs related to
subscriber growth represented $2.3 million of the increase. Variable operating
costs including usage based access, long distance and directory assistance
increased $.2 million. Roaming charges paid to other carriers increased $.3
million.
Maintenance and Support Expense. Maintenance and support expense increased
$3.5 million, from $.6 million in 1998 to $4.1 million in 1999. This increase
was primarily due to increases in access, rents and maintenance costs related
to the addition of 59 cell sites and other network enhancements including a
central base station controller.
Depreciation and Amortization Expense. Depreciation and amortization
increased $1.8 million, from $.3 million in 1998 to $2.1 million in 1999 due
to growth in property and equipment in connection with the expansion of the
PCS network. In addition to the new cell sites and switching equipment, four
retail stores were opened.
Customer Operations Expense. Customer operations expense increased $2.8
million, from $1.3 million in 1998 to $4.1 million in 1999. This increase is
related to the geographic expansion of our retail presence with the opening of
four retail stores in the northern corridor of West Virginia. Customer care
costs increased in support of the significant increase in our subscriber base.
Corporate Operations Expense. Corporate operations expense increased $.9
million, from $.8 million in 1998 to $1.7 million in 1999. Information
management, executive and other corporate services increased $.4 million. West
Virginia headquarters expenses increased $.5 million representing the first
full year of operations and growth in corporate infrastructure to support our
business expansion.
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