EXHIBIT 99.2.3
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 six-month periods ended, June 30, 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 six-month periods are not necessarily
indicative of results that might be expected for the entire fiscal
year.
Six Months
Year Ended December 31, Ended June 30,
------------------------------------------------ ----------------------------
1997 1998 1999 1999 2000
------------- ------------ ------------ ------------ -----------
(in thousands) (unaudited)
Statement of Operations:
Operating revenues:
Subscriber revenues ............. $ 72 $ 1,739 $ 7,957 $ 3,756 $ 5,793
Wholesale revenues .............. 2 2,176 3,904 1,821 3,836
Equipment revenues .............. 44 730 1,516 606 798
--------- --------- --------- --------- ---------
Total operating revenues ..... 118 4,645 13,377 6,183 10,427
--------- --------- --------- --------- ---------
Operating expenses:
Cost of sales ................... 315 3,010 5,864 2,851 4,465
Maintenance and support ......... 757 5,167 6,638 3,357 4,054
Depreciation and
amortization .................. 686 7,041 7,770 4,695 3,855
Customer operations ............. 1,444 5,729 8,685 3,853 4,770
Corporate operations ............ 234 2,111 2,517 1,343 1,623
--------- --------- --------- --------- ---------
Total operating expenses ..... 3,436 23,058 31,474 16,099 18,767
--------- --------- --------- --------- ---------
Operating loss .................... (3,318) (18,413) (18,097) (9,916) (8,340)
Interest income (expense):
Interest income ................. -- -- 262 -- --
Interest expense ................ (163) (4,131) (6,390) (219) (329)
Senior credit facility .......... -- -- -- (2,559) (4,005)
Series A redeemable preferred
interest ....................... (471) (1,871) (1,914) (952) (974)
--------- --------- --------- --------- ---------
Net loss ..................... $ (3,952) $ (24,415) $ (26,139) $ (13,646) $ (13,648)
========= ========= ========= ========= =========
Balance Sheet Data (end of period):
Cash and cash equivalents ....... $ 159 $ 60 $ 64 $ 62 $ 65
Total assets .................... 92,160 104,316 120,842 116,603 115,910
Long-term debt .................. 34,722 90,301 131,478 100,379 129,654
Series A redeemable
preferred stock ................. 13,542 14,345 15,192 12,860 15,632
Members' equity (deficit) ....... 9,093 (12,321) (33,461) (20,967) (42,109)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THE VIRGINIA ALLIANCE
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 development
stage. Its major activities through September 1997 were limited to acquiring PCS
radio spectrum licenses, designing and constructing a personal communications
system and obtaining equity capital. 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 our digital wireless network;
. wholesale revenues derived from providing access to our PCS network to
other communication services providers; and
. sales revenues derived from direct sales of handsets and accessories.
Operating Expenses
The 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 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.
Results of Operations
Three and Six Months Ended June 30, 2000 compared to Three and Six Months Ended
June 30, 1999
Overview
Net loss decreased $.8 million or 11% from $7.1 million for the three
months ended June 30, 1999 to $6.3 million for the three months ended June 30,
2000. Net loss was unchanged at 13.6 million for the six months ended June 30,
1999 and the six months ended June 30, 2000. EBITDA increased $.7 million or 26%
from a negative $2.6 million for the three months ended June 30, 1999 to a
negative $1.9 million for the three months ended June 30, 2000. EBITDA increased
$.7 million or 14% from negative $5.2 million for the six months ended June 30,
1999 to negative $4.5 million for the six months ended June 30, 2000. Operating
loss decreased $1.4 million or 28% from $5.1 million for the three months ended
June 30, 1999 to $3.7 million for the three months ended June 30, 2000.
Operating loss decreased $1.6 million or 16% from $9.9 million for the six
months ended June 30, 1999 to $8.3 million for the six months ended June 30,
2000.
These results reflect an increase in subscribers of 19,972, from 21,064
as of June 30, 1999 to 41,036 as of June 30, 2000. This growth came from
internal growth and expansion in the 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 cost increased as a result of significant network expansion.
Operating Revenues
Operating revenue increased $2.2 million or 66% from $3.4 million for
the three months ended June 30, 1999 to $5.6 million for the three months ended
June 30, 2000. Operating revenue increased $4.2 million or 69% from $6.2 million
for the six months ended June 30, 1999 to $10.4 million for the six months ended
June 30, 2000.
Subscriber Revenues. Subscriber revenues increased $1.0 million or 47%
from $2.2 million for the three months ended June 30, 1999 to $3.2 million for
the three months ended June 30, 2000. This increase was primarily due to
subscriber growth. ARPU decreased $6.93 or 14% from $50.78 for the three months
ended June 30, 1999 to $43.85 for the three months ended June 30, 2000.
Subscriber revenue increased $2.0 million or 54% from $3.8 million for the six
months ended June 30, 1999 to $5.8 million for the six months ended June 30,
2000. ARPU decreased $11.52 or 21% from $54.61 for the six months ended June 30,
1999 to $43.09 for the six months ended June 30, 2000. The 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 revenue increased $1.1 million or 110%,
from $1.0 million for the three months ended June 30, 1999 to $2.1 million for
the three months ended June 20, 2000. Wholesale revenue increased $2.0 million
or 111% from $1.8 million for the six months ended June 30, 1999 to $3.8 million
for the six months ended June 30, 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 Virginia Alliance became the preferred provider
of roaming services for Sprint and Horizon within the majority of the Alliance's
service area.
Equipment Revenues. Equipment revenue increased $.1 million or 53% from
$.2 million for the three months ended June 30, 2000 to $.3 million for the
three months ended June 30, 2000. Equipment revenue increased $.2 million or 32%
from $.6 million for the six months ended June 30, 1999 to $.8 million for the
six months ended June 30, 2000. This increase was due to an increase in gross
subscriber additions and management initiatives to increase accessory sales.
Operating Expenses
Operating expenses increased $.8 million or 10% from $8.5 million for
the three months ended June 30, 1999 to $9.3 million for the three months ended
June 30, 2000. Operating expenses increased $2.7 million or 17% from $16.1
million for the six months ended June 30, 1999 to $18.8 million for the six
months ended June 30, 2000. Handset and other equipment costs together with
additional customer support expenses related to subscriber growth represented
this increase. Network expansion and enhancement also contributed to the period
to period changes.
Cost of Sales. Cost of sales increased $1.1 million or 100% from $1.1
million for the three months ended June 30, 1999 to $2.2 million for the three
months ended June 30, 2000. Cost of sales increased $1.6 million or 57% from
$2.9 million for the six months ended June 30, 1999 to $4.5 million for the six
months ended June 30, 1999. Handset and accessory costs related to subscriber
growth increased $.8 million for the 3 month period and $1.1 million for the six
months ended June 30, 2000. Variable operation costs including usage based
access, long distance and directory assistance increased $.2 million and $.3
million in the three and six month periods, respectively. Roaming charges paid
to other carriers increased $.1 million in the three months ending June 30, 2000
and $.2 million in the six months ending June 30, 2000.
Maintenance and Support Expense. Maintenance and support expense
increased $.1 million or 3% from $2.0 million for the three months ended June
30, 1999 to $2.1 million for the three months ended June 30, 2000. Maintenance
and support expense increased $.7 million or 21% from $3.4 million for the six
months ended June 30, 1999 to $4.1 million for the six months ended June 30,
2000. This increase was primarily due to increases in access, rents and
maintenance costs associated with the addition of 50 cell sites during the
period June 30, 1999 to June 30, 2000, and other network enhancements, which
included the addition of switching equipment upgrades and central base station
controllers.
Depreciation and Amortization. Depreciation and amortization decreased
$.7 million or 30% from $2.5 million for the three months ended June 30, 1999 to
$1.8 for the three months ended June 30, 2000. Depreciation and amortization
decreased $.8 million or 18% from $4.7 million for the six months ended June 30,
1999 to $3.9 million for the six months ended June 30, 2000. This decrease is
primarily due to the sale of 59 towers with a combined book value of $8.8
million in March and April 2000. The gain on the tower sale was deferred and is
being recognized, for book purposes, over a ten-year period.
Customer Operations Expense. Customer operations expense increased $.3
million or 11 % from $2.1 million for the three months ended June 30, 1999 to
$2.4 million for the three months ended June 30, 2000. Customer operations
expense increased $.9 million or 24% from $3.9 million for the six months ended
June 30, 1999 to $4.8 million for the six months ended June 30, 2000.
Advertising and marketing expenses increased $.1 million and $.4 million for the
three and six month periods, respectively. Selling expenses including
commissions, retail store operations and warehousing grew $.1 million and $.2
million for the three and six month periods, respectively. The increase in
expense reflects the addition of five retail stores. Customer service and
billing costs increased $.1 million for the three months ended June 30, 2000 and
$.3 million for the six months ended June 30, 2000 to support the increase in
subscribers.
Corporate Operations Expense. Corporate operations expense increased $.1
million or 21% from $.7 million for the three months ended June 30, 1999 to $.8
million for the three months ended June 30, 2000. Corporate operations expense
increased $.3 million or 21% from $1.3 million for the six months ended June 30,
1999 to $1.6 million for the six months ended June 30, 2000. The increases were
primarily related to executive, accounting, and general and administrative costs
to support the business expansion.