FORM 10-Q/A No. 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(Mark one)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 1995
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number: 0-15056
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COMMNET CELLULAR INC.
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(Exact name of registrant as specified in its charter)
Colorado 84-0924904
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5990 Greenwood Plaza Boulevard, Suite 300
Englewood, Colorado 80111
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(Address of principal executive offices)
(Zip Code)
303/694-3234
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
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
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The number of shares of the registrant's Common Stock outstanding as of
May 9, 1995 was 11,956,459.
COMMNET CELLULAR INC.
Form 10-Q - March 31, 1995
INDEX
Part I Financial Information Page
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Item 1 Financial Statements
Consolidated Condensed Balance Sheets -
March 31, 1995 and September 30, 1994 1
Consolidated Condensed Statements of Operations -
Three Months Ended March 31, 1995 and
March 31, 1994 3
Consolidated Condensed Statement of Operations -
Six Months Ended March 31, 1995 and
March 31, 1994 4
Consolidated Condensed Statements of Cash Flows -
Six Months Ended March 31, 1995 and
March 31, 1994 5
Notes to Consolidated Condensed Financial
Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II Other Information
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Item 6 Exhibits and Reports on Form 8-K 23
COMMNET CELLULAR INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, September 30,
Assets 1995 1994
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(unaudited)
Current assets:
Cash and cash equivalents $ 14,396,471 $ 2,081,591
Available-for-sale securities 11,553 21,198,698
Accounts receivable, net of allowance for
doubtful accounts of $2,614,854 and
$2,677,124 at March 31, 1995 and
September 30, 1994, respectively 13,532,361 12,706,452
Inventory and other 6,412,957 7,316,770
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Total current assets 34,353,342 43,303,511
Investment in and advances to affiliates 57,063,587 61,908,761
Investment in cellular system equipment 17,246,637 9,732,075
Property and equipment, at cost:
Cellular system equipment 88,405,886 79,215,294
Land, buildings and improvements 19,511,990 17,361,917
Furniture and equipment 15,999,645 14,796,494
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123,917,521 111,373,705
Less accumulated depreciation 37,663,361 31,455,978
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Net property and equipment 86,254,160 79,917,727
Other assets, less accumulated amortization of
$27,559,574 and $25,979,913 at March 31,
1995 and September 30, 1994, respectively:
FCC licenses and filing rights 90,203,145 80,458,461
Deferred loan costs and other 5,759,483 6,432,286
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Total other assets 95,962,628 86,890,747
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$290,880,354 $281,752,821
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See accompanying notes.
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COMMNET CELLULAR INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (continued)
March 31, September 30,
Liabilities and Stockholders' Equity 1995 1994
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(unaudited)
Current liabilities:
Accounts payable $ 7,057,169 $ 10,327,933
Accrued liabilities 4,733,735 3,441,149
Accrued interest 2,695,394 2,331,034
Current portion of long-term debt 1,090,870 1,090,870
Obligation under capital leases due within one
year 467,798 588,025
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Total current liabilities 16,044,966 17,779,011
Long-term debt:
Secured bank financing 63,203,738 50,448,361
Obligation under capital leases due after one 620,138 785,082
year
11 3/4% senior subordinated discount notes 119,617,285 112,979,725
Convertible subordinated debentures 79,697,000 79,700,000
Minority interests 3,872,665 4,154,175
Stockholders' equity:
Preferred Stock, $.01 par value; 1,000,000
shares authorized; no shares issued - -
Common Stock, $.001 par value; 40,000,000
shares authorized; 11,953,959 and
11,739,108 shares issued at March 31,
1995 and September 30, 1994, respectively 11,954 11,739
Capital in excess of par value 120,888,317 117,146,376
Unrealized losses on available-for-sale
securities - (450,311)
Accumulated deficit (113,075,709) (100,801,337)
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Total stockholders' equity 7,824,562 15,906,467
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$290,880,354 $281,752,821
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See accompanying notes.
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COMMNET CELLULAR INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
For the three months ended
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March 31, March 31,
1995 1994
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Revenues:
Cellular service $12,457,906 $ 8,241,763
Roaming 4,343,964 2,843,890
Equipment sales 2,262,429 2,599,592
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19,064,299 13,685,245
Costs and expenses:
Cellular operations:
Cost of cellular service 3,857,580 2,445,597
Cost of equipment sales 2,444,340 2,246,390
General and administrative 5,538,565 3,885,034
Marketing and selling 4,636,754 3,878,598
Depreciation and amortization 3,504,070 2,395,545
Write-down of property and equipment - 1,472,902
Corporate:
General and administrative 1,801,849 1,681,050
Depreciation and amortization 551,433 462,155
Less amounts allocated to nonconsolidated
affiliates (1,677,818) (1,393,340)
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20,656,773 17,073,931
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Operating loss (1,592,474) (3,388,686)
Equity in net loss of affiliates (1,653,944) (1,902,945)
Minority interest in net income of consolidated affiliates (137,521) -
Gain on sales of affiliates and other - 1,803,177
Interest expense (6,379,743) (5,522,810)
Senior lender patronage income 763,843 1,164,053
Interest income 3,163,146 3,276,675
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Net loss $(5,836,693) $(4,570,536)
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Net loss per common share $ (0.49) $ (0.39)
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Weighted average shares outstanding 11,842,412 11,589,875
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See accompanying notes.
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COMMNET CELLULAR INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
For the six months ended
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March 31, March 31,
1995 1994
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Revenues:
Cellular service $ 24,532,722 $ 15,356,656
Roaming 8,977,812 6,495,465
Equipment sales 4,829,228 4,603,402
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38,339,762 26,455,523
Costs and expenses:
Cellular operations:
Cost of cellular service 7,692,715 4,650,091
Cost of equipment sales 5,072,459 4,501,358
General and administrative 10,381,459 7,486,387
Marketing and selling 10,088,444 7,103,814
Depreciation and amortization 6,901,272 4,785,936
Write-down of property and equipment - 1,472,902
Corporate:
General and administrative 3,721,863 3,352,832
Depreciation and amortization 1,128,096 1,098,360
Less amounts allocated to nonconsolidated
affiliates (3,232,688) (2,886,174)
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41,753,620 31,565,506
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Operating loss (3,413,858) (5,109,983)
Equity in net loss of affiliates (2,735,777) (3,586,024)
Minority interest in net income of consolidated affiliates (261,004) -
Gain on sales of affiliates and other 67,247 2,459,004
Interest expense (12,650,585) (11,024,345)
Senior lender patronage income 763,843 1,164,053
Interest income 5,955,762 6,813,532
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Net loss $(12,274,372) $ (9,283,763)
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Net loss per common share $ (1.04) $ (0.81)
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Weighted average shares outstanding 11,792,419 11,414,210
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See accompanying notes.
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COMMNET CELLULAR INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
For the six months ended
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March 31, March 31,
1995 1994
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Operating activities:
Net loss $(12,274,372) $ (9,283,763)
Adjustments to reconcile net loss to net cash used by
operating activities:
Minority interest 261,004 -
Depreciation and amortization 8,029,368 5,884,296
Write-down of property and equipment - 1,472,902
Equity in net loss of affiliates 2,735,777 3,586,024
Gains on sales of affiliates and other (67,247) (2,459,004)
Loss on sale of available-for-sale securities 221,598 -
Interest expense on 11 3/4% senior discount notes 6,637,560 5,863,912
CoBank patronage income (534,690) (814,837)
Accrued interest on advances to affiliates (5,570,098) (5,427,093)
Change in operating assets and liabilities, net of effects
from consolidating acquired interests:
Accounts receivable 128,779 (3,886,535)
Inventory and other 904,908 (1,144,961)
Accounts payable and accrued liabilities (90,218) 329,713
Accrued interest 364,360 (1,822,327)
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Net cash provided (used) by operating activities 746,729 (7,701,673)
Investing activities:
Purchase of available-for-sale securities (11,553) (13,485,157)
Sale of available-for-sale securities 21,427,411 3,963,892
Additions to investments in and advances to affiliates (2,426,811) (2,188,547)
Additions to investment in cellular system equipment (7,514,562) (4,821,271)
Additions to property and equipment (12,528,606) (6,330,624)
Additions to other assets (14,396) -
Proceeds from sales of interests in affiliates 1,835,349 6,569,210
Purchase of interests in affiliates, net of cash acquired
and net of assets and liabilities recorded due to
consolidation (2,439,005) (10,420,426)
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Net cash used by investing activities (1,672,173) (26,712,923)
See accompanying notes.
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COMMNET CELLULAR INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
For the six months ended
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March 31, March 31,
1995 1994
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Financing activities:
Proceeds from secured bank financing 13,408,742 2,680,780
Payments of secured bank financing (653,364) (1,346,669)
Reduction of obligation under capital leases (285,171) (132,477)
Issuance of Common Stock, net of offering costs 770,117 1,433,959
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Net cash provided by financing activities 13,240,324 2,635,593
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Net increase (decrease) in cash and cash equivalents 12,314,880 (31,779,003)
Cash and cash equivalents at beginning of period 2,081,591 45,660,761
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Cash and cash equivalents at end of period $ 14,396,471 $ 13,881,758
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Supplemental schedule of additional cash flow information
and noncash activities:
Cash paid during the six-month period for interest $ 5,648,665 $ 5,701,880
Purchase of cellular system equipment through
accounts payable 620,286 1,323,215
Purchases of interests in affiliates financed with
Common Stock 2,969,056 1,469,214
Conversion of convertible subordinated debentures to
Common Stock 2,983 37,811,450
See accompanying notes.
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COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
CommNet Cellular Inc. and its majority-owned affiliates (the
"Company"), in its opinion, has included all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the results of
operations for the periods presented. The consolidated condensed financial
statements and notes thereto should be read in conjunction with the financial
statements and notes for the years ended September 30, 1992, 1993 and 1994
included in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1994. The results of operations for the six months ended March
31, 1995 are not necessarily indicative of the results for a full year.
2. SHORT-TERM INVESTMENTS
On September 30, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," and classified all short-term investments as
available-for-sale. In accordance with the Statement, prior-period financial
statements have not been restated to reflect the change in accounting principle.
The impact of adopting SFAS No. 115 is not material to the comparability of the
financial statements presented.
3. BUSINESS ACQUISITIONS AND DISPOSITION
During the six months ended March 31, 1995, the Company acquired
interests in several markets. In certain of these transactions, the Company
issued shares of its Common Stock. As a result of these transactions, capital
increased by approximately $2,969,000 and other assets increased by
approximately $11,800,000. In addition, the Company disposed of its independent
telephone company and its interest in one nonmanaged market. As a result of
these transactions, other assets decreased by approximately $989,000 and the
Company recognized a net gain of approximately $200,000.
4. STOCKHOLDERS' EQUITY
Changes to Common Stock during the six months ended March 31, 1995
were as follows:
Common Stock Capital in
-------------------------- Excess of
Shares Amount Par Value
-------------------------- ---------------
Balance at September 30, 1994 11,739,108 $11,739 $117,146,376
Issuance of Common Stock:
Aggregate shares issued in
unrelated nonsignifi-
cant acquisitions 120,418 121 2,968,935
Exercise of options 94,325 94 770,023
Debenture conversion 108 - 2,983
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Balance at March 31, 1995 11,953,959 $11,954 $120,888,317
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COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
5. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. As of March
31, 1995, the Company has a substantial net deferred tax asset that has been
reserved with a valuation allowance of 100%. Therefore, no deferred tax expense
is necessary.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Consolidated results of operations include the revenues and expenses of
those markets in which the Company holds a greater than 50% interest. The
results of operations of 44 markets, 42 of which were consolidated for the
entire quarter, are included in the consolidated results for the quarter ended
March 31, 1995. The results of operations of 40 markets, 39 of which were
consolidated the entire quarter, are included in the consolidated results for
the quarter ended March 31, 1994. The increase in the number of markets
included in consolidated results is due to acquisitions consummated subsequent
to March 31, 1994. Consolidated results of operations also include the
operations of Cellular, Inc. Financial Corporation ("CIFC"), the Company's
wholly-owned financing subsidiary, as well as the operations of Cellular Inc.
Network Corporation ("CINC"), a wholly-owned subsidiary through which the
Company holds interests in certain cellular licenses.
Equity in net loss of affiliates includes the Company's share of net loss
in the markets in which the Company's interest is 50% or less but 20% or
greater. For the quarter ended March 31, 1995, 31 markets were accounted for
under the equity method, compared to 37 such markets for the quarter ended March
31, 1994. Markets in which the Company's interest in the affiliate or the
affiliate's interest in the licensee is less than 20% are accounted for under
the cost method. Eighteen markets were accounted for under the cost method for
the quarter ended March 31, 1995, compared to six such markets for the quarter
ended March 31, 1994.
Interest income reflects interest income derived from the financing
activities of CIFC and the Company with nonconsolidated affiliates, as well as
interest income derived from the Company's short-term investments. CIFC has
entered into loan agreements with the Company's affiliates pursuant to which
CIFC makes loans to such entities for the purpose of financing or refinancing
the affiliates' costs of construction and operation of cellular telephone
systems. Such loans are financed with funds borrowed by CIFC from CoBank, ACB
("CoBank") and from the Company and bear interest at a rate 1% above CoBank's
average rate. From time to time, the Company advances funds on an interim basis
to affiliates. These advances typically are refinanced through CIFC. To the
extent that the cellular markets in which the Company holds an interest generate
positive cash flow, the cash is used to repay borrowings by the affiliates from
CIFC and thereafter will be used to make cash distributions to equity holders,
including the Company.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 AND 1994. As of March 31, 1995, the
Company held interests in 83 Rural Service Area ("RSA") markets and 10
Metropolitan Statistical Area ("MSA") markets compared to 72 RSA markets and 11
MSA markets as of March 31, 1994. All markets in which the Company held an
interest were operational as of such dates.
Cellular service revenues, including roaming revenues, increased 52% from
$11,086,000 for the quarter ended March 31, 1994 to $16,802,000 for the quarter
ended March 31, 1995. The growth was primarily due to the increase in the
number of subscribers in consolidated markets. In addition to increases in
market penetration, growth resulted from an increase in the number of markets
consolidated for the entire quarter from 39 during the quarter ended March 31,
1994 to 42 during the quarter ended March 31, 1995. Growth in subscribers
accounted for 93% of the increase, and the number of consolidated markets
accounted for 7% of the increase. Roaming revenues increased by 53% or
$1,500,000 from $2,844,000 for the quarter ended March 31, 1994 to $4,344,000
for the quarter ended March 31, 1995 due to increased coverage in cellular
markets.
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Average monthly revenue per subscriber, including roaming revenues,
decreased from $66 for the quarter ended March 31, 1994 to $60 for the quarter
ended March 31, 1995. The decline primarily reflects the fact that initial
subscribers in a market tend to use more cellular service than those who
subscribe after a system has been in operation for a period of time.
Cost of cellular service includes four major components: the variable cost
of interconnection to the landline telephone system, the semi-fixed cost of
leasing facilities, the semi-fixed cost related to switching capacity and the
operational overhead cost to maintain and monitor the cellular network, which
tends to be fixed. Cost of service increased as a percentage of service
revenues from 22% for the quarter ended March 31, 1994 to 23% for the quarter
ended March 31, 1995, primarily due to an increase in costs related to
interconnect service. Cost of service as a percentage of revenues is expected
to continue to decline slightly from this level as revenues derived from the
growing subscriber base continue to outpace the fixed components of cost of
service.
Cellular equipment revenues decreased 13% from $2,600,000 for the quarter
ended March 31, 1994 to $2,262,000 for the quarter ended March 31, 1995. Cost
of equipment sales increased 9% from $2,246,000 for the quarter ended March 31,
1994 to $2,444,000 for the quarter ended March 31, 1995. The decrease in
revenue is due to equipment promotions during March to stimulate subscriber
growth.
General and administrative costs of cellular operations increased 43% from
$3,885,000 for the quarter ended March 31, 1994 to $5,539,000 for the quarter
ended March 31, 1995, due to the growth in the customer base and the number of
consolidated markets. The majority of these costs were incremental customer
billing expense and customer service support staff. In addition, the Company
more conservatively estimated uncollectable accounts receivable for the quarter
ended March 31, 1995, representing approximately $900,000 of the increase
compared to the quarter ended March 31, 1994. General and administrative costs
as a percentage of service revenues decreased from 35% for the quarter ended
March 31, 1994 to 33% for the quarter ended March 31, 1995. The decrease is
primarily due to revenues increasing at a faster rate than incremental general
and administrative costs.
Marketing and selling costs increased 20% from $3,879,000 for the quarter
ended March 31, 1994 to $4,637,000 for the quarter ended March 31, 1995,
primarily as a result of the number of subscribers added in consolidated
markets. The majority of these costs were incremental sales commissions,
advertising costs and incremental sales staff. Marketing costs per net new
subscriber decreased 4% from $673 for the quarter ended March 31, 1994 to $648
for the quarter ended March 31, 1995, as a result of increased net subscriber
additions which outpaced increases in costs incurred. The Company is continuing
to expand its own retail presence to capitalize on retail trade while driving
down commission costs. The Company anticipates the effects of this expansion
will be reflected in the fourth fiscal quarter.
Depreciation and amortization relating to cellular operations increased
from $2,396,000 for the quarter ended March 31, 1994 to $3,504,000 for the
quarter ended March 31, 1995, primarily related to increased fixed asset
balances.
Corporate costs and expenses for the quarter ended March 31, 1994 were
$750,000, which represented gross expenses of $2,143,000 less amounts allocated
to nonconsolidated affiliates of $1,393,000. Corporate costs and expenses for
the quarter ended March 31, 1995 were $675,000, which represented gross expenses
of $2,353,000 less amounts allocated to nonconsolidated affiliates of
$1,678,000. The increase in expenses and amounts allocated to nonconsolidated
affiliates reflects an increase in corporate costs attributed to financing
operations and incurred costs relative to equipment distribution and other
corporate functions.
Equity in net loss of affiliates decreased 13% from $1,903,000 for the
quarter ended March 31, 1994 to $1,654,000 for the quarter ended March 31, 1995.
The decrease is principally
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attributable to decreasing losses in markets being accounted for under the
equity method at March 31, 1995 compared to March 31, 1994 due to increasing
penetration and subscriber usage. This has caused a consistent trend of
improved operating results. In addition, equity in net loss of affiliates has
decreased as fewer markets are being accounted for under the equity method.
Interest expense increased 16% from $5,523,000 for the quarter ended March
31, 1994 to $6,380,000 for the quarter ended March 31, 1995 due to higher
accreted discount note and secured bank financing balances. Cash paid for
interest increased 13% from $3,778,000 for the quarter ended March 31, 1994 to
$4,260,000 for the quarter ended March 31, 1995.
The CoBank patronage distribution decreased 34% from $1,164,000 in March
1994 to $764,000 in March 1995. The patronage distribution is calculated using
the Company's prior calendar year interest expense compared to total interest
paid to CoBank by all patrons. The decrease is due to a reduction of
approximately $50,000,000 in the Company's debt to CoBank during the fourth
fiscal quarter of 1993 which resulted in lower average debt balances for
patronage dividend purposes during 1994.
Interest income decreased 3% from $3,277,000 for the quarter ended March
31, 1994 to $3,163,000 for the quarter ended March 31, 1995. The decrease is
primarily related to the increase in the number of markets consolidated for the
quarter ended March 31, 1995, compared to the quarter ended March 31, 1994.
Consolidation caused the interest earned on advances to the related affiliates
to be eliminated as an intercompany transaction. Additionally, interest income
for the quarter ended March 31, 1995 declined due to lower short-term investment
balances.
RESULTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1995 AND 1994. Cellular service revenues,
including roaming revenues, increased 53% from $21,852,000 for the six months
ended March 31, 1994 to $33,511,000 for the six months ended March 31, 1995.
The growth was primarily due to the increase in the number of subscribers in
consolidated markets. In addition to increases in market penetration, growth
resulted from an increase in the number of markets consolidated for the entire
six months from 36 during the six months ended March 31, 1994 to 42 during the
six months ended March 31, 1995. Growth in subscribers accounted for 90% of the
increase, and the number of consolidated markets accounted for 10% of the
increase. Roaming revenues increased 38% or $2,483,000 from $6,495,000 to
$8,978,000 due to increased coverage in cellular markets.
Average monthly revenue per subscriber, including roaming revenues,
decreased from $69 for the six months ended March 31, 1994 to $65 for the six
months ended March 31, 1995. The decline primarily reflects the fact that
initial subscribers in a market tend to use more cellular service than those who
subscribe after a system has been in operation for a period of time.
Cost of cellular service includes four major components: the variable cost
of interconnection to the landline telephone system, the semi-fixed cost of
leasing facilities, the semi-fixed cost related to switching capacity and the
operational overhead cost to maintain and monitor the cellular network, which
tends to be fixed. Cost of service increased as a percentage of service
revenues from 21% for the six months ended March 31, 1994 to 23% for the six
months ended March 31, 1995, primarily due to an increase in costs related to
interconnect service. Cost of service as a percentage of revenues is expected
to continue to decline slightly from this level as revenues derived from the
growing subscriber base continue to outpace the fixed components of cost of
service.
Cellular equipment revenues increased 5% from $4,603,000 for the six months
ended March 31, 1994 to $4,829,000 for the six months ended March 31, 1995. The
growth was due to the increase in the number of subscribers added, which
accounted for $176,000, or 78%, of the increase. In addition, growth resulted
from an increase in the number of consolidated markets operated during the six
months which represented $50,000, or 22%, of the increase. Cost of equipment
sales
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increased 13% from $4,501,000 for the six months ended March 31, 1994 to
$5,072,000 for the six months ended March 31, 1995.
General and administrative costs of cellular operations increased 39% from
$7,486,000 for the six months ended March 31, 1994 to $10,381,000 for the six
months ended March 31, 1995, due to the growth in the customer base and the
number of consolidated markets. The majority of these costs were incremental
customer billing expense and customer service support staff. In addition, the
Company more conservatively estimated uncollectable accounts receivable for the
six months ended March 31, 1995, representing approximately $900,000 of the
increase compared to the six months ended March 31, 1994. General and
administrative costs as a percentage of service revenues decreased from 34% for
the six months ended March 31, 1994 to 31% for the six months ended March 31,
1995. The decrease is primarily due to revenues increasing at a faster rate
than incremental general and administrative costs.
Marketing and selling costs increased 42% from $7,104,000 for the six
months ended March 31, 1994 to $10,088,000 for the six months ended March 31,
1995, primarily as a result of the number of subscribers added in consolidated
markets. The majority of these costs were incremental sales commissions,
advertising costs and incremental sales staff. Marketing costs per net new
subscriber decreased 10% from $584 for the six months ended March 31, 1994 to
$526 for the six months ended March 31, 1995, as a result of increased net
subscriber additions which outpaced increases in costs incurred. The Company is
continuing to expand its own retail presence to capitalize on retail trade while
driving down commission costs. Results of this expansion are expected by the
fourth fiscal quarter.
Depreciation and amortization relating to cellular operations increased
from $4,786,000 for the six months ended March 31, 1994 to $6,901,000 for the
six months ended March 31, 1995, primarily related to increased fixed asset
balances.
Corporate costs and expenses for the six months ended March 31, 1994 were
$1,565,000, which represented gross expenses of $4,451,000 less amounts
allocated to nonconsolidated affiliates of $2,886,000. Corporate costs and
expenses for the six months ended March 31, 1995 were $1,617,000, which
represented gross expenses of $4,850,000 less amounts allocated to
nonconsolidated affiliates of $3,233,000. The increase in expenses and amounts
allocated to nonconsolidated affiliates reflects an increase in corporate costs
attributed to financing operations and incurred costs relative to equipment
distribution and other corporate functions.
Equity in net loss of affiliates decreased 24% from $3,586,000 for the six
months ended March 31, 1994 to $2,736,000 for the six months ended March 31,
1995. The decrease is principally attributable to decreasing losses in markets
being accounted for under the equity method at March 31, 1995 compared to March
31, 1994 due to increasing penetration and subscriber usage. This has caused a
consistent trend of improved operating results. In addition, equity in net loss
of affiliates has decreased as fewer markets are being accounted for under the
equity method.
Interest expense increased 15% from $11,024,000 for the six months ended
March 31, 1994 to $12,651,000 for the six months ended March 31, 1995 due to
higher accreted discount note and secured bank financing balances. Cash paid
for interest decreased 1% from $5,702,000 for the six months ended March 31,
1994 to $5,649,000 for the six months ended March 31, 1995.
The CoBank patronage distribution decreased 34% from $1,164,000 in March
1994 to $764,000 in March 1995. The patronage distribution is calculated using
the Company's prior calendar year interest expense compared to total interest
paid to CoBank by all patrons. The decrease is due to a reduction of
approximately $50,000,000 in the Company's debt to CoBank during the fourth
fiscal quarter of 1993 which resulted in lower average debt balances for
patronage dividend purposes during 1994.
- 12 -
Interest income decreased 13% from $6,814,000 for the six months ended
March 31, 1994 to $5,956,000 for the six months ended March 31, 1995. The
decrease is primarily related to the increase in the number of markets
consolidated for the six months ended March 31, 1995, compared to the six months
ended March 31, 1994. Consolidation caused the interest earned on advances to
the related affiliates to be eliminated as an intercompany transaction.
Additionally, interest income for the six months ended March 31, 1995 declined
due to lower short-term investment balances.
ACQUISITIONS AND SALES
In November 1994, the Company purchased an additional 5.97% interest in
Nebwest Cellular, Inc. for $1,600,000 in cash. Pursuant to the terms of a
shareholder's agreement, the Company subsequently sold a portion of that
interest to the other shareholders on a pro rata basis for approximately
$450,000 in cash. In February 1995, the Company purchased an additional 3.37%
interest in this corporation for 34,688 shares of the Company's Common Stock.
In March 1995, the Company purchased an additional 2.57% interest in this
corporation for 28,638 shares of the Company's Common Stock.
In January 1995, the Company sold a wholly-owned subsidiary for
approximately $86,000 which resulted in a loss of approximately $297,000.
In January 1995, the Company transferred its 25% interest in one nonmanaged
RSA market to a partner in that market pursuant to a judgment. The judgment is
currently being appealed. The Company received approximately $1,699,000 upon
transfer of the interest which resulted in a gain of approximately $497,000.
In February 1995, the Company purchased additional interests ranging from
19% to 25% in eleven managed and one nonmanaged markets for approximately
$1,259,000 in cash and the issuance of 49,738 shares of the Company's Common
Stock.
The Company has entered into an agreement to sell its 61.50% interest in
Nebwest Cellular, Inc. which owns 25.52% of Nebraska Cellular Telephone
Corporation, the licensee for the ten wireline RSA markets in the state of
Nebraska, for approximately $24.3 million which will result in a gain after tax
of approximately $19.6 million. This transaction is expected to close during
the third fiscal quarter of 1995.
The Company has also entered into agreements to acquire the interests,
which range from 20% to 51%, of one or more independent telephone companies in
four entities which are affiliates of the Company for an aggregate purchase
price of approximately $4,000,000.
The Company has initiated discussions regarding possible acquisition of
markets or interests in Iowa, Wyoming, North Dakota and Kansas. Such
acquisitions will be pursued to the extent they enhance or extend the Company's
network and increase shareholder value. Accordingly, there can be no assurance
that any such acquisitions will be consummated.
CHANGES IN FINANCIAL CONDITION
Net cash provided by operating activities was $747,000 during the six
months ended March 31, 1995. This was primarily due to an increase to accrued
interest of $364,000 and decreases of $129,000 to accounts receivable and
$905,000 to inventory and other. Additionally, a loss of $222,000 was
recognized on the sale of available-for-sale securities during the first
quarter. Working capital increases will likely require cash in future periods
as growth in the subscriber base continues.
Net cash used by investing activities was $1,672,000 for the six months
ended March 31, 1995. This was due primarily to the sale of available-for-sale
securities which provided $21,427,000,
- 13 -
offset by $12,529,000 required to fund the purchase of property and equipment,
$7,515,000 to increase the investment in cellular system equipment, and
$2,427,000 used for additions to investments in and advances to affiliates.
Net cash provided by financing activities was $13,240,000 for the six
months ended March 31, 1995. These proceeds include $13,409,000 of cash from
incremental secured bank financing and $770,000 of cash from the issuance of
Common Stock upon exercise of options.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements consist primarily of its obligations to
fund capital and operating requirements of its affiliates and interest payments
on its indebtedness. The Company historically has met these requirements
through sales of debt and equity securities and through bank and vendor
financing. Recently, positive operating income before depreciation and
amortization ("EBITDA") has contributed to the funding of capital and operating
needs.
CIFC has entered into loan agreements ("Credit Agreements") pursuant to
which CoBank has agreed to loan up to $130,000,000 to CIFC to be reloaned by
CIFC to affiliates of the Company for the construction, operation and expansion
of cellular telephone systems and to the Company for the construction and
expansion of switches. As of March 31, 1995, the outstanding balance under the
Credit Agreements was approximately $64,060,000. The Credit Agreements provide
for interest at 1% over prime on variable-rate loans (10.0% at March 31, 1995)
or 2.25% over the London Interbank Offered Rate ("LIBOR") on fixed-rate loans
(8.84% at the six-month rate at March 31, 1995). The loans are secured by a
first lien upon all of the assets of CIFC and each of the affiliates to which
funds are advanced by CIFC. In addition, the Company has guaranteed the
obligations of CIFC to CoBank and has granted CoBank a first lien on all of the
assets of the Company as security for such guaranty.
In accordance with the Company's desire to minimize interest rate
fluctuations and to improve the predictability of costs incurred throughout its
growth stage, CIFC has elected to fix interest rates on approximately
$55,990,000 of its long-term debt payable to CoBank at rates ranging from 8.59%
to 10.90%. Additionally, CIFC has entered into a prime-based interest rate swap
with CoBank as a means of controlling interest rates on $2,500,000 of its
variable rate loans. This swap agreement was entered into on July 1, 1993 for a
three-year period ending July 1, 1996. The swap agreement requires CIFC to pay
a fixed rate of 7.01% over the term of the swap, and CoBank to pay a floating
rate of prime (9.0% at March 31, 1995). The weighted average interest rate of
all fixed and variable rate loans after giving effect to the swap, was 10.02% at
March 31, 1995.
The Credit Agreements prohibit the payment of cash dividends, prohibit any
other senior borrowings, limit the use of borrowings, restrict expenditures for
certain acquisitions and investments, require the maintenance of certain minimum
levels of net worth, working capital; cash and operating cash flow and require
the maintenance of certain liquidity, capitalization, debt, debt service and
operating cash flow ratios. The requirements of the Credit Agreements were
established in relation to the anticipated capital and financing needs of the
Company's affiliates and their anticipated results of operations. The Company
is currently in compliance with all covenants and anticipates it will continue
to meet the requirements of the Credit Agreements. CoBank has sold
participations in the Credit Agreements to two other financial institutions
whose approval may be required for waivers or other amendments to the Credit
Agreements requested by CIFC or the Company.
CIFC and CoBank are negotiating to increase the facility under the Credit
Agreements from the current $130,000,000 to $165,000,000. Of the increase of
$35,000,000, $10,000,000 will be available for loans to affiliates of the
Company to cover capital, operating and debt service requirements and
$25,000,000 will be available to fund the potential acquisitions of additional
- 14 -
interests in cellular systems, subject to certain conditions. As a result of
this increase request, CoBank is currently soliciting potential participations
in the facility from commercial banks. The facility will also be amended, among
other things, to extend the termination date of the loans from December 31, 1995
to December 31, 1996 to reduce the principal amortization period from five to
four years and to incorporate new financial covenants.
The Company plans to continue to construct additional cell sites during the
fiscal year to expand cellular coverage within its managed markets. The
additional coverage will increase the Company's covered pops to over 90% of the
total population of the managed markets and will increase the covered highway
miles to over 16,000. Based on the current operating plan, the Company believes
its estimated future operating cash flow as well as existing cash balances,
short-term investments and unused commitments under the Credit Agreements will
be sufficient to meet estimated future capital requirements, including
construction of additional cell sites. The current operating plan is a cash
flow analysis of the Company's participation in all cellular markets and is
based upon assumptions consistent with the Company's historical operating
experience and current industry trends.
As of March 31, 1995, the Company had funding sources of approximately
$80,348,000 which consisted of cash, cash equivalents and short-term investments
of $14,408,000 and unused commitments under the Credit Agreements of
$65,940,000.
Certain financial analysts consider EBITDA an indicator of an entity's
ability to meet long-term financial obligations as they become due and also of
the underlying value of the entity. EBITDA is a measure of operating
performance that does not reflect equity in net income or loss of affiliates,
minority interest, interest income, interest expense or deferred charges related
to debt financing, working capital fluctuations or other items involving
operating cash or adjustments to reconcile net income or loss to net cash
provided or used by operating activities. It should not be considered in
isolation to, or be construed as having greater significance than, net cash
provided or used by operating activities or other indicators of an entity's
performance. For the six months ended March 31, 1995, EBITDA was $4,616,000
compared to $774,000 for the six months ended March 31, 1994. For the six
months ended March 31, 1995, operating loss including depreciation and
amortization was $3,414,000 compared to a loss of $5,110,000 for the six months
ended March 31, 1994. The Company expects to generate positive EBITDA for
fiscal year 1995 based on current Company trends in subscriber revenue and
expense growth. A continuation of these trends would be consistent with the
historical operating performance of more established industry operators,
particularly larger MSA operators with longer operating histories. However,
there can be no assurance that these trends will continue and will result in
sufficient operating cash flow to meet debt service and capital expenditure
requirements.
- 15 -
SUPPLEMENTAL INFORMATION
GENERAL. The Company operates, manages and finances cellular telephone
systems, primarily in the mountain and plains regions of the United States. The
Company's cellular interests currently represent approximately 3,236,000 net
Company pops in 93 markets located in 15 states. These markets consist of 83
RSA markets having a total of 6,152,000 pops and 10 MSA markets having a total
of 1,274,000 pops, of which the Company's interests represent 2,614,000 net
Company pops and 622,000 net Company pops, respectively. Pops refers to the
estimated population of a market as initially licensed by the Federal
Communications Commission ("FCC"). As the five-year fill-in period for each
market expires, the manner of calculating the number of pops will change to
reflect the Cellular Geographic Service Area ("CGSA") of each market instead of
the geographic boundaries originally established by the FCC. Systems in which
the Company holds an interest constitute the largest geographic collection of
contiguous cellular markets in the United States.
The Company has concentrated its efforts on creating an integrated network
of contiguous cellular systems comprised of markets which are managed by the
Company (the "network"). Within the network, the Company provides substantially
all of the services typically offered by landline telephone systems, including
custom calling features such as call forwarding, call waiting, three-way
conference calling and, in most cases, voice mail services. The network
currently consists of 55 markets spanning eight states, comprised of 48 RSA
markets and 7 MSA markets. The Company's interests in these managed markets
represent 2,815,000 net Company pops, constituting approximately 87% of total
net Company pops. As of March 31, 1995, the RSA and MSA markets managed by the
Company had 87,377 and 36,680 subscribers, respectively, or a total of 124,057.
Information regarding the Company's interests in each affiliate, the
interest of each affiliate in a cellular licensee and the market subject to such
license as of May 5, 1995, is summarized in the following table. The table does
not reflect transactions that are pending or under negotiation. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Acquisitions and Sales."
Company Affiliate(s) Net
MSA or Interest in Interest in 1993 Company
RSA Code (1) State Affiliate(s)(2) Licensee (3) Population (4)(8) Pops (5)
- ------------ ----------------- ----------------- -------------- ------------------- ----------
MSAs:
141 Minnesota 49.00% 16.34% LP 229,336 18,362
185 Indiana 100.00% 16.67% LP 169,124 28,193
241*(6)(7) Colorado 73.99% 100.00% GP 124,638 92,220
253*(6)(7) Iowa 74.50% 100.00% GP 117,652 87,651
267*(6)(7) South Dakota 100.00% 51.00% GP 131,561 67,096
268*(6)(7) Montana 54.10% 100.00% GP 119,363 64,575
279 Maine 33.33% 33.33% GP 103,417 11,488
289*(6)(7) South Dakota 100.00% 100.00% GP 111,371 111,371
297*(6)(7) Montana 100.00% 100.00% GP 80,098 80,098
298*(6)(7) North Dakota 100.00% 70.00% GP 86,977 60,884
---------- --------
Total MSA 1,273,537 621,938
- 16 -
Company Affiliate(s) Net
MSA or Interest in Interest in 1993 Company
RSA Code (1) State Affiliate(s)(2) Licensee (3) Population (4)(8) Pops (5)
- ------------ ----------------- ----------------- -------------- ------------------- ----------
RSAs:
348*(7) Colorado 10.00% 100.00% GP 43,672 4,367
349*(6)(7) Colorado 58.60% 100.00% GP 61,659 36,132
351*(6)(7) Colorado 61.75% 100.00% GP 62,916 38,851
352*(6)(7) Colorado 66.00% 100.00% GP 25,783 17,017
353*(6)(7) Colorado 100.00% 100.00% GP 65,251 65,251
354*(6)(7) Colorado 69.40% 100.00% GP 44,328 30,764
355*(7) Colorado 49.00% 100.00% GP 44,194 21,655
356*(7) Colorado 49.00% 100.00% GP 27,259 13,357
389 Idaho 49.00% 50.00% LP 64,671 15,844
390 Idaho 49.00% 33.33% LP 15,485 2,529
392*(6)(7) Idaho (B1) 100.00% 100.00% LP 132,888 132,888
393*(6)(7) Idaho 91.64% 100.00% GP 280,569 257,113
415 Iowa 49.00% 20.64% LP 155,247 15,701
416 Iowa 49.00% 78.57% LP 108,129 41,629
417*(6)(7) Iowa 100.00% 100.00% GP 152,597 152,597
419* Iowa 49.00% 91.67% GP 54,659 24,552
420*(6)(7) Iowa 100.00% 100.00% GP 63,458 63,458
424 Iowa 49.00% 35.00% LP 66,743 11,446
425* Iowa 49.00% 27.11% LP 108,426 14,403
426*(7) Iowa 52.65% 93.33% GP 84,932 41,734
427*(7) Iowa 53.64% 91.66% GP 102,773 50,530
428(7) Kansas 100.00% 3.07% LP 28,103 863
429(7) Kansas 100.00% 3.07% LP 31,121 955
430(7) Kansas 100.00% 3.07% LP 52,640 1,616
431(7) Kansas 100.00% 3.07% LP 129,852 3,986
432(7) Kansas 100.00% 3.07% LP 118,599 3,641
433(7) Kansas 100.00% 3.07% LP 20,138 618
434(7) Kansas 100.00% 3.07% LP 81,515 2,503
435(7) Kansas 100.00% 3.07% LP 126,535 3,885
436(7) Kansas 100.00% 3.07% LP 57,937 1,779
437(7) Kansas 100.00% 3.07% LP 104,942 3,222
438(7) Kansas 100.00% 3.07% LP 81,130 2,491
439(7) Kansas 100.00% 3.07% LP 42,198 1,295
440(7) Kansas 100.00% 3.07% LP 29,155 895
441(7) Kansas 100.00% 3.07% LP 171,226 5,257
442(7) Kansas 100.00% 3.07% LP 154,341 4,738
512 Missouri (B1) 49.00% 30.00% LP 76,061 11,181
523*(7) Montana (B1) 49.00% 100.00% GP 66,841 32,752
523*(6)(7) Montana (B2) 100.00% 98.76% GP 70,350 69,478
524*(6)(7) Montana 61.75% 100.00% GP 37,386 23,086
525*(6)(7) Montana 69.40% 100.00% GP 14,877 10,325
526*(6)(7) Montana 100.00% 100.00% GP 39,843 39,843
527*(6)(7) Montana 61.75% 100.00% GP 174,631 107,835
528*(6)(7) Montana 61.75% 100.00% GP 63,009 38,908
529*(6)(7) Montana 74.50% 100.00% GP 28,742 21,413
530*(6)(7) Montana 61.75% 100.00% GP 83,488 51,554
531*(6)(7) Montana 100.00% 100.00% GP 30,990 30,990
532*(6)(7) Montana 100.00% 100.00% GP 19,431 19,431
- 17 -
Company Affiliate(s) Net
MSA or Interest in Interest in 1993 Company
RSA Code (1) State Affiliate(s)(2) Licensee (3) Population (4)(8) Pops (5)
- ------------ ----------------- ----------------- -------------- ------------------- ----------
RSAs:
533 Nebraska 61.50% 25.52% LP 90,016 14,128
534 Nebraska 61.50% 25.52% LP 31,353 4,921
535 Nebraska 61.50% 25.52% LP 115,108 18,066
536 Nebraska 61.50% 25.52% LP 35,803 5,619
537 Nebraska 61.50% 25.52% LP 142,155 22,311
538 Nebraska 61.50% 25.52% LP 105,599 16,574
539 Nebraska 61.50% 25.52% LP 89,125 13,988
540 Nebraska 61.50% 25.52% LP 58,058 9,112
541 Nebraska 61.50% 25.52% LP 81,697 12,822
542 Nebraska 61.50% 25.52% LP 85,250 13,380
553 New Mexico 49.00% 33.33% LP 245,584 40,108
555 New Mexico 49.00% 25.00% LP 76,635 9,388
557 New Mexico 49.00% 33.33% LP 55,076 8,995
580*(6)(7) North Dakota 52.76% 100.00% GP 102,513 54,086
581*(7) North Dakota 49.00% 100.00% GP 60,131 29,464
582 North Dakota 49.00% 84.59% LP 91,629 37,979
583*(7) North Dakota 49.00% 100.00% GP 65,783 32,234
584*(6)(7) North Dakota 61.75% 100.00% GP 49,671 30,672
634*(6)(7) South Dakota 100.00% 100.00% GP 35,624 35,624
635*(6)(7) South Dakota 56.29% 100.00% GP 22,563 12,701
636*(6)(7) South Dakota 57.50% 100.00% GP 53,724 30,891
638*(6)(7) South Dakota (B1) 100.00% 100.00% GP 16,443 16,443
638*(6)(7) South Dakota (B2) 100.00% 100.00% GP 8,220 8,220
639*(6)(7) South Dakota (B1) 61.75% 100.00% GP 33,390 20,618
639*(6)(7) South Dakota (B2) 61.75% 100.00% GP 5,568 3,438
640*(6)(7) South Dakota 64.49% 100.00% GP 65,549 42,273
641*(6)(7) South Dakota 61.13% 100.00% GP 71,921 43,965
642*(7) South Dakota 49.00% 100.00% GP 91,706 44,936
675*(6)(7) Utah 100.00% 100.00% GP 51,727 51,727
676*(6)(7) Utah 100.00% 100.00% GP 86,612 86,612
677*(6)(7) Utah (B3) 74.50% 100.00% GP 37,966 28,285
678*(6)(7) Utah 100.00% 80.00% GP 23,840 19,072
718*(6)(7) Wyoming 66.00% 100.00% GP 46,896 30,951
719*(6)(7) Wyoming 100.00% 100.00% GP 72,795 72,795
720*(6)(7) Wyoming 100.00% 100.00% GP 145,382 145,382
--------- ---------
Total RSA 6,151,832 2,614,138
--------- ---------
Total MSA and RSA 7,425,369 3,236,076
--------- ---------
--------- ---------
<FN>
_______________
(1) MSA ranking is based on population as established by the FCC. RSAs have
been numbered by the FCC alphabetically by state.
(2) Represents the composite ownership interest held by the Company in the
respective affiliate(s). Composite ownership by the Company in
affiliate(s) of greater than 50% does not necessarily represent a
controlling interest in any affiliate.
- 18 -
(3) Represents the composite ownership interest of the Company's affiliate(s)
in the licensee for a cellular telephone system in the respective market.
Composite ownership by affiliate(s) in a licensee of greater than 50% does
not necessarily represent a controlling interest in such licensee. GP
indicates that at least one affiliate has a general partner or controlling
interest in the licensee; LP indicates that the affiliate(s) has a limited
partner or minority interest.
(4) Derived from the Strategic Marketing, Inc. 1993 population estimates.
(5) Net Company Pops represents Company Interest in Affiliate(s) multiplied by
Affiliate(s) Interest in Licensee multiplied by 1993 Population.
(6) The operations of these markets are reflected on a consolidated basis in
the Company's consolidated financial statements for the periods ended March
31, 1995. The operations of the other markets in which the Company holds
an interest are reflected in such financial statements on either an equity
or a cost basis.
(7) The Company's interest in these markets is held, in whole or in part,
directly in the licensee.
(8) Represents population within the market area initially licensed by the FCC.
Upon expiration of the five-year fill-in period, market boundaries and
actual service areas may not be coincident.
Markets managed by the Company are denoted by an asterisk (*).
SUBSCRIBER GROWTH TABLE
Information regarding subscribers to the MSA and RSA cellular systems
managed by the Company is summarized by the following table:
Number of Estimated Population Number of
Operating Systems of Operating Systems Subscribers
------------------- ---------------------------------------- ---------------------------- Subscriber
Total MSA RSA Total MSA RSA Total MSA RSA Growth
----- ----- ----- --------- ---------- ------------ -------- ------- ------- ----------
Sept. 30, 1987 0 0 0 0 0 0 0 0 0
Sept. 30, 1988 4 4 0 504,529 504,529 (1) 0 424 424 0
Sept. 30, 1989 4 4 0 500,804 500,804 (2) 0 1,362 1,362 0 221.23%
Sept. 30, 1990 18 4 14 1,687,481 500,804 (2) 1,186,677 (2) 6,444 3,513 2,931 373.13%
Sept. 30, 1991 49 5 44 3,509,779 566,722 (3) 2,943,057 (3) 17,952 6,387 11,565 178.58%
Sept. 30, 1992 49 5 44 3,509,779 566,722 (3) 2,943,057 (3) 35,884 11,119 24,765 99.89%
Sept. 30, 1993 50 6 44 3,665,758 644,526 (4) 3,021,232 (4) 60,381 17,898 42,483 68.27%
Sept. 30, 1994 55 7 48 3,906 063 771,660 (5) 3,134,403 (5) 99,002 30,711 68,291 63.96%
Dec. 31, 1994 55 7 48 3,904,636 771,660 (5) 3,132,976 (5) 114,918 34,702 80,216 16.08%
March 31, 1995 55 7 48 3,904,636 771,660 (5) 3,132,976 (5) 124,057 36,680 87,377 7.95%
<FN>
_______________
(1) Derived from 1988 Donnelley Market Service population estimates.
(2) Derived from 1989 Donnelley Market Service population estimates.
(3) Derived from 1990 Census Report.
(4) Derived from 1992 Donnelley Market Service population estimates.
(5) Derived from 1993 Strategic Marketing, Inc. population estimates.
- 19 -
The following table presents operating data for all cellular licensees in
which the Company holds an interest. The "Combined," "Financed Proportionate"
and "Company Proportionate" operating results, which are not included in the
Company's consolidated financial statements, are provided to assist in
understanding the results of the licensees in which the Company holds an
interest. Generally accepted accounting principles ("GAAP") prescribe inclusion
of revenues and expenses for consolidated interests (generally involving
interests of more than 50%), but not for equity interests (generally involving
interests of 20% to 50%) or cost interests (generally involving interests of
less than 20%). Equity accounting results in the same net income as
consolidation, however the net operating results are reflected on one line. In
contrast, in a GAAP operating statement the equity in net income or loss of an
interest accounted for under the equity method is presented below operating
income and any operating activity related to interests accounted for under the
cost method are not reflected at all.
The amounts included in the respective columns are as follows:
Combined - Includes 100% of the operating activity of all licensees,
regardless of the Company's ownership interest. This is essentially
equivalent to consolidating all licensees regardless of ownership
percentage.
Financed Proportionate - Includes that percentage of a licensee's operating
results which equals the Company's ownership interest as well as the
ownership interest held by affiliates of the Company that are financed by
CIFC.
Company Proportionate - Includes only that percentage of a licensee's
operating results which corresponds to the Company's ownership interest.
This is essentially equivalent to a pro rata consolidation.
Six Months Ended March 31,
----------------------------------------------------------------------------------------
1995 1994 1995 1994 1995 1994
--------------------------- ---------------------------- -----------------------------
Combined Financed Proportionate Company Proportionate
--------------------------- ---------------------------- -----------------------------
MANAGED MARKETS
Revenues:
Cellular service $30,632,634 $19,816,799 $28,487,884 $18,143,975 $22,018,537 $13,709,098
Roaming 11,741,508 8,752,626 10,985,625 7,860,799 8,256,246 5,849,634
Equipment sales 2,436,845 2,470,291 2,259,232 2,253,343 1,687,086 1,656,245
----------- ----------- ----------- ----------- ----------- -----------
Total revenues 44,810,987 31,039,716 41,732,741 28,258,117 31,961,869 21,214,977
Cash costs and expenses:
Cost of sales:
Cellular service
(including
roaming) 9,719,179 6,260,522 9,186,918 5,698,926 6,797,354 3,983,567
Equipment sales 2,811,436 2,562,610 2,576,201 2,322,915 1,945,158 1,707,691
General and
administrative 12,923,156 9,964,834 12,131,513 9,105,600 9,333,603 6,597,336
Marketing and selling 12,698,455 9,133,909 11,814,069 8,312,733 9,026,762 6,286,637
----------- ----------- ----------- ----------- ----------- -----------
Total cash costs and
expenses 38,152,226 27,921,875 35,708,701 25,440,174 27,102,877 18,575,231
----------- ----------- ----------- ----------- ----------- -----------
EBITDA $ 6,658,761 $ 3,117,841 $ 6,024,040 $ 2,817,943 $ 4,858,992 $ 2,639,746
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Capital expenditures $19,522,053 $ 6,390,983 $17,295,360 $ 6,249,889 $13,389,707 $ 4,594,056
Subscriber count 124,057 78,496 114,834 70,909 87,518 53,040
Total markets 55 54 55 54 55 54
- 20 -
Six Months Ended March 31,
-----------------------------------------------------------------------------------------
1995 1994 1995 1994 1995 1994
--------------------------- --------------------------- ------------------------------
Combined Financed Proportionate Company Proportionate
--------------------------- --------------------------- ------------------------------
NONMANAGED MARKETS
Revenues:
Cellular service
(including roaming) $35,592,108 $26,859,839 $10,628,092 $ 7,501,158 $ 5,543,288 $ 3,847,400
Equipment sales 2,934,029 1,659,317 853,782 511,062 490,090 268,936
----------- ----------- ----------- ----------- ----------- -----------
Total revenues 38,526,137 28,519,156 11,481,874 8,012,220 6,033,378 4,116,336
Cash costs and expenses:
Cost of sales:
Cellular service 11,713,506 10,425,979 3,487,467 2,988,035 1,784,999 1,494,754
Equipment sales 2,050,558 (124,750) 631,365 83,971 347,255 45,428
General and
administrative 7,457,553 6,849,097 2,219,846 2,063,582 1,660,914 1,103,100
Marketing and selling 10,644,801 6,884,094 3,141,880 1,922,403 1,157,470 962,063
----------- ----------- ----------- ----------- ----------- -----------
Total cash costs
and expenses 31,866,418 24,034,420 9,480,558 7,057,991 4,950,638 3,605,345
----------- ----------- ----------- ----------- ----------- -----------
EBITDA $ 6,659,719 $ 4,484,736 $ 2,001,316 $ 954,229 $ 1,082,740 $ 510,991
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Capital expenditures $18,885,247 $12,392,107 $ 6,159,696 $ 3,202,553 $ 3,230,609 $ 1,566,779
Subscriber count 107,118 63,577 31,064 17,617 16,771 8,698
Total markets 38 29 38 29 38 29
Reconciliation From
Company Proportionate
EBITDA to Consolidated
Net Loss
Total proportionate EBITDA
(managed and
nonmanaged markets) $ 5,941,732 $ 3,150,737
Proportionate depreciation
and amortization (5,957,343) (3,967,637)
Proportionate interest
expense (4,477,732) (3,107,183)
Equity in nonlicensee
affiliates (2,613,204) (2,241,252)
Minority interests (1,145,423) (1,096,388)
Intercompany interest 3,155,605 2,239,556
Amortization of license costs
not owned by affiliats (1,062,466) (917,611)
Unallocated corporate expenses (1,617,271) (3,037,920)
Gain on sales of affiliats 67,247 2,459,004
Interest expense (net) and
other (4,565,517) (2,765,069)
------------ ------------
Consolidated net loss $(12,274,372) $ (9,283,763)
------------ ------------
------------ ------------
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The following table presents the financed proportionate operating results
and other cash activity of the financed cellular licensee affiliates in which
the Company holds an interest, in addition to incremental cash activity not
involving such affiliates. Financed proportionate activity represents cash
flows that are allocable to the Company which, when received, will be used to
pay the Company's obligations to CoBank.
Six Months Ended March 31,
--------------------------------------
1995 1994
--------------------------------------
Revenues:
Cellular service (including roaming) $ 50,101,601 $ 33,505,932
Equipment sales 3,113,014 2,764,405
------------ ------------
Total revenues 53,214,615 36,270,337
Cash costs and expenses:
Cost of sales:
Cellular service (including roaming) 12,674,385 8,686,961
Equipment sales 3,207,566 2,406,886
General and administrative 14,351,359 11,169,182
Marketing and selling 14,955,949 10,235,136
------------ ------------
Total operating expenses 45,189,259 32,498,165
------------ ------------
EBITDA 8,025,356 3,772,172
------------ ------------
Cash interest expense (net) (5,648,665) (5,701,880)
Capital expenditures, including corporate (21,677,941) (8,966,599)
Changes in operating assets and liabilities and other (966,191) (9,306,713)
------------ ------------
Cash used by financed cellular licensee affiliates (20,267,441) (20,203,020)
Acquisition activity involving cash (603,656) (3,851,216)
Nonlicensee cash corporate expenses (1,241,492) (839,095)
Changes to long-term debt and equity 13,240,324 2,635,593
------------ ------------
Change in cash and short-term investments $ (8,872,265) $(22,257,738)
------------ ------------
------------ ------------
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Sixth Addendum to Lease Agreement dated April 20, 1995
between the Company and RCB Trust Company Real Property
Trust - Southport Financial II.
(b) Reports on Form 8-K filed during the quarter ended March 31,
1995:
None.
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SIGNATURES
Pursuant to the requirements 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.
COMMNET CELLULAR INC. (Registrant)
Date: June 16, 1995 By: /s/Daniel P. Dwyer
--------------------------------------------------
Daniel P. Dwyer
Executive Vice President, Treasurer &
Chief Financial Officer
Date: June 16, 1995 By: /s/Andrew J. Gardner
--------------------------------------------------
Andrew J. Gardner
Senior Vice President and Controller
(Principal Accounting Officer)
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