SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended June 30, 2001 or
[ ] Transition report pursuant to Section 13 or 13(d) of the Securities
Exchange Act of 1934
Commission file number: 0-32617
Horizon Telcom, Inc.
(Exact name of Registrant as specified in its charter)
Ohio 31-1449037
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
68 East Main Street
Chillicothe, Ohio 45601-0480
(Address of principal executive offices)
(740) 772-8200
(Registrant's telephone number,
including area code).
APPLICABLE ONLY TO CORPORATE ISSUERS:
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 ____ No [X]*
*The Registrant's Form 10 became effective June 30, 2001.
Outstanding common stock, as of June 30, 2001:
99,726 shares of class A common stock
299,301 shares of class B common stock
HORIZON TELCOM, INC.
AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
Item Page No.
---- --------
Item 1. FINANCIAL STATEMENTS.................................................1
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL...................13
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...........25
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...........................27
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................27
Item 6. EXHIBITS AND REPORTS ON FORM 8-K....................................28
-i-
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
HORIZON TELCOM, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
As Of June 30, 2001 and December 31, 2000
- --------------------------------------------------------------------------------
June 30, December 31,
2001 2000
-------------------- -------------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 59,270,448 $ 192,011,997
Accounts receivables, less allowance for doubtful
accounts of $2,441,000 and $1,891,000 at
June 30, 2001 and December 31, 2000 16,823,213 11,329,628
Inventories 5,586,423 6,756,789
Prepayments, investments and other 27,305,843 7,790,987
-------------------- --------------------
Total current assets 108,985,927 217,889,401
-------------------- --------------------
DEFERRED CHARGES AND OTHER ASSETS:
Intangibles, net 51,455,824 52,879,934
Unamortized debt expense and other assets 21,429,239 19,754,305
-------------------- --------------------
Total deferred charges and other assets 72,885,063 72,634,239
-------------------- --------------------
PROPERTY, PLANT AND EQUIPMENT:
In service 228,588,310 170,960,204
Less - accumulated depreciation (58,671,026) (49,027,055)
-------------------- --------------------
Property, plant and equipment in service, net 169,917,284 121,933,149
Construction work in progress 71,481,756 53,608,590
-------------------- --------------------
Total property, plant and equipment 241,399,040 175,541,739
-------------------- --------------------
Total assets $ 423,270,030 $ 466,065,379
==================== ====================
(Continued on next page)
HORIZON TELCOM, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Continued)
As Of June 30, 2001 and December 31, 2000
- --------------------------------------------------------------------------------
June 30, December 31,
2001 2000
-------------------- --------------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Lines of credit $ 15,267,338 12,767,338
Current maturities of long-term debt 2,000,000 2,000,000
Accounts payable and other accrued liabilities 35,596,138 50,087,470
------------------ ---------------
Total current liabilities 52,863,476 64,854,808
------------------ ---------------
LONG-TERM DEBT AND OTHER LIABILITIES:
Notes Payable 196,762,218 185,283,104
Senior Notes 20,000,000 20,000,000
Deferred income and other liabilities 20,985,077 19,121,752
------------------ -----------------
Total long-term debt and other liabilities 237,747,295 224,404,856
MINORITY INTEREST - 983,883
CONVERTIBLE PREFERRED STOCK 139,772,789 134,421,881
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock - class A, no par value, 200,000 shares
authorized, 423,836 423,836
99,726 shares issued, stated at $4.25 per share
Common stock - class B, no par value, 500,000 shares authorized, 1,272,029 1,272,029
299,301 shares issued, stated at $4.25 per share
Additional paid-in capital 72,188,906 72,354,113
Accumulated other comprehensive income (loss) (353,073) -
Deferred compensation (1,283,345) (1,503,889)
Treasury stock - 36,707 and 43,947 shares at cost at June 30, (5,504,700) (6,624,962)
2001 and December 31, 2000, respectively
Retained deficit (73,857,183) (24,521,176)
----------------- -----------------
Total stockholders' equity (deficit) (7,113,530) 41,399,951
----------------- -----------------
Total liabilities and stockholders' equity (deficit) $ 423,270,030 $ 466,065,379
================= =================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
HORIZON TELCOM, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2001 and June 30, 2000
(unaudited)
- -------------------------------------------------------------------------------
For the Three Months Ended For the Six Months Ended
June 30, June 30,
------------------------------ --------------------------------
2001 2000 2001 2000
--------------- ------------- -------------- ---------------
OPERATING REVENUES:
Basic local and long-distance service $ 4,206,738 $ 4,412,950 $ 8,400,818 $ 8,862,953
Network access 4,011,701 3,784,856 9,040,454 8,613,856
Internet access services 826,627 882,049 1,589,731 1,836,861
Equipment systems sales, information services 1,981,413 1,848,918 3,416,918 3,308,576
and other revenues
Personal Communications Services revenue 23,229,724 4,839,692 41,365,738 7,831,391
PCS equipment revenues 1,498,774 476,617 2,574,737 1,095,245
--------------- ---------------- -------------- ------------
Total operating revenues 35,754,977 16,245,082 66,388,396 31,548,882
--------------- ---------------- -------------- --------------
OPERATING EXPENSES:
Cost of goods sold 2,521,578 1,570,185 4,861,436 3,376,379
Cost of services (exclusive of items shown
separately below) 21,264,371 7,303,179 40,423,902 13,177,000
Selling, general and administrative expenses
(exclusive of items shown separately below) 24,944,770 10,156,909 42,494,243 18,177,438
Non-cash compensation expense 835,172 112,179 945,444 374,996
Depreciation and amortization 6,239,747 2,623,337 11,374,123 5,144,402
--------------- -------------- -------------- ------------
Total operating expenses 55,805,638 21,765,789 100,099,148 40,250,215
--------------- -------------- -------------- ------------
OPERATING LOSS (20,050,661) (5,520,707) (33,710,752) (8,701,333)
--------------- ---------------- -------------- -----------
NONOPERATING INCOME (EXPENSE):
Subsidiaries preferred stock dividends (2,717,954) - (5,353,577) -
Interest income and other, net 1,427,999 309,495 4,430,539 664,136
Interest expense, net (7,037,469) (1,543,801) (13,800,872) (2,735,308)
--------------- ---------------- -------------- -----------
Total non operating income (expense) (8,327,424) (1,234,306) (14,723,910) (2,071,172)
--------------- ---------------- -------------- -----------
LOSS BEFORE INCOME TAX EXPENSE (28,378,085) (6,755,013) (48,434,662) (10,772,505)
INCOME TAX (EXPENSE) BENEFIT (346,063) (6,492) (1,023,968) 93,660
MINORITY INTEREST IN (INCOME) LOSS - (51,653) 983,883 (51,653)
--------------- ---------------- -------------- -------------
NET LOSS $ (28,724,148) $ (6,813,158) $(48,474,747) $(10,730,498)
=============== ================ ============== =============
Basic and diluted loss per share $ (79.28) $ (20.61) $ (135.14) $ (31.70)
=============== ================ ============== =============
Weighted average shares outstanding 362,320 330,607 358,696 338,455
=============== ================ ============== =============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
HORIZON TELCOM, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Other Comprehensive Income (Loss)
For the Three and Six Months Ended June 30, 2001 and June 30, 2000
(unaudited)
- -------------------------------------------------------------------------------
For the Three Months Ended June 30, For the Six Months Ended June 30,
-------------------------------------- -----------------------------------
2001 2000 2001 2000
------------------ ---------------- -------------- ----------------
Net loss available to common
stockholders $ (28,724,148) $ (6,813,158) $ (48,474,747) $ (10,730,498)
Net unrealized loss on derivative
instruments (54,168) - (353,073) -
------------------ ---------------- -------------- ----------------
Total comprehensive (loss) $ (28,778,316) $ (6,813,158) $ (48,827,820) $ (10,730,498)
================== ================ ============== ================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
HORIZON TELCOM, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2001 and 2000
(unaudited)
- --------------------------------------------------------------------------------
Six Months Ended June 30,
--------------------------------------
2001 2000
------------------ ------------------
NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES $ (37,857,168) $ 816,542
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (73,151,559) (15,494,611)
Investment in joint venture - (1,032,000)
Purchase of short term investments and other (24,880,965) -
Proceeds from sale of fixed assets - 700,000
Cash acquired in acquisition of BPCS - 4,926,803
Proceeds from return of investments in RTFC subordinated
capital certificates 2,895,646 -
------------------ ------------------
Net cash used in investing activities (95,136,878) (10,899,808)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable - borrowing 2,500,000 14,802,433
Deferred financing fees and other (1,381,933) (1,340,435)
Treasury stock received as a dividend (4,310) -
Dividends paid (861,260) (917,479)
------------------ ------------------
Net cash provided by financing activities 252,497 12,544,519
------------------ ------------------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (132,741,549) 2,461,253
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 192,011,997 3,791,455
------------------ ------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 59,270,448 $ 6,252,708
================== ==================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
HORIZON TELCOM, INC. AND SUBSIDIARIES
Notes to Interim Condensed Consolidated Financial Statements
June 30, 2001
(Unaudited)
- --------------------------------------------------------------------------------
(1) General
The results of operations for the interim periods shown are not necessarily
indicative of the results to be expected for the fiscal year. In the
opinion of Management, the information contained herein reflects all
adjustments necessary to make a fair statement of the results for the three
and six months ended June 30, 2001 and 2000. All such adjustments are of a
normal recurring nature.
(2) Organization and Business Operations
The Company provides a variety of voice and data services to commercial,
residential/small business and local market segments. The Company provides
landline telephone service, VDSL television service, and Internet access
services to the southern Ohio region, principally in and surrounding
Chillicothe, Ohio. The Company also provides PCS operations to a twelve
state region in the Midwest, including Ohio, Indiana, Virginia,
Pennsylvania, Tennessee and West Virginia, as an affiliate of Sprint PCS.
On April 26, 2000, Horizon Telcom, Inc. formed Horizon PCS, Inc. On June
27, 2000, Horizon Telcom, Inc. transferred 100% ownership of Horizon
Personal Communications, Inc. to Horizon PCS in exchange for 53,806,200
shares of stock of Horizon PCS. This transfer was accounted for as a
reorganization of companies under common control in a manner similar to a
pooling-of-interests in the consolidated financial statements. Horizon
Personal Communications, Inc. will continue to exist and conduct business
as a wholly-owned subsidiary of Horizon PCS.
The accompanying condensed consolidated financial statements reflect the
operations of Horizon Telcom, Inc. (the Company) and its subsidiaries, The
Chillicothe Telephone Company (Chillicothe Telephone), Horizon PCS, Inc.
(Horizon PCS), Horizon Services, Inc. (Services), and United
Communications, Inc. (United). All material intercompany transactions and
balances have been eliminated in consolidation.
(3) Summary of Significant Accounting Policies
Note 1 to the Notes to the Consolidated Financial Statements in the
Company's December 31, 2000 Financial Statements, contained in the
Company's Form 10, summarizes the Company's significant accounting
policies.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission (SEC). Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United
States have been condensed or omitted pursuant to such rules and
regulations.
Net Loss per Share
The Company computes net loss per common share in accordance with SFAS No.
128, Earnings per Share and SEC Staff Accounting Bulletin No. 98. Basic and
diluted loss per share is computed by dividing loss, for each period, by
the weighted-average outstanding common shares. No conversion of common
stock equivalents (stock options granted by the Company) has been assumed
in the calculations since the effect would be antidilutive. As a result,
the number of weighted-average outstanding common shares as well as the
6
HORIZON TELCOM, INC. AND SUBSIDIARIES
Notes to Interim Condensed Consolidated Financial Statements
June 30, 2001
(Unaudited
- --------------------------------------------------------------------------------
amount of net loss per share are the same for basic and diluted net loss
per share calculations for all periods presented. Horizon PCS has issued
stock options, stock purchase warrants and convertible preferred stock,
which may impact minority interest and the related earnings or loss of the
Company.
Accounting for Rate Regulation
Chillicothe Telephone is subject to rate-regulation. SFAS No. 71,
Accounting for the Effects of Certain Types of Rate Regulation, provides
that rate-regulated utilities account for revenues and expenses and report
assets and liabilities consistent with the economic effect of the way in
which the regulators establish rates. Chillicothe Telephone follows the
accounting and reporting requirements of SFAS No. 71. As of June 30, 2001,
the Company has recorded regulatory assets and liabilities of approximately
$464,000 and $1,300,000, respectively. As of December 31, 2000, regulatory
assets and liabilities were approximately $600,000 and $475,000,
respectively.
Financial Instruments
The Company's policies do not permit the use of derivative financial
instruments for speculative purposes. The Company uses interest rate swaps
to manage interest rate risk. The net amount paid or received on interest
rate swaps is recognized as an adjustment to interest expense.
The Company has adopted SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS No. 133), as amended by SFAS No. 138,
Accounting for Derivative Instruments and Certain Hedging Activities. These
statements established accounting and reporting standards for derivative
instruments and hedging activities that require an entity to recognize all
derivatives as an asset or liability measured at fair value. Depending on
the intended use of the derivative, changes in its fair value will be
reported in the period of change as either a component of earnings or a
component of other comprehensive income. Pursuant to the derivative
criteria established by SFAS No. 133, items with exposure to variability in
expected future cash flows that is attributable to a particular risk is
considered a cash flow hedge. The exposure may be associated with an
existing recognized asset or liability such as future interest payments on
variable-rate debt.
In January, 2001, Horizon PCS entered into an interest rate swap with a
notional amount of $25,000,000. The swap has been designated as a hedge of
a portion of the future variable interest cash flows expected to be paid on
borrowings under its senior secured credit facilities. For the three and
six months ended June 30, 2001, Horizon PCS recorded an unrealized loss of
approximately $54,000 and $353,000, respectively, in other comprehensive
income (loss) associated with the change in the fair value of the swap.
Horizon PCS also recognized other expense of approximately $77,000, for the
three and six months ended June 30, 2001, related to the decline in
effectiveness of the hedge.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 addresses financial accounting and reporting for all
business combinations and requires that all business combinations entered
into subsequent to June 2000 be recorded under the purchase method. This
statement also addresses financial accounting and reporting for goodwill
and other intangible assets acquired in a business combination at
acquisition. SFAS No. 142 addresses financial accounting and reporting for
intangible assets acquired individually or with a group of other assets at
7
HORIZON TELCOM, INC. AND SUBSIDIARIES
Notes to Interim Condensed Consolidated Financial Statements
June 30, 2001
(Unaudited)
- --------------------------------------------------------------------------------
acquisition. This statement also addresses financial accounting and
reporting for goodwill and other intangible assets subsequent to their
acquisition.
These statements will be adopted by the Company on January 1, 2002.
Goodwill amortization will cease as of December 31, 2001 and the Company
will be required to complete an impairment test of the remaining goodwill
balance annually (more frequently if impairment indicators arise). The
Company has not yet determined the financial impact the adoption of these
pronouncements will have on its financial position or results of
operations. As of June 30, 2001, Horizon PCS has goodwill of approximately
$7,386,000 related to the acquisition of Bright PCS in June 2000. The
valuation of this goodwill would be subject to an impairment test at the
date of adoption.
Reclassifications
Certain prior year amounts have been reclassified to conform with the 2001
presentation.
(4) Acquisitions
During 1999 Horizon PCS entered into a joint venture agreement through the
purchase of 25.6% of Bright Personal Communications Services, LLC (Bright).
The investment was accounted for under the equity method. The joint venture
was established in October 1999 to provide personal communications services
in Ohio, Indiana, and Michigan.
On June 27, 2000, Horizon PCS acquired the remaining 74.4% of Bright in
exchange for approximately 8% of Horizon PCS' class B common stock
(4,678,800 shares valued at approximately $34,000,000) and approximately
40% of the Horizon Telcom, Inc. common stock owned by Horizon PCS (31,912
shares valued at $15,300,000).
This acquisition was treated as a purchase for accounting purposes. The
condensed consolidated statement of operations includes the results of
Bright from June 28, 2000.
In conjunction with this transaction, Horizon PCS also acquired the Bright
management agreement with Sprint PCS and, with it, the right to operate
using Sprint PCS licenses in Bright's markets. Horizon PCS has recognized
an intangible asset totaling $33,000,000 related to this licensing
agreement which will be amortized over 20 years, the initial term of the
underlying management agreement. Amortization commenced in June 2000.
Amortization expense for the three and six months ended June 30, 2001 is
approximately $427,000 and $854,000; amortization expense for the three and
six months ended June 30, 2000 is $14,000.
The purchase price, exceeds the fair market value of the net assets
acquired by approximately $7,778,000. The resulting goodwill will be
amortized on a straight-line basis over 20 years. Amortization commenced in
June 2000. Amortization expense for the three and six months ended June 30,
2001 is approximately $97,000 and $194,000; amortization expense for the
three and six months ended June 30, 2000 is $2,000 (see Note 3).
The purchase price allocation of the fair value of assets acquired and
liabilities assumed is summarized below:
8
HORIZON TELCOM, INC. AND SUBSIDIARIES
Notes to Interim Condensed Consolidated Financial Statements
June 30, 2001
(Unaudited)
- --------------------------------------------------------------------------------
Working capital $ 2,072,000
Property and equipment 6,328,000
Sprint PCS licenses 33,000,000
Goodwill 7,777,752
Other assets 122,000
The following unaudited pro forma summary presents the net revenues, net
loss and loss per share from the combination of the Company and Bright, as
if the acquisition had occurred at the beginning of the 2000 fiscal year.
The pro forma information is provided for information purposes only. It is
based on historical information and does not necessarily reflect the actual
results that would have occurred nor is it necessarily indicative of the
future results of operations of the combined enterprise:
Three Months Ended June Six Months Ended June
30, 2000 30, 2000
--------------------------- -----------------------
Net revenue.......................... $ 15,991,523 $ 31,041,765
Net loss ............................ (7,562,555) (11,532,931)
Basic and diluted loss per share..... (22.87) (34.08)
Prior to acquisition, Bright had not commenced revenue-generating
operations and was paying a management fee to its investor, Horizon PCS.
The management fee recognized by Horizon PCS in the period prior to the
acquisition date is included in net revenue in the accompanying Statement
of Operations. In the pro forma disclosure above, this management fee
revenue is fully eliminated.
(5) Segment Information
The Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 requires companies to
define and report financial and descriptive information about its operating
segments. The Company is organized around the differences in products and
services it offers. Under this organizational structure, the Company
operates in two reportable business segments: landline telephone services
and wireless personal communications services. The landline telephone
services segment includes three major revenue streams: basic local service,
long-distance service and network access services. The wireless personal
communications services segment includes three major revenue streams: PCS
subscriber revenues, PCS roaming revenues and PCS equipment sales.
The Company evaluates the performance of the segments based on operating
earnings before the allocation of administrative expenses. Information
about interest income and expense, and income taxes is not provided on a
segment level. The accounting policies of the segments are the same as
described in the summary of significant accounting policies. Corporate
assets represent assets maintained by services for the benefit of all
segments.
The following table includes revenue, intercompany revenues, operating
earnings (loss), depreciation and amortization expense and capital
expenditures for the three and six months ended June 30, 2001 and 2000 and
assets as of June 30, 2001 and December 31, 2000 for each segment and
reconciling items necessary to total to amounts reported in the financial
statements:
9
HORIZON TELCOM, INC. AND SUBSIDIARIES
Notes to Interim Condensed Consolidated Financial Statements
June 30, 2001
(Unaudited)
- --------------------------------------------------------------------------------
Net Revenues
----------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- --------------------------------
2001 2000 2001 2000
--------------- ------------- ------------- --------------
Landline telephone services $ 8,218,439 $8,197,806 $17,441,272 $17,476,809
Personal communication 24,728,498 5,316,309 43,940,475 8,926,636
services
All other 2,808,040 2,730,967 5,006,649 5,145,437
--------------- ------------- ------------- --------------
Total net revenues $ 35,754,977 $16,245,082 $ 66,388,396 $31,548,882
=============== ============= ============= ==============
Intercompany Revenues
----------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- --------------------------------
2001 2000 2001 2000
--------------- ------------- ------------- --------------
Landline telephone services $ 206,153 $ 148,816 $ 446,911 $ 304,432
Personal communication 42,913 4,346 84,592 9,152
services
All other 50,416 3,470 52,492 7,920
--------------- ------------- ------------- --------------
Total intercompany revenues $ 299,482 $ 156,632 $ 583,995 $ 321,504
=============== ============= ============= ==============
Operating Earnings (Loss)
----------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- --------------------------------
2001 2000 2001 2000
--------------- ------------- ------------- --------------
Landline telephone services $ 2,420,788 $ 2,897,573 $ 6,195,550 $ 6,423,639
Personal communication (20,080,988) (6,475,668) (34,527,383) (11,608,301)
services
All other 811,894 824,200 823,027 1,601,412
Unallocated administrative expenses (3,202,355) (2,766,812) (6,201,946) (5,118,083)
--------------- ------------- ------------- --------------
Total operating earnings (loss) $ (20,050,661) $ (5,520,707) $(33,710,752) $ (8,701,333)
=============== ============= ============= ==============
Depreciation and Amortization
----------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- --------------------------------
2001 2000 2001 2000
--------------- ------------- ------------- --------------
Landline telephone services $ 1,540,381 $ 1,578,948 $ 3,039,409 $ 3,131,069
Personal communication 4,407,543 900,372 7,821,586 1,779,343
services
All other 291,823 144,017 513,128 233,990
--------------- ------------- ------------- --------------
Total depreciation and
amortization $ 6,239,747 $ 2,623,337 $ 11,374,123 $ 5,144,402
=============== ============= ============= ==============
Capital Expenditures
----------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- --------------------------------
2001 2000 2001 2000
--------------- ------------- ------------- --------------
Landline telephone services $ 1,148,973 $ 3,298,476 $ 3,866,095 $ 5,579,486
Personal communication 33,965,565 9,039,014 66,019,254 9,808,084
services
All other 2,013,537 98,135 3,266,210 107,041
--------------- ------------- ------------- --------------
Total capital expenditures $ 37,128,075 $ 12,435,625 $ 73,151,559 $ 15,494,611
=============== ============= ============= ==============
10
HORIZON TELCOM, INC. AND SUBSIDIARIES
Notes to Interim Condensed Consolidated Financial Statements
June 30, 2001
(Unaudited)
- --------------------------------------------------------------------------------
Assets
----------------------------------
June 30, December 31,
2001 2000
-------------- ---------------
Landline telephone services $ 73,704,585 $ 70,991,973
Personal communication 335,203,707 385,060,550
services
All other 9,669,649 4,711,189
Corporate 4,692,089 5,301,667
-------------- ---------------
Total assets $ 423,270,030 $ 466,065,379
============== ===============
Other business activities of the company include Internet access services,
equipment systems sales, information services and other revenues which do
not meet the definition of a reportable segment under SFAS No. 131. Amounts
related to these business activities are included above under "All other."
Unallocated administrative expenses represent selling, general and
administrative expenses which are incurred at a corporate level. Corporate
assets represents common assets not identified to an operating segment.
Net operating revenues by product and services were as follows:
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- --------------------------------
2001 2000 2001 2000
-------------- -------------- ------------- --------------
Basic local service $ 3,661,483 $ 3,607,839 $ 7,239,286 $ 7,172,498
Long-distance service 545,255 805,111 1,161,532 1,690,455
Network access 4,011,701 3,784,856 9,040,454 8,613,856
-------------- -------------- ------------- --------------
Total landline telephone services 8,218,439 8,197,806 17,441,272 17,476,809
-------------- -------------- ------------- --------------
PCS subscriber revenue 15,491,834 3,464,908 27,513,389 5,895,179
PCS roaming revenue 7,737,890 1,374,784 13,852,349 1,936,212
PCS equipment sales 1,498,774 476,617 2,574,737 1,095,245
-------------- -------------- ------------- --------------
Total personal communication services 24,728,498 5,316,309 43,940,475 8,926,636
-------------- -------------- ------------- --------------
Internet access services 826,627 882,049 1,589,731 1,836,861
Equipment system sales 443,781 395,281 707,201 724,493
Information services 338,011 314,306 605,146 603,310
All other 1,199,621 1,139,331 2,104,571 1,980,773
-------------- -------------- ------------- --------------
Total other 2,808,040 2,730,967 5,006,649 5,145,437
-------------- -------------- ------------- --------------
-------------- -------------- ------------- --------------
Total operating revenues $ 35,754,977 $ 16,245,082 $ 66,388,396 $ 31,548,882
============== ============== ============= ==============
(6) Investments
At June 30, 2001, the Company held approximately $24,881,000 of short-term
investments with maturities greater than three months but less than twelve
months.
11
HORIZON TELCOM, INC. AND SUBSIDIARIES
Notes to Interim Condensed Consolidated Financial Statements
June 30, 2001
(Unaudited)
- --------------------------------------------------------------------------------
(7) Commitments and Contingencies
Operating Leases
The Company leases office space and various equipment under several
operating leases. In October 1999, Horizon PCS signed a tower lease
agreement with a third party whereby it will lease the towers for
substantially all of Horizon PCS' cell sites. The leases are operating
leases with a term of five to ten years with three consecutive five-year
renewal option periods. In addition, Horizon PCS will receive a site
development fee from the tower lessor for certain tower sites which the
lessor constructs on behalf of Horizon PCS. Such fees are deferred and
amortized over the life of the related lease.
Legal Matters
The Company is party to legal claims arising in the normal course of
business. Although the ultimate outcome of the claims cannot be ascertained
at this time, it is the opinion of management that none of these matters,
when resolved, will have a material adverse impact on the Company's results
of operations or financial condition.
Vendor Agreement
In August 1999, Horizon PCS entered into a wholesale network services
agreement with a third-party vendor. The initial term is through June 8,
2008 with four automatic ten-year renewals. The monthly billings under the
agreement are based on usage. No minimum usage is required under the
agreement.
Construction Expenditures
Construction expenditures in 2001 are estimated to be $138,000,000. The
majority of the estimated expenditures are for the build-out of the PCS
Network . The Company expects to finance construction primarily through
available cash on hand at June 30, 2001 and additional external financing.
12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
This discussion reflects the operations of Horizon Telcom, Inc. and its
subsidiaries, The Chillicothe Telephone Company, Horizon PCS, Inc., Horizon
Services, Inc., and United Communications, Inc. This discussion and analysis
should be read in conjunction with the consolidated financial statements and the
related notes.
Horizon Telcom operates primarily within two operating segments: landline
telephone services and personal communications services. See Note 3 of "Notes to
Consolidated Financial Statements" and Note 5 of "Notes to Interim Condensed
Consolidated Financial Statements" for additional financial information
regarding Horizon Telcom's operating segments.
At June 30, 2001, Chillicothe Telephone serviced 37,889 access lines in
Chillicothe, Ohio and the surrounding area. United Communications provided
Internet service to 15,933 customers through its bright.net Internet service.
At June 30, 2001, Horizon PCS had launched service in 43 markets covering
approximately 5.7 million residents, or approximately 56% of the total
population in its territory, and had 106,268 customers. We expect to launch all
of our markets and be offering service to approximately 6.7 million residents,
or 66% of the total population in our territory, by the third quarter of 2001,
at which time our planned network build-out will be substantially complete.
HISTORY AND BACKGROUND
Horizon Telcom is a holding company which, in addition to its 92% ownership
interest (55.8% on a fully diluted basis) in Horizon PCS, owns 100% of
Chillicothe Telephone, a local telephone company in service for 105 years.
Horizon Telcom also owns 100% of Horizon Services, which provides administrative
services to Horizon PCS and other Horizon Telcom affiliates, and 100% of United
Communications, a separate long distance and Internet services business. Prior
to providing PCS service, one of Horizon PCS' subsidiaries operated a DirecTV
affiliate. We sold that business in 1996. We also launched our Internet services
business in 1995, which we transferred from Horizon PCS to United Communications
in April 2000.
Horizon Telcom provides a variety of voice and data services to commercial,
residential/small business and local market segments. Horizon Telcom provides
landline telephone service, VDSL television service, and Internet access
services to the southern Ohio region, principally in and surrounding
Chillicothe, Ohio. Horizon Telcom also provides PCS operations to a twelve-state
region in the Midwest, including Ohio, Indiana, Virginia, and West Virginia, as
an affiliate of Sprint PCS.
RESULTS OF OPERATIONS
The landline telephone services operating segment consists of basic local
and long-distance service and network access services.
IntraLATA, i.e., the area of southern Ohio, including Columbus originally
covered by area code 614, and basic local exchange long-distance service revenue
consists of flat rate services and measured services billed to customers
utilizing Chillicothe Telephone's telephone network. Long distance
intraLATA/interstate revenue consists of message services that terminate beyond
the basic service area of the originating wire center.
Network access revenue consists of revenue derived from the provision of
exchange access services to an interexchange carrier or to an end user beyond
the exchange carrier's network.
13
The personal communications services operating segment consists primarily
of PCS subscriber revenues, Sprint PCS roaming revenues, non-Sprint PCS roaming
revenues and PCS equipment sales. PCS subscriber revenues consist primarily of
monthly service fees and other charges billed to our customers for Sprint PCS
service in our territory under a variety of service plans. Roaming revenues
consist of Sprint PCS roaming and travel and non-Sprint PCS roaming and travel.
We receive Sprint PCS roaming revenues at a per minute rate from Sprint PCS or
another Sprint PCS affiliate when Sprint PCS subscribers based outside of our
territory use our portion of the Sprint PCS network. Non-Sprint PCS roaming
revenues include payments from wireless service providers, other than Sprint
PCS, when those providers' subscribers roam on our network.
We record 100% of PCS subscriber revenues from our customers, Sprint PCS
roaming revenues from Sprint PCS subscribers based outside our markets and
non-Sprint PCS roaming revenues. Sprint PCS retains 8% of all collected service
revenue as a management fee. Collected service revenues include PCS subscriber
revenues and non-Sprint PCS roaming revenues, but exclude Sprint PCS roaming
revenues and revenues from sales of equipment. We report the amounts retained by
Sprint PCS as selling, general and administrative expenses.
PCS equipment sales consist of digital handsets and accessories sold to our
customers. Certain of our equipment sales are made through independent
distributors under agreements allowing rights of return on merchandise unsold by
the distributors. We defer recognition of such sales until the merchandise is
sold by the distributors.
Other revenues include Internet access services, equipment systems sales,
information services and paging services.
Internet access revenues for our bright.net services are monthly service
fees and other charges billed to our bright.net customers. Service fees
primarily consist of monthly recurring charges billed to customers.
Equipment system sales, information services, paging and other revenues
consist of sales made by Chillicothe Telephone to various businesses or other
residential customers for equipment used on the telephone system. Each year a
telephone directory is published which provides a source of revenue from yellow
page advertising. Revenue also consists of operator services, local directory
assistance, and paging services, the latter provided by United Communications
until its divestiture of that business in December, 2000.
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------------- ----------------------------------
2001 2000 2001 2000
---------------- ------------------ ------------------ ---------------
-------------------------------------------------------------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
----------- ---- ------------ ----- ------------ ---------- ----
(Dollars in thousands, except PCS ARPU)
Landline telephone services $ 8,218 23 $ 8,198 50 $ 17,441 26 $ 17,477 56
Personal communications equipment and
service 24,728 69 5,316 33 43,940 66 8,927 28
Other revenues 2,809 8 2,731 17 5,007 8 5,145 16
----------- ------------ ------------ ----------
Total revenues $ 35,755 $ 16,245 $ 66,388 $ 31,549
PCS ARPU (including roaming)(1) $ 82 $ 70 $ 81 $ 66
PCS ARPU (excluding roaming)(1) 55 50 54 49
-----------------------------
(1) ARPU, average revenue per unit, is an industry term that measures total PCS
service revenues per month from our subscribers divided by the average
number of subscriber units for that month. ARPU, including roaming, is ARPU
with Sprint PCS roaming and travel and non-Sprint PCS roaming and travel.
ARPU excluding roaming excludes Sprint PCS roaming and travel and
non-Sprint PCS roaming and travel.
14
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000
Operating Revenues
Landline Telephone Services
2001 2000 $ change % change
---- ---- -------- --------
(Dollars in thousands)
Basic local and long-distance service $4,207 $4,413 $(206) (5%)
Network access 4,012 3,785 227 6%
Basic local and long-distance service revenue as well as network access
revenues were essentially flat to the comparable prior year period.
Long-distance service revenue decreased for the three months ended June 30, 2001
as the company continues to see lower usage for long-distance service. We expect
this trend to continue for the foreseeable future, as more customers use
wireless devices where long distance is included for one monthly fee. The
increase in network access was attributable to increased usage on our network.
Personal Communications Equipment And Services
2001 2000 $ change % change
---- ---- -------- --------
(Dollars in thousands)
PCS service revenue $23,230 $4,840 $18,390 380%
PCS equipment revenue 1,499 477 1,022 214%
The growth in PCS service revenues is the result of the growth in our
customer base as well as an increase in travel and roaming revenue. Subscriber
revenues increased $12.0 million for the three months ended June 30, 2001. We
had 106,268 customers at June 30, 2001, compared to 26,980 at June 30, 2000. Our
customer base has grown because we have launched additional markets and
increased our sales force.
Roaming revenues increased $6.3 million in the second quarter of 2001
compared to the same period in 2000. This increase primarily resulted from the
continued build out of our network, including highways covering northwest Ohio,
northern Indiana and Pennsylvania. We expect continued volume increases in
Sprint PCS roaming revenues as we complete the remainder of our network
build-out, including completing other portions of our network covering
additional heavily traveled highways.
On April 27, 2001, Sprint PCS and its affiliates agreed on a new roaming
rate structure, decreasing the per minute receivable and payable for roaming
usage from its pervious amount of $0.20 per minute to $0.15 per minute on June
1, 2001, $0.12 per minute on October 1, 2001, and a cost return basis
(approximately $0.10 per minute) on January 1, 2002. We expect this decrease in
the rate to reduce our overall roaming revenue and expense per minute. We
anticipate this rate reduction to be offset by volume increases resulting in
greater overall roaming revenue and expense in the future.
PCS ARPU excluding roaming and travel increased for the three months ended
June 30, 2001 compared to the three months ended June 30, 2000 to $55 from $50
primarily as a result of the increased minutes of use by our customers. As our
customers exceed their allotted plan minutes, they incur additional charges for
subsequent usage.
PCS equipment revenues consist of handsets and accessories sold to
customers. Equipment revenues for the three months ended June 30, 2001 were $1.5
million, compared to $500,000 for the three months ended June 30, 2000, an
increase of $1.0 million. The increase in equipment revenues is the result of
our increase in customers. We added 21,587 customers during the three months
ended June 30, 2001 compared to 7,142 during the three months ended June 30,
2000.
15
Other Revenues
2001 2000 $ change % change
---- ---- -------- --------
(Dollars in thousands)
Internet access services $ 827 $ 882 $(55) (6%)
Equipment systems sale, information services,
and other revenues 1,981 1,849 132 7%
Other revenues were essentially unchanged for the three months ending June
30, 2001 compared to the same period in 2000.
Operating Expenses
Cost of goods sold. Cost of goods sold primarily includes the costs of
handsets and accessories sold to customers. Cost of goods sold also includes, to
a lesser extent, the cost of business system sales incurred by Chillicothe
Telephone. Cost of goods sold for the three months ended June 30, 2001 was $2.5
million, compared to $1.6 million for the three months ended June 30, 2000, an
increase of $900,000. The increase in the cost of goods sold is the result of
the growth in our wireless customers partially offset by the decreasing unit
cost of the handsets. We added 21,587 customers in the second quarter of 2001
compared to 7,142 in the second quarter of 2000. For competitive and marketing
reasons, we have sold handsets to our customers below our cost and expect to
continue to sell handsets at a price below our cost for the foreseeable future.
Cost of services. Cost of services for Chillicothe Telephone and United
includes the support, switching, access, and circuitry expenses utilized for
maintaining telephone service. Cost of services also includes expenses related
to the startup of Chillicothe Telephone's VDSL service. Cost of services for
Horizon PCS includes site rent, utilities, maintenance, engineering and network
personnel, interconnection expenses, Sprint PCS roaming fees, non-Sprint roaming
fees, and other expenses related to operations. Horizon PCS pays Sprint PCS
roaming fees when Horizon PCS' customers use Sprint PCS' network outside of our
territory. Horizon PCS pays non-Sprint PCS roaming fees to other wireless
service providers when our customers use their networks. Also included in cost
of services are costs incurred under Horizon PCS' network services agreement
with the Alliances. Horizon PCS pays the Alliances a per minute use charge
whenever our customers or Sprint PCS subscribers use their network.
Under Horizon PCS' build-to-suit agreement with SBA, Horizon PCS receives
site development fees for towers SBA constructs and leases to Horizon PCS. Each
site development fee received is recorded as a deferred credit and is amortized
over the term of the lease, thereby effectively reducing our tower lease
expense.
Cost of services for the three months ended June 30, 2001 was $21.3
million, compared to $7.3 million for the three months ended June 30, 2000, an
increase of $14.0 million. Of the increase, $13.9 million was related to Horizon
PCS, while Chillicothe Telephone and United were essentially flat, increasing
$100,000.
Horizon PCS' increase in cost of services reflects the increase in Sprint
PCS roaming fees of $4.4 million, an increase in costs incurred under our
network services agreement with the Alliances of $3.3 million, the increase in
network operations, including tower lease expense and circuit costs, of $2.5
million, long distance toll and roaming expense increases of $1.8 million,
network payroll expense of $1.1 million, and an increase in other variable
expenses of $800,000.
Horizon PCS is currently negotiating an amendment to its agreement with the
Alliances and a related amendment to its Sprint PCS agreements. If the
Alliances' amendment is executed, Horizon PCS will be obligated to begin paying
fixed minimum monthly fees for a stated minimum period. Horizon PCS expects to
incur lower overall fees under this new arrangement at expected usage levels.
The Alliances will also be obligated to upgrade their networks to provide 3G
technology. In connection with this amendment, the Alliances would agree with
Sprint PCS to modify their networks to cause Sprint PCS to be in compliance with
the FCC's construction requirements for PCS networks. Horizon PCS would be
responsible for completion of the network modification if the Alliances fail to
comply.
Selling, general and administrative expenses. Selling, general and
administrative expenses consist of sales and marketing expenses and general and
administrative costs. Sales and marketing expenses relate to salaries and
commissions paid to our sales representatives and sales support personnel,
commissions paid to national and local third party distribution channels,
16
operating costs associated with our retail stores, costs associated with
distribution channels, handset subsidies on units sold by third parties for
which we do not record revenue, and marketing and advertising programs. General
and administrative costs relate to corporate personnel, including executives and
customer care, as well as certain back office services, including customer
activation, billing and customer care, performed by Sprint PCS. The 8% of
collected service revenues retained by Sprint PCS is also included in selling,
general and administrative costs.
Selling, general and administrative expenses rose to $24.9 million for the
three months ended June 30, 2001, compared to $10.2 million for the same period
in 2000, an increase of $14.7 million. Horizon PCS' increase was $14.6 million,
while Chillicothe Telephone and United were essentially flat, increasing
$100,000 for the three months ended June 30, 2001 compared to the same period in
the prior year.
The Horizon PCS increase reflects the 8% fee paid to Sprint PCS on our
increased collected service revenues (an increase of $1.0 million), the costs of
operating 21 retail stores at June 30, 2001 compared to 4 at June 30, 2000
including marketing and selling expenses (an increase of $6.3 million),
additional customer support personnel and associated activities, including
Sprint PCS support charges (an increase of $1.8 million), increased subsidies
paid to third party vendors for handsets sold (an increase of $1.6 million),
increased headcount and professional services at Horizon Services needed to
support our growth (an increase of $700,000). General and administrative
expenses includes a provision for uncollectible accounts (an increase of $1.2
million), professional services, including costs related to pursuing strategic
alternatives (an increase of $1.3 million), and other general expenses including
property and franchise taxes (an increase of $700,000). We expect selling,
general and administrative expenses to increase in the aggregate as we expand
our coverage and add customers, but to decrease as a percentage of revenues.
Non-cash compensation expense. For the three months ended June 30, 2001 and
2000, we recorded stock-based compensation expense of approximately $835,000 and
$112,000, respectively. The $835,000 includes $725,000 related to the
distribution of 7,249 shares of Horizon Telcom stock to employees of Horizon PCS
and $110,000 related to certain stock options granted in November 1999. All of
the compensation expense represents general and administrative expense.
Stock-based compensation expense will continue to be recognized through the
conclusion of the vesting period for these options in 2005. The annual non-cash
compensation expense expected to be recognized for these options is
approximately $441,000 in 2001, $413,000 in 2002, $389,000 in 2003, $193,000 in
2004, and $71,000 in 2005.
Depreciation and amortization expense. Depreciation and amortization
expenses increased by $3.6 million to a total of $6.2 million in 2001. The
increase reflects the continuing construction of our PCS network as well as
capital additions for VDSL and other telephone services. Because our acquisition
of Bright PCS was accounted for as a purchase transaction, amortization has
increased as a result of amortizing the intangible assets.
At September 30, 2000, Horizon PCS recorded an intangible asset of $13.4
million for the value of warrants we agreed to grant to Sprint. The intangible
asset will be amortized over the remaining term of the Sprint PCS management
agreement, resulting in $752,000 of amortization expense per year. Amortization
expense for the three months ended June 30, 2001 was approximately $188,000.
Subsidiaries preferred stock dividend. Horizon PCS' convertible preferred
stock pays a stock dividend at the rate of 7.5% per annum, payable semi-annually
commencing April 30, 2001. For the three months ended June 30, 2001, we accrued
a stock dividend of $2.7 million. On May 1, 2001, Horizon PCS issued an
additional 1,163,051 shares of preferred stock in payment of the stock dividend
through April 30, 2001.
Interest income and other, net. Interest income and other for the three
months ended June 30, 2001 was $1.4 million and consisted primarily of interest
income. Interest income was generated from the short-term investment of cash
proceeds from Horizon PCS' private equity sales, senior discount notes and
drawings under the senior secured credit facility, all completed on September
17
26, 2000. As capital expenditures are made to complete the build-out of our
network, decreasing cash balances will result in lower daily interest income in
the future.
Interest expense, net. Interest expense for the three months ended June 30,
2001 was $7.0 million, compared to $1.5 million in 2000, and consisted of
interest on debt. The increase in interest expense is the result of our
additional debt outstanding during the three months ended June 30, 2001 compared
to the same period in 2000.
Chillicothe Telephone's line of credit resulted in additional interest
expense of $200,000 for the three months ended June 30, 2001. Chillicothe
Telephone's line of credit accrues interest on the outstanding balance at a
fluctuating rate tied to the LIBOR rate (5.6% as of June 30, 2001) and is due
and payable monthly. The outstanding balance at June 30, 2001 was $15.3 million.
Horizon PCS' interest expense for the three months ended June 30, 2001 was
$6.5 million. Interest on Horizon PCS' senior secured credit facility accrues at
LIBOR plus our specified margin (approximately 8.1% at June 30, 2001). Horizon
PCS accrues interest at a rate of 14% per annum on the senior discount notes
through October 1, 2005 and will pay interest semi-annually in cash thereafter.
We expect our interest expense to increase in the future as we borrow under the
senior credit facility to fund the network build out and operating losses.
Interest expense also includes the amortized amount of deferred financing fees
related to the senior secured credit facility, senior discount notes, and the
amortization of the related warrants. At June 29, 2001, we agreed to several
changes in the senior credit facility including a 0.25% increase in the annual
interest rate. We expect our interest expense to increase in the future as we
borrow under the senior credit facility to fund the network build out and
operating losses.
Income tax expense (benefit). Income tax expense was approximately $346,000
for the three months ended June 30, 2001 compared to approximately $7,000 for
the three months ended June 30, 2000. As a result of the sale of Horizon PCS
convertible preferred stock in September 2000, Horizon PCS will not be able to
participate in the tax sharing agreement with its parent nor will Horizon Telcom
be able to recognize any net operating loss benefits from Horizon PCS. We expect
to continue to record income tax expense as a result of this tax
deconsolidation. Horizon PCS is unable to recognize any tax benefits from its
net operating losses until it generates taxable income.
Minority interest in loss. As part of the acquisition of Bright Personal
Communication Services, LLC (Bright), the former members of Bright have a 7.974%
ownership in Horizon PCS, excluding the impact of the possible conversion of
convertible preferred stock and exercise of options and warrants. Horizon Telcom
accounts for this ownership by recording the portion of net income (loss)
attributable to the minority shareholders as minority interest in earnings
(loss) in the accompanying consolidated statement of operations. For the three
months ended June 30, 2000, $52,000 was allocated to the minority interest.
There was no allocation in the second quarter of 2001, and there will not be any
further allocations to minority interests until such time as Horizon PCS becomes
profitable and any unallocated losses to minority interests are offset with
income in future periods.
Other Comprehensive Income (loss). In the first quarter of 2001, Horizon
PCS entered into a two year interest rate swap effectively fixing $25.0 million
of a term loan at a rate of 9.4%. Horizon PCS does not expect the effects of the
swap to have a material impact to interest expense for the remainder of 2001.
Other comprehensive income (loss) may fluctuate based on changes in the fair
value of the swap instrument. An other comprehensive loss of $54,000 was
recorded for the three months ended June 30, 2001.
18
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000
Operating Revenues
Landline Telephone Services
2001 2000 $ change % change
---- ---- -------- --------
(Dollars in thousands)
Basic local and long-distance service $8,401 $8,863 $(462) (5%)
Network access 9,040 8,614 426 5%
Basic local and long-distance service revenue as well as network access
revenues were essentially flat to the comparable prior year period.
Long-distance service revenue decreased for the six months ended June 30, 2001
as the Company continues to see lower usage for long distance service. We expect
this trend to continue for the foreseeable future, as more customers use
wireless devices where long distance is included for one monthly fee.
Personal Communication Equipment And Services
2001 2000 $ change % change
---- ---- -------- --------
(Dollars in thousands)
PCS service revenue $41,366 $7,831 $33,535 428%
PCS equipment revenue 2,575 1,095 1,480 135%
The growth in PCS service revenues is the result of the growth in our
customer base as well as an increase in travel and roaming revenue. Subscriber
revenues increased $21.5 million for the six months ended June 30, 2001. We had
106,268 customers at June 30, 2001, compared to 26,980 at June 30, 2000. Our
customer base has grown because we have launched additional markets and
increased our sales force.
Roaming revenues increased $12.0 million in the first six months of 2001
compared to the same period in 2000. This increase primarily resulted from the
continued build out of our network, including highways covering northwest Ohio,
northern Indiana and Pennsylvania. We expect continued volume increases in
Sprint PCS roaming revenues as we complete the remainder of our network
build-out, including completing other portions of our network covering
additional heavily traveled highways.
On April 27, 2001, Sprint PCS and its affiliates agreed on a new roaming
rate structure, decreasing the per minute receivable and payable for roaming
usage from its pervious amount of $0.20 per minute to $0.15 per minute on June
1, 2001, $0.12 per minute on October 1, 2001, and a cost return basis
(approximately $0.10 per minute) on January 1, 2002. We expect this decrease in
the rate to reduce our overall roaming revenue and expense per minute. We
anticipate this rate reduction to be offset by volume increases resulting in
greater overall roaming revenue and expense in the future.
PCS ARPU excluding roaming and travel increased for the six months ended
June 30, 2001 compared to the six months ended June 30, 2000 to $54 from $49
primarily as a result of the increased minutes of use by our customers. As our
customers exceed their allotted plan minutes, they incur additional charges for
subsequent usage.
PCS equipment revenues consist of handsets and accessories sold to
customers. Equipment revenues for the six months ended June 30, 2001 were $2.6
million, compared to $1.1 million for the six months ended June 30, 2000, an
increase of $1.5 million. The increase in equipment revenues is the result of
our increase in customers.
19
Other Revenues
2001 2000 $ change % change
---- ---- -------- --------
(Dollars in thousands)
Internet access services $ 1,590 $ 1,837 $(247) (13%)
Equipment systems sale, information services,
and other revenues 3,417 3,309 108 3%
Other revenues decreased for the six months ending June 30, 2001 compared
to the same period in 2000. A lower customer base resulted in lower internet
access revenue.
Operating Expenses
Cost of goods sold. Cost of goods sold for the six months ended June 30,
2001 was $4.9 million, compared to $3.4 million for the six months ended June
30, 2000, an increase of $1.5 million. The increase in the cost of goods sold is
the result of the growth in our wireless customers partially offset by the
decreasing unit cost of the handsets. For competitive and marketing reasons, we
have sold handsets to our customers below our cost and expect to continue to
sell handsets at a price below our cost for the foreseeable future.
Cost of services. Cost of services for the six months ended June 30, 2001
was $40.4 million, compared to $13.2 million for the six months ended June 30,
2000, an increase of $27.2 million. Chillicothe Telephone and United cost of
services increased $500,000 from the six months ended June 30, 2000 to the six
months ended June 30, 2001. This increase was a result of increased web design,
Bright.net, network access and the start-up of the VDSL product.
Horizon PCS' increase ($26.7 million) in cost of services reflects the
increase in Sprint PCS roaming fees of $8.6 million, an increase in costs
incurred under our network services agreement with the Alliances of $6.5
million, the increase in network operations, including tower lease expense and
circuit costs, of $5.6 million, long distance toll and roaming expense increases
of $3.1 million, network payroll expense of $2.1 million, and an increase in
other variable expenses, including switching and national platform expenses, of
$800,000.
Horizon PCS is currently negotiating an amendment to its agreement with the
Alliances and a related amendment to its Sprint PCS agreements. If the
Alliances' amendment is executed, Horizon PCS will be obligated to begin paying
fixed minimum monthly fees for a stated minimum period. Horizon PCS expects to
incur lower overall fees under this new arrangement at expected usage levels.
The Alliances will also be obligated to upgrade their networks to provide 3G
technology. In connection with this amendment, the Alliances would agree with
Sprint PCS to modify their networks to cause Sprint PCS to be in compliance with
the FCC's construction requirements for PCS networks. Horizon PCS would be
responsible for completion of the network modification if the Alliances fail to
comply.
Selling, general and administrative expenses. Selling, general and
administrative expenses rose to $42.5 million for the six months ended June 30,
2001, compared to $18.2 million for the same period in 2000, an increase of
$24.3 million. Horizon PCS' increase was $24.5 million, while the decrease at
Chillicothe Telephone and United was $200,000 for the six months ended June 30,
2001 compared to the same period in the prior year. Chillicothe Telephone and
United's decrease was a result of a lower allowance for uncollectible accounts
and decreased outside service expenses.
The Horizon PCS increase reflects the 8% fee paid to Sprint PCS on our
increased collected service revenues (an increase of $1.9 million), the costs of
servicing an increased coverage area including 21 storefronts at June 30, 2001
compared to 4 at June 30, 2000 and the related marketing of the increased
service area (an increase of $9.7 million), additional customer support
personnel and associated activities, including Sprint PCS support charges (an
increase of $3.2 million), commissions paid to national third party distribution
channels (an increase of $1.1 million), increased subsidies paid to third party
vendors for handsets sold (an increase of $2.8 million), increased headcount and
professional services at Horizon Services needed to support our growth (an
increase of $1.5 million), increased professional fees, including fees related
to pursuing strategic alternatives, (an increase of $1.3 million), increased
provision for uncollectible accounts (an increase of $1.8 million) and other
general expenses including property and franchise taxes (an increase of $1.2
million). We expect selling, general and administrative expenses to increase in
the aggregate as we expand our coverage and add customers, but to decrease as a
percentage of revenues.
Non-cash compensation expense. For the six months ended June 30, 2001 and
2000, we recorded stock-based compensation expense of approximately $945,000 and
$375,000, respectively. The $945,000 includes $725,000 related to the
distribution of 7,249 shares of Horizon Telcom stock to employees of Horizon PCS
20
and $220,000 for certain stock options granted in November 1999. Approximately
$100,000 of the 2000 expense related to cost of services; the remainder of the
compensation expense represents general and administrative expense. Stock-based
compensation expense will continue to be recognized through the conclusion of
the vesting period for these options in 2005. The annual non-cash compensation
expense expected to be recognized for these options is approximately $441,000 in
2001, $413,000 in 2002, $389,000 in 2003, $193,000 in 2004, and $71,000 in 2005.
Depreciation and amortization expense. Depreciation and amortization
expenses increased by $6.3 million to a total of $11.4 million in 2001. The
increase reflects the continuing construction of our PCS network as well as
capital additions for VDSL and other telephone services. Because our acquisition
of Bright PCS was accounted for as a purchase transaction, amortization has
increased as a result of amortizing the intangible assets.
At September 30, 2000, Horizon PCS recorded an intangible asset of $13.4
million for the value of warrants we agreed to grant to Sprint. The intangible
asset will be amortized over the remaining term of the Sprint PCS management
agreement, resulting in $752,000 of amortization expense per year. Amortization
expense for the six months ended June 30, 2001 was approximately $376,000.
Subsidiaries preferred stock dividend. Horizon PCS' convertible preferred
stock pays a stock dividend at the rate of 7.5% per annum, payable semi-annually
commencing April 30, 2001. For the six months ended June 30, 2001, we accrued a
stock dividend of $5.4 million. On May 1, 2001, Horizon PCS issued an additional
1,163,051 shares of preferred stock in payment of the stock dividend through
April 30, 2001.
Interest income and other, net. Interest income and other for the six
months ended June 30, 2001 was $4.4 million and consisted primarily of interest
income of approximately $4.1 million and other miscellaneous income of
approximately $400,000. Interest income was generated from cash proceeds from
Horizon PCS' private equity sales, senior discount notes and drawings under the
senior secured credit facility, all completed on September 26, 2000. The
proceeds were invested in short-term accounts waiting to be deployed. As capital
expenditures are made to complete the build-out of our network, decreasing cash
balances will result in lower daily interest income in the future.
Interest expense, net. Interest expense for the six months ended June 30,
2001 was $13.8 million, compared to $2.7 million in 2000, and consisted of
interest on debt. The increase in interest expense is the result of our
additional debt outstanding during the six months ended June 30, 2001 compared
to the same period in 2000.
Chillicothe Telephone's line of credit resulted in additional interest
expense of $500,000 for the six months ended June 30, 2001. Chillicothe
Telephone's line of credit accrues interest on the outstanding balance at a
fluctuating rate tied to the LIBOR rate (5.6% as of June 30, 2001) and is due
and payable monthly.
Horizon PCS' interest expense for the six months ended June 30, 2001 was
$12.7 million. Interest on Horizon PCS' senior secured credit facility accrues
at LIBOR plus our specified margin (approximately 8.1% at June 30, 2001).
Horizon PCS accrues interest at a rate of 14% per annum on the senior discount
notes through October 1, 2005 and will pay interest semi-annually in cash
thereafter. At June 29, 2001, we agreed to several changes in the senior credit
facility including a 0.25% increase in the annual interest rate. We expect our
interest expense to increase in the future as we borrow under the senior credit
facility to fund the network build out and operating losses.
Income tax expense (benefit). Income tax expense was approximately $1.0
million for the six months ended June 30, 2001 compared to a benefit of
approximately $94,000 for the six months ended June 30, 2000. We expect to
continue to record income tax expense as a result of this tax deconsolidation.
Minority interest in loss. As part of the acquisition of Bright Personal
Communication Services, LLC (Bright), the former members of Bright have a 7.974%
ownership in Horizon PCS, excluding the impact of the possible conversion of
convertible preferred stock and exercise of options and warrants. Horizon Telcom
accounts for this ownership by recording the portion of net income (loss)
attributable to the minority shareholders as minority interest in earnings
21
(loss) in the accompanying consolidated statement of operations. For the six
months ended June 30, 2001, approximately $1.0 million of the net loss for the
year was allocated to the minority interest, reducing the minority interest
balance to zero. There will be no further allocations to minority interests
until such time as Horizon PCS becomes profitable and any unallocated losses to
minority interests are offset with income in future periods.
Other Comprehensive Income (loss). In the first quarter of 2001, Horizon
PCS entered into a two year interest rate swap effectively fixing $25.0 million
of a term loan at a rate of 9.4%. Horizon PCS does not expect the effects of the
swap to have a material impact to interest expense for the remainder of 2001.
Other comprehensive income (loss) may fluctuate based on changes in the fair
value of the swap instrument. An other comprehensive loss of $353,000 was
recorded for the six months ended June 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
Overview
In 1996, Horizon Telcom was formed as part of a reorganization of
Chillicothe Telephone and several of its affiliates. Since that time, Horizon
Telcom has met its needs for capital primarily by borrowing, by selling selected
businesses and assets, and by funds generated from operations. In 2000, Horizon
Telcom also formed Horizon PCS, to which it transferred its subsidiary Horizon
Personal Communications. In June 2000, Horizon PCS acquired the remaining 74% of
Bright PCS. Horizon PCS also entered into several major financing transactions
in September 2000.
Six Months Ended June 30, 2001
The net cash used in operating activities of $37.9 million for the six
months ended June 30, 2001 was primarily the result of the $48.5 million net
loss.
Net cash used in investing activities was $95.1 million for the six months
ended June 30, 2001. Our capital expenditures were $73.2 million in 2001,
reflecting the continuing build out of our PCS network (approximately $66.0
million) as well as the deployment of capital necessary to offer VDSL service.
Net cash used for investing activities also consists of $24.9 million of
short-term investments from our excess cash balances. As we continue to build
our customer base and complete our network build-out, we expect our borrowings
will increase, decreasing our cash and investment balances.
Net cash provided by financing activities for the six months ended June 30,
2001 was $252,000 consisting primarily of borrowings of $2.5 million under
Chillicothe Telephone's line of credit, partially offset by dividends paid of
$861,000.
For 2001, we anticipate our annual funding needs will be approximately
$215.0 million, of which $138.0 million will be used for capital expenditures,
and the remainder will be used to fund working capital and operating losses. The
terms of their respective credit agreements prohibit or severely restrict the
ability of Chillicothe Telephone and Horizon PCS to provide funds to their
affiliates in the event the affiliate experiences a shortfall. However, we
anticipate that our cash and borrowings under existing financing agreements will
be adequate to fund our capital expenditures, anticipated operating losses and
working capital requirements over the next twelve months. The actual funds
required to build out the network and to fund operating losses, working capital
needs and other capital needs may vary materially from our estimates and
additional funds may be required because of an expansion of our territory,
unforeseen delays, cost overruns, unanticipated expenses, regulatory changes,
engineering design changes and required technological upgrades and other
technological risks. For example we will need additional funds if we find it
necessary to overbuild the territory currently served through our arrangements
with the Alliances. If we are unable to obtain any necessary additional funding
and we are unable to complete our network build-out, this may result in a
termination of Horizon PCS' Sprint PCS agreement. We will no longer be able to
offer Sprint PCS products and services. Additionally, Sprint PCS may purchase
Horizon PCS' operating assets or capital stock for 72% of the entire business
value. Also, any delays in our build-out may result in penalties under our
Sprint PCS agreements, as amended.
22
SEASONALITY
Our wireless telephone business is subject to seasonality because the
wireless industry is heavily dependent on calendar fourth quarter results. Among
other things, that industry relies on significantly higher customer additions
and handset sales in the calendar fourth quarter as compared to the other three
calendar quarters. A number of factors contribute to this trend, including:
o The increasing use of retail distribution, which is more dependent
upon the year-end holiday shopping season;
o The timing of new product and service announcements and introductions;
o Competitive pricing pressures; and
o Aggressive marketing and promotions.
INFLATION
We believe that inflation has not had, and will not have, a natural adverse
effect on our results of operations.
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging
Activities, as amended in June 2000 by Statement of Financial Accounting
Standards No. 138 (SFAS 138), Accounting for Certain Derivative Instruments and
Certain Hedging Activities, which requires companies to recognize all
derivatives as either assets or liabilities in the balance sheet and measure
such instruments at fair value. As amended by Statement of Financial Accounting
Standards No. 137 (SFAS 137), Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133, the
provisions of SFAS 133 required adoption to all fiscal quarters of all fiscal
years beginning after June 15, 2000. The adoption did not have a material effect
on Horizon PCS' consolidated results of operations, financial position, or cash
flows.
On December 3, 1999, the SEC issued Staff Accounting Bulletin No. 101 (SAB
101), Revenue Recognition in Financial Statements which required adoption during
the first quarter of fiscal 2000. The adoption did not have a material effect on
Horizon PCS' consolidated results of operations.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 addresses financial accounting and reporting for all business
combinations and requires that all business combinations entered into subsequent
to June 2000 be recorded under the purchase method. This statement also
addresses financial accounting and reporting for goodwill and other intangible
assets acquired in a business combination at acquisition. SFAS No. 142 addresses
financial accounting and reporting for intangible assets acquired individually
or with a group of other assets at acquisition. This statement also addresses
financial accounting and reporting for goodwill and other intangible assets
subsequent to their acquisition.
These statements will be adopted by the Company on January 1, 2002.
Goodwill amortization will cease as of December 31, 2001 and the Company will be
required to complete an impairment test of the remaining goodwill balance
annually (more frequently if impairment indicators arise). The Company has not
yet determined the financial impact the adoption of these pronouncements will
have on its financial position or results of operations. As of June 30, 2001,
Horizon PCS has goodwill of approximately $7,386,000 related to the acquisition
of Bright PCS in June 2000. The valuation of this goodwill would be subject to
an impairment test at the date of adoption.
23
FORWARD-LOOKING STATEMENTS
The foregoing discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ significantly and
materially from the results anticipated in these forward-looking statements.
Risks and uncertainties that may affect our business include the risk that (i)
we may not be able to compete effectively; (ii) we may not be able to
successfully integrate new technologies or respond effectively to customer
requirements; (iii) system failure could cause delays or interruptions in
service; (iv) our back office and customer care systems maybe unable to meet the
needs of our customers; (v) the market for our services may not continue to
grow; (vi) our business is subject to significant regulatory risks; (vii)
Horizon PCS has not had any profitable years in the past five years and may not
achieve or sustain operating profitability or positive cash flow from operating
activities; (viii) Sprint PCS may terminate the Sprint PCS agreements, as for
example, if Horizon PCS fails to complete its required network build-out; (ix)
Horizon PCS has substantial debt which it may not be able to service, resulting
in a default; (x) we may not be able to manage our anticipated rapid growth;
(xi) Sprint PCS may have difficulty obtaining infrastructure equipment or
handsets; (xii) the Alliances may fail to provide their network to Horizon PCS
affecting our service to markets in Virginia and West Virginia or we may incur
significant expense to overbuild those markets; (xiii) Horizon PCS may not
receive as much Sprint PCS roaming revenue as anticipated; (xiv) We may not be
able to offer competitive roaming capability; (xv) we may need more capital than
we currently project; and (xvi) use of hand-held PCS phones may pose health
risks. See "Item 1. Business-Risk Factors" in Horizon Telcom's Form 10 filed
with the Securities and Exchange Commission. That information is incorporated
herein by reference.
24
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We do not engage in commodity futures trading activities and do not enter
into derivative financial instruments for trading or other speculative purposes.
We also do not engage in transactions in foreign currencies that would expose us
to market risk.
We will be subject to interest rate risk on Horizon PCS' senior secured
credit facility and any future floating rate financing requirements.
The following table presents the estimated future outstanding long-term
debt at the end of each year and future required annual principal payments for
each year then ended associated with our financing based on our projected level
of long-term indebtedness:
Years Ending December 31,
--------------------------------------------------------------------
2001 2002 2003 2004 2005 Thereafter
-------------------------------------------------------------------- ----------
Horizon PCS: (Dollars in millions)
- ------------
Senior secured credit facility. $150.0 $150.0 $150.0 $150.0 $150.0 -
Variable interest rate (1) 10.5% 10.5% 10.5% 10.5% 10.5% 10.5%
Principal payments........ - - - - - $150.0
Senior discount notes.......... $162.3 $184.9 $210.8 $240.0 $283.7 -
Fixed interest rate (2)... 14.0% 14.0% 14.0% 14.0% 14.0% 14.0%
Principal payments........ - - - - - $295.0
Years Ending December 31,
--------------------------------------------------------------------
2001 2002 2003 2004 2005 Thereafter
-------------------------------------------------------------------- ----------
Chillicothe Telephone: (Dollars in millions)
1998 Senior notes $12.0 $12.0 $12.0 $12.0 $12.0 -
Fixed interest rate 6.62% 6.62% 6.62% 6.62% 6.62% 6.62%
Principal payments........ - - - - - $12.0
1993 Senior notes $10.0 $8.0 $6.0 $4.0 $2.0 -
Fixed interest rate ...... 6.72% 6.72% 6.72% 6.72% 6.72% 6.72%
Principal payments........ $2.0 $2.0 $2.0 $2.0 $2.0 -
_____________________________
(1) Interest rate on the senior secured credit facility equals the London
Interbank Offered Rate ("LIBOR") plus a margin that varies from 3.5% to
4.0%. The interest rate is assumed to equal 10.5% for all periods
presented.
(2) Assumed interest rate for senior discount notes, which will be paid in full
in 2010.
Our primary market risk exposure relates to:
o the interest rate risk on long-term and short-term borrowings, and
o the impact of interest rate movements on our ability to meet interest
expense requirements and meet financial covenants.
In the normal course of business, our operations are exposed to interest
rate risk on our senior secured credit facility. Our primary interest rate risk
exposures relate to 1) the interest rate on our financing, 2) our ability to
25
refinance our senior discount notes at maturity at market rates, and 3) the
impact of interest rate movements on our ability to meet interest expense
requirements and meet financial covenants under our debt instruments.
Based on our outstanding balances at June 30, 2001, an increase of 1% in
the base lending rate would result in a decrease in annual earnings of
approximately $2.5 million.
We manage the interest rate risk on Horizon PCS' outstanding long-term debt
through the use of fixed and variable rate debt and interest rate swaps. In the
first quarter of 2001, we entered into an interest rate swap effectively fixing
$25.0 million of our term debt at a rate of 9.4%. While we cannot predict our
ability to refinance existing debt or the impact interest rate movements will
have on our existing debt, we continue to evaluate our interest rate risk on an
ongoing basis. During the six months ended June 30, 2001, the net unrealized
loss on this derivative was $353,073.
The carrying value of the financial instruments approximate fair value.
26
PART II - OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In April 1, 2001, Horizon PCS distributed a total of 7,249 shares of
Horizon Telcom common stock (1,819 shares of class A common stock and 5,430
shares of class B common stock) to a group of Horizon PCS' officers and
employees in the form of a bonus.
Exemption from the registration provisions of the Securities Act for the
transaction was claimed on the basis that such transactions did not constitute
an "offer," "offer to sell," "sale," or "offer to buy" under Section 5 of the
Securities Act if 1933.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of Horizon Telcom, Inc. was held at
Horizon Telcom's headquarters on May 16, 2001, at 3:00 p.m. The following
individuals were reelected as the directors of Horizon Telcom:
Name Votes For Votes Against Votes Withheld
---- --------- ------------- --------------
Robert McKell 71,140 0 85
Thomas McKell 71,140 0 85
Jack E. Thompson 71,140 0 85
Joseph S. McKell 71,140 0 85
David McKell 71,140 0 85
Helen M. Sproat 71,140 0 85
John E. Herrnstein 71,135 0 90
Joseph G. Kear 71,140 0 85
Shares present at meeting in person and by proxy: 71,225. There were no
abstentions or broker non-votes.
27
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1* Articles of Incorporation of Horizon Telcom, Inc.
3.2* Bylaws of Incorporation of Horizon Telcom, Inc.
4.1* Form of Stock Certificate
10.3.1*+ Addendum V to Sprint PCS Management Agreement with Horizon
PCS, Inc. as of June 1, 2001.
10.34 Form of Indemnification Agreement for Horizon PCS officers
and directors, incorporated by reference to the Exhibit with
the same number filed with the quarterly report on Form 10-Q
of Horizon PCS, Inc. on August 13, 2001.
10.40.2 Second Amendment to Credit Agreement and Assignment, dated
June 29, 2001, by and among Horizon Personal Communications,
Inc. and Bright Personal Communications Services, LLC,
Horizon PCS, Inc. (the "Parent") and certain Subsidiaries of
the Parent, Existing Lenders, New Lenders, First Union
National Bank, as Administrative Agent, Westdeutsche
Landesbank Girozentrale, as Syndication Agent and Arranger,
and Fortis Capital Corp., as Documentation Agent.
(Incorporated by reference to the same exhibit number in the
Form 8-K filed by Horizon PCS, Inc. on July 3, 2001).
________________________
* Incorporated by reference to the exhibit with the same number previously
filed by the Registrant on Form 10 (Reg. No. 0-32617)
+ Horizon PCS, Inc. requested confidential treatment for certain portions of
this exhibit pursuant to Rule 24b-2 of the Securities Exchange Act of 1934
in connection with the filing of the Form 8-K filed by Horizon PCS, Inc. on
June 27, 2001.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 2001.
28
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 officer thereunto duly authorized.
HORIZON TELCOM, INC.
By: /s/ Thomas McKell
---------------------------------------------
Thomas McKell
Chief Executive Officer
Date: August 13, 2001 By: /s/ Peter M. Holland
---------------------------------------------
Peter M. Holland
Chief Financial Officer
(Principal Financial and
Chief Accounting Officer)
29
EXHIBIT INDEX
Exhibits
3.1* Articles of Incorporation of Horizon Telcom, Inc.
3.2* Bylaws of Incorporation of Horizon Telcom, Inc.
4.1* Form of Stock Certificate
10.3.1*+ Addendum V to Sprint PCS Management Agreement with Horizon PCS,
Inc. as of June 1, 2001.
10.34 Form of Indemnification Agreement for Horizon PCS officers and
directors, incorporated by reference to the Exhibit with the same
number filed with the quarterly report on Form 10-Q of Horizon
PCS, Inc. on August 13, 2001.
10.40.2 Second Amendment to Credit Agreement and Assignment, dated June
29, 2001, by and among Horizon Personal Communications, Inc. and
Bright Personal Communications Services, LLC, Horizon PCS, Inc.
(the "Parent") and certain Subsidiaries of the Parent, Existing
Lenders, New Lenders, First Union National Bank, as
Administrative Agent, Westdeutsche Landesbank Girozentrale, as
Syndication Agent and Arranger, and Fortis Capital Corp., as
Documentation Agent. (Incorporated by reference to the same
exhibit number in the Form 8-K filed by Horizon PCS, Inc. on July
3, 2001.)
__________________________________
* Incorporated by reference to the exhibit with the same number previously
filed by the Registrant on Form 10 (Reg. No. 0-32617)
+ Horizon PCS, Inc. requested confidential treatment for certain portions of
this exhibit pursuant to Rule 24b-2 of the Securities Exchange Act of 1934
in connection with the filing of the Form 8-K filed by Horizon PCS, Inc. on
June 27, 2001.
30