Exhibit 99.3.2
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA OF
RICHMOND-NORFOLK PCS
You should read "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Richmond-Norfolk PCS" and such entity's financial
statements and notes thereto included in this document for a further explanation
of the financial data summarized below.
We have set forth below selected historical financial data of Richmond-
Norfolk PCS:
. as of December 31, 1998 and 1999, and for the three years in the period
ended December 31, 1999, derived from the audited financial statements
and notes thereto of Richmond-Norfolk PCS, which have been audited by
PricewaterhouseCoopers LLP; and
. as of March 31, 1999 and 2000, and for the three-month periods then
ended, derived from the unaudited financial statements and notes thereto
of Richmond-Norfolk PCS, which, in the opinion of its management, include
all adjustments necessary for a fair presentation of the financial
position and results of operations for these periods. Operating results
for three-month periods are not necessarily indicative of results that
might be expected for the entire fiscal year.
We have also included the balance sheet data of Richmond-Norfolk PCS as of
December 31, 1997, which is unaudited.
Three Months
Year Ended December 31, Ended March 31,
---------------------------- ------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(in thousands, except operating data)
(unaudited)
Statements of Operations:
Operating revenues:
Service revenues........... $ 6,963 $ 24,808 $ 41,015 $ 9,408 $ 11,453
Product sales.............. 3,728 5,546 7,671 2,171 1,385
Other...................... 481 916 1,770 402 492
-------- -------- -------- -------- --------
Total operating revenues.. 11,172 31,270 50,456 11,981 13,330
-------- -------- -------- -------- --------
Operating costs and
expenses:
Cost of service............ 167 489 941 185 339
Cost of products sold...... 4,018 5,714 7,217 2,110 1,454
Operating expenses......... 32,418 41,355 50,497 13,689 13,681
Depreciation and
amortization.............. 8,333 11,125 13,866 3,348 3,111
-------- -------- -------- -------- --------
Total operating costs and
expenses................. 44,936 58,683 72,521 19,332 18,585
-------- -------- -------- -------- --------
Loss from operations........ (33,764) (27,413) (22,065) (7,351) (5,255)
Other income (expenses):
Interest expense........... (1,951) (1,678) (1,462) (372) (359)
Gain (loss) on disposal of
assets.................... (174) 44 (806) (169) 24
Other loss................. -- -- (171) -- --
-------- -------- -------- -------- --------
Net loss.................. $(35,889) $(29,047) $(24,504) $ (7,892) $ (5,590)
======== ======== ======== ======== ========
Balance Sheet Data (at
period end):
Cash and cash equivalents.. $ 79 $ -- $ 422 $ 143 $ 269
Total assets............... 127,192 145,281 143,214 141,107 140,324
Long-term debt............. 25,571 25,539 23,034 25,322 21,771
PrimeCo equity investment.. 89,032 94,904 104,097 101,925 105,363
Operating Data (at period
end):
PCS Subscribers............ 23,732 56,840 78,854 68,525 86,383
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF RICHMOND-NORFOLK PCS
The following discussion and analysis should be read in conjunction with
"Selected Historical Financial and Operating Data of Richmond-Norfolk PCS" and
other financial statements and the notes thereto included elsewhere in this
document. Much of the discussion in this section involves forward-looking
statements. Actual results may differ significantly from the results suggested
by these forward-looking statements.
Overview
PrimeCo PCS, L.P., or PrimeCo, owns licenses covering, and conducts PCS
operations in, the Houston, Chicago and Richmond major trading areas, or MTAs.
CFW Communications is acquiring from PrimeCo the licenses and operations in
the Richmond MTA, which is referred to in this document as Richmond-Norfolk
PCS. Richmond-Norfolk PCS covers portions of central and eastern Virginia,
including the Richmond and Hampton Roads metropolitan areas and the Outer
Banks of North Carolina. Richmond-Norfolk PCS has generated significant
operating losses since it began operations in 1996 and anticipates continued
losses at least through 2000.
The balance sheets and the related statements of operations and cash flows
of Richmond-Norfolk PCS represent the assets, liabilities and operations of
Richmond-Norfolk PCS on a separate reporting basis. These financial statements
are currently maintained by PrimeCo on a separate reporting basis.
Revenues
Richmond-Norfolk PCS revenues are generated from:
. service revenues, including monthly access fees for bundled minutes,
excess airtime, prepay activation fees, roaming revenues, long distance
revenues, and revenues from features such as call forwarding and
directory assistance;
. product sales, including revenues from the sale of handsets and related
accessories; and
. other revenues, including monthly rent and fees received from other
carriers that collocate on Richmond-Norfolk PCS-owned towers, and
revenues received from other carriers' customers roaming on the Richmond-
Norfolk PCS network.
Operating Costs and Expenses
Richmond-Norfolk PCS operating costs and expenses are generally composed of:
. cost of service, including expenses related to long distance, roaming
usage, and directory assistance usage by subscribers;
. cost of products sold, including the retail price of handsets sold, which
are generally sold below cost, with the cost of accessories (the
difference between cost and the retail price of handsets, or subsidy, is
recognized as an operating expense);
. operating expenses, including all costs related to network operations,
customer acquisition (including subsidy), customer care, finance, human
resource, legal, information technology, and executive management,
including corporate overhead allocations; and
. depreciation expense recognized on network fixed assets, leasehold
improvements on stores and kiosks, company-owned switch buildings,
information technology assets, and furniture and fixtures. The PCS
license and microwave clearing costs are amortized on a straight-line
basis over a 40-year life.
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Other Income (Expenses)
Other income (expenses) of Richmond-Norfolk PCS are generated (incurred)
primarily from interest expense and gain (loss) on the disposal of assets.
Results of Operations
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31,
1999
Net loss improved $2.3 million, or 29%, from a loss of $7.9 million in the
three months ended March 31, 1999 to a loss of $5.6 million in the three
months ended March 31, 2000.
Negative EBITDA of $2.1 million for the three months ended March 31, 2000
represents an improvement of 46% from negative EBITDA of $4.0 million for the
same period in 1999.
These operating results reflect an increase in subscribers of 17,900, or
26%, from 68,500 as of March 31, 1999 to 86,400 as of March 31, 2000. The
decreased customer growth rate reflects lower advertising and marketing
expenditures in the fourth quarter of 1999 and the first quarter of 2000 and
increased competition. CFW Communications anticipates increasing marketing
expenditures of Richmond-Norfolk PCS.
Operating Revenues
Operating revenues increased $1.3 million, or 11%, from $12.0 million for
the three months ended March 31, 1999 to $13.3 million for the three months
ended March 31, 2000.
Service Revenues. Service revenues increased $2.1 million, or 22%, from $9.4
million for the three months ended March 31, 1999 to $11.5 million for the
three months ended March 31, 2000. This increase was primarily due to an
increase in subscribers of 17,900 from March 31, 1999 to March 31, 2000. The
increase in subscribers was offset in part by a decrease in average revenues
per unit, or ARPU, of $3.73, or 7%, from $49.84 for the three months ended
March 31, 1999 to $46.11 for the three months ended March 31, 2000. The
decline in ARPU is primarily the result of pricing pressures caused by new PCS
operators who entered the market in February and June 1999. Richmond-Norfolk
PCS expects these price declines to continue but to be partially offset by
increased revenues from additional subscribers and increased service and
minutes of use.
Product Sales. Product sales decreased $.8 million, or 36%, from $2.2
million for the three months ended March 31, 1999 to $1.4 million for the
three months ended March 31, 2000. This decrease was primarily due to lower
retail handset prices during the three months ended March 31, 2000 compared to
the three months ended March 31, 1999.
Other Revenues. Other revenues increased $.1 million, or 22%, from $.4
million for the three months ended March 31, 1999 to $.5 million for the three
months ended March 31, 2000. This growth was due to additional collocation
rent and fees received from other carriers. After the completion of the
Transactions, CFW Communications may dispose of the towers that generated
these revenues.
Operating Costs and Expenses
Operating costs and expenses decreased $.7 million, or 4%, from $19.3
million for the three months ended March 31, 1999 to $18.6 million for the
three months ended March 31, 2000.
Cost of Service. Cost of service increased $.1 million, or 83%, from $.2
million for the three months ended March 31, 1999 to $.3 million for the three
months ended March 31, 2000, which was offset partially by lower roaming rates
paid to other carriers. This increase was the result of increased long
distance and roaming usage from the growth in the subscriber base.
Additionally, long distance use per subscriber increased as approximately 57%
of subscribers as of March 31, 2000 had price plans that included free long
distance. Free long distance was not available in the first quarter of 1999.
Competitors, such as Sprint, that have a national long distance network have a
cost advantage in providing free long distance services.
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Cost of Products Sold. Cost of products sold decreased $.6 million, or 31%,
from $2.1 million for the three months ended March 31, 1999 to $1.5 million
for the three months ended March 31, 2000. This decrease was the result of a
30% decrease in retail handset prices from the same period last year.
Operating Expenses. Operating expenses remained stable at $13.7 million for
the three months ended March 31, 1999 and 2000. Decreases in payroll, general
and administrative, buildings and equipment, and promotional expenses were
offset by an increase in phone subsidies and indirect commissions.
Depreciation and Amortization. Depreciation and amortization decreased $.2
million, or 7%, from $3.3 million for the three months ended March 31, 1999 to
$3.1 million for the three months ended March 31, 2000.
Other Income (Expenses)
Interest expense remained stable at $.4 million for the three months ended
March 31, 1999 and 2000.
1999 Compared to 1998
Net loss improved $4.5 million, or 16%, from a loss of $29.0 million in 1998
to a loss of $24.5 million in 1999. EBITDA improved $8.1 million, or 50%, from
negative EBITDA of $16.3 million in 1998 to negative EBITDA of $8.2 million in
1999. Operating loss improved $5.3 million, or 20%, from a loss of $27.4
million in 1998 to a loss of $22.1 million in 1999. The results reflect an
increase of 22,100 subscribers, or 39%, from 56,800 subscribers as of December
31, 1998 to 78,900 subscribers as of December 31, 1999.
Operating Revenues
Operating revenues increased $19.2 million, or 61%, from $31.3 million in
1998 to $50.5 million in 1999.
Service Revenue. Service revenues increased $16.2 million, or 65%, from
$24.8 million in 1998 to $41.0 million 1999. This growth was due to a 22,100
increase in subscribers and was partially offset by a decrease in ARPU of
$6.66, or 12%, from $54.71 in 1998 to $48.05 in 1999. ARPU declined due to
pricing pressure from two new PCS operators who entered the Richmond market in
the first and second quarters of 1999.
Product Sales. Product sales increased $2.2 million, or 38%, from $5.5
million in 1998 to $7.7 million in 1999. This was primarily due to an increase
in gross subscriber additions of 13,100, or 28%, from 46,800 in 1998 to 59,900
in 1999. Accessory sales increased 40% from 1998 to 1999.
Other Revenue. Other revenue increased $.9 million, or 93%, from $.9 million
in 1998 to $1.8 million in 1999. The change in other revenue was due to a $.4
million increase in collocation revenue and $.5 million increase in other
revenue sources.
Operating Costs and Expenses
Operating costs and expenses increased $13.8 million, or 24%, from $58.7
million in 1998 to $72.5 million in 1999.
Cost of Service. Cost of service increased $.4 million, or 92%, from $.5
million in 1998 to $.9 million in 1999. This increase was the result of
increased long distance and roaming usage from the growth in the subscriber
base and the inclusion of free long distance with new price plans. Free long
distance was added to specific price plans beginning in the third quarter of
1999.
Cost of Products Sold. Cost of products sold increased $1.5 million, or 26%,
from $5.7 million in 1998 to $7.2 million in 1999. This increase was a result
of a 28% increase in gross subscriber additions in 1999 over 1998.
Operating Expenses. Operating expenses increased $9.1 million, or 22%, from
$41.4 million in 1998 to $50.5 million in 1999. The increase was primarily the
result of increases in gross additions and the subscriber
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base. Corporate allocations increased $4.9 million, or 45%, from $10.8 million
in 1998 to $15.7 million in 1999. This increase was primarily due to billing
and customer care expenses related to the growth in subscribers. The number of
subscribers increased 22,100, or 39%, from 56,800 in 1998 to 78,900 in 1999.
Subsidies and indirect commissions increased $1.4 million, or 17%, from $8.3
million in 1998 to $9.7 million in 1999. This resulted from a 28% increase in
gross additions, partially offset by a decrease in per unit handset costs.
Building and equipment expense increased $.8 million in 1999 due to increased
interconnect, backhaul, site rent, utilities, repairs and maintenance
resulting from the increase in subscribers and expansion of the network. Bad
debt increased $.7 million in 1999 due to the increase in the subscriber base
and service revenue. General and administrative expense increased $.6 million
in 1999 mainly due to handset repair expense. Finally, promotional expense
increased $.5 million and other employment expense increased $.2 million in
1998.
Depreciation and Amortization. Depreciation and amortization expense
increased $2.8 million, or 25%, from $11.1 million in 1998 to $13.9 million in
1999. The increase was related to continued network expansion to meet network
capacity needs.
Other Income (Expenses)
Interest expense decreased $.2 million, or 13%, from $1.7 million in 1998 to
$1.5 million in 1999. This decrease resulted from a lower amount of capital
lease obligations. Gain (loss) on the disposal of assets decreased $.8 million
from a gain of $44,000 in 1998 to a loss of $.8 million in 1999. The loss was
primarily due to the retirement of network assets.
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