Exhibit 99.3.3
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA OF
R&B COMMUNICATIONS
You should read "Management's Discussion and Analysis of Financial Condition
and Results of Operations of R&B Communications" 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 consolidated financial data of
R&B Communications:
. as of, and for the years ended, December 31, 1995, 1996, 1997, 1998 and
1999, derived from the consolidated financial statements and notes
thereto of R&B Communications, which have been audited by Phibbs,
Burkholder, Geisert & Huffman, LLP with respect to the years ended 1995
through 1998 and McGladrey & Pullen, LLP with respect to the year ended
1999; and
. as of, and for the three-month periods ended, March 31, 1999 and 2000,
derived from the unaudited condensed consolidated financial statements
and notes thereto of R&B Communications, which, in the opinion of its
management, include all adjustments necessary for a fair presentation of
the financial position and results of operations for these periods.
Operating results for three-month periods are not necessarily indicative
of results that might be expected for the entire fiscal year.
Three Months
Year Ended December 31, Ended March 31,
------------------------------------------- ----------------
1995 1996 1997 1998 1999 1999 2000
------- ------- ------- ------- ------- ------- -------
(in thousands, except operating data)
(unaudited)
Statement of Operations:
Operating revenues:
Wireline
communications........ $ 8,863 $ 8,657 $ 9,734 $11,703 $14,500 $ 3,455 $ 3,990
Wireless
communications........ 495 653 968 1,219 1,257 344 355
Other communications
services.............. 1,056 884 922 954 1,012 127 199
------- ------- ------- ------- ------- ------- -------
Total operating
revenues............. 10,414 10,194 11,624 13,876 16,769 3,926 4,544
Operating expenses:
Maintenance and
support............... 1,717 2,009 2,312 3,398 4,917 693 1,208
Depreciation and
amortization.......... 1,237 1,426 2,104 2,340 2,808 670 817
Customer operations.... 934 1,046 1,290 1,928 2,031 626 777
Corporate operations... 1,397 1,444 1,700 1,862 2,356 577 689
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 5,285 5,925 7,406 9,528 12,112 2,566 3,491
------- ------- ------- ------- ------- ------- -------
Operating income........ 5,129 4,269 4,218 4,348 4,657 1,360 1,053
Other income
(expenses):
Interest and dividend
income................ 543 542 311 261 337 60 67
Other expenses,
principally interest.. (805) (747) (557) (410) (685) (112) (108)
Equity loss from PCS
investees:
VA PCS Alliance........ -- -- (822) (5,078) (5,427) (1,374) (1,523)
WV PCS Alliance........ -- -- -- (1,064) (4,565) (747) (1,648)
Equity income from
other investees....... 1,135 586 634 315 340 76 91
Gain (loss) on sale of
assets and
investments........... 1,708 (284) 5,080 31 252 -- --
------- ------- ------- ------- ------- ------- -------
7,710 4,366 8,864 (1,597) (5,091) (737) (2,068)
Income taxes (benefit).. 2,681 1,582 3,052 (759) (917) (298) (842)
------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $ 5,029 $ 2,784 $ 5,812 $ (838) $(4,174) $ (439) $(1,226)
======= ======= ======= ======= ======= ======= =======
Balance Sheet Data (at
period end):
Cash and cash
equivalents........... $ 8,442 $ 6,001 $ 7,021 $ 6,910 $ 8,218 $ 4,685 $ 9,421
Total assets........... 39,026 42,196 46,897 48,125 63,912 54,852 60,076
Long-term debt......... 9,852 8,529 8,276 7,908 7,520 7,784 7,466
Shareholders' equity... 23,645 26,190 31,669 31,258 35,562 31,347 33,605
Operating Data (at
period end):
Internet subscribers... -- 363 686 1,209 2,078 1,353 2,212
ILEC access lines...... 8,796 9,265 9,919 10,512 12,233 10,770 12,282
CLEC access lines...... -- -- -- 1,260 3,840 1,624 4,414
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF R&B COMMUNICATIONS
The following discussion and analysis should be read in conjunction with
"Selected Historical Consolidated Financial and Operating Data of R&B
Communications" 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
R&B Communications is an integrated communications provider offering a broad
range of products and services to business and residential customers in the
Roanoke and New River Valleys of Virginia. These communications products and
services include local and long distance telephone, dial-up and high-speed
Internet access, competitive local exchange access, paging and wireless cable
television.
Historically, R&B Communications has derived much of its revenues from its
ILEC. R&B Communications introduced Internet services in late 1996 and CLEC
services in the second quarter of 1998. As a result of its increasing focus on
and growth in CLEC services and Internet services, an increasing portion of
its operating revenues and EBITDA will be generated by businesses other than
its mature local telephone operations. These newer businesses have generated
lower operating margins due to start-up costs associated with expansion into
new markets and introduction of new service offerings throughout the region it
serves. As it expands its markets and introduces new products, R&B
Communications expects these lower operating margins to continue.
R&B Communications' wireless PCS service offerings consist of significant
investments in the Virginia Alliance and the West Virginia Alliance. The
Virginia Alliance and the West Virginia Alliance commenced operation in
September 1997 and September 1998, respectively. R&B Communications has
recognized significant equity losses from these investments.
On June 16, 2000, R&B Communications' board of directors approved an
agreement and plan of merger with CFW Communications.
Revenues
R&B Communications' revenues are generated from:
. wireless communications, including paging and wireless cable television
revenues;
. wireline communications, including ILEC, fiber optic network usage or
carrier's carrier services, Internet, CLEC, long distance, voicemail and
wireline cable television revenues; and
. other communications services revenues, including revenues from the sale,
installation and lease of communications equipment.
Operating Expenses
R&B Communications' operating expenses are generally incurred from the
following categories:
. maintenance and support expenses, including costs related to specific
property and equipment, as well as indirect costs such as engineering and
general administration of property and equipment;
. depreciation and amortization;
. customer operations expenses, including marketing, product management,
product advertising, sales, publication of a regional telephone
directory, customer services; and
. corporate operations expenses, including taxes other than income,
executive, accounting, legal, purchasing, information management, human
resources and other general and administrative expenses.
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Other Income (Expenses)
R&B Communications' other income (expenses) are generated (incurred) from
interest income and expense, dividend income, equity income or loss from the
Virginia Alliance and the West Virginia Alliance, or the Alliances, and other
equity investments and gain on sale of investments and assets.
Income Taxes
R&B Communications' income tax liability and effective tax rate increase and
decrease based upon changes in a number of factors, including pre-tax income
or loss, losses sustained by the Alliances, net operating losses and related
carrybacks and carryforwards, gain or loss on the sale of assets and
investments, non-deductible expenses related to life insurance policies, tax
and employment credits, and charitable contributions and other tax deductible
amounts.
Results of Operations
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31,
1999
Overview
Net loss increased $.8 million, or 200%, from $.4 million for the three
months ended March 31, 1999 to a net loss of $1.2 million for the three months
ended March 31, 2000. EBITDA for the three months ended March 31, 2000
decreased $.1 million, or 8%, from $2.0 million for the three months ended
March 31, 1999 to $1.9 million for the three months ended March 31, 2000.
Operating income decreased $.3 million, or 23%, from $1.4 million for the
three months ended March 31, 1999 to $1.1 million for the three months ended
March 31, 2000. R&B Communications' share of the net loss from the Alliances
increased $1.1 million, or 49%, from $2.1 million, $1.3 million after tax, for
the three months ended March 31, 1999 to $3.2 million, $2.0 million after-tax
for the three months ended March 31, 2000.
These results reflect customer growth from wireless, CLEC and Internet
services and R&B Communications' share of the Alliances' losses. The decreases
in operating income and EBITDA results were due to higher levels of
depreciation and amortization generated by capital investments in growth
businesses and the underlying supporting infrastructure.
Operating Revenues
Total operating revenues increased $.6 million, or 16%, from $3.9 million in
the three months ended March 31, 1999 to $4.5 million for the three months
ended March 31, 2000. The increase was due primarily to a $.5 million increase
in network and CLEC-based revenues. CLEC customers totaled 4,400 as of March
31, 2000, which represented an increase of 2,800 customers from March 31,
1999. Internet customers grew to 2,200 as of March 31, 2000, an increase of
900 customers from March 31, 1999.
Wireless Communications Revenues. Wireless communications revenues were
relatively stable from the three months ended March 31, 1999 to the three
months ended March 31, 2000.
Wireline Communications Revenues. Wireline communications revenues increased
$.5 million, or 15%, from $3.5 million for the three months ended March 31,
1999 to $4.0 million for the three months ended March 31, 2000. Network
revenues and revenues from fiber optic network usage, CLEC and long distance
accounted for most of this increase. CLEC revenues increased $.3 million, or
75%, from $.4 million for the three months ended March 31,1999 to $.7 million
for the three months ended March 31, 2000, reflecting the growth in access
lines noted above.
Other Communications Revenues. Other communications revenues increased $.1
million, or 57%, from $.1 million for the three months ended March 31, 1999 to
$.2 million for the three months ended March 31, 2000. This increase was
principally the result of ancillary sales and services related to the growing
wireline and wireless services.
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Operating Expenses
Total operating expenses increased $.9 million, or 36%, from $2.6 million
for the three months ended March 31, 1999 to $3.5 million for the three months
ended March 31, 2000. This increase was primarily in the wireline businesses.
Within this business, CLEC and network operations comprised $.4 million of the
total increase. The CLEC and network operating expense increased as a result
of the expenses associated with increased fiber build-out and from strong
growth of the CLEC markets.
Maintenance and Support Expense. Maintenance and support expense increased
$.5 million, or 74%, from $.7 million for the three months ended March 31,
1999 to $1.2 million for the three months ended March 31, 2000. This increase
was due primarily to CLEC rollout and engineering and operations support
growth.
Depreciation and Amortization. Depreciation and amortization expense
increased $.1 million, or 22%, from $.7 million for the three months ended
March 31, 1999 to $.8 million for the three months ended March 31, 2000. This
increase was due to an increase of approximately 13% in the plant-in-service
asset base from $37.6 million as of March 31, 1999 to $42.5 million as of
March 31, 2000. Depreciation and amortization as a percent of the related
assets increased from 1.6% for the three months ended March 31, 1999 to 1.9%
for the three months ended March 31, 2000. This increase was due to shift in
the composition of the asset base from traditional telephone plant to more
network plant and equipment.
Customer Operations Expense. Customer operations expense increased $.2
million, or 24%, from $.6 million for the three month period ended March 31,
1999 to $.8 million for the three months ended March 31, 2000. This increase
related primarily to marketing and sales activities and customer care growth,
which was consistent with the related revenue growth.
Corporate Operations Expense. Corporate operations expense increased $.1
million, or 19%, from $.6 million for the three months ended March 31, 1999 to
$.7 million for the three months ended March 31, 2000. This increase was a
result of growth in the corporate infrastructure commensurate with the
significant growth in operations.
Other Income (Expenses)
Other income (expenses) was driven primarily by the effect of losses from
the Alliances. R&B Communications' share of losses from the Virginia Alliance
increased $.1 million, or 11%, from $1.4 million for the three months ended
March 31, 1999 to $1.5 million for the three months ended March 31, 2000. Its
share of losses from the West Virginia Alliance, which commenced operations in
the latter part of the third quarter of 1998, and expanded significantly in
the second quarter of 1999, increased from $.8 million for the three months
ended March 31, 1999 to $1.6 million for the three months ended March 31,
2000. Further information concerning the Alliances is contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for each respective Alliance.
Income Taxes
The income tax benefit of net losses increased from $.5 million for the
three months ended March 31, 1999 to $.9 million for the three months ended
March 31, 2000. The primary factor causing this change was an increase in the
pre-tax loss of $1.3 million.
1999 Compared to 1998
Overview
Net loss increased $3.4 million, from $.8 million in 1998 to $4.2 million in
1999. EBITDA increased $.8 million, or 12%, from $6.7 million in 1998 to $7.5
million in 1999. Operating income increased $.3 million, or 7%, from $4.3
million in 1998 to $4.6 million in 1999. Net loss for 1999 was $4.2 million,
including the equity losses from the Alliances of $10.0 million, $6.2 million
after tax.
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Operating Revenues
Total operating revenues increased $2.9 million, or 21%, from $13.9 million
in 1998 to $16.8 million in 1999.
Wireless Communications Revenues. Wireless communications revenues remained
relatively stable from 1998 to 1999. Revenues for paging decreased $.1
million, from $.7 million in 1998 to $.6 million in 1999. This decrease
resulted primarily from a decline in paging customers due to increased
competition and decreased marketing emphasis. Wireless cable revenues
increased $.1 million, or 20%, from $.5 million in 1998 to $.6 million in 1999
as a result of increased marketing.
Wireline Communications Revenues. Wireline communications revenues increased
$2.8 million, or 24% from $11.7 million in 1998 to $14.5 million in 1999.
Telephone revenues, including local service, access and toll service, and
calling feature revenues increased $.8 million, or 11%, from $7.6 million in
1998 to $8.4 million in 1999. This increase was primarily due to growth in
access lines of 1,700, or 16%, from 10,500 as of December 31, 1998 to 12,200
in 1999. Revenues from fiber optic network usage and CLEC increased $1.7
million, or 45% from $3.8 million as of December 31, 1998 to $5.5 million in
1999 due to increased network usage and strong CLEC access line growth. CLEC
services were introduced in the Roanoke market in the second quarter of 1998.
The number of CLEC business access lines increased from 1,300 as of December
31, 1998 to 3,800 as of December 31, 1999. Internet service revenues increased
from $.3 million in 1998 to $.6 million in 1999 due primarily to an increase
in subscribers from 1,200 in 1998 to 2,100 in 1999.
Other Communications Revenues. Other communications revenues increased $.1
million, or 6%, from $.9 million in 1998 to $1.0 million in 1999. This
increase was related to the increase in customers for both wireline and
wireless services.
Operating Expenses
Total operating expenses increased $2.6 million, or 27%, from $9.5 million
in 1998 to $12.1 million in 1999. The increase was primarily attributable to
additional business volume in ILEC, CLEC, and competitive access services.
Costs associated with providing these services accounted for $9.9 million of
operating expense, an increase of $2.3 million, or 30%, over 1998. Of this
increase, $1.7 million was from CLEC and other competitive access services.
Maintenance and Support Expense. Maintenance and support expense increased
$1.5 million, or 45%, from $3.4 million in 1998 to $4.9 million in 1999.
Approximately $1.1 million of this increase related to geographic expansion
and other growth in network and CLEC services.
Depreciation and Amortization. Depreciation and amortization expense
increased $.5 million, or 20%, from $2.3 million in 1998 to $2.8 million in
1999. Of this increase, $.3 million was related to growth in CLEC operations
and ILEC digital switching upgrades.
Customer Operations Expense. Customer operations expense increased $.1
million, or 5%, from $1.9 million in 1998 to $2.0 million in 1999. This
increase was due primarily to start up of CLEC operations.
Corporate Operations Expense. Corporate operations expense increased $.5
million, or 27%, from $1.9 million in 1998 to $2.4 million in 1999. This
increase was due to increases in personnel to support growth in ILEC and CLEC
operations.
Other Income (Expenses)
Other income (expenses), which was a net expense in 1998 and 1999, increased
$3.8 million, from an expense of $5.9 million in 1998 to an expense of $9.7
million in 1999, as a result of a full year of operations by the West Virginia
Alliance.
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R&B Communications' share of losses of the Alliances totaled $10.0 million
in 1999, a $3.9 million increase from 1998 losses of $6.1 million. The West
Virginia Alliance commenced operations in late 1998 and the loss from that
investee increased from $1.1 million in 1998 to $4.6 million in 1999. Losses
from the Alliances are expected to continue to be significant until the
customer base is sufficient to cover the normal operating cost for these
services. Further information concerning the Alliances is contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for each respective Alliance.
Income Taxes
The income tax benefit of net losses increased $.1 million, or 21%, from $.8
million in 1998 to $.9 million in 1999. The primary factor causing this change
was an increase in the pre-tax loss of $3.5 million.
1998 Compared to 1997
Overview
Total operating revenues increased $2.3 million, or 19%, from $11.6 million
in 1997 to $13.9 million in 1998. EBITDA increased $.4 million, or 6%, from
$6.3 million in 1997 to $6.7 million in 1998. Operating income increased $.1
million, or 2%, from $4.2 million in 1997 to $4.3 million in 1998. Net loss
for 1998 was $.8 million, including the equity losses from the Alliances of
$6.1 million, $3.8 million after tax.
Operating Revenues
Wireless Communications Revenues. Wireless communications revenues increased
$.3 million, or 33%, from $.9 million in 1997 to $1.2 million in 1998. The
increase resulted from an increase in wireless cable program offerings during
1997.
Wireline Communications Revenues. Wireline communications revenues increased
$2.0 million, or 21%, from $9.7 million in 1997 to $11.7 million in 1998. ILEC
revenues increased $.6 million, or 9%, from $7.0 million in 1997 to $7.6
million in 1998. These increases were primarily due to a 4% growth in access
lines and a 47% growth in revenues from custom calling features. Revenues from
fiber optic network usage and CLEC increased $1.2 million, or 46%, from $2.6
million in 1997 to $3.8 million in 1998 due to increased network usage and the
roll-out of CLEC in the Roanoke market. Internet revenues, which were
insignificant in 1997, its first full year of operations, grew to $.3 million
in 1998.
Other Operating Revenues. Other communications revenues were relatively
stable from 1997 to 1998.
Operating Expenses
Total operating expenses increased $2.1 million, or 28%, from $7.4 million
in 1997 to $9.5 million in 1998. The 1998 increases were primarily
attributable to ILEC and CLEC and other competitive access services. Of this
increase, $1.1 million was from CLEC and other competitive access services.
Maintenance and Support Expense. Maintenance and support expense increased
$1.1 million, or 48%, from $2.3 million in 1997 to $3.4 million in 1998. Of
this increase, $.3 million related to network and CLEC operations. These
increases were plant-related expense increases due to geographic expansion.
Depreciation and Amortization. Depreciation and amortization expense
increased $.2 million, or 10%, from $2.1 million in 1997 to $2.3 million in
1998. Expanded growth in CLEC operations and ILEC digital switching upgrades
were the primary reasons for the increase.
Customer Operations Expense. Customer operations expense increased $.6
million, or 46%, from $1.3 million in 1997 to $1.9 million in 1998, primarily
due to start up of CLEC operations.
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Corporate Operations Expense. Corporate operations expense increased $.2
million, or 12%, from $1.7 million in 1997 to $1.9 million in 1998,
representing growth in corporate infrastructure associated with growth in
operations.
Other Income (Expenses)
Other income (expenses) was $4.7 million in income in 1997 and $5.9 million
in expense in 1998. Income in 1997 included a $5.1 million gain on the sale of
Roanoke MSA Ltd. partnership investment. R&B Communications' share of losses
from the Alliances increased $5.3 million, from $.8 million in 1997 to $6.1
million in 1998.
Other expenses, principally interest, decreased $.1 million in 1998 from
1997 due to continued debt reduction.
Income Taxes
Income taxes decreased $3.8 million, or 127%, from a $3.0 million expense in
1997 to a $.8 million benefit in 1998. The primary factor causing this change
was a decrease in pre-tax income of $10.5 million resulting from R&B
Communications' share of the Alliances' losses.
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