EXHIBIT 99.2
R&B COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
December 31, 2000
CONTENTS
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INDEPENDENT AUDITOR'S REPORT 1
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FINANCIAL STATEMENTS
Consolidated balance sheets 2 - 3
Consolidated statements of operations 4
Consolidated statements of shareholders' equity 5
Consolidated statements of cash flows 6 - 7
Notes to consolidated financial statements 8 - 18
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INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
R&B Communications, Inc.
Daleville, Virginia
We have audited the accompanying consolidated balance sheets of R&B
Communications, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of R&B Communications,
Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ McGladrey & Pullen, LLP
Richmond, Virginia
February 13, 2001
R&B COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
ASSETS (Note 5) 2000 1999
----------- -----------
Current Assets
Cash and cash equivalents $ 5,066,428 $ 8,218,177
Accounts receivable 3,616,155 3,834,561
Related party receivable (Note 9) 696,017
Materials and supplies 550,873 354,878
Prepaid expenses and other 304,685 230,094
Income taxes receivable 2,539,160 2,680,774
----------- -----------
Total current assets 12,773,318 15,318,484
----------- -----------
Securities and Investments (Note 4) 7,833,196 18,811,889
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Property and Equipment
Land and building 4,497,672 4,497,672
Network plant and equipment 24,914,646 21,231,445
Furniture, fixtures, and other equipment 17,664,968 14,954,217
Radio spectrum licenses 926,376 926,376
Under construction (Note 9) 1,227,432 -
----------- -----------
49,231,094 41,609,710
Less accumulated depreciation 19,765,875 16,594,851
----------- -----------
Net property and equipment 29,465,219 25,014,859
----------- -----------
Other Assets
Cash surrender value of life insurance 1,451,665 3,749,035
Radio spectrum licenses 958,546 958,546
Other deferred charges 27,879 59,548
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2,438,090 4,767,129
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$52,509,823 $63,912,361
=========== ===========
See Notes to Consolidated Financial Statements
2
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999
----------- ------------
Current Liabilities
Current maturities of long-term debt (Note 5) $ 406,134 $ 385,627
Recognized losses in excess of investment in PCS ventures 3,100,000 3,100,000
Accounts payable 2,308,674 1,493,424
Customers' deposits 20,122 26,483
Advance billings 680,091 702,649
Accrued payroll 140,501 118,023
Accrued interest 14,040 15,610
Other accrued liabilities 735,869 707,328
Dividends payable - 221,022
----------- ------------
Total current liabilities 7,405,431 6,770,166
----------- ------------
Long-Term Debt, less current maturities (Note 5) 7,115,041 7,520,082
----------- ------------
Long-Term Liabilities
Deferred income taxes (Note 6) 1,827,500 10,100,000
Recognized losses in excess of investment in PCS ventures 13,068,647 2,078,690
Deferred compensation (Note 8) 2,011,875 1,772,000
Unamortized investment tax credits 79,448 109,463
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16,987,470 14,060,153
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Commitments and Contingencies (Note 9)
Shareholders' Equity
Common stock, $10 par value, authorized 100,000 shares;
issued and outstanding 2000 61,663 shares; 1999 61,669 shares 616,630 616,690
Retained earnings 16,951,307 24,845,542
Unrealized gain on securities available for sale, net 3,433,944 10,099,728
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21,001,881 35,561,960
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$52,509,823 $63,912,361
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3
R&B COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2000 and 1999
2000 1999
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Operating revenues:
Wireline communications $ 16,464,432 $ 14,499,701
Wireless communications 1,279,233 1,257,571
Other communications services 1,080,553 1,012,076
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18,824,218 16,769,348
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Operating expenses:
Maintenance and support 6,304,253 4,917,215
Depreciation and amortization 3,506,197 2,808,093
Customer operations 2,431,856 2,030,715
Corporate operations 3,174,439 2,356,231
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15,416,745 12,112,254
------------- -------------
Operating income 3,407,473 4,657,094
Other income (expense):
Interest and dividend income 409,755 336,526
Other expenses, principally interest (438,541) (685,171)
Equity loss from PCS investees:
VA PCS Alliance (8,966,101) (5,427,347)
WV PCS Alliance (6,640,043) (4,564,475)
Equity income from other investees 409,934 339,727
Gain on sale of assets and investments 194,278 252,483
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(11,623,245) (5,091,163)
Income taxes (benefit) (Note 6) (3,992,149) (917,265)
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Net Loss $ (7,631,096) $ (4,173,898)
============= ============
Net loss per common share, basic and diluted $ (123.75) $ (67.68)
============= ============
Average shares outstanding, basic and diluted 61,664 61,670
============= ============
Cash dividends per share $ 4.25 $ 3.60
============= ============
See Notes to Consolidated Financial Statements
4
R&B COMMUNICATIONS, INC, AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 2000 and 1999
Accumulated
Common Stock Other
----------------------- Retained Comprehensive
Shares Amount Earnings Income Total
----------------------- ----------- ------------- -----------
Balance, January 1, 1999 61,671 $616,710 $29,241,142 $ 1,400,050 $31,257,902
Comprehensive income:
Net loss (4,173,898) (4,173,898)
Unrealized gains on securities
available-for-sale net of
reclassification adjustment
(see below) 8,699,678 8,699,678
Total comprehensive income 4,525,780
------------
Redemption of 2 shares of common stock (2) (20) (680) (700)
Dividends (221,022) (221,022)
-------- -------- ----------- ----------- ------------
Balance, December 31, 1999 61,669 616,690 24,845,542 10,099,728 35,561,960
Comprehensive loss:
Net loss (7,631,096) (7,631,096)
Unrealized loss on securities
available-for-sale, net of
reclassification adjustment
(see below) (6,665,784) (6,665,784)
------------
Total comprehensive loss (14,296,880)
Redemption of 6 shares of common stock (6) (60) (2,040) (2,100)
Dividends (261,099) (261,099)
-------- -------- ----------- ----------- ------------
Balance, December 31, 2000 61,663 $616,630 $16,951,307 $ 3,433,994 $ 21,001,881
======== ======== =========== =========== ============
1999 2000
----------- ------------
Reclassification adjustment:
Unrealized holding gains (losses) arising
during year, net of deferred taxes (benefit)
1999 $5,425,408 ; 2000 ($4,097,393) $8,860,114 $(6,681,109)
Less reclassification adjustment for
realized gains (losses), net of deferred
taxes (benefit) 1999 $92,047;
2000 ($9,393) 160,436 (15,325)
----------- -----------
$ 8,699,678 $(6,665,784)
=========== ===========
See Notes to Consolidated Financial Statements
5
R&B COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2000 and 1999
2000 1999
------------ ------------
Cash Flows From Operating Activities:
Net loss $ (7,631,096) $ (4,173,898)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation 3,443,649 2,747,121
Amortization 62,548 60,972
Deferred taxes (4,022,149) 628,000
Retirement benefits other than pensions 239,875 300,000
Other (136,841) (241,819)
Equity loss from wireless investees 15,196,210 9,652,095
(Gain) loss on sale of assets and investments (194,278) (252,483)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 218,406 (1,258,3l7)
Related party receivable (696,017) -
Materials and supplies (195,995) (31,360)
Income taxes receivable 141,614 (81,822)
Other current assets (74,591) (220,382)
Increase (decrease) in:
Accounts payable 815,250 428,354
Other accrued liabilities 260,405 124,031
----------- ------------
Net cash provided by operating activities 7,426,990 7,680,492
----------- ------------
Cash Flows From Investing Activities
Purchases of property and equipment (8,005,480) (5,325,453)
Purchase of investment securities (690,859) (281,818)
Purchase of licenses - (215,760)
Contributions to equity investments (4,616,187) (1,837,881)
Net proceeds on life insurance policy 2,297,370 458,444
Proceeds from sale of equipment 16,556 -
Proceeds from sale of investment securities 825,846 989,925
Distributions from equity investments 462,770 408,634
----------- ------------
Net cash used in investing activities (9,709,984) (5,803,909)
----------- ------------
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(Continued)
6
R&B COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS(Continued)
Years Ended December 31, 2000 and 1999
2000 1999
----------- -----------
Cash Flows From Financing Activities
Cash dividends $ (482,121) $ (l99,501)
Redemption of common stock (2,100) (700)
Payments on long-term debt (384,534) (367,818)
----------- -----------
Net cash used in financing activities (868,755) (568,019)
----------- -----------
Net increase (decrease) in cash and cash flows (3,151,749) 1,308,564
Cash and cash equivalents:
Beginning 8,218,177 6,909,613
----------- -----------
Ending $ 5,066,428 $ 8,218,177
=========== ===========
See Notes to Consolidated Financial Statements.
7
R&B COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Note 1. Summary of Significant Accounting Policies
R&B Communications, Inc. and subsidiaries (the "Company") provide a broad range
of products and services to businesses, telecommunication carriers and
residential customers in the Roanoke Valley area of Virginia. The Company's
services include personal communications services ("PCS"), local telephone, long
distance, paging, voice mail, wireless cable television, directory assistance,
competitive access, and local internet access. A summary of the Company's
significant accounting policies follows:
Principles of consolidation: The consolidated financial statements include the
- ---------------------------
accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Accounting estimates: The preparation of financial statements in conformity
- --------------------
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Revenue recognition: The Company's revenue recognition policy is to recognize
- -------------------
revenues when services are rendered or when products are delivered, installed
and functional, as applicable. Certain services of the Company require payment
in advance of service performance. In such cases, the Company records a service
liability at the time of billing and subsequently recognizes revenue over the
service period.
Cash and cash equivalents: For purposes of reporting cash flows, the Company
- -------------------------
considers all highly liquid debt instruments with a purchased maturity of three
months or less to be cash equivalents. The Company places its temporary cash
investments with high credit quality financial institutions. At times, these
investments may be in excess of the FDIC insurance limit.
Securities and investments: The Company has investments in debt and equity
- --------------------------
securities and partnerships. Management determines the appropriate
classification of securities at the date of purchase and continually thereafter.
The classification of those securities and the related accounting policies are
as follows:
Available-for-sale securities: Securities classified as available-for-
-----------------------------
sale are traded primarily on a national exchange and consist of
securities that the Company intends to hold for an indefinite period
of time but not necessarily to maturity. Decisions to sell a security
classified as available-for-sale are based on various factors,
including changes in market conditions, liquidity needs and
R&B COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies (Continued)
similar criteria. Available-for-sale securities are stated at fair value
and unrealized holding gains and losses, net of the related deferred tax
effect, are reported as a separate component of shareholders' equity.
Realized gains and losses, determined on the basis of the cost of
specific securities sold, are included in earnings.
Investments carried at cost: Cost method investments are those in
---------------------------
which the Company does not have significant ownership and for which there
is no ready market. Patronage equity received in connection with the
acquisition of long-term debt is included in this category.
Equity method investments: Equity method investments consist of
-------------------------
partnership investments. Under this method, the Company's share in
earnings or losses of these companies is included in earnings. Where the
Company has guaranteed obligations of a partnership, or committed to make
capital investments in excess of carrying value, negative capital
balances are reported as liabilities.
Materials and supplies: The Company's materials and supplies inventory consists
- ----------------------
both of items held for resale such as PCS and wireline phones, pagers, and
accessories, and materials for the maintenance and expansion of plant
operations. The Company values its inventory at the lower of average cost or
market. The market value is determined by reviewing current replacement cost,
marketability, and obsolescence.
Property and equipment: Property and equipment is stated at cost. Accumulated
- ----------------------
depreciation is charged with the cost of property retired, plus removal cost,
less salvage. Depreciation is determined under the remaining life method and
straight-line composite rates. Buildings are depreciated over lives from 35 to
50 years. Network plant and equipment are depreciated over various lives from 5
to 50 years. Furniture, fixtures and other equipment are depreciated over
various lives from 5 to 25 years. Channel acquisition costs are amortized over
a life of 30 years. Depreciation provisions were approximately 7.8% and 7.2% of
average depreciable assets for the years 2000 and 1999, respectively.
Retirement plan: The Company sponsors a contributory defined contribution plan
- ---------------
under Internal Revenue Code Section 401(k) for all full-time employees with at
least one year of service. The Company contributes 50% of each participant's
annual contribution for contributions up to 4% of each participant's annual
compensation, and contributes 100% of each participant's annual contribution for
the next 2%. The employee elects the type of investment fund from the equity
and bond alternatives offered by the plan.
The Company also sponsors a qualified profit-sharing plan to provide retirement
benefits for employees. The plan provides for a choice of a lump sum
distribution or periodic payments upon
R&B COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies (Continued)
normal retirement at age 65, permanent
disability or death. The plan provides for voluntary contributions and covers
substantially all full-time employees. The employer's contribution to the plan
is determined annually by the Board of Directors.
Income taxes: Deferred income taxes are provided on a liability method whereby
- ------------
deferred tax assets are recognized for deductible temporary differences and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets and liabilities are
adjusted for the effect of changes in tax laws and rates on the date of
enactment.
Net loss per common share: Basic net loss per share was computed by dividing
- -------------------------
the net loss by the weighted average number of common shares outstanding during
the year. The Company has no potential common stock outstanding, such as stock
options, warrants, or convertible debt. Furthermore, the Company reported a net
loss in each year presented. Therefore, basic and diluted net loss per share
are the same.
Fair value of financial instruments: The fair values of financial instruments
- -----------------------------------
recorded on the balance sheet, except securities and investments, are not
significantly different from the carrying amounts, based on cash flows relative
to similar instruments. Information as to securities and investments is
included elsewhere in Notes 1, 3 and 4. The fair value of off-balance-sheet
guarantees, as described in Note 3, is not determinable due to the nature of the
transactions.
Note 2. Disclosures about Segments of an Enterprise and Related Information
The Company has five primary business segments which have separable management
focus and infrastructures and that offer different products and services. These
segments are as follows:
Telephone: The Company has a 100-year old local telephone business
---------
subject to the regulations of the State Corporation Commission of Virginia.
This business is an incumbent local exchange carrier ("ILEC") in Botetourt
County, Virginia. Principal products offered by this business are local
service, which includes advanced calling features, network access, long
distance toll and directory advertising.
Network: In addition to the ILEC services, the Company directly or
-------
indirectly owns a fiber optic network and provides transport services for
long distance, internet and private network services. Additionally, the
network business began offering Competitive Local Exchange ("CLEC") service
in 1998, currently providing services to customers in the Roanoke Valley of
Virginia.
R&B COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Internet: The Company provides local internet access services
--------
through a local presence in the Roanoke Valley and surrounding areas of
western Virginia.
Wireless: The Company's wireless business provides paging and voice
--------
mail and is marketed in the retail and business-to-business channels
primarily within the Company's internet service territory.
Wireless cable: The cable business offers wireless video cable service
--------------
and offers wireless cable high speed internet service to residential and
commercial subscribers in the Roanoke Valley.
Note 2. Disclosures about Segments of an Enterprise and Related Information
(Continued) Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "Corporate and Other" column
includes certain unallocated corporate related items, as well as results from
the Company's maintenance contract, directory advertising and retail businesses,
which are not considered separate reportable segments.
Network Corporate
and Wireless And
Telephone CLEC Internet Wireless Cable Other Total
--------- -------- -------- -------- -------- --------- -------
(in thousands)
2000
Revenues $ 9,050 $ 7,228 $ 769 $ 856 $ 707 $ 214 $18,824
EBITDA 3,122 3,418 87 335 31 (79) 6,914
Depreciation and
amortization 1,839 947 87 101 485 47 3,506
Total segment
assets 29,798 9,431 410 167 2,400 10,304 52,510
1999
Revenues $ 8,945 $ 5,511 $ 593 $ 811 $ 714 $ 195 $16,769
EBITDA 4,536 2,581 77 335 (32) (32) 7,465
Depreciation and
amortization 1,581 561 77 85 453 51 2,808
Total segment
assets 36,893 10,071 406 573 2,706 13,263 63,912
11
R&B COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies (Note 1). The Company evaluates the
performance of its operating segments principally on operating revenues,
operating income and EBITDA, which the Company defines as operating income plus
depreciation and amortization. Corporate functions are allocated at cost to the
operating segments. Segment expenses contain an allocation of shared expenses
for general administration.
Note 3. Investments in Wireless Affiliates
At December 31, 2000, the Company had invested approximately $11.1 million ($7.0
million at December 31, 1999) for a 26% common ownership interest in Virginia
PCS Alliance, L.C. (VA Alliance), a provider of personal communications services
(PCS) serving a 1.7 million populated area in central and western Virginia. PCS
operations began throughout the Virginia region in the fourth quarter of 1997.
The Company has committed to provide approximately $3.1 million additional
capital to the VA Alliance in installments of approximately $2.6 million in 2001
and $.5 million in 2002. Such additional capital commitments would be reduced
by proceeds, if any, from future equity offerings by the VA Alliance.
The Company has a 34% common ownership interest in the West Virginia PCS
Alliance, L. C. (WV Alliance), a provider of PCS serving a 2.0 million populated
area in West Virginia and eastern Kentucky, southwestern Virginia and eastern
Ohio. PCS operations began in Charleston and Huntington, West Virginia, in the
fourth quarter of 1998 and expanded to Morgantown and the northern corridor of
West Virginia in the second quarter of 1999.
The Company has committed to provide additional capital to the WV Alliance of
approximately $1.0 million in two equal installments, beginning in January 2001.
Such additional capital commitments would be reduced by proceeds, if any, from
future equity offerings by the WV Alliance.
Summarized financial information for the VA Alliance and WV Alliance
(Alliances), both of which are accounted for by the equity method, are as
follows:
12
R&B COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VA Alliance WV Alliance
2000 1999 2000 1999
-------- -------- -------- --------
(in thousands)
Current assets $ 7,147 $ 9,241 $ 4,865 $ 2,367
Noncurrent assets 117,342 111,601 62,022 51,130
Current liabilities 11,279 7,633 5,435 3,076
Noncurrent liabilities 161,841 131,478 80,101 51,125
Redeemable preferred interest - 15,192 - -
(in thousands) 2000 1999 2000 1999
-------- -------- -------- --------
Net sales $ 23,009 $ 13,376 $ 13,223 $ 2,989
Gross profit (loss) 13,245 7,512 4,147 (77)
Net loss applicable to
common owners (38,111) (26,139) (19,366) (13,287)
Company's share of net loss (8,966) (5,427) (6,640) (4,564)
The Company has entered into a guarantee agreement whereby the Company is
committed to provide guarantees of up to $29.3 million of the Alliances' debt
and redeemable preferred obligations. Such guarantees become effective as
obligations are incurred by the Alliances. At December 31, 2000, the Company has
guaranteed $29.3 million of the Alliances' obligations.
Note 4. Securities and Investments
Investments consist of the following as of December 31:
13
R&B COMMUNICATIONS, INC. AND SUBSIDIARIES
WNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Carrying Values
Type of Ownership 2000 1999
------------ ------------
Available-for-Sale
MCI WorldCom, Inc. Equity Securities $ 883,364 $ 3,333,227
Illuminet Holdings, Inc. Equity Securities 5,549,063 13,538,360
ITC DeltaCom, Inc. Equity Securities 73,118 325,119
NTELOS Inc. Equity Securities 114,563 225,875
Other Equity Securities 375,358 565,882
------------ ------------
6,995,466 17,988,463
------------ ------------
Equity Method
Virginia PCS Alliance, L.C. Equity and Convertible
Preferred Interests (9,133,059) (4,295,928)
West Virginia PCS Alliance, L.C. Equity Interest (7,035,588) (882,762)
Virginia Telecommunications Partnership Partnership Interest 218,381 297,348
Other Partnership Interests 278,132 124,407
------------ ------------
(15,672,134) (4,756,935)
------------ ------------
Cost Method
Rural Telephone Bank Equity Securities 328,558 328,558
Other Equity Securities 12,659 73,113
------------ ------------
341,217 401,671
------------ ------------
(8,335,451) 13,633,199
Amounts reported separately as liabilities 16,168,647 5,178,690
------------ ------------
$ 7,833,196 $ 18,811,889
============ ============
- -----------------------------------------------------------------------------------------------------------------------
Note 4. Securities and Investments (Continued)
Costs and fair values of available-for-sale securities are as follows:
R&B COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unrealized
Holding
Gains Fair
Cost (Losses) Value
------------ ---------------- --------------
As of December 31, 2000:
MCI WorldCom, Inc. $ 320,767 $ 562,597 $ 883,364
Illuminet Holdings, Inc. 439,597 5,109,466 5,549,063
ITC DeltaCom, Inc. 160,000 (86,882) 73,118
NTELOS Inc. 162,500 (47,937) 114,563
Other 376,658 (1,300) 375,358
------------ ---------------- --------------
$ 1,459,522 $ 5,535,944 $ 6,995,466
============ ================ ==============
As of December 31, 1999:
MCI WorldCom, Inc. $ 320,767 $ 3,012,460 $ 3,333,227
Illuminet Holdings, Inc. 439,597 13,098,763 13,538,360
ITC DeltaCom, Inc. 160,000 165,119 325,119
NTELOS Inc. 162,500 63,375 225,875
Other 615,871 (49,989) 565,882
------------ ---------------- --------------
$ 1,698,735 $ 16,289,728 $ 17,988,463
============ ================ ==============
Changes in the unrealized gain (loss) on available-for-sale securities during
the years ended December 31, 2000 and 1999 reported as a separate component of
shareholders' equity are as follows:
2000 1999
--------------- --------------
Unrealized gains, beginning balance $ 16,289,728 $ 2,256,689
Unrealized holding (losses) gains during the year (10,753,784) 14,033,039
--------------- --------------
Unrealized gains, ending balance 5,535,944 16,289,728
Deferred tax effect related to net unrealized holding gains 2,102,000 6,190,000
--------------- --------------
Unrealized gain included in shareholders' equity $ 3,433,944 $ 10,099,728
=============== ==============
Note 5. Long-Term Debt
R&B COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Long-term debt and lines of credit to the Rural Utility Service ("RUS") and the
Rural Telephone Bank ("RTB") consist of the following as of December 31:
2000 1999
------------ --------------
5.00% note due to RUS in quarterly installments of principal
and interest of $28,353 through 2011 $ 921,762 $ 987,048
5.00% note due to RUS in quarterly installments of principal
and interest of $53,501 through 2015 2,198,765 2,299,684
5.50% note due to RUS in monthly installments of principal
and interest of $23,650 through 2008 548,715 610,961
5.50% note due to RUS in monthly installments of principal
and interest of $42,403 through 2008 978,731 1,087,497
6.05% due on line of credit to RTB in monthly installments of
principal and interest of $17,065 through 2026 2,683,824 2,725,381
5.00% note due to RUS in quarterly installments of principal
and interest of $3,595 through 2021 183,866 188,897
2.00% note due to RUS in quarterly installments of principal
and interest of $212 through 2007 5,512 6,241
------------ --------------
7,521,175 7,905,709
Less current maturities 406,134 385,627
------------ --------------
$ 7,115,041 $ 7,520,082
============ ==============
The above items are secured by substantially all Company assets. As of December
31, 2000, the Company has drawn down $2.9 million on a $5.4 million commitment
from the RTB. The amount outstanding on these borrowings was $2.7 million as of
December 31, 2000 and 1999. The Company has 35 years to use the approved amount,
and is required to purchase stock in the RTB equal of 5% of the loan. This stock
is recorded with investments.
The RUS restricts the payment of dividends by Roanoke and Botetourt Telephone
Company, Inc. to 60% of its total net earnings since December 31, 1976. Total
dividend distributions through December 31, 2000 were $.6 million less than the
amount allowed by this limitation.
Note 5.Long-Term Debt (Continued)
R&B COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Interest expense was approximately $.5 million and $.7 million for 2000 and
1999, respectively. Maturities of long-term debt for each of the next five years
are as follows:
Year Amount
-------------
2001 $ 406,134
2002 428,331
2003 451,748
2004 476,450
2005 502,511
Note 6. Income Taxes
The components of income tax expense are as follows for the years ended December
31:
2000 1999
------------ -------------
Current tax expense (benefit):
Federal $ 162,351 $ (949,388)
State 30,000 (595,877)
------------ ------------
$ 192,351 $ (1,545,265)
============ ============
Deferred tax expense (benefit):
Federal $ (3,749,502) $ 558,424
State (434,998) 69,576
(4,184,500) 628,000
------------ ------------
$ (3,992,149) $ (917,265)
============ ============
Total income tax expense was different than an amount computed by applying the
graduated statutory federal income tax rates to income before taxes. The reasons
for the differences are as follows for the years ended December 31:
R&B COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2000 1999
------------- -------------
Computed tax at statutory rate $ (3,951,903) $ (1,730,995)
Tax credits (29,715) (32,965)
State income taxes (benefit), net of federal
income tax effect (201,960) (590,l28)
Adjustment to prior year estimates
Nondeductible life insurance 10,609 76,554
IRS audit adjustment - 942,162
Other, net 9,192 24,230
------------- -------------
$ (3,992,149) $ (917,265)
============= =============
Note 6. Income Taxes (Continued)
Net deferred income tax assets and liabilities consist of the following
components at December 31:
2000 1999
------------ ------------
Deferred income tax assets:
Retirement benefits other than pension $ 764,513 $ 673,360
Compensated absences 66,728 55,852
Net operating loss carryforward 4,414,123 3,012,823
Other 334,626 242,270
------------ ------------
5,639,990 3,984,305
------------ ------------
Deferred income tax liabilities:
PCS investments, net 2,602,244 5,320,981
Property and equipment 2,763,246 2,573,324
Unrealized gain on securities available-for-sale 2,102,000 6,190,000
------------ ------------
7,467,490 14,084,305
------------ ------------
Net deferred tax liabilities $ 1,827,500 $ 10,100,000
------------ ------------
- -----------------------------------------------------------------------------------------------------------
The Company has a net operating loss carryforward of approximately $11.6
million, which expires in 2019 and 2020.
Note 7. Supplementary Disclosures of Cash Flow Information
The following information is presented as supplementary disclosures for the
consolidated statements of cash flows:
R&B COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2000 1999
--------- ------------
Cash payments (refunds) for:
Interest, net of capitalized interest of $91,724 in 2000
and $60,502 in 1999 $ 348,387 $ 707,981
========= ============
Income taxes, net $ -- $ (1,463,443)
========= ============
----------------------------------------------------------------------------------------------------------------
Note 8. Retirement Plans and Other Postretirement Benefits
Company matching contributions to the defined contribution plan totaled $.1
million in 2000 and 1999. Profit-sharing contributions totaled $.2 million and
$.l million in 2000 and 1999, respectively. These amounts are reflected in
operating expenses in the statement of operations.
The Company has adopted salary continuation plan agreements with certain of its
employees. The amount of the deferred compensation is based on 25%-50% of one's
average salary in the last five years of employment. The compensation is payable
monthly over a 10-year period. The estimated costs of benefits that will be paid
after retirement is being accrued by charges to expense over the eligible
employee's service periods to the dates they are fully eligible for benefits.
Such charges were $.2 million and $.3 million in 2000 and 1999, respectively.
These plans provide an option to begin receiving payments under the plan
immediately upon a change of control in the Company (see Note 10).
Note 9. Commitments and Contingent Liabilities
During 2000, the Company made contractual commitments for design and site
preparation for a new administration building. Major shareholders of the company
made contractual commitments to complete construction. Upon completion of the
project, the Company has committed to lease from its major shareholders that
portion of the building not owned by the Company. Total costs of the project are
estimated to be $4 million. Approximately $1.9 million of the construction costs
had been incurred as of December 31, 2000. Of this, approximately $1.2 million
is included in Property and Equipment as Under Construction. Approximately $.7
million was paid by the Company on behalf of its major shareholders, and is due
to be reimbursed by the major shareholders to the Company.
The Company has a contractual agreement to lease the new administration building
from the Company's majority shareholders for a period of 20 years, beginning
after construction is complete. Lease payments increase each year consistent
with increases in a standard inflation
R&B COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
index. Minimum lease payments under the agreement are $.2 million in 2001, $.5
million in 2002, 2003, 2004 and 2005, and $10.3 million thereafter.
Note 10. Subsequent Event (Merger With NTELOS Inc.)
Effective February 13, 2001, the Company closed on its merger with NTELOS Inc.
("NTELOS"). Under the terms of the merger, NTELOS issued approximately 3.7
million shares of its common stock in exchange for 100% of the Company's
outstanding common stock.
NTELOS is an integrated communications provider that provides a broad range of
products and services to businesses, telecommunications carriers and residential
customers in Virginia and surrounding states. NTELOS services include PCS,
local and long distance telephone services, dial-up Internet access, high-speed
DSL (high-speed Internet access), paging, and wireline and wireless cable
television.
NTELOS has a 65% ownership interest in the VA Alliance and a 45% interest in the
WV Alliance (see Note 3). Effective with the merger, the combined companies
will own 91% and 79% of the VA Alliance and WV Alliance, respectively.
20