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EXHIBIT 99.2
Consolidated Financial Statements
Palmetto MobileNet, L.P.
Years ended December 31, 1998, 1997 and 1996
with Report of Independent Auditors
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PALMETTO MOBILENET, L.P.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
CONTENTS
Report of Independent Auditors 3
Consolidated Financial Statements
Consolidated Balance Sheets 4
Consolidated Statements of Income and Partners' Equity 5
Consolidated Statements of Cash Flow 6
Notes to Consolidated Financial Statements 7-10
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REPORT OF INDEPENDENT AUDITORS
To the Partners of Palmetto MobileNet, L.P.
We have audited the accompanying consolidated balance sheets of Palmetto
MobileNet, L.P. as of December 31, 1998 and 1997, and the related consolidated
statements of income and partners' equity, and cash flows for each of the three
years in the period ended December 31, 1998. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the financial statements of certain RSA partnerships, the investment in which,
as discussed in Note 2 to the financial statements, are accounted for by the
equity method of accounting. The investment in these RSA partnerships was
$96,613,823 and $40,113,746 as of December 31, 1998 and 1997, respectively, and
the equity in their net income was $23,390,795, $15,014,286, and $14,117,348 for
the years 1998, 1997, and 1996, respectively. The financial statements of the
RSA partnerships were audited by other auditors whose reports were furnished to
us, and our opinion on the consolidated financial statements of Palmetto
MobileNet, L.P., insofar as it relates to the amounts included for the RSA
partnerships, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated 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 Palmetto MobileNet,
L.P. as of December 31, 1998 and 1997, and the results of its operations and its
cash flows for each of the three years in the period then ended in conformity
with generally accepted accounting principles.
/s/ Bauknight Pietras & Stormer, P.A.
June 10, 1999
Columbia, South Carolina
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PALMETTO MOBILENET, L.P.
CONSOLIDATED BALANCE SHEETS
December 31,
1998 1997
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Assets
Current assets:
Cash and cash equivalents $ 12,181,206 $ 4,998,777
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Total current assets 12,181,206 4,998,777
Interest in RSA partnerships 96,613,823 40,113,746
Other assets:
Rural Telephone Finance Cooperative
Subordinated Capital Certificates 448,545 500,000
Deferred acquisition costs -- 57,121
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Total assets $109,243,574 $45,669,644
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Liabilities and partners' equity
Current liabilities:
Accounts payable -- PMN, Inc. $ 149,920 $ 159,807
Accrued expenses 50,237 49,571
Accrued interest 44,583 50,667
Accrued distributions to partners 496,375 --
Current portion of long-term debt 1,078,118 938,275
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Total current liabilities 1,819,233 1,198,320
Long-term debt, net of current portion 6,974,627 8,032,621
Partners' equity 100,449,714 36,438,703
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Total liabilities and partners' equity $109,243,574 $45,669,644
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See accompanying notes.
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PALMETTO MOBILENET, L.P.
CONSOLIDATED STATEMENTS OF INCOME AND PARTNERS' EQUITY
Years Ended December 31,
---------------------------------------------------
1998 1997 1996
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Equity in earnings of RSA partnership interests $ 23,390,795 $ 15,014,286 $ 14,117,348
Management fee (243,194) (316,157) (244,385)
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Income from operations 23,147,601 14,698,129 13,872,963
Other income (expense):
Interest expense (561,851) (618,326) (1,009,088)
Investment income 485,851 863,028 633,801
Other 179,637 351,673 1,970,027
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Net income 23,251,238 15,294,504 15,467,703
Partners' equity, beginning of year 36,438,703 39,244,199 30,776,496
Equity exchanged for partnership interests 57,699,333 -- --
Distributions to partners (16,939,560) (18,100,000) (7,000,000)
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Partners' equity, end of year $ 100,449,714 $ 36,438,703 $ 39,244,199
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See accompanying notes.
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PALMETTO MOBILENET, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOW
Years Ended December 31,
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1998 1997 1996
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Operating activities
Net income $ 23,251,238 $ 15,294,504 $ 15,467,703
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity in earnings of RSA partnership interests (23,390,795) (15,014,286) (14,117,348)
Gain on sale of RSA partnership interests -- -- (1,970,027)
Changes in operating assets and liabilities:
Accounts receivable -- 114,402 255,424
Accounts payable and accrued expenses (15,305) (2,501,847) 1,591,117
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Net cash provided by (used in) operating activities (154,862) (2,107,227) 1,226,869
Investing activities
Investment in RSA partnership interests (393,221) -- (998,979)
Proceeds from RSA partnership distributions 25,341,231 8,287,967 8,689,152
Costs of acquisition (300,838) (57,121) --
Proceeds from sale of RSA partnership interests -- -- 40,932,477
Refund of investment in Rural Telephone Finance
Cooperative Subordinated Capital Certificates 51,455 1,763,158 --
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Net cash provided by investing activities 24,698,627 9,994,004 48,622,650
Financing activities
Repayments of long-term debt (918,151) (829,864) (35,462,399)
Distributions of partnership capital (16,443,185) (18,100,000) (7,000,000)
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Net cash used in financing activities (17,361,336) (18,929,864) (42,462,399)
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Net change in cash and cash equivalents 7,182,429 (11,043,087) 7,387,120
Cash and cash equivalents, beginning of year 4,998,777 16,041,864 8,654,744
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Cash and cash equivalents, end of year $ 12,181,206 $ 4,998,777 $ 16,041,864
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See accompanying notes.
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PALMETTO MOBILENET, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Palmetto MobileNet, L.P. (the "Partnership") is a South Carolina limited
partnership and is a general partner in ten general partnerships formed to
provide cellular telephone service in certain Rural Service Areas ("RSA") in
South Carolina and North Carolina. These partnerships' operations are managed by
affiliates of ALLTEL Communications, Inc.
CONSOLIDATION
The financial statements include the accounts of the Partnership and its wholly
owned subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
CASH EQUIVALENTS
The Partnership considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
The Partnership maintains its cash and cash equivalent balances in one financial
institution located in Columbia, South Carolina. At December 31, 1998 and 1997,
cash equivalents of $11,250,000 and $4,150,000, respectively, consist of
investments in repurchase agreements.
INTERESTS IN RSA PARTNERSHIPS
Investments in the general RSA partnerships are accounted for using the equity
method, under which the Partnership's share of earnings of these RSA
partnerships is reflected in income as earned and distributions are credited
against the interests in the RSA partnerships when received.
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 disclosures 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.
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PALMETTO MOBILENET, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INCOME TAXES
Palmetto MobileNet, L.P. is a South Carolina limited partnership and therefore
is not subject to income taxes. Each partner includes in income its distributive
share of the Partnership's taxable income or loss.
2. ACQUISITION
In January 1998, the Partnership entered into an agreement to acquire 100% of
the outstanding shares of CT Cellular, Inc. and a 51% interest in
Ellerbe-Concord Cellular Company (a North Carolina general partnership) in
exchange for 28,300 units of Partnership equity valued at approximately
$57,700,000. The transaction has been recorded using purchase accounting. The
financial results of CT Cellular, Inc. and Ellerbe-Concord Cellular Company have
been included in the accompanying financial statements for the period from
January 1, 1998 (the date of acquisition) through December 31, 1998. This
transaction has been accounted for as a non-cash investing and financing
activity in the accompanying statement of cash flows.
As a result of the above transaction, the Partnership obtained a 50% interest in
North Carolina RSA 5 Cellular Partnership and a 50% interest in North Carolina
RSA 15 Cellular Partnership. Consistent with investments in other general
partnerships, these interests are accounted for using the equity method. The
investments in these partnerships, which are recorded at cost less amortization,
exceed the underlying equity in net assets at the date of acquisition by
approximately $11,116,000 and $37,512,000, respectively.
Approximately $48,627,000 of cost in excess of underlying equity in net assets
is being amortized over a 15 year period. Amortization for the year ended
December 31, 1998 was $3,241,810, which has been recorded as a reduction in the
interest in RSA partnerships and a reduction in the equity in earnings of RSA
partnership interests.
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PALMETTO MOBILENET, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INTERESTS IN PARTNERSHIPS
Interests in partnerships which are all engaged in providing cellular telephone
service to rural areas of South Carolina and North Carolina are:
South Carolina RSA No. 2 Cellular General Partnership (50% owned)
South Carolina RSA No. 3 Cellular General Partnership (50% owned)
South Carolina RSA No. 4 Cellular General Partnership (50% owned)
South Carolina RSA No. 5 Cellular General Partnership (50% owned)
South Carolina RSA No. 6 Cellular General Partnership (50% owned)
South Carolina RSA No. 7 Cellular General Partnership (50% owned)
South Carolina RSA No. 8 Cellular General Partnership (50% owned)
South Carolina RSA No. 9 Cellular General Partnership (50% owned)
North Carolina RSA 5 Cellular Partnership (50% owned)
North Carolina RSA 15 Cellular Partnership (50% owned)
Summarized combined financial information for the partnerships (including 1997
and 1996 information for the North Carolina RSA partnerships that were purchased
in 1998) follows:
At December 31:
1998 1997
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Current assets $ 27,280,291 $ 30,816,865
Noncurrent assets 83,149,074 82,207,504
Current liabilities 7,972,387 13,150,139
Partners' equity 102,456,978 99,874,230
For the years ended December 31:
1998 1997 1996
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Net sales $ 163,628,528 $ 133,057,976 $ 120,362,274
Net income 53,265,210 41,220,607 36,346,879
The Partnership's equity in the combined net income of the RSA partnerships was
$26,632,605, $15,014,286 and $14,117,348 for the years ended December 31, 1998,
1997 and 1996, respectively. Market values of these partnership interests are
not readily available.
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PALMETTO MOBILENET, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT
The Partnership has a $10 million term loan agreement and a $3 million working
line of credit agreement with the Rural Telephone Finance Cooperative (the
"RTFC"). The terms of the agreements require the Partnership to maintain a
specified amount of RTFC Subordinated Capital Certificates ("SCC's"). At
December 31, 1998 and 1997, the Partnership had $448,545 and $500,000 of SCC's,
respectively.
The debt is collateralized by a first lien on the assets of the Partnership
other than the Partnership's equity interests in the eight South Carolina and
two North Carolina RSA partnership investments. The term loan provides varying
quarterly payments of principal, plus interest at fixed rates ranging from 5.85%
to 6.50%. The terms of the line of credit agreement provide for interest to be
paid quarterly at the RTFC's published variable interest rate. No funds have
been advanced against the line of credit agreement. At December 31, 1998 and
1997, $8,052,745 and $8,970,896 were outstanding under the financing agreement.
Under the terms of the financing agreement, the Partnership is required to
maintain a specified debt service coverage ratio. The Partnership was in
compliance with this covenant at December 31, 1998.
Cash paid for interest totaled $567,935, $621,158 and $1,173,588 for the years
ended December 31, 1998, 1997 and 1996, respectively.
Maturities of long-term debt are as follows:
1999 $ 1,078,118
2000 1,149,923
2001 1,226,510
2002 1,308,198
2003 1,395,326
Thereafter 1,894,670
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$ 8,052,745
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5. RELATED PARTY TRANSACTIONS
The business affairs of Palmetto MobileNet, L.P. are managed by its 0.8% general
partner, PMN, Inc. For the years ended December 31, 1998, 1997 and 1996,
approximately $243,000, $316,000 and $244,000 were paid to the general partner
to perform this function.
6. COMMITMENTS AND CONTINGENCIES
Pursuant to each RSA general partnership agreement, Palmetto MobileNet, L.P. is
subject to requests for additional capital.
7. SUBSEQUENT EVENT
On May 12, 1999, the partnership paid a distribution to partners totaling
approximately $10,010,000.
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