<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1998
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________ to __________
Commission File No. 333-23769
DOBSON COMMUNICATIONS CORPORATION
----------------------------------------------------
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-1513309
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13439 North Broadway Extension
Suite 200
Oklahoma City, Oklahoma 73114
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(405) 391-8500
--------------------------------------------------
(Registrant's telephone number, including area code)
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 X NO
--- ---
At August 7, 1998, there were 473,152 shares of the registrant's $1.00
par value Class A Common Stock outstanding.
<PAGE>
DOBSON COMMUNICATIONS CORPORATION
Index to Form 10-Q
PART I. FINANCIAL INFORMATION
<TABLE>
Page
----
<S> <C> <C>
Item 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of June 30, 1998 and
December 31, 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations for the Three and
Six Months Ended June 30, 1998 and 19975 . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . 7
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . 15
Item 3. Quantitative and Qualitative Disclosure about Market Risk. . . . . . . . 30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . . . . . . . 30
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . . . . . 30
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . 30
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
ASSETS June 30, December 31,
1998 1997
-------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 91,059,587 $ 3,006,668
Restricted cash and investments 59,634,456 17,561,231
Accounts receivable, net 40,111,979 15,795,919
Receivables - affiliates 629,252 633,146
Other current assets 5,920,786 4,793,398
-------------- -------------
Total current assets 197,356,060 41,790,362
-------------- -------------
PROPERTY, PLANT AND EQUIPMENT, net 113,174,975 88,350,278
-------------- -------------
OTHER ASSETS:
Receivables - affiliates 7,310,592 6,381,389
Restricted investments 79,533,000 9,216,202
Cellular license acquisition costs, net 446,954,668 206,694,474
Goodwill, net 124,433,521 -
Deferred costs, net 28,682,214 11,012,755
Other intangibles, net 13,562,183 9,328,031
Investments in unconsolidated subsidiaries
and other 7,760,385 10,440,769
-------------- -------------
Total other assets 708,236,563 253,073,620
-------------- -------------
Total assets $1,018,767,598 $383,214,260
-------------- -------------
-------------- -------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, continued
(Unaudited)
<TABLE>
LIABILITIES AND STOCKHOLDERS' DEFICIT June 30, December 31,
1998 1997
-------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 33,724,100 $ 12,839,605
Accrued expenses 8,317,073 7,845,401
Accrued dividends payable 6,845,931 1,595,238
Current portion of long-term debt 1,255,604 1,140,824
Deferred revenue and customer deposits 2,773,998 2,046,956
-------------- -------------
Total current liabilities 52,916,706 25,468,024
LONG-TERM DEBT, net of current portion 738,804,796 363,068,594
DEFERRED CREDITS 75,440,969 2,872,817
MINORITY INTERESTS 22,615,886 16,954,165
SENIOR EXCHANGEABLE PREFERRED STOCK 179,942,000 -
CLASS B CONVERTIBLE PREFERRED STOCK 10,000,000 10,000,000
CLASS C PREFERRED STOCK 1,623,329 1,623,329
STOCKHOLDERS' DEFICIT:
Class A Preferred Stock 100,000 100,000
Class A Common Stock, $1 par value 1,000,000
shares authorized and 473,152 shares issued and
outstanding 473,152 473,152
Paid-in capital 5,508,285 5,508,285
Retained deficit (56,644,525) (30,841,106)
-------------- -------------
(50,563,088) (24,759,669)
Less-
Class A Preferred Stock owned by Dobson Telephone (100,000) (100,000)
Class A Common Stock held in treasury, at cost (11,913,000) (11,913,000)
-------------- -------------
Total stockholders' deficit (62,576,088) (36,772,669)
-------------- -------------
Total liabilities and stockholders' deficit $1,018,767,598 $383,214,260
-------------- -------------
-------------- -------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
Three months ended Six months ended
June 30, June 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Wireless revenue $33,092,856 $16,687,644 $55,767,159 $26,484,206
Wireline revenue 8,710,491 4,768,104 13,564,759 9,153,571
Other 31,779 311,408 40,806 472,709
----------- ----------- ----------- -----------
Total operating revenues 41,835,126 21,767,156 69,372,724 36,110,486
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Wireless cost of service 9,122,795 4,570,414 15,128,828 7,173,871
Wireline cost of service 3,933,053 556,232 5,424,138 1,125,542
Marketing and selling 7,269,118 2,535,969 12,927,707 4,113,225
General and administrative 8,290,488 5,061,871 14,625,211 9,059,651
Depreciation and amortization 11,658,585 5,996,988 19,672,899 9,593,000
----------- ----------- ----------- -----------
Total operating expenses 40,274,039 18,721,474 67,778,783 31,065,289
----------- ----------- ----------- -----------
OPERATING INCOME: 1,561,087 3,045,682 1,593,941 5,045,197
OTHER INCOME (EXPENSE):
Interest income 1,047,789 824,570 2,981,233 1,073,321
Interest expense (8,840,144) (7,746,260) (17,928,579) (11,648,185)
Other 145,137 14,003 220,950 35,993
----------- ----------- ----------- -----------
Total other expense, net (7,647,218) (6,907,687) (14,726,396) (10,538,871)
LOSS BEFORE MINORITY INTERESTS IN INCOME OF
SUBSIDIARIES, INCOME TAXES, EXTRAORDINARY
ITEMS AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (6,086,131) (3,862,005) (13,132,455) (5,493,674)
MINORITY INTERESTS IN INCOME OF SUBSIDIARIES (749,190) (558,579) (1,381,234) (801,317)
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES, EXTRAORDINARY ITEMS
AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (6,835,321) (4,420,584) (14,513,689) (6,294,991)
INCOME TAX BENEFIT 2,597,422 176,691 2,585,422 251,667
----------- ----------- ----------- -----------
LOSS BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (4,237,899) (4,243,893) (11,928,267) (6,043,324)
EXTRAORDINARY EXPENSE, net of income tax benefit
of $671,000 in 1998, and $93,887 in 1997 - - (2,643,439) (2,403,711)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE,
net of income tax benefit of $450,000 in 1998 - - (712,629) -
----------- ----------- ----------- -----------
NET LOSS (4,237,899) (4,243,893) (15,284,335) (8,447,035)
DIVIDENDS ON PREFERRED STOCK (6,082,507) (276,203) (10,519,084) (475,259)
----------- ----------- ----------- -----------
5
<PAGE>
NET LOSS APPLICABLE TO
COMMON STOCKHOLDERS $(10,320,406) $(4,520,096) $(25,803,419) $(8,922,294)
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
BASIC NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
PER COMMON SHARE
Before extraordinary expense and cumulative
effect of change in acounting principle $(21.81) $ (9.55) $ (47.44) $ (13.78)
Extraordinary expense - - (5.59) (5.08)
Cumulative effect of change in accounting principle - - (1.51) -
------------- ------------ ------------- ------------
BASIC NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
PER COMMON SHARE $ (21.81) $ (9.55) $ (54.54) $ (18.86)
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 473,152 473,152 473,152 473,152
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Six months ended June 30,
------------------------------
1998 1997
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(15,284,335) $ (8,447,035)
Adjustments to reconcile net loss to net cash
provided by operating activities-
Depreciation and amortization 19,672,899 9,593,000
Amortization of bond premium and financing cost 1,035,568 -
Deferred income taxes and investment tax
credits, net (4,688,393) 9,132
(Gain) Loss on disposition of assets (7,387) 19,632
Extraordinary loss on financing cost 3,314,439 2,497,598
Cumulative effect of change in accounting
principle 1,162,629 -
Minority interests in income of subsidiaries 1,381,234 785,438
Changes in current assets and liabilities-
Accounts receivable (8,339,170) (2,424,581)
Other current assets 12,714 (2,671,412)
Accounts payable 5,732,275 (202,867)
Accrued expenses (6,419,743) 6,920,361
Deferred revenue and customer deposits 727,042 702,838
------------ -------------
Net cash provided (used) by operating activities (1,700,228) 6,782,104
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (20,067,598) (5,005,574)
Acquisitions (308,901,887) (155,803,444)
Customer lists (125,417) (439,568)
Decrease (increase) in receivables - affiliate (925,309) 164,182
Acquisition escrow deposit 973,245 6,350,000
Investments in unconsolidated subsidiaries and
other (1,480,313) (847,225)
Proceeds on sale of assets 6,700 -
------------ -------------
Net cash used in investing activities (330,520,579) (155,581,629)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 198,000,000 205,250,000
Repayments of long-term debt (172,149,018) (531,843)
Cash dividends - (8,108,878)
Issuance of preferred stock 179,942,000 -
Issuance of senior notes 350,000,000 -
Purchase of restricted investments (120,976,000) (38,639,235)
Maturities of restricted investments 9,400,000 -
Interest on restricted investments (814,023) 1,184,593
Deferred financing costs (23,129,233) (9,614,733)
------------ -------------
Net cash provided by financing activities 420,273,726 149,539,904
------------ -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 88,052,919 740,379
CASH AND CASH EQUIVALENTS, beginning of period 3,006,668 1,609,221
------------ -------------
CASH AND CASH EQUIVALENTS, end of period $ 91,059,587 $ 2,349,600
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
The condensed consolidated balance sheets of Dobson Communications
Corporation ("DCC") and subsidiaries (collectively with DCC, "the Company")
as of June 30, 1998 and December 31, 1997, the condensed consolidated
statements of operations for the three and six months ended June 30, 1998 and
1997 and the condensed consolidated statements of cash flows for the six
months ended June 30, 1998 and 1997 are unaudited. In the opinion of
management, such financial statements include all adjustments, consisting
only of normal recurring adjustments necessary for a fair presentation of
financial position, results of operations, and cash flows for the periods
presented.
The condensed balance sheet data at December 31, 1997 was derived from
audited financial statements, but does not include all disclosures required
by generally accepted accounting principles. The financial statements
presented herein should be read in connection with the Company's December 31,
1997 consolidated financial statements included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997.
1. ORGANIZATION
The Company, through its predecessors, was organized in 1936 as Dobson
Telephone Company and adopted its current organizational structure in 1998.
The Company operates in two business segments: wireless and wireline.
1997 REORGANIZATION
DCC was incorporated as an Oklahoma corporation in February 1997. Under an
Agreement and Plan of Reorganization effective February 28, 1997 (1997
Reorganization). Under this plan, DCC acquired all of the outstanding Class
A Common Stock, Class C Common Stock and Class B Convertible Preferred Stock
of Dobson Operating Company ("DOC"). In exchange, the holders of the Class A
Common Stock and Class B Convertible Preferred Stock of DOC received
equivalent shares of stock of DCC. The holders of Class C Common Stock
received 100,000 shares of Class A Preferred Stock of DCC. In addition, DCC
assumed all DOC outstanding stock options, substituting shares of DCC Class B
Common Stock for the DOC stock subject to options. As a result of the 1997
Reorganization, DCC became the parent company of DOC and the stock of certain
subsidiaries of DOC was distributed to DCC.
1998 REORGANIZATION
In conjunction with the January, 1998 issuance of 175,000 shares of 12.25%
Senior Exchangeable Preferred Stock mandatorily redeemable in 2008 (see Note
4), the Company formed three new subsidiaries: Dobson Cellular Operating
Company ("DCOC"), DOC Cellular Subsidiary Company ("DOC Cellular Subsidiary")
and Dobson Wireline Company ("DWC") (collectively, the "1998
Reorganization"). DCOC was created as the holding company for subsidiaries
8
<PAGE>
formed to effect certain cellular acquisitions. DCOC has been designated an
unrestricted subsidiary under the Senior Note Indenture which covers the
Senior Notes discussed in Note 3. DOC Cellular Subsidiary was created as the
holding company for the then existing cellular subsidiaries. DWC was created
as the holding company for the Company's incumbent local exchange carrier
("ILEC"), fiber and integrated communications provider ("ICP") operations.
DWC was designated an unrestricted subsidiary under the Senior Note Indenture
and the Certificate of Designation establishing the Senior Exchangeable
Preferred Stock.
2. ACQUISITIONS
RECENT ACQUISITIONS
On June 22, 1998, the Company purchased certain long distance customers and
related rights for approximately $4.7 million from Zenex Long Distance, Inc.
On June 16, 1998, the Company acquired an 86.4% interest for $31 million in
the Santa Cruz Cellular Telephone Partnership, which owns the cellular
license and other assets for the Santa Cruz MSA. The Santa Cruz MSA is
located adjacent to the California RSA 4 purchased in April 1998.
On June 15, 1998, the Company purchased the common stock of American Telco,
Inc. and American Telco Network Services, Inc. (collectively, "ATI") for
$130.3 million. ATI operates in five major Texas markets: Houston, Dallas,
Fort Worth, San Antonio and Austin.
On April 1, 1998, the Company acquired all of the capital stock of the
corporations which owned the FCC cellular license and system for, and certain
assets relating to, California RSA 4. The total purchase price paid by the
Company was approximately $90.9 million. The property is located in central
California adjacent to Fresno, Modesto and Yosemite National Park.
On January 26, 1998, the Company purchased the FCC cellular license for, and
certain assets relating to, the Texas RSA 16 for $56.6 million. The property
is located in south-central Texas in an area bordered by Austin, Houston and
San Antonio.
On October 1, 1997, the Company purchased for $39.8 million a 75% interest in
the Gila River Cellular General Partnership (the "Arizona 5 Partnership"),
which owns the cellular license for Arizona RSA 5 as well as the associated
tangible operating assets. Certain affiliates of the Company indirectly
owned a 20.6% interest in the Arizona 5 Partnership and received
approximately $9.5 million in connection with the acquisition. In addition,
the Company loaned $6.1 million to the current partner which acquired a 25%
interest in the Arizona 5 Partnership.
On March 3, 1997, the Company purchased the FCC cellular license for, and
certain assets relating to Maryland RSA 2 for $75.8 million. The property is
located to the east of the Washington/Baltimore metropolitan area. This
acquisition and the one completed on February 28, 1997 are referred to
together as the "Maryland/Pennsylvania Acquisition".
On February 28, 1997, the Company purchased the FCC cellular licenses for,
and
9
<PAGE>
certain assets relating to two MSAs and two RSAs located in Maryland and
Pennsylvania for $77.6 million. The properties are located immediately
outside the Washington/Baltimore metropolitan area.
The acquisition transactions were accounted for as purchases and,
accordingly, their results of operations have been included in the
accompanying consolidated statements of operations from the respective dates
of acquisition. The unaudited pro forma information set forth below includes
the 1998 acquisitions and 1997 acquisitions accounted for as if the purchases
occurred at the beginning of the respective periods presented. The unaudited
pro forma information is presented for informational purposes only and is not
necessarily indicative of the results of operations that actually would have
been achieved had the acquisitions been consummated at that time:
<TABLE>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenue $ 57,744,000 $47,916,000 $109,827,000 $ 91,917,295
Loss before
extraordinary expense
and cumulative effect
of change in accounting
principle (6,476,000) (6,886,000) (15,757,000) (17,817,000)
Net loss (6,476,000) (6,886,000) (19,184,000) (20,221,000)
Net loss applicable to
common stockholders (12,559,000) (7,162,000) (29,703,084) (20,696,000)
Net loss applicable to
common stockholders
per common share $(26.54) $(15.14) $(62.78) $(43.74)
</TABLE>
SUBSEQUENT AND PENDING ACQUISITIONS
On July 29, 1998 the Company purchased the FCC cellular license and certain
assets of the California 7 RSA for $21 million. California 7 is located in
the Imperial Valley extending from south of San Diego to the Arizona state
line.
As of July 28, 1998, the Company entered into a definitive agreement to
acquire Sygnet Wireless, Inc. ("Sygnet") through a merger valued at
approximately $647.5 million. Sygnet owns and operates cellular systems in
Ohio, Pennsylvania and New York covering an estimated population base of 2.4
million people. The Sygnet acquisition is expected to close in the fourth
quarter of 1998.
10
<PAGE>
3. LONG-TERM DEBT
The Company's long-term debt consists of the following:
<TABLE>
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Revolving credit facilities $198,000,000 $171,513,855
DWC Senior notes 350,000,000 -
DCC Senior notes 160,000,000 160,000,000
Mortgage notes payable 28,004,196 28,639,359
Other notes payable 4,056,204 4,056,204
------------ ------------
Total debt 740,060,400 364,209,418
Less- Current maturities 1,255,604 1,140,824
------------ ------------
Total long-term debt $738,804,796 $363,068,594
------------ ------------
------------ ------------
</TABLE>
REVOLVING CREDIT FACILITIES
On March 25, 1998, the Company's subsidiary DCOC established a $200 million
senior secured credit facility (the "Operations Credit Facility"). DCOC's
obligations under the Operations Credit Facility are secured by all current
and future assets of DCOC. As of June 30, 1998, $122 million was outstanding
under the Operations Credit Facility. The Company's subsidiary DOC also
established a $250 million senior secured credit facility (the "DOC Bank
Facility") to replace the existing revolving credit facility established on
February 28, 1997 and discussed below. The DOC Bank Facility continues to be
secured by all of DOC's stock and the stock or partnership interests of its
restricted subsidiaries and all assets of DOC and its restricted
subsidiaries. As of June 30, 1998, $76 million was outstanding under the DOC
Bank Facility. The Operations Credit Facility and the DOC Bank Facility
require the Company to maintain certain financial ratios. The failure to
maintain such ratios would constitute an event of default, notwithstanding
the Company's ability to meet its debt service obligations. Interest on
borrowings under the new credit agreements accrue at variable rates (weighted
average rate of 7.25% at June 30, 1998). Initial proceeds were used primarily
to refinance existing indebtedness and finance the 1998 acquisitions
described above. The Company expects to use the remaining availability to
finance capital expenditures, consummate future acquisitions and fund general
corporate operations. The facilities will terminate in 2006.
In connection with the closing of the DOC Bank Facility, the Company
extinguished its then existing credit facility and recognized a pretax loss
of approximately $3.3 million as a result of writing off previously
capitalized financing costs associated with the revolving credit facility.
Such amount is included in the Company's condensed consolidated statement of
operations, net of tax, for the six months ended June 30, 1998 as an
extraordinary expense.
11
<PAGE>
In April 1997, the Company entered into an interest rate hedge agreement to
hedge the Company's interest expense on $160 million of its indebtedness,
under the revolving credit facilities. The agreement provides for a rate cap
of 8% plus a factor, based on the Company's leverage ratio (cap at June 30,
1998 was 8.625%), terminating on the earlier of April 24, 2000 or the date an
option to enter into an interest rate swap transaction is exercised by the
counterparty. Under the swap agreement, the interest rate would be fixed at
6.13% plus the factor used to determine the rate cap or a floating LIBOR
rate, terminating on April 24, 2002. The Company accounts for this as a
hedge.
On February 28, 1997, the Company's bank credit agreement was amended and
restated to provide the Company with a $200 million revolving credit
agreement facility maturing in 2005. Interest on borrowings under the new
credit agreement accrued at a variable rate. Initial proceeds were used to
refinance existing indebtedness, finance the February and June 1997
acquisitions described above and for general corporate purposes, including
$7.5 million to pay a dividend to holders of its Class A Common Stock. In
connection with the closing of the revolving credit facility, the Company
extinguished its then existing credit facility, and recognized a pretax loss
of approximately $2.5 million as a result of writing off previously
capitalized financing costs associated with the old revolving credit
facility. This loss has been reflected as an extraordinary item, net of tax,
in the Company's condensed consolidated statement of operations for the six
months ended June 30, 1998.
SENIOR NOTES
On June 12, 1998, a subsidiary of the Company, DWC, issued $350 million of
12.25% Senior Notes maturing in 2008 ("DWC Senior Notes"). A portion of the
net proceeds were used to finance the acquisitions of ATI and Zenex and to
purchase securities pledged to secure payment of the first six semi-annual
interest payments on the notes which will begin on December 15, 1998. The
pledged securities are reflected as restricted cash and investments in the
Company's condensed consolidated balance sheet. In addition, proceeds from
the notes will be used to finance capital expenditures and provide working
capital for other general corporate purposes. The DWC Senior Notes are
redeemable at the option of DWC in whole or in part, on or after June 15,
2003, initially at 106.125%. Prior to June 15, 2001, DWC may redeem up to 35%
of the principal amount of the DWC Senior Notes at 112.250% with proceeds
from sales of stock, provided that after any such redemption at least $227.5
million remains outstanding.
On February 28, 1997, the Company issued $160 million of 11.75% Senior Notes
maturing in 2007 ("DCC Senior Notes"). The net proceeds were used to finance
the Maryland/Pennsylvania Acquisition described above and to purchase
securities pledged to secure payment of the first four semi-annual interest
payments on the notes, which began on October 15, 1997. The pledged
securities are reflected as restricted cash and investments in the Company's
condensed consolidated balance sheet. The DCC Senior Notes are redeemable at
the option of the Company in whole or in part, on or after April 15, 2002,
initially at 105.875%. Prior to April 15, 2000, the Company may redeem up to
35% of the principal amount of the DCC Senior Notes at 111.750% with proceeds
from sales of stock, provided that after any such redemption at least $104
million remains outstanding.
12
<PAGE>
4. PREFERRED STOCK
In January 1998, the Company issued 175,000 shares of 12.25% Senior
Exchangeable Preferred Stock mandatorily redeemable in 2008 for $1,000 per
share. Holders of the preferred stock are entitled to cumulative quarterly
dividends from the date of issuance and a liquidation preference over the
other classes of capital stock. On and before January 15, 2003, the Company
may pay dividends, at its option, in cash or in additional shares having an
aggregate liquidation preference equal to the amount of such dividends.
Additionally, the preferred stock is redeemable at the option of the Company
on or after January 15, 2003. Holders of the preferred stock have no voting
rights.
5. RESTRICTED CASH AND INVESTMENTS
Restricted cash and investments consist of interest pledge deposits for the
DWC Senior Notes and DCC Senior Notes of approximately $121.0 million and
$18.2 million, respectively.
6. TAXES
The income tax benefit for the six months ended June 30, 1998 and 1997 differ
from amounts computed at the statutory rate due primarily to net operating
losses for which no benefit has been recognized.
7. EARNINGS PER COMMON SHARE
Basic loss per common share is computed by the weighted average number of
shares of common stock outstanding during the year. Diluted net loss per
common share has been omitted because the impact of stock options and
convertible preferred stock on the Company's net loss per common share is
anti-dilutive.
8. RECENT PRONOUNCEMENTS
In July 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Derivatives and Hedging ("SFAS 133").
SFAS 133 establishes uniform hedge accounting criteria for all derivatives
requiring companies to formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. Under SFAS 133,
derivatives will be recorded in the balance sheet as either an asset or
liability measured at its fair value, with changes in the fair value
recognized in current earnings. SFAS 133 will be effective for fiscal years
beginning after June 15, 1999. The Company has not yet evaluated the impact
of adopting SFAS 133 and has not determined the timing or method of adoption
of SFAS 133.
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities,"
effective for fiscal years beginning after December 15, 1998, with earlier
application encouraged. The Company adopted SOP 98-5 as of January 1, 1998.
SOP 98-5 requires costs of start-up activities and organization costs to be
expensed as incurred. The Company has recognized a pretax loss of
approximately $1.2 million in the first quarter of 1998 as a result of
adopting this SOP. This loss has been reflected as a cumulative effect of
13
<PAGE>
change in accounting principle, net of tax, in the accompanying condensed
consolidated statement of operations.
9. REPORT OF BUSINESS SEGMENTS
The Company operates in two reportable segments: Wireless Telecommunications
and Wireline Telecommunications. These segments are strategic business units
that offer different products and services. The segments are managed
separately because each business requires different technology and marketing
strategies. The Company evaluates and measures performance of each segment
based on operating cash flow. The Company accounts for intersegment sales
and transfers as if the sales or transfers were to third parties, that is, at
current market prices. The Company allocates corporate overhead, income
taxes, interest expense and amortization of deferred financing costs to each
segment. A summary of the Company's operations by segment is as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING INFORMATION:
Operating revenue-
Wireless Telecommunications
External......................................... $33,092,856 $16,687,644 $ 55,767,159 $26,484,206
Wireline Telecommunications
External......................................... 8,710,491 4,742,136 13,564,759 9,118,576
Intersegment..................................... 634,804 329,935 1,104,804 797,576
Other (1)
External......................................... 31,779 337,376 40,806 507,704
Intersegment........... 303,991 1,104,036 653,095 2,026,971
Intersegment revenue............................... (938,795) (1,433,971) (1,757,899) (2,824,500)
----------- ----------- ------------ -----------
Total operating revenue.......................... 41,835,126 21,767,156 69,372,724 36,110,486
Income (loss) before income taxes, extraordinary
items and cumulative effect of change in
accounting principle-
Wireless Telecommunications........................ $(8,521,107) $(4,998,363) $(15,324,280) $(7,195,595)
Wireline Telecommunications........................ (1,992,893) 747,539 (3,663,025) 1,278,480
Other.............................................. 3,678,679 (169,760 4,473,616 (377,876)
----------- ----------- ------------ -----------
Total income (loss) before income taxes,
extraordinary items and cumulative effect of
change in accounting principle................... (6,835,321) (4,420,584) (14,513,689) (6,294,991)
June 30, December 31,
INVESTMENT INFORMATION: 1998 1997
Segment assets- -------- ------------
Wireless Telecommunications........................ $ 567,504,727 $299,223,415
Wireline Telecommunications........................ 408,411,895 56,905,807
Other unallocated assets (2)....................... 331,069,015 333,055,938
Intersegment receivables........................... (288,218,039) (305,970,900)
-------------- -------------
Total segment assets............................. 1,018,767,598 383,214,260
</TABLE>
14
<PAGE>
- --------------------
(1) Revenue from segments below the quantitative thresholds are attributable to
two entities of the Company. Those entities include a small finance and
leasing company and a corporate holding company.
(2) Other unallocated assets primarily consist of corporate receivables from
subsidiaries, restricted cash and investments (see Note 4) and deferred
financing cost.
10. COMMITMENTS
Effective December 6, 1995 (amended December 20, 1995 and June 24, 1997), the
Company entered into an equipment supply agreements in which the Company
agreed to purchase approximately $30 million of cell site and switching
equipment between June 24, 1997 and June 23, 2001, to update the cellular
systems for the newly acquired and existing MSA and RSAs. Of this commitment,
approximately $13.5 million remained at June 30, 1998.
The Company entered into an additional equipment supply agreement with a
second vendor on January 13, 1998. The Company agreed to purchase
approximately $81 million of cell site and switching equipment between
January 13, 1998 and January 12, 2002 to updated the cellular systems for the
newly acquired and existing MSAs and RSAs. Of this commitment, $76.2 million
remained at June 30, 1998.
On June 30, 1998, DWC, a subsidiary of the Company, entered into an equipment
supply agreement in which DWC agreed to purchase $25.2 million of switching
equipment between June 30, 1998 and June 30, 2000 for the recently launched
ICP operations. Of this commitment, $25.2 million remained at June 30, 1998.
11. SUBSEQUENT EVENT
On July 20, 1998, in connection with the Sygnet acquisition, the Company
received a commitment letter for a new $450 million credit facility ("Sygnet
Credit Facility"). The Sygnet Credit Facility will be secured by the assets
purchased in the Sygnet acquisition. Interest on borrowings under the
Sygnet Credit Facility will accrue at a variable rate (estimated to be 8.16%
on June 30, 1998). On July 20, 1998, also in connection with the Sygnet
acquisition, the Company received commitment letters for bridge financing in
the form of $160 million in Senior Notes ("Bridge Notes") and $120 million in
Exchangeable Preferred Stock ("Bridge Preferred Stock"). The Bridge Notes
will bear interest at 13.5%, increasing by 1% after six months from the
issuance date and increasing by an additional .5% at the end of each
subsequent three-month period. Interest will be payable quarterly in arrears
and the Bridge Notes will mature one year from the date of issuance. The
Bridge Preferred Stock will bear a dividend rate of 14%, increasing by 1%
after six months from the issuance date and increasing by an additional .5%
at the end of each subsequent three-month period until the Bridge Preferred
Stock is redeemed. Dividends will be payable quarterly in cash or, prior to
the twentieth dividend payment date in additional shares of Bridge Preferred
Stock. Additionally, the Company has received a commitment letter for the
purchase of $10 million of Series B Convertible Preferred Stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company provides diversified telecommunication products and services. The
Company's wireless segment currently provides rural cellular telephone
services in three primary regions including the Central Region, West Region
and East Region. The Central Region includes systems in Oklahoma, Texas,
Kansas and Missouri. The West Region includes systems in Arizona and
California. The East Region includes systems in Maryland and Pennsylvania.
Upon consummation of the pending wireless acquisitions described below, the
Company will form a new North Region including the Sygnet Wireless, Inc.
("Sygnet") systems in Ohio, New York and Pennsylvania. The Company's
wireline segment owns interests in, and operates, regional fiberoptic
transmission networks in Oklahoma, Texas and Colorado ("Fiber"), owns and
operates local telephone exchanges in Oklahoma ("ILEC") and recently launched
its integrated communications provider ("ICP") business in Oklahoma and
Texas.
RECENT EVENTS
On July 29, 1998 the Company purchased the FCC cellular license and certain
assets of the California 7 RSA for $21 million. California 7 is located in
the Imperial Valley extending from south of San Diego to the Arizona state
line.
As of July 28, 1998, the Company entered into a definitive agreement to
acquire Sygnet through a merger valued at approximately $647.5 million.
15
<PAGE>
Sygnet owns and operates cellular systems in Ohio, Pennsylvania and New York
covering an estimated population base of 2.4 million people. The Sygnet
acquisition is expected to close in the fourth quarter of 1998.
On June 22, 1998, the Company purchased certain long distance customers and
related rights for approximately $4.7 million from Zenex Long Distance, Inc.
On June 16, 1998, the Company acquired an 86.4% interest for $31 million in
the Santa Cruz Cellular Telephone Partnership, which owns the cellular
license and other assets for the Santa Cruz MSA. The Santa Cruz MSA is
located adjacent to the California RSA 4 purchased in April 1998.
On June 15, 1998, the Company purchased the common stock of American Telco,
Inc. and American Telco Network Services, Inc. (collectively, "ATI") for
$130.3 million. ATI operates in five major Texas markets: Houston, Dallas,
Fort Worth, San Antonio and Austin.
On June 12, 1998, a subsidiary of the Company, Dobson Wireline Company
("DWC"), issued in a private offering, $350 million of 12.25% Senior Notes
maturing in 2008 ("DWC Senior Notes"). DWC used a portion of the net
proceeds ($338 million) to purchase ATI ($130.3 million) and Zenex ($4.7
million) and to purchase securities ($122 million) which have been pledged to
secure payment of the first six semi-annual interest payments on the notes,
which begin on December 15, 1998. Except for the first six interest
payments, the DWC Senior Notes are unsecured obligations of DWC, redeemable
in whole or in part, at any time on or after June 15, 2003 at 106.125%,
declining ratably to 100% on or after June 15, 2006, plus accrued interest.
In addition, at any time prior to June 15, 2001, DWC may redeem up to 35% of
the DWC Senior Notes with the net proceeds of sales of capital stock of DWC
at 112.250% of principal amount, plus accrued interest; provided that after
any such redemption at least $227.5 million aggregate principal amount
remains outstanding.
On April 1, 1998, the Company acquired all of the capital stock of the
corporations which owned the Cellular 2000 Partnership. The Cellular 2000
Partnership owns the FCC cellular license and system for, and certain assets
relating to, California RSA 4. The total purchase price paid by the Company
was approximately $90.9 million. California 4 is located in northern
California between Fresno and Modesto.
On March 25, 1998, the Company established a $200 million senior secured
credit facility and replaced its existing revolving credit facility with a
$250 million senior secured credit facility. A portion of the credit
facilities were used to refinance existing indebtedness. The remaining
unused portion will be used primarily to consummate acquisitions, finance
capital expenditures and fund general corporate operations. Interest on the
facilities will accrue at variable rates and will terminate in 2006.
On January 26, 1998, the Company purchased the FCC cellular licenses for, and
certain assets relating to the Texas RSA 16 for $56.6 million, using proceeds
from the Senior Exchangeable Preferred Stock offering. Texas RSA #16 is
located in south central Texas between Houston, San Antonio and Austin.
On January 22, 1998, the Company issued, in a private offering, 175,000 shares
16
<PAGE>
of 12.25% Senior Exchangeable Preferred Stock. The net proceeds to the
Company were approximately $167.0 million. Dividends on the Senior
Exchangeable Preferred Stock are cumulative and payable quarterly, commencing
April 15, 1998, in cash or, until January 15, 2003 at the option of the
Company, in additional shares of Senior Exchangeable Preferred Stock. The
Senior Exchangeable Preferred Stock is exchangeable, in whole but not in
part, at the option of the Company, into 12.25% Senior Subordinated Exchange
Debentures due 2008. The Company may redeem the Senior Exchangeable
Preferred Stock or, if issued, the Exchange Debentures, in whole or in part,
at any time on or after January 15, 2003. In addition, at any time prior to
January 15, 2001, the Company may redeem up to 35% of the Senior Exchangeable
Preferred Stock or Exchange Debentures originally issued from the proceeds of
sales of the Company's common stock.
On October 1, 1997, the Company purchased a 75% interest in the Gila River
Cellular General Partnership (the "Arizona 5 Partnership"), which owns the
cellular license for Arizona RSA 5 as well as the associated tangible
operating assets, and Gila River Telecommunications Subsidiary, Inc.
("GRTSI") purchased a 25% interest in the Arizona 5 Partnership. As part of
this transaction, the Company purchased the stock of Associated
Telecommunications and Technologies, Inc. ("ATTI"), which owned 49% of one of
the partners of the Arizona 5 Partnership (with a 41.95% interest). Of the
$14.2 million purchase price for ATTI, $9.5 million was paid to a director
and the chief executive officer and the chairman of the board of the Company,
who together owned two-thirds of the ATTI stock. Upon completion of these
transactions, the Company paid a net purchase price of $39.8 million for its
75% interest in the Arizona 5 Partnership. In addition, the Company loaned
GRTSI a portion of the purchase price for the 25% interest in the Arizona 5
Partnership it acquired. The Company also guaranteed, on a short-term basis,
$10.9 million of indebtedness of GRTSI.
On February 28, 1997, the Company purchased the FCC cellular licenses for,
and certain assets relating to, two MSAs and two RSAs located in Maryland and
Pennsylvania for $77.6 million. The properties are located immediately
outside the Washington/Baltimore metropolitan area. On March 3, 1997, the
Company purchased the FCC cellular license for, and certain assets relating
to, Maryland RSA 2 for $75.8 million. The property is located to the east of
the Washington/Baltimore metropolitan area.
On February 28, 1997, the Company's bank credit agreement was amended and
restated to provide the Company with a $200 million secured revolving credit
facility maturing in 2005 ("the Bank Facility"). Interest on borrowings
under the Bank Facility accrued at variable rates. Initial loan proceeds were
used to refinance existing indebtedness, finance the acquisition of the
Maryland and Pennsylvania systems and for general corporate purposes,
including the payment of a $7.5 million dividend to holders of the Company's
Class A Common Stock. The principal stockholder used $6.0 million of the
dividend to repay a loan which had been guaranteed by the Company and
approximately $.5 million to repay indebtedness owed to the Company with
respect to certain legal fees. As a result of the $7.5 million dividend, the
holders of Class B Convertible Preferred Stock were issued 100,000 shares of
Class C Preferred Stock, having a liquidation preference of approximately
$1.6 million. In connection with the closing of the Bank Facility, the
Company extinguished its then existing credit facility. The Company financed
the Arizona 5 Partnership acquisition with
17
<PAGE>
borrowings under the Bank Facility.
On February 28, 1997, the Company issued pursuant to a private offering $160
million of 11.75% Senior Notes maturing in 2007 and used the net proceeds
($155.2 million) to finance the acquisitions of the Maryland and Pennsylvania
systems ($116.9 million) and to purchase securities ($38.4 million) which
have been pledged to secure payment of the first four semi-annual interest
payments on the notes, which begin on October 15, 1997. Except for the first
four interest payments, the DCC Senior Notes are unsecured obligations of the
Company, redeemable at the option of the Company, in whole or in part, on or
after April 15, 2002 at 105.875% of the principal amount outstanding,
declining ratably to 100% on or after April 15, 2004, plus accrued interest.
In addition, at any time prior to April 15, 2000, the Company may redeem up
to 35% of the aggregate principal amount with the net proceeds of sales of
capital stock of the Company at 111.750% of principal amount, plus accrued
interest; provided that after any such redemption at least $104 million
aggregate principal amount remains outstanding.
RESULTS OF OPERATIONS
In the text below, financial statement numbers have been rounded, however,
the percentage changes are based on the actual financial statements.
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
OPERATING REVENUE. For the three months ended June 30, 1998, total operating
revenue increased $20.0 million, or 92.2%, to $41.8 million from $21.8
million for the comparable period in 1997. Total wireless, wireline and
other revenue represented 79.10%, 20.82%, and 0.08% of total operating
revenue, respectively, during the three months ended June 30, 1998 and 76.7%,
21.9%, and 1.4% of total operating revenue, respectively, the three months
ended June 30, 1997.
<TABLE>
For The Three For The Three
Months Ended Months Ended
June 30, 1998 June 30, 1997
<S> <C> <C>
Wireless revenue:
Wireless service $16,150,854 $ 9,988,569
Wireless roaming 16,332,217 6,481,240
Wireless equipment 609,785 217,835
----------- -----------
Total: 33,092,856 16,687,644
Wireline revenue:
ILEC 3,975,199 3,839,727
Fiber 949,755 902,409
ICP 3,785,537 25,968
----------- -----------
Total: 8,710,491 4,768,104
Other revenue: 31,779 311,408
----------- -----------
$41,835,126 $21,767,156
----------- -----------
----------- -----------
</TABLE>
WIRELESS. The Company's operating revenue from its cellular operations
(service, roaming, and equipment) increased $16.4 million or 98.3% to $33.1
18
<PAGE>
million in the second quarter of 1998, from $16.7 million in the second
quarter of 1997.
Wireless service revenue increased $6.2 million, or 61.7%, to $16.2 million
in the second quarter of 1998 from $10.0 million in the second quarter 1997.
Of the increase, $4.3 million was attributable to acquisitions. The remaining
$1.9 million was primarily attributable to increased penetration and usage in
the Central and East Regions. The Company's cellular subscriber base
increased 83.9% to 151,249 at June 30, 1998, from 82,264 at June 30, 1997.
Approximately 44,300 subscribers have been added since June 30, 1997 as a
result of subscribers purchased in the following acquisitions: Arizona 5
Partnership, Texas 16, California 4 and Santa Cruz. The Company's average
monthly wireless service revenue per subscriber decreased 3.7% to $39.83 for
the three months ended June 30, 1998 from $41.35 for the comparable period in
1997 due to the addition of new lower rate subscribers in the East Region and
competitive market pressures.
Wireless roaming revenue increased $9.8 million, or 152.0%, to $16.3 million
in the second quarter of 1998 from $6.5 million in the second quarter of
1997. Of the increase, $8.0 million was attributable to acquisitions. The
remaining $1.8 million was primarily attributable to increased roaming
minutes in the Central and East Region due to expanded coverage area in these
markets.
Wireless equipment sales of $.6 million in the second quarter of 1998
represented an increase of $.4 million or 179.9% from $.2 million in the
second quarter of 1997, as the Company sold more equipment during the second
quarter of 1997.
WIRELINE. Total wireline operations revenue increased $3.9 million, or 82.7%,
to $8.7 million for the three months ended June 30, 1998 compared to $4.8
million for the same period in 1997.
ILEC revenue increased $.2 million or 3.5% to $4.0 million for the three
months ended June 30, 1998 compared to $3.8 million for the three months
ended June 30, 1997. This increase was primarily due to an increase in toll
charges and an increase in the number of access lines served.
The Company's revenue from its fiber operations increased $48 thousand, or
5.2%, to $950 thousand in the second quarter of 1998 from $902 thousand in
the second quarter of 1997 primarily due to additional revenue from existing
customers.
ICP revenues of $3.8 million in the second quarter of 1998 consisted
primarily of charges for local and long-distance service and equipment sales.
COST OF SERVICE AND EQUIPMENT SALES. For the three month period ended June
30, 1998, the total cost of service and equipment sales increased $8.0
million, or 154.7%, to $13.1 million from $5.1 million for the comparable
period in 1997.
19
<PAGE>
<TABLE>
For The Three For The Three
Months Ended Months Ended
June 30, 1998 June 30, 1997
<S> <C> <C>
Wireline cost of service:
Wireless service $ 7,654,967 $3,570,751
Wireless equipment 1,467,828 999,663
----------- ----------
Total: 9,122,795 4,570,414
Wireline cost of service:
ILEC 365,966 478,222
Fiber 68,696 78,010
ICP 3,498,391 -
----------- ----------
Total: 3,933,053 556,232
----------- ----------
Total: $13,055,848 $5,126,646
----------- ----------
----------- ----------
</TABLE>
WIRELESS. Cost of wireless service increased $4.1 million, or 114.4% to $7.7
million during the three months ended June 30, 1998 from $3.6 million for the
three months ended June 30, 1997. Of the increase, $2.6 million was
attributable to acquisitions. The remaining $1.5 million was primarily
attributable to increased subscribers and minutes of use in the Central and
East Regions and expanded use of rerating agreements with wireless providers
adjacent to the Company's markets. As a percentage of cellular service and
roaming revenue, cost of wireless service increased to 23.6% in the second
quarter of 1998 from 21.7% in the second quarter of 1997. This is primarily
due to the expanded use of rerating agreements noted above.
Cost of wireless equipment increased $.5 million or 46.8% to $1.5 million
during the second quarter of 1998 from $1.0 in the second quarter of 1997,
primarily from increases in the volume of equipment sold due to the growth in
subscribers.
WIRELINE. Cost of ILEC telephone service decreased $.1 million or 23.5% to
$.4 million during the second quarter of 1998 from $.5 million in the second
quarter of 1997. As a percentage of ILEC telephone service revenue, cost of
wireline telephone service decreased to 9.2% in the second quarter of 1998
from 12.5% in the second quarter of 1997. This is primarily due to certain
labor costs previously charged to operating and maintaining Company
facilities being directed to projects relating to the implementation of new
facilities.
Cost of fiber service remained fairly constant for the period, decreasing $9
thousand or 11.9% to $69 thousand in the second quarter of 1998 from $78
thousand in the second quarter of 1997.
ICP operations commenced in the fourth quarter of 1997. Cost of service for
the second quarter of 1998 consisted primarily of wholesale charges from
third party service providers and costs associated with the operations and
maintenance of Company facilities.
MARKETING AND SELLING COSTS. Marketing and selling costs increased $4.8
million, or 186.6%, to $7.3 million in the second quarter of 1998 from $2.5
million in the comparable period of 1997. As a percentage of total operating
revenue, marketing and selling costs increased to 17.4% in the second quarter
of 1998 from 11.7% in the second quarter of 1997. The increase was primarily
due to the higher level of cellular subscribers added period to
20
<PAGE>
period. Gross cellular subscribers added in the second quarter of 1998 was
15,496. The number of gross cellular subscribers added in the second quarter
of 1997 was 8,440. Additionally, the Company incurred $2.7 million of
marketing costs in the second quarter of 1998 associated with its recently
launched ICP operations.
GENERAL AND ADMINISTRATIVE COSTS. For the three month period ended June 30,
1998, general and administrative costs increased $3.2 million, or 63.8%, to
$8.3 million from $5.1 million for the same period in 1997. As a percentage
of total operating revenue, general and administrative costs decreased to
19.8% in the second quarter of 1998 from 23.3% in the second quarter of 1997.
The dollar increase was primarily due to increased billing costs as a result
of the growth in cellular subscribers, the recent acquisitions and increased
salary costs resulting from additional personnel in the Company's cellular
and ICP operations. The decrease as a percentage of total operating revenue
is a result of the Company's strategy to integrate new cellular operations in
its existing management structure.
DEPRECIATION AND AMORTIZATION EXPENSE. For the three month period ended June
30, 1998, depreciation and amortization expense increased $5.7 million or
94.4% to $11.7 million in the second quarter of 1998 from $6.0 million in the
second quarter of 1997. Depreciation and amortization of $4.7 million was
attributable to the acquisitions.
OTHER EXPENSE. For the three months ended June 30, 1998, total other expense
(consisting of interest income, interest expense and other) increased $.7
million, or 10.7% to $7.6 million from $6.9 million for the comparable period
in 1997. Interest income of $1.0 million, was a result of interest earned on
securities purchased with the proceeds from the Senior Exchangeable Preferred
Stock and DWC Senior Notes. For the second quarter of 1998, interest
expense increased $1.1 million to $8.8 million from $7.7 million in the
comparable period of 1997. The increase was primarily a result of increased
throughout 1998 to finance the Company's acquisitions.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
OPERATING REVENUE. For the six months ended June 30, 1998, total operating
revenue increased $33.3 million, or 92.1%, to $69.4 million from $36.1
million for the comparable period in 1997. Total wireless, wireline and
other revenue represented 80.39%, 19.55%, and 0.06% of total operating
revenue, respectively, during the six months ended June 30, 1998 and 73.34%,
25.35%, and 1.31% of total operating revenue, respectively, the six months
ended June 30, 1997.
<TABLE>
For The Three For The Three
Months Ended Months Ended
June 30, 1998 June 30, 1997
<S> <C> <C>
Wireless revenue:
Wireless service $28,633,336 $16,272,245
Wireless roaming 25,855,607 9,854,528
Wireless equipment 1,278,216 357,433
----------- -----------
21
<PAGE>
Total: 55,767,159 26,484,206
Wireline revenue:
ILEC 7,624,177 7,414,214
Fiber 1,807,770 1,704,362
ICP 4,132,812 34,995
----------- -----------
Total: 13,564,759 9,153,571
Other revenue: 40,806 473,528
----------- -----------
$69,372,724 $36,110,486
----------- -----------
----------- -----------
</TABLE>
WIRELESS. The Company's operating revenue from its cellular operations
(service, roaming, and equipment) increased $29.3 million or 110.6% to $55.8
million in the first six months of 1998, from $26.5 million in the same period
of 1997.
Wireless service revenue increased $12.3 million, or 76.0%, to $28.6 million
in the first six months of 1998 from $16.3 million compared to the same
period of 1997. Of the increase, $9.7 million was attributable to
acquisitions. The remaining $2.6 million was primarily attributable to
increased penetration and usage in the Central and East Regions. The
Company's cellular subscriber base increased 83.9% to 151,249 at June 30,
1998, from 82,264 at June 30, 1997. Approximately 44,300 subscribers were
added since June 30, 1997 as a result of the following acquisitions: Arizona
5 Partnership, Texas 16, California 4 and Santa Cruz. The Company's average
monthly wireless service revenue per subscriber decreased 6.1% to $39.38 for
the six months ended June 30, 1998 from $41.93 for the comparable period in
1997 due to the addition of new lower rate subscribers in the East Region and
competitive market pressures.
Wireless roaming revenue increased $16.0 million, or 162.4%, to $25.9 million
in the first six months of 1998 from $9.9 million for the comparable period
of 1997. Of the increase, $14.0 million was attributable to acquisitions.
The remaining $2.0 million was primarily attributable to increased roaming
minutes in the Central and East Regions due to expanded coverage area in
these markets.
Wireless equipment sales of $1.3 million in the first six months of 1998
represented an increase of $.9 million or 257.6% from $.4 million in the same
period of 1997, as the Company sold more equipment during the first six
months of 1997.
WIRELINE. Total wireline operations revenue increased $4.4 million, or 48.2%,
to $13.6 million for the six months ended June 30, 1998 compared to $9.2
million for the same period in 1997.
ILEC revenue increase $.2 million or 2.8% to $7.6 million for the six months
ended June 30, 1998 compared to $7.4 million for the six months ended June
31, 1997. This increase was primarily due to an increase in toll charges and
an increase in the number of access lines served.
The Company's revenue from its fiber operations increased $.1 million, or
6.1%, to $1.8 million in the first six months of 1998 from $1.7 million in
the same period of 1997 primarily due to additional revenue from existing
customers.
22
<PAGE>
ICP revenues of $4.1 million in the first six months of 1998 consisted
primarily of charges for local and long-distance service and equipment sales.
COST OF SERVICE AND EQUIPMENT SALES. For the three month period ended June
30, 1998, the total cost of service and equipment sales increased $12.3
million, or 147.6%, to $20.6 million from $8.3 million for the comparable
period in 1997.
<TABLE>
For The Three For The Three
Months Ended Months Ended
June 30, 1998 June 30, 1997
<S> <C> <C>
Wireless cost of service:
Wireless service $12,485,547 $5,383,773
Wireless equipment 2,643,281 1,790,098
----------- ----------
Total: 15,128,828 7,173,871
Wireline cost of service:
ILEC 775,904 980,325
Fiber 279,109 145,217
ICP 4,369,125 -
----------- ----------
Total: 5,424,138 1,125,542
----------- ----------
Total: $20,552,966 $8,299,413
----------- ----------
----------- ----------
</TABLE>
WIRELESS. Cost of wireless service increased $7.1 million, or 131.9% to $12.5
million during the six months ended June 30, 1998 from $5.4 million for the
six months ended June 30, 1997. Of the increase, $5.4 million was
attributable to the acquisitions. The remaining $1.7 million was primarily
attributable to increased subscribers and minutes of use in the Central and
East Region and expanded use of rerating agreements with wireless providers
adjacent to our markets. As a percentage of cellular service and roaming
revenue, cost of wireless service increased to 22.9% in the first six months
of 1998 from 20.6% in the comparable period of 1997. This is primarily due
to the expanded use of rerating agreements noted above.
Cost of wireless equipment increased $.8 million or 47.7% to $2.6 million
during the first six months of 1998 from $1.8 in the first six months of
1997, primarily from increases in the volume of equipment sold due to the
growth in subscribers.
WIRELINE. Cost of ILEC telephone service decreased $.2 million or 20.9% to
$.8 million during the first six months of 1998 from $1.0 million in the same
period of 1997. As a percentage of wireline telephone service revenue, cost
of wireline telephone service decreased to 10.2% in the first six months of
1998 from 13.2% in the same period of 1997. This is primarily due to certain
labor costs previously charged to operating and maintaining Company
facilities being directed to projects relating to the implementation of new
facilities.
Cost of fiber service remained fairly constant for the period, increasing
$134 thousand or 92.2% to $279 thousand in the first six months of 1998 from
$145 thousand in the same period of 1997. The increase was the result of
increased
23
<PAGE>
labor costs associated with operating and maintaining the Company's
facilities and costs associated with networking, including service provided
by certain third party carriers incurred as a result of increased revenues.
ICP operations commenced in the fourth quarter of 1997. Cost of service for
the first six months of 1998 consisted primarily of wholesale charges from
third party service providers and costs associated with the operations and
maintenance of Company facilities.
MARKETING AND SELLING COSTS. Marketing and selling costs increased $8.8
million, or 214.3%, to $12.9 million in the first six months of 1998 from
$4.1 million in the comparable period of 1997. As a percentage of total
operating revenue, marketing and selling costs increased to 18.6% in the
first six months of 1998 from 11.4% in the same period of 1997. The increase
was primarily due to the higher level of cellular subscribers added period to
period. Gross cellular subscribers added in the first six months of 1998 was
approximately 26,686. The number of gross cellular subscribers added in the
first six months of 1997 was 13,242. Additionally, the Company incurred $4.3
million of marketing costs in the first six months of 1998 associated with
its recently launched ICP operations.
GENERAL AND ADMINISTRATIVE COSTS. For the six month period ended June 30,
1998, general and administrative costs increased $5.5 million, or 61.4%, to
$14.6 million from $9.1 million for the same period in 1997. As a percentage
of total operating revenue, general and administrative costs decreased to
21.1% in the first six months of 1998 from 25.1% in the comparable period of
1997. The dollar increase was primarily due to increased billing costs as a
result of the growth in cellular subscribers, the recent acquisitions and
increased salary costs resulting from additional personnel in the Company's
cellular and ICP operations. The decrease as a percentage of total operating
revenue is a result of the Company's strategy to integrate new operations in
its existing management structure.
DEPRECIATION AND AMORTIZATION EXPENSE. For the six month period ended June
30, 1998, depreciation and amortization expense increased $10.1 million or
105.1% to $19.7 million in the first six months of 1998 from $9.6 million in
the same period of 1997. Amortization of assets acquired in acquisitions
accounted for $8.4 million of the increase in the first six months of 1998
compared to the same period of 1997.
OTHER EXPENSE. For the six months ended June 30, 1998, total other expense
(consisting of interest income, interest expense and other) increased $4.2
million, or 39.7% to $14.7 million from $10.5 million for the comparable
period in 1997. Interest income of $3.0 million, was a result of interest
earned on securities purchased with the proceeds from the Senior Exchangeable
Preferred Stock and DWC Senior Notes. For the first six months of
1998, interest expense increased $6.3 million to $17.9 million from $11.6
million in the comparable period of 1997. The increase was primarily a result
of increased borrowings in the first six months of 1998 to finance the
Company's acquisitions.
IMPACT OF YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programming being written using
24
<PAGE>
two digits rather than four to define the applicable year. Any of the
Company's systems, as well as those of key suppliers and customers, that have
date sensitive logic may interpret a date using "00" as the year 1900 rather
than 2000. This may result in inaccurate processing or possible system
failure causing potential disruption of operations including among other
things a temporary inability to process transactions, send invoices, supply
services or engage in similar normal business activities.
In April of 1998, the Company established a multi-disciplined team to perform
a Year 2000 Impact Analysis for the corporation. The team consists of
representatives from each of the lines of business, as well as
representatives from key corporate departments and is headed by a full time
Year 2000 Compliance Manager. The team created a Year 2000 assessment
methodology which brought a structured approach to the assessment and
management reporting process.
To date, the Company has completed an inventory of its automated systems and
services and an Impact Analysis that identified significant risk areas by
line of business, identified specific compliance requirements, and identified
costs and estimated completion dates for affected systems.
The Company does not have large scale legacy applications used by many
telecommunications providers. From an information systems standpoint, the
Company has historically relied on outsourcing relationships for most of its
business and operational support applications. Those applications that have
not been outsourced to service providers have been deployed using packaged
software from outside vendors. Management has also focused on evaluating
software systems of acquired companies. Management has determined that ATI's
OSS is not Year 2000 Compliant; however, the Company believes its new OSS
which will replace ATI's, will be Year 2000 Compliant and will be in place by
2000. As a result, the remediation approach is not focused on a large scale
in-house effort, but on identifying those systems and services that are not
currently Year 2000 compliant and either upgrading to a compliant version or
replacing with an alternative compliant product or service. The results of
the Impact Analysis revealed that for most of the Company's information
systems, services and telecommunications infrastructure, Year 2000 compliant
releases will be included as a part of existing maintenance and/or service
agreements at no additional cost to the Company and should be in place by the
second quarter of 1999. The total costs identified to upgrade or replace
those systems that are not Year 2000 compliant and will not be upgraded
through existing maintenance or service agreements are approximately $.6
million.
The Company will continue to analyze systems and services that utilize date
embedded codes that may experience operational problems when the Year 2000 is
reached. The Company will continue communicating with third party vendors of
systems software and equipment, suppliers of telecommunications capacity and
equipment, customers and others with which it does business to coordinate
Year 2000 compliance. To further mitigate risks, the Company will conduct its
own Year 2000 tests on mission critical systems as their Year 2000 compliant
versions are released by vendors.
LIQUIDITY AND CAPITAL RESOURCES
The Company's Wireless Operations require substantial capital to acquire,
construct and expand cellular telephone systems and to fund operating
requirements. The Company historically has financed its Wireless Operations
25
<PAGE>
through bank debt and proceeds from the sale of debt and equity. While the
Company's Wireline Operations have been financed through government loans and
the proceeds from the sale of debt.
At June 30, 1998, the Company had working capital of $144.4 million (a ratio
of current assets to current liabilities of 3.7:1) and an unrestricted cash
balance of $91.1 million, which compares to working capital of $16.3 million
(a ratio of current assets to current liabilities of 1.6:1) and a cash
balance of $3.0 million at December 31, 1997. The substantial increase in
working capital is a result of proceeds from the DWC Senior Note offering.
Of the proceeds, approximately $80 million was on hand at June 30, 1998 to be
used for capital expenditures and working capital requirements in the
Company's ICP business.
The Company's net cash used by operating activities totaled $1.7 million for
the six month period ended June 30, 1998 compared to cash provided by
operating activities of $6.8 million for the six months ended June 30, 1997.
The decrease of $8.5 million was primarily due to the Company's increased net
loss offset by an increase in depreciation and amortization.
Cash flow used in investing activities, which totaled $330.5 million and
$155.6 million for the six months ended June 30, 1998 and 1997, respectively.
The 1998 investing activities principally related to acquisitions, escrow
deposits and capital expenditures. In 1997, investing activities consisted
primarily of cellular systems in the East Region, as well as capital
expenditures. Acquisitions accounted for $308.9 million and $155.8 million
and capital expenditures were $20.1 million and $5 million in the six
months ended June 30, 1998 and 1997, respectively.
Net cash provided by financing activities was $420.3 million for the six
months ended June 30, 1998 compared to $149.5 million for the six months
ended June 30, 1997. Financing activities for the six months ended June 30,
1998 consisted primarily of $198 million of proceeds from long-term debt,
offset by the repayment of $172.1 million financed through net proceeds
obtained from the issuance of $175 million of Senior Exchangeable Preferred
Stock, as well as proceeds from the $350 million DWC Senior Note offering.
The Company also incurred approximately $23.1 million of deferred financing
costs in connection with the DWC Senior Notes offering, Senior Exchangeable
Preferred Stock issuance and the March 1998 credit facilities discussed
below.
In March 1998, the Company's subsidiary, Dobson Cellular Operations Company
("DCOC"), established a $200 million senior secured credit facility (the
"Operations Credit Facility"). DCOC's obligations under the Operations Credit
Facility are secured by all current and future assets of DCOC, and are
guaranteed by DCOC's subsidiaries. The Company's subsidiary, Dobson
Operating Company ("DOC"), established a $250 million senior secured credit
facility (the "DOC Bank Facility") to replace the existing Bank Facility. The
DOC Bank Facility continues to be secured by all of DOC's stock and the stock
or partnership interests of its subsidiaries and all assets of DOC and its
restricted subsidiaries. The Company and DOC's subsidiaries other than Dobson
Wireline and the Arizona 5 Partnership have guaranteed DOC's obligations
under the DOC Bank Facility. The Operations Credit Facility and the DOC Bank
Facility require the Company to maintain certain financial ratios. The
failure to maintain such ratios would constitute an event of default,
notwithstanding the Company's ability to meet its debt service obligations.
26
<PAGE>
The DOC Bank Facility and Operations Credit Facility each amortize quarterly
beginning June 30, 2000 and terminate on June 30, 2006. The Company's
government loans have scheduled maturities until 2028 and the Senior Notes
mature in February 2007. Such indebtedness may need to be refinanced at their
respective maturities. The Company's ability to do so will depend upon, among
other things, its financial condition at the time, the restrictions on its
indebtedness and other factors, including market conditions, beyond the
control of the Company.
In April 1997, the Company entered into an interest rate hedge agreement to
hedge the Company's interest expense on $160 million of its indebtedness,
under the revolving credit facilities. The agreement provides for a rate cap
of 8% plus a factor, based on the Company's leverage ratio (cap at June 30,
1998 was 8.625%), terminating on the earlier of April 24, 2000 or the date an
option to enter into an interest rate swap transaction is exercised by the
financial partner. Under the swap agreement, the interest rate would be fixed
at 6.13% plus the same factor used to determine the rate cap or a floating
LIBOR rate, terminating on April 24, 2002. The Company accounts for this as
a hedge.
The minority partners in the Company's partnerships that own certain of its
cellular operations receive distributions equal to their share of the profit
multiplied by estimated income tax rates. Under the Company's bank credit
agreements, the Company's minority partners are not entitled to receive any
cash distributions in excess of amounts required to meet income tax
obligations until all indebtedness of their respective partnerships is paid
or extinguished.
The Company has paid dividends in amounts sufficient to fund the interest and
principal payments owed by certain of its beneficial owners of its stock with
respect to debt incurred in November 1994 to purchase common stock. The
Company does not expect to pay dividends on its common stock in the
foreseeable future.
The Company's capital expenditures (excluding cost of acquisitions) were $20.1
million for the six month period ended June 30, 1998 and the Company expects
its capital expenditures (excluding cost of acquisitions) to be approximately
$86.1 million for 1998. Of the capital expenditures expected to be made in
1998, $28 (including $2 million related to California 7) is expected to
be made in the Company's wireless operations and $58.1 million is expected to
be made in its wireline operations. The Company has not budgeted any amounts
to be expended in 1998 with respect to the systems which may be acquired in
the future, pending acquisitions or the Company's PCS system. The amount and
timing of capital expenditures may vary depending on the rate at which the
Company expands and develops its cellular systems, whether the Company
consummates additional acquisitions, whether the Company expands its fiber
optic network or ICP operations and the adoption of new regulations relating
to support revenue.
In January 1998, the Company entered into an agreement with Lucent
Technologies Inc. ("Lucent") to purchase, over a four-year period, 300 cell
sites, two switches and certain related hardware and software. The agreement
also requires the Company to pay an annual software maintenance fee and to
make certain additional payments based on the number of subscribers added in
the areas serviced by the cell sites. The aggregate net cost to the Company
under this agreement is estimated to be $81 million, of which $8.2 million
has been
27
<PAGE>
budgeted for 1998.
In April 1997, the Company was granted PCS licenses in nine markets in
Oklahoma, Kansas and Missouri. The aggregate bid for these licenses was $5.1
million after an FCC authorized discount of 15% by reason of the Company's
status as a "small business." The Company has financed $4.1 million of the
purchase price with government loans secured by liens on the PCS licenses at
an annual interest rate of 6.25%, amortizing quarterly over eight years
beginning in 1999. The Company is required to build out systems covering 25%
of the population covered by each of the PCS licenses by 2002. The Company
currently anticipates that the cost to build out the minimum PCS system will
be $10.0 million to $30.0 million. The actual amount of the expenditures will
depend on the PCS technology selected by the Company, the extent of the
Company's buildout, the costs at the time of buildout and the extent the
Company must bear the expense of relocating incumbent microwave licensees, as
mandated by FCC rules. The Company has not budgeted any amounts for capital
expenditures in 1998 with respect to the buildout of a PCS system.
The Company has previously announced that the Sygnet acquisition will be
financed with a combination of private equity and debt. On July 20, 1998, in
connection with the Sygnet acquisition, the Company received a commitment
letter for a new $450 million credit facility ("Sygnet Credit Facility"). The
Sygnet Credit Facility will be secured by the assets purchased in the Sygnet
acquisition. Interest on borrowings under the Sygnet Credit Facility will
accrue at a variable rate (estimated to be 8.16% on June 30, 1998). On July
20, 1998, also in connection with the Sygnet acquisition, the Company
received commitment letters for bridge financing in the form of $160 million
in Senior Notes ("Bridge Notes") and $120 million in Exchangeable Preferred
Stock ("Bridge Preferred Stock"). The Bridge Notes will bear interest at
13.5%, increasing by 1% after six months from the issuance date and
increasing by an additional .5% at the end of each subsequent three-month
period. Interest will be payable quarterly in arrears and the Bridge Notes
will mature one year from the date of issuance. The Bridge Preferred Stock
will bear a dividend rate of 14%, increasing by 1% after six months from the
issuance date and increasing by an additional .5% at the end of each
subsequent three-month period until the Bridge Preferred Stock is redeemed.
Dividends will be payable quarterly in cash or, prior to the twentieth
dividend payment date in additional shares of Bridge Preferred Stock.
Additionally, the Company has received a commitment letter for the purchase
of $10 million of Series B Convertible Preferred Stock. Although the Company
has commitments in place that will allow it to close the Sygnet acquisition,
it is still evaluating financing options and has not yet determined the final
capital structure related to this acquisition.
Although there can be no assurance, management believes the proceeds from the
sale of the Senior Preferred Stock, DWC Senior Notes together with borrowings
under the DOC Bank Facility, the Operations Credit Facility, cash on hand,
and cash flow from operations will be sufficient to fund the Company's
capital expenditures and its working capital and debt service requirements.
The Company will require additional financing to fund the Sygnet acquisition,
pursue other future acquisitions and to meet the required PCS buildout.
Sources of additional capital may include public or private debt or equity
financings, vendor financing and a potential $75 million future increase in
commitment contemplated by the Operations Credit Facility. There can be no
assurance that any additional financing will be available to the Company or,
if available, that it can be obtained on terms acceptable to the Company and
within the limitations contained in the Company's financing arrangements. The
successful implementation of the Company's strategy, including the further
development of its cellular systems and significant and sustained growth in
the Company's cash flows, is necessary for the Company to meet its debt
service and dividend requirements, including its obligations on the Senior
Preferred Stock.
FORWARD-LOOKING STATEMENTS
The description of the Company's plans set forth above, including planned
acquisitions, are forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These
plans involve a number of risks and uncertainties. The important factors
that could cause actual capital expenditures, acquisitions activity, or the
Company's performance to differ materially from the plans include, without
limitation, the Company's ability to satisfy the financial covenants of its
existing debt instruments and to raise additional capital; the Company's
ability to manage its rapid growth successfully and to compete effectively in
its cellular, fiber and resale businesses against competitors with greater
financial, technical, marketing and other resources; changes in end-user
requirements and preferences; the development of other technologies and
28
<PAGE>
products that may gain more commercial acceptance than those of the Company;
and adverse regulatory changes. Readers are cautioned not to place undue
reliance on these forward looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to release publicly the result
of any revisions to these forward looking statements which may be made to
reflect events or circumstances after the date hereof including, without
limitation, changes in the Company's business strategy or planned capital
expenditures, as to reflect the occurrence of unanticipated events. For
further information regarding these and other risk factors, see "Risk
factors" and "Business" in the Company's Prospectus dated May 14, 1997 filed
with the Securities and Exchange Commission under Rule 424(b) of the
Securities Act of 1933.
29
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- - Not applicable
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- - Not applicable
ITEM 2. CHANGES IN SECURITIES
- - Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- - Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - Not applicable
ITEM 5. OTHER INFORMATION
- - Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as a part of this report:
<TABLE>
Exhibit Number Description
- -------------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
On April 9, 1998, the Company filed a Current Report on Form 8-K
reporting the acquisition of California RSA 4 under "Item 2.
Acquisition of Assets" and "Item 7. Financial Statements of
Businesses Acquired."
On June 30, 1998, the Company filed a Current Report on Form 8-K
reporting the acquisition of American Telco, Inc. and American Telco
Network Services, Inc. under "Item 2. Acquisition of Assets" and
"Item 7. Financial Statements of Businesses Acquired."
30
<PAGE>
SIGNATURES
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 thereunto duly authorized.
Date: August 14, 1998 Dobson Communications Corporation
(registrant)
/s/ EVERETT R. DOBSON
----------------------------------------
Everett R. Dobson
Chairman of the Board, President
and Chief Executive Officer
Date: August 14, 1998 /s/ BRUCE R. KNOOIHUIZEN
----------------------------------------
Bruce R. Knooihuizen
Vice President and Chief Financial
Officer (principal financial officer)
31
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 91,059,587
<SECURITIES> 139,167,456
<RECEIVABLES> 40,111,979
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 197,356,060
<PP&E> 165,626,818
<DEPRECIATION> (52,451,843)
<TOTAL-ASSETS> 1,018,767,598
<CURRENT-LIABILITIES> 52,916,706
<BONDS> 738,804,796
191,565,329
100,000
<COMMON> 473,152
<OTHER-SE> (63,149,240)
<TOTAL-LIABILITY-AND-EQUITY> 1,018,767,598
<SALES> 69,372,724
<TOTAL-REVENUES> 69,372,724
<CGS> 20,552,966
<TOTAL-COSTS> 20,552,966
<OTHER-EXPENSES> 47,225,817
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,928,579
<INCOME-PRETAX> (14,513,689)
<INCOME-TAX> (2,656,000)
<INCOME-CONTINUING> (11,857,689)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,284,335)
<EPS-PRIMARY> (54.54)
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</TABLE>
