<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): April 9, 1998 (April 1, 1998)
DOBSON COMMUNICATIONS CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Oklahoma 333-23769
------------------------------- --------------------
(State or other jurisdiction of (Commission File No.)
incorporation or organization)
73-1110531
----------------------------------
(I.R.S Employer 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)
<PAGE>
Item 2.
On April 1, 1998, Dobson Cellular of California, Inc. ("Dobson
California"), a wholly owned subsidiary of Dobson Communications Corporation
(the "Company"), acquired all of the capital stock of the corporations that own
the Cellular 2000 Partnership (the "Partnership"). The Partnership owns the
cellular license and system for the California 4 RSA. The Company will continue
to provide cellular service under the Cellular One name to an estimated
population of 363,400 in northern California between Fresno and Modesto.
The total purchase price paid by the Company for the Partnership was
approximately $90.9 million. The sellers were Cellular 2000 Telephone Co. and
its shareholders (75.018%) and RSA 339, Inc., AT&T Wireless Services and its
shareholders and optionholders (24.982%).
The purchase price, which was determined by the parties through arm's
length negotiations, was funded by borrowings under a credit facility
established on March 27, 1998 (the "New Credit Facility"). NationsBank of
Texas, N.A., Corestates Bank, N.A., First Union National Bank of Carolina and TD
Securities (USA) Inc. all serve as agents for the New Credit Facility.
Item 7.
(a) Financial Statements of Businesses Acquired
(1) The audited financial statements of the California 4 Partnership as of
December 31, 1997 and 1996 and for the years ended December 31, 1997
and 1996 are set forth below.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
Cellular 2000 (A Partnership)
We have audited the accompanying balance sheet of Cellular 2000 (A Partnership)
as of December 31, 1997 and 1996 and the related statements of income, changes
in partners' equity and cash flows for the years then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cellular 2000 (A Partnership)
as of December 31, 1997 and 1996 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
HOLLIDAY, LEMONS, THOMAS & COX, P.C.
Texarkana, Texas
February 13, 1998
<PAGE>
Cellular 2000 (A Partnership)
Balance Sheet
December 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS
1997 1996
------------------ ------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,079,070 $ 1,142,409
Accounts receivable 1,231,461 1,495,970
Accounts receivable-related parties 1,396,810 1,201,698
Inventory 160,677 147,551
Prepaid and other current assets 370,334 283,112
------------------ ------------------
Total current assets 4,238,352 4,270,740
------------------ ------------------
Property, plant and equipment:
Buildings and towers 7,234,628 5,729,609
Cellular and switching equipment 15,059,156 10,899,265
Autos and trucks 126,140 108,233
Office equipment and furniture 413,672 405,133
Leasehold improvements 333,675 110,976
Construction in progress 2,730,032 241,827
------------------ ------------------
Total property, plant and equipment 25,897,303 17,495,043
Less accumulated depreciation 6,563,647 4,695,405
------------------ ------------------
Net property, plant and equipment 19,333,656 12,799,638
------------------ ------------------
Other assets:
Start up costs - 56,827
Loan costs 268,084 246,801
Licensing costs 54,169 26,015
------------------ ------------------
Total other assets 322,253 329,643
------------------ ------------------
TOTAL ASSETS $ 23,894,261 $ 17,400,021
------------------ ------------------
------------------ ------------------
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Cash overdraft $ 536,924 $ -
Notes payable - 1,200,000
Notes payable - related party 1,253,381 -
Accounts payable 723,491 714,601
Accounts payable - related parties 305,437 325,552
Obligation for equipment 1,621,169 -
Accrued management termination fee - 1,500,000
Accrued expenses 143,022 62,332
Unearned revenue 297,792 246,738
Federal and state taxes payable 819,903 324,520
Customer deposits 17,600 22,000
------------------ ------------------
Total current liabilities 5,718,719 4,395,743
------------------ ------------------
Long-term liabilities:
Notes payable, less current portion 12,800,000 8,900,000
Obligation for equipment - 1,497,616
------------------ ------------------
Total long term liabilities 12,800,000 10,397,616
------------------ ------------------
Total liabilities 18,518,719 14,793,359
Partners' equity 5,375,542 2,606,662
------------------ ------------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 23,894,261 $ 17,400,021
------------------ ------------------
------------------ ------------------
</TABLE>
<PAGE>
Cellular 2000 (A Partnership)
STATEMENT OF INCOME
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
<S> <C> <C>
Revenues:
Cellular service $ 8,539,822 $ 8,580,109
Cellular roaming 10,654,382 10,856,424
Equipment sales 351,256 224,504
Other income 175,437 66,089
------------------ ------------------
Total revenues 19,720,897 19,727,126
------------------ ------------------
Costs and expenses:
Cost of services 5,914,442 6,103,477
Cost of equipment sales 1,154,816 728,357
Marketing and selling expenses 1,104,764 1,314,631
General and administrative expenses 2,237,552 1,966,416
Legal and professional fees 460,320 440,181
Depreciation 1,883,951 1,501,755
Amortization 127,390 188,892
------------------ ------------------
Total costs and expenses 12,883,235 12,243,709
------------------ ------------------
Net income from operations 6,837,662 7,483,417
------------------ ------------------
Other income (expense):
Interest income 16,440 31,260
Interest expense (830,901) (822,573)
Loss on disposition of fixed assets (44,199) -
Miscellaneous income 9,444 2,265
Management termination fee - (3,000,000)
------------------ ------------------
Total other income (expense) (849,216) (3,789,048)
------------------ ------------------
Net income $ 5,988,446 $ 3,694,369
------------------ ------------------
------------------ ------------------
</TABLE>
Cellular 2000 (A Partnership)
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
<S> <C> <C>
Partners' equity, beginning of period $ 2,606,662 $ 3,682,068
Net income 5,988,446 3,694,369
Distributions 3,219,566 4,769,775
------------------ ------------------
Partners' equity, end of period $5,375,542 $2,606,662
------------------ ------------------
------------------ ------------------
</TABLE>
<PAGE>
Cellular 2000 (A Partnership)
STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 5,988,446 $ 3,694,369
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 2,011,341 1,690,647
Loss on disposition of fixed assets 44,199
(Increase) decrease in assets:
Accounts receivable 69,397 (526,635)
Inventory (13,126) 26,786
Prepaid and other current assets (87,222) (178,022)
Loan costs (80,000)
Licensing costs (40,000)
Increase (decrease) in liabilities:
Accounts payable (11,225) 67,338
Accrued management termination fee (1,500,000) 500,000
Accrued liabilities 80,690 (14,072)
Unearned revenue 51,054 51,630
Federal and state taxes payable 495,383 19,139
Customer deposits (4,400) (6,300)
------------------ ------------------
Net cash provided by operating
activities 7,004,537 5,324,880
------------------ ------------------
Cash flows from investing activities:
Proceeds from sale of fixed assets 1,976 -
Capital expenditures for property,
plant and equipment (7,087,210) (2,214,973)
------------------ ------------------
Net cash used for investing activities (7,085,234) (2,214,973)
------------------ ------------------
Cash flows from financing activities:
Repayments of notes payable (300,000) (1,150,000)
Proceeds from notes payable 3,000,000 2,000,000
Distributions (3,219,566) (4,769,775)
------------------ ------------------
Net cash provided (used) by financing
activities (519,566) (3,919,775)
------------------ ------------------
Net increase (decrease) in cash and
cash equivalents (600,263) (809,868)
Cash and cash equivalents at beginning of
period 1,142,409 1,952,277
------------------ ------------------
Cash and cash equivalents at end of
period $ 542,146 $ 1,142,409
------------------ ------------------
------------------ ------------------
</TABLE>
<PAGE>
Cellular 2000 (A Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Partnership is the owner of a license issued by the Federal Communications
Commission (FCC) to provide non-wireline cellular telecommunications service to
the California 4 Rural Service Area. California 4 Rural Service Area includes
Merced, Madera and San Benito counties in central California. The Partnership
has a large customer base within this area that includes individuals, businesses
and governments. The Partnership is not dependent on any single or major group
of customers for its sales. Approximately 54% of Partnership revenue is derived
from providing cellular service to customers of other cellular companies
'roaming' through the Company's service area. Approximately 43% of revenue is
derived from providing cellular service to its own subscriber customers. As
more fully described in Note 9 to the financial statements, in late 1997 the
partner which owns the controlling interest in the Partnership and Dobson
Cellular of California, Inc. (Dobson) signed an agreement in which the Partner
agreed to sell their interest in the Partnership and to transfer the FCC license
of the Partnership to Dobson.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid unrestricted cash instruments with
original maturities of three months or less. The Partnership places its
temporary cash investments with high credit quality financial institutions. At
times such investments may be in excess of the FDIC insurance limit. The
Partnership has not experienced any losses in such accounts.
Revenue Recognition
Cellular air time is recorded as revenue as earned. Subscriber acquisition
costs (mainly commissions and loss on equipment sales) are expensed when
incurred. Sales of equipment are recorded at the point of sale. Cellular
access charges generally are billed in advance and recognized as revenue when
the services are provided.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined under
the specific identification method.
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed
using the straight-line method over the following estimated useful lives of the
assets:
Buildings and towers 15-20 years
Cellular and switching equipment 10 years
Autos and trucks 5 years
Furniture, fixtures and office equipment 5-7 years
Leasehold Improvements 5 years
Expenditures for repairs and maintenance are charged to operating expense as
incurred. Betterments, replacement equipment and additions are capitalized.
Construction in Progress
The Partnership's cellular communications system expenditures are recorded as
construction in progress until the system or assets are placed in service. When
the assets are placed in service, they are transferred to the appropriate
property and equipment category and depreciated. All direct, administrative and
interest costs related to the construction are capitalized to construction in
progress during the construction period.
Start up Costs
Start up costs are administrative costs incurred related to the construction of
the cellular mobile communications system. Such amounts are being amortized over
five years beginning June 1, 1992. Accumulated amortization of start up costs
at December 31, 1997 and 1996 was $681,933 and $625,105, respectively. At
December 31, 1997 the start up costs were fully amortized.
Loan Costs
Costs associated with the financing of the Partnership's debt have been
capitalized and are amortized on a straight line basis over the life of the
note. Additional costs incurred with the loan in June 1997 have been
capitalized and amortized over the remaining life of the loan. Accumulated
amortization of loan costs at December 31, 1997 and 1996 was $173,103 and
$114,387, respectively.
Licensing Costs
Licensing costs primarily represent costs incurred to acquire the Federal
Communications Commission License. Amortization of these costs began in May,
1992, using the straight-line method over a period of 40 years. In March 1997,
the Partnership entered into an agreement to use licensed software to process
billing information for its cellular communications system. In consideration of
this agreement, the Partnership paid a one-time license fee which is being
amortized using the straight-line method over a three-year period. Accumulated
amortization of licensing costs at December 31, 1997 and 1996 was $15,213 and
$3,367, respectively.
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED.
Income Taxes
The Partnership's legal form of organization is that of a partnership. A
partnership as such is not taxed under the Internal Revenue Code, rather the
income or loss of the partnership is required to be reported by each respective
partner on their appropriate tax return.
Advertising Expenses
Advertising costs are expensed as incurred and amounted to approximately
$183,690 in 1997 and $122,808 in 1996. The expenses are included as marketing
and selling expenses in the statement of income.
Concentrations of Credit Risk
Financial instruments which potentially expose the Partnership to concentrations
of credit risk, as defined by FASB Statement No. 105 consist primarily of trade
accounts receivable and cash equivalents.
At December 31, 1997 approximately 54% of trade accounts receivable were
attributable to cellular companies which subscribe to the clearinghouse network.
Of this amount, approximately 72% of these receivables were from AT&T Wireless
Services of California, Inc. (AWS-CA) companies and approximately 19% of these
receivables were from Bay Area Cellular Telephone Company, of which the parent
company of AWS-CA owns an interest. Concentrations of credit risk from these
receivables is limited due to the large number of subscribers, none of which
individually comprise a significant amount of the accounts receivable balance at
December 31, 1997. The Partnership establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of specific customers,
historical trends and other information. Receivables are not collateralized.
The Partnership is directly affected by the well being of the California
economic climate and the effects of any changes in the cellular
telecommunications act. However, management does not believe significant credit
risk exists at December 31, 1997.
Reclassifications
Certain accounts relating to the prior year have been reclassified to conform to
the current year presentation. The reclassifications have no effect on
previously reported net earnings.
NOTE 2 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash and cash equivalents at December 31, 1997 and 1996 for the statement of
cash flows consist of:
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Cash and money market funds $ 1,079,070 $ 1,142,409
Cash overdrafts (536,924) -
------------ -----------
Total $ 542,146 $ 1,142,409
------------ -----------
------------ -----------
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED.
At December 31, 1997, the balance sheet presentation of cash and cash
equivalents omits the cash overdrafts. In 1997, noncash investing and financing
activities include purchases of property, plant and equipment and obligation for
equipment of $123,553 and increases to construction in progress and notes
payable-related party of $1,253,381.
For the years ended December 31, 1997 and 1996, interest paid amounted to
$830,901 and $826,780, respectively, net of capitalized interest.
NOTE 3 - NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Commercial promissory note due December 31,
1997. Collateralized by subordinated security
interest in property and assets purchased
under contract with AWS and outcollect
revenues $ 1,253,381 -
8.09375% Variable rate term loan due
September 30, 2001. Collateralized by all
property and assets of the partnership - $ 7,600,000
8.09375% Variable rate revolving note due
September 30, 2001. Collateralized by all
property and assets of the partnership - 2,500,000
8.16797% Variable rate term loan due December
31, 2003. Collateralized by all property and
assets of the partnership 12,800,000 -
------------- -------------
Total $ 14,053,381 $ 10,100,000
Less current maturities 1,253,381 1,200,000
------------- -------------
Total long term portion of notes payable $ 12,800,000 $ 8,900,000
------------- -------------
------------- -------------
</TABLE>
On December 31, 1996, the Partnership entered into an agreement which allows the
Partnership to request AT&T Wireless Services, Inc. (AWS) to place orders for
certain equipment, software, materials and services (hereinafter equipment)
intended to be used by the Partnership in the ordinary course of business for
the operation, modification, improvement or expansion of its system. Although
it is under no obligation to do so, if AWS chooses to honor in its sole
discretion any such request from the Partnership, such orders for equipment will
be charged on AWS' account and the dollar amount of such charges shall be deemed
for all purposes as loans or advances from AWS to the Partnership. The unpaid
balance of all loans or advances shall not exceed $750,000. The payment of the
loans and advances is secured by the equipment purchased and all of the
Partnership's outcollect revenues, as they are commonly defined in the cellular
telephone industry. The purchasing agreement contains a provision which allows
AWS to offset roaming revenues owed to the Partnership against amounts owed
under this purchasing agreement if the Partnership defaults in its obligation.
Interest is payable at one and one-half percent per month on the outstanding
balance after specified time intervals have elapsed. No interest cost was
incurred on this loan during 1997.
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED.
On October 14, 1994, the Partnership arranged financing with a financial
institution for a $10,000,000 term loan and a $2,500,000 revolving credit loan.
On September 29, 1996, the Partnership increased the commitment on
the revolving credit loan to $4,500,000. The increased financing was obtained
to satisfy a portion of the termination fee due on the settlement of the
management agreement with RCM. On June 11, 1997, the term loan and the
revolving credit loan were combined and the total commitment on the loan was
increased to $16,000,000. The increased financing was obtained to upgrade
equipment and increase the capacity of the cellular communications system. The
credit agreement associated with the loan contains, among other covenants,
provisions which limit capital expenditures. For the year ended December 31,
1997, capital expenditures cannot exceed $7,100,000. As of December 31, 1997,
the Partnership was not in compliance with the capital expenditures covenant.
This noncompliance would, by the terms of the loan agreement, constitute an
event of default. The agreement provides that in an event of default the bank
may by notice in writing declare all amounts owing with respect to these
agreements immediately due and payable. Due to the pending sale as discussed in
Note 9, management does not expect to receive such notice. The credit agreement
also contains provisions which limit distributions to partners to no more than
$500,000 during any fiscal quarter except distributions to the partners to pay
Federal and State income taxes on the taxable income allocated by the Borrowers
to its partners. Distributions totaling $3,219,566 and $4,769,775 were made in
1997 and 1996, respectively.
At December 31, 1997, these borrowings bear interest at 2.25% above the LIBOR
rate established for the period. Total interest incurred during the years ended
December 31, 1997 and 1996 was $933,766 and $784,477, respectively. Of this,
$117,216 was capitalized in 1997 as construction costs. No interest
capitalization was required during 1996.
Annual maturities of noncurrent notes payable are as follows:
<TABLE>
<S> <C>
1999 $ -
2000 2,400,000
2001 3,200,000
2002 3,200,000
2003 4,000,000
------------
Total $ 12,800,000
------------
------------
</TABLE>
NOTE 4 - RELATED PARTY TRANSACTIONS
McCaw Communications of the Pacific Inc. and RSA 339, Inc. are subsidiaries of
AT&T Wireless Services, Inc. (AWS), and own minority interests in the
Partnership. AWS owns an interest in Bay Area Cellular Telephone Company.
Norfolk County Internet is owned by Thomas Morse, a member of the Executive
Committee of the Partnership. Cellular 2000 Telephone Co. owns the controlling
interest in the Partnership.
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED.
<TABLE>
<CAPTION>
Amount of Transaction
Type of Transaction
Related Party 1997 1996
- ---------------------------- --------------------- ------------ ------------
<S> <C> <C> <C>
AT&T Wireless Services of Accounts receivable $1,057,000 $ 887,000
California, Inc.(including Accounts payable 243,000 268,000
systems owned or controlled Notes payable 1,253,000 -
by AWS)
Bay Area Cellular Telephone Accounts receivable 281,000 315,000
Company Accounts payable 51,000 58,000
Norfolk County Internet Accounts receivable 56,000 -
Cellular 2000 Telephone Co. Accounts receivable 3,000 -
</TABLE>
NOTE 5 - OBLIGATION FOR EQUIPMENT
In 1995, the Partnership negotiated a contract with Ericsson Inc. for an
upgrade to the switch. The contract price for this upgrade totaled $1,782,525.
The upgrade was completed and became fully operational in January 1996. By the
terms of the contract, payment of $284,909 was made during 1995 leaving a
balance due Ericsson, Inc. of $1,497,616. The original contract for the
equipment has been adjusted to include sales tax of $123,553 for a total balance
due to Ericsson, Inc. of $1,621,169. This obligation will become due in full if
one of the following conditions are met: when the system reaches 25,000
subscribers; or if the switch is moved from its present location; or if the
switch is taken out of service; or prior to or as an item of closing of the sale
of the system to another business entity. Due to the pending sale of the system
as discussed in Note 9, management expects the obligation for the upgrade to
the switch to become due in full during 1998, therefore this obligation is
classified as a current liability at December 31, 1997 on the balance sheet.
NOTE 6 - ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Accounts receivable - roamer $ 114,270 $ 314,304
Accounts receivable - subscriber 1,216,190 1,233,315
Accounts receivable - other 27,001 168,351
Less allowance for doubtful accounts (126,000) (220,000)
------------ ------------
Total $ 1,231,461 $ 1,495,970
------------ ------------
------------ ------------
</TABLE>
NOTE 7 - RETIREMENT PLAN
The Partnership maintains a 401(k) profit sharing plan for its employees. After
meeting eligibility requirements on age and months of service, all employees are
covered. Contributions to the plan consist of the salary reduction each
eligible employee has elected to defer. Additional contributions to the plan
are at the discretion of management. Contributions for the years ended December
31, 1997 and 1996 were $20,545 and $10,800, respectively.
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Partnership is committed under operating leases principally for facilities,
cell sites and office space with remaining terms from one to nine years with
options for additional periods. Certain leases provide for payment by the
lessee of taxes, maintenance and insurance.
The statement of income includes rental expense for operating leases of
approximately $428,000 for the year ended December 31, 1997 and $326,000 for the
year ended December 31, 1996. The partnership's future minimum lease
commitments under noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
Real Estate Equipment
Year Leases Rentals
---------- ----------- ----------
<S> <C> <C>
12-31-98 $ 399,870 $ 3,807
12-31-99 346,501 1,586
12-31-00 326,523 -
12-31-01 226,151 -
12-31-02 133,049 -
Thereafter 432,377 -
----------- ----------
Total $ 1,864,471 $ 5,393
----------- ----------
----------- ----------
</TABLE>
The Partnership had a management agreement with Rural Cellular Management (RCM)
which terminated on September 1, 1995. Prior to termination, the monthly
management fee was based upon the most current population of the Rural Service
Area (RSA) multiplied by $.1042. In 1996, the Partnership paid $45,350 to RCM
which represented a correction in the calculation of the prior year's management
fee paid. On August 24, 1996, the Partnership and RCM agreed upon a termination
fee of $4,000,000 in settlement of the management agreement. As of December 31,
1996, the partnership had paid $2,500,000 to RCM. The balance of the
termination fee, $1,500,000, was paid during the year ended December 31, 1997.
NOTE 9 - SUBSEQUENT EVENT
On November 17, 1997, the shareholders of Cellular 2000 Telephone Co. entered
into a definitive agreement to sell their stock in Cellular 2000 Telephone Co.
and to transfer the Federal Communications Commission (FCC) Operating Licenses
to Dobson Cellular of California, Inc. (Dobson). Cellular 2000 Telephone Co.
owns 75.018 percent of the outstanding partnership interests of Cellular 2000 (A
Partnership), and thereby owns a controlling interest in the Partnership. The
financial statements do not reflect any expenses incurred or expected to be
incurred related to the sale. The FCC has consented to the transfer of control
of the Partnership's FCC licenses to Dobson and has granted authorization to
Dobson to operate the cellular telephone system. The sale is expected to close
in April, 1998.
On March 19, 1998, RSA 339, Inc. entered into a definitive agreement to sell
their minority interest in the Partnership to Dobson. RSA 339, Inc. owns the
remaining 24.982 percent of the outstanding partnership interests of the
Partnership. The sale is also expected to close in April, 1998.
<PAGE>
(b) Pro Forma Financial Information
(1) The following unaudited pro forma condensed consolidated balance
sheet and statement of operations as of December 31, 1997 and for
the year then ended give effect to the Partnership acquisition.
UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED BALANCE SHEET
December 31, 1997
($ in thousands)
<TABLE>
<CAPTION>
Dobson Cellular
Communications 2000 Pro
Corporation Partnership Adjustments Forma
----------------------------------------- ---------
ASSETS
<S> <C> <C> <C> <C> <C>
41,790 4,238 - 46,028
Property, plant and equipment 88,350 19,334 (12,034) (a) 95,650
Receivables- affiliates 6,381 - - 6,381
Cellular license acquisition
costs 206,695 - 138,141 (a) 344,836
Intangible assets 23,017 - - 23,017
Investment in unconsolidated
subsidiaries and other 16,981 322 (2,822) (a) 14,481
----------------------------------------- ---------
Total assets $383,214 $23,894 $123,285 $530,393
----------------------------------------- ---------
----------------------------------------- ---------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities 25,468 5,719 (1,825) (b) 29,362
Long-term debt, net of
current portion 363,069 12,800 75,586 (c) 451,455
Deferred credits 2,873 - 54,899 (d) 57,772
Minority interests 16,954 - - 16,954
Preferred stock 11,623 - - 11,623
Stockholders' equity
(deficit) (36,773) 5,375 (5,375) (e) (36,773)
----------------------------------------- ---------
Total liabilities and
stockholders' equity $383,214 $23,894 $123,285 $530,393
----------------------------------------- ---------
----------------------------------------- ---------
</TABLE>
See accompanying notes to unaudited pro forma consolidated condensed financial
statements.
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Dobson Cellular
Communications 2000 Pro
Corporation Partnership Adjustments Forma
------------------------------------------ --------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Wireless revenue $66,128 $ 19,721 - $ 85,849
Wireline revenue 18,455 - - 18,455
Other revenue 586 - - 586
------------------------------------------ --------
Total operating revenues 85,169 19,721 - 104,890
------------------------------------------ --------
OPERATING EXPENSES:
Wireless cost of service 18,755 7,069 - 25,824
Wireline cost of service 2,589 - - 2,589
Marketing and selling 11,762 1,105 - 12,867
General and administrative 19,877 2,698 - 22,575
Depreciation and
amortization 21,729 2,011 8,120 (f) 31,860
------------------------------------------ --------
Total operating expenses 74,712 12,883 8,120 95,715
------------------------------------------ --------
OPERATING INCOME 10,457 6,838 (8,120) 9,175
------------------------------------------ --------
OTHER INCOME (EXPENSE):
Interest income 2,841 16 - 2,857
Interest expense (30,098) (831) (5,607) (g) (36,536)
Other 39 (35) - 4
------------------------------------------ --------
Total other expense (27,218) (850) (5,607) (33,675)
------------------------------------------ --------
INCOME (LOSS) BEFORE
MINORITY INTERESTS IN
INCOME OF SUBSIDIARIES,
INCOME TAXES AND
EXTRAORDINARY ITEMS (16,761) 5,988 (13,727) (24,500)
MINORITY INTERESTS IN INCOME
OF SUBSIDIARIES (1,693) - - (1,693)
------------------------------------------ --------
INCOME (LOSS) BEFORE INCOME
TAXES AND EXTRAORDINARY
ITEMS (18,454) 5,988 (13,727) (26,193)
INCOME TAX (PROVISION)
BENEFIT 3,287 - 6,666 (h) 9,953
------------------------------------------ --------
INCOME (LOSS) FROM
CONTINUING OPERATIONS (15,167) 5,988 (7,061) (16,240)
------------------------------------------ --------
BASIC NET LOSS FROM
CONTINUING OPERATIONS PER $(32.06) - - $(34.32)
COMMON SHARE
------------------------------------------ --------
------------------------------------------ --------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
473,152 - - 473,152
------------------------------------------ --------
------------------------------------------ --------
</TABLE>
See accompanying notes to unaudited pro forma consolidated condensed statement
of operations.
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Accounting
On April 1, 1998, Dobson Communications Corporation ("DCC") completed the
acquisition of a 100 percent interest in all of the net assets of the
Cellular 2000 Partnership ("Partnership") in exchange for approximately
$90.9 million in cash ("California 4 Acquisition).
The pro forma unaudited consolidated statement of operations gives effect
to the California 4 Acquisition and related financings as if they had taken
place on January 1, 1997. The pro forma unaudited condensed consolidated
balance sheet has been prepared as if the California 4 Acquisition occurred
on December 31, 1997. The California 4 Acquisition has been accounted for
using the purchase method of accounting.
The pro forma condensed combined financial statements should be read in
conjunction with the consolidated financial statements and notes thereto of
the Company and with the financial statements and notes thereto of the
Cellular 2000 Partnership.
The unaudited pro forma consolidated condensed financial statements and
notes thereto are provided for informational purposes only and do not
purport to be indicative of the results that would have actually been
obtained had the Company and the Cellular 2000 Partnership been combined
during the period presented. In addition, the pro forma results are not
intended to be a projection of future results.
2. Adjustments to the Pro Forma Condensed Consolidated Balance Sheet and Pro
Forma Condensed Consolidated Statement of Operations
(a) To allocate the purchase price of the Partnership to the assets acquired.
(b) To reflect the elimination of $1.8 million of current liabilities
associated with California 4 that will not be assumed by the Company as
part of the California 4 Acquisition.
(c) To reflect (i) the elimination of $12.8 million of debt associated with
California 4 that will not be assumed by the Company as part of the
California 4 Acquisition and (ii) the increase in borrowings used to
finance the California 4 Acquisition of approximately $88.4 million.
(d) To reflect the deferred tax liability created in connection with the
purchase of the Partnership.
(e) To eliminate the partners' capital account of the California 4 Partnership.
(f) To reflect the additional depreciation and amortization resulting from the
increase in the property and equipment and cellular license acquisition
costs due to the allocation of the purchase price. Property and equipment
will be depreciated over five to eight years and cellular license
acquisition costs will be amortized over fifteen years. The fifteen-year
period used for cellular acquisition costs is based primarily on the
Company's internal analysis of the recovery period for its cellular
investments, which indicates that such costs will be recovered through
operations over a period of not more than fifteen years.
(g) To reflect $6.4 million of interest expense relating to the additional
indebtedness incurred in conjunction with the California 4 Acquisition and
the elimination of $.8 million of interest associated with the
Partnership's debt not assumed by the Company.
(h) To reflect an adjustment to income tax expense for the effects of the
California 4 Acquisition, using an assumed effective rate of 38%.
<PAGE>
(c) Exhibits
The following exhibits are filed as a part of this report:
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
------- ----------- ----------------
<C> <S> <C>
2.1 Stock Purchase Agreement dated November (1) [2.6.1)
17, 1997 as amended by Amendment No. 1
thereto effective as of March 18, 1998
between Cellular 2000 Telephone Co. and
its shareholders listed therein and
Dobson Cellular of California, Inc.
2.2 Stock Purchase Agreement dated March (1) [2.6.2)
19, 1998 between RSA 339, Inc. and AT&T
Wireless Services, Inc. and its
shareholders and optionholders listed
therein and Dobson Cellular of
California, Inc.
23.1 Consent of Holliday, Lemons, Thomas & Filed herewith
Cox, P.C. with respect to California 4 electronically
Partnership.
99 Press release dated April 1, 1998 Filed herewith
announcing the Company's acquisition of its electronically
interest in the Partnership.
</TABLE>
(1) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997 as the exhibit number indicated in brackets
and incorporated by reference herein.
SIGNATURE
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 hereunto duly authorized.
Date: April 9, 1998 Dobson Communications Corporation
(Registrant)
By: /s/ Bruce R. Knooihuizen
Bruce R. Knooihuizen
Vice President and Chief Financial Officer
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion of our
report in this Form 8-K, as it relates to Cellular 2000 (A Partnership). It
should be noted that we have not audited any financial statements of Cellular
2000 (A Partnership) subsequent to December 31, 1997 or performed any audit
procedures subsequent to the date of our report.
/s/ Holliday, Lemons, Thomas & Cox, P.C.
Texarkana, Texas
April 9, 1998
<PAGE>
FOR IMMEDIATE RELEASE
April 1, 1998
CONTACT: Cynthia Dutton
405.391.8317
DOBSON COMMUNICATIONS EXPANDS WIRELESS FOOTPRINT
COMPLETES RURAL CELLULAR MARKET ACQUISITION IN CALIFORNIA
OKLAHOMA CITY, OK - Dobson Communications Corporation announced today that
through an affiliate, Dobson Cellular of California Inc., Dobson has completed
the acquisition of the California 4 RSA cellular market. California 4 is
located in central California adjacent to Fresno, Modesto, and Yosemite National
Park and covers a population base of approximately 363,000.
Commenting on the agreement, Ed Evans, President of Dobson Cellular Systems,
stated, "The California 4 market met all of our acquisition criteria making it a
perfect match for our company. California 4 is the first property in our new
wireless Region Three. The second addition to our new region will be the Santa
Cruz MSA, which a definitive agreement was signed last month and announced last
Friday."
With the pending Santa Cruz acquisition, Dobson's cellular population base will
grow to 2,578,400 and its customer base will rise to nearly 135,000, based on
1997 year-end figures.
Last December, Dobson signed an operating agreement with AT&T Wireless Services
to become a part of AT&T's digital wireless network. "The California 4 market
is a progressive part of the AT&T operating agreement. We're deploying TDMA
IS-136 digital technology in the California 4 market. Our plan with AT&T is to
create larger home coverage areas and, along with AT&T, expand the digital
system around the country," said Mr. Evans.
Dobson Communications Corporation is a provider of diversified
telecommunications products and services headquartered in Oklahoma City,
Oklahoma. The Company provides wireless services to customers under the names
Dobson Cellular Systems, AirTouch Cellular and Cellular One, and wireline
services through Dobson Telephone, Inc., McLoud Telephone Inc., Dobson Fiber
Company, Inc., Dobson Network Management, Inc. and Logix Communications
Corporation. The Company has operations in nine states, including Oklahoma,
Arizona, California, Kansas, Maryland, Missouri, Pennsylvania, Texas, and
Colorado.
Dobson Communications Corporation and it's subsidiaries employ more than 500
people.
