<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported):
January 15, 1999 (December 23, 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)
73-1513309
-----------------------------------
(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>
This Current Report on Form 8-K/A amends the Current Report on Form 8-K filed
by Dobson Communications Corporation ("DCC") on January 7, 1999 solely to add
the financial statements of the business acquired required by Item 7(a), the
pro forma financial statements required by Item 7(b) and additional exhibits
required by Item 7(c).
Item 7.
(a) Financial Statements of Businesses Acquired
(1) The audited financial statements of Sygnet Wireless, Inc.
consisting of consolidated balance sheets as of December 31,
1996 and 1997 and the related consolidated statements of
operations, shareholders' equity (deficit) and cash flows
for the three years ended December 31, 1997 and the unaudited
consolidated financial statements of Sygnet Wireless, Inc.
as of September 30, 1998 and for the nine months ended
September 30, 1997 and 1998 are set forth below.
2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Sygnet Wireless, Inc.
We have audited the accompanying consolidated balance sheets of Sygnet
Wireless, Inc. as of December 31, 1996 and 1997, and the related consolidated
statements of operations, shareholders' equity (deficit), and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Sygnet
Wireless, Inc. at December 31, 1996 and 1997 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Cleveland, Ohio
February 6, 1998
3
<PAGE>
SYGNET WIRELESS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1996 1997
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 2,257,748 $ 860,086
Accounts receivable, less allowance for doubtful accounts of $809,800 at
December 31, 1997 and $1,168,800 at December 31, 1996........................ 8,857,028 10,711,627
Inventory...................................................................... 1,696,952 1,867,445
Prepaid expenses............................................................... 531,171 309,460
-------------- --------------
Total current assets......................................................... 13,342,899 13,748,618
Other assets:
Cellular licenses--net......................................................... 252,271,468 245,866,235
Customer lists--net............................................................ 24,535,885 19,382,087
Deferred financing costs--net.................................................. 10,068,956 8,982,430
-------------- --------------
Total other assets........................................................... 286,876,309 274,230,752
Property and equipment--net...................................................... 43,958,969 53,007,015
-------------- --------------
Total assets................................................................. $ 344,178,177 $ 340,986,385
-------------- --------------
-------------- --------------
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................................................... $ 2,826,629 $ 3,264,206
Deferred revenue............................................................... 1,679,873 2,058,066
Accrued expenses and other liabilities......................................... 2,744,789 4,196,230
Interest payable............................................................... 6,940,623 6,749,755
-------------- --------------
Total current liabilities.................................................... 14,191,914 16,268,257
Long-term debt................................................................... 312,250,000 305,500,000
Redeemable Series A Senior Cumulative Nonvoting Preferred Stock, $.01 par,
aggregate redemption value of $20,690,411, 500,000 shares authorized, 200,000
shares issued and outstanding and warrants..................................... 19,718,028 --
Shareholders' equity (deficit):
Common shares, $.01 par, Class A, 1 vote per share; 60,000,000 shares
authorized; 4,010,653 shares issued and outstanding as of December 31, 1997;
2,653 shares issued and outstanding as of December 31, 1996.................. 27 40,107
Common shares, $.01 par, Class B, 10 votes per share; 10,000,000 shares
authorized; 5,159,977 shares issued and outstanding as of December 31, 1997;
6,167,977 shares issued and outstanding as of December 31, 1996.............. 61,679 51,599
Additional paid-in capital..................................................... 5,812,211 47,598,498
Retained deficit............................................................... (7,605,730) (28,222,124)
Note receivable from officer/shareholder....................................... (249,952) (249,952)
-------------- --------------
Total shareholders' equity (deficit)............................................. (1,981,765) 19,218,128
-------------- --------------
Total liabilities, redeemable preferred stock and shareholders' equity
(deficit)...................................................................... $ 344,178,177 $ 340,986,385
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes.
4
<PAGE>
SYGNET WIRELESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------
1995 1996 1997
------------- ------------- --------------
<S> <C> <C> <C>
REVENUE:
Subscriber revenue............................................... $ 17,191,291 $ 31,084,883 $ 52,638,712
Roamer revenue................................................... 4,175,809 9,687,284 26,992,584
Equipment sales.................................................. 1,529,284 2,416,769 4,323,052
Other revenue.................................................... 1,680,544 1,607,245 1,679,412
------------- ------------- --------------
Total revenue.................................................. 24,576,928 44,796,181 85,633,760
COSTS AND EXPENSES:
Cost of services................................................. 3,365,954 5,508,386 10,048,416
Cost of equipment sales.......................................... 4,163,890 5,816,144 9,663,251
General and administrative....................................... 5,563,887 9,852,004 16,975,592
Selling and marketing............................................ 3,082,492 6,080,308 10,841,059
Depreciation and amortization.................................... 3,486,554 10,038,439 28,718,937
------------- ------------- --------------
Total costs and expenses....................................... 19,662,777 37,295,281 76,247,255
------------- ------------- --------------
INCOME FROM OPERATIONS............................................. 4,914,151 7,500,900 9,386,505
OTHER:
Interest expense................................................. 2,660,248 11,173,688 29,901,678
Other expense, net............................................... 303,867 194,723 101,221
------------- ------------- --------------
(LOSS) INCOME BEFORE EXTRAORDINARY ITEM............................ 1,950,036 (3,867,511) (20,616,394)
Extraordinary loss on extinguishment of debt....................... -- (1,420,864) --
------------- ------------- --------------
NET (LOSS) INCOME.................................................. $ 1,950,036 $ (5,288,375) $ (20,616,394)
------------- ------------- --------------
------------- ------------- --------------
Earnings per share information (pro forma for 1996):
Loss before preferred stock dividend and accretion............... (5,288,375) $ (20,616,394)
Preferred stock dividend and accretion........................... $ (718,028) $ (2,121,423)
------------- --------------
Net loss applicable to common shareholders....................... $ (6,006,403) $ (22,737,817)
------------- --------------
------------- --------------
Net loss per share applicable to common shareholders
Before extraordinary item...................................... $ (.74) $ (2.93)
Extraordinary item............................................. (.23) --
------------- --------------
Net loss....................................................... $ (.97) $ (2.93)
------------- --------------
------------- --------------
Weighted average common shares outstanding......................... 6,170,630 7,773,370
------------- --------------
------------- --------------
</TABLE>
See accompanying notes.
5
<PAGE>
SYGNET WIRELESS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
WILCOM CORPORATION SYGNET COMMUNICATIONS, INC.
COMMON STOCK COMMON STOCK
---------------------------------------------- ---------------------------------------------
TYPE A TYPE B TYPE A TYPE B
---------------------- ---------------------- -------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- --------- ----------- --------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1995..... 500 $ 12,500 2,500 $ 62,500 209,362 $ 209,362 1,046,801 $ 1,046,801
Net Income......................
Dividends declared..............
Type A common stock
repurchased...................
Type B common stock
repurchased...................
----- --------- ----------- --------- --------- --------- ---------- -----------
Balance as of December 31, 1995... 500 12,500 2,500 62,500 209,362 209,362 1,046,801 1,046,801
Net loss........................
Dividends declared..............
Corporate merger................ (500) (12,500) (2,500) (62,500) 4,360 4,360 21,800 21,800
Retirement of treasury stock.... (8,024) (40,173)
Sygnet Wireless
capitalization................ (205,698) (213,722) (1,028,428) (1,068,601)
Capital contribution of
S Corporation earnings........
Preferred stock dividend........
Accretion of preferred stock....
Exchange of common shares.......
----- --------- ----------- --------- --------- --------- ---------- -----------
Balance as of December 31, 1996... -- -- -- -- -- -- -- --
Net loss........................
Preferred Stock dividend........
Accretion of Preferred Stock....
Stock option compensation.......
Excess of redemption price over
carring value of Preferred
Stock.........................
Net Proceeds from issuance of
stock to Boston Venture.......
Exchange of Common Shares.......
----- --------- ----------- --------- --------- --------- ---------- -----------
Balance as of December 31,
1997.......................... -- $ -- -- $ -- -- $ -- -- $ --
----- --------- ----------- --------- --------- --------- ---------- -----------
----- --------- ----------- --------- --------- --------- ---------- -----------
<CAPTION>
SYGNET WIRELESS, INC.
------------------------------------------- NOTE
RECEIVABLE
CLASS A CLASS B ADDITIONAL RETAINED FROM
-------------------- --------------------- PAID-IN EARNINGS OFFICER/
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) SHAREHOLDER
--------- --------- ---------- --------- ----------- ------------ ------------
<S> <C>
Balance as of January 1, 1995..... -- $ -- -- $ -- $ 4,170,368 $ (482,842) $ (249,952)
Net Income...................... 1,950,036
Dividends declared.............. (713,519)
Type A common stock
repurchased...................
Type B common stock
repurchased...................
--------- --------- ---------- --------- ----------- ------------ ------------
Balance as of December 31, 1995... -- -- -- -- 4,170,368 753,675 (249,952)
Net loss........................ (5,288,375)
Dividends declared.............. (261,625)
Corporate merger................ 48,840
Retirement of treasury stock.... (1,718,991)
Sygnet Wireless
capitalization................ 6,170,630 61,706 1,220,617
Capital contribution of
S Corporation earnings........ 2,809,405 (2,809,405)
Preferred stock dividend........ (690,411)
Accretion of preferred stock.... (27,617)
Exchange of common shares....... 2,653 27 (2,653) (27)
--------- --------- ---------- --------- ----------- ------------ ------------
Balance as of December 31, 1996... 2,653 27 6,167,977 61,679 5,812,211 (7,605,730) (249,952)
Net loss........................ (20,616,394)
Preferred Stock dividend........ (1,149,040)
Accretion of Preferred Stock.... (46,849)
Stock option compensation....... 306,000
Excess of redemption price over
carring value of Preferred
Stock......................... (925,534)
Net Proceeds from issuance of
stock to Boston Venture....... 3,000,000 30,000 43,601,710
Exchange of Common Shares....... 1,008,000 10,080 (1,008,000) (10,080)
--------- --------- ---------- --------- ----------- ------------ ------------
Balance as of December 31,
1997.......................... 4,010,653 $ 40,107 5,159,977 $ 51,599 $47,598,498 $(28,222,124) $ (249,952)
--------- --------- ---------- --------- ----------- ------------ ------------
--------- --------- ---------- --------- ----------- ------------ ------------
<CAPTION>
TREASURY STOCK
-----------------------
SHARES AMOUNT
------- -----------
Balance as of January 1, 1995..... -- $ --
Net Income......................
Dividends declared..............
Type A common stock
repurchased................... 8,024 $ (312,936)
Type B common stock
repurchased................... 40,173 $(1,406,055)
------- -----------
Balance as of December 31, 1995... 48,197 $(1,718,991)
Net loss........................
Dividends declared..............
Corporate merger................
Retirement of treasury stock.... (48,197) 1,718,991
Sygnet Wireless
capitalization................
Capital contribution of
S Corporation earnings........
Preferred stock dividend........
Accretion of preferred stock....
Exchange of common shares.......
------- -----------
Balance as of December 31, 1996... -- --
Net loss........................
Preferred Stock dividend........
Accretion of Preferred Stock....
Stock option compensation.......
Excess of redemption price over
carring value of Preferred
Stock.........................
Net Proceeds from issuance of
stock to Boston Venture.......
Exchange of Common Shares.......
------- -----------
Balance as of December 31,
1997.......................... $ -- $ --
------- -----------
------- -----------
</TABLE>
See accompanying notes
6
<PAGE>
SYGNET WIRELESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------
1995 1996 1997
-------------- --------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income............................................... $ 1,950,036 $ (5,288,375) $ (20,616,394)
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
Depreciation.................................................. 2,765,816 5,948,693 16,018,841
Amortization.................................................. 720,738 4,089,746 12,700,096
Compensation expense from issuance of stock options........... -- -- 306,000
Loss on disposal of equipment................................. 161,222 177,633 102,955
Extraordinary loss on extinguishment of debt.................. -- 1,420,864 --
Changes in operating assets and liabilities:
Accounts receivable......................................... (2,838,833) (184,315) (1,854,599)
Inventory................................................... (184,951) (287,900) (170,493)
Prepaid and deferred expenses............................... 7,951 28,649 232,548
Accounts payable and accrued expenses....................... (589,925) 2,424,406 2,866,653
Accrued interest payable.................................... 452,933 6,481,912 (190,868)
-------------- --------------- --------------
Net cash provided by operating activities....................... 2,444,987 14,811,313 9,394,739
INVESTING ACTIVITIES
Acquisitions of Horizon and Erie................................ (40,533,104) (254,150,136) (599,442)
Purchases of property and equipment............................. (9,056,098) (10,049,999) (25,575,837)
Proceeds from sale of equipment................................. 513,730 -- 405,995
-------------- --------------- --------------
Net cash used in investing activities........................... (49,075,472) (264,200,135) (25,769,284)
FINANCING ACTIVITIES
Dividends paid.................................................. (1,158,980) (261,625) --
Proceeds from long-term debt.................................... 51,986,188 320,750,000 30,500,000
Principal payments on long-term debt............................ (750,000) (78,000,000) (37,250,000)
Increase in financing costs..................................... (1,716,230) (10,290,097) (65,376)
Net proceeds from issuance of preferred stock................... -- 19,000,000 --
Redemption of preferred stock................................... -- -- (21,839,451)
Net proceeds from issuance of common stock...................... -- -- 43,631,710
Purchase of treasury stock...................................... (1,718,991) -- --
-------------- --------------- --------------
Net cash provided by financing activities....................... 46,641,987 251,198,278 14,976,883
(Decrease) increase in cash and cash equivalents................ 11,502 1,809,456 (1,397,662)
Cash and cash equivalents at beginning of year.................. 436,790 448,292 2,257,748
-------------- --------------- --------------
Cash and cash equivalents at end of year........................ $ 448,292 $ 2,257,748 $ 860,086
-------------- --------------- --------------
-------------- --------------- --------------
</TABLE>
See accompanying notes
7
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
These financial statements include the combined financial statements of
Sygnet Communications, Inc. ("Sygnet") and Wilcom Corporation ("Wilcom") through
August 31, 1996, the effective date of the merger described below, and the
consolidated accounts of Sygnet Wireless, Inc. and its wholly-owned subsidiary
Sygnet Communications, Inc. ("Sygnet") (hereinafter collectively referred to as
the "Company") thereafter. The Company owns and operates cellular telephone
systems serving one large cluster with an approximate population of 2.4 million
in Northeastern Ohio, Western Pennsylvania and Western New York.
On August 19, 1996, the shareholders of Sygnet and Wilcom effected a
corporate restructuring whereby Wilcom was merged into Sygnet and shareholders
of Wilcom received 8.72 shares of Sygnet common stock for each share of Wilcom
common stock held as of August 31, 1996, the effective date of the merger. This
merger was a business combination between entities under common control whereby
the assets and liabilities so transferred were accounted for at historical cost
in a manner similar to that in pooling-of-interest accounting. Also, in
conjunction with this merger, the shareholders of Sygnet amended the articles of
incorporation to change Sygnet's name to Sygnet Wireless, Inc.
Prior to the restructuring, Sygnet and Wilcom had been operating their
cellular business through three partnerships (Youngstown Cellular Telephone
Company ("YCTC")), Erie Cellular Telephone Company ("Erie"), and Wilcom
Cellular) and Sharon--Youngstown Cellular, Inc. ("Sharon"). As a result of the
restructuring and merger, Sharon was renamed Sygnet and is the wholly-owned
subsidiary and operating company of Sygnet Wireless, Inc. The existence of YCTC,
Erie, and Wilcom Cellular terminated on October 1, 1996 when all partnership
interests transferred to Sygnet.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement No. 130, REPORTING COMPREHENSIVE
INCOME, which is required to be adopted effective January 1, 1998. This
Statement establishes standards for the reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
Reclassification of financial statements for earlier periods presented is
required. The impact of Statement No. 130 on the Company's financial statements
is not expected to be material.
In June 1997, the FASB also issued Statement No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which is required to be
adopted effective January 1, 1998. This Statement changes the way companies
report selected segment information in annual financial statements and also
requires those companies to report selected segment information in interim
financial reports to shareholders. The impact of Statement No. 131 on the
Company's financial statement disclosures is not expected to be material.
3. ACQUISITIONS
On October 9, 1996, the Company acquired certain cellular licenses,
property, equipment, customer lists, current assets and current liabilities of
Horizon Cellular Telephone Company of Chautauqua L.P., Horizon Cellular
Telephone Company of Crawford L.P., and Horizon Cellular Telephone Company of
Indiana L.P. (hereinafter collectively referred to as "Horizon") for cash of
$252.9 million. The acquired systems provide cellular service to an estimated
population of 1.4 million in contiguous markets in Western Pennsylvania and
Western New York.
8
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
3. ACQUISITIONS (CONTINUED)
On September 30, 1995, Sygnet, as a general partner, purchased 95.46% of
Erie for cash of $40.53 million. On November 30, 1995, Sharon purchased 4.54% of
Erie for $1.92 million, which was paid on February 12, 1996.
The above transactions were accounted for as purchases and, accordingly, the
results of operations of the companies acquired have been included in the
consolidated financial statements since the dates of acquisition.
Cash paid for acquisitions is summarized below:
<TABLE>
<CAPTION>
1995 1996
------------- --------------
<S> <C> <C>
Current assets acquired....................................... $ 923,234 $ 3,613,696
Property and equipment........................................ 1,349,195 18,986,400
Cellular licenses............................................. 40,289,743 207,223,616
Customer lists................................................ 25,700,000
Current liabilities assumed................................... (108,878) (774,134)
------------- --------------
Net assets and liabilities acquired........................... 42,453,294 254,749,578
Amounts payable in future periods............................. (1,920,190) (599,442)
------------- --------------
Cash paid..................................................... $ 40,533,104 $ 254,150,136
------------- --------------
------------- --------------
</TABLE>
The pro forma unaudited condensed combined results of operations for the
year ended December 31, 1996 as if the purchase occurred on January 1, 1996 are
as follows:
<TABLE>
<CAPTION>
1996
--------------
<S> <C>
Revenue....................................................................... $ 69,851,000
--------------
--------------
Loss before extraordinary item................................................ $ (15,283,000)
--------------
--------------
Net loss...................................................................... $ (16,704,000)
--------------
--------------
Pro forma net loss per share applicable to common shareholders................ $ (3.25)
--------------
--------------
</TABLE>
4. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the parent
company and its wholly-owned subsidiary. Intercompany balances and transactions
have been eliminated in the consolidated financial statements.
CASH EQUIVALENTS
The Company considers all liquid investments with a maturity of three months
or less when purchased to be cash equivalents.
9
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORY
Inventory consisting of merchandise purchased for resale is stated at the
lower of cost or market determined by the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated over their
estimated useful lives calculated under the straight-line or double-declining
balance methods.
INTANGIBLE ASSETS
The FCC issues licenses that enable cellular carriers to provide cellular
service in specific geographic areas. The FCC grants licenses for a term of up
to 10 years and generally grants renewals if the licensee has complied with its
obligations under the Communications Act of 1934. In 1993, the FCC adopted
specific standards to apply to cellular renewals, concluding it will award a
renewal to a cellular licensee that meets certain standards of past performance.
Historically, the FCC has granted license renewals routinely. The Company
believes that it has met, and will continue to meet all requirements necessary
to secure renewal of its cellular licenses.
The Company has acquired cellular licenses and customer lists through its
acquisition of interests in various cellular systems. The cost of licenses and
customer lists acquired was $231,003,426 in 1996. The Company uses a 40 year
useful life to amortize its licenses under the straight-line method. Purchased
cellular and paging customer lists are being amortized over 5 years under the
straight-line method. The components of intangible assets at December 31 are
summarized below:
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
Cellular licenses............................................ $ 255,849,696 $ 255,849,696
Customer lists............................................... 25,819,792 25,819,792
-------------- --------------
281,669,488 281,669,488
Accumulated amortization..................................... (4,862,135) (16,421,166)
-------------- --------------
$ 276,807,353 $ 265,248,322
-------------- --------------
-------------- --------------
</TABLE>
Amortization expense was $523,768, $3,652,470 and $11,559,031 in 1995, 1996
and 1997, respectively.
The ongoing value and remaining useful lives of intangible and other
long-term assets are subject to periodic evaluation and the Company currently
expects the carrying amounts to be fully recoverable. When events and
circumstances indicate that intangible and other long-term assets might be
impaired, an undiscounted cash flow methodology would be used to determine
whether an impairment loss would be recognized.
REVENUE RECOGNITION
The Company earns revenue primarily by providing cellular services to its
customers (Subscriber Revenue) and from the usage of its system by the customers
of other cellular carriers (Roamer Revenue). Access revenue for Subscriber
Revenue is billed one month in advance. Revenue is recognized as service is
rendered. Subscriber acquisition costs (primarily commissions and loss on
equipment sales) are expensed when incurred.
10
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED FINANCING COSTS
Deferred financing costs are being amortized over the terms of the bank
credit facility and senior notes. Accumulated amortization was $266,084 and
$1,409,754 at December 31, 1996 and 1997, respectively. Amortization expense was
$196,170, $437,276 and $1,141,065 in 1995, 1996 and 1997, respectively. Upon
entering into a new bank credit facility in October 1996, an extraordinary loss
of $1,420,864 was incurred to write-off unamortized financing costs under the
extinguished bank credit agreement as described in Note 6.
ADVERTISING COSTS
Advertising costs are recorded as expense when incurred. Advertising expense
was $933,498, $1,225,151 and $1,841,138 in 1995, 1996 and 1997, respectively.
NET LOSS PER COMMON SHARE
In 1997, the Company adopted FASB Statement No. 128, EARNINGS PER SHARE,
which replaced the computation of primary and fully diluted earnings per share
with basic and diluted earnings per share. No restatement of prior year earnings
per share amounts was necessary since the impact was not significant.
Net loss per share is computed using the weighted average number of shares
of common stock outstanding during the period. The pro forma net loss per share
for 1996 is based on the number of common shares outstanding, as if the
corporate restructuring described in Note 1 occurred at the beginning of the
year. The effect of stock options is not included in the computation of dilutive
earnings per share since it is anti-dilutive.
Losses applicable to common shareholders include adjustments for Preferred
Stock dividends and accretions and the excess of the redemption price paid over
the carrying value of the Preferred Stock. Earnings per share for 1995 is not
presented because such data prior to the restructuring described in Note 1 is
not meaningful.
STOCK COMPENSATION
The Company accounts for its stock-based employee compensation arrangements
based on the intrinsic value of the equity instruments granted, as set forth in
APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements. Actual
results may differ from those estimates.
SIGNIFICANT CONCENTRATIONS
In connection with providing cellular services to customers of other
cellular carriers, the Company has contractual agreements with those carriers
which provide for agreed upon billing rates between the parties. Approximately
62%, 48% and 43% of the Company's Roamer Revenue was earned from two cellular
carriers in 1995, 1996 and 1997, respectively.
11
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS
Derivative financial instruments are used by the Company in the management
of interest rate exposure and are accounted for on an accrual basis. Income and
expense are recorded in the same category as that arising from the related
liability being hedged (i.e., adjustments to interest expense).
The Company uses variable interest rate credit facilities to finance
acquisitions and operations of the Company. The Company may reduce its exposure
to fluctuations in interest rates by creating offsetting positions through the
use of derivative financial instruments. The Company does not use derivative
financial instruments for trading or speculative purposes, nor is the Company a
party to leveraged derivatives. The notional amount of interest rate swaps is
the underlying principal amount used in determining the interest payments
exchanged over the life of the swap. The notional amount is not a measure of the
Company's exposure through its use of derivatives.
The Company may be exposed to credit loss in the event of nonperformance by
the counterparties to its interest rate swap agreements. The Company anticipates
the counterparties will be able to fully satisfy its obligations under the
agreements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1996 and 1997, the carrying value of cash equivalents,
accounts receivable, the interest rate swap and the long-term bank debt
approximated fair value. The fair value of the long-term unsecured senior notes,
calculated based on quoted market prices, was $112,750,000 and $118,800,000 at
December 31, 1996 and 1997, respectively.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
USEFUL LIFE 1996 1997
------------- -------------- --------------
<S> <C> <C> <C>
Land, building and improvements............... 5-19 years $ 7,296,770 $ 10,575,573
Cellular system and equipment................. 2.5-19 years 41,498,865 57,010,440
Customer premise equipment.................... 3 years 1,690,906 665,935
Office furniture and equipment................ 3-10 years 4,341,459 9,257,464
Cell site construction in progress............ 1,076,817 1,522,275
-------------- --------------
55,904,817 79,031,687
Accumulated depreciation...................... (11,945,848) (26,024,672)
-------------- --------------
$ 43,958,969 $ 53,007,015
-------------- --------------
-------------- --------------
</TABLE>
At December 31, 1997, the Company had purchase commitments of approximately
$9.3 million for equipment.
12
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
6. LONG-TERM DEBT
On September 19, 1996, the Company issued $110,000,000 11 1/2% unsecured
Senior Notes due October 1, 2006 (the Notes). The Notes pay interest
semiannually on April 1 and October 1 of each year commencing April 1, 1997. The
Notes are redeemable at the option of the Company at redemption prices
(expressed as a percentage of principal amount) ranging from 105.75% in 2001 to
100.00% in 2005 and thereafter. Among other things, the Notes contain certain
covenants which limit additional indebtedness, payment of dividends, sale of
assets or stock, changes in control and transactions with related parties. The
proceeds from the Notes were used to repay amounts borrowed under a $75 million
bank credit agreement and to finance the acquisition of Horizon described in
Note 3.
On October 9, 1996, Sygnet entered into a new financing agreement (the Bank
Credit Facility) with a commercial bank group. The Bank Credit Facility is a
senior secured reducing revolver that provides Sygnet the ability to borrow up
to $300.0 million through June 30, 1999. Mandatory reductions in the revolver
occur quarterly thereafter through June 30, 2005, when the Bank Credit Facility
terminates. The Bank Credit Facility is secured by certain assets and the stock
of Sygnet. The Bank Credit Facility provides for various borrowing rate options
based on either a fixed spread over the London Interbank Offered Rate (LIBOR) or
the prime rate. Interest payments are made quarterly. As of December 31, 1997,
$195.5 million was outstanding under the Bank Credit Facility.
Among other things, the Bank Credit Facility contains financial covenants
which require the maintenance of debt service ratios and the hedging of interest
rate risk and limit distributions to shareholders and sales of assets. In
connection with these covenants, the Company has a three year interest rate swap
with a total underlying notional amount of $80 million. The swap agreements
converted the interest rate on $80 million notional amount of the credit
facility from a variable rate based upon a three month LIBOR (5.81% at December
31, 1997) to fixed rates ranging from 5.79% to 6.03%. Amounts paid or received
under these agreements are recognized as adjustments to interest expense.
There are no future minimum payments based upon the borrowing levels at
December 31, 1997 for the next five years.
Interest paid was $2,202,345, 4,691,776 and $30,076,031 in 1995, 1996 and
1997 respectively.
7. LEASES
The Company has entered into various operating leases for land and office
facilities. Leases for tower sites provide for periodic extensions of lease
periods with future lease payments indexed to the consumer price index.
13
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
7. LEASES (CONTINUED)
Minimum future rental payments under operating leases having remaining terms
in excess of one year as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998................................................... $1,777,262
1999................................................... 1,445,209
2000................................................... 1,182,204
2001................................................... 817,668
2002................................................... 505,431
Thereafter............................................. 6,657,092
----------
Total.................................................. $12,384,866
----------
----------
</TABLE>
Rent expense was approximately $460,800, $906,042 and $2,077,644 in 1995,
1996 and 1997, respectively.
8. RETIREMENT PLAN
The Company sponsors a 401(k) retirement and profit sharing plan which
covers substantially all its employees. Eligible employees can contribute from
1% to 15% of their compensation. The Company, at its discretion, may match a
portion of the employee's contribution. The Company may also, at its discretion,
make additional profit sharing contributions to the plan. Total pension expense
was $114,000, $181,000 and $293,000 in 1995, 1996 and 1997, respectively.
9. REDEEMABLE PREFERRED STOCK AND WARRANTS
On April 3, 1997, 100,000 shares of Series A Senior Cumulative Nonvoting
Preferred Stock (Preferred Stock) were redeemed by the Company at a cost of
$10,000,000 which was funded by the Bank Credit Facility. On June 20, 1997, the
remaining 118,394.51 shares of Preferred Stock were redeemed by the Company at a
cost of $11,839,451. This redemption was funded by the Common Stock Sale
described in Note 10.
The Preferred Stock had a redemption value of $100 per share and was
recorded at fair value on the date of issuance less issuance costs. Dividends
were cumulative from the date of issuance, accrued quarterly in arrears and were
payable in shares of Preferred Stock. The dividend rates increased annually from
15% in 1997 to 21% in 2000 and thereafter. As of December 31, 1996, the Company
accrued stock dividends in the amount of $690,411 (which represented 6,904
shares). The Preferred Stock included the potential issuance of warrants to
purchase shares of the Company's Class A Common Stock. For financial reporting
purposes, the estimated fair value of the warrants was included with the
Preferred Stock in the accompanying balance sheet and the excess of the
redemption value of the Preferred Stock over the carrying value was accreted by
periodic charges to additional paid-in capital over the life of the issue. No
warrants were issued.
The Company has authorized 5 million shares of Nonvoting Preferred Stock,
par value $.01 per share, of which 500,000 are designated as Series A Senior
Cumulative Nonvoting Preferred Stock.
14
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
9. REDEEMABLE PREFERRED STOCK AND WARRANTS (CONTINUED)
The Company has also authorized 10 million shares of Voting Preferred Stock,
par value $.01 per share, none of which are issued as of December 31, 1997.
10. SHAREHOLDERS' EQUITY
On June 20, 1997, the Company issued and sold 3,000,000 shares of Class A
Common Stock, $.01 par value, to Boston Ventures Limited Partnership V (Boston
Ventures) at a price of $15 per share (Common Stock Sales). The proceeds of
$43.6 million, net of issuance fees of $1.4 million, were used to redeem the
remaining outstanding Preferred Stock as described in Note 9, and to reduce
amounts outstanding under the Bank Credit Facility. As a condition of the Common
Stock Sales, Boston Ventures appointed two representatives on the Company's
eleven member board of directors.
In August 1997, Boston Ventures purchased 1,000,000 shares of Class B Common
Stock from shareholders pursuant to a tender offer which upon purchase based on
the requirements of the corporate restructuring described in Note 1, became
Class A Common Stock.
On August 28, 1996, the Company approved a plan to recapitalize the Company
whereby the Sygnet common stock Type A (205,698 shares) and Type B (1,028,428
shares) were converted into 6,170,630 shares of Sygnet Wireless, Inc. Class B
common stock in a 5 for 1 split, effective on September 20, 1996. These shares
are entitled to ten votes per share.
On January 5, 1995, Sygnet repurchased 8,024 Type A shares for $39.00 per
share and 40,173 Type B shares for $35.00 per share from a shareholder for
approximately $1,719,000. These shares were accounted for at cost and held as
treasury stock until August 28, 1996 when they were retired.
Under the most restrictive of the covenants discussed in Note 6, the Company
could not declare any additional dividends on its common stock at December 31,
1997.
On December 29, 1994, the Company received a promissory note from an
officer/shareholder for $249,952 for the purchase of common shares from a
shareholder. The note requires annual payment of interest at 8.23% with
principal repayment commencing on December 31, 1998 through December 31, 2001.
11. INCOME TAXES
On August 31, 1996, Sygnet and Wilcom terminated their status as Subchapter
S Corporations. As a result of this termination, application of the provisions
of Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME
TAXES, requires deferred income taxes to be provided for differences in the
basis for tax purposes and for financial accounting purposes of recorded assets
and liabilities. As a result of the termination of their Subchapter S
Corporation status, Sygnet and Wilcom contributed their undistributed earnings
to additional paid-in capital. At December 31, 1997, the Company has net
operating loss carryforwards of $28.7 million that expire in 2011 and 2012. For
financial reporting purposes, a valuation allowance of $7,747,300 has been
recognized to offset the net deferred tax assets which primarily relate to the
net operating loss carryforward.
15
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
11. INCOME TAXES (CONTINUED)
Amounts for deferred tax assets and liabilities at December 31, 1996 and
1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation.................................................. $ 787,200 $ --
Amortization.................................................. 1,271,800 3,593,000
------------- -------------
Total deferred tax liabilities.................................. 2,059,000 3,593,000
Deferred tax assets:
AMT credit carryforward....................................... 63,400 63,400
Allowance for doubtful accounts............................... 397,400 275,300
Depreciation.................................................. 958,400
Net operating loss carryforward............................... 2,550,000 9,756,800
Other......................................................... 201,700 390,400
------------- -------------
3,212,500 11,444,300
Valuation allowance............................................. (1,153,500) (7,851,300)
------------- -------------
Total deferred tax assets....................................... 2,059,000 3,593,000
------------- -------------
Net deferred tax assets......................................... $ -- $ --
------------- -------------
------------- -------------
</TABLE>
The components of the income tax provision (benefit) in the consolidated
statements of operations for the year ended December 31, 1996 and 1997 are as
follows:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Cumulative effect of conversion from S to C corporation
status........................................................ $ 745,000 $ --
Deferred income tax (benefit)................................... (1,898,500) (6,697,800)
Valuation allowance............................................. 1,153,500 6,697,800
------------- -------------
Total provision for income tax (benefit)........................ $ -- $ --
------------- -------------
------------- -------------
</TABLE>
12. STOCK OPTION PLAN
The Company has stock option plans that provide for the purchase of Class A
common stock by employees and directors of the Company. Under the stock option
plans the Company is authorized to issue 1,250,000 options for the purchase of
shares of Class A common stock (1,000,000 for employees and 250,000 for
non-employee directors). These options vest over a period ranging from grant
date to five years, are exercisable based upon the terms of the grants and
expire at the end of ten years. The Company applies APBO No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES and related Interpretations in accounting for the
plan, which requires that for certain options granted, the Company recognizes as
compensation expense the excess of the deemed fair value for accounting purposes
of the common stock over the exercise price of the options. For the majority of
options, no compensation cost has been recognized. Had compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, the Company's net loss and net loss per share would not have been
materially different from the amounts reported.
16
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
12. STOCK OPTION PLAN (CONTINUED)
For pro forma calculations the fair value of each option is estimated on the
date of grant using the Minimum Value option-pricing model with the following
weighted-average assumptions used for grants in both 1996 and 1997: risk-free
interest rates ranging from 5.9% to 6.9% and average expected lives ranging from
5.25 to 7.5 years for issued options.
A summary of the status of the company's stock option plan as of December
31, 1996 and 1997 and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
1996 1997
-------------------------- --------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
-------- ---------------- -------- ----------------
<C> <C> <C> <C>
Outstanding
at
beginning
of
year... -- -$- 533,200 $10.00
Granted... 533,200 10.00 183,000 10.31
Exercised... -- -- -- --
Canceled... -- -- --
-------- ------ -------- ------
Outstanding
at year
end... 533,200 10.00 716,200 $10.08
-------- ------ -------- ------
-------- ------ -------- ------
Options
exercisable
at year
end... -- 651,200
Weighted-average
fair value of
options
granted
during
the
year... $ -- $ 7.80
Weighted-average
remaining
contractual
life... 9.68 8.87
</TABLE>
At December 31, 1997, there were 533,800 options available for future grant.
17
<PAGE>
SYGNET WIRELESS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1997 1998
-------------- --------------
(NOTE) (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 860,086 $ 467,124
Accounts receivable, less allowance for doubtful accounts of $565,862 at
September 30, 1998 and $809,800 at December 31, 1997......................... 10,711,627 13,506,769
Inventory...................................................................... 1,867,445 1,539,169
Prepaid expenses............................................................... 309,460 929,915
-------------- --------------
Total current assets......................................................... 13,748,618 16,442,977
Other assets:
Cellular licenses--net......................................................... 245,866,235 241,062,311
Customer lists--net............................................................ 19,382,087 15,527,090
Deferred financing costs--net.................................................. 8,982,430 8,126,156
-------------- --------------
Total other assets........................................................... 274,230,752 264,715,557
Property, plant and equipment--net............................................... 53,007,015 52,137,706
-------------- --------------
Total assets................................................................. $ 340,986,385 $ 333,296,240
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 3,264,206 $ 1,807,017
Deferred revenue............................................................... 2,058,066 2,381,739
Accrued expenses and other liabilities......................................... 4,196,230 4,591,172
Interest payable............................................................... 6,749,755 9,533,632
-------------- --------------
Total current liabilities.................................................... 16,268,257 18,313,560
Long-term debt................................................................... 305,500,000 302,644,000
Shareholders' equity:
Common shares, $.01 par, Class A, 1 vote per share, 60,000,000 shares
authorized, 4,734,091 shares issued and outstanding as of September 30, 1998;
4,010,653 shares issued and outstanding as of December 31, 1997.............. 40,107 47,341
Common shares, $.01 par, Class B, 10 votes per share; 10,000,000 shares
authorized, 4,436,539 shares issued and outstanding as of September 30, 1998;
5,159,977 shares issued and outstanding as of December 31, 1997.............. 51,599 44,365
Additional paid-in capital....................................................... 47,598,498 47,598,498
Retained deficit................................................................. (28,222,124) (35,101,572)
Note receivable from officer/shareholder......................................... (249,952) (249,952)
-------------- --------------
Total shareholders' equity................................................... 19,218,128 12,338,680
-------------- --------------
Total liabilities and shareholders' equity................................... $ 340,986,385 $ 333,296,240
-------------- --------------
-------------- --------------
</TABLE>
NOTE: THE BALANCE SHEET AT DECEMBER 31, 1997 HAS BEEN DERIVED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS AT THAT DATE BUT DOES NOT INCLUDE ALL OF THE
INFORMATION AND FOOTNOTES REQUIRED BY GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
FOR COMPLETE FINANCIAL STATEMENTS.
18
<PAGE>
SYGNET WIRELESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1997 1998
-------------- --------------
<S> <C> <C>
Revenue:
Subscriber revenue.............................................................. $ 38,531,124 $ 46,738,516
Roamer revenue.................................................................. 19,868,262 24,752,828
Equipment sales................................................................. 3,050,594 4,252,652
Other revenue................................................................... 1,307,703 1,190,063
-------------- --------------
Total revenue..................................................................... 62,757,683 76,934,059
Costs and expenses:
Cost of services................................................................ 7,175,048 9,004,943
Cost of equipment sales......................................................... 6,806,047 7,789,947
General and administrative...................................................... 11,666,527 14,664,517
Selling and marketing........................................................... 7,465,863 9,056,770
Depreciation and amortization................................................... 21,142,930 21,343,437
-------------- --------------
Total costs and expenses.......................................................... 54,256,415 61,859,614
-------------- --------------
Income from operations............................................................ 8,501,268 15,074,445
Other:
Interest expense, net........................................................... 22,558,545 21,612,673
Other........................................................................... (6,174) 341,220
-------------- --------------
Net income (loss)................................................................. $ (14,051,103) $ (6,879,448)
-------------- --------------
-------------- --------------
Earnings per share information:
Net income (loss)............................................................... $ (14,051,103) $ (6,879,448)
Preferred stock dividend and accretion.......................................... (2,121,472) --
-------------- --------------
Net income (loss) applicable to common shareholders............................. $ (16,172,575) $ (6,879,448)
-------------- --------------
-------------- --------------
Net income (loss) per share applicable to common shareholders................... $ (2.21) $ (.75)
-------------- --------------
-------------- --------------
Common shares outstanding......................................................... 7,302,498 9,170,630
-------------- --------------
-------------- --------------
</TABLE>
19
<PAGE>
SYGNET WIRELESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1997 1998
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.......................................................................... $ (14,051,103) $ (6,879,448)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation.................................................................... 11,614,565 11,828,239
Amortization.................................................................... 9,528,365 9,515,198
Loss (gain) on disposal of assets............................................... (14,358) 109,104
Changes in operating assets and liabilities:
Accounts receivable........................................................... (2,269,177) (2,795,142)
Inventory..................................................................... 413,076 328,276
Prepaid and deferred expenses................................................. 188,487 (620,455)
Accounts payable and accrued expenses......................................... 732,773 (738,574)
Accrued interest payable...................................................... 982,713 2,783,877
-------------- --------------
Net cash provided by operating activities......................................... 7,125,341 13,531,075
INVESTING ACTIVITIES
Business acquisition.............................................................. (599,442) --
Purchases of property and equipment............................................... (16,979,123) (11,468,537)
Proceeds from sale of assets...................................................... 20,995 400,500
-------------- --------------
Net cash used in investing activities............................................. (17,557,570) (11,068,037)
FINANCING ACTIVITIES
Proceeds from long-term debt...................................................... 23,500,000 16,894,000
Principal payments on long-term debt.............................................. (35,250,000) (19,750,000)
Increase in financing costs....................................................... (308,666) --
Redemption of preferred stock..................................................... (21,839,451) --
Net proceeds from sale of common stock............................................ 43,875,000 --
-------------- --------------
Net cash (used in) provided by financing activities............................... 9,976,883 (2,856,000)
Decrease in cash and cash equivalents............................................. (455,346) (392,962)
Cash and cash equivalents at beginning of period.................................. 2,257,748 860,086
-------------- --------------
Cash and cash equivalents at end of period........................................ $ 1,802,402 $ 467,124
-------------- --------------
-------------- --------------
</TABLE>
20
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
These financial statements include the consolidated accounts of Sygnet
Wireless, Inc. (the "Company") and its wholly-owned subsidiary Sygnet
Communications, Inc. ("Sygnet"). The Company owns and operates cellular
telephone systems serving one large cluster with an approximate population of
2.4 million in Northeastern Ohio, Western Pennsylvania and Western New York.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine-month period ended September 30,
1998 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1998. For further information, refer to the consolidated
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the fiscal year ended December 31, 1997 (File No. 333-10161)
filed with the Securities and Exchange Commission.
2. AGREEMENT AND PLAN OF MERGER
On July 28, 1998, the Company entered into an Agreement and Plan of Merger
("Merger") with a subsidiary of Dobson Communications Corporation ("Dobson")
pursuant to which Dobson will acquire all outstanding shares of common stock of
the Company for an aggregate amount of $337.5 million, or approximately $34.51
per share. The agreement is pending regulatory approval and is expected to close
in the fourth quarter of 1998.
3. LONG-TERM DEBT
The Company has $110.0 million 11 1/2% unsecured Senior Notes due October 1,
2006 (the "Notes"). The Notes pay interest semiannually on April 1 and October 1
of each year. The Notes are redeemable at the option of the Company at
redemption prices (expressed as a percentage of principal amount) ranging from
105.75% in 2001 to 100.00% in 2005 and thereafter. Among other things, the Notes
contain certain covenants which limit additional indebtedness, payment of
dividends, sale of assets or stock, changes in control and transactions with
related parties.
Sygnet has a financing agreement (the "Bank Credit Facility") with a
commercial bank group. The Bank Credit Facility is a senior secured reducing
revolver that provides Sygnet the ability to borrow up to $300.0 million through
June 30, 1999. Mandatory reductions in the revolver occur quarterly thereafter
through June 30, 2005, when the Bank Credit Facility terminates. The Bank Credit
Facility is secured by certain assets and the stock of Sygnet. The Bank Credit
Facility provides for various borrowing rate options based on either a fixed
spread over the London Interbank Offered Rate (LIBOR) or the prime rate. As of
September 30, 1998, the amount outstanding under the Bank Credit Facility is
$192.6 million.
4. REDEEMABLE PREFERRED STOCK AND WARRANTS
On April 3, 1997, 100,000 shares of Series A Senior Cumulative Nonvoting
Preferred Stock ("Preferred Stock"), were redeemed by the Company at a cost of
$10.0 million which was funded by the Bank Credit Facility. On June 20, 1997,
the remaining 118,394.51 shares of Preferred Stock were redeemed by
21
<PAGE>
SYGNET WIRELESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. REDEEMABLE PREFERRED STOCK AND WARRANTS (CONTINUED)
the Company at a cost of $11,839,451. This redemption was funded by the Common
Stock Sale described in Note 5.
The Preferred Stock had a redemption value of $100 per share and was
recorded at fair value on the date of issuance less issuance costs. Dividends
were cumulative from the date of issuance, accrued quarterly in arrears and were
payable in shares of Preferred Stock. The dividend rates increased annually from
15% in 1997 to 21% in 2000 and thereafter. The Preferred Stock included the
potential issuance of warrants to purchase shares of the Company's Class A
Common Stock. For financial reporting purposes, the estimated fair value of the
warrants was included with the Preferred Stock in the accompanying balance sheet
and the excess of the redemption value of the Preferred Stock over the carrying
value was accreted by periodic charges to additional paid-in capital over the
life of the issue. No warrants were issued.
The Company has authorized 5 million shares of Nonvoting Preferred Stock,
par value $.01 per share, of which 500,000 are designated as Series A Senior
Cumulative Nonvoting Preferred Stock.
5. SHAREHOLDERS EQUITY
On June 20, 1997, the Company issued and sold 3,000,000 shares of Class A
Common Stock, $.01 par value, to Boston Ventures Limited Partnership V ("Boston
Ventures") at a price of $15 per share ("Common Stock Sale"). The proceeds of
$43.9 million, net of issuance fees, were used to redeem the remaining
outstanding Preferred Stock as described in Note 4, and to reduce amounts
outstanding under the Bank Credit Facility. As a condition of the Common Stock
Sale, Boston Ventures has two representatives on the Company's eleven member
board of directors.
In August 1997, Boston Ventures purchased 1,000,000 shares of Class B Common
Stock from shareholders pursuant to a tender offer which, upon purchase, became
Class A Common Stock.
6. COMMITMENTS AND CONTINGENCIES
In accordance with the Merger (see Note 2), the Company may be liable to pay
severance benefits and incentive compensation for an approximate amount of $1.9
million to certain employees if the Merger occurs and certain other conditions
are met before December 31, 1998.
On June 8, 1998, the Company entered into an agreement with Pinellas
Communications to purchase the license to operate a cellular telephone system in
the Rural Service Area PA-2. The purchase price is $6.0 million and the
transaction is expected to close in the fourth quarter of 1998.
22
<PAGE>
(b) Pro Forma Financial Information
(1) The unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 1997 which gives
effect to the acquisition of Sygnet Wireless Inc. by a
subsidiary of the Registrant is set forth below.
(2) The unaudited pro forma condensed consolidated balance sheet
and statement of operations as of and for the nine months
ended September 30, 1998 which give effect to the
acquisition of Sygnet Wireless Inc. by a subsidiary of the
Registrant are set forth below.
23
<PAGE>
DOBSON COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DOBSON
COMMUNICATIONS WEST CALIFORNIA
CORPORATION MARYLAND(1) MARYLAND 2(1) ARIZONA 5(1) 4
--------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND
PER SUBSCRIBER DATA)
OPERATING REVENUE:
Service revenue................................ $ 38,410 $ 1,464 $ 1,489 $ 1,907 $ 8,540
Roaming revenue................................ 26,262 908 1,147 5,261 10,654
Equipment sales................................ 1,455 54 -- 383 351
Other.......................................... 587 -- -- 86 176
--------------- ------ ------ ------ -----------
Total operating revenue........................ 66,714 2,426 2,636 7,637 19,721
--------------- ------ ------ ------ -----------
OPERATING EXPENSES:
Cost of services............................... 16,431 492 878 1,304 5,914
Cost of equipment.............................. 4,045 -- -- -- 1,155
Marketing and selling.......................... 10,669 357 461 627 1,105
General and administrative..................... 11,555 740 333 965 2,698
Depreciation and amortization.................. 16,798 405 -- 904 2,011
--------------- ------ ------ ------ -----------
Total operating expenses....................... 59,498 1,994 1,672 3,800 12,883
--------------- ------ ------ ------ -----------
Operating income (loss)........................ 7,216 432 964 3,837 6,838
Interest expense............................... (27,640) -- -- -- (831)
Other income (expense), net.................... 2,777 126 -- 150 (19)
--------------- ------ ------ ------ -----------
(Loss) income before minority interests
and income taxes............................. (17,647) 558 964 3,987 5,988
Minority interests in income of
subsidiaries................................. (1,693) -- -- -- --
--------------- ------ ------ ------ -----------
(Loss) income before income taxes.............. (19,340) 558 964 3,987 5,988
Income tax (provision) benefit................. 3,625 -- -- -- --
--------------- ------ ------ ------ -----------
(Loss) income from continuing operations....... (15,715) 558 964 3,987 5,988
--------------- ------ ------ ------ -----------
Dividends on preferred stock................... (2,603)
---------------
Net loss from continuing operations
applicable to common stockholders............ (18,318)
---------------
Weighted average shares outstanding............ 473,152
---------------
Net loss from continuing operations
applicable to common stockholders
per share.................................... $ (38.71)
---------------
<CAPTION>
PRO FORMA
SYGNET ADJUSTMENTS TOTALS
--------- -------------- ---------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND
PER SUBSCRIBER DATA)
OPERATING REVENUE:
Service revenue...............................................$ 52,639 2,515 (2) $ 106,964
Roaming revenue............................................... 26,993 (3,615)(2) 67,610
Equipment sales............................................... 4,323 6,566
Other......................................................... 1,679 2,528
--------- -------------- ---------
Total operating revenue....................................... 85,634 (1,100) 183,668
--------- -------------- ---------
OPERATING EXPENSES:
Cost of services.............................................. 10,048 (501)(2) 34,566
Cost of equipment............................................. 9,663 -- 14,863
Marketing and selling......................................... 10,841 1,205 (2) 25,265
General and administrative.................................... 16,976 (1,805)(2) 31,462
Depreciation and amortization................................. 28,719 58,880 (3) 107,717
--------- -------------- ---------
Total operating expenses...................................... 76,247 57,779 213,873
--------- -------------- ---------
Operating income (loss)....................................... 9,387 (58,879) (30,205)
Interest expense.............................................. (29,902) (31,083)(4)(5) (89,456)
Other income (expense), net................................... (101) -- 2,933
--------- -------------- ---------
(Loss) income before minority interests
and income taxes............................................ (20,616) (89,962) (116,728)
Minority interests in income of subsidiaries.................. -- 162 (6) (1,531)
--------- -------------- ---------
(Loss) income before income taxes............................. (20,616) (89,800) (118,259)
Income tax (provision) benefit................................ -- 41,315 (7) 44,940
--------- -------------- ---------
(Loss) income from continuing operations...................... (20,616) (48,485) (73,319)
--------- -------------- ---------
Dividends on preferred stock.................................. (52,321)(8)(9) (54,924)
-------------- ---------
Net loss from continuing operations
applicable to common stockholders........................... (128,243)
---------
Weighted average shares outstanding........................... 492,174
---------
Net loss from continuing operations applicable
to common stockholders per share............................ $ (260.56)
---------
</TABLE>
See accompanying notes to the unaudited pro forma consolidated condensed
financial statements.
24
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Accounting
On December 23, 1998, Dobson Communications Corporation ("DCC")
acquired Sygnet Wireless, Inc. and its wholly-owned subsidiary, Sygnet
Communications, Inc. (together, "Sygnet") through a merger of an
indirect wholly-owned subsidiary of DCC with and into Sygnet Wireless,
Inc. (the "Sygnet Acquisition"). The purchase price paid for Sygnet was
$337.5 million.
The pro forma unaudited consolidated statement of operations gives
effect to the Sygnet Acquisition and related financings as if they had
taken place on January 1, 1997. The Sygnet Acquisition has been
accounted for using the purchase method of accounting.
The pro forma condensed consolidated 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 Sygnet.
The unaudited pro forma condensed consolidated 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 Sygnet 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 Statement of
Operations
(1) To reflect the results of operations for the West Maryland and Maryland 2
properties for the two month period and Arizona 5 RSA for the nine month
period in 1997 during which the properties were not owned by the Company.
(2) To reclassify certain operating revenues and expenses to conform with the
Company's historical presentation.
(3) To reflect the additional depreciation and amortization resulting from the
allocation of purchase price to property and equipment, cellular license
acquisition costs and intangible assets. Property and equipment is being
depreciated over two to ten years, cellular license acquisition costs over
15 years and intangible assets over five to ten years. The 15 year period
used for cellular license 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 15 years. Other factors considered
include the competitive nature of the cellular industry, the rate of
technological change and risk of obsolescence, and the specific terms and
characteristics of the licenses.
(4) To reflect (i) $5.8 million of interest expense relating to the Company's
outstanding 11 3/4% Senior Notes due 2007 ("Senior Notes") and indebtedness
incurred under the then existing bank facility in connection with the
Company's 1997 acquisitions, (ii) $.1 million of amortization of
deferred financing costs relating to the Senior Notes, (iii) $.1 million of
amortization of deferred financing costs relating to the then existing bank
facility, (iv) the elimination of $15.8 million of interest expense
(including $.4 million of amortization of deferred financing cost)
associated with the then existing bank facility which was repaid with a
portion of the proceeds from the sale of the Company's outstanding 12 1/4%
Senior Exchangeable Preferred Stock Redeemable 2008 ("Senior Preferred
Stock") and borrowings under the senior secured revolving credit facility of
Dobson Cellular Operating Company, a wholy-owned subsidiary of the Company
("DCOC Facility"), (v) the elimination of $.8 million of interest expense
associated with the indebtedness of California 4 which was not assumed by
the Company, (vi) $2.6 million of interest expense relating to the $28.4
million of incurred under the DCOC Facility in connection with the
California 4 Acquisition (assuming an interest rate of 9.0% per annum),
(vii) $5.8 million of interest expense relating to indebtedness incurred
under the DOC Facility (assuming an interest rate of 9.0% per annum) and
(viii) $.4 million of amortization of deferred financing costs relating to
the existing credit facilities.
(5) To reflect (i) the elimination of $29.9 million of interest expense
associated with Sygnet's 11 1/2% Senior Notes ("Sygnet Notes") and
indebtedness under Sygnet's existing bank facility which will be repaid
by the Company as part of the Sygnet Acquisition, (ii) $24.5 million of
interest expense relating to the $200.0 million aggregate principal
amount of the 12 1/4% Senior Notes due 2008 issued by Dobson/Sygnet
Communications Company, a wholly-owned of the Company ("Dobson/Sygnet
Notes"), (iii) $33.4 million of interest expense relating to borrowings
under new credit facilities (assuming a weighted average interest rate
of 8.38%), (iv) $.2 million of interest expense relating to the unused
principal amount of new credit facilities (assuming a commitment fee
of .5%), (v) $.8 million of amortization of deferred financing costs
relating to the estimated $8.2 million of debt issuance costs incurred
in connection with the offering of the Dobson/Sygnet Notes, (vi) $1.5
million of amortization of deferred financing costs relating to the
estimated $12.6 million of debt issuance costs incurred in connection
with new credit facilities, (vii) $1.4 million of interest related to
the $17.5 million of borrowings under credit facility of Dobson Tower
Company, a wholly-owned subsidiary of the Company ("Dobson Tower
Facility"), and (viii) $.8 million of interest expense related to the
$16.2 million of borrowings under existing credit facilities.
(6) To reflect the pro forma loss of the 25% equity interest in the Arizona 5
Partnership not owned by the Company.
(7) To reflect an adjustment to income tax expense assuming a 38% effective
tax rate.
(8) To reflect dividends on the Senior Preferred Stock, including the
amortization of the issuance costs with respect thereto.
(9) To reflect dividends on preferred stock, including the amortization of
the issuance costs and discount with respect thereto and to reflect the
dividends on the Class D, Class F and Class G Preferred Stock, assuming
dividend rates of 15%, 16% and 16%, respectively, and does not reflect
dividends on the preferred stock to be issued by Dobson Tower Company or
any amortization of discount on the Class F Preferred Stock resulting from
any value that may be attributed to the warrants granted to the purchasers
of the Class F Preferred Stock.
25
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PRO FORMA
DOBSON SYGNET ADJUSTMENTS TOTALS
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
ASSETS
Current assets, net of restricted investments........... $ 42,313 $ 16,443 $ -- $ 58,756
Restricted investments.................................. 18,508 -- 67,561 (1) 86,069
Property, plant and equipment........................... 76,360 52,138 (836)(2) 127,662
Receivables--affiliate.................................. 9,168 -- -- 9,168
Cellular license acquisition cost....................... 459,732 241,062 543,265 (2) 1,244,059
Deposits................................................ 67,300 -- (25,000)(2) 42,300
Intangible assets....................................... 17,686 23,653 35,647)(3) 76,986
Other assets............................................ 9,974 -- -- 9,974
---------- ---------- ----------- ----------
Total assets........................................ $ 701,041 $ 333,296 $ 620,637 $1,654,974
---------- ---------- ----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities..................................... $ 49,925 $ 18,313 $ (2,510)(7) $ 65,728
Net liabilities from discontinued operations............ 629 -- -- 629
Long-term debt.......................................... 448,056 302,644 304,211 (4) 1,054,911
Deferred credits........................................ 66,642 -- 189,264 (2) 255,906
Minority interests...................................... 22,949 -- 7,500 (5) 30,449
Preferred stock......................................... 197,136 -- 178,377 (6) 375,513
Stockholders' equity/net assets......................... (84,296) 12,339 (56,205)(7) (128,162)
---------- ---------- ----------- ----------
Total liabilities and stockholders' equity.......... $ 701,041 $ 333,296 $ 620,637 $1,654,974
---------- ---------- ----------- ----------
</TABLE>
DOBSON COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
---------------------------------------------------------------------------
DOBSON
COMMUNICATIONS PRO FORMA
CORPORATION CALIFORNIA 4(7) SYGNET ADJUSTMENTS TOTALS
--------------- --------------- --------- ----------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER SUBSCRIBER DATA)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE:
Service revenue.................................. $ 47,769 $ 2,399 $ 46,738 $ 2,138 (9) $ 99,044
Roaming revenue.................................. 45,916 2,336 24,753 (4,036)(9) 68,969
Equipment sales.................................. 2,503 274 4,253 -- 7,030
Other............................................ 158 74 1,190 -- 1,422
--------------- ------ --------- ----------- ---------
Total operating revenue.......................... 96,346 5,083 76,934 (1,898) 176,465
--------------- ------ --------- ----------- ---------
OPERATING EXPENSES:
Cost of services................................. 22,603 1,451 9,005 (1,246)(9) 31,813
Cost of equipment................................ 5,167 433 7,790 -- 13,390
Marketing and selling............................ 14,856 235 9,057 1,946 (9) 26,094
General and administrative....................... 16,219 978 14,665 (2,598)(9) 29,264
Depreciation and amortization.................... 29,714 593 21,343 37,967 (10) 89,617
--------------- ------ --------- ----------- ---------
Total operating expenses......................... 88,559 3,690 61,860 36,070 190,179
--------------- ------ --------- ----------- ---------
Operating income (loss)............................ 7,787 1,393 15,074 (37,968) (13,714)
Interest expense................................. (25,039) (240) (21,613) (25,657)(11)(12) (72,549)
Other income (expense), net...................... 3,304 98 (340) -- 3,061
--------------- ------ --------- ----------- ---------
(Loss) income before minority interests
and income taxes................................. (13,948) 1,251 (6,879) (63,625) (83,202)
Minority interests in income of subsidiaries....... (1,963) -- -- -- (1,963)
--------------- ------ --------- ----------- ---------
(Loss) income before income taxes.................. (15,911) 1,251 (6,879) (63,625) (85,165)
Income tax benefit................................. 4,864 -- -- 27,498 (13) 32,362
--------------- ------ --------- ----------- ---------
(Loss) income from continuing operations........... (11,047) 1,251 (6,879) (36,127) (52,803)
--------------- ------ --------- ----------- ---------
Dividends on preferred stock....................... (16,749) (27,356)(14)(15) (44,105)
--------------- ----------- ---------
Net loss from continuing operations
applicable to common stockholders................ (27,796) (96,908)
--------------- ---------
Weighted average shares outstanding................ 473,152 492,174
--------------- ---------
Net loss from continuing operations applicable
to common stockholders per share................. (58.75) (196.90)
--------------- ---------
</TABLE>
See accompanying notes to the unaudited pro forma consolidated condensed
financial statements.
26
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Accounting
On December 23, 1998, Dobson Communications Corporation ("DCC")
acquired Sygnet Wireless, Inc. and its wholly-owned subsidiary, Sygnet
Communications, Inc. (together, "Sygnet") through a merger of an
indirect wholly-owned subsidiary of DCC with and into Sygnet Wireless,
Inc. (the "Sygnet Acquisition"). The purchase price paid for Sygnet was
$337.5 million.
The pro forma unaudited consolidated statement of operations gives
effect to the Sygnet 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 Sygnet
Acquisition occurred on September 30, 1998. The Sygnet Acquisition has
been accounted for using the purchase method of accounting.
The pro forma condensed consolidated 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 Sygnet.
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 Sygnet 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
(1) To reflect the approximately $67.6 million in restricted cash to be held
in a pledged account to secure and fund the first six scheduled interest
payments on the Dobson/Sygnet Notes.
(2) To allocate the purchase price of the Sygnet Acquisition, including the
related deferred tax liability to the assets acquired.
(3) To reflect an estimated $22.8 million of offering costs incurred with the
Dobson/Sygnet Notes, preferred stock and new credit facilities.
(4) To reflect (i) the elimination of $302.6 million of indebtedness
associated with Sygnet that will be repaid by the Company as part of the
Sygnet Acquisition (included in this amount is $110.0 million of Sygnet
Notes which the Company estimates will be repurchased for $135.8 million
using borrowings under new credit facilities), (ii) the incurrence
of $398.2 million of indebtedness under new credit facilities, (iii)
the issuance of $200.0 million aggregate principal amount of the Dobson/
Sygnet Notes, (iv) the repayment of the $25.0 million borrowed to pay
the deposit for the Sygnet Acquisition, (v) the incurrence of $17.5
million of indebtedness under the Dobson Tower Facility and (vi) the
incurrence of $16.2 million of indebtedness under existing credit
facilities.
(5) To reflect the $7.5 million preferred stock issued by Dobson Tower Company
to an affiliate of the Company.
(6) To reflect the issuance of preferred stock, an additional $115.0 million
of other preferred stock to be issued as part of the Sygnet Financing and
$25.0 million of Class G Preferred Stock and does not reflect any
amortization of discount on the Class F Preferred Stock resulting from
any value that may be attributed to the warrants granted to the purchasers
of the Class F Preferred Stock.
(7) To reflect the elimination of stockholders' equity of Sygnet, the
conversion of Class B Preferred Stock to Class A Common Stock and the
stock repurchases.
(8) To reflect the results of operations for California 4 for the three month
period in 1998 during which the property was not owned by the Company.
(9) To reclassify certain operating revenues and expenses to conform with the
Company's historical presentation.
(10) To reflect the additional depreciation and amortization resulting from
the allocation of purchase price to property and equipment, cellular
license acquisition costs and intangible assets. Property and equipment
is being depreciated over two to ten years, cellular license acquisition
costs over 15 years and intangible assets over five to ten years. The 15
year period used for cellular license 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 15 years.
Other factors considered include the competitive nature of the cellular
industry, the rate of technological change and risk of obsolescence, and
the specific terms and characteristics of the licenses.
(11) To reflect (i) the $.7 million of interest expense relating to the $28.4
million of indebtedness incurred under the DCOC Facility in connection
with the California 4 Acquisition (assuming an interest rate of 9.0% per
annum) and (ii) the elimination of $.3 million of interest expense
associated with the indebtedness of California 4 which was not assumed
by the Company.
(12) To reflect (i) the elimination of $21.6 million of interest expense
associated with the Sygnet Notes and Sygnet's existing bank facility
which will be repaid by the Company as part of the Sygnet Acquisition,
(ii) $18.4 million of interest expense relating to the $200.0 million of
the Dobson/Sygnet Notes, (iii) $25.0 million of interest expense
relating to the borrowings under new credit facilities (assuming a
weighted average rate of 8.38%), (iv) $.1 million of interest expense
relating to the unused principal amounts of new credit facilities
(assuming a commitment fee of .5%), (v) $.6 million of amortization of
deferred financing costs relating to the estimated $8.2 million of debt
issuance costs incurred in connection with the offering of the
Dobson/Sygnet Notes, (vi) $1.1 million of amortization of deferred
financing costs relating to the estimated $12.6 million of debt issuance
costs incurred in connection with new credit facilities, (vii) $1.1
million of interest relating to the $17.5 million of borrowings under
the Dobson Tower Facility, (viii) the elimination of $.3 million of
interest related to the $25.0 million borrowed under an existing credit
facility to pay the initial deposit for the Sygnet Acquisition and
(ix) $1.1 million of interest expense related to the $16.2 million of
borrowings under existing credit facilities.
(13) To reflect an adjustment to income tax expense, assuming a 38% effective
tax rate.
(14) To reflect dividends on the Senior Preferred Stock, including, the
amortization of the issuance costs with respect thereto.
(15) To reflect dividends on preferred stock, including the amortization of
the issuance costs and discount with respect thereto and to reflect the
dividends on the Class D, Class F and Class G Preferred Stock, assuming
dividend rates of 15%, 16% and 16%, respectively, and does not reflect
dividends on the preferred stock to be issued by Dobson Tower Company or
any amortization of discount on the Class F Preferred Stock resulting
from any value that may be attributed to the warrants granted to the
purchasers of the Class F Preferred Stock.
(c) Exhibits
27
<PAGE>
The following exhibits are filed as a part of this report:
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- ----------- ----------------
<S> <C> <C>
23.1 Consent of Ernst & Young LLP with respect to Filed herewith
Sygnet Wireless, Inc. electronically
99 Press release dated December 29, 1998 announcing Filed herewith
the Registrant's acquisition of Sygnet. electronically
</TABLE>
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: January 15, 1999 Dobson Communications Corporation
(Registrant)
By: /s/ Everett R. Dobson
Everett R. Dobson
Chairman of the Board and Chief Executive
Officer
By: /s/ Bruce R. Knooihuizen
Bruce R. Knooihuizen
Vice President and Chief Financial Officer
28
<PAGE>
EXHIBIT 23.1
[Ernst & Young LLP Letterhead]
Consent of Independent Auditors
We consent to the use of our report dated February 6, 1998, with respect
to the consolidated financial statements of Sygnet Wireless, Inc. included in
the Current Report on Form 8-K/A dated January 15, 1999 of Dobson
Communications Corporation for the acquisition of the common stock of Sygnet
Wireless, Inc. by Dobson Communications Corporation.
/s/ Ernst & Young LLP
Ernst & Young LLP
Cleveland, Ohio
January 13, 1999
<PAGE>
FOR IMMEDIATE RELEASE
Contact: Cynthia Dutton
Director of Corporate Communications
405.391.8317
DOBSON COMPLETES SYGNET WIRELESS ACQUISITION
OKLAHOMA CITY -- Dec. 29, 1998 -- Dobson Communications Corporation announced
today it has completed its acquisition of Sygnet Wireless, Inc.
The Sygnet markets located in Ohio, Pennsylvania and New York cover a total
population base of 2.4 million people and 166,886 customers as of September
30, 1998. Markets acquired from Sygnet include cellular systems operated
under the Cellular One and Wilcom Cellular trade names.
The acquisition brought Dobson's wireless population base from 3.4 million to
5.8 million and increased the subscriber base to 329,906 subscribers as of
September 30, 1998.
"Dobson will continue Sygnet's commitment to growing the wireless customer
base in these new markets," said Everett Dobson, Chairman and CEO. "By
combining two companies of near equal size, the much larger company should be
more competitive and realize even greater operating efficiencies."
Dobson adds these properties to previously held wireless systems in Oklahoma,
Texas, Kansas, Missouri, California, Arizona, Pennsylvania and Maryland.
Former Sygnet President and CEO Bert Pharis will join Dobson Communications
Corporation's Board of Directors, "We are pleased to be joining a
progressive wireless company that is committed to growth.", said Pharis.
Our employees and the communities we serve will benefit from the strength of
the combined organizations".
Sygnet currently employs 430 people.
(more)
<PAGE>
DOBSON COMPLETES SYGNET WIRELESS ACQUISITION
ADD 1
Under terms of the acquisition agreement, which was entered into on July 28
of this year, the total purchase price was $640 million, including the
assumption of $302 million in debt. Sygnet shareholders received $338
million.
The transaction was financed through a combination of private equity supplied
by J.W. Childs Associates, L.P. and others, the issuance of $200 million in
Senior Notes and $50 million in PIK Preferred Stock in 144A private
placements led by NationsBanc Montgomery Securities LLC, and a bank credit
facility of $430 million provided by NationsBank N.A.
Morgan Stanley Dean Witter advised Dobson on the transaction. Lehman
Brothers, Inc. represented Sygnet Wireless in the transaction.
Dobson Communications is a closely held telecommunications provider based in
Oklahoma City.
Dobson markets wireless services in 10 states, under the licensed trade names
of Cellular One, AirTouch Cellular and Dobson Cellular Systems.
In addition, Dobson provides wireline telecommunications service under the
names Logix Communications, American Telco, Dobson Telephone, McLoud
Telephone and Dobson Fiber.
-30-
