<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q/A
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 333-23769, 333-50107, AND 333-71633
------------------------
DOBSON COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
OKLAHOMA 73-1513309
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13439 NORTH BROADWAY EXTENSION 73114
SUITE 200 (Zip Code)
OKLAHOMA CITY, OKLAHOMA
(Address of principal executive offices)
</TABLE>
(405) 529-8500
(Registrant's telephone number, including area code)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
At August 6, 1999, there were 491,954 shares of the registrant's $.001 par
value Class A Common Stock outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
Item 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of June 30, 1999
and December 31, 1998..................................... 2
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 1999 and 1998......... 4
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended
June 30, 1999 and 1998.................................... 5
Notes to Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15
Item 3. Quantitative and Qualitative Disclosure about Market Risk... 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 25
Item 2. Changes in Securities and Use of Proceeds................... 25
Item 3. Defaults Upon Senior Securities............................. 25
Item 4. Submission of Matters to a Vote of Security Holders......... 25
Item 5. Other Information........................................... 25
Item 6. Exhibits and Reports on Form 8-K............................ 25
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,850,293 $ 22,323,734
Restricted cash and investments........................... 21,966,851 30,074,946
Accounts receivable, net.................................. 54,357,714 43,299,568
Other current assets...................................... 7,085,921 8,589,050
-------------- --------------
Total current assets.................................... 86,260,779 104,287,298
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT, net.......................... 182,157,037 173,054,329
-------------- --------------
OTHER ASSETS:
Receivables--affiliates................................... 9,306,574 7,275,262
Restricted investments.................................... 34,635,000 45,505,020
Cellular license acquisition costs, net................... 1,231,015,108 1,250,790,448
Deferred costs, net....................................... 70,187,211 66,640,301
Other intangibles, net.................................... 50,579,295 52,795,841
Other..................................................... 3,872,175 3,078,134
-------------- --------------
Total other assets...................................... 1,399,595,363 1,426,085,006
-------------- --------------
Total assets.......................................... $1,668,013,179 $1,703,426,633
============== ==============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------------- --------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable.......................................... $ 42,215,660 $ 47,536,672
Accrued expenses.......................................... 14,941,286 14,222,306
Notes payable............................................. 17,500,000 17,500,000
Deferred revenue and customer deposits.................... 6,620,600 5,738,381
Current portion of long-term debt......................... 10,504,005 198,871
Accrued dividends payable................................. 17,504,108 5,603,856
-------------- --------------
Total current liabilities............................... 109,285,659 90,800,086
NET LIABILITIES OF DISCONTINUED OPERATIONS.................. 32,812,163 7,033,166
ACCOUNTS PAYABLE--AFFILIATE................................. -- 5,011,438
LONG-TERM DEBT, net of current portion...................... 1,013,552,199 1,103,857,333
DEFERRED CREDITS............................................ 225,380,771 245,630,000
MINORITY INTERESTS.......................................... 27,212,346 26,557,203
SENIOR EXCHANGEABLE PREFERRED STOCK, net.................... 426,642,522 241,320,000
Class D Convertible Preferred Stock......................... 85,000,000 85,000,000
Class F Preferred Stock..................................... -- 30,000,000
Class G Preferred Stock..................................... -- 25,000,000
STOCKHOLDERS' DEFICIT:
Class A Preferred Stock................................... 314,286 314,286
Class A Common Stock, $.001 par value 1,438,000 shares
authorized and 573,152 shares issued.................... 573 573
Paid-in capital........................................... 18,298,072 18,298,072
Retained deficit.......................................... (214,359,751) (119,269,863)
-------------- --------------
(195,746,820) (100,656,932)
Less--
Class A Common Stock held in treasury (81,198 shares), at
cost.................................................... (56,125,661) (56,125,661)
-------------- --------------
Total stockholders' deficit............................. (251,872,481) (156,782,593)
-------------- --------------
Total liabilities and stockholders' deficit........... $1,668,013,179 $1,703,426,633
============== ==============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Service revenue......................................... $ 39,955,418 $ 16,150,854 $ 77,016,366 $ 28,633,336
Roaming revenue......................................... 35,207,947 16,332,217 63,305,157 25,855,607
Equipment sales and other............................... 2,737,904 641,584 6,018,097 1,319,022
------------ ------------ ------------- ------------
Total operating revenues.............................. 77,901,269 33,124,635 146,339,620 55,807,965
------------ ------------ ------------- ------------
OPERATING EXPENSES:
Cost of service......................................... 10,528,699 7,551,288 22,077,370 12,731,202
Cost of equipment....................................... 6,041,854 1,457,854 11,858,855 2,628,701
Marketing and selling................................... 11,499,572 5,227,616 21,709,854 9,279,408
General and administrative.............................. 13,253,896 5,377,232 26,067,555 9,549,740
Depreciation and amortization........................... 34,173,230 9,825,784 69,900,018 16,543,413
------------ ------------ ------------- ------------
Total operating expenses.............................. 75,497,251 29,439,774 151,613,652 50,732,464
------------ ------------ ------------- ------------
OPERATING INCOME (LOSS)................................... 2,404,018 3,684,861 (5,274,032) 5,075,501
INTEREST EXPENSE.......................................... (27,168,431) (8,583,660) (55,528,311) (17,351,138)
OTHER INCOME, net......................................... 295,132 836,614 1,903,695 2,793,027
------------ ------------ ------------- ------------
LOSS BEFORE MINORITY INTERESTS IN INCOME OF SUBSIDIARIES,
INCOME TAXES AND EXTRAORDINARY ITEMS.................... (24,469,281) (4,062,185) (58,898,648) (9,482,610)
MINORITY INTERESTS IN INCOME OF SUBSIDIARIES.............. (924,473) (749,190) (1,480,189) (1,381,234)
------------ ------------ ------------- ------------
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS.......... (25,393,754) (4,811,375) (60,378,837) (10,863,844)
INCOME TAX BENEFIT........................................ 9,645,936 1,768,642 22,939,901 2,133,297
------------ ------------ ------------- ------------
LOSS FROM CONTINUING OPERATIONS........................... (15,747,818) (3,042,733) (37,438,936) (8,730,547)
LOSS FROM DISCONTINUED OPERATIONS, net of income tax
benefit of $8,412,000 and $323,000 for the three months
ended June 30, 1999 and 1998, respectively, and
$15,800,000 and $881,000 for the six months ended June
30, 1999 and 1998, respectively......................... (13,725,324) (1,670,166) (25,778,997) (3,910,349)
------------ ------------ ------------- ------------
LOSS BEFORE EXTRAORDINARY ITEMS........................... (29,473,142) (4,712,899) (63,217,933) (12,640,896)
EXTRAORDINARY EXPENSE, net of income tax benefit of
$475,000 and $671,000 for three months and six months
ended June 30, 1998, respectively....................... -- 475,000 -- (2,643,439)
------------ ------------ ------------- ------------
NET LOSS.................................................. (29,473,142) (4,237,899) (63,217,933) (15,284,335)
DIVIDENDS ON PREFERRED STOCK.............................. (17,756,107) (6,082,507) (31,871,955) (10,519,084)
------------ ------------ ------------- ------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS................ $(47,229,249) $(10,320,406) $ (95,089,888) $(25,803,419)
============ ============ ============= ============
BASIC NET LOSS APPLICABLE TO COMMON STOCKHOLDERS PER
COMMON SHARE
Before discontinued operations and extraordinary
expense............................................... $ (68.10) $ (19.28) $ (140.89) $ (40.68)
Discontinued operations................................. (27.90) (3.53) (52.40) (8.27)
Extraordinary expense................................... -- 1.00 -- (5.59)
------------ ------------ ------------- ------------
BASIC NET LOSS APPLICABLE TO COMMON STOCKHOLDERS PER
COMMON SHARE............................................ $ (96.00) $ (21.81) $ (193.29) $ (54.54)
============ ============ ============= ============
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.......... 491,954 473,152 491,954 473,152
============ ============ ============= ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations....................... $ (37,438,936) $ (11,373,986)
Adjustments to reconcile net loss to net cash provided by
operating activities--
Depreciation and amortization........................... 69,900,018 16,543,413
Amortization of bond premium and financing cost......... 2,648,822 1,035,568
Deferred income taxes and investment tax credits, net... (20,249,229) (1,598,280)
Extraordinary loss on financing cost.................... -- 3,314,439
Minority interests in income of subsidiaries............ 655,143 1,446,815
Other................................................... 346,101 26,795
Changes in current assets and liabilities--
Accounts receivable..................................... (11,058,146) (7,484,376)
Other current assets.................................... 1,503,129 591,264
Accounts payable........................................ (5,321,012) 1,772,484
Accrued expenses........................................ 718,980 (7,147,884)
Deferred revenue and customer deposits.................. 882,219 593,786
------------- -------------
Net cash provided by (used in) operating activities... 2,587,089 (2,279,962)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (31,180,901) (13,927,228)
Acquisitions.............................................. (27,278,079) (177,438,919)
Decrease in payable--affiliate............................ (5,011,438) --
Increase in receivables--affiliate........................ (2,031,312) (7,039,172)
Acquisition escrow deposit................................ -- 5,973,245
Investments in unconsolidated subsidiaries and other...... (2,241,147) (1,163,384)
Proceeds on sale of assets................................ 1,103,509 6,700
------------- -------------
Net cash used in investing activities................. (66,639,368) (193,588,758)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.............................. 31,000,000 198,000,000
Repayments of long-term debt.............................. (111,000,000) (171,513,855)
Cash dividends............................................ (3,470,801) --
Issuance of preferred stock............................... 170,000,000 179,942,000
Redemption of preferred stock............................. (55,000,000)
Maturities of restricted investments, net of interest..... 20,425,221 8,585,977
Deferred financing costs.................................. (7,375,582) (12,564,470)
------------- -------------
Net cash provided by financing activities............. 44,578,838 202,449,652
------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS...... (19,473,441) 6,580,932
CASH AND CASH EQUIVALENTS, beginning of period............ 22,323,734 2,752,399
------------- -------------
CASH AND CASH EQUIVALENTS, end of period.................. 2,850,293 $ 9,333,331
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
The condensed consolidated balance sheets of Dobson Communications
Corporation ("DCC") and subsidiaries (collectively with DCC, the "Company") as
of June 30, 1999 and December 31, 1998, the condensed consolidated statements of
operations for the three and six months ended June 30, 1999 and 1998 and the
condensed consolidated statements of cash flows for the six months ended
June 30, 1999 and 1998 are unaudited. In the opinion of management, such
financial statements include all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of financial position,
results of operations, and cash flows for the periods presented.
The condensed balance sheet data at December 31, 1998 was derived from
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles. The financial statements presented
herein should be read in connection with the Company's December 31, 1998
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998.
1. ORGANIZATION
The Company, through its predecessors, was organized in 1936 as Dobson
Telephone Company and adopted its current organizational structure in 1998. The
Company is a provider of rural and suburban cellular telephone services.
1998 REORGANIZATIONS
In conjunction with the January 1998 issuance of 175,000 shares of 12.25%
Senior Exchangeable Preferred Stock mandatorily redeemable in 2008 (see
Note 5), the Company formed three new subsidiaries: Dobson Cellular Operating
Company ("DCOC"), DOC Cellular Subsidiary Company ("DOC Cellular Subsidiary")
and Logix Communications Enterprises, Inc. ("Logix"), formerly named Dobson
Wireline Company. DCOC was created as the holding company for subsidiaries
formed to effect certain cellular acquisitions. DCOC has been designated an
unrestricted subsidiary under the Senior Note Indenture which covers the DCC
Senior Notes discussed in Note 4. DOC Cellular Subsidiary was created as the
holding company for the then existing cellular subsidiaries. Logix was created
as the holding company for the Company's incumbent local exchange carrier
("ILEC"), fiber and integrated communications provider ("ICP") operations. Logix
was designated an unrestricted subsidiary under the Senior Note Indenture and
the Certificate of Designation establishing the Senior Exchangeable Preferred
Stock.
On September 30, 1998, the Company adopted a plan to spin off Logix as
discussed in Note 3.
In conjunction with the December 1998 acquisition of Sygnet Wireless, Inc.
("Sygnet Acquisition"), the Company formed a new subsidiary, Dobson/Sygnet
Communications Company ("Dobson/Sygnet"). Dobson/Sygnet was created as the
holding company for the subsidiaries acquired in the Sygnet Acquisition.
2. ACQUISITIONS
RECENT ACQUISITIONS
On June 24, 1999, the Company's wholly-owned subsidiary, Dobson Cellular of
Maryland, purchased the Maryland 1 RSA for $9.1 million. Maryland 1 is located
in the westernmost county of the state and a small section of West Virginia and
covers an estimated population base of approximately 56,400 as of June 30, 1999.
6
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
2. ACQUISITIONS (CONTINUED)
On March 16, 1999, the Company purchased certain assets and customers
relating to the Ohio 2 RSA for $3.9 million. This completes the acquisition of
the Ohio 2 market, which began on September 2, 1998, when the Company acquired
the FCC license of Ohio 2 RSA for $39.3 million. Ohio 2 is located in north
central Ohio and covers an estimated population of 262,300 people.
On December 23, 1998, the Company's subsidiary, Dobson/Sygnet, acquired
Sygnet Wireless, Inc. for $337.5 million. The acquired markets include cellular
systems in Ohio, Pennsylvania and New York covering an estimated population base
of 2.4 million.
On December 2, 1998, the Company completed the acquisition of the FCC
license for Texas 10 RSA. The purchase price of $55.0 million is being held in
escrow pending resolution of claims made against the titles to the FCC licenses
of the sellers. Texas 10 is located in central Texas and covers an estimated
population of 317,900. Subsequent to June 30, 1999, the Company has purchased
the subscribers and began operations in the Texas 10 market.
On July 29, 1998, the Company purchased the FCC cellular license and certain
assets of the California 7 RSA for $21.0 million. California 7 is located in the
Imperial Valley extending from east of San Diego to the Arizona state line.
On June 16, 1998, the Company acquired an 86.4% interest (including
unexercised options) in the Santa Cruz Cellular Telephone Partnership ("SCCTP")
for $31.0 million. SCCTP owns the cellular license and other assets for the
Santa Cruz MSA. The Santa Cruz MSA is located adjacent to the California 4 RSA
purchased in April 1998. Subsequently the Company acquired an additional .9%
interest in SCCTP for $.3 million.
On April 1, 1998, the Company acquired all of the capital stock of the
corporations which owned the Cellular 2000 Partnership. The Cellular 2000
Partnership owns the FCC cellular license and system for, and certain assets
relating to, the California 4 RSA. The total purchase price paid by the Company
was $90.9 million. The property is located in central California adjacent to
Fresno, Modesto and Yosemite National Park.
On January 26, 1998, the Company purchased the FCC cellular license for, and
certain assets relating to, the Texas 16 RSA for $56.6 million. The property is
located in south-central Texas in an area bordered by Austin, Houston and San
Antonio.
The acquisition transactions were accounted for as purchases and,
accordingly, their results of operations have been included in the accompanying
condensed consolidated statements of operations from the respective dates of
acquisition. The unaudited pro forma information set forth below includes all
acquisitions which occurred during 1998 and the acquisition of Ohio 2 RSA, as if
the purchases occurred at the beginning of 1998. The unaudited pro forma
information is presented for informational purposes only
7
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
2. ACQUISITIONS (CONTINUED)
and is not necessarily indicative of the results of operations that actually
would have been achieved had the acquisitions been consummated at that time:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
($ IN THOUSANDS, EXCEPT ($ IN THOUSANDS, EXCEPT
PER SHARE DATA) PER SHARE DATA)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Operating revenue.................... $ 77,901 $ 65,169 $149,066 $122,207
Income (loss) before discontinued
operations
and extraordinary
items.............................. (14,859) (23,031) (34,897) (49,877)
Net loss............................. (30,062) (35,568) (65,479) (73,582)
Net loss applicable to common
stockholders....................... (47,818) (41,651) (97,351) (90,873)
Basic net loss applicable to common
stockholders per common share...... $ (97.20) $ (84.66) $(197.89) $(184.72)
</TABLE>
3. DISCONTINUED OPERATIONS
The Company's wholly-owned subsidiary, Logix, provides switch-based
integrated communications services to small and medium sized business customers
throughout Oklahoma and Texas. Logix also operates long-haul fiber optic
facilities in Oklahoma, Texas and Colorado.
The Company intends to distribute the stock of Logix to certain of the
Company's shareholders in a tax-free spin-off. The timing of the spin-off is
subject to receipt of a favorable tax ruling or favorable tax opinion acceptable
to the Company and its shareholders and to the receipt of consents from the
holders of the Company's outstanding Senior Notes.
Pursuant to Accounting Principles Board Opinion ("APB") No. 30, "Reporting
the Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual, and Infrequently Occurring Events and
Transactions," the consolidated financial statements have been restated for all
periods presented to reflect the Logix operations, assets and liabilities as
discontinued operations.
8
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
3. DISCONTINUED OPERATIONS (CONTINUED)
The assets and liabilities of such operations have been classified as "Net
liabilities of discontinued operations" on the consolidated balance sheets and
consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
($ IN THOUSANDS)
Cash and cash equivalents....................... $ 2,698 $ 31,675
Restricted investments--current................. 38,928 37,572
Other current assets............................ 24,754 36,747
Property, plant and equipment, net.............. 110,942 89,508
Restricted investments--non-current............. 41,542 61,988
Goodwill........................................ 124,374 126,244
Other assets.................................... 49,464 21,769
-------- --------
Total assets.................................. 392,702 405,503
Current liabilities............................. 32,252 36,299
Long-term debt, net of current portion.......... 393,159 376,149
Other liabilities............................... 103 88
-------- --------
Total liabilities............................. 425,514 412,536
-------- --------
Net liabilities of discontinued operations...... $(32,812) $ (7,033)
======== ========
</TABLE>
The net loss from operations of the wireline segment was classified on the
condensed consolidated statement of operations as "Loss from discontinued
operations." Summarized results of discontinued operations are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
($ IN THOUSANDS) ($ IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues........................... $ 28,187 $ 9,345 $ 54,979 $14,635
Loss before income taxes............... (22,137) (1,993) (41,579) (3,663)
Income tax benefit..................... 8,412 323 15,800 452
Cumulative effect of change in
accounting
principle............................ -- -- -- (699)
Loss from discontinued operations...... $(13,725) $(1,670) $(25,779) $(3,910)
</TABLE>
9
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
4. LONG-TERM DEBT
The Company's long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
Revolving credit facilities.................. $ 660,000,000 $ 740,000,000
Dobson/Sygnet Senior Notes................... 200,000,000 200,000,000
DCC Senior Notes............................. 160,000,000 160,000,000
Other notes payable.......................... 4,056,204 4,056,204
-------------- --------------
Total debt................................. 1,024,056,124 1,104,056,204
Less--Current maturities..................... (10,503,925) (198,871)
-------------- --------------
Total long term debt....................... $1,013,552,199 $1,103,857,333
============== ==============
</TABLE>
REVOLVING CREDIT FACILITIES
The Company's revolving credit facilities consist of the following:
<TABLE>
<CAPTION>
AMOUNT INTEREST RATE
MAXIMUM OUTSTANDING AT WEIGHTED AVERAGE RATE
CREDIT FACILITY AVAILABILITY JUNE 30, 1999 AT JUNE 30, 1999
- --------------- ------------ -------------- ---------------------
<S> <C> <C> <C>
Dobson/Sygnet Credit
Facilities.................. $430,000,000 $402,000,000 8.5%(1)
DCOC Credit Facility.......... 100,000,000 100,000,000 7.9%
DOC Credit Facility........... 250,000,000 158,000,000 6.8%
</TABLE>
- ------------------------
(1) Weighted average computation is based on actual interest rates without
giving effect to the interest rate hedge discussed below.
On December 23, 1998, the Company's subsidiary, Dobson/Sygnet, obtained
$430 million of senior secured credit facilities ("Dobson/Sygnet Credit
Facilities") from NationsBank, N.A., consisting of (a) a $50.0 million, 7 3/4
year reducing revolving credit facility ("Revolving Credit Facility"), (b) a
$125.0 million, 7 3/4 year term loan ("Term Loan A"), (c) a $155.0 million,
8 1/4 year term loan ("Term Loan B") and (d) a $100.0 million, 9 year term loan
("Term Loan C"). Dobson/Sygnet's obligations under the Dobson/Sygnet Credit
Facility are secured by all current and future assets of Dobson/Sygnet. Initial
proceeds were used primarily to finance the Sygnet Acquisition described in
Note 2. The Company expects to use the remaining availability to finance
Dobson/Sygnet's capital expenditures and general operations.
10
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
4. LONG-TERM DEBT (CONTINUED)
Commencing with the quarter ending December 31, 2000, the borrowing under
the Revolving Credit Facility and Term Loan A will reduce quarterly under the
following annual amortization schedule:
<TABLE>
<CAPTION>
YEAR ANNUAL AMORTIZATION
- ---- -------------------
<S> <C>
2000....................................................... 5.0%
2001....................................................... 7.5%
2002....................................................... 7.5%
2003....................................................... 12.5%
2004....................................................... 15.0%
2005....................................................... 25.0%
2006....................................................... 27.5%
</TABLE>
Commencing with the quarter ending December 31, 2000, the borrowing under
the Term Loan B will reduce quarterly under the following annual amortization
schedule:
<TABLE>
<CAPTION>
YEAR ANNUAL AMORTIZATION
- ---- -------------------
<S> <C>
2000....................................................... 2.5%
2001....................................................... 2.5%
2002....................................................... 2.5%
2003....................................................... 7.5%
2004....................................................... 15.0%
2005....................................................... 25.0%
2006....................................................... 27.5%
2007....................................................... 17.5%
</TABLE>
Term Loan C will amortize annually under the following schedule:
<TABLE>
<CAPTION>
YEAR ANNUAL AMORTIZATION
- ---- -------------------
<S> <C>
1999--2006................................................. 1.0%
2007....................................................... 92.0%
</TABLE>
On March 25, 1998, the Company's subsidiary, DCOC, established a
$200.0 million senior secured credit facility (the "DCOC Credit Facility"). At
the same time, the Company's subsidiary, DOC, established a $250 million senior
secured credit facility (the "DOC Credit Facility"). On May 10, 1999, the
commitment level and outstanding borrowings on the DCOC Credit Facility were
reduced from the established amount of $200.0 million to $100.0 million.
Subsequently, on July 2, 1999, the Company's lenders increased the DCOC credit
facility commitment level from $100.0 million to $160.0 million. Although the
commitment levels have changed, the obligations under the DCOC Credit Facility
remain secured by all current and future assets of DCOC. In addition, the DOC
Credit Facility remains secured by all of DOC's stock and the stock or
partnership interests of its restricted subsidiaries and all assets of DOC and
its restricted subsidiaries. DCOC is designated an unrestricted subsidiary with
regard to the DOC Facility. The Company expects to use the remaining
availability under the DCOC Credit Facility and DOC
11
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
4. LONG-TERM DEBT (CONTINUED)
Credit Facility to finance capital expenditures, consummate future acquisitions
and fund general corporate operations. The facilities will terminate in 2006.
The Dobson/Sygnet Credit Facilities, the DCOC Credit Facility and the DOC
Credit Facility require the Company to maintain certain financial ratios. The
failure to maintain such ratios would constitute an event of default,
notwithstanding the Company's ability to meet its debt service obligations.
In connection with the closing of the DOC Credit Facility, the Company
extinguished a previous credit facility and recognized a pretax loss of
approximately $3.3 million as a result of writing off previously capitalized
financing costs associated with the revolving credit facility. Such amount is
included in the Company's consolidated statement of operations, net of tax, for
the six months ended June 30, 1998 as an extraordinary expense.
SENIOR NOTES
On December 23, 1998, the Company's subsidiary, Dobson/Sygnet, issued
$200 million of 12.25% Senior Notes maturing in 2008 ("Dobson/Sygnet Senior
Notes"). The net proceeds were used to finance the Sygnet Acquisition described
in Note 2 and to purchase $67.7 million of securities pledged to secure payment
of the first six semi-annual interest payments on the Dobson/Sygnet Senior
Notes, which began on June 15, 1999. The pledged securities are reflected as
restricted cash and investments in the Company's consolidated balance sheets.
The Dobson/Sygnet Senior Notes are redeemable at the option of the Company in
whole or in part, on or after December 15, 2003, initially at 106.125%. Prior to
December 15, 2001, the Company may redeem up to 35% of the principal amount of
the Dobson/Sygnet Senior Notes at 112.25% with proceeds from equity offerings,
provided that at least $130 million remains outstanding.
OTHER NOTES PAYABLE
Other notes payable represents the amount financed with the United States
Government for nine PCS licenses.
INTEREST RATE HEDGES
In March 1999, the Company entered into an interest rate swap that
effectively fixed the interest rate on $110.0 million of the principal
outstanding on the Dobson/Sygnet credit facilities at approximately 5.48% plus a
factor used on our leverage (approximately 8.78% at June 30, 1999). The term of
the interest rate swap is 24 months. In June 1999, the Company entered into an
interest rate cap agreement terminating on June 14, 2001. The cap agreement
minimizes the Company's interest rate exposure by setting a maximum rate of
7.50% plus a factor used on our leverage (approximately 9.50% at June 30, 1999)
for $160 million of its indebtedness.
12
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
5. STOCKHOLDERS' DEFICIT:
As of June 30, 1999, the Company's authorized and outstanding capital stock
is as follows:
<TABLE>
<CAPTION>
PAR VALUE LIQUIDATION
# OF SHARES # OF SHARES PER PREFERENCE
CLASS TYPE AUTHORIZED ISSUED SHARE DIVIDENDS PER SHARE
----- --------------- ----------- ----------- --------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Class A.............. Common Stock 1,438,000 573,152 $.001 As declared --
Class B.............. Common Stock 31,000 -- $.001 As declared --
Class C.............. Common Stock 31,000 -- $.001 As declared --
--------- -------
1,500,000 573,152
Senior Exchangeable.. Preferred Stock 550,000 203,351 $1.00 12.25% $ 1,000
Cumulative
Additional........... Preferred Stock 184,000 67,146 $1.00 12.25% $ 1,000
Cumulative
Senior Exchangeable.. Preferred Stock 500,000 170,000 $1.00 13% Cumulative $ 1,000
Class A.............. Preferred Stock 450,000 314,286 $1.00 5% $ 70
Non-cumulative
Class D.............. Preferred Stock 85,000 75,094 $1.00 15% Cumulative $1,131.92
Class E.............. Preferred Stock 405,000 -- $1.00 15% Cumulative $1,131.92
Class F.............. Preferred Stock 205,000 -- $1.00 16% Cumulative $ 1,000
Class G.............. Preferred Stock 62,000 -- $1.00 16% Cumulative $ 660.40
Class H.............. Preferred Stock 62,000 -- $1.00 16% Cumulative $ 660.45
Other................ Preferred Stock 497,000 -- $1.00 -- --
--------- -------
3,000,000 829,877
========= =======
<CAPTION>
OTHER
FEATURES,
RIGHTS,
PREFERENCES
AND
CLASS REDEMPTION DATE POWERS
----- ------------------- -----------
<S> <C> <C>
Class A.............. -- Voting
Class B.............. -- Non-voting
Class C.............. -- Non-voting
Senior Exchangeable.. Jan. 15, 2008 Non-voting
Additional........... Jan. 15, 2008 Non-voting
Senior Exchangeable.. May 1, 2009 Non-voting
Class A.............. -- Non-voting
Class D.............. after Dec. 23, 2010 Convertible
Class E.............. after Dec. 23, 2010 Non-voting
Class F.............. Dec. 31, 2010 Non-voting
Class G.............. 90 days after an Non-voting,
initial public convertible
offering
Class H.............. after Dec. 23, 2010 Non-voting
Other................ -- --
</TABLE>
In May 1999, the Company issued 170,000 shares of 13% senior exchangeable
preferred stock mandatorily redeemable in 2009 for $1,000 per share. The net
proceeds from the private offering of the preferred stock were used to redeem
the outstanding shares of the Company's Class F and Class G Preferred Stock, to
reduce bank debt at DCOC and for general corporate purposes, including
acquisitions. Holders of the preferred stock are entitled to cumulative
quarterly dividends from the date of issuance and a liquidation preference of
$1,000 per share with rights over the other classes of capital stock and equal
to the 12.25% Senior Exchangeable Preferred Stock. On or before May 1, 2004, the
Company may pay dividends, at its option, in cash or in additional shares having
an aggregate liquidation preference equal to the amount of such dividends.
Additionally, the preferred stock is redeemable at the option of the Company on
or after May 1, 2004. Holders of the preferred stock have no voting rights.
In January and April 1999, the Company issued cumulative quarterly dividends
in the form of 6,494 and 8,037 additional shares of Senior Exchangeable
preferred stock, respectively (having a liquidation preference totaling
$14.5 million) which represented non-cash financing activity, and thus are not
included in the accompanying condensed consolidated statement of cash flows.
13
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
6. RESTRICTED CASH AND INVESTMENTS
Restricted cash and investments consist of interest pledge deposits for the
Dobson/Sygnet Senior Notes. The Dobson/Sygnet Senior Notes interest pledge
deposit of approximately $56.6 million includes the initial deposit of
$67.7 million (as discussed in Note 4), net of interest earned and payments
issued to bondholders. Amortization expense of $431,358 and $140,244 was
recorded for the six months ended June 30, 1999 and 1998, respectively, for bond
premiums recorded with the purchase of the restricted investments.
7. EARNINGS PER COMMON SHARE
Basic loss per common share is computed by the weighted average number of
shares of common stock outstanding during the year. Diluted net loss per common
share has been omitted because the impact of stock options and convertible
preferred stock on the Company's net loss per common share is anti-dilutive.
8. RECENT PRONOUNCEMENTS
In July 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Derivatives and Hedging ("SFAS 133").
SFAS 133 establishes uniform hedge accounting criteria for all derivatives
requiring companies to formally document, designate and assess the effectiveness
of transactions that receive hedge accounting. Under SFAS 133, derivatives will
be recorded in the balance sheet as either an asset or liability measured at its
fair value, with changes in the fair value recognized as a component of
comprehensive income or in current earnings. SFAS 133 will be effective for
fiscal years beginning after June 15, 2000. Under SFAS 133, the Company would
record an asset of $.4 million relating to its interest rate hedge valuation at
June 30, 1999. The Company has not determined the timing or method of adoption
of SFAS 133.
9. COMMITMENTS
Effective December 6, 1995 (amended December 20, 1995, June 24, 1997 and
September 30, 1998), the Company entered into an equipment supply agreement in
which the Company agreed to purchase approximately $65.0 million of cell site
and switching equipment between June 24, 1997 and November 23, 2001 to update
the cellular systems for newly acquired and existing MSAs and RSAs. Of this
commitment, approximately $31.8 million remained at June 30, 1999.
The Company entered into an additional equipment supply agreement with a
second vendor on January 13, 1998. The Company agreed to purchase approximately
$81.0 million of cell site and switching equipment between January 13, 1998 and
January 12, 2002 to update the cellular systems for newly acquired and existing
MSAs and RSAs. Of this commitment, $44.3 million remained at June 30, 1999.
10. SUBSEQUENT EVENT
On July 6, 1999, Dobson Tower Company, a subsidiary of the Company, entered
into a definitive agreement to sell substantially all of the towers acquired by
Dobson Tower Company in the Sygnet acquisition to American Tower Corporation for
a purchase price of approximately $38.7 million. In connection with the sale,
another subsidiary of the Company, Sygnet Communications Inc., has agreed to
lease the towers back from American Tower Corporation for an initial term of ten
years.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company is a leading provider of rural cellular telephone services.
Since it commenced providing cellular services in 1990 in Oklahoma and the Texas
Panhandle, the Company has rapidly expanded its cellular operations with an
acquisition strategy targeting underdeveloped rural and suburban areas which
have a significant number of potential customers with substantial needs for
cellular communications. At June 30, 1999, the Company's cellular systems
covered a population of 5.8 million in Arizona, California, Kansas, Maryland,
Missouri, New York, Ohio, Oklahoma, Pennsylvania, Texas and West Virginia.
ACQUISITIONS
The Company continually evaluates opportunities to acquire additional
cellular systems. The following table sets forth the cellular markets and
systems acquired by the Company since 1995 (ownership in parentheses if not 100%
owned by the Company):
<TABLE>
<CAPTION>
PURCHASE
PRICE
ACQUISITION ($ IN MILLIONS) DATE
- ----------- --------------- ----
<S> <C> <C>
Maryland 1..................................... $ 9.1 June 1999
Sygnet......................................... 337.5 December 1998
Texas 10....................................... 55.0 December 1998
Ohio 2......................................... 39.3 September 1998
California 7................................... 21.0 July 1998
Santa Cruz (87.3%)............................. 31.2 June 1998
California 4................................... 90.9 April 1998
Texas 16....................................... 56.6 January 1998
Arizona 5 (75%)................................ 39.8 October 1997
East Maryland.................................. 75.8 March 1997
West Maryland.................................. 77.6 February 1997
Kansas/Missouri................................ 30.0 March 1996
</TABLE>
REVENUE
The cellular revenues of the Company consist of service, roaming and
equipment sales revenues. There has been an industry trend of declining average
revenue per minute, as competition among service providers has led to reductions
in rates for airtime and subscriptions and other charges. The Company believes
that the impact of this trend will be mitigated by increases in the number of
cellular telecommunications subscribers and the number of minutes of usage per
subscriber. There has also been a broad trend in the cellular telecommunications
industry of declining average revenue per subscriber. The Company believes that
the downward trend is primarily the result of the addition of new lower usage
customers who utilize cellular services for personal convenience, security or as
a backup for their traditional landline telephone.
Roaming accounted for 45.2%, 49.3%, 43.3% and 46.3% of the Company's
cellular revenue for the three months ended June 30, 1999 and 1998 and the six
months ended June 30, 1999 and 1998, respectively. While the industry trend is
to reduce roaming rates, the Company believes that its roaming rates are
generally lower than rates offered by others in or near the Company's systems
and that such lower roaming rates mitigate against this trend; however, there
can be no assurance that such trend will not materially impact it in the future.
The Company's roaming yield (roaming revenue, which includes airtime, toll
charges and surcharges, divided by roaming minutes of use) was $.49, $.64, $.53
and $.65 per minute for the three months ended June 30, 1999 and 1998 and the
six months ended June 30, 1999 and 1998, respectively.
The Company's overall cellular penetration rates increased for the six-month
period ended June 30, 1999 compared to the same period in 1998 due to the
incremental penetration gains in existing markets.
15
<PAGE>
The Company believes that as its cellular penetration rates increase, the
increase in new subscriber revenue will exceed the loss of revenue attributable
to the cellular churn rate.
In recent years, the Company and other cellular providers, have increased
the use of discounts on phone equipment and free phone promotions, as
competition between service providers has intensified. As a result, the Company
has incurred, and expects to continue to incur, losses on equipment sales, which
have resulted in increased marketing and selling costs per gross additional
subscriber. While the Company expects to continue these discounts and
promotions, the Company believes that the use of such promotions will result in
increased revenue from increases in the number of cellular subscribers.
COSTS AND EXPENSES
The Company's primary operating expense categories include cost of service,
cost of equipment, marketing and selling, general and administrative and
depreciation and amortization.
The Company's cost of service consists primarily of costs to operate and
maintain the Company's facilities utilized in providing service to customers and
amounts paid to third-party cellular providers for providing service to the
Company's subscribers.
The Company's cost of equipment represents the cost associated with
telephone equipment and accessories sold to customers.
The Company's marketing and selling costs include advertising, compensation
paid to sales personnel and independent agents and all other costs to market and
sell cellular products and services and costs related to customer retention.
Commissions are paid to direct sales personnel for new business generated.
Independent sales agents receive commissions for generating new sales and
ongoing sales to existing customers.
The Company's general and administrative costs include all infrastructure
costs such as customer support, billing, collections, and corporate
administration.
DISCONTINUED OPERATIONS
The Company, through its wholly-owned subsidiary, Logix, provides
switch-based integrated communications services to small and medium-sized
business customers throughout Oklahoma and Texas. Logix also operates long-haul
fiber optic facilities in Oklahoma, Texas and Colorado.
The Company intends to distribute the stock of Logix to certain of the
Company's shareholders in a tax-free spin-off. The timing of the spin-off is
subject to receipt of a favorable tax ruling or favorable tax opinion acceptable
to the Company and its shareholders and to the receipt of consents from the
holders of the Company's outstanding Senior Notes.
RESULTS OF OPERATIONS
In the text below, financial statement numbers have been rounded; however,
the percentage changes are based on the actual financial statements.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30,
1998
OPERATING REVENUE. For the three months ended June 30, 1999, total
operating revenue increased $44.8 million, or 135.2%, to $77.9 million from
$33.1 million for the comparable period in 1998. Total service, roaming and
equipment sales and other revenue represented 51.3%, 45.2% and 3.5%,
respectively, of total operating revenue during the three months ended June 30,
1999 and 48.8%, 49.3%, and 1.9%, respectively, of total operating revenue during
the three months ended June 30, 1998.
16
<PAGE>
The following table sets forth the components of the Company's revenue for
the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
JUNE 30,
-------------------
<S> <C> <C>
1999 1998
------- -------
<CAPTION>
($ IN THOUSANDS)
<S> <C> <C>
Operating revenue:
Service revenue......................................... $39,955 $16,151
Roaming revenue......................................... 35,208 16,332
Equipment sales and other............................... 2,738 642
------- -------
Total................................................. $77,901 $33,125
------- -------
</TABLE>
Service revenue increased $23.8 million, or 147.4%, to $40.0 million in the
three months ended June 30, 1999 from $16.2 million in the same period of 1998.
Of the increase, $20.6 million was attributable to acquisitions. The remaining
$3.2 million was primarily attributable to increased penetration and usage in
the existing company markets. The Company's subscriber base increased 165.6% to
401,680 at June 30, 1999 from 151,249 at June 30, 1998. Approximately 195,503
subscribers were added since June 30, 1998 as a result of acquisitions. The
Company's average monthly service revenue per subscriber decreased 15.0% to $34
for the three months ended June 30, 1999 from $40 for the comparable period in
1998 due to the addition of new lower rate subscribers in New York, Ohio and
Pennsylvania and competitive market pressures.
Roaming revenue increased $18.9 million, or 115.6%, to $35.2 million in the
three months ended June 30, 1999 from $16.3 million for the comparable period of
1998. Of the increase, $11.3 million was attributable to acquisitions. The
remaining $7.6 million was primarily attributable to increased roaming minutes
in the existing company markets due to expanded coverage areas and increased
usage in these markets.
Equipment sales and other revenue of $2.7 million in the three months ended
June 30, 1999 represented an increase of $2.1 million, or 326.8%, from
$.6 million in the same period of 1998, as the Company sold more equipment
during the three months ended June 30, 1999 as a result of growth in
subscribers.
COST OF SERVICE. For the three months ended June 30, 1999, the total cost
of service increased $2.9 million, or 39.4% to $10.5 million from $7.6 million
for the comparable period in 1998. This increase was entirely attributable to
acquisitions. As a percentage of service and roaming revenue, cost of cellular
service decreased to 14.0% for the three months ended June 30, 1999 from
23.2% for the same period in 1998. This decrease is primarily a result of a
reduction in rates charged by third-party cellular providers for providing
service to the Company subscribers.
COST OF EQUIPMENT. For the three months ended June 30, 1999, cost of
equipment increased $4.5 million, or 314.4% to $6.0 million during 1999 from
$1.5 million in the same period of 1998, primarily from increases in the volume
of equipment sold due to the growth in subscribers.
MARKETING AND SELLING COSTS. Marketing and selling costs increased
$6.3 million, or 120.0%, to $11.5 million for the three month period ended
June 30, 1999 from $5.2 million in the comparable period of 1998. As a
percentage of total operating revenue, marketing and selling costs decreased to
14.8% for the three months ended June 30, 1999 from 15.8% for the same period in
1998. The number of gross subscribers added in the second quarter of 1999 was
40,628. The number of gross subscribers added in the second quarter 1998 was
15,450.
GENERAL AND ADMINISTRATIVE COSTS. General and administrative costs
increased $7.9 million, or 146.5%, to $13.3 million for the three month period
ended June 30, 1999 from $5.4 million for the same period in 1998. As a
percentage of total operating revenue, general and administrative costs
increased slightly to 17.0% for the three month period ended June 30, 1999 from
16.2% in the comparable period of 1998. However, the Company's average monthly
general and administrative costs per subscriber decreased 45% to $11 for the
three months ended June 30, 1999 from $20 for the comparable period in 1998. The
increase
17
<PAGE>
year over year is a result of increased infrastructure costs such as customer
service, billing, collections and administrative costs as a result of the
overall growth of the Company. The decrease in general and administrative costs
per subscriber is a result of efficiencies gained from the integration of
acquired companies.
DEPRECIATION AND AMORTIZATION EXPENSE. For the three months ended June 30,
1999, depreciation and amortization expense increased $24.4 million, or 247.8%
to $34.2 million in the three months ended June 30, 1999 from $9.8 million in
the same period of 1998. Depreciation and amortization of assets acquired in
acquisitions accounted for substantially all of the increase in the second
quarter 1999 compared to the same period in 1998.
INTEREST EXPENSE. For the three months ended June 30, 1999, interest
expense increased $18.6 million, or 216.5%, to $27.2 million in the three months
ended June 30, 1999 from $8.6 million in the same period of 1998. The increase
was primarily a result of increased borrowings in 1998 to finance the Company's
acquisitions.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
OPERATING REVENUE. For the six months ended June 30, 1999, total operating
revenue increased $90.5 million, or 162.2%, to $146.3 million from
$55.8 million for the comparable period in 1998. Total service, roaming and
equipment sales and other revenue represented 52.6%, 43.3% and 4.1%,
respectively, of total operating revenue during the six months ended June 30,
1999 and 51.3%, 46.3%, and 2.4%, respectively, of total operating revenue during
the six months ended June 30, 1998.
The following table sets forth the components of the Company's revenue for
the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
<S> <C> <C>
1999 1998
-------- -------
<CAPTION>
($ IN THOUSANDS)
<S> <C> <C>
Operating revenue:
Service revenue........................................ $ 77,017 $28,633
Roaming revenue........................................ 63,305 25,856
Equipment sales and other.............................. 6,018 1,319
-------- -------
Total................................................ $146,340 $55,808
======== =======
</TABLE>
Service revenue increased $48.4 million, or 169.0%, to $77.0 million in the
six months ended June 30, 1999 from $28.6 million in the same period of 1998. Of
the increase, $42.9 million was attributable to acquisitions. The remaining
$5.5 million was primarily attributable to increased penetration and usage in
the existing company markets. The Company's subscriber base increased 165.6% to
401,680 at June 30, 1999 from 151,249 at June 30, 1998. Approximately 195,503
subscribers were added since June 30, 1998 as a result of acquisitions. The
Company's average monthly service revenue per subscriber decreased 12.8% to $34
for the six months ended June 30, 1999 from $39 for the comparable period in
1998 due to the addition of new lower rate subscribers in the Northern Region
and competitive market pressures.
Roaming revenue increased $37.4 million, or 144.8%, to $63.3 million in the
six months ended June 30, 1999 from $25.9 million for the comparable period of
1998. Of the increase, $25.2 million was attributable to acquisitions. The
remaining $12.2 million was primarily attributable to increased roaming minutes
in the existing company markets due to expanded coverage areas, deployment of
digital technology in most of the Companies markets, and increased usage in
these markets.
Equipment sales and other revenue of $6.0 million in the six months ended
June 30, 1999 represented an increase of $4.7 million, or 356.3%, from
$1.3 million in the same period of 1998, as the Company sold more equipment
during the six months ended June 30, 1999 as a result of growth in subscribers.
COST OF SERVICE. For the six months ended June 30, 1999, the total cost of
service increased $9.4 million, or 73.4% to $22.1 million from $12.7 million for
the comparable period in 1998. Of the increase, $7.8 million was attributable to
acquisitions. The remaining $1.6 million was primarily attributable to
18
<PAGE>
increased subscribers and minutes of use in the existing company markets. As a
percentage of service and roaming revenue, cost of cellular service decreased to
15.7% for the six months ended June 30, 1999 from 23.4% for the same period in
1998. This decrease is primarily a result of a reduction in rates charged by
third-party cellular providers for providing service to the Company subscribers.
COST OF EQUIPMENT. For the six months ended June 30, 1999, cost of
equipment increased $9.3 million, or 351.1% to $11.9 million during 1999 from
$2.6 million in the same period of 1998, primarily from increases in the volume
of equipment sold due to the growth in subscribers.
MARKETING AND SELLING COSTS. Marketing and selling costs increased
$12.4 million, or 134.0%, to $21.7 million for the six month period ended
June 30, 1999 from $9.3 million in the comparable period of 1998. As a
percentage of total operating revenue, marketing and selling costs decreased to
14.8% for the six months ended June 30, 1999 from 16.6% for the same period in
1998. The number of gross subscribers added in the six months ended June 30,
1999 was 75,693. The number of gross subscribers added in the six months ended
June 30, 1998 was 26,646.
GENERAL AND ADMINISTRATIVE COSTS. General and administrative costs
increased $16.6 million, or 173.0%, to $26.1 million for the six month period
ended June 30, 1999 from $9.5 million for the same period in 1998. As a
percentage of total operating revenue, general and administrative costs
increased slightly to 17.8% for the six month period ended June 30, 1999 from
17.1% in the comparable period of 1998. However, the Company's average monthly
general and administrative costs per subscriber decreased 45% to $11 for the six
months ended June 30, 1999 from $20 for the comparable period in 1998. The
increase year over year is a result of increased infrastructure costs such as
customer service, billing, collections and administrative costs as a result of
the overall growth of the Company. The decrease in general and administrative
costs per subscriber is a result of efficiencies gained from the integration of
acquired companies.
DEPRECIATION AND AMORTIZATION EXPENSE. For the six months ended June 30,
1999, depreciation and amortization expense increased $53.4 million, or 322.5%
to $69.9 million in the six months ended June 30, 1999 from $16.5 million in the
same period of 1998. Depreciation and amortization of assets acquired in
acquisitions accounted for substantially all of the increase in the six months
ended June 30, 1999 compared to the same period in 1998.
INTEREST EXPENSE. For the six months ended June 30, 1999, interest expense
increased $38.1 million, or 220.0%, to $55.5 million in the six months ended
June 30, 1999 from $17.4 million in the same period of 1998. The increase was
primarily a result of increased borrowings in December 1998 to finance the
Company's acquisitions.
EXTRAORDINARY EXPENSE. During the first quarter 1998, the Company incurred
an extraordinary pretax loss of approximately $3.3 million as a result of
writing off previously capitalized financing costs associated with revolving
credit facilities that were refinanced in March 1998.
IMPACT OF YEAR 2000 ISSUE
The Year 2000 issue exists because many computer systems and applications,
including those embedded in equipment and facilities, use two digit rather than
four digit date fields to designate an applicable year. As a result, the systems
and applications may not properly recognize the year 2000 or process data that
includes it, potentially causing data miscalculations, inaccuracies, operational
malfunctions or failures.
In April 1998, the Company established a multi-disciplined team to perform a
Year 2000 impact analysis for the Company. The team consists of representatives
from each of the lines of business, as well as representatives from key
corporate departments, and is headed by a full-time Year 2000 compliance
manager. The team created a Year 2000 assessment methodology which brought a
structured approach to the assessment and management reporting process, as well
as disaster recovery approach.
To date, the Company has completed an inventory of its automated systems and
services and an impact analysis that identified significant risk areas by line
of business, specific compliance requirements
19
<PAGE>
and costs and estimated completion dates for affected systems. We have been in
contact with all of the vendors of products and services that we believe are
critical to our operations. The representation from our vendors pertaining to
Year 2000 compliance has come in writing directly to us, in contracts, and by
accessing Year 2000 information available at their Web sites. While all of the
vendors have provided some type of assurance that their products will be Year
2000 compliant, not all have provided us expressly with a "Year 2000 Compliance
Statement" and/or a "Year 2000 Warranty." Our focus with our vendors has been
directed toward what assurances of Year 2000 compliance they can provide in the
form of documented Year 2000 planning and testing and third party audits.
From an information systems standpoint, the Company has historically relied
on outsourcing relationships for most of its business and operational support
applications. In addition, the Company uses packaged software from outside
vendors for those applications that it has not outsourced. As a result, the
Company has focused on identifying third party systems and services that are not
currently Year 2000 compliant and oversight of third party compliance efforts.
The results of the impact analysis revealed that for most of the Company's
information systems, services and telecommunications infrastructure, Year 2000
compliant versions will be included as a part of existing maintenance and/or
service agreements at no additional cost to the Company and should be in place
and tested by the second quarter of 1999. However, there are two critical
systems that will not be replaced until third quarter 1999. Those systems are
one Ericsson switching system in New York and portions of our ITDS billing
system. The Ericsson switching equipment will be replaced with Year 2000
compliant Nortel equipment. The Company expects to complete this replacement in
the third quarter of 1999. In the first quarter of 1999, the Company decided to
replace its current billing system vendor, ITDS, with a new vendor, H.O.
Systems, which is Year 2000 compliant. The Company is in the process of
implementing the H.O. Systems software throughout its other markets and expects
to complete the implementation in the third quarter of 1999. The Company
estimates total costs of approximately $.75 million to upgrade or replace those
systems that are not Year 2000 compliant and will not be upgraded through
existing maintenance or service agreements. The estimated costs for Year 2000
compliance do not include the costs of upgrading the New York system or
replacing the billing vendor, as those decisions were made for business reasons
outside of the Year 2000 issue and would have been made regardless of whether
the systems currently in place were Year 2000 compliant. All of the Company's
automated systems and services are or will be Year 2000 compliant by the end of
the third quarter of 1999.
The Company's contingency planning is being addressed in two parts. First,
possible disruptions to operations after the rollover to the Year 2000 are being
addressed as a part of the Company's overall disaster recovery plan, which will
be completed by the end of 1999. Second, specific Year 2000 related
contingencies that are not covered in the disaster recovery plan will be covered
in a separate Year 2000 contingency plan, which will also be completed by the
end of 1999.
The Company will continue to analyze systems and services that utilize
date-embedded codes that may experience operational problems when the Year 2000
is reached. The Company will continue communicating with third party vendors of
systems software and equipment, suppliers of telecommunications capacity and
equipment, roaming partners customers and others with which it does business to
coordinate Year 2000 compliance. To further mitigate risks, if a critical vendor
does not provide adequate assurance that its product is Year 2000 compliant
through test plans, test results or third party audit results, the Company will
either replace the product with one that has provided proof of compliance or
will conduct its own Year 2000 tests.
In the event any of the Company's vendors have represented that it is Year
2000 compliant and, in fact, it is not, the Company would have no recourse
against this vendor other than an action for damages for either breach of
contract or, in the absence of a contractual obligation, for negligence if the
Company could establish that the vendor had a legal duty to the Company to be
Year 2000 compliant. If the Company is unable to provide systems and services to
its customers, because either their own systems or those of its vendors are not
Year 2000 compliant, the Company's reasonably likely worst case scenario is that
the Company would experience a reduction in their operating revenues which could
adversely affect
20
<PAGE>
their ability to meet our operating and financial obligations, including the
Company's obligations with respect to the notes.
LIQUIDITY AND CAPITAL RESOURCES
Dobson Communications is a holding company with no direct operations and no
significant assets other than the stock of its subsidiaries. The Company depends
on the cash flows of its subsidiaries to meet its obligations, including its
obligations to pay interest and principal on its indebtedness, and dividends on
its 12 1/4% Senior Exchangeable Preferred Stock and its 13% Senior Exchangeable
Preferred Stock. The Company's subsidiaries are separate legal entities that
have no obligation to pay any amounts owed by the Company or to make any funds
available to the Company. The ability of the Company's subsidiaries to
distribute funds to the Company are and will be restricted by the terms of
existing and future indebtedness including the Company's credit facilities.
The Company's cellular operations require substantial capital to acquire,
construct and expand cellular telephone systems and to fund operating
requirements. The Company has financed its operations through bank debt and the
sale of debt and equity.
At June 30, 1999, the Company had a working capital deficit of $(23.0)
million (a ratio of current assets to current liabilities of .8:1) and an
unrestricted cash balance of $2.9 million, which compares to working capital of
$13.5 million (a ratio of current assets to current liabilities of 1.1:1) and an
unrestricted cash balance of $22.3 million at December 31, 1998.
The Company's net cash provided by operating activities totaled $2.6 million
for the six month period ended June 30, 1999, while the net cash used by
operating activities totaled $(2.3) million for the same period of 1998. The
increase of $4.9 million was primarily due to depreciation and amortization,
offset by the change in deferred credits, the change in current assets and
liabilities and the Company's net loss for the period.
Net cash used in investing activities, which totaled $(66.6) million and
$(193.6) million for the six months ended June 30, 1999 and 1998, respectively,
principally related to acquisitions and capital expenditures in all periods.
Acquisitions and their related costs accounted for $27.3 million and
$177.4 million and capital expenditures were $31.2 million and $13.9 million for
the six month periods ended June 30, 1999 and 1998, respectively.
Net cash provided by financing activities was $44.6 million the six month
period ended June 30, 1999 compared to $202.4 million for the same period of
1998. Financing activity sources for the six months ended June 30, 1999
consisted primarily of the issuance of $170.0 million senior exchangeable
preferred stock and proceeds from long-term debt of $31.0 million, offset by the
redemption of $55.0 million Class F and G preferred stock and repayments of
long-term debt totaling $111.0 million.
In March 1999, the Company entered into an interest rate swap that
effectively fixed the interest rate on $110.0 million of the principal
outstanding on the Dobson/Sygnet credit facilities at approximately 5.48% plus a
factor based on the Company's leverage (approximately 8.78% at June 30, 1999).
The term of the interest rate swap is 24 months. In June 1999, the Company
entered into an interest rate cap agreement terminating on June 14, 2001. The
cap agreement minimizes the Company's interest rate exposure by setting a
maximum rate of 7.50% plus a factor based on the Company's leverage
(approximately 9.50% at June 30, 1999) for $160 million of its indebtedness.
The minority partners in the Company's partnerships that own certain of its
cellular operations receive distributions equal to their share of the profit
multiplied by estimated income tax rates. Under the Company's bank credit
agreements, the Company's minority partners are not entitled to receive any cash
distributions in excess of amounts required to meet income tax obligations until
all indebtedness of their respective partnerships to the Company is paid or
extinguished.
The Company's capital expenditures (excluding cost of acquisitions and
discontinued operations) were $31.2 million for the six months ended June 30,
1999 and the Company expects its capital expenditures (excluding cost of
acquisitions) to be approximately $45 million to $50 million for all of 1999.
The
21
<PAGE>
Company has not budgeted any amounts to be expended in 1999 with respect to the
systems which may be acquired in other acquisitions or the Company's PCS system.
The amount and timing of capital expenditures may vary depending on the rate at
which the Company expands and develops its cellular systems and whether the
Company consummates additional acquisitions.
On December 23, 1998, a subsidiary of the Company acquired all of the
outstanding capital stock of Sygnet for $337.5 million. The Sygnet acquisition
was financed through borrowings under the Dobson/ Sygnet Credit Facilities, the
net proceeds of an offering of 12 1/4% Senior Exchangeable Preferred Stock and
Class D, F and G Preferred Stock, and the sale and leaseback of substantially
all of Sygnet's towers to Dobson Tower Company, a subsidiary of the Company.
The Company has agreed to purchase approximately $65.0 million of cell site
and switching equipment between June 1997 and November 2001. Of this commitment,
approximately $31.8 million remained at June 30, 1999. Under another equipment
supply agreement, the Company agreed to purchase approximately $81.0 million of
cell site and switching equipment by January 13, 2002. Of this commitment,
$44.3 million remained at June 30, 1999.
In April 1997, the Company was granted PCS licenses in nine markets in
Oklahoma, Kansas and Missouri. The Company financed $4.1 million of the
$5.1 million purchase price with government loans secured by liens on the PCS
licenses at an annual interest rate of 6.25%, amortizing quarterly over eight
years beginning in 1999. The Company is required to build out systems covering
25% of the population covered by each of the PCS licenses by 2002. The Company
currently anticipates that the cost to build out the minimum PCS system will be
$10.0 million to $30.0 million. The actual amount of the expenditures will
depend on the PCS technology selected by the Company, the extent of the
Company's buildout, the costs at the time of buildout and the extent the Company
must bear the expense of relocating incumbent microwave licensees, as mandated
by FCC rules. The Company has not budgeted any amounts for capital expenditures
in 1999 with respect to the buildout of a PCS system.
In May 1999, the Company's subsidiary, Dobson Cellular Operations Company
("DCOC"), reduced both its outstanding borrowing and commitment level from the
originally established $200.0 million to $100.0 million senior secured credit
facility (the "DCOC Credit Facility"), which was increased to $160.0 million on
July 2, 1999. DCOC's obligations under the DCOC Credit Facility are secured by
all existing and future assets of DCOC, and are guaranteed by DCOC's
subsidiaries. In addition, the Company's subsidiary, Dobson Operating Company
("DOC"), has remained at the originally established commitment level of
$250.0 million senior secured credit facility (the "DOC Credit Facility"). The
DOC Credit Facility is secured by all of DOC's stock and the stock or
partnership interests of its subsidiaries and all assets of DOC and its
restricted subsidiaries.
The DCOC Credit Facility and the DOC Credit Facility require the Company to
maintain certain financial ratios. The failure to maintain such ratios would
constitute an event of default, notwithstanding the Company's ability to meet
its debt service obligations. To date, the Company has met the required
financial ratios. The DOC Credit Facility and DCOC Credit Facility each amortize
quarterly beginning June 30, 2000 and terminate on June 30, 2006. At June 30,
1999, the Company had an unused commitment level of $92.0 million under the DOC
Credit Facility, subject to covenant limitations. The Company borrowed
$9.1 million under the DOC Credit Facility to close the Maryland 1 Acquisition
during the second quarter and expects to borrow an additional $6.0 million under
the Dobson/Sygnet Credit Facilities to close the Pennsylvania 2 Acquisition.
Dobson/Sygnet is a party to a credit agreement with NationsBank for an
aggregate $430.0 million, consisting of a $50.0 million revolving credit
facility and $380.0 million of term loan facilities. The obligations under the
Dobson/Sygnet credit facilities are secured by a pledge of the capital stock of
Dobson/Sygnet's operating subsidiary as well as a lien on substantially all of
the assets of Dobson/Sygnet and its operating subsidiary. The Dobson/Sygnet
credit facilities require Dobson/Sygnet and the Company to maintain certain
financial ratios. The failure to maintain such ratios would constitute an event
of default, notwithstanding Dobson/Sygnet's ability to meet its debt service
obligations. The Dobson/Sygnet credit facilities amortize quarterly beginning
December 31, 2000, and terminate December 31, 2008. At
22
<PAGE>
June 30, 1999, the Company had an unused commitment level of $28.0 million under
the Dobson/Sygnet credit facilities, subject to covenant limitations.
The Dobson/Sygnet Notes bear interest at an annual rate of 12.25% and mature
in 2008. Of the net proceeds $67.7 million, (as discussed in Note 4) were used
to purchase securities pledged to secure the first six semi-annual interest
payments, which began June 15, 1999.
As part of the financing for the Sygnet acquisition, Sygnet sold to Dobson
Tower, a wholly owned subsidiary of the Company, substantially all of the towers
it owned for $25.0 million. Dobson Tower Company then leased these towers back
to Sygnet under an operating lease, with net annual lease payments of
approximately $1.4 million. Dobson Tower Company obtained the funds for such
purchase from borrowings under a new credit facility of $17.5 million and the
sale of $7.7 million of preferred stock of Dobson Tower Company to an affiliate
of the Company. On July 6, 1999, Dobson Tower Company entered into a definitive
agreement to sell substantially all of Dobson Tower Company's towers to American
Tower Corporation for a purchase price of approximately $38.7 million. In
connection with the sale, another subsidiary of the Company, Sygnet
Communications Inc., has agreed to lease the towers back from American Tower
Corporation for an initial term of ten years. No gain or loss will be recorded
from the transaction.
The Company, through Dobson/Sygnet's predecessor, is party to an agreement
to purchase the FCC license for, and certain assets related to, Pennsylvania 2
RSA for $6.0 million. Because the seller's title to the license remains subject
to administrative and judicial review, the closing of such acquisition has been
delayed. Pending such closing, Dobson/Sygnet is managing the operation of the
cellular system in the market under the supervision and control of the seller.
The Company concluded its purchase of the FCC license for, and certain assets
related to, Maryland 1 RSA and an unserved portion of Cumberland, Maryland MSA
for $9.1 million in cash. The Company has no agreements with respect to any
acquisitions other than the Pennsylvania 2 Acquisition and the Maryland 1
Acquisition.
Although the Company cannot provide any assurance, the Company believes
that, assuming successful implementation of the Company's strategy, including
the further development of its cellular systems and significant and sustained
growth in its cash flow, borrowings under the Dobson/Sygnet credit facilities,
the DOC Credit Facility, sale and leaseback of Sygnet's towers, the DCOC Credit
Facility and cash flow from operations, will be sufficient to consummate the
acquisition of Pennsylvania 2 and are expected to be sufficient to satisfy the
Company's currently expected capital expenditure, working capital and debt
service obligations. However, the Company will need to refinance the
Dobson/Sygnet credit facilities, the DOC Credit Facility, the DCOC Credit
Facility, the DCC Senior Notes and the Dobson/Sygnet Notes at their maturities
and refinance its mandatory redemption obligations with respect to its preferred
stock, including the 12 1/4% Senior Exchangeable Preferred Stock and the 13%
Senior Exchangeable Preferred Stock. The Company's ability to do so will depend
on, among other things, its financial condition at the time, the restrictions in
the instruments governing its indebtedness and other factors, including market
conditions beyond the control of the Company. The actual amount and timing of
the Company's future capital requirements may differ materially from the
Company's estimates as a result of, among other things, the demand for the
Company's services and regulatory, technological and competitive developments.
Sources of additional financing may include commercial bank borrowings, vendor
financing and the sale of equity or debt securities. The Company cannot assure
you that any such financing will be available on acceptable terms or at all.
23
<PAGE>
EFFECT OF NEW ACCOUNTING STANDARDS
In July 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Derivatives and Hedging ("SFAS 133").
SFAS 133 establishes uniform hedge accounting criteria for all derivatives
requiring companies to formally document, designate and assess the effectiveness
of transactions that receive hedge accounting. Under SFAS 133, derivatives will
be recorded in the balance sheet as either an asset or liability measured at its
fair value, with changes in the fair value recognized in current earnings.
SFAS 133 will be effective for fiscal years beginning after June 15, 1999. Under
SFAS 133, the Company would record an asset of $.4 million relating to its
interest rate hedge valuation at June 30, 1999. The Company has not determined
the timing or method of adoption of SFAS 133.
FORWARD-LOOKING STATEMENTS
The description of the Company's plans set forth herein, including planned
capital expenditures and acquisitions, are forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These plans involve a number of risks and uncertainties.
Important factors that could cause actual capital expenditures, acquisition
activity or the Company's performance to differ materially from the plans
include, without limitation, the Company's ability to satisfy the financial
covenants of its outstanding debt and preferred stock instruments and to raise
additional capital; the Company's ability to manage its rapid growth
successfully and to compete effectively in its cellular, fiber and resale
businesses against competitors with greater financial, technical, marketing and
other resources; changes in end-user requirements and preferences; the
development of other technologies and products that may gain more commercial
acceptance than those of the Company; and adverse regulatory changes. Readers
are cautioned not to place undue reliance on these forward-looking statements
which speak only as of the date hereof. The Company undertakes no obligation to
update or revise these forward-looking statements to reflect events or
circumstances after the date hereof including, without limitation, changes in
the Company's business strategy or planned capital expenditures, or to reflect
the occurrence of unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk relates to changes in interest rates.
Market risk is the potential loss arising from adverse changes in market prices
and rates, including interest rates. The Company does not enter into derivatives
or other financial instruments for trading or speculative purposes. The
objective of our financial risk management is to minimize the negative impact of
interest rate fluctuations on our earnings and equity. The counterparty is a
major financial institution. During the second quarter 1999, the Company had an
interest rate hedge on $110.0 million of its outstanding indebtedness under the
Dobson/ Sygnet Credit Facilities and an interest rate cap agreement on
$160.0 million of other Company indebtedness. Increases in interest expense
related to the interest rate hedge for the three months and six months ended
June 30, 1999 and 1998 were reflected in income and were immaterial.
The fair market value of long-term fixed interest rate debt is subject to
interest rate risk. Generally, the fair market value of fixed interest rate debt
will increase as interest rates fall and decrease as interest rates rise. Based
on our market risk sensitive instruments outstanding at June 30, 1999, we have
determined that there was no material market risk exposure to our consolidated
financial position, results of operations or cash flows as of such date.
24
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as a part of this report:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
27.1.. Financial Data Schedule--Six Months Ended June 30, 1999
</TABLE>
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K during the quarter ended
June 30, 1999, which reported the intentions to effect a private offering of
$170.0 million of a series of its senior exchangeable preferred stock under
"Item 5. Other Events." The date of the report was April 28, 1999.
The Company filed a Current Report on Form 8-K during the quarter ended
June 30, 1999, which reported the successful completion of a private offering of
$170.0 million of its 13% senior exchangeable preferred stock due 2009 under
"Item 5. Other Events." The date of the report was May 6, 1999.
The Company filed a Current Report on Form 8-K during the quarter ended
June 30, 1999, which reported the amendment, waiver and consent to the DOC and
DCOC credit agreements under "Item 5. Other Events." The date of the report was
May 27, 1999.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
Date: November 18, 1999 Dobson Communications Corporation
(registrant)
/s/ EVERETT R. DOBSON
---------------------------------------------
Everett R. Dobson
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Date: November 18, 1999
/s/ BRUCE R. KNOOIHUIZEN
---------------------------------------------
Bruce R. Knooihuizen
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
</TABLE>
26
<TABLE> <S> <C>
<PAGE>
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,850,293
<SECURITIES> 0
<RECEIVABLES> 56,256,674
<ALLOWANCES> (1,898,960)
<INVENTORY> 3,511,168
<CURRENT-ASSETS> 86,260,779
<PP&E> 234,189,792
<DEPRECIATION> (52,032,755)
<TOTAL-ASSETS> 1,668,013,179
<CURRENT-LIABILITIES> 109,285,659
<BONDS> 1,013,552,199
511,642,522
314,286
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<TOTAL-LIABILITY-AND-EQUITY> 1,668,013,179
<SALES> 6,018,097
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<INCOME-PRETAX> (60,378,837)
<INCOME-TAX> (22,939,901)
<INCOME-CONTINUING> (37,438,936)
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