<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q/A
<TABLE>
<S> <C>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
</TABLE>
COMMISSION FILE NO. 000-29225
------------------------
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 / /
As of May 5, 2000, there were 93,437,647 shares of the registrant's
$.001 par value common stock outstanding.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of March 31, 2000 3
and December 31, 1999.....................................
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 2000 and 1999................ 4
Condensed Consolidated Statements of Stockholders' Equity
for the Three Months Ended March 31, 2000................. 5
Condensed Consolidated Statements of Cash Flows for the
Three months Ended March 31, 2000 and 1999................ 6
Notes to Condensed Consolidated Financial Statements........ 7
Item 2. Management's Discussion and Analysis of Financial Condition 14
and Results of Operations.................................
Item 3. Quantitative and Qualitative Disclosure about Market Risk... 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 23
Item 2. Changes in Securities and Use of Proceeds................... 23
Item 3. Defaults Upon Senior Securities............................. 23
Item 4. Submission of Matters to a Vote of Security Holders......... 23
Item 5. Other Information........................................... 23
Item 6. Exhibits and Reports on Form 8-K............................ 23
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 80,892,138 $ 4,251,104
Restricted cash and investments........................... 22,080,000 22,919,339
Accounts receivable, net.................................. 60,104,773 52,355,414
Other current assets...................................... 14,408,486 12,636,268
-------------- --------------
Total current assets.................................... 177,485,397 92,162,125
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT, net.......................... 242,153,071 208,567,577
-------------- --------------
OTHER ASSETS:
Receivables--affiliates................................... 10,635,876 8,257,403
Restricted investments.................................... 27,615,365 26,426,470
Cellular license acquisition costs, net................... 1,329,469,211 1,199,810,779
Deferred costs, net....................................... 72,958,406 67,492,378
Other intangibles, net.................................... 42,654,425 45,421,402
Investment in American Cellular Joint Venture............. 376,659,070 --
Other..................................................... 12,450,369 6,945,915
-------------- --------------
Total other assets...................................... 1,872,442,722 1,354,354,347
-------------- --------------
Total assets.......................................... $2,292,081,190 $1,655,084,049
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 60,072,690 $ 51,769,089
Accrued expenses.......................................... 27,495,518 14,419,170
Deferred revenue and customer deposits.................... 9,681,961 7,442,585
Current portion of long-term debt......................... 15,250,865 13,041,731
Accrued dividends payable................................. 11,502,582 24,672,246
-------------- --------------
Total current liabilities............................... 124,003,616 111,344,821
-------------- --------------
NET LIABILITIES OF DISCONTINUED OPERATIONS.................. -- 73,523,680
LONG-TERM DEBT, net of current portion...................... 1,238,924,690 1,055,815,604
DEFERRED CREDITS............................................ 185,521,688 207,991,241
MINORITY INTERESTS.......................................... 20,371,083 19,516,881
SENIOR EXCHANGEABLE PREFERRED STOCK, net.................... 471,103,377 455,721,875
CLASS D CONVERTIBLE PREFERRED STOCK......................... -- 85,000,000
STOCKHOLDERS' EQUITY (DEFICIT):
Class A Preferred Stock................................... -- 314,286
Class A Common Stock, $.001 par value 175,000,000 and
160,250,720 shares authorized and 27,945,154 and
63,872,059 shares issued at March 31, 2000 and December
31, 1999, respectively.................................. 27,945 63,872
Class B Common Stock, $.001 par value 70,000,000 shares
authorized and 65,492,493 shares issued at March 31,
2000.................................................... 65,492 --
Paid-in capital........................................... 612,769,213 18,234,773
Retained deficit.......................................... (360,705,914) (316,317,323)
-------------- --------------
$ 252,156,736 (297,704,392)
Less--
Class A Common Stock held in treasury (9,048,705 shares),
at cost................................................. -- (56,125,661)
-------------- --------------
Total stockholders' equity (deficit).................... 252,156,736 (353,830,053)
-------------- --------------
Total liabilities and stockholders' equity
(deficit)............................................ $2,292,081,190 $1,655,084,049
============== ==============
</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 ENDED THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
------------------ ------------------
<S> <C> <C>
OPERATING REVENUES:
Service revenue........................................ $ 56,326,572 $ 45,869,082
Roaming revenue........................................ 43,797,280 28,097,210
Equipment revenue and other............................ 5,228,777 3,280,193
------------- ------------
Total operating revenues............................. 105,352,629 77,246,485
------------- ------------
OPERATING EXPENSES:
Cost of service........................................ 23,023,172 20,356,805
Cost of equipment...................................... 11,323,178 5,817,001
Marketing and selling.................................. 16,633,570 10,210,282
General and administrative............................. 16,027,085 12,813,659
Depreciation and amortization.......................... 35,214,426 35,726,788
------------- ------------
Total operating expenses............................. 102,221,431 84,924,535
------------- ------------
OPERATING INCOME (LOSS):................................. 3,131,198 (7,678,050)
OTHER INCOME (EXPENSE):
Interest expense....................................... (31,190,797) (28,359,880)
Other income, net...................................... 2,867,533 1,608,563
------------- ------------
LOSS BEFORE MINORITY INTERESTS IN INCOME OF SUBSIDIARIES,
INCOME TAXES, DISCONTINUED OPERATIONS AND EXTRAORDINARY
ITEMS.................................................. (25,192,066) (34,429,367)
MINORITY INTERESTS IN INCOME OF SUBSIDIARIES............. (1,060,653) (555,716)
LOSS FROM INVESTMENT IN JOINT VENTURE, net of income tax
benefit of $1,795,630 for the three months ended
March 31, 2000......................................... (5,840,930) --
------------- ------------
LOSS BEFORE INCOME TAXES, DISCONTINUED OPERATIONS AND
EXTRAORDINARY ITEMS.................................... (32,093,649) (34,985,083)
INCOME TAX BENEFIT....................................... 9,976,034 13,293,965
------------- ------------
LOSS FROM CONTINUING OPERATIONS.......................... (22,117,615) (21,691,118)
LOSS FROM DISCONTINUED OPERATIONS, net of income tax
benefit of $7,388,000 for the three months ended
March 31, 1999......................................... -- (12,053,673)
------------- ------------
LOSS BEFORE EXTRAORDINARY ITEMS.......................... (22,117,615) (33,744,791)
EXTRAORDINARY EXPENSE, net of income tax benefit of
$12,495,341 for the three months ended March 31,
2000................................................... (20,387,134) --
------------- ------------
NET LOSS................................................. (42,504,749) (33,744,791)
DIVIDENDS ON PREFERRED STOCK............................. (75,407,522) (14,115,848)
------------- ------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS............... $(117,912,271) $(47,860,639)
============= ============
BASIC NET LOSS APPLICABLE TO COMMON STOCKHOLDERS PER
COMMON SHARE
Before discontinued operations and extraordinary
expense.............................................. $ (1.28) $ (0.65)
Discontinued operations................................ -- (0.22)
Extraordinary expense.................................. (0.26) --
------------- ------------
BASIC NET LOSS APPLICABLE TO COMMON STOCKHOLDERS PER
COMMON SHARE........................................... $ (1.54) $ (0.87)
============= ============
BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING......... 76,464,331 54,823,354
============= ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS B
PREFERRED STOCK COMMON STOCK COMMON STOCK TREASURY
-------------------- ---------------------- --------------------- PAID-IN STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL AT COST
-------- --------- ----------- -------- ---------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1999......... 314,286 $ 314,286 63,872,059 $ 63,872 -- -- $ 18,234,773 $(56,125,661)
Net loss................ -- -- -- -- -- -- -- --
Distribution of Logix...
Recapitalization........ (314,286) (314,286) (63,872,059) (63,872) 65,492,493 65,492 49,169,282 56,125,661
Issuance of common
stock................. -- -- 27,945,154 27,945 -- -- 545,365,158 --
Preferred stock
dividends............. -- -- -- -- -- -- -- --
-------- --------- ----------- -------- ---------- ------- ------------ ------------
March 31, 2000............ -- $ -- 27,945,154 $ 27,945 65,492,493 $65,492 $612,769,213 $ --
======== ========= =========== ======== ========== ======= ============ ============
<CAPTION>
RETAINED
DEFICIT
-------------
<S> <C>
December 31, 1999......... $(316,317,323)
Net loss................ (42,504,749)
Distribution of Logix... 73,523,680
Recapitalization........ --
Issuance of common
stock................. --
Preferred stock
dividends............. (75,407,522)
-------------
March 31, 2000............ $(360,705,914)
=============
</TABLE>
5
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations....................... $(22,117,615) $(21,691,118)
Adjustments to reconcile net loss to net cash provided by
operating activities--
Depreciation and amortization........................... 35,214,426 35,726,788
Amortization of bond premium and financing cost......... 2,422,289 1,786,020
Deferred income taxes and investment tax credits, net... (9,974,212) (10,603,293)
Minority interests in income of subsidiaries............ 1,060,653 555,716
Other................................................... (28,460) 9,169
Changes in current assets and liabilities--
Accounts receivable..................................... (7,749,359) 4,788,363
Other current assets.................................... (2,121,772) (678,328)
Accounts payable........................................ 8,967,857 (12,545,622)
Accrued expenses........................................ 13,076,348 10,603,132
Deferred revenue and customer deposits.................. 2,239,376 48,971
------------ ------------
Net cash provided by operating activities............. 20,989,531 7,999,798
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (26,109,364) (7,326,705)
Acquisitions.............................................. (170,270,443) (18,551,135)
Investment in joint venture............................... (382,500,000) --
Decrease in payable--affiliate............................ -- (5,011,438)
Increase in receivables--affiliate........................ (2,378,473) (446,873)
Proceeds from sale of assets.............................. 53,365 1,091,509
Other investing activities................................ 130,029 (260,377)
------------ ------------
Net cash used in investing activities................. (581,074,886) (30,505,019)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.............................. 714,000,000 6,000,000
Repayments of long-term debt.............................. (528,681,780) (4,000,000)
Proceeds from equity offering............................. 545,365,158 --
Redemption of preferred stock............................. (53,295,725) --
Deferred financing costs.................................. (16,544,715) --
Premium on redemption of Senior Notes..................... (23,869,310) --
Other financing activities................................ (247,239) --
------------ ------------
Net cash provided by financing activities............. 636,726,389 2,000,000
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 76,641,034 (20,505,221)
CASH AND CASH EQUIVALENTS, beginning of period.............. 4,251,104 22,323,734
------------ ------------
CASH AND CASH EQUIVALENTS, end of period.................... $ 80,892,138 $ 1,818,513
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for--
Interest, net of amounts capitalized.................. $ 17,234,695 $ 21,859,023
</TABLE>
6
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
2000 1999
------------- -------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF NON CASH FINANCING ACTIVITIES:
Conversion of Class D Preferred Stock to old Class A
Common
Stock................................................... $ 58,200,000 --
Conversion of Class D Preferred Stock to Class E Preferred
Stock
and old Class A Common Stock............................ $ 46,610,325 --
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The condensed consolidated balance sheets of Dobson Communications
Corporation ("DCC") and subsidiaries (collectively with DCC, the "Company") as
of March 31, 2000 and December 31, 1999, the condensed consolidated statements
of operations for the three months ended March 31, 2000 and 1999, the condensed
consolidated statement of stockholders' equity for the three months ended
March 31, 2000 and the condensed consolidated statements of cash flows for the
three months ended March 31, 2000 and 1999 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, 1999 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, 1999
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999.
1. ORGANIZATION
The Company, through its predecessors, was organized in 1936 as Dobson
Telephone Company and adopted its current organizational structure in 2000. The
Company is a provider of rural and suburban cellular telephone services.
Management of the Company completed a recapitalization of the Company
immediately prior to and in conjunction with its initial public offering of its
common stock on February 9, 2000. This recapitalization included:
- the conversion and redemption of its outstanding Class D preferred stock
and Class E preferred stock for cash and the issuance of old Class A
common stock;
- the conversion of old Class A common stock into Class B common stock;
- the creation of Class A common stock issued in the Company's initial
public offering;
- a 111.44 for 1 stock split of new Class B common stock;
- the retirement of the Company's Class A preferred stock; and
- the creation of a new Class D common stock to be issued upon the exercise
of options under the Company's amended 1996 option plan.
Subsequent to this recapitalization, the Company has outstanding only
Class A common stock, Class B common stock, Class D common stock, 12.25% senior
preferred stock and 13% senior preferred stock.
On February 9, 2000, the Company completed its initial public offering of
25 million shares of Class A common stock, and the sale of an additional
1.5 million shares of Class A common stock to AT&T wireless, for net proceeds
(after commissions and expenses) of $545.4 million. The Company used
$53.3 million of the net proceeds to pay accrued dividends on its Class D
preferred stock and to redeem its Class E preferred stock. An additional
$382.5 million was used as a capital contribution to its joint venture with AT&T
Wireless which acquired American Cellular Corporation. The Company intends to
use the balance of the net proceeds for working capital and other general
corporate purposes.
8
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. ACQUISITIONS
RECENT ACQUISITIONS
On March 3, 2000, the Company completed the purchase of Michigan 10 RSA for
approximately $34.0 million. Michigan 10 RSA is located in the eastern portion
of the lower-peninsula of Michigan. The Michigan 10 market area, which is mostly
surrounded by Saginaw Bay and Lake Huron, has an estimated total population of
approximately 138,000.
On February 25, 2000, the Company and AT&T Wireless, through our
equally-owned joint venture, acquired American Cellular Corporation, ("American
Cellular"), for approximately $2.5 billion, including fees and expenses.
American Cellular's systems cover a total population of approximately
4.8 million. American Cellular serves markets in portions of Illinois, Kentucky,
Michigan, Minnesota, New York, Ohio, Pennsylvania, Tennessee, West Virginia and
Wisconsin.
On February 17, 2000, the Company completed the purchase of Alaska 1 RSA for
approximately $16.0 million. Alaska 1 is located in east central Alaska,
covering the Fairbanks area, with a population of approximately 113,000.
On February 11, 2000, the Company completed the purchase of Michigan 3 RSA
for approximately $97.0 million. This market is located in northwest Michigan
and has a total population of approximately 166,000.
On January 31, 2000, the Company completed the purchase of Alaska 3 RSA for
approximately $12.0 million. Alaska 3 is located in the southeast portion of
Alaska and has a total population of approximately 74,000.
On September 15, 1999, the Company purchased Arizona 1 RSA for
$24.0 million. Arizona 1 is located in the Northwest corner of the state and
covers an estimated population base of approximately 135,000 as of March 31,
2000.
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.
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 $39.3 million. Ohio 2 is located in north
central Ohio and covers an estimated population of 262,300 people.
The acquisition transactions were accounted for as purchases, and
accordingly, their results of operations have been included in the accompanying
condensed consolidated statements of operations from the respective dates of
acquisition. The unaudited pro forma information set forth below includes all
acquisitions which occured during 1999 and 2000, as if the purchases occurred at
the beginning of each period presented. The unaudited pro forma information is
presented for informational purposes only and
9
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. ACQUISITIONS (CONTINUED)
is not necessarily indicative of the results of operations that actually would
have been achieved had the acquisitions been consummated at that time:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
------------------ ------------------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Operating revenue........................ $109,319 $ 91,117
Net loss................................. (52,884) (54,355)
Net loss applicable to common
stockholders........................... (128,291) (68,470)
Basic net loss applicable to common
stockholders per common share.......... $ (1.68) $ (1.25)
</TABLE>
3. INVESTMENT IN UNCONSOLIDATED PARTNERSHIP
The Company owns a 50% interest in American Cellular Corporation. This
investment is accounted for on the equity method. The following is a summary of
the significant financial information for American Cellular as of and for the
period from inception, February 25, 2000 through March 31, 2000:
<TABLE>
<CAPTION>
MARCH 31,
2000
----------
($ IN
THOUSANDS)
<S> <C>
Current assets.............................................. $ 42,044
Intangible assets........................................... 2,520,130
Other assets................................................ 177,270
Current liabilities......................................... 54,147
Long-term debt.............................................. 1,659,000
Other liabilities........................................... 272,580
Shareholders' equity........................................ 755,647
Revenue..................................................... 26,321
Operating loss.............................................. (1,253)
Net loss.................................................... (11,682)
</TABLE>
4. DISCONTINUED OPERATIONS
On January 24, 2000, the Company distributed the stock of its former
subsidiary, Logix Communications Enterprises, Inc ("Logix"), to certain of the
Company's shareholders. Logix' operating results through the date of the
spin-off on January 24, 2000, was reported as a loss from discontinued
operations in the Company's consolidated financial statements at December 31,
1999. Therefore, beginning in January 2000, the Company will no longer include
the operating results of Logix in their financial results.
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. The assets and liabilities of such operations have been
classified as "Net liabilities of
10
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. DISCONTINUED OPERATIONS (CONTINUED)
discontinued operations" on the December 31, 1999 consolidated balance sheet and
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
($ IN THOUSANDS)
<S> <C>
Cash and cash equivalents................................... $ 672
Restricted investments--current............................. 40,079
Other current assets........................................ 28,152
Property, plant and equipment, net.......................... 121,136
Restricted investments--non-current......................... 21,062
Goodwill.................................................... 121,280
Other assets................................................ 75,557
--------
Total assets............................................ 407,938
Current liabilities......................................... 36,540
Long-term debt, net of current portion...................... 438,330
Other liabilities........................................... 6,592
--------
Total liabilities....................................... 481,462
--------
Net liabilities of discontinued operations.................. $(73,524)
========
</TABLE>
The net loss from operations of the wireline segment was classified on the
condensed consolidated statement of operations as "Loss from discontinued
operations." Summarized results of discontinued operations are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
------------------
($ IN THOUSANDS)
<S> <C>
Net revenues.............................................. $ 26,793
Loss before income taxes.................................. (19,442)
Income tax benefit........................................ 7,388
Loss from discontinued operations......................... $(12,054)
</TABLE>
5. LONG-TERM DEBT
The Company's long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
<S> <C> <C>
Revolving credit facilities.................. $1,050,075,000 $ 705,000,000
Dobson/Sygnet Senior Notes................... 200,000,000 200,000,000
DCC Senior Notes............................. 340,000 160,000,000
Other notes payable.......................... 3,760,555 3,857,335
-------------- --------------
Total debt............................... 1,254,175,555 1,068,857,335
Less--Current maturities..................... 15,250,865 13,041,731
-------------- --------------
Total long term debt..................... $1,238,924,690 $1,055,815,604
============== ==============
</TABLE>
11
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. LONG-TERM DEBT (CONTINUED)
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 MARCH 31, 2000 AT MARCH 31, 2000
--------------- ------------ -------------- ---------------------
<S> <C> <C> <C>
Dobson/Sygnet Credit
Facilities................... $388,450,000 $357,450,000 9.3%(1)
DOC LLC Credit Facility........ 800,000,000 692,625,000 8.6%
</TABLE>
------------------------
(1) Weighted average computation is based on actual interest rates without
giving effect to the interest rate hedge discussed below.
On January 14, 2000, the Company obtained a new $800.0 million credit
facility. The proceeds of which were used primarily to:
- consolidate the indebtedness of Dobson Cellular Operations Company, a
subsidiary, under a $160.0 million credit facility and Dobson Operating
Company, a subsidiary, under a $250.0 million senior secured credit
facility;
- repurchase $159.7 million outstanding principal amount of the Company's
11.75% senior notes due 2007; and
- pay the cash portion of the costs of certain of the Company's pending
acquisitions.
This new credit facility includes a $300.0 million revolving credit facility
and $500.0 million of term loan facilities consisting of a Term A Facility of
$350.0 million and a Term B Facility of $150.0 million. All of these loans will
mature in 2007.
This credit facility is structured as a loan to the Company's subsidiary,
Dobson Operating Co., L.L.C., the successor by merger to Dobson Cellular
Operating Company and Dobson Operating Company, with guarantees from certain of
its subsidiaries and the Company. Advances bear interest, at the Company's
option, on a prime rate or LIBOR formula. The Company's obligations under the
credit facility are secured by:
- a pledge of the membership interests in the borrower;
- stock and partnership interests of certain of the borrower's subsidiaries;
and
- liens on substantially all of the assets of the borrower and the
borrower's restricted subsidiaries including FCC licenses, but only to the
extent such licenses can be pledged under applicable law.
The Company is required to amortize the Term A Facility with quarterly
principal payments of $5.0 million commencing June 30, 2001, increasing over the
term of the loan to quarterly principal payments of $25.0 million. The Company
is required to amortize the Term B Facility with quarterly principal payments of
$375,000 from March 31, 2000 through December 31, 2006 and with quarterly
principal payments of $34.9 million during 2007. In addition, under certain
circumstances, the Company is required to make prepayments of proceeds received
from significant asset sales, new borrowings and sales
12
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. LONG-TERM DEBT (CONTINUED)
of equity, other than this offering, and a portion of excess cash flow. The
Company has the right to prepay the credit facility in whole or in part at any
time.
The Company's new credit facility imposes a number of restrictive covenants
that, among other things, limit the Company's ability to incur additional
indebtedness, create liens, make capital expenditures and pay dividends.
The Company's subsidiary, Dobson/Sygnet, is a party to a credit agreement
for an aggregate of $430.0 million, consisting of a $50.0 million revolving
credit facility and $380.0 million of term loan facilities. Interest on the
revolving credit facility and the term loan facilities is based on a prime rate
or a LIBOR formula, and has ranged between 8.3% and 9.3% since inception. As of
March 31, 2000, the Company had $357.5 million outstanding under the
Dobson/Sygnet credit facilities and the Company had $31.0 million of
availability under the Dobson/Sygnet credit 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 that Dobson/Sygnet and
the Company maintain certain financial ratios. The failure to maintain these
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 on December 31, 2000. The revolving
credit facility terminates on September 23, 2006. The $50.0 million term loan
facility terminates on March 23, 2007 and the $380.0 million term loan facility
terminates on December 23, 2007.
DOBSON/SYGNET 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 in
December 1998 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. The Company has entered into a definitive
agreement to sell the Company's nine PCS licenses for $1.1 million plus the
assumption of these notes payable.
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 8.77% at March 31, 2000). The term of
the interest rate swap is 24 months. In June 1999, the Company entered into an
interest rate cap agreement
13
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. LONG-TERM DEBT (CONTINUED)
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 the
Company's leverage (approximately 10.25% at March 31, 2000) for $160 million of
its indebtedness.
6. STOCKHOLDERS' EQUITY:
The Company paid a preferred stock dividend of $75.4 million for the three
months ended March 31, 2000 consisting of approximately $15.0 million of
dividends on its 12.25% and 13% Senior Exchangeable Preferred Stock through the
issuance of additional shares of such Preferred Stock and $60.4 million of
dividends on their previous Class D and Class E shares of Preferred Stock.
As of March 31, 2000, 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 175,000,000 27,945,154 $.001 As declared --
Class B.............. Common Stock 70,000,000 65,492,493 $.001 As declared --
Class C.............. Common Stock 4,226 -- $.001 As declared --
Class D.............. Common Stock 33,000 -- $.001 As declared --
----------- ----------
245,037,226 93,437,647
----------- ----------
Senior
Exchangeable......... Preferred Stock 734,000 296,605 $1.00 12.25% Cumulative $ 1,000
Senior
Exchangeable......... Preferred Stock 500,000 187,250 $1.00 13% Cumulative $ 1,000
Class E.............. Preferred Stock 40,000 -- $1.00 15% Cumulative $ 1,131.92
Other................ Preferred Stock 4,726,000 -- $1.00 -- --
----------- ----------
6,000,000 483,855
----------- ----------
<CAPTION>
OTHER
FEATURES,
RIGHTS,
REDEMPTION PREFERENCES
CLASS DATE AND POWERS
----- ------------------- -----------
<S> <C> <C>
Class A.............. -- Voting
Class B.............. -- Voting
Class C.............. -- Voting
Class D.............. -- Voting
Senior
Exchangeable......... Jan. 15, 2008 Non-voting
Senior
Exchangeable......... May 1, 2009 Non-voting
Class E.............. after Dec. 23, 2010 Non-voting
Other................ -- --
</TABLE>
The Company adopted the 2000 stock incentive plan on January 10, 2000. The
maximum number of shares for which the Company may grant options under the plan
is 4,000,000 shares of post recapitalization Class A common stock, subject to
adjustment in the event of any stock dividend, stock split, recapitalization,
reorganization or certain defined change of control events. Shares subject to
previously expired, cancelled, forfeited or terminated options become available
again for grants of options. The shares that the Company will issue under the
plan will be newly issued shares.
7. 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 $47.0 million includes the initial deposit of
$67.7 million, net of interest earned and payments issued to bondholders.
Amortization expense of $150,550 and $232,070 was recorded for the three months
ended March 31, 2000 and 1999, respectively, for bond premiums recorded with the
purchase of the restricted investments.
14
<PAGE>
DOBSON COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
8. 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.
9. 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, as amended by SFAS 137,
Derivatives and Hedging-Deferral of the Effective Date of FASB Statement
No. 133, will be effective for fiscal years beginning after June 15, 2000. Under
SFAS 133, the Company would record an asset of $1.4 million relating to its
interest rate hedge valuation at March 31, 1999. The Company has not determined
the timing or method of adoption of SFAS 133.
10. COMMITMENTS
Effective December 6, 1995 (amended November 30, 1999), the Company entered
into an equipment supply agreement in which the Company agreed to purchase
approximately $120.0 million of cell site and switching equipment between
June 24, 1997 and December 31, 2002 to update the cellular systems for newly
acquired and existing MSAs and RSAs. Of this commitment, approximately
$41.8 million remained at March 31, 2000.
The Company entered into an additional equipment supply agreement with a
second vendor on January 13, 1998. The Company agreed to purchase approximately
$131.0 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, $61.3 million remained at March 31, 2000.
11. RECLASSIFICATIONS
Certain items have been reclassified in the 1999 consolidated financial
statements to conform to the current presentation.
12. SUBSEQUENT EVENT
On May 1, 2000, the Company completed the purchase of Texas 9 RSA for
approximately $125.0 million. Texas 9 RSA is located between Dallas/Fort Worth
and Abilene and adjoins the Company's Texas 10 property. It has a population
base of approximately 190,000 and encompasses the towns of Brownwood,
Stephenville, Hamilton and Hillsboro.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We provide rural and suburban cellular telephone services. We began
providing cellular telephone service in 1990 in Oklahoma and the Texas
Panhandle. We have expanded our cellular operations rapidly since then,
primarily through acquisitions. As of March 31, 2000, our cellular systems
covered a total population of approximately 6.4 million and we had approximately
519,800 subscribers.
On February 25, 2000, our equally-owned joint venture with AT&T Wireless
acquired American Cellular for approximately $2.5 billion, including fees and
expenses. As of March 31, 2000, American Cellular's systems covered a total
population of approximately 4.9 million and had approximately 455,300, primarily
in rural areas of the midwestern and eastern United States. We account for our
interest in the American Cellular joint venture using the equity method of
accounting.
Since 1996 we have completed 20 acquisitions of cellular licenses and
systems and related assets for an aggregate purchase price of $2.4 billion,
including 50% of the purchase price of American Cellular, increasing the total
proportionate population served by our systems to approximately 9.0 million. Our
recent acquisitions affect the comparability of our historical results of
operations for the periods discussed.
REVENUE
Our cellular revenues consist of service, roaming and equipment sales and
other 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. We believe 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. We believe 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 as well as declining average
revenues per minutes of use.
Roaming revenues are revenues we derive from providing service to
subscribers of other wireless providers when those subscribers "roam" into our
markets and use our systems to carry their calls. Roaming accounted for 41.6%
and 36.4% of our operating revenue for the three months ended March 31, 2000 and
1999, respectively. Roaming revenues typically yield higher average per minute
rates and higher margins than revenues from our subscribers. We achieve these
higher margins because we incur immaterial incremental costs related to
equipment, customer service or collections to earn roaming revenues.
Our overall cellular penetration rates increased for the three-month period
ended March 31, 2000 compared to the same period in 1999 due to the incremental
penetration gains in existing markets. We believe that as our cellular
penetration rates increase, the increase in new subscriber revenue will exceed
the loss of revenue attributable to the cellular churn rate.
We include any toll, or long-distance, revenues related to our cellular and
roaming services in service revenues and roaming revenues. Our roaming yield
(roaming service revenues, which include airtime, toll charges and surcharges,
divided by roaming minutes of use) was $0.43, $0.57 per minute for the three-
months ended March 31, 2000 and 1999, respectively. Despite the decline in our
roaming yield, we have seen overall roaming revenues grow due to growth in
roaming minutes of use.
We derive revenues from charges to our subscribers when those subscribers
roam into other wireless providers' markets. Through 1999, our accounting
practice was to net those revenues against the associated expenses charged to us
by third-party wireless providers (that is, the fees we pay the other wireless
providers for carrying our subscribers' calls on their network) and to record
the net expense as cost of service. Historically, we have been able to pass
through to our subscribers the majority of the costs charged
16
<PAGE>
to us by third-party wireless providers. Recently, the industry has been
increasing the use of pricing plans that include flat rate pricing and larger
home areas. Under these types of plans, amounts charged to us by other wireless
providers may not necessarily be passed through to our subscribers. Therefore,
we have changed our accounting procedures to report these revenues and expenses
separately in our statements of operations and have reclassified prior year
amounts to reflect this change in accounting.
COSTS AND EXPENSES
Our primary operating expense categories include cost of service, cost of
equipment, marketing and selling, general and administrative and depreciation
and amortization.
Our cost of service consists primarily of costs to operate and maintain our
facilities utilized in providing service to customers and amounts paid to
third-party cellular providers for providing service to our subscribers when our
subscribers roam into their markets.
Our cost of equipment represents the cost associated with telephone
equipment and accessories sold to customers. In recent years, we 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, we have incurred, and expect to continue to incur, losses on
equipment sales, which have resulted in increased marketing and selling costs
per gross additional subscriber. While we expect to continue these discounts and
promotions, we believe that the use of such promotions will result in increased
revenue from increases in the number of cellular subscribers.
Our 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. We pay
commissions to direct sales personnel for new business generated. Independent
sales agents receive commissions for generating new sales and ongoing sales to
existing customers.
Our general and administrative costs include all infrastructure costs such
as customer support, billing, collections, and corporate administration.
Our depreciation and amortization expense represents the costs associated
with the depreciation of our fixed assets and the amortization of our intangible
assets, primarily cellular license acquisition costs and customer lists.
DISCONTINUED OPERATIONS
On January 24, 2000, we distributed the stock of our former subsidiary,
Logix Communications Enterprises, Inc. to certain of our shareholders. Logix is
accounted for as a discontinued operation in our consolidated financial
statements.
RESULTS OF OPERATIONS
In the text below, financial statement numbers have been rounded; however,
the percentage changes are based on the actual financial statement numbers.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31,
1999
OPERATING REVENUE. For the three months ended March 31, 2000, total
operating revenue increased $28.2 million, or 36.4%, to $105.4 million from
$77.2 million for the comparable period in 1999. Total service, roaming and
equipment sales and other revenue represented 53.5%, 41.6% and 4.9%,
respectively, of total operating revenue during the three months ended
March 31, 2000 and 59.4%, 36.4% and 4.2%, respectively, of total operating
revenue during the three months ended March 31, 1999.
17
<PAGE>
The following table sets forth the components of our operating revenue for
the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
($ IN THOUSANDS)
<S> <C> <C>
Service revenue.......................................... $ 56,327 $45,869
Roaming revenue.......................................... 43,797 28,097
Equipment sales and other................................ 5,229 3,280
-------- -------
Total.................................................. $105,353 $77,246
======== =======
</TABLE>
Service revenue increased $10.4 million, or 22.8%, to $56.3 million in the
three months ended March 31, 2000 from $45.9 million in the same period of 1999.
In the first quarter of 2000, service revenue of $4.9 million was attributable
to markets acquired since March 31, 1999. The remaining $5.5 million was
primarily attributable to increased penetration and usage in the existing
company markets. Our subscriber base increased 43.9% to approximately 519,800 at
March 31, 2000 from approximately 381,800 at March 31, 1999. At March 31, 2000,
the subscriber base for markets we acquired since March 31, 1999 totaled
approximately 71,000. Our average monthly service revenue per subscriber
decreased 7.1% to $39 for the three months ended March 31, 2000 from $42 for the
comparable period in 1999 due to the addition of new lower rate subscribers and
competitive market pressures.
Roaming revenue increased $15.7 million, or 55.9%, to $43.8 million in the
three months ended March 31, 2000 from $28.1 million for the comparable period
of 1999. In the first quarter of 2000, roaming revenue of $7.3 million was
attributable to markets acquired since March 31, 1999. The remaining
$8.4 million was primarily attributable to increased roaming minutes in our
existing markets due to expanded coverage areas and increased usage in these
markets.
Equipment sales and other revenue of $5.2 million in the three months ended
March 31, 2000 represented an increase of $1.9 million, or 59.4%, from
$3.3 million in the same period of 1999, as we sold more equipment during the
three months ended March 31, 2000 as a result of growth in subscribers.
COST OF SERVICE. For the three months ended March 31, 2000, the total cost
of service increased $2.6 million, or 13.1% to $23.0 million from $20.4 million
for the comparable period in 1999. This increase was primarily attributable to
acquisitions. As a percentage of service and roaming revenue, cost of cellular
service decreased to 23.0% for the three months ended March 31, 2000 from 27.5%
for the same period in 1999. This decrease was 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 March 31, 2000, cost of
equipment increased $5.5 million, or 94.7% to $11.3 million during 2000 from
$5.8 million in the same period of 1999, primarily from increases in the volume
of equipment sold due to the growth in subscribers.
MARKETING AND SELLING COSTS. Marketing and selling costs increased
$6.4 million, or 62.9%, to $16.6 million for the three month period ended
March 31, 2000 from $10.2 million in the comparable period of 1999. This was a
result of an increase in gross subscriber adds. The number of gross subscribers
added in the first quarter of 2000 was approximately 58,000. The number of gross
subscribers added in the first quarter 1999 was approximately 35,100.
GENERAL AND ADMINISTRATIVE COSTS. General and administrative costs
increased $3.2 million, or 25.1%, to $16.0 million for the three month period
ended March 31, 2000 from $12.8 million for the same period in 1999. This
increase year over year is a result of increased infrastructure costs such as
customer service, billing, collections and administrative costs as a result of
our overall growth. Our average monthly general and administrative costs per
subscriber decreased 8.3% to $11 for the three months ended March 31, 2000
18
<PAGE>
from $12 for the comparable period in 1999. 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
March 31, 2000, depreciation and amortization expense decreased $0.5 million, or
1.4% to $35.2 million from $35.7 million in the same period of 1999. The
decrease is a result of accelerated depreciation in 1999 on certain assets that
were replaced in 1999.
INTEREST EXPENSE. For the three months ended March 31, 2000, interest
expense increased $2.8 million, or 10.0%, to $31.2 million from $28.4 million in
the same period of 1999. The increase was primarily a result of increased
borrowings to finance our acquisitions.
OTHER INCOME (EXPENSE), NET. For the three months ended March 31, 2000, our
other income increased $1.3 million, or 78.2%, to $2.9 million from
$1.6 million for the comparable 1999 period. The increase was primarily the
result of an increase in interest income that we earned on excess proceeds from
our initial public offering.
MINORITY INTERESTS IN INCOME OF SUBSIDIARIES. For the three months ended
March 31, 2000, our minority interests in income of subsidiaries increased
$0.5 million or 90.9% to $1.1 million from $0.6 million in the same period of
1999. This was a result of the increased income earned from subsidiaries in
established markets in which we do not own a 100% interest.
LOSS FROM INVESTMENT IN JOINT VENTURE. For the three months ended
March 31, 2000, we incurred a loss, net of income tax benefits, from our
American Cellular joint venture totaling $5.8 million. This loss represents our
fifty percent ownership in American Cellular for the period from acquisition
(February 25, 2000) through March 31, 2000.
INCOME (LOSS) FROM DISCONTINUED OPERATIONS. For the three months ended
March 31, 1999, our loss, net of income tax benefits, from discontinued
operations totaled $12.1 million. As previously discussed, we distributed the
capital stock of Logix to our current stockholders on January 24, 2000, and will
no longer include Logix' financial results in our consolidated operations.
EXTRAORDINARY ITEM. For the three months ended March 31, 2000, we incurred
an extraordinary loss of $20.4 million, net of income tax benefits. This loss
was a result of a tender premium paid on the early redemption of the Company's
11.75% Senior Notes and the writing off of previously capitalized financing
costs associated with the 11.75% Senior Notes and the previous DOC and DCOC
credit facilities which were refinanced in January 2000.
NET INCOME (LOSS). For the three months ended March 31, 2000, our net loss
was $42.5 million. Our net loss increased $8.8 million, or 26.0%, from
$33.7 million in the three months ended March 31, 1999. The increase in our net
loss is primarily attributable to our loss from investment in our joint venture,
our extraordinary item and our increase in interest expense resulting from our
1999 and 2000 business acquisitions and financings.
DIVIDENDS ON PREFERRED STOCK. For the three months ended March 31, 2000,
our dividends on preferred stock increased $61.3 million, or 434.2%, to
$75.4 million from $14.1 million for the comparable 1999 period. This increase
was primarily the result of a $60.4 million dividend recognized upon the
conversion of our Class D Preferred Stock into Class E Preferred Stock and old
Class A Common Stock.
LIQUIDITY AND CAPITAL RESOURCES
We have required, and will likely continue to require, substantial capital
to further develop, expand and upgrade our cellular systems and those we may
acquire. We have financed our operations through cash flows from operating
activities, bank debt and the sale of debt and equity securities.
19
<PAGE>
NET CASH FLOW
At March 31, 2000, we had working capital of $53.5 million (a ratio of
current assets to current liabilities of 1.4:1) and an unrestricted cash balance
of $80.9 million, which compares to a working capital deficit of
$(19.2) million (a ratio of current assets to current liabilities of .8:1) and
an unrestricted cash balance of $4.3 million at December 31, 1999.
Our net cash provided by operating activities totaled $21.0 million for the
three month period ended March 31, 2000, while the net cash provided by
operating activities totaled $8.0 million for the same period of 1999. The
increase of $13.0 million was primarily due to the change in current assets and
liabilities.
Net cash used in investing activities, which totaled $(581.1) million and
$(30.5) million for the three months ended March 31, 2000 and 1999,
respectively, principally related to acquisitions and capital expenditures in
all periods. Acquisitions and their related costs accounted for $552.8 million
and $18.6 million and capital expenditures were $26.1 million and $7.3 million
for the three month periods ended March 31, 2000 and 1999, respectively.
Net cash provided by financing activities was $636.7 million the three month
period ended March 31, 2000 compared to $2.0 million for the same period of
1999. Financing activity sources for the three months ended March 31, 2000
consisted primarily of net proceeds from the initial public offering of our
common stock and bank facilities.
The minority partners in our partnerships that own certain of our cellular
operations receive distributions equal to their share of the profit multiplied
by estimated income tax rates. Under our bank credit agreements, our 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 us is paid or extinguished.
CAPITAL RESOURCES
On January 14, 2000, we obtained a new $800.0 million credit facility under
a credit agreement with Bank of America, N.A., as Administrative Agent and a
group of participating lenders, the proceeds of which were used primarily to:
- consolidate the indebtedness of our Dobson Cellular Operations Company
subsidiary under a $160.0 million credit facility and our Dobson Operating
Company subsidiary under a $250.0 million senior secured credit facility;
- repurchase $159.7 million outstanding principal amount of our 11.75%
senior notes due 2007; and
- pay the cash portion of the costs of certain of our pending acquisitions.
This new credit facility includes a $300.0 million revolving credit facility
and $500.0 million of term loan facilities consisting of a Term A Facility of
$350.0 million and a Term B Facility of $150.0 million. All of these loans will
mature in 2007.
This credit facility a loan to our subsidiary, Dobson Operating Co., L.L.C.,
the successor by merger to Dobson Cellular Operating Company and Dobson
Operating Company, with guarantees from certain of its subsidiaries and us.
Advances bear interest, at our option, on a prime rate or LIBOR formula. The
weighted average interest rate was 8.6% as of March 31, 2000. Our obligations
under the credit facility are secured by:
- a pledge of the membership interests in the borrower;
- stock and partnership interests of certain of the borrower's subsidiaries;
and
- liens on substantially all of the assets of the borrower and the
borrower's restricted subsidiaries including FCC licenses, but only to the
extent such licenses can be pledged under applicable law.
20
<PAGE>
We are required to amortize the Term A Facility with quarterly principal
payments of $5.0 million commencing June 30, 2001, increasing over the term of
the loan to quarterly principal payments of $25.0 million. We are required to
amortize the Term B Facility with quarterly principal payments of $375,000 from
March 31, 2000 through December 31, 2006 and with quarterly principal payments
of $34.9 million during 2007. In addition, under certain circumstances, we are
required to make prepayments of proceeds received from significant asset sales,
new borrowings and sales of equity, other than this offering, and a portion of
excess cash flow. We have the right to prepay the credit facility in whole or in
part at any time. As of March 31, 2000, we had $692.6 million outstanding under
the credit facility.
Our new credit facility imposes a number of restrictive covenants that,
among other things, limit our ability to incur additional indebtedness, create
liens, make capital expenditures and pay dividends.
Our subsidiary, Dobson/Sygnet, is a party to a credit agreement for an
aggregate of $430.0 million, consisting of a $50.0 million revolving credit
facility and $380.0 million of term loan facilities. Interest on the revolving
credit facility and the term loan facilities is based on a prime rate or a LIBOR
formula, and has ranged between 8.3% and 9.3% since inception. As of March 31,
2000, we had $357.5 million outstanding under the Dobson/Sygnet credit
facilities and we had $31.0 million of availability under the Dobson/Sygnet
credit 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 that Dobson/Sygnet and
we maintain certain financial ratios. The failure to maintain these 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 on December 31, 2000. The revolving credit facility
terminates on September 23, 2006. The $50.0 million term loan facility
terminates on March 23, 2007 and the $380.0 million term loan facility
terminates on December 23, 2007. The weighted average interest rate on the
Dobson/Sygnet credit facilities was 9.3% as of March 31, 2000.
Dobson/Sygnet has outstanding $200.0 million aggregate principal amount of
senior notes that mature in 2008. The Dobson/Sygnet notes bear interest at an
annual rate of 12.25%, payable semi-annually on each June 15 and December 15,
beginning June 15, 1999. The Dobson/Sygnet note indenture contains restrictive
covenants that, among other things, limit our ability and that of
Dobson/Sygnet's subsidiaries to incur additional indebtedness, create liens, pay
dividends or make distributions in respect of their capital stock, make
investments or certain other restricted payments, sell assets, redeem capital
stock, issue or sell stock of restricted subsidiaries, enter into transactions
with stockholders or affiliates or effect a consolidation or merger. Of the net
proceeds from the sale of these notes, we used $67.7 million, to purchase
securities we have pledged to secure the first six semi-annual interest payments
on the notes. The restricted cash and investments balance at March 31, 2000,
relating to these purchased securities was $47.0 million.
On January 14, 2000, we repurchased $159.7 million of our outstanding
$160.0 million aggregate principal amount of senior notes which mature in
April 2007 and accrued interest at an annual rate of 11.75%, payable
semi-annually on each April 15 and October 15. We repurchased our outstanding
senior notes with funds available under our new credit facility described above.
As of March 31, 2000, we have issued and outstanding 12.25% senior preferred
stock and 13% senior preferred stock with aggregate liquidation values of
$304.3 million and $191.2 million, respectively, including accrued stock
dividends. Each of the certificates of designation for our senior preferred
stock contains several restrictive covenants which may limit our ability to
issue indebtedness in the future.
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CAPITAL COMMITMENTS
Our capital expenditures (excluding cost of acquisitions and discontinued
operations) were $26.1 million for the three months ended March 31, 2000 and we
expect our capital expenditures to be approximately $100.0 million for all of
2000. We have not budgeted any amounts to be expended in 2000 with respect to
the systems which may be acquired in acquisitions or our PCS system. The amount
and timing of capital expenditures may vary depending on the rate at which we
expand and develop our cellular systems and whether we consummate additional
acquisitions.
We have agreed to purchase approximately $120.0 million of cell site and
switching equipment from Nortel Networks Corp. prior to November 2001. Of this
commitment, approximately $41.8 million remained outstanding at March 31, 2000.
Under another equipment supply agreement, we agreed to purchase approximately
$131.0 million of cell site and switching equipment from Lucent
Technologies Inc. by January 13, 2002. Of this commitment, $61.3 million
remained outstanding at March 31, 2000. Purchases made under these commitments
will be financed using funds available under our credit facilities. We expect to
fulfill our purchase commitments under both of these agreements with purchases
budgeted for 2000 and 2001.
The American Cellular joint venture has a bank credit facility of
$1.75 billion with Bank of America N.A., as Administrative Agent and a group of
participating lenders. After initial funding and borrowings under this credit
facility to complete the American Cellular acquisition, there is approximately
$75.0 million of credit availability. American Cellular has required, and will
likely continue to require, substantial capital to further develop, expand and
upgrade its cellular systems. The American Cellular joint venture has budgeted
approximately $70.0 million for American Cellular capital expenditures in 2000.
If American Cellular does not generate sufficient cash flows from operations or
otherwise have sufficient access to capital to meet all of its debt service,
capital expenditure, working capital or other operating needs, we may be
required to fund our 50% share of any capital needs of the American Cellular
joint venture in order to protect our substantial investment in it.
Although we cannot provide any assurance, assuming successful implementation
of our strategy, including the further development of our cellular systems and
significant and sustained growth in our cash flows, we believe that borrowings
under our new credit facility, the net proceeds from our February 2000 initial
public offering and cash flows from operations should be sufficient to allow us
to consummate our pending acquisitions and are expected to be sufficient to
satisfy our currently expected capital expenditures, working capital and debt
service obligations. The actual amount and timing of our future capital
requirements may differ materially from our estimates as a result of, among
other things, the demand for our services and regulatory, technological and
competitive developments. We currently expect that we may have to refinance our
indebtedness at their respective maturities commencing in 2006. We will also
need to refinance our mandatory redemption obligations under our senior
preferred stock. Sources of additional financing may include commercial bank
borrowings, vendor financing and the sale of equity or debt securities. We
cannot assure you that any such financing will be available on acceptable terms
or at all.
IMPACT OF YEAR 2000 ISSUE
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.
During the fourth quarter of 1999, we completed our year 2000 contingency
and business continuity plans. In addition, during the first quarter of 2000, we
tested our critical systems and those tests revealed no year 2000 problems, nor
have our operations to date experienced any year 2000 related problems. We will
continue to analyze systems and services that utilize date-embedded codes that
may experience
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operational problems as various functions are utilized in the coming months. We
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 we do business to coordinate year 2000
compliance.
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, we would record an asset of $1.4 million relating to its interest rate
hedge valuation at March 31, 2000. We have not determined the timing of adoption
of SFAS 133.
FORWARD-LOOKING STATEMENTS
The description of our 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 our
performance to differ materially from the plans include, without limitation, our
ability to satisfy the financial covenants of our outstanding debt and preferred
stock instruments and to raise additional capital; our ability to manage our
rapid growth successfully and to compete effectively in our cellular business
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
ours; 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. We undertake no obligation to update or revise these forward-looking
statements to reflect events or circumstances after the date hereof including,
without limitation, changes in our business strategy or planned capital
expenditures, or to reflect the occurrence of unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our 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. We do 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 first quarter 2000, we had an interest rate hedge on $110.0 million
of our outstanding indebtedness under the Dobson/Sygnet Credit Facilities and an
interest rate cap agreement on $160.0 million of other of our indebtedness.
Increases in interest expense related to the interest rate hedge for the three
months ended March 31, 2000 and 1999 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 March 31, 2000, 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.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) On February 4, 2000, Dobson Communications Corporation (the "Company")
issued an aggregate of 57,348.06 shares of its Class A Common Stock, par value
$1.00 per share ("Old Class A Common Stock") in exchange for 37,252.91 shares of
its Class D Preferred Stock, par value $1.00 per share ("Class D Preferred
Stock"). No commission or other remuneration was paid or given directly or
indirectly for soliciting such exchange. The shares of Old Class A Common Stock
issued in such exchange were not registered under the Securities Act of 1933, as
amended (the "Securities Act") because such shares were exempt securities under
Section 3(a)9 of the Securities Act.
On February 4, 2000, the Company issued 550 shares of its Old Class A Common
Stock to certain of its existing shareholders in compliance with a contractual
"make whole" requirement contained in a certain Stockholder and Investor Rights
Agreement among the Company and such shareholders originally entered into on
December 23, 1998, as amended. The Company received no additional consideration
for the issuance of such shares. The shares of Old Class A Common Stock issued
in such transaction were not registered under the Securities Act in reliance on
the exemptions from registration provided by Section 4(2) of the Securities Act
and Regulation D promulgated thereunder.
On February 4, 2000, the Company issued an aggregate of 37,840.81 shares of
Old Class A Common Stock and 37,840.81 shares of Class E Preferred Stock, par
value $1.00 per share ("Class E Preferred Stock") upon and in connection with
the conversion of 37,840.81 shares of Class D Preferred Stock. Each share of the
Class D Preferred Stock, which had originally been issued in December 1998, was
convertible into one share of Old Class A Common Stock and one share of the
Company's Class E Preferred Stock. The shares of Old Class A Common Stock and
Class E Preferred Stock issued upon such conversion were not registered under
the Securities Act as such shares were exempt securities under the provisions of
Section 3(a)9 of the Securities Act.
On February 4, 2000, the Company effected a plan of recapitalization
pursuant to which the Company issued 111.44 shares of its Class B Common Stock
in exchange for each outstanding share of its Old Class A Common Stock. The
shares of Class B Common Stock issued in connection with such recapitalization
were not registered under the Securities Act as such shares were exempt
securities under the provisions of Section 3(a)9 of the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 24, 2000, the holders of our common stock unanimously consented
to the adoption of resolutions affirming and ratifying the:
(i) Adoption of Dobson Communications Corporation's 2000 Stock Incentive
Plan
(ii) Adoption of Plan of Recapitalization and Corporate Separation of Logix
Communications Enterprises
On January 31, 2000, the holders of our common stock unanimously consented
to the adoption of resolutions affirming and ratifying the:
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(i) Adoption of Plan of Recapitalization
(ii) Adoption of Amended and Restated Stockholder and Investor Rights
Agreement
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>
4.1 Credit Agreement dated as of February 25, 2000 among ACC
Acquisition Co. (including its successor by merger, American
Cellular Corporation), Banc of America Securities LLC, Bank
of America, N.A., Lehman Commercial Paper Inc. and TD
Securities (USA) Inc., CIBC World Markets Corp and Barclays
Bank PLC and the Lenders.
4.2 Exhibits to Amended, Restated, and Consolidated Revolving
Credit and Term Loan Agreement dated as of January 18, 2000
among Dobson Operating Company, L.L.C., Banc of America
Securities, LLC, Bank of America, N.A., Lehman Commercial
Paper Inc. and Toronto Dominion (Texas) Inc., and First
Union National Bank and PNC Bank, National Association, and
the Lenders.
27 Financial Data Schedule--Three months Ended March 31, 2000
99.1 Press Release issued May 10, 2000 regarding Wireless
Internet proposed operations
</TABLE>
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K/A on January 14, 2000, which
reported the Company's offer to purchase all of its outstanding 11.75% Senior
Notes under "Item 5. Other Events." This Current Report amended and restated the
previous Current Report filed on December 14, 2000.
The Company filed a Current Report on Form 8-K on January 27, 2000, which
reported the distribution of all of the issued and outstanding stock of Logix to
certain shareholders under "Item 5. Other Events."
The Company filed a Current Report on Form 8-K on March 9, 2000, which
reported the acquisition of American Cellular through the Company's joint
venture with AT&T Wireless under "Item 2. Acquisition or Disposition of Assets."
The Company also reported the finalization or amendment of certain agreements
related to its initial public offering and acquisition of American Celluar under
"Item 5. Other Events." Also, included are additional exhibits required by
item 7(a) and (b).
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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: June 12, 2000 DOBSON COMMUNICATIONS CORPORATION
(registrant)
/s/ EVERETT R. DOBSON
---------------------------------------------
Everett R. Dobson
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Date: June 12, 2000 /s/ BRUCE R. KNOOIHUIZEN
---------------------------------------------
Bruce R. Knooihuizen
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
</TABLE>
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