<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NO. 333-71051
------------------------
DOBSON/SYGNET COMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
OKLAHOMA 73-1547216
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 August 1, 2000, there were 100 shares of the registrant's $1.00 par
value common stock outstanding.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
DOBSON/SYGNET COMMUNICATIONS COMPANY
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, 2000 3
and December 31, 1999.....................................
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2000 and 1999......... 4
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2000 and 1999....................... 5
Notes to Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial Condition 7
and Results of Operations.................................
Item 3. Quantitative and Qualitative Disclosure about Market Risk... 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 13
Item 2. Changes in Securities and Use of Proceeds................... 13
Item 3. Defaults Upon Senior Securities............................. 13
Item 4. Submission of Matters to a Vote of Security Holders......... 13
Item 5. Other Information........................................... 13
Item 6. Exhibits and Reports on Form 8-K............................ 13
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DOBSON/SYGNET COMMUNICATIONS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,870,381 $ 2,259,212
Restricted cash and investments........................... 22,735,000 22,919,339
Accounts receivable, net.................................. 19,608,578 15,671,828
Other current assets...................................... 3,377,319 4,309,261
------------ ------------
Total current assets.................................... 47,591,278 45,159,640
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, net.......................... 68,699,494 57,389,201
OTHER ASSETS:
Restricted investments.................................... 15,343,298 26,426,470
Cellular license acquisition costs, net................... 643,912,408 666,857,580
Deferred financing costs, net............................. 42,947,522 45,526,469
Customer list, net........................................ 30,660,768 35,253,674
Other..................................................... 503,961 707,733
------------ ------------
Total other assets...................................... 733,367,957 774,771,926
------------ ------------
Total assets............................................ $849,658,729 $877,320,767
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 12,503,912 $ 9,530,798
Accrued expenses.......................................... 9,833,167 4,708,873
Deferred revenue and customer deposits.................... 3,664,047 3,334,015
Current portion of long-term debt......................... 17,750,000 11,125,000
------------ ------------
Total current liabilities............................... 43,751,126 28,698,686
------------ ------------
Payables due to affiliates................................ 15,412,800 11,178,994
Long-term debt, net of current portion.................... 546,450,000 586,875,000
Deferred income taxes..................................... 136,968,259 152,354,284
STOCKHOLDER'S EQUITY:
Common stock, $1.00 par value, 500 shares authorized and
100 shares issued and outstanding....................... 100 100
Additional paid-in capital................................ 178,300,000 145,000,000
Retained deficit.......................................... (71,223,556) (46,786,297)
------------ ------------
Total stockholder's equity.............................. 107,076,544 98,213,803
------------ ------------
Total liabilities and stockholder's deficit............. $849,658,729 $877,320,767
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
3
<PAGE>
DOBSON/SYGNET COMMUNICATIONS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING REVENUE:
Service revenue...................... $ 28,567,927 $ 24,346,224 $ 53,758,946 $ 46,655,217
Roaming revenue...................... 9,751,075 8,943,003 18,340,377 16,749,880
Equipment sales and other............ 2,657,042 1,393,887 4,766,971 3,109,909
------------ ------------ ------------ ------------
Total operating revenue............ 40,976,044 34,683,114 76,866,294 66,515,006
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Cost of service...................... 8,408,473 7,582,196 14,693,578 14,444,795
Cost of equipment.................... 4,899,438 2,403,807 10,277,990 5,154,020
Marketing and selling................ 6,007,862 5,405,698 13,014,783 9,709,876
General and administrative........... 6,052,513 5,025,646 11,795,746 10,569,198
Depreciation and amortization........ 17,471,903 17,546,677 34,625,521 35,492,525
------------ ------------ ------------ ------------
Total operating expenses........... 42,840,189 37,964,024 84,407,618 75,370,414
------------ ------------ ------------ ------------
OPERATING LOSS......................... (1,864,145) (3,280,910) (7,541,324) (8,855,408)
INTEREST EXPENSE....................... (16,077,777) (15,958,886) (33,202,034) (32,069,525)
OTHER INCOME, net...................... 633,147 942,579 1,328,422 2,258,357
LOSS BEFORE INCOME TAXES............... (17,308,775) (18,297,217) (39,414,936) (38,666,576)
INCOME TAX BENEFIT..................... 6,577,335 6,952,946 14,977,677 14,693,302
------------ ------------ ------------ ------------
NET LOSS............................. $(10,731,440) $(11,344,271) $(24,437,259) $(23,973,274)
============ ============ ============ ============
BASIC NET LOSS APPLICABLE TO COMMON
STOCKHOLDER PER COMMON SHARE......... $ (107,314) $ (113,443) $ (244,373) $ (239,733)
============ ============ ============ ============
BASIC WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING.......................... 100 100 100 100
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
DOBSON/SYGNET COMMUNICATIONS COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(24,437,259) $(23,973,274)
Adjustments to reconcile net loss to net cash provided by
operating activities--
Depreciation and amortization........................... 34,625,521 35,492,525
Amortization of financing costs......................... 2,604,759 2,933,303
Deferred income taxes................................... (15,386,025) (16,222,241)
Other................................................... (3,308) --
Changes in current assets and liabilities--
Accounts receivable..................................... (4,922,715) (5,525,477)
Other current assets.................................... 1,329,455 2,228,145
Accounts payable........................................ 2,973,114 11,700,704
Accrued expenses........................................ 5,124,294 (8,068,054)
Deferred revenues and customer deposits................. 330,032 325,845
------------ ------------
Net cash provided by (used in) operating activities... 2,237,868 (1,108,524)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (17,427,788) (12,025,974)
Purchase of cellular licenses and properties.............. -- (14,410,474)
Increase in payable-affiliate............................. 4,233,806 6,628,685
Other investing activities................................ 223,095 --
------------ ------------
Net cash used in investing activities................. (12,970,887) (19,807,763)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt.............................. (33,800,000) (11,000,000)
Proceeds from long-term debt.............................. -- 6,000,000
Capital Contribution...................................... 33,300,000 --
Maturity of restricted investments, net of interest....... 10,870,000 9,684,336
Deferred financing costs.................................. (25,812) (969,742)
------------ ------------
Net cash provided by financing activities............. 10,344,188 3,714,594
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (388,831) (17,201,693)
CASH AND CASH EQUIVALENTS, beginning of year................ 2,259,212 20,262,977
------------ ------------
CASH AND CASH EQUIVALENTS, end of year...................... $ 1,870,381 $ 3,061,284
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 24,930,321 $ 25,443,387
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
5
<PAGE>
DOBSON/SYGNET COMMUNICATIONS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheets of Dobson/Sygnet Communications
Company ("the Company") as of June 30, 2000 and December 31, 1999, the condensed
consolidated statements of operations for the three and six months ended
June 30, 2000 and 1999 and the condensed consolidated statements of cash flows
for the six months ended June 30, 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 were derived from
audited financial statements, but do 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 Form 10-K for the
fiscal year ended December 31, 1999.
1. ORGANIZATION
The Company was incorporated under the name Front Nine Holdings, Inc. as an
Oklahoma corporation on July 23, 1998. Subsequently, the Company changed its
name to Dobson/Sygnet Communications Company and amended its certificate of
incorporation on December 2, 1998 to reflect this change. The Company is a
wholly owned subsidiary of Dobson Communications Corporation ("Dobson
Communications").
2. STOCKHOLDER'S EQUITY
On March 31, 2000, the Company received an equity contribution of
$33.3 million from its parent company, Dobson Communications. This contribution
was used to repay debt under the Company's credit facility and increased the
total capital contributed by Dobson Comminications to $178.3 million.
3. RECLASSIFICATIONS
Certain items have been reclassified in the 1999 consolidated financial
statements to conform to the current presentation.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We own and operate cellular telephone systems serving a large cluster of
properties with a population of approximately 2.4 million and 243,900
subscribers located in northeastern Ohio, western Pennsylvania and western New
York. Our cellular systems are located in Youngstown, Ohio, Erie, Pennsylvania,
and in primarily rural and suburban areas between the Cleveland, Akron-Canton,
Pittsburgh, Buffalo and Rochester metropolitan areas. The following discussion
and analysis is of the financial condition and results of our operations.
REVENUE
Our cellular revenues consist of service revenue, roaming revenue 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, 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 wireless
telecommunications industry of declining average revenue per subscriber. We
believe that the downward trend results primarily from the addition of new lower
usage customers who utilize wireless services for personal convenience, security
or as a backup for their traditional landline telephone as well as declining
average revenues per minute.
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 23.8%,
25.8%, 23.9%, and 25.2% of our cellular revenue for the three and six months
ended June 30, 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 virtually no costs
related to equipment, customer service or collections to earn roaming revenues.
We include any toll, or long-distance, revenues related to our cellular and
roaming services in service revenues and roaming revenues. Our roaming yield,
which is our roaming service revenues, including airtime, toll charges and
surcharges, divided by roaming minutes of use, was $.37, $.48, $.37, and $.53
for the three and six months ended June 30, 2000 and 1999, respectively. Despite
the decline in our roaming yield, we have seen overall roaming revenues increase
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 to us by
third-party wireless providers. Recently, the industry has been moving to
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
statement of operations and have restated prior year amounts to reflect this
change in accounting principle.
Our overall cellular penetration rates increased for the six month period
ended June 30, 2000, compared to the same period in 1999 due to the incremental
penetration gains in our markets. We believe that as our cellular penetration
rates increase, the increase in new subscriber revenues will continue to exceed
the loss of revenues attributable to our cellular churns.
7
<PAGE>
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 these 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,
including costs for 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.
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 JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
OPERATING REVENUE. For the three months ended June 30, 2000, total
operating revenue increased $6.3 million, or 18.1%, to $ 41.0 million from
$34.7 million for the comparable period in 1999. Total service, roaming and
equipment sales and other revenue represented 69.7%, 23.8% and 6.5%,
respectively, of total operating revenue during the three months ended June 30,
2000 and 70.2%, 25.8%, and 4.0%, respectively, of total operating revenue during
the three months ended June 30, 1999.
The following table sets forth the components of our operating revenue for
the three months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------
JUNE 30,
-------------------
2000 1999
-------- --------
($ IN THOUSANDS)
<S> <C> <C>
Service revenue........................................... $28,568 $24,346
Roaming revenue........................................... 9,751 8,943
Equipment sales and other................................. 2,657 1,394
------- -------
Total..................................................... $40,976 $34,683
======= =======
</TABLE>
Service revenue increased $4.3 million, or 17.3%, to $28.6 million in the
three months ended June 30, 2000 from $24.3 million in the same period of 1999.
This increase was primarily attributable to increased
8
<PAGE>
penetration and usage. Our subscriber base increased 22.3% to 243,900 at
June 30, 2000 from 199,500 at June 30, 1999. The average monthly service revenue
per subscriber decreased to $39 from $42 for the three months ended June 30,
2000 compared to the same period in 1999.
Roaming revenue increased $0.9 million, or 9.0%, to $9.8 million in the
three months ended June 30, 2000 from $8.9 million for the comparable period of
1999. This increase was primarily attributable to increased roaming minutes due
to expanded coverage areas and increased usage in our markets offset by
scheduled declines in rates paid to or by our major roaming partners.
Equipment sales and other revenue increased $1.3 million or 90.6%, to $2.7
million in the three months ended June 30, 2000 from $1.4 million in the same
period of 1999, as we sold more equipment during the three months ended
June 30, 2000 as a result of growth in subscribers.
COST OF SERVICE. For the three months ended June 30, 2000, the total cost
of service increased 10.9% to $8.4 million from $7.6 million for the comparable
period in 1999. This increase is primarily the result of the growth in our
subscribers. However, as a percentage of service and roaming revenue, cost of
cellular service decreased to 21.9% for the three months ended June 30, 2000
from 22.8% for the same period in 1999. This decrease is primarily the result of
a reduction in rates charged by third-party cellular providers for providing
service to our subscribers.
COST OF EQUIPMENT. For the three months ended June 30, 2000, cost of
equipment increased $2.5 million, or 103.8% to $4.9 million from $2.4 million in
the same period of 1999, primarily from increases in the volume of equipment
upgrades from existing subscribers and new equipment sales from the growth in
subscribers.
MARKETING AND SELLING COSTS. Marketing and selling costs increased
$0.6 million, or 11.1%, to $6.0 million for the three month period ended
June 30, 2000, from $5.4 million in the comparable period of 1999. This increase
resulted mainly from an increase in advertising expenses.
GENERAL AND ADMINISTRATIVE EXPENSE. For the three months ended June 30,
2000, general and administrative cost increased $1.1 million, or 20.4%, to $6.1
million from $5.0 million for the comparable period in 1999 as a result of
increased infrastructure costs. As a percentage of total operating revenue,
general and administrative costs increased slightly to 14.8% from 14.5% for the
three month period ended June 30, 2000 compared to the same three month period
in 1999. However, the Company's average monthly general and administrative costs
per subscriber remained constant at $8 for the three months ended June 30, 2000
and 1999.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense remained constant at $17.5 million for the three months ended June 30,
2000 and 1999.
INTEREST EXPENSE. For the three months ended June 30, 2000, interest
expense increased $0.1 million, or 0.7%, to $16.1 million from $16.0 million in
the same period of 1999. The increase was primarily a result of increased
interest rates on our revolving credit facility in the three months ended
June 30, 2000 compared to the same period in 1999.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
OPERATING REVENUE. For the six months ended June 30, 2000, total operating
revenue increased $10.4 million, or 15.6%, to $76.9 million from $66.5 million
for the comparable period in 1999. Total service, roaming and equipment sales
and other revenue represented 69.9%, 23.9% and 6.2%, respectively, of total
operating revenue during the six months ended June 30, 2000 and 70.1%, 25.2%,
and 4.7%, respectively, of total operating revenue during the six months ended
June 30, 1999.
9
<PAGE>
The following table sets forth the components of our operating revenue for
the three months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
JUNE 30,
SIX MONTHS ENDED
-------------------
2000 1999
-------- --------
($ IN THOUSANDS)
<S> <C> <C>
Service revenue........................................... $53,759 $46,655
Roaming revenue........................................... 18,340 16,750
Equipment sales and other................................. 4,767 3,110
------- -------
Total..................................................... $78,866 $66,515
======= =======
</TABLE>
Service revenue increased $7.1 million, or 15.2%, to $53.8 million in the
six months ended June 30, 2000 from $46.7 million in the same period of 1999.
This increase was primarily attributable to increased penetration and usage. Our
subscriber base increased 22.3% to 243,900 at June 30, 2000 from 199,500 at
June 30, 1999. The average monthly service revenue per subscriber decreased to
$38 from $41 for the six months ended June 30, 2000 compared to the same period
in 1999.
Roaming revenue increased $1.6 million, or 9.5%, to $18.3 million in the six
months ended June 30, 2000 from $16.7 million for the comparable period of 1999.
This increase was primarily attributable to increased roaming minutes due to
expanded coverage areas and increased usage in our markets offset by scheduled
declines in rates paid to or by our major roaming partners.
Equipment sales and other revenue increased $1.7 million or 53.3%, to $4.8
million in the six months ended June 30, 2000 from $3.1 million in the same
period of 1999, as we sold more equipment during the six months ended June 30,
2000 as a result of growth in subscribers.
COST OF SERVICE. For the six months ended June 30, 2000, the total cost of
service increased 1.7% to $14.7 million from $14.4 million for the comparable
period in 1999. However, as a percentage of service and roaming revenue, cost of
cellular service decreased to 20.4% for the six months ended June 30, 2000 from
22.8% for the same period in 1999. This decrease is primarily the result of a
reduction in rates charged by third-party cellular providers for providing
service to our subscribers.
COST OF EQUIPMENT. For the six months ended June 30, 2000, cost of
equipment increased $5.1 million, or 99.4% to $10.3 million from $5.2 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
$3.3 million, or 34.0%, to $13.0 million for the six month period ended
June 30, 2000, from $9.7 million in the comparable period of 1999. This increase
resulted mainly from an increase in new subscribers added period to period which
caused higher compensation and commission expenses as well as an increase in
advertising and promotional expenses. The number of gross subscribers added in
the six month period ended June 30, 2000 was approximately 43,000. The number of
gross subscribers added in the six month period ended June 30, 1999 was
approximately 34,100.
GENERAL AND ADMINISTRATIVE EXPENSE. For the six months ended June 30, 2000,
general and administrative cost increased $1.2 million, or 11.6%, to
$11.8 million from $10.6 million for the comparable period in 1999 as a result
of increased infrastructure costs. As a percentage of total operating revenue,
general and administrative costs decreased to 15.3% from 15.9% for the six month
period ended June 30, 2000 compared to the same six month period in 1999. In
addition, the Company's average monthly general and administrative costs per
subscriber decreased to $8 from $9 for the six months ended June 30, 2000 and
1999. These decreases in general and administrative costs were a result of
efficiencies gained from the continued integration with our parent company,
Dobson Communications.
10
<PAGE>
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense decreased $0.9 million, or 2.4% to $34.6 million in the six months ended
June 30, 2000 from $35.5 million in the same period of 1999. This decrease is a
result of the acceleration of depreciation on certain assets that were replaced
in 1999.
INTEREST EXPENSE. For the six months ended June 30, 2000, interest expense
increased $1.1 million, or 3.5%, to $33.2 million from $32.1 million in the same
period of 1999. The increase was primarily a result of increased interest rates
on our revolving credit facility in the three months ended June 30, 2000
compared to the same period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
We have required, and will likely continue to require, substantial capital
to further develop, expand and upgrade our cellular telephone systems and those
we may acquire. We have financed our operations through cash flows from
operating activities, bank debt and the sale of debt securities.
At June 30, 2000, we had working capital of $3.8 million (a ratio of current
assets to current liabilities of 1.1:1) and an unrestricted cash balance of
$1.9 million, which compares to working capital of $16.5 million (a ratio of
current assets to current liabilities of 1.6:1) and an unrestricted cash balance
of $2.3 million at December 31, 1999.
Our net cash provided by operating activities totaled $2.2 million compared
to net cash used by operating activities of $1.1 million for the six month
period ended June 30, 2000, and 1999, respectively. The increase of
$3.3 million was primarily due to the change in current assets and liabilities.
Net cash used in investing activities, which totaled $13.0 million and
$19.8 million for the six months ended June 30, 2000, and 1999, respectively.
The decrease of $6.8 million was primarily due to a decrease in the purchase of
cellular licenses and properties and an increase in payables due to affiliates,
offset by an increase in capital expenditures.
Net cash provided by financing activities was $10.3 million and
$3.7 million for the six month period ended June 30, 2000 and 1999,
respectively. Financing activity for the six months ended June 30, 2000
consisted primarily of $33.3 million of capital contributions offset by
repayments of long-term debt totaling $33.8 million.
Our capital expenditures were $17.4 million for the six months ended
June 30, 2000 and we expect our capital expenditures to be approximately $30.0
to $35.0 million for all of 2000. 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.
Our subsidiary, Sygnet Wireless, Inc.'s credit facilities aggregate
$388.2 million, consisting of a $46.0 million revolving credit facility and
$342.2 million of term loan facilities. As of June 30, 2000 we had
$364.2 million outstanding under the facilities at a weighted average interest
rate of 9.7%. Obligations under our new facilities are secured by a pledge of
the capital stock of our subsidiary as well as a lien on substantially all of
our assets and those of our operating subsidiary. The credit facilities require
that we maintain certain financial ratios. The failure to maintain such ratios
would constitute an event of default, notwithstanding our ability to meet debt
service obligations. To date, we believe that we have maintained the required
financial ratios. Our ability to borrow under our credit facilities will be
limited by the requirement that, on a quarterly basis beginning December 31,
2000, the amount available under our credit facilities will reduce until they
terminate. Our outstanding $200.0 million senior notes bear interest at a rate
of 12.25% and mature in 2008. We used approximately $67.7 million of the net
proceeds from the issuance of these notes to purchase securities pledged to
secure the first six semi-annual interest payments, which began June 15, 1999.
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In March 1999, we entered into an interest rate swap that effectively fixed
the interest rate on $110.0 million of the principal outstanding on the credit
facilities at approximately 5.48% plus a factor based on our leverage
(approximately 8.77% at June 30, 2000). The term of the interest rate swap is
24 months.
Although we cannot provide any assurance, we believe that, assuming
successful implementation of our strategy, including the further development of
our cellular systems and significant and sustained growth in our cash flow,
borrowings under the credit facilities, and cash flow from operations, will be
sufficient to satisfy our currently expected capital expenditures, working
capital and debt service obligations. However, we will need to refinance the
credit facilities, and the senior notes at their maturities. Our ability to do
so will depend on, among other things, our financial condition at the time, the
restrictions in the instruments governing our indebtedness and other factors,
including market conditions beyond our control. 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. 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.
FORWARD-LOOKING STATEMENTS
The description of our plans set forth herein, including planned capital
expenditures, 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 or our performance to differ materially from the
plans include, without limitation, our ability to satisfy the financial
covenants of our outstanding debt 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 those of 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. In March 1999, we entered into an interest rate swap
that effectively fixed the interest rate on $110.0 million of the principal
outstanding on our credit facilities. Increases in interest expense related to
the interest rate swap for the six months ended June 30, 2000 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, 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
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 8K
(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-Three Months Ended June 30, 2000
</TABLE>
(b) Reports on Form 8K
Not applicable
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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> <C>
DOBSON/SYGNET COMMUNICATIONS COMPANY
Date: August 2, 2000 By: /s/ EVERETT R. DOBSON
-----------------------------------------
Everett R. Dobson
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Date: August 2, 2000 By: /s/ BRUCE R. KNOOIHUIZEN
-----------------------------------------
Bruce R. Knooihuizen
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
</TABLE>
