<PAGE>
FORM 10-Q
_______________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
(Mark one)
[_] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: June 30, 1995
-------------
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number: 0-15056
-------
COMMNET CELLULAR INC.
---------------------
(Exact name of registrant as specified in its charter)
Colorado 84-0924904
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5990 Greenwood Plaza Boulevard, Suite 300
Englewood, Colorado 80111
-------------------------
(Address of principal executive offices)
(Zip Code)
303/694-3234
------------
(Registrant's telephone number, including area code)
N/A
----------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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
--------- ---------
The number of shares of the registrant's Common Stock outstanding as of August
9, 1995 was 13,290,350.
<PAGE>
COMMNET CELLULAR INC.
Form 10-Q - June 30, 1995
INDEX
<TABLE>
<CAPTION>
Part I Financial Information Page
------ ------------------------------------------------- -----
<S> <C> <C>
Item 1 Financial Statements
Consolidated Condensed Balance Sheets -
June 30, 1995 and September 30, 1994 1
Consolidated Condensed Statements of Operations -
Three Months Ended June 30, 1995 and
June 30, 1994 3
Consolidated Condensed Statement of Operations -
Nine Months Ended June 30, 1995 and
June 30, 1994 4
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended June 30, 1995 and
June 30, 1994 5
Notes to Consolidated Condensed Financial
Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II Other Information
------ -------------------------------------------------
Item 6 Exhibits and Reports on Form 8-K 24
</TABLE>
<PAGE>
COMMNET CELLULAR INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
Assets 1995 1994
-------------------------------------- ------------ -------------
<S> <C> <C>
(unaudited)
Current assets:
Cash and cash equivalents $ 22,770,627 $ 2,081,591
Available-for-sale securities 15,653 21,198,698
Accounts receivable, net of allowance
for doubtful accounts of $1,874,236
and $2,677,124 at June 30, 1995 and
September 30, 1994, respectively 13,455,043 12,706,452
Inventory and other 5,436,237 7,316,770
------------ ------------
Total current assets 41,677,560 43,303,511
Investment in and advances to affiliates 59,258,184 61,908,761
Investment in cellular system equipment 15,636,115 9,732,075
Property and equipment, at cost:
Cellular system equipment 94,142,673 79,215,294
Land, buildings and improvements 20,164,298 17,361,917
Furniture and equipment 16,730,690 14,796,494
------------ ------------
131,037,661 111,373,705
Less accumulated depreciation 40,265,260 31,455,978
------------ ------------
Net property and equipment 90,772,401 79,917,727
Other assets, less accumulated
amortization of $28,433,681 and
$25,979,913 at June 30, 1995 and
September 30, 1994, respectively:
FCC licenses and filing rights 95,398,566 80,458,461
Deferred loan costs and other 5,836,388 6,432,286
------------ ------------
Total other assets 101,234,954 86,890,747
------------ ------------
$308,579,214 $281,752,821
============ ============
</TABLE>
See accompanying notes.
-1-
<PAGE>
COMMNET CELLULAR INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
June 30, September 30,
Liabilities and Stockholders' Equity 1995 1994
--------------------------------------- ------------- -------------
<S> <C> <C>
(unaudited)
Current liabilities:
Accounts payable $ 9,383,295 $ 10,327,933
Accrued liabilities 4,732,521 3,441,149
Accrued interest 4,259,738 2,331,034
Current portion of long-term debt 3,846,787 1,090,870
Obligation under capital leases due
within one year 388,602 588,025
------------- -------------
Total current liabilities 22,610,943 17,779,011
Long-term debt:
Secured bank financing 70,201,100 50,448,361
Obligation under capital leases due
after one year 535,909 785,082
11 3/4% senior subordinated discount
notes 123,096,970 112,979,725
Convertible subordinated debentures 79,697,000 79,700,000
Minority interests 4,349,967 4,154,175
Stockholders' equity:
Preferred Stock, $.01 par value;
1,000,000 shares authorized; no
shares issued - -
Common Stock, $.001 par value;
40,000,000 shares authorized;
12,099,677 and 11,739,108 shares
issued at June 30, 1995 and September
30, 1994, respectively 12,100 11,739
Capital in excess of par value 124,696,653 117,146,376
Unrealized losses on
available-for-sale securities - (450,311)
Accumulated deficit (116,621,428) (100,801,337)
------------- -------------
Total stockholders' equity 8,087,325 15,906,467
------------- -------------
$ 308,579,214 $ 281,752,821
============= =============
</TABLE>
See accompanying notes.
-2-
<PAGE>
COMMNET CELLULAR INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the three months ended
--------------------------
June 30, June 30,
1995 1994
--------------------------
<S> <C> <C>
Revenues:
Cellular service $16,765,900 $10,063,708
Foreign in-roaming 5,315,723 3,269,866
Equipment sales 2,096,296 1,972,468
----------- -----------
24,177,919 15,306,042
Costs and expenses:
Cellular operations:
Cost of cellular service 4,530,628 1,993,859
Cost of equipment sales 2,724,081 2,093,139
General and administrative 5,033,375 4,381,554
Marketing and selling 5,671,611 3,919,234
Depreciation and amortization 3,873,823 2,635,751
Write-down of property and equipment - 419,519
Corporate:
General and administrative 1,798,463 899,818
Depreciation and amortization 489,020 496,292
Less amounts allocated to
nonconsolidated (1,482,612) (1,002,683)
affiliates ----------- -----------
22,638,389 15,836,483
----------- -----------
Operating income (loss) 1,539,530 (530,441)
Equity in net loss of affiliates (1,109,850) (513,949)
Minority interest in net income of (430,102) -
consolidated affiliates
Gain on sales of affiliates and other - 767,008
Interest expense (6,793,647) (5,655,105)
Interest income 3,248,350 2,966,481
----------- -----------
Net loss $(3,545,719) $(2,966,006)
=========== ===========
Net loss per common share $ (0.29) $ (0.25)
=========== ===========
Weighted average shares outstanding 12,020,337 11,695,849
=========== ===========
</TABLE>
See accompanying notes.
-3-
<PAGE>
COMMNET CELLULAR INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the nine months ended
---------------------------
June 30, June 30,
1995 1994
---------------------------
<S> <C> <C>
Revenues:
Cellular service $ 42,850,554 $ 27,132,208
Foreign in-roaming 12,740,543 8,003,278
Equipment sales 6,925,524 6,575,870
------------ ------------
62,516,621 41,711,356
Costs and expenses:
Cellular operations:
Cost of cellular service 12,222,283 6,593,741
Cost of equipment sales 7,796,540 6,594,497
General and administrative 15,414,834 11,867,941
Marketing and selling 15,760,055 11,023,048
Depreciation and amortization 10,775,095 7,421,687
Write-down of property and equipment - 1,892,421
Corporate:
General and administrative 5,520,326 4,252,650
Depreciation and amortization 1,617,116 1,594,652
Less amounts allocated to
nonconsolidated
affiliates (4,715,300) (3,888,857)
------------ ------------
64,390,949 47,351,780
------------ ------------
Operating loss (1,874,328) (5,640,424)
Equity in net loss of affiliates (3,845,627) (4,099,973)
Minority interest in net income of
consolidated affiliates (691,106) -
Gain on sales of affiliates and other 67,247 3,226,012
Interest expense (19,444,232) (16,679,450)
Senior lender patronage income 763,843 1,164,053
Interest income 9,204,112 9,780,013
------------ ------------
Net loss $(15,820,091) $(12,249,769)
============ ============
Net loss per common share $ (1.33) $ (1.06)
============ ============
Weighted average shares outstanding 11,868,392 11,526,354
============ ============
</TABLE>
See accompanying notes.
-4-
<PAGE>
COMMNET CELLULAR INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the nine months ended
---------------------------
June 30, June 30,
1995 1994
---------------------------
<S> <C> <C>
Operating activities:
Net loss $(15,820,091) $(12,249,769)
Adjustments to reconcile net loss to
net cash used by operating activities:
Minority interest 691,106 -
Depreciation and amortization 12,392,211 9,016,339
Write-down of property and equipment - 1,892,421
Equity in net loss of affiliates 3,845,627 4,099,973
Gains on sales of affiliates and
other (67,247) (3,226,012)
Loss on sale of available-for-sale
securities 221,598 -
Interest expense on 11 3/4% senior
discount notes 10,117,245 8,968,138
CoBank patronage income (534,690) (814,837)
Accrued interest on advances to
affiliates (8,283,432) (7,890,031)
Change in operating assets and
liabilities, net of effects from
consolidating acquired interests:
Accounts receivable 260,702 (3,070,518)
Inventory and other 1,881,628 (2,741,054)
Accounts payable and accrued
liabilities 788,867 480,458
Accrued interest 1,928,704 (456,484)
------------ ------------
Net cash provided (used) by
operating activities 7,422,228 (5,991,376)
Investing activities:
Purchase of available-for-sale
securities (15,653) (15,900,959)
Sale of available-for-sale securities 21,427,411 14,490,357
Additions to investments in and
advances to affiliates (6,153,629) (2,561,041)
Additions to investment in cellular
system equipment (5,904,040) (7,027,771)
Additions to property and equipment (18,275,600) (14,741,088)
Additions to other assets (126,513) -
Proceeds from sales of interests in
affiliates 1,835,349 9,037,328
Purchase of interests in affiliates,
net of cash acquired and net of
assets and liabilities recorded due
to consolidation (2,448,341) (10,612,054)
------------ ------------
Net cash used by investing
activities (9,661,016) (27,315,228)
</TABLE>
See accompanying notes.
-5-
<PAGE>
COMMNET CELLULAR INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
<TABLE>
<CAPTION>
For the nine months ended
---------------------------
June 30, June 30,
1995 1994
---------------------------
<S> <C> <C>
Financing activities:
Proceeds from secured bank financing 23,514,452 2,860,662
Payments of secured bank financing (1,005,796) (2,157,127)
Reduction of obligation under capital
leases (448,596) (172,926)
Issuance of Common Stock, net of
offering costs 867,764 1,422,458
----------- ------------
Net cash provided by financing
activities 22,927,824 1,973,067
----------- ------------
Net increase (decrease) in cash and
cash equivalents 20,689,036 (31,333,537)
Cash and cash equivalents at beginning
of period 2,081,591 45,660,761
----------- ------------
Cash and cash equivalents at end of
period $22,770,627 $ 14,327,224
=========== ============
Supplemental schedule of additional
cash flow information and noncash
activities:
Cash paid during the nine-month period
for interest $ 7,398,283 $ 6,855,423
Purchase of cellular system equipment
through accounts payable 3,291,747 5,936,795
Purchases of interests in affiliates
financed with Common Stock 6,679,891 2,761,552
Conversion of convertible subordinated
debentures to Common Stock - 37,811,450
</TABLE>
See accompanying notes.
-6-
<PAGE>
COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. Basis of presentation
---------------------
CommNet Cellular Inc. and its majority-owned affiliates (the
"Company"), in its opinion, has included all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the results of
operations for the periods presented. The consolidated condensed financial
statements and notes thereto should be read in conjunction with the financial
statements and notes for the years ended September 30, 1992, 1993 and 1994
included in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1994. The results of operations for the nine months ended June
30, 1995 are not necessarily indicative of the results for a full year. Certain
amounts relating to June 30, 1994 have been reclassified to correspond to the
June 30, 1995 classification.
2. Short-term investments
----------------------
On September 30, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," and classified all short-term investments as
available-for-sale. In accordance with the Statement, prior-period financial
statements have not been restated to reflect the change in accounting principle.
The impact of adopting SFAS No. 115 is not material to the comparability of the
financial statements presented.
3. Business acquisitions and sales
-------------------------------
During the nine months ended June 30, 1995, the Company acquired
interests in several markets. In certain of these transactions, the Company
issued shares of its Common Stock. As a result of these transactions, capital
increased by approximately $6,680,000 and other assets increased by
approximately $5,904,000. In addition, the Company disposed of its independent
telephone company and its interest in one nonmanaged market. As a result of
these transactions, other assets decreased by approximately $989,000 and the
Company recognized a net gain of approximately $200,000.
4. Stockholders' equity
--------------------
Changes to Common Stock during the nine months ended June 30, 1995
were as follows:
<TABLE>
<CAPTION>
Common Stock Capital in
------------------- Excess of
Shares Amount Par Value
------------------- ------------
<S> <C> <C> <C>
Balance at September 30, 1994 11,739,108 $11,739 $117,146,376
Issuance of Common Stock:
Aggregate shares issued in unrelated
nonsignifi-cant acquisitions 258,586 259 6,679,632
Exercise of options 101,875 102 867,662
Debenture conversion 108 - 2,983
---------- ------- ------------
Balance at June 30, 1995 12,099,677 $12,100 $124,696,653
========== ======= ============
</TABLE>
-7-
<PAGE>
COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
5. Income taxes
------------
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. As of June 30,
1995, the Company has a substantial net deferred tax asset that has been
reserved with a valuation allowance of 100%. Therefore, no deferred tax expense
is necessary.
6. Subsequent events
-----------------
On July 6, 1995, the Company issued $80,000,000 of 11 1/4%
Subordinated Notes due 2005 ("Notes"). Interest on the Notes is payable on
January 1 and July 1 of each year, commencing January 1, 1996. The Notes will
mature on July 1, 2005 and will be redeemable at the option of the Company in
whole or in part, at any time on or after July 1, 2000 at stated redemption
prices. Proceeds received by the Company after fees and commissions were
$77,400,000. The proceeds were used to call the Company's 6 3/4% Convertible
Subordinated Debentures ("Debentures") for redemption. Of the $74,747,000
aggregate principal amount of the Debentures outstanding, $41,852,000 were
redeemed and the balance of $32,895,000 were converted into 1,190,673 shares of
the Company's Common Stock, resulting in net cash proceeds of $34,512,000.
In July 1995, the Company sold its 61.50% interest in Nebwest
Cellular, Inc. which owns 25.52% of Nebraska Cellular Telephone Corporation, the
licensee for the ten wireline RSA markets in the state of Nebraska, for
approximately $24.3 million which resulted in a gain after tax of approximately
$19.6 million.
-8-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
-------
Cellular systems typically experience losses and negative cash flow in
their initial years of operation and, consistent with this pattern, the Company
has incurred losses and negative cash flow since its inception. However,
operating losses have declined recently as the Company's focus has shifted from
construction and initial operation of cellular systems to increasing penetration
and subscriber usage, and the Company expects that operating income before
depreciation and amortization ("EBITDA"), which was positive during the fiscal
year ended September 30, 1994 and the nine months ended June 30, 1995, will also
be positive in future fiscal years (although there can be no assurance that this
will be the case). Certain financial analysts consider EBITDA a meaningful
measure of an entitys ability to meet long-term financial obligations, and
growth in EBITDA a meaningful barometer of future profitability, especially in a
capital-intensive industry such as cellular telecommunications. However, EBITDA
should not be considered in isolation to, or be construed as having greater
significance than, other indicators of an entitys performance. The results
discussed below may not be indicative of future results.
Consolidated results of operations include the revenues and expenses of
those markets in which the Company holds a greater than 50% interest. The
results of operations of 45 markets, 44 of which were consolidated for the
entire quarter, are included in the consolidated results for the quarter ended
June 30, 1995. The results of operations of 42 markets, 40 of which were
consolidated the entire quarter, are included in the consolidated results for
the quarter ended June 30, 1994. The increase in the number of markets included
in consolidated results is due to acquisitions consummated subsequent to June
30, 1994. Consolidated results of operations also include the operations of
Cellular, Inc. Financial Corporation ("CIFC"), the Company's wholly-owned
financing subsidiary, as well as the operations of Cellular Inc. Network
Corporation ("CINC"), a wholly-owned subsidiary through which the Company holds
interests in certain cellular licenses.
Equity in net loss of affiliates includes the Company's share of net loss
in the markets in which the Company's interest is 50% or less but 20% or
greater. For the quarter ended June 30, 1995, 30 markets were accounted for
under the equity method, compared to 35 such markets for the quarter ended June
30, 1994. Markets in which the Company's interest in the affiliate or the
affiliate's interest in the licensee is less than 20% are accounted for under
the cost method. Eighteen markets were accounted for under the cost method for
the quarter ended June 30, 1995, compared to three such markets for the quarter
ended June 30, 1994.
Interest income reflects interest income derived from the financing
activities of CIFC and the Company with nonconsolidated affiliates, as well as
interest income derived from the Company's short-term investments. CIFC has
entered into loan agreements with the Company's affiliates pursuant to which
CIFC makes loans to such entities for the purpose of financing or refinancing
the affiliates' costs of construction and operation of cellular telephone
systems. Such loans are financed with funds borrowed by CIFC from CoBank, ACB
("CoBank") and from the Company and bear interest at a rate 1% above CoBank's
average rate. From time to time, the Company advances funds on an interim basis
to affiliates. These advances typically are refinanced through CIFC. To the
extent that the cellular markets in which the Company holds an interest generate
positive cash flow, the cash is used to repay borrowings by the affiliates from
CIFC and thereafter will be used to make cash distributions to equity holders,
including the Company.
-9-
<PAGE>
Results of Operations
---------------------
Three Months Ended June 30, 1995 and 1994. Cellular service revenues,
including foreign in-roaming revenues, increased 66% from $13,334,000 for the
quarter ended June 30, 1994 to $22,082,000 for the quarter ended June 30, 1995.
The growth was primarily due to the increase in the number of subscribers in
consolidated markets. In addition to increases in market penetration, growth
resulted from an increase in the number of markets consolidated for the entire
quarter from 40 during the quarter ended June 30, 1994 to 44 during the quarter
ended June 30, 1995. Growth in subscribers accounted for 84% of the increase,
and the number of consolidated markets accounted for 16% of the increase.
During the quarter, the Company reclassified intra-system roaming to cellular
service revenue to more properly reflect revenues generated from Company
customers as distinct from revenues generated from other carriers customers
roaming into our managed network. Prior periods have been adjusted as well to
allow for meaningful comparison. Foreign in-roaming revenues increased by 63%
or $2,046,000 from $3,270,000 for the quarter ended June 30, 1994 to $5,316,000
for the quarter ended June 30, 1995 due to increased coverage in cellular
markets. Foreign in-roaming revenues are expected to increase in the future as
a result of industry-wide growth in subscribers and the Company's expansion of
its coverage, particularly along highway corridors; however, roaming rates may
decline, consistent with expected industry trends.
Average monthly revenue per subscriber, including roaming revenues,
decreased from $70 for the quarter ended June 30, 1994 to $68 for the quarter
ended June 30, 1995, reflecting the benefit of declining prices to the consumer
that is consistent with an overall industry trend. However, foreign in-roaming
revenues per subscriber were essentially flat reflecting the larger scale
benefit of the Company's cell site expansion program.
Cost of service increased as a percentage of service revenues from 15% for
the quarter ended June 30, 1994 to 21% for the quarter ended June 30, 1995,
primarily due to an increase in costs related to interconnect service offset by
the difference between accrued and actual costs for interconnect services
incurred prior to March 31, 1995.
Cellular equipment revenues increased 6% from $1,972,000 for the quarter
ended June 30, 1994 to $2,096,000 for the quarter ended June 30, 1995, primarily
due to growth of the customer base. Cost of equipment sales increased 30% from
$2,093,000 for the quarter ended June 30, 1994 to $2,724,000 for the quarter
ended June 30, 1995. The larger loss on equipment sales is due to equipment
promotions during June to stimulate subscriber growth. The Company may continue
such promotions, however, reductions in other components of customer acquisition
costs, such as advertising, would likely occur.
General and administrative costs of cellular operations increased 15% from
$4,382,000 for the quarter ended June 30, 1994 to $5,033,000 for the quarter
ended June 30, 1995, due to the growth in the customer base and the number of
consolidated markets. The majority of these costs were incremental customer
billing expense and customer service support staff. General and administrative
costs as a percentage of service revenues decreased from 33% for the quarter
ended June 30, 1994 to 23% for the quarter ended June 30, 1995. The decrease is
primarily due to revenues increasing at a faster rate than incremental general
and administrative costs.
Marketing and selling costs increased 45% from $3,919,000 for the quarter
ended June 30, 1994 to $5,672,000 for the quarter ended June 30, 1995, primarily
as a result of the number of subscribers added in consolidated markets. The
majority of these costs were incremental sales commissions, advertising costs
and incremental sales staff. Marketing costs per net new subscriber decreased
11% from $498 for the quarter ended June 30, 1994 to $441 for the quarter ended
June 30, 1995, as a result of increased net subscriber additions which outpaced
increases in costs incurred. The Company is continuing to expand its own retail
presence to capitalize on retail trade
-10-
<PAGE>
while driving down commission costs. Results of this expansion are expected by
the fourth fiscal quarter.
Depreciation and amortization relating to cellular operations increased
from $2,636,000 for the quarter ended June 30, 1994 to $3,874,000 for the
quarter ended June 30, 1995, primarily related to increased fixed asset
balances.
Corporate costs and expenses for the quarter ended June 30, 1994 were
$393,000, which represented gross expenses of $1,396,000 less amounts allocated
to nonconsolidated affiliates of $1,003,000. Corporate costs and expenses for
the quarter ended June 30, 1995 were $805,000, which represented gross expenses
of $2,288,000 less amounts allocated to nonconsolidated affiliates of
$1,483,000. The increase in expenses and amounts allocated to nonconsolidated
affiliates reflects an increase in general corporate activities.
Equity in net loss of affiliates increased 116% from $514,000 for the
quarter ended June 30, 1994 to $1,109,850 for the quarter ended June 30, 1995.
The increase is due to increased losses in nonconsolidated affiliates. This
trend is not expected to continue as affiliate losses are anticipated to
decrease in the future.
Interest expense increased 20% from $5,655,000 for the quarter ended June
30, 1994 to $6,794,000 for the quarter ended June 30, 1995 due to higher
accreted discount note and secured bank financing balances. Cash paid for
interest increased 52% from $1,154,000 for the quarter ended June 30, 1994 to
$1,750,000 for the quarter ended June 30, 1995 reflecting a higher average
secured bank financing balance.
Interest income increased 10% from $2,966,000 for the quarter ended June
30, 1994 to $3,248,000 for the quarter ended June 30, 1995. The increase is
related to an increase in note receivable balances from nonconsolidated
affiliates.
Nine Months Ended June 30, 1995 and 1994. Cellular service revenues,
including foreign in-roaming revenues, increased 58% from $35,135,000 for the
nine months ended June 30, 1994 to $55,591,000 for the nine months ended June
30, 1995. The growth was primarily due to the increase in the number of
subscribers in consolidated markets. In addition to increases in market
penetration, growth resulted from an increase in the number of markets
consolidated for the entire nine months from 38 during the nine months ended
June 30, 1994 to 42 during the nine months ended June 30, 1995. Growth in
subscribers accounted for 91% of the increase, and the number of consolidated
markets accounted for 9% of the increase. During the quarter, the Company
reclassified intra-system roaming to cellular service revenue to more properly
reflect revenues generated from Company customers as distinct from revenues
generated from other carriers' customers roaming into our managed network.
Prior periods have been adjusted as well to allow for meaningful comparison.
Foreign in-roaming revenues increased 59% or $4,738,000 from $8,003,000 to
$12,741,000 due to increased coverage in cellular markets. Foreign in-roaming
revenues are expected to increase in the future as a result of industry-wide
growth in subscribers and the Company's expansion of its coverage, particularly
along highway corridors; however, roaming rates may decline, consistent with
expected industry trends.
Average monthly revenue per subscriber, including roaming revenues,
decreased from $71 for the nine months ended June 30, 1994 to $66 for the nine
months ended June 30, 1995, reflecting the benefit of declining prices to the
consumer that is consistent with an overall industry trend. However, foreign
in-roaming revenues per subscriber were essentially flat reflecting the larger
scale benefit of the Company's cell site expansion program.
Cost of service increased as a percentage of service revenues from 19% for
the nine months ended June 30, 1994 to 22% for the nine months ended June 30,
1995, primarily due to an increase in costs related to interconnect service.
-11-
<PAGE>
Cellular equipment revenues increased 5% from $6,576,000 for the nine
months ended June 30, 1994 to $6,926,000 for the nine months ended June 30,
1995, primarily due to growth of the customer base. Cost of equipment sales
increased 18% from $6,594,000 for the nine months ended June 30, 1994 to
$7,797,000 for the nine months ended June 30, 1995. The larger loss on equipment
sales is due to equipment promotions during the second and third quarters of
1995 to stimulate subscriber growth. The Company expects to continue such
promotions, however, reductions in other components of customer acquisition
costs, such as advertising, would likely occur.
General and administrative costs of cellular operations increased 30% from
$11,868,000 for the nine months ended June 30, 1994 to $15,415,000 for the nine
months ended June 30, 1995, due to the growth in the customer base and the
number of consolidated markets. The majority of these costs were incremental
customer billing expense and customer service support staff. General and
administrative costs as a percentage of service revenues decreased from 34% for
the nine months ended June 30, 1994 to 28% for the nine months ended June 30,
1995. The decrease is primarily due to revenues increasing at a faster rate
than incremental general and administrative costs.
Marketing and selling costs increased 43% from $11,023,000 for the nine
months ended June 30, 1994 to $15,760,000 for the nine months ended June 30,
1995, primarily as a result of the number of subscribers added in consolidated
markets. The majority of these costs were incremental sales commissions,
advertising costs and incremental sales staff. Marketing costs per net new
subscriber decreased 11% from $550 for the nine months ended June 30, 1994 to
$492 for the nine months ended June 30, 1995, as a result of increased net
subscriber additions which outpaced increases in costs incurred. The Company is
continuing to expand its own retail presence to capitalize on retail trade while
driving down commission costs. Results of this expansion are expected by the
fourth fiscal quarter.
Depreciation and amortization relating to cellular operations increased
from $7,422,000 for the nine months ended June 30, 1994 to $10,775,000 for the
nine months ended June 30, 1995, primarily related to increased fixed asset
balances.
Corporate costs and expenses for the nine months ended June 30, 1994 were
$1,958,000, which represented gross expenses of $5,847,000 less amounts
allocated to nonconsolidated affiliates of $3,889,000. Corporate costs and
expenses for the nine months ended June 30, 1995 were $2,422,000, which
represented gross expenses of $7,137,000 less amounts allocated to
nonconsolidated affiliates of $4,715,000. The increase in expenses and amounts
allocated to nonconsolidated affiliates reflects an increase in general
corporate activities.
Equity in net loss of affiliates decreased 6% from $4,100,000 for the nine
months ended June 30, 1994 to $3,846,000 for the nine months ended June 30,
1995. The decrease is principally attributable to decreasing losses in markets
being accounted for under the equity method at June 30, 1995 compared to June
30, 1994 due to increasing penetration and subscriber usage. This has caused a
consistent trend of improved operating results. In addition, equity in net loss
of affiliates has decreased as fewer markets are being accounted for under the
equity method.
Interest expense increased 17% from $16,679,000 for the nine months ended
June 30, 1994 to $19,444,000 for the nine months ended June 30, 1995 due to
higher accreted discount note and secured bank financing balances. Cash paid
for interest increased 8% from $6,855,000 for the nine months ended June 30,
1994 to $7,398,000 for the nine months ended June 30, 1995.
The CoBank patronage distribution decreased 34% from $1,164,000 for the
nine months ended June 30, 1994 to $764,000 for the nine months ended June 30,
1995. The decrease was due to lower average debt balances during the prior year
which were used for patronage dividend calculation purposes.
-12-
<PAGE>
Interest income decreased 6% from $9,780,000 for the nine months ended June
30, 1994 to $9,204,000 for the nine months ended June 30, 1995. The decrease is
primarily related to the increase in the number of markets consolidated for the
nine months ended June 30, 1995, compared to the nine months ended June 30,
1994. Consolidation caused the interest earned on advances to the related
affiliates to be eliminated as an intercompany transaction. Additionally,
interest income for the nine months ended June 30, 1995 declined due to lower
short-term investment balances.
Acquisitions and Sales
----------------------
In November 1994, the Company purchased an additional 5.97% interest in
Nebwest Cellular, Inc. for $1,600,000 in cash. Pursuant to the terms of a
shareholder's agreement, the Company subsequently sold a portion of that
interest to the other shareholders on a pro rata basis for approximately
$450,000 in cash. In February 1995, the Company purchased an additional 3.37%
interest in this corporation for 34,688 shares of the Company's Common Stock.
In March 1995, the Company purchased an additional 2.57% interest in this
corporation for 28,638 shares of the Company's Common Stock. In July 1995, the
Company sold its 61.50% interest in Nebwest Cellular, Inc. which owns 25.52% of
Nebraska Cellular Telephone Corporation, the licensee for the ten wireline RSA
markets in the state of Nebraska, for approximately $24,300,000 which resulted
in a gain after tax of approximately $19,600,000.
In January 1995, the Company sold a wholly-owned subsidiary for
approximately $86,000 which resulted in a loss of approximately $297,000.
In January 1995, the Company transferred its 25% interest in one nonmanaged
RSA market to a partner in that market pursuant to a judgment. The judgment is
currently being appealed. The Company received approximately $1,699,000 upon
transfer of the interest which resulted in a gain of approximately $497,000.
In February 1995, the Company purchased additional interests ranging from
2% to 41% in eleven managed and one nonmanaged markets for approximately
$1,259,000 in cash and the issuance of 49,738 shares of the Company's Common
Stock.
In May and June 1995, the Company acquired additional interests ranging
from 17% to 51% in two managed markets and two nonmanaged markets for an
aggregate of 138,168 shares of the Company's Common Stock.
The Company has initiated discussions regarding possible acquisition of
markets or interests in Iowa, Wyoming, North Dakota and Kansas. Such
acquisitions will be pursued to the extent they enhance or extend the Company's
network and increase shareholder value. Accordingly, there can be no assurance
that any such acquisitions will be consummated.
Changes in Financial Condition
------------------------------
Net cash provided by operating activities was $7,422,000 during the nine
months ended June 30, 1995. This was primarily due to an increase to accrued
interest and accounts payable of $2,718,000 and decreases of $1,882,000 to
inventory and other. Additionally, a loss of $222,000 was recognized on the
sale of available-for-sale securities during the first quarter. Working capital
increases will likely require cash in future periods as growth in the subscriber
base continues.
Net cash used by investing activities was $9,661,000 for the nine months
ended June 30, 1995. This was due primarily to the sale of available-for-sale
securities which provided $21,427,000, offset by $18,276,000 required to fund
the purchase of property and equipment, $5,904,000 to increase the investment in
cellular system equipment and $6,154,000 used for additions to investments in
and advances to affiliates.
-13-
<PAGE>
Net cash provided by financing activities was $22,928,000 for the nine
months ended June 30, 1995. These proceeds include $23,514,000 of cash from
incremental secured bank financing and $868,000 of cash from the issuance of
Common Stock upon exercise of options.
Liquidity and Capital Resources
-------------------------------
General. CommNet Cellular Inc. (referred to herein as the "parent
company") is effectively a holding company and, accordingly, must rely on
dividends, loan repayments and other intercompany cash flows from its affiliates
and subsidiaries to generate the funds necessary to satisfy the parent company's
capital requirements. On a consolidated basis, the Company's principal source of
liquidity is the Credit Agreements, pursuant to which CoBank has agreed to lend
up to $130,000,000 to CIFC generally to be reloaned by CIFC to the Company's
affiliates for the construction, operation and expansion of cellular telephone
systems. Of the $130,000,000, up to $57,100,000 was available to be borrowed by
CIFC to be loaned to the Company for general corporate purposes, including
capital expenditures, debt service and acquisitions. The Credit Agreements
restrict the ability of the Company's affiliates and subsidiaries, a substantial
number of which are consolidated for financial statement purposes, to make
distributions to the parent company until such affiliates and subsidiaries have
repaid all outstanding debt to CIFC. As a result, a substantial portion of the
Company's consolidated cash flows and cash balances is not available to satisfy
the parent companys capital and debt service requirements.
The Company's budgeted capital requirements consist primarily of (i) parent
company capital expenditures, working capital, debt service and certain
potential acquisitions and (ii) the capital expenditures, working capital, other
operating and debt service requirements of the affiliates. In addition to
budgeted capital requirements, the Company is constantly evaluating the
acquisition of additional cellular properties, and to the extent the Company
consummates acquisitions not presently contemplated by the budget, additional
capital will be required.
As of June 30, 1995, the Company had unused commitments under the Credit
Agreements of $56,297,000, of which approximately $38,000,000 was available to
be repaid to the parent company for general corporate purposes. In addition to
the liquidity provided by the Credit Agreements, at June 30, 1995 the Company,
on a consolidated basis, had available $22,786,000 of cash and cash equivalents.
On July 6, 1995, the Company issued $80,000,000 of 11 1/4% Subordinated Notes
due 2005 ("Notes"). Proceeds received by the Company after fees and commissions
were $77,400,000. The proceeds were used to call the Company's 6 3/4%
Convertible Subordinated Debentures ("Debentures") for redemption. Of the
$74,747,000 aggregate principal amount of the Debentures outstanding,
$41,852,000 were redeemed and the balance of $32,895,000 were converted into
1,190,673 shares of the Company's Common Stock, providing net cash of
$34,297,000. In addition, subsequent to June 30, 1995, the Company sold its
Nebraska RSA interests for approximately $24,300,000 in cash. See "Acquisitions
and Sales." $19,100,000 of these proceeds were used to repay borrowings from
CoBank. The Company expects that substantially all of these funds will be
available to fund parent company capital expenditures, debt service requirements
and acquisitions, if any.
On a consolidated basis, the Company's capital expenditures for the nine
months ended June 30, 1995 were $27,471,000. The Company plans to make parent
company capital expenditures and fund working capital and acquisition
requirements for the balance of fiscal year 1995 and for fiscal year 1996 of
$11,414,000 and $34,889,000, respectively, primarily for switch capacity and
computer system upgrades. Capital expenditures, working capital, and other
operating requirements of the Company's affiliates are expected to be $7,640,000
and $45,363,000 for the balance of fiscal 1995 and fiscal 1996, respectively,
for working capital requirements, channel expansion and additional cell sites.
CIFC anticipates it will require an additional $15,639,000 during calendar year
1996 for principal amortization of the Credit Agreements if the extension of the
termination date of the Credit Agreements (as described in "The Credit
Agreements") is not
-14-
<PAGE>
obtained. The Company believes operating cash flow, existing cash balances,
borrowing availability under the Credit Agreements, cash proceeds from the
issuance of the Notes net of the payments related to the redemption of the
Debentures, and proceeds of the sale of the Nebraska RSA interests will be
sufficient to meet the anticipated capital requirements of the parent company
and the affiliates.
The Company's near-term debt service requirements will consist of interest
payments on the indebtedness incurred under the Credit Agreements, interest
payments on the Company's 8.75% Convertible Senior Subordinated Notes and
interest payments on the Notes. Interest on the Company's 11 3/4% Senior
Subordinated Discount Notes is payable in cash commencing March 1, 1999. The
Company anticipates its cash interest expense for the fourth quarter of fiscal
year 1995 and for fiscal year 1996 will be $6,154,000, including the premium on
the debentures redeemed July 1995, and $22,953,000, respectively. Revolving loan
indebtedness outstanding under the Credit Agreements will be converted to term
loan indebtedness at December 31, 1995 and will be amortized over the next five
years. The Company is seeking to extend the termination date of the Credit
Agreements to December 31, 1996. See "The Credit Agreements" below. If the
extension is not obtained, the Company expects that principal amortization of
$15,639,000 in respect of the Credit Agreements will be required during the
course of the calendar year ending December 31, 1996. The Company believes
operating cash flow, existing cash balances, borrowing availability under the
Credit Agreements, cash proceeds from the issuance of the Notes net of the
payments related to the redemption of the Debentures, and the proceeds of the
sale of the Nebraska RSA interests will be sufficient to meet the anticipated
debt service requirements of the Company at both the parent company level and on
a consolidated basis.
Although the Company believes that the foregoing sources of liquidity will
be sufficient to meet budgeted capital expenditures and debt service
requirements of the parent company and the affiliates, there can be no assurance
that this will be the case. In particular, there can be no assurance that the
Company will be able to extend the termination date of the Credit Agreements.
In such event, the Company believes it will be able to satisfy its capital
expenditure and debt service requirements with unrestricted operating cash flow;
however, the Company may be required to reduce discretionary capital spending.
To the extent the Company's cash flow is not sufficient to satisfy such
requirements, the Company will be required to raise funds through additional
financings or asset sales.
The Company continually evaluates the acquisition of cellular properties.
Acquisitions are likely to require capital in addition to the budgeted capital
requirements described above, and such requirements may in turn require the
issuance of additional debt or equity securities. The Company's ability to
finance the acquisition of additional cellular properties with debt financing
may be constrained by certain restrictions contained in its existing debt
instruments. In such event, the Company would be required to seek amendments to
such instruments. There can be no assurance that such amendments could be
obtained on terms acceptable to the Company.
The Credit Agreements. Pursuant to the Credit Agreements, CoBank has
agreed to loan up to $130,000,000 to CIFC to be reloaned by CIFC to affiliates
of the Company for the construction, operation and expansion of cellular
telephone systems. In addition, as of June 30, 1995, approximately $38,000,000
of the $130,000,000 was available under the Credit Agreements to be borrowed by
CIFC and loaned to the Company for general corporate purposes. As of June 30,
1995, the outstanding balance under the Credit Agreements was approximately
$74,048,000. In July 1995, $19,100,000 of the balance was paid to CoBank from
the proceeds of the sale of the Company's interest in the Nebraska RSAs. The
Credit Agreements provide, at the Company's option, for interest at 1.00% over
prime (10.00% at June 30, 1995) or 2.25% over LIBOR (8.33% at June 30, 1995).
The loans are secured by a first lien upon all of the assets of CIFC and each of
the affiliates to which funds are advanced by CIFC. In addition, the Company
has guaranteed the obligations of CIFC to CoBank and has granted CoBank a first
lien on all of the assets of the Company as security for such guaranty.
-15-
<PAGE>
In accordance with the Company's desire to minimize interest rate
fluctuations and to improve the predictability of costs incurred throughout its
growth stage, CIFC has elected to fix interest rates on approximately
$45,090,000 of its long-term debt payable to CoBank at rates ranging from 8.84%
to 10.90%. Additionally, CIFC has entered into a prime-based interest rate swap
with CoBank as a means of controlling interest rates on $2,500,000 of its
variable rate loans. This swap agreement was entered into on July 1, 1993 for a
three-year period ending July 1, 1996. The swap agreement requires CIFC to pay
a fixed rate of 7.01% over the term of the swap, and CoBank to pay a floating
rate of prime (9.00% at June 30, 1995). The weighted average interest rate of
borrowings under the Credit Agreements, after giving effect to the swap, was
10.17% at June 30, 1995.
The Credit Agreements prohibit the payment of cash dividends, limit the use
of borrowings, prohibit any other senior borrowings, restrict expenditures for
certain investments, require the maintenance of certain minimum levels of net
worth, working capital, cash and operating cash flow and require the maintenance
of certain liquidity, capitalization, debt, debt service and operating cash flow
ratios. The requirements of the Credit Agreements were established in relation
to the anticipated capital and financing needs of the Company's affiliates and
their anticipated results of operations. The Company is currently in compliance
with all covenants and anticipates it will continue to meet their requirements
of the Credit Agreements. CoBank has sold participations in the Credit
Agreements to two other financial institutions whose approval may be required
for waivers or other amendments to the Credit Agreements requested by CIFC or
the Company.
CIFC and CoBank are negotiating to increase the facility under the Credit
Agreements from the current $130,000,000 to $165,000,000. Of the increase of
$35,000,000, $10,000,000 will be available for loans to affiliates of the
Company to cover capital, operating and debt service requirements and
$25,000,000 will be available to fund the acquisitions of additional cellular
systems, subject to certain conditions. As a result of this increase request,
CoBank has solicited potential participations in the facility from commercial
banks. The facility will also be amended, among other things, to extend the
termination date of the loans from December 31, 1995 to December 31, 1996, to
reduce the principal amortization period from five to four years and to
incorporate new financial covenants. The Company believes that it will be
successful in obtaining the foregoing amendments to the Credit Agreements,
although there can be no assurance that it will be able to do so. The Company
also believes that if necessary it could refinance and replace the Credit
Agreements with a secured bank facility provided by lenders other than CoBank.
However, there can be no assurance that the Company would be able to secure any
such facility.
-16-
<PAGE>
SUPPLEMENTAL INFORMATION
General. The Company operates, manages and finances cellular telephone
systems, primarily in rural markets in the mountain and plains regions of the
United States. The Company's cellular interests currently represent
approximately 3,314,000 net Company pops in 83 markets located in 14 states.
These markets consist of 73 RSA markets having a total of 5,386,000 pops and 10
MSA markets having a total of 1,581,000 pops, of which the Company's interests
represent 2,650,000 net Company pops and 664,000 net Company pops, respectively.
The Company currently manages 56 of the 83 markets in which it holds an interest
and owns a greater than 50% interest in 45 of its 56 managed markets. The
Company currently finances entities holding interests representing approximately
4,409,000 pops, of which 3,314,000 are included in net Company pops and
1,095,000 are attributable to parties other than the Company. Pops refers to
the estimated population of a market as initially licensed by the Federal
Communications Commission ("FCC") Systems in which the Company holds an
interest constitute the largest geographic collection of contiguous cellular
markets in the United States.
The Company has concentrated on creating an integrated network of
contiguous cellular systems comprised of markets which are managed by the
Company. The network currently consists of 56 markets (49 RSA and 7 MSA
markets) spanning eight states and represents approximately 4,221,000 pops and
3,011,000 net Company pops. As of June 30, 1995, the RSA and MSA managed
markets had 100,439 and 39,798 subscribers, respectively. The Company has been
significantly expanding radio signal coverage, with construction of 70 cell
sites already complete in fiscal year 1995 and 16 additional cell sites expected
to be completed by the end of the fiscal year. The Company expects that by
September 30, 1995 radio signal coverage will reach 97% of the population within
the managed markets and will reach 98% during fiscal year 1996. No significant
expansion of radio signal coverage within the managed markets is contemplated
thereafter; and, accordingly, the number of covered pops will be marginally
lower than the number of total pops on a going-forward basis.
Information regarding the Company's interests in each affiliate, the
interest of each affiliate in a cellular licensee and the market subject to such
license as of August 9, 1995, is summarized in the following table. The table
does not reflect transactions that are pending or under negotiation. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Acquisitions and Sales."
<TABLE>
<CAPTION>
Company Affiliate(s) Net
MSA or Interest in Interest in 1994 Company
RSA Code (1) State Affiliate(s) (2) Licensee (3) Population (4)(8) Pops (5)
------------ ------------------------ ---------------- ------------ ----------------- ----------
<C> <S> <C> <C> <C> <C>
MSAs:
141 Minnesota 49.00% 16.34% LP 243,518 19,498
185 Indiana 100.00% 16.67% LP 170,313 28,391
241*(6)(7) Colorado 73.99% 100.00% GP 127,299 94,189
253*(6)(7) Iowa 74.50% 100.00% GP 118,105 87,988
267*(6)(7) South Dakota 100.00% 51.00% GP 133,987 68,333
268*(6)(7) Montana 54.10% 100.00% GP 122,871 66,473
279 Maine 33.33% 33.33% GP 380,973 42,322
289*(6)(7) South Dakota 100.00% 100.00% GP 113,831 113,831
297*(6)(7) Montana 100.00% 100.00% GP 81,938 81,938
298*(6)(7) North Dakota 100.00% 70.00% GP 87,835 61,485
--------- ---------
Total MSA 1,580,670 664,448
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
Company Affiliate(s) Net
MSA or Interest in Interest in 1994 Company
RSA Code (1) State Affiliate(s) (2) Licensee (3) Population (4)(8) Pops (5)
------------ ------------------------ ---------------- ------------ ----------------- ----------
<C> <S> <C> <C> <C> <C>
RSAs:
348*(7) Colorado 10.00% 100.00% GP 45,211 4,521
349*(6)(7) Colorado 58.60% 100.00% GP 63,315 37,103
351*(6)(7) Colorado 61.75% 100.00% GP 65,026 40,154
352*(6)(7) Colorado 66.00% 100.00% GP 26,890 17,747
353*(6)(7) Colorado 100.00% 100.00% GP 68,119 68,119
354*(6)(7) Colorado 69.40% 100.00% GP 45,689 31,708
355*(7) Colorado 49.00% 100.00% GP 45,026 22,063
356*(7) Colorado 49.00% 100.00% GP 27,671 13,559
389 Idaho 100.00% 50.00% LP 66,552 33,276
390 Idaho 100.00% 33.33% LP 15,911 5,303
392*(6)(7) Idaho (B1) 100.00% 100.00% LP 136,677 136,677
393*(6)(7) Idaho 91.64% 100.00% GP 288,252 264,154
415 Iowa 49.00% 20.64% LP 155,924 15,770
416 Iowa 49.00% 78.57% LP 108,063 41,603
417*(6)(7) Iowa 100.00% 100.00% GP 152,917 152,917
419* Iowa 49.00% 91.67% GP 54,653 24,549
420*(6)(7) Iowa 100.00% 100.00% GP 63,395 63,395
424 Iowa 49.00% 35.00% LP 66,706 11,440
425* Iowa 49.00% 27.11% LP 107,924 14,337
426*(7) Iowa 52.65% 93.33% GP 85,106 41,820
427*(7) Iowa 53.64% 91.66% GP 102,917 50,601
428(7) Kansas 100.00% 3.07% LP 28,006 860
429(7) Kansas 100.00% 3.07% LP 31,188 957
430(7) Kansas 100.00% 3.07% LP 52,587 1,614
431(7) Kansas 100.00% 3.07% LP 127,201 3,905
432(7) Kansas 100.00% 3.07% LP 121,351 3,725
433(7) Kansas 100.00% 3.07% LP 20,183 620
434(7) Kansas 100.00% 3.07% LP 81,665 2,507
435(7) Kansas 100.00% 3.07% LP 127,567 3,916
436(7) Kansas 100.00% 3.07% LP 58,095 1,784
437(7) Kansas 100.00% 3.07% LP 105,951 3,253
438(7) Kansas 100.00% 3.07% LP 81,692 2,508
439(7) Kansas 100.00% 3.07% LP 42,526 1,306
440(7) Kansas 100.00% 3.07% LP 28,891 887
441(7) Kansas 100.00% 3.07% LP 172,162 5,285
442(7) Kansas 100.00% 3.07% LP 155,265 4,767
512 Missouri (B1) 49.00% 30.00% LP 76,931 11,309
523*(6)(7) Montana (B1) 100.00% 100.00% GP 68,744 68,744
523*(6)(7) Montana (B2) 100.00% 98.76% GP 72,353 71,456
524*(6)(7) Montana 61.75% 100.00% GP 37,972 23,448
525*(6)(7) Montana 69.40% 100.00% GP 15,058 10,450
526*(6)(7) Montana 100.00% 100.00% GP 39,999 39,999
527*(6)(7) Montana 100.00% 100.00% GP 180,555 180,555
528*(6)(7) Montana 61.75% 100.00% GP 64,321 39,718
529*(6)(7) Montana 74.50% 100.00% GP 29,807 22,206
530*(6)(7) Montana 61.75% 100.00% GP 85,945 53,071
531*(6)(7) Montana 100.00% 100.00% GP 31,508 31,508
532*(6)(7) Montana 100.00% 100.00% GP 19,628 19,628
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
Company Affiliate(s) Net
MSA or Interest in Interest in 1994 Company
RSA Code (1) State Affiliate(s) (2) Licensee (3) Population (4)(8) Pops (5)
------------ ------------------------ ---------------- ------------ ----------------- ----------
<C> <S> <C> <C> <C> <C>
RSAs:
553* New Mexico 49.00% 33.33% LP 251,919 41,143
555 New Mexico 49.00% 25.00% LP 78,980 9,675
557 New Mexico 49.00% 33.33% LP 56,850 9,285
580*(6)(7) North Dakota 52.76% 100.00% GP 101,590 53,599
581*(7) North Dakota 49.00% 100.00% GP 59,678 29,242
582 North Dakota 49.00% 84.59% LP 90,940 37,694
583*(7) North Dakota 49.00% 100.00% GP 65,368 32,030
584*(6)(7) North Dakota 61.75% 100.00% GP 48,986 30,249
634*(6)(7) South Dakota 100.00% 100.00% GP 36,122 36,122
635*(6)(7) South Dakota 56.29% 100.00% GP 22,501 12,666
636*(6)(7) South Dakota 57.50% 100.00% GP 53,892 30,988
638*(6)(7) South Dakota (B1) 100.00% 100.00% GP 16,774 16,774
638*(6)(7) South Dakota (B2) 100.00% 100.00% GP 8,385 8,385
639*(6)(7) South Dakota (B1) 61.75% 100.00% GP 33,501 20,687
639*(6)(7) South Dakota (B2) 61.75% 100.00% GP 5,586 3,449
640*(6)(7) South Dakota 64.49% 100.00% GP 65,711 42,377
641*(6)(7) South Dakota 61.13% 100.00% GP 71,915 43,962
642*(7) South Dakota 49.00% 100.00% GP 92,384 45,268
675*(6)(7) Utah 100.00% 100.00% GP 53,271 53,271
676*(6)(7) Utah 100.00% 100.00% GP 91,208 91,208
677*(6)(7) Utah (B3) 74.50% 100.00% GP 38,644 28,790
678*(6)(7) Utah 100.00% 80.00% GP 23,676 18,941
718*(6)(7) Wyoming 66.00% 100.00% GP 47,112 31,094
719*(6)(7) Wyoming 100.00% 100.00% GP 73,641 73,641
720*(6)(7) Wyoming 100.00% 100.00% GP 148,567 148,567
--------- ---------
Total RSA 5,386,296 2,649,909
--------- ---------
Total MSA and RSA 6,966,966 3,314,357
========= =========
</TABLE>
__________
(1) MSA ranking is based on population as established by the FCC. RSAs have
been numbered by the FCC alphabetically by state.
(2) Represents the composite ownership interest held by the Company in the
respective affiliate(s). Composite ownership by the Company in
affiliate(s) of greater than 50% does not necessarily represent a
controlling interest in any affiliate.
(3) Represents the composite ownership interest of the Company's affiliate(s)
in the licensee for a cellular telephone system in the respective market.
Composite ownership by affiliate(s) in a licensee of greater than 50% does
not necessarily represent a controlling interest in such licensee. GP
indicates that at least one affiliate has a general partner or controlling
interest in the licensee; LP indicates that the affiliate(s) has a limited
partner or minority interest.
(4) Derived from the Strategic Marketing, Inc. 1994 population estimates.
(5) Net Company Pops represents Company interest in affiliate(s) multiplied by
affiliate(s) interest in licensee multiplied by 1994 population.
(6) The operations of these markets are currently reflected on a consolidated
basis in the Company's consolidated financial statements. The operations
of the other markets in which the Company holds an interest are reflected
in such financial statements on either an equity or a cost basis.
-19-
<PAGE>
(7) The Company's interest in these markets is held, in whole or in part,
directly in the licensee.
(8) Represents population within the market area initially licensed by the FCC.
The number of pops which are covered by radio signal in a market is
expected to be marginally lower than the market's total pops on a going-
forward basis.
Markets managed by the Company are denoted by an asterisk (*).
Subscriber Growth Table
-----------------------
Information regarding subscribers to the MSA and RSA cellular systems
managed by the Company is summarized by the following table:
<TABLE>
<CAPTION>
Number of Estimated Population Number of
Operating Systems of Operating Systems Subscribers
------------------- ------------------------------------- ---------------------------- Subscriber
Total MSA RSA Total MSA RSA Total MSA RSA Growth
----- --- --- --------- ------- --------- ------- ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sept. 30, 1987 0 0 0 0 0 0 0 0 0
Sept. 30, 1988 4 4 0 504,529 504,529 (1) 0 424 424 0
Sept. 30, 1989 4 4 0 500,804 500,804 (2) 0 1,362 1,362 0 221.23%
Sept. 30, 1990 18 4 14 1,687,481 500,804 (2) 1,186,677 (2) 6,444 3,513 2,931 373.13%
Sept. 30, 1991 49 5 44 3,509,779 566,722 (3) 2,943,057 (3) 17,952 6,387 11,565 178.58%
Sept. 30, 1992 49 5 44 3,509,779 566,722 (3) 2,943,057 (3) 35,884 11,119 24,765 99.89%
Sept. 30, 1993 50 6 44 3,665,758 644,526 (4) 3,021,232 (4) 60,381 17,898 42,483 68.27%
Sept. 30, 1994 55 7 48 3,906 063 771,660 (5) 3,134,403 (5) 99,002 30,711 68,291 63.96%
Dec. 31, 1994 55 7 48 3,904,636 771,660 (5) 3,132,976 (5) 114,918 34,702 80,216 16.08%
March 31, 1995 55 7 48 3,904,636 771,660 (5) 3,132,976 (5) 124,057 36,680 87,377 7.95%
June 30, 1995 56 7 49 4,220,975 785,866 (6) 3,435,109 (6) 140,237 39,798 100,439 13.04%
</TABLE>
_______________
(1) Derived from 1988 Donnelley Market Service population estimates.
(2) Derived from 1989 Donnelley Market Service population estimates.
(3) Derived from 1990 Census Report.
(4) Derived from 1992 Donnelley Market Service population estimates.
(5) Derived from 1993 Strategic Marketing, Inc. population estimates.
(6) Derived from 1994 Strategic Marketing, Inc. population estimates.
-20-
<PAGE>
The following table presents operating data for all cellular licensees in
which the Company holds an interest. The "Combined," "Financed Proportionate"
and "Company Proportionate" operating results, which are not included in the
Company's consolidated financial statements, are provided to assist in
understanding the results of the licensees in which the Company holds an
interest. Generally accepted accounting principles ("GAAP") prescribe inclusion
of revenues and expenses for consolidated interests (generally interests of more
than 50%), but not for equity interests (generally interests of 20% to 50%) or
cost interests (generally interests of less than 20%). Equity accounting
results in the same net income as consolidation; however, the net operating
results are reflected on one line below operating income. Operating activity
related to interests accounted for under the cost method are not reflected at
all in a GAAP operating statement.
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------------------------------------------------------------------------
1995 1994 1995 1994 1995 1994
--------------------------- --------------------------- ----------------------------
Combined (1) Financed Proportionate (2) Company Proportionate (3)
--------------------------- --------------------------- ----------------------------
MANAGED MARKETS (4)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Cellular service $52,773,711 $36,188,412 $49,173,892 $33,090,548 $38,284,437 $25,294,651
Foreign in-roaming 16,074,448 9,931,050 15,119,715 8,996,089 11,375,517 6,619,589
Equipment sales 3,640,638 3,642,557 3,380,816 3,324,518 2,596,621 2,463,198
----------- ----------- ----------- ----------- ----------- -----------
Total revenues 72,488,797 49,762,019 67,674,423 45,411,155 52,256,575 34,377,438
Cash costs and expenses:
Cost of sales:
Cellular service
(including
roaming) 15,101,175 8,540,576 14,297,659 7,850,433 10,709,089 5,593,966
Equipment sales 4,702,530 3,956,914 4,345,212 3,605,556 3,339,079 2,676,407
General and
administrative 18,992,387 15,577,182 17,836,210 14,276,439 13,810,217 10,690,083
Marketing and selling 19,317,254 14,014,667 18,064,384 12,790,841 13,933,739 9,815,249
----------- ----------- ----------- ----------- ----------- -----------
Total cash costs and
expenses 58,113,346 42,089,339 54,543,465 38,523,269 41,792,124 28,775,705
----------- ----------- ----------- ----------- ----------- -----------
EBITDA $14,375,451 $ 7,672,680 $13,130,958 $ 6,887,886 $10,464,451 $ 5,601,733
=========== =========== =========== =========== =========== ===========
Capital expenditures $25,973,369 $25,046,749 $23,354,659 $24,849,287 $19,195,070 $20,974,289
Subscriber count 139,057 88,686 128,959 80,846 99,748 61,393
Total markets 55 54 55 54 55 54
NONMANAGED MARKETS
Revenues:
Cellular service
(including roaming) $47,422,936 $36,711,439 $14,210,742 $10,506,238 $ 7,516,783 $ 5,299,981
Equipment sales 4,062,510 2,232,816 1,180,870 674,645 687,842 356,997
----------- ----------- ----------- ----------- ----------- -----------
Total revenues 51,485,446 38,944,255 15,391,612 11,180,883 8,204,625 5,656,978
Cash costs and expenses:
Cost of sales:
Cellular service 15,316,475 13,314,498 4,706,322 3,915,782 2,458,942 1,932,233
Equipment sales 3,675,621 627,790 1,094,826 307,246 619,478 159,260
General and
administrative 10,091,300 9,363,759 3,024,073 2,848,131 1,609,567 1,497,393
Marketing and selling 14,598,890 9,467,097 4,280,052 2,728,228 2,310,459 1,340,125
----------- ----------- ----------- ----------- ----------- -----------
Total cash costs
and expenses 43,682,286 32,773,144 13,105,273 9,799,387 6,998,446 4,929,011
----------- ----------- ----------- ----------- ----------- -----------
EBITDA $ 7,803,160 $ 6,171,111 $ 2,286,339 $ 1,381,496 $ 1,206,179 $ 727,967
=========== =========== =========== =========== =========== ===========
Capital expenditures $26,125,370 $15,326,381 $ 8,216,247 $ 4,584,953 $ 4,700,244 $ 2,258,018
Subscriber count 100,142 71,769 28,550 20,730 16,150 10,079
Total markets 38 26 38 26 38 26
</TABLE>
-21-
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended June 30,
------------------------------
1995 1994
------------------------------
<S> <C> <C>
Reconciliation From Company Proportionate EBITDA
to Consolidated Reporting
Total proportionate EBITDA (managed and nonmanaged markets) $ 11,670,630 $ 6,329,700
Proportionate depreciation and amortization (9,245,543) (6,268,925)
Proportionate interest expense (6,790,461) (4,959,238)
Proportionate write-down of cellular system equipment - (1,355,932)
Equity in nonlicensee affiliates (4,094,830) (3,128,567)
Minority interests (1,045,891) (1,154,581)
Intercompany interest 4,940,267 3,527,411
Amortization of license costs not owned by affiliates (1,645,832) (1,421,793)
Unallocated corporate expenses (2,422,142) (2,149,683)
Gain on sales of affiliates 67,247 3,226,012
Interest expense (net) and other (7,253,536) (4,894,173)
------------ ------------
Consolidated net loss $(15,820,091) $(12,249,769)
============ ============
</TABLE>
_______________
(1) Includes 100% of the operating activity of all licensees, regardless of the
Company's ownership interest. This is essentially equivalent to
consolidating all licensees regardless of ownership percentage.
(2) Includes that percentage of a licensee's operating results which equals the
Company's ownership interest as well as the ownership interest held by
affiliates of the Company that are financed by CIFC.
(3) Includes only that percentage of a licensee's operating results which
corresponds to the Company's ownership interest. This is essentially
equivalent to a pro rata consolidation.
(4) Excludes the operations and subscribers of the NM-1 RSA. Were NM-1
included, subscriber count would be 140,237 and total markets would be 56.
However, revenues, expenses and net income would not differ significantly
since management of the NM-1 market commenced late in the quarter.
-22-
<PAGE>
The following table presents "Financed Proportionate" operating results and
other cash activity of the cellular licensees in which the Company holds an
interest, as well as incremental cash activity of the Company. Financed
Proportionate activity represents cash flows that are allocable to the Company
which, when received, will be used to pay the Company's obligations to CoBank.
<TABLE>
<CAPTION>
Nine Months Ended June 30,
-----------------------------
1995 1994
-----------------------------
<S> <C> <C>
Revenues:
Cellular service (including roaming) $ 78,504,349 $ 52,592,875
Equipment sales 4,561,686 3,999,163
------------ ------------
Total revenues 83,066,035 56,592,038
Cash costs and expenses:
Cost of sales:
Cellular service (including roaming) 19,003,981 11,766,215
Equipment sales 5,440,038 3,912,802
General and administrative 20,860,283 17,124,570
Marketing and selling 22,344,436 15,519,069
------------ ------------
Total operating expenses 67,648,738 48,322,656
------------ ------------
EBITDA 15,417,297 8,269,382
------------ ------------
Cash interest expense (net) (7,398,283) (6,855,423)
Capital expenditures, including corporate (26,080,154) (25,137,680)
Changes in operating assets and liabilities and other (9,559,040) (8,108,625)
------------ ------------
Cash used by financed cellular licensee affiliates (27,620,180) (31,832,346)
Acquisition activity involving cash (612,992) (1,574,726)
Nonlicensee cash corporate expenses (1,868,535) (1,279,689)
Changes to long-term debt and equity 29,607,698 4,763,826
------------ ------------
Change in cash and short-term investments $ (494,009) $(29,922,935)
============ ============
</TABLE>
-23-
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
------- ---------------------------------
(a) Exhibits
(b) Reports on Form 8-K filed during the quarter ended June 30, 1995:
None.
-24-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMNET CELLULAR INC. (Registrant)
Date: August 14, 1995 By: /s/ Daniel P. Dwyer
-----------------------------------------
Daniel P. Dwyer
Executive Vice President, Treasurer &
Chief Financial Officer
Date: August 14, 1995 By: /s/ Andrew J. Gardner
-----------------------------------------
Andrew J. Gardner
Senior Vice President and Controller
(Principal Accounting Officer)
-25-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 22,770,627
<SECURITIES> 15,653
<RECEIVABLES> 15,329,279
<ALLOWANCES> 1,874,236
<INVENTORY> 5,436,237
<CURRENT-ASSETS> 41,677,560
<PP&E> 131,037,661
<DEPRECIATION> 40,265,260
<TOTAL-ASSETS> 308,579,214
<CURRENT-LIABILITIES> 22,610,943
<BONDS> 273,530,979
<COMMON> 124,708,753
0
0
<OTHER-SE> 116,621,428
<TOTAL-LIABILITY-AND-EQUITY> 308,579,214
<SALES> 62,516,621<F1>
<TOTAL-REVENUES> 62,516,621
<CGS> 9,018,823
<TOTAL-COSTS> 64,390,949
<OTHER-EXPENSES> 5,498,469
<LOSS-PROVISION> 4,116,411
<INTEREST-EXPENSE> 19,444,232
<INCOME-PRETAX> (15,820,091)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,820,091)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,820,091)<F2>
<EPS-PRIMARY> (1.33)<F2>
<EPS-DILUTED> 0
<FN>
<F1> Includes both cellular service and equipment revenue.
<F2> Primary and fully diluted earnings per share are not disclosed as they
OK antidilutive.
</FN>
</TABLE>
