<PAGE>
FORM 10-Q/A No. 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(Mark one)
/x/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: December 31, 1994
-----------------
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-15056
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COMMNET CELLULAR INC.
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(Exact name of registrant as specified in its charter)
Colorado 84-0924904
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5990 Greenwood Plaza Boulevard, Suite 300
Englewood, Colorado 80111
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(Address of principal executive offices)
(Zip Code)
303/694-3234
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(Registrant's telephone number, including area code)
N/A
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(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
February 8, 1995 was 11,782,895.
<PAGE>
COMMNET CELLULAR INC.
Form 10-Q - December 31, 1994
INDEX
Part I Financial Information Page
- ------ --------------------- ----
Item 1 Financial Statements
Consolidated Condensed Balance Sheets -
December 31, 1994 and September 30, 1994 1
Consolidated Condensed Statements of Operations -
Three Months Ended December 31, 1994
and December 31, 1993 3
Consolidated Condensed Statements of Cash Flows -
Three Months Ended December 31, 1994
and December 31, 1993 4
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
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Item 1 Legal Proceedings 21
Item 6 Exhibits and Reports on Form 8-K 22
<PAGE>
COMMNET CELLULAR INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1994 1994
------ ---- ----
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 15,297,932 $ 2,081,591
Available-for-sale securities 11,284,638 21,198,698
Accounts receivable, net of allowance for doubtful
accounts of $2,169,821 and $2,677,124 at
December 31, 1994 and September 30, 1994,
respectively 13,179,330 12,706,452
Inventory and other 7,274,001 7,316,770
------------- -------------
Total current assets 47,035,901 43,303,511
Investment in and advances to affiliates 64,713,279 61,908,761
Investment in cellular system equipment 15,120,755 9,732,075
Property and equipment, at cost:
Cellular system equipment 84,322,193 79,215,294
Land, buildings and improvements 18,438,616 17,361,917
Furniture and equipment 15,035,743 14,796,494
------------- -------------
117,796,552 111,373,705
Less accumulated depreciation 34,616,231 31,455,978
------------- -------------
Net property and equipment 83,180,321 79,917,727
Other assets, less accumulated amortization of
$26,772,869 and $25,979,913 at
December 31, 1994 and September 30, 1994,
respectively:
FCC licenses and filing rights 81,227,399 80,458,461
Deferred loan costs and other 6,188,036 6,432,286
------------- -------------
Total other assets 87,415,435 86,890,747
------------- -------------
$297,465,691 $281,752,821
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
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<PAGE>
COMMNET CELLULAR INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
December 31, September 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1994
- ------------------------------------ ---- ----
(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 13,137,751 $ 10,327,933
Accrued liabilities 4,715,038 3,441,149
Accrued interest 3,927,016 2,331,034
Current portion of long-term debt 1,090,870 1,090,870
Obligation under capital leases due within one year 526,516 588,025
------------- -------------
Total current liabilities 23,397,191 17,779,011
Long-term debt:
Secured bank financing 63,584,383 50,448,361
Obligation under capital leases due after one year 685,017 785,082
11 3/4% senior subordinated discount notes 116,266,324 112,979,725
Convertible subordinated debentures 79,697,000 79,700,000
Minority interests 4,030,419 4,154,175
Commitments
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; 11,747,841 and 11,739,108 shares issued
at December 31, 1994 and September 30, 1994,
respectively 11,748 11,739
Capital in excess of par value 117,257,820 117,146,376
Unrealized losses on available-for-sale securities (225,195) (450,311)
Accumulated deficit (107,239,016) (100,801,337)
------------- -------------
Total stockholders' equity 9,805,357 15,906,467
------------- -------------
$ 297,465,691 $ 281,752,821
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
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<PAGE>
COMMNET CELLULAR INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the three months ended
December 31, December 31,
1994 1993
---- ----
<S> <C> <C>
Revenues:
Cellular service $ 12,074,816 $ 7,114,893
Roaming 4,633,848 3,651,575
Equipment sales 2,566,799 2,003,810
------------- -------------
19,275,463 12,770,278
Costs and expenses:
Cellular operations:
Cost of cellular service 3,835,135 2,204,494
Cost of equipment sales 2,628,119 2,254,968
General and administrative 4,842,894 3,601,353
Marketing and selling 5,451,690 3,225,216
Depreciation and amortization 3,397,202 2,390,391
Corporate:
General and administrative 1,920,014 1,671,782
Depreciation and amortization 576,663 636,205
Less amounts allocated to
nonconsolidated affiliates (1,554,870) (1,492,834)
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21,096,847 14,491,575
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Operating loss (1,821,384) (1,721,297)
Equity in net loss of affiliates (1,081,833) (1,683,079)
Minority interest in net income of consolidated affiliates (123,483) --
Gain on sales of affiliates and other 67,247 655,827
Interest expense (6,270,842) (5,501,535)
Interest income 2,792,616 3,536,857
------------- -------------
Net loss $ (6,437,679) $ (4,713,227)
------------- -------------
------------- -------------
Net loss per common share $ (0.55) $ (0.42)
------------- -------------
------------- -------------
Weighted average shares outstanding 11,743,513 11,239,753
------------- -------------
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</TABLE>
See accompanying notes.
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<PAGE>
COMMNET CELLULAR INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the three months ended
December 31, December 31,
1994 1993
---- ----
<S> <C> <C>
Operating activities:
Net loss $ (6,437,679) $ (4,713,227)
Adjustments to reconcile net loss to net
cash used by operating activities:
Minority interest 123,483 --
Depreciation and amortization 3,973,865 3,026,596
Equity in net loss of affiliates 1,081,833 1,683,079
Gains on sales of affiliates and other (67,247) (655,827)
Loss on sale of available-for-sale securities 221,598 --
Interest expense on 11 3/4% senior
discount notes 3,286,599 2,870,830
Accrued interest on advances to affiliates (2,855,547) (2,765,427)
Change in operating assets and liabilities, net of
effects from consolidating acquired interests:
Accounts receivable (472,878) (666,827)
Inventory and other 42,769 (901,867)
Accounts payable and accrued liabilities (648,985) 473,402
Accrued interest 1,586,149 (468,427)
------------- -------------
Net cash used by operating activities (166,040) (2,117,695)
Investing activities:
Purchase of available-for-sale securities -- (705,698)
Sale of available-for-sale securities 9,927,411 3,132,076
Additions to investments in and advances
to affiliates (964,956) (1,209,230)
Additions to investment in cellular
system equipment (5,388,680) (1,156,153)
Additions to property and equipment (1,715,378) (2,398,639)
Reductions (additions) to other assets (8,934) 81,921
Proceeds from sales of interests in affiliates 50,000 2,075,700
Purchase of interests in affiliates, net of cash
acquired and net of assets and liabilities
recorded due to consolidation (1,600,000) (10,194,660)
------------- -------------
Net cash provided (used) by
investing activities 299,463 (10,374,683)
</TABLE>
See accompanying notes.
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<PAGE>
COMMNET CELLULAR INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
<TABLE>
<CAPTION>
For the three months ended
December 31, December 31,
1994 1993
---- ----
<S> <C> <C>
Financing activities:
Proceeds from secured bank financing 13,408,741 220,243
Payments of secured bank financing (272,719) (555,441)
Reduction of obligation under capital leases (161,574) (59,458)
Issuance of Common Stock, net of offering costs 108,470 1,009,426
------------- -------------
Net cash provided by financing activities 13,082,918 614,770
------------- -------------
Net increase (decrease) in cash and cash equivalents 13,216,341 (11,877,608)
Cash and cash equivalents at beginning of period 2,081,591 45,660,761
------------- -------------
Cash and cash equivalents at end of period $15,297,932 $33,783,153
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
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<PAGE>
COMMNET CELLULAR INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
<TABLE>
<CAPTION>
For the three months ended
December 31, December 31,
1994 1993
---- ----
<S> <C> <C>
Supplemental schedule of additional cash flow
information and noncash activities:
Cash paid during the three-month period
for interest $ 620,286 $ 1,924,031
Purchase of cellular system equipment through
accounts payable 4,732,692 1,565,523
Purchases of interests in affiliates financed with
Common Stock -- 72,519
Conversion of convertible subordinated
debentures to Common Stock 2,983 37,811,450
</TABLE>
See accompanying notes.
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<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 three months ended
December 31, 1994 are not necessarily indicative of the results for a full year.
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 Statement 115 is not material to the comparability of the
financial statements presented.
3. BUSINESS ACQUISITIONS AND DISPOSITION
During the three months ended December 31, 1994, the Company acquired
an additional interest in an affiliated corporation. As a result of this
transaction, intangible assets increased by approximately $1,369,000.
4. STOCKHOLDERS' EQUITY
Changes to Common Stock during the three months ended December 31,
1994 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:
Exercise of options 8,625 9 108,461
Debenture conversion 108 -- 2,983
---------- ------- ------------
Balance at December 31, 1994 11,747,841 $11,748 $117,257,820
---------- ------- ------------
---------- ------- ------------
</TABLE>
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<PAGE>
COMMNET CELLULAR INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
5. INCOME TAXES
For the quarter ended December 31, 1994, the Company did not record
any current or deferred tax expense. Current tax expense is attributable to net
income. As the Company is reporting a net loss for the quarter ended December
31, 1994, no current tax expense is necessary.
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. For the
quarter ended December 31, 1994, the Company still has a substantial net
deferred tax asset that has been reserved with a valuation allowance of 100%.
Therefore, no deferred tax expense is necessary.
-8-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
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 42 markets, all of which were consolidated for the
entire quarter, are included in the consolidated results for the quarter ended
December 31, 1994. The results of operations of 39 markets, 36 of which were
consolidated the entire quarter, are included in the consolidated results for
the quarter ended December 31, 1993. The increase in the number of markets
included in consolidated results is due to acquisitions consummated subsequent
to December 31, 1993. 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 December 31, 1994, 34 markets were accounted for
under the equity method, compared to 39 such markets for the quarter ended
December 31, 1993. 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 December 31, 1994, compared to six such markets for
the quarter ended December 31, 1993.
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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1994 AND 1993. As of December 31, 1994,
the Company held interests in 84 Rural Service Area ("RSA") markets and 10
Metropolitan Statistical Area ("MSA") markets compared to 72 RSA markets and 12
MSA markets as of December 31, 1993. All markets in which the Company held an
interest were operational as of such dates.
Cellular service revenues, including roaming revenues, increased 55% from
$10,766,000 for the quarter ended December 31, 1993 to $16,709,000 for the
quarter ended December 31, 1994. 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 36 during the quarter ended December
31, 1993 to 42 during the quarter ended December 31, 1994. Growth in
subscribers accounted for 91% of the increase, and the number of consolidated
markets accounted for 9% of the increase.
Average monthly revenue per subscriber decreased from $80 for the quarter
ended December 31, 1993 to $69 for the quarter ended December 31, 1994. Most of
the decline is
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<PAGE>
attributable to a per subscriber reduction in roaming revenues from $26 for the
quarter ended December 31, 1993 to $19 for the quarter ended December 31, 1994.
Roaming revenues, derived primarily from use of the Company's network by
customers of other carriers, increased 27% or $982,000 from $3,652,000 to
$4,634,000, but at a slower rate than the 76% growth in the Company's customer
base. The remainder of the decline reflects the fact that initial subscribers
in a market tend to use more cellular service than those who subscribe after a
system has been in operation for a period of time.
Cost of cellular service includes four major components: the variable cost
of interconnection to the landline telephone system, the semi-fixed cost of
leasing facilities, the semi-fixed cost related to switching capacity and the
operational overhead cost to maintain and monitor the cellular network, which
tends to be fixed. Cost of service increased as a percentage of service
revenues from 20% for the quarter ended December 31, 1993 to 23% for the quarter
ended December 31, 1994, primarily due to an increase in costs related to
interconnect service. Cost of service as a percentage of revenues is expected
to continue to decline slightly from this level as revenues derived from the
growing subscriber base continue to outpace the fixed components of cost of
service.
Cellular equipment revenues increased 28% from $2,004,000 for the quarter
ended December 31, 1993 to $2,567,000 for the quarter ended December 31, 1994.
The growth was due to the increase in the number of subscribers added, which
accounted for $517,000, or 92%, of the increase. In addition, growth resulted
from an increase in the number of consolidated markets operated during the
quarter which represented $46,000, or 8%, of the increase. Cost of equipment
sales increased 17% from $2,255,000 for the quarter ended December 31, 1993 to
$2,628,000 for the quarter ended December 31, 1994. To enhance subscriber
growth, the Company has sold cellular equipment sometimes below cost. However,
the equipment sales margin improved for the quarter ended December 31, 1994, as
compared to the quarter ended December 31, 1993 as the Company focused on
minimizing equipment discounting.
General and administrative costs of cellular operations increased 34% from
$3,601,000 for the quarter ended December 31, 1993 to $4,843,000 for the quarter
ended December 31, 1994, due to the growth in the customer base and the number
of consolidated markets. The majority of these costs were incremental customer
billing expense, roaming validation services and customer service support staff.
General and administrative costs as a percentage of service revenues decreased
from 33% for the quarter ended December 31, 1993 to 29% for the quarter ended
December 31, 1994. The decrease is primarily due to revenues increasing at a
faster rate than incremental general and administrative costs.
Marketing and selling costs increased 69% from $3,225,000 for the quarter
ended December 31, 1993 to $5,452,000 for the quarter ended December 31, 1994,
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 10% from $504 for the quarter ended December 31, 1993 to
$453 for the quarter ended December 31, 1994, as a result of increased net
subscriber additions which outpaced increases in costs incurred. The Company
experienced higher activations from retail channels than expected during the
quarter ended December 31, 1994 at higher marginal commission rates. Consistent
with this trend, the Company has begun a program to expand its own retail
presence to capitalize on retail trade while driving down commission costs.
Results of this program are expected by the fourth fiscal quarter of 1995.
Depreciation and amortization relating to cellular operations increased
from $2,390,000 for the quarter ended December 31, 1993 to $3,397,000 for the
quarter ended December 31, 1994, primarily related to increased fixed asset
balances.
Corporate costs and expenses for the quarter ended December 31, 1993 were
$815,000, which represented gross expenses of $2,308,000 less amounts allocated
to nonconsolidated affiliates
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<PAGE>
of $1,493,000. Corporate costs and expenses for the quarter ended December 31,
1994 were $942,000, which represented gross expenses of $2,497,000 less amounts
allocated to nonconsolidated affiliates of $1,555,000. The increase in expenses
and amounts allocated to nonconsolidated affiliates reflects an increase in
corporate costs attributed to financing operations and incurred costs relative
to equipment distribution and other corporate functions.
Equity in net loss of affiliates decreased 36% from $1,683,000 for the
quarter ended December 31, 1993 to $1,082,000 for the quarter ended December 31,
1994. The decrease is principally attributable to decreasing losses in markets
being accounted for under the equity method at December 31, 1994 compared to
December 31, 1993 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 14% from $5,502,000 for the quarter ended
December 31, 1993 to $6,271,000 for the quarter ended December 31, 1994 due to
higher secured bank financing balances. Cash paid for interest decreased 28%
from $1,924,000 for the quarter ended December 31, 1993 to $1,388,000 for the
quarter ended December 31, 1994.
Interest income decreased 21% from $3,537,000 for the quarter ended
December 31, 1993 to $2,793,000 for the quarter ended December 31, 1994. The
decrease is primarily related to the increase in the number of markets
consolidated for the quarter ended December 31, 1993, compared to the quarter
ended December 31, 1994. Consolidation caused the interest earned on advances
to the related affiliates to be eliminated as an intercompany transaction.
Additionally, interest income for the quarter ended December 31, 1994 declined
due to lower short-term investment balances.
ACQUISITIONS AND SALES
In November 1994, the Company purchased an additional interest in an
affiliated corporation for $1,600,000 in cash. Pursuant to the terms of a
shareholder's agreement, the Company subsequently sold a portion of said
interest to the other shareholders on a pro-rata basis for approximately
$450,000 in cash.
In January 1995, the Company sold a wholly-owned subsidiary for
approximately $86,000 which resulted in a loss of approximately $250,000.
In January 1995, an affiliate of the Company transferred its 25% interest
in one unmanaged RSA market to a partner in said market pursuant to a judgment
issued in a pending suit. The judgment is currently being appealed. The
affiliate received approximately $1,699,000 upon transfer of the interest which
resulted in a gain of approximately $400,000.
In January 1995, the Company purchased an additional 50% interest in an
affiliated corporation for approximately $199,000 which was paid by the issuance
of 7,354 shares of the Company's Common Stock.
The Company has also entered into agreements to acquire the interests of
one or more independent telephone companies in nine entities which are
affiliates of the Company for an aggregate purchase price of approximately
$3,242,000 payable by the issuance of shares of the Company's Common Stock. In
addition, the Company has entered into agreements to acquire additional limited
partnership interests in two managed RSA markets for approximately $1,233,000
payable in cash.
The Company has initiated discussions regarding possible acquisition of
markets or interests in Iowa, North Dakota, Kansas and Nebraska. Such
acquisitions will be pursued to the
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<PAGE>
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 used by operating activities was $166,000 during the three months
ended December 31, 1994. This was primarily due to an increase to accrued
interest of $1,586,000 reduced by increases of $473,000 to accounts receivable
and $649,000 to accounts payable. Additionally, a loss of $222,000 was
recognized on the sale of available-for-sale securities during the quarter.
Working capital increases will likely require cash in future periods as growth
in the subscriber base continues.
Net cash provided by investing activities was $299,000 for the three months
ended December 31, 1994. This was due primarily to the sale of available-for-
sale securities which provided $9,927,000, offset by $5,389,000 required to fund
the purchase of property and equipment, $1,715,000 to increase the investment in
cellular system equipment, and $965,000 used for additions to investments in and
advances to affiliates. In addition, the Company used $1,600,000 to acquire an
additional interest in an affiliate.
Net cash provided by financing activities was $13,083,000 for the three
months ended December 31, 1994. These proceeds include $13,136,000 of cash from
incremental secured bank financing and $108,000 of cash from the issuance of
Common Stock upon exercise of options.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements consist primarily of its obligations to
fund capital and operating requirements of its affiliates and interest payments
on its indebtedness. The Company historically has met these requirements
through sales of debt and equity securities, through bank and vendor financing.
Recently positive operating income before depreciation and amortization
("EBITDA") has contributed to the funding of capital and operating needs.
CIFC has entered into loan agreements ("Credit Agreements") pursuant to
which 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 and to the Company for the construction and
expansion of switches. As of December 31, 1994, the outstanding balance under
the Credit Agreements was approximately $64,418,000. The Credit Agreements
provide for interest at 1% over prime on variable-rate loans (9.50% at December
31, 1994) or 2.25% over the London Interbank Offered Rate ("LIBOR") on fixed-
rate loans (7.10% at the six-month rate at December 31, 1994). 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.
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
$56,800,000 of its long-term debt payable to CoBank at rates ranging from 7.32%
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 (8.50% at December 31, 1994). The weighted average interest rate
of all fixed and variable rate loans after giving effect to the swap, was 9.56%
at December 31, 1994.
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The Credit Agreements prohibit the payment of cash dividends, prohibit any
other senior borrowings, limit the use of borrowings, restrict expenditures for
certain acquisitions and 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 the 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.
The Company plans to continue to construct additional cell sites over the
fiscal year to expand cellular coverage within its managed markets. The
additional coverage will increase the Company's covered pops to approximately
90% of the total population of the managed markets and will increase the covered
highway miles to approximately 16,000. Based on the current operating plan, the
Company believes its estimated future operating cash flow as well as existing
cash balances, short-term investments and unused commitments under the Credit
Agreements will be sufficient to meet estimated future capital requirements,
including construction of additional cell sites. The current operating plan is
a cash flow analysis of the Company's participation in all cellular markets and
is based upon assumptions consistent with the Company's historical operating
experience and current industry trends.
As of December 31, 1994, the Company had funding sources of approximately
$92,165,000 which consisted of cash, cash equivalents and short-term investments
of $26,583,000 and unused commitments under the Credit Agreements of
$65,582,000.
Certain financial analysts consider EBITDA an indicator of an entity's
ability to meet long-term financial obligations as they become due and also of
the underlying value of the entity. EBITDA is a measure of operating
performance that does not reflect equity in net income or loss of affiliates,
minority interest, interest income, interest expense or deferred charges
related to debt financing, working capital fluctuations or other items
involving operating cash or adjustments to reconcile net income or loss to net
cash provided or used by operating activities. It should not be considered in
isolation to, or be construed as having greater significance than, net cash
provided or used by operating activities or other indicators of an entity's
performance. For the quarter ended December 31, 1994, EBITDA was $2,152,000
compared to $1,305,000 for the quarter ended December 31, 1993. For the
quarter ended December 31, 1994, operating loss including depreciation and
amortization was $1,821,000 compared to a loss of $1,721,000 for the quarter
ended December 31, 1993. The Company expects to generate positive EBITDA for
fiscal year 1995 based on current Company trends in subscriber revenue and
expense growth. A continuation of these trends would be consistent with the
historical operating performance of more established industry operators,
particularly larger MSA operators with longer operating histories. However,
there can be no assurance that these trends will continue and will result in
sufficient operating cash flow to meet debt service and capital expenditure
requirements.
-13-
<PAGE>
SUPPLEMENTAL INFORMATION
GENERAL. The Company operates, manages and finances cellular telephone
systems, primarily in the mountain and plains regions of the United States. The
Company's cellular interests currently represent approximately 3,124,000 net
Company pops in 93 markets located in 15 states. These markets consist of 83
RSA markets having a total of 6,152,000 pops and 10 MSA markets having a total
of 1,274,000 pops, of which the Company's interests represent 2,514,000 net
Company pops and 610,000 net Company pops, respectively. Pops refers to the
estimated population of a market as initially licensed by the FCC. As the five-
year fill-in period for each market expires, the manner of calculating the
number of pops will change to reflect the CGSA of each market instead of the
geographic boundaries originally established by the 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 its efforts on creating an integrated network
of contiguous cellular systems comprised of markets which are managed by the
Company (the "network"). Within the network, the Company provides substantially
all of the services typically offered by landline telephone systems, including
custom calling features such as call forwarding, call waiting, three-way
conference calling and, in most cases, voice mail services. The network
currently consists of 55 markets spanning eight states, comprised of 48 RSA
markets and 7 MSA markets. The Company's interests in these managed markets
represent 2,717,000 net Company pops, constituting approximately 87% of total
net Company pops. As of December 31, 1994, the RSA and MSA markets managed by
the Company had 80,216 and 34,702 subscribers, respectively, or a total of
114,918.
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 February 6, 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 1993 Company
RSA Code (1) State Affiliate(s) (2) Licensee (3) Population (4)(8) Pops (5)
- ------------ ---------------- ---------------- ------------- ----------------- --------
<S> <C> <C> <C> <C> <C>
MSAs:
141 Minnesota 49.00% 16.34% LP 229,336 18,362
185 Indiana 100.00% 16.67% LP 169,124 28,193
241*(6)(7) Colorado 73.99% 100.00% GP 124,638 92,220
253*(6)(7) Iowa 74.50% 100.00% GP 117,652 87,651
267*(6)(7) South Dakota 100.00% 51.00% GP 131,561 67,096
268* Montana 49.00% 90.00% GP 119,363 52,639
279 Maine 33.33% 33.33% GP 103,417 11,488
289*(6)(7) South Dakota 100.00% 100.00% GP 111,371 111,371
297*(6)(7) Montana 100.00% 100.00% GP 80,098 80,098
298*(6)(7) North Dakota 100.00% 70.00% GP 86,977 60,884
---------- ----------
Total MSA 1,273,537 610,002
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
Company Affiliate(s) Net
MSA or Interest in Interest in 1993 Company
RSA Code (1) State Affiliate(s) (2) Licensee (3) Population (4)(8) Pops (5)
- ------------ ---------------- ---------------- ------------- ----------------- --------
<S> <C> <C> <C> <C> <C>
RSAs:
348*(7) Colorado 10.00% 100.00% GP 43,672 4,367
349*(6)(7) Colorado 58.60% 100.00% GP 61,659 36,132
351*(6)(7) Colorado 61.75% 100.00% GP 62,916 38,851
352*(6)(7) Colorado 66.00% 100.00% GP 25,783 17,017
353*(6)(7) Colorado 100.00% 75.00% GP 65,251 48,938
354*(7) Colorado 61.75% 80.00% GP 44,328 21,898
355*(7) Colorado 49.00% 100.00% GP 44,194 21,655
356*(7) Colorado 49.00% 100.00% GP 27,259 13,357
389 Idaho 49.00% 50.00% LP 64,671 15,844
390 Idaho 49.00% 33.33% LP 15,485 2,529
392*(6)(7) Idaho (B1) 100.00% 100.00% LP 132,888 132,888
393*(6)(7) Idaho 91.64% 100.00% GP 280,569 257,113
415 Iowa 49.00% 20.64% LP 155,247 15,701
416 Iowa 49.00% 78.57% LP 108,129 41,629
417*(6)(7) Iowa 100.00% 100.00% GP 152,597 152,597
419* Iowa 49.00% 91.67% GP 54,659 24,552
420*(6)(7) Iowa 100.00% 100.00% GP 63,458 63,458
424 Iowa 49.00% 30.00% LP 66,743 9,811
425* Iowa 49.00% 27.11% LP 108,426 14,403
426*(7) Iowa 52.65% 93.33% GP 84,932 41,734
427*(7) Iowa 53.64% 91.66% GP 102,773 50,530
428 Kansas 100.00% 3.07% LP 28,103 863
429 Kansas 100.00% 3.07% LP 31,121 955
430 Kansas 100.00% 3.07% LP 52,640 1,616
431 Kansas 100.00% 3.07% LP 129,852 3,986
432 Kansas 100.00% 3.07% LP 118,599 3,641
433 Kansas 100.00% 3.07% LP 20,138 618
434 Kansas 100.00% 3.07% LP 81,515 2,503
435 Kansas 100.00% 3.07% LP 126,535 3,885
436 Kansas 100.00% 3.07% LP 57,937 1,779
437 Kansas 100.00% 3.07% LP 104,942 3,222
438 Kansas 100.00% 3.07% LP 81,130 2,491
439 Kansas 100.00% 3.07% LP 42,198 1,295
440 Kansas 100.00% 3.07% LP 29,155 895
441 Kansas 100.00% 3.07% LP 171,226 5,257
442 Kansas 100.00% 3.07% LP 154,341 4,738
512 Missouri (B1) 49.00% 30.00% LP 76,061 11,181
523*(7) Montana (B1) 49.00% 100.00% GP 66,841 32,752
523*(6)(7) Montana (B2) 100.00% 98.76% GP 70,350 69,478
524*(6)(7) Montana 61.75% 100.00% GP 37,386 23,086
525*(6)(7) Montana 59.20% 100.00% GP 14,877 8,807
526*(6)(7) Montana 59.20% 100.00% GP 39,843 23,587
527*(6)(7) Montana 61.75% 100.00% GP 174,631 107,835
528*(6)(7) Montana 61.75% 100.00% GP 63,009 38,908
529*(6)(7) Montana 61.75% 100.00% GP 28,742 17,748
530*(6)(7) Montana 61.75% 100.00% GP 83,488 51,554
531*(6)(7) Montana 61.75% 100.00% GP 30,990 19,136
532*(6)(7) Montana 61.75% 100.00% GP 19,431 11,999
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
Company Affiliate(s) Net
MSA or Interest in Interest in 1993 Company
RSA Code (1) State Affiliate(s) (2) Licensee (3) Population (4)(8) Pops (5)
- ------------ ---------------- ---------------- ------------- ----------------- --------
<S> <C> <C> <C> <C> <C>
533 Nebraska 55.56% 25.52% LP 90,016 12,763
534 Nebraska 55.56% 25.52% LP 31,353 4,446
535 Nebraska 55.56% 25.52% LP 115,108 16,321
536 Nebraska 55.56% 25.52% LP 35,803 5,076
537 Nebraska 55.56% 25.52% LP 142,155 20,156
538 Nebraska 55.56% 25.52% LP 105,599 14,973
539 Nebraska 55.56% 25.52% LP 89,125 12,637
540 Nebraska 55.56% 25.52% LP 58,058 8,232
541 Nebraska 55.56% 25.52% LP 81,697 11,584
542 Nebraska 55.56% 25.52% LP 85,250 12,088
553 New Mexico 49.00% 33.33% LP 245,584 40,108
555 New Mexico 49.00% 25.00% LP 76,635 9,388
557 New Mexico 49.00% 33.33% LP 55,076 8,995
580*(6)(7) North Dakota 52.76% 100.00% GP 102,513 54,086
581*(7) North Dakota 49.00% 100.00% GP 60,131 29,464
582 North Dakota 49.00% 84.59% LP 91,629 37,979
583* North Dakota 46.96% 100.00% GP 65,783 30,892
584*(6)(7) North Dakota 61.75% 100.00% GP 49,671 30,672
634*(6)(7) South Dakota 61.75% 100.00% GP 35,624 21,998
635*(6)(7) South Dakota 56.29% 100.00% GP 22,563 12,701
636*(6)(7) South Dakota 57.50% 100.00% GP 53,724 30,891
638*(6)(7) South Dakota(B1) 82.99% 100.00% GP 16,443 13,646
638*(6)(7) South Dakota(B2) 82.99% 100.00% GP 8,220 6,822
639*(6)(7) South Dakota(B1) 60.66% 100.00% GP 33,390 20,254
639*(6)(7) South Dakota(B2) 60.66% 100.00% GP 5,568 3,378
640*(6)(7) South Dakota 64.49% 100.00% GP 65,549 42,273
641*(6)(7) South Dakota 61.13% 100.00% GP 71,921 43,965
642*(7) South Dakota 49.00% 100.00% GP 91,706 44,936
675*(6)(7) Utah 100.00% 100.00% GP 51,727 51,727
676*(6)(7) Utah 100.00% 100.00% GP 86,612 86,612
677*(6)(7) Utah (B3) 74.50% 100.00% GP 37,966 28,285
678*(6)(7) Utah 100.00% 80.00% GP 23,840 19,072
718*(6)(7) Wyoming 66.00% 100.00% GP 46,896 30,951
719*(6)(7) Wyoming 100.00% 100.00% GP 72,795 72,795
720*(6)(7) Wyoming 100.00% 100.00% GP 145,382 145,382
---------- ----------
Total RSA 6,151,832 2,514,367
---------- ----------
Total MSA and RSA 7,425,369 3,124,369
---------- ----------
---------- ----------
- --------------------
<FN>
(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.
-16-
<PAGE>
(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. 1993 population estimates.
(5) Net Company Pops represents Company Interest in Affiliate(s) multiplied by
Affiliate(s) Interest in Licensee multiplied by 1993 Population.
(6) The operations of these markets are reflected on a consolidated basis in
the Company's consolidated financial statements for the period ended
December 31, 1994. 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.
(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.
Upon expiration of the five-year fill-in period, market boundaries and
actual service areas may not be coincident.
Markets managed by the Company are denoted by an asterisk (*).
</TABLE>
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%
- --------------------
<FN>
(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.
</TABLE>
-17-
<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
involving interests of more than 50%), but not for equity interests
(generally involving intersts of 20% to 50%) or cost interests (generally
involving 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. In contrast, in a GAAP operating statement the equity in net
income or loss of an interest accounted for under the equity method is
presented below operating income and any operating activity related to
interests accounted for under the cost method are not reflected at all.
The amounts included in the respective columns are as follows:
Combined - 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.
Financed Proportionate - Includes that percentage of a licensee's
operating results which equals the Company's ownership interests as well
as the ownership interest held by affiliates of the Company that are
financed by CIFC.
Company Proportionate - 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.
<TABLE>
<CAPTION>
Three Months Ended December 31,
---------------------------------------------------------------------------------------
1994 1993 1994 1993 1994 1993
-------------------------- -------------------------- ---------------------------
COMBINED FINANCED PROPORTIONATE COMPANY PROPORTIONATE
-------------------------- -------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
MANAGED MARKETS
Revenues:
Cellular service $ 15,249,447 $ 9,345,550 $ 14,116,351 $ 8,540,110 $ 10,836,227 $ 6,393,342
Roaming 6,114,335 4,814,964 5,688,363 4,377,451 4,235,974 3,245,328
Equipment sales 1,334,860 1,242,394 1,231,894 1,132,738 908,800 814,185
------------ ------------ ------------ ------------ ------------ ------------
Total revenues 22,698,642 15,402,908 21,036,608 14,050,299 15,981,001 10,452,855
Cash costs and expenses:
Cost of sales:
Cellular service
(including
roaming) 4,875,326 3,059,396 4,541,448 2,746,279 3,363,199 1,931,703
Equipment sales 1,420,682 1,317,058 1,297,791 1,197,520 979,067 865,758
General and
administrative 6,209,792 4,916,152 5,836,160 4,507,947 4,355,150 3,242,670
Marketing and selling 6,948,939 4,236,351 6,429,721 3,872,100 4,880,725 2,892,345
------------ ------------ ------------ ------------ ------------ ------------
Total cash costs
and expenses 19,454,739 13,528,957 18,105,120 12,323,846 13,578,141 8,932,476
------------ ------------ ------------ ------------ ------------ ------------
EBITDA $ 3,243,903 $ 1,873,951 $ 2,931,488 $ 1,762,453 $ 2,402,860 $ 1,520,379
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Capital expenditures $14,706,543 $ 2,378,212 $13,612,710 $ 2,327,200 $11,183,821 $ 1,561,086
Subscriber count 114,918 69,228 105,486 63,388 78,977 45,993
Total markets 55 51 55 51 55 51
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended December 31,
---------------------------------------------------------------------------------------
1994 1993 1994 1993 1994 1993
-------------------------- -------------------------- ---------------------------
COMBINED FINANCED PROPORTIONATE COMPANY PROPORTIONATE
-------------------------- -------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
NONMANAGED MARKETS
Revenues:
Cellular service
(including roaming) $17,999,182 $14,457,056 $ 5,373,651 $ 4,047,497 $ 2,794,484 $ 2,120,630
Equipment sales 1,025,132 648,129 295,068 187,546 168,063 99,889
------------ ------------ ------------ ------------ ------------ ------------
Total revenues 19,024,314 15,105,185 5,668,719 4,235,043 2,962,547 2,220,519
Cash costs and expenses:
Cost of sales:
Cellular service 5,024,792 4,076,433 1,521,825 1,250,618 743,767 627,566
Equipment sales 1,630,015 857,351 454,486 255,675 259,924 135,259
General and
administrative 3,246,167 3,521,110 971,725 1,039,154 511,130 559,021
Marketing and selling 4,555,302 2,824,527 1,355,037 796,648 694,336 390,668
------------ ------------ ------------ ------------ ------------ ------------
Total cash costs
and expenses 14,456,276 11,279,421 4,303,073 3,342,095 2,209,157 1,712,514
------------ ------------ ------------ ------------ ------------ ------------
EBITDA $ 4,568,038 $ 3,825,764 $ 1,365,646 $ 892,948 $ 753,390 $ 508,005
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Capital expenditures $ 6,399,518 $ 4,881,770 $ 2,153,827 $ 1,256,397 $ 1,030,076 $ 599,056
Subscriber count 89,852 49,778 26,012 14,211 13,594 7,031
Total markets 39 32 39 32 39 32
Reconciliation From
Company Proportionate
EBITDA to Consolidated
Net Loss
Total proportionate
EBITDA (managed
and non-managed
markets) $ 3,156,250 $ 2,028,384
Proportionate
depreciation and
amortization (2,890,890) (1,977,480)
Proportionate interest
expense (2,173,393) (1,512,920)
Equity in nonlicensee
affiliates (1,154,462) (1,142,018)
Minority interests (613,679) (391,582)
Intercompany interest 1,521,070 1,057,321
Amortization of license
costs not owned by
affiliates (525,259) (422,180)
Unallocated corporate
expenses (941,807) (815,153)
Gains on sales of
affiliates 67,247 655,827
Interest expense (net)
and other (2,882,756) (2,193,426)
----------- -----------
Consolidated net loss $(6,437,679) $(4,713,227)
----------- -----------
</TABLE>
-19-
<PAGE>
The following table presents the financed proportionate operating results
and other cash activity of the financed cellular licensee affiliates in which
the Company holds an interest, in addition to incremental cash activity not
involving such affiliates. 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>
Three Months Ended December 31,
--------------------------------
1994 1993
--------------------------------
<S> <C> <C>
Revenues:
Cellular service (including roaming) $ 25,178,365 $ 16,965,058
Equipment sales 1,526,962 1,320,284
------------ ------------
Total revenues 26,705,327 18,285,342
Cash costs and expenses:
Cost of sales:
Cellular service (including roaming) 6,063,273 3,996,897
Equipment sales 1,752,277 1,453,195
General and administrative 6,801,904 5,478,867
Marketing and selling 7,784,758 4,668,748
------------ ------------
Total operating expenses 22,402,212 15,597,707
------------ ------------
------------ ------------
EBITDA 4,303,115 2,687,635
------------ ------------
Cash interest expense (net) (1,261,807) (1,406,224)
Capital expenditures (15,766,537) (3,983,597)
Changes in operating assets and liabilities
and other 5,162,132 (3,856,827)
------------ ------------
Cash used by financed cellular
licensee affiliates (7,563,097) (6,559,013)
Acquisition activity involving cash (1,550,000) (8,118,960)
Nonlicensee cash corporate expenses (667,540) (241,783)
Changes to long-term debt and equity 13,082,918 614,770
------------ ------------
Change in cash and short-term investments $ 3,302,281 $(14,304,986)
------------ ------------
------------ ------------
</TABLE>
-20-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Two competing applicants for the wireline cellular license to serve the
Portland, Maine, MSA filed petitions with the FCC to deny the grant of authority
to Portland Cellular Partnership (the "Portland Partnership"), in which an
affiliate of the Company is a partner. The competing applicants alleged that
the Portland Partnership had failed to demonstrate its financial qualifications
after its designation as the tentative selectee by the FCC. In February 1989,
the FCC waived compliance by the Portland Partnership with the applicable rules
on financial qualification, denied the petitions of the competing applicants and
granted the application of the Portland Partnership for authority to establish a
wireline cellular system in the Portland MSA. The competing applicants then
appealed to the United States Court of Appeals for the District of Columbia
Circuit ("Court of Appeals"). In March 1990, the Court of Appeals held that the
FCC's waiver was improper and remanded the case to the FCC for further
proceedings. On April 30, 1991, the FCC vacated the grant of authority to the
Portland Partnership and dismissed its application. The FCC also dismissed the
application of one competing applicant and designated the remaining competing
applicant as tentative selectee. The FCC also granted the Portland Partnership
interim authority to provide service until the grant of a new construction
permit. On May 31, 1991, the Company's affiliated telco filed a Petition for
Reconsideration with the FCC requesting reconsideration of the FCC's vacation of
the grant of the Portland Partnership's application and alternatively seeking
the opportunity to prosecute its own application and requesting the FCC to name
it as tentative selectee. The affiliated telco contemporaneously filed a
petition with the FCC seeking dismissal of the application of the designated
tentative selectee. The Portland Partnership filed an appeal of the
Commission's order in the Court of Appeals. The Portland Partnership
subsequently filed a petition for reconsideration and the reinstatement of its
license.
On June 4, 1993, the FCC dismissed the Portland Partnership's petition for
reconsideration and reinstatement on jurisdictional grounds and granted a
construction permit for the Portland market to the tentative selectee
("Northeast"). In its June 4 order, the FCC also continued Portland
Partnership's authority to operate the Portland system until ten days after the
date Northeast notifies the Portland Partnership that it is ready to commence
service and denied the petitions of the Company's affiliated telco to deny the
application of Northeast.
On June 25, 1993, the Portland Partnership filed with the FCC a motion to
stay the effectiveness of the June 4 order and a petition for further
reconsideration. Thereafter, the Portland Partnership filed a petition for
reconsideration of the FCC's grant of a construction permit to Northeast and the
Company's affiliated telco filed a petition for reconsideration of the FCC's
action on its April 1991 order. On August 18, 1993, the Commission denied the
motion to stay the effectiveness of the June 4 order. The Partnership
subsequently sought a stay of that order from the Court of Appeals. That
request was also denied. The FCC also denied the Partnership's petition for
further reconsideration of the FCC's revocation of the Partnership's cellular
license. The Partnership appealed that denial to the Court of Appeals, but its
appeal was dismissed by the Court as premature until the FCC ruled on the
Partnership's petition for reconsideration of the FCC's grant of a license to
Northeast. That petition for reconsideration was denied. Northeast became
operational as of November 29, 1994. The Partnership went off the air and
transferred its customers to Northeast pursuant to a Purchase and Sale Agreement
dated June 29, 1994. The Partnership is continuing to pursue administrative and
judicial remedies in the form of a petition for reconsideration.
There are no other material, pending legal proceedings to which the Company
or any of its subsidiaries is a party or of which any of their property is the
subject which, if adversely decided, would have a material adverse effect on the
Company.
-21-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Fifth Addendum to Lease Agreement dated December 13, 1994
between the Company and RCB Trust Company Real Property
Trust - Southport Financial II.
(b) Reports on Form 8-K filed during the quarter ended December 31,
1994:
None.
-22-
<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: May 25, 1995 By: /s/Daniel P. Dwyer
-------------------------------------------
Daniel P. Dwyer
Executive Vice President, Treasurer & Chief
Financial Officer
Date: May 25, 1995 By: /s/Andrew J. Gardner
-------------------------------------------
Andrew J. Gardner
Senior Vice President and Controller
(Principal Accounting Officer)
-23-
