<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2000 Commission File No. 0-16751
------------------- -------------
CFW COMMUNICATIONS COMPANY
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1443350
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I R S employer
incorporation or organization) identification no.)
P. O. Box 1990, Waynesboro, Virginia 22980
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 540-946-3500
----------------------------
None
- -------------------------------------------------------------------------------
(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
---
(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class COMMON STOCK, NO PAR VALUE Outstanding 5/15/00 13,094,429
--------------------------
<PAGE>
CFW COMMUNICATIONS COMPANY
I N D E X
Page
Number
------
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets, March 31, 2000
and December 31, 1999 3-4
Condensed Consolidated Statements of Income, Three Months
Ended March 31, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows,
Three Months Ended March 31, 2000 and 1999 6
Condensed Consolidated Statements of Shareholders'
Equity, Three Months Ended March 31, 2000 and
Each of the Calendar Quarters in the Year
Ended December 31, 1999 7
Notes to Condensed Consolidated Financial Statements 8-9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-14
PART II. OTHER INFORMATION 15
SIGNATURES 16-17
2
<PAGE>
CFW COMMUNICATIONS COMPANY
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, 2000
(Unaudited) December 31, 1999
--------------------- --------------------
<S> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 311,294 $ 198,540
Accounts receivable, net of allowance of $1.3 million ($1.1 million
in 1999) 14,091,119 13,822,010
Receivable from affiliates 5,840,873 3,824,585
Materials and supplies 959,837 955,381
Prepaid expenses and other 882,282 572,339
Income tax receivable - 2,002,572
--------------------- --------------------
22,085,405 21,375,427
--------------------- --------------------
Securities and Investments 36,948,610 39,109,476
--------------------- --------------------
Property and Equipment
Land and building 23,821,944 23,526,095
Network plant and equipment 112,987,324 108,449,567
Furniture, fixtures and other equipment 29,861,999 28,170,261
Radio spectrum licenses 15,478,079 15,478,079
--------------------- --------------------
Total in service 182,149,346 175,624,002
Under construction 8,910,487 9,535,642
--------------------- --------------------
191,059,833 185,159,644
Less accumulated depreciation 61,912,222 59,278,974
--------------------- --------------------
129,147,611 125,880,670
--------------------- --------------------
Other Assets
Cost in excess of net assets of business acquired, less accumulated
amortization of $2.9 million ($2.4 million in 1999) 23,955,931 23,411,894
Deferred charges 606,233 359,294
Radio spectrum licenses and license deposits 7,864,963 7,864,836
--------------------- --------------------
32,427,127 31,636,024
--------------------- --------------------
$ 220,608,753 $ 218,001,597
===================== ====================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
CFW COMMUNICATIONS COMPANY
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, 2000 December 31,
(unaudited) 1999
------------------- --------------------
<S> <C>
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 8,600,580 $ 9,809,268
Customers' deposits 502,691 448,995
Advance billings 2,827,413 2,677,044
Accrued payroll 890,051 1,156,120
Accrued interest 68,565 280,151
Other accrued liabilities 4,073,400 2,888,530
Accrued income taxes payable 1,308,389 -
Deferred revenue 1,624,197 1,835,694
------------------- --------------------
19,895,286 19,095,802
------------------- --------------------
Long-Term Debt 44,361,556 37,684,783
------------------- --------------------
Long-term Liabilities
Deferred income taxes 27,684,291 31,604,744
Retirement benefits 11,155,246 10,854,052
Other 2,961,360 797,175
------------------- --------------------
41,800,897 43,255,971
------------------- --------------------
Minority Interests 1,846,800 1,781,241
------------------- --------------------
Commitments
Shareholders' Equity
Preferred stock, no par - -
Common stock, no par 44,325,492 43,943,136
Retained earnings 48,932,293 50,385,117
Unrealized gain on securities available for sale, net 19,446,429 21,855,547
------------------- --------------------
112,704,214 116,183,800
------------------- --------------------
$ 220,608,753 $ 218,001,597
=================== ====================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
CFW COMMUNICATIONS COMPANY
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------
March 31, March 31,
2000 1999
------------------- -----------------
<S> <C>
Operating Revenues
Wireline communications $ 13,875,111 $ 9,802,114
Wireless communications 3,512,581 3,297,940
Directory assistance 3,332,289 2,873,508
Other communications services 855,890 1,044,065
------------------- -----------------
21,575,871 17,017,627
------------------- -----------------
Operating Expenses
Maintenance and support 5,877,059 3,296,103
Depreciation and amortization 3,705,681 2,810,792
Customer operations 5,361,216 4,567,246
Corporate operations 2,358,927 1,650,033
------------------- -----------------
17,302,883 12,324,174
------------------- -----------------
Operating Income 4,272,988 4,693,453
Other Income (Expenses)
Other expenses, principally interest (481,810) (212,462)
Equity loss from PCS investees
VA PCS Alliance (1,523,498) (1,358,824)
WV PCS Alliance (2,144,016) (972,350)
Equity income from other wireless investees 42,000 53,007
------------------- -----------------
165,664 2,202,824
Income Taxes 44,132 774,083
------------------- -----------------
121,532 1,428,741
Minority Interests (73,122) (89,015)
------------------- -----------------
Net Income $ 48,410 $ 1,339,726
- -------------------------------------------------------------------------- -- ------------------- ----- -----------------
Net income per common share - basic $ 0.004 $ 0.103
Net income per common share - diluted $ 0.004 $ 0.102
Average shares outstanding - basic 13,066,950 13,021,737
Average shares outstanding - diluted 13,295,947 13,087,864
- -------------------------------------------------------------------------- -- ------------------- ----- -----------------
Cash dividends per share $ 0.11475 $ 0.11475
- -------------------------------------------------------------------------- -- ------------------- ----- -----------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
CFW COMMUNICATIONS COMPANY
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------
March 31, March 31,
2000 1999
-------------------- -----------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 48,410 $ 1,339,726
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 3,244,512 2,654,018
Amortization 461,169 156,774
Deferred taxes (2,386,662) 603,652
Retirement benefits 301,194 314,610
Equity loss from PCS Alliances 3,667,514 2,331,174
Minority interests, net of distributions 65,559 (18,246)
Other (798,122) (62,461)
Changes in assets and liabilities from operations:
Increase in accounts receivable (199,821) (1,061,507)
Increase in materials and supplies (4,456) (224,164)
Increase in other current assets (309,943) (116,840)
Changes in income taxes 3,310,961 170,232
Increase (decrease) in accounts payable (1,458,643) 828,678
Decrease in other accrued liabilities (434,180) (718,347)
Increase in other current liabilities 204,065 62,501
-------------------- -----------------
Net cash provided by operating activities 5,711,557 6,259,800
-------------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (7,687,545) (9,633,002)
Purchase of PCS licenses - (54,441)
Investments in PCS alliances (3,892,138) (3,892,138)
Repayments from (advances to) PCS Alliances (2,016,288) 2,377,280
Proceeds from sale of towers 3,200,000 -
Acquisition of Internet company and subscribers (747,314) (905,447)
Deposit on radio spectrum licenses, net (100,000) (1,601,615)
Maturities and distributions from other investments 86,587 50,556
-------------------- -----------------
Net cash used in investing activities (11,156,698) (13,658,807)
-------------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends (1,501,234) (1,495,905)
Payments on senior notes (12,727,272) (3,636,364)
Additional borrowing on lines of credit, net 19,404,045 12,455,516
Net proceeds from exercise of stock options 382,356 75,022
-------------------- -----------------
Net cash provided by financing activities 5,557,895 7,398,269
-------------------- -----------------
Increase (decrease) in cash and cash equivalents 112,754 (738)
Cash and cash equivalents:
Beginning 198,540 42,890
-------------------- -----------------
Ending $ 311,294 $ 42,152
==================== =================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
CFW COMMUNICATIONS COMPANY
Condensed Consolidated Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Accumulated
Other Total
Retained Comprehensive Shareholders'
Common Stock Earnings Income Equity
Shares Amount
--------------- -------------- ------------- ------------ ------------------
<S> <C>
Balance, December 31, 1998 13,016,988 $ 43,527,636 $ 49,882,849 $ - $ 93,410,485
Comprehensive income:
Net Income 1,339,726
Unrealized gain on securities
available for sale, net of $1.0
million of deferred tax obligation 1,580,294
Comprehensive income 2,920,020
Cash dividends (1,495,905) (1,495,905)
Stock options exercised, net 19,428 75,022 75,022
--------------- -------------- --------------- ------------ ------------------
Balance, March 31, 1999 13,036,416 43,602,658 49,726,670 1,580,294 94,909,622
Comprehensive income:
Net Income 1,295,108
Unrealized gain on securities
available for sale, net of $1.7
million of deferred tax obligation 2,719,995
Comprehensive income 4,015,103
Cash dividends (1,498,100) (1,498,100)
Stock options exercised, net 5,663 76,737 76,737
--------------- -------------- --------------- ------------ ------------------
Balance, June 30, 1999 13,042,079 43,679,395 49,523,678 4,300,289 97,503,362
Comprehensive income:
Net Income 4,377,425
Reversal of unrealized gain on
securities sold, net of $2.6
million of deferred tax obligation (4,300,289)
Comprehensive income 77,136
Cash dividends (1,498,024) (1,498,024)
Stock options exercised, net 11,000 210,875 210,875
--------------- -------------- --------------- ------------ ------------------
Balance, September 30, 1999 13,053,079 43,890,270 52,403,079 - 96,293,349
Comprehensive income:
Net Income (519,601)
Unrealized gain on securities
available for sale, net of $14.0
million of deferred tax obligation 21,855,547
Comprehensive income 21,335,946
Cash dividends (1,498,361) (1,498,361)
Stock options exercised, net 7,307 52,866 52,866
--------------- -------------- --------------- ------------ ------------------
Balance, December 31, 1999 13,060,386 43,943,136 50,385,117 21,855,547 116,183,800
Comprehensive income:
Net Income 48,410
Unrealized loss on securities
available for sale, net of $1.0
million deferred tax benefit (2,409,118)
Comprehensive income (2,360,708)
Cash dividends (1,501,234) (1,501,234)
Stock options exercised, net 34,043 382,356 382,356
--------------- -------------- --------------- ------------- -----------------
Balance, March 31, 2000 13,094,429 $ 44,325,492 $ 48,932,293 $ 19,446,429 $ 112,704,214
=============== ============== =============== ============= =================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
7
<PAGE>
CFW COMMUNICATIONS COMPANY
Notes to Condensed Consolidated Financial Statements
(1) In the opinion of the Company, the accompanying condensed consolidated
financial statements which are unaudited, except for the condensed
consolidated balance sheet dated December 31, 1999, contain all
adjustments (consisting of only normal recurring accruals) necessary to
present fairly the financial position as of March 31, 2000 and December
31, 1999 and the results of operations for the three months ended March
31, 2000 and 1999 and cash flows for the three months ended March 31,
2000 and 1999. The results of operations for the three months ended
March 31, 2000 and 1999 are not necessarily indicative of the results to
be expected for the full year.
Certain amounts on the prior year financial statements have been
reclassified, with no effect on net income, to conform with
classifications adopted in 2000.
(2) The Company has six primary business segments which have separable
management focus and infrastructures and that offer different products
and services. These segments are described in more detail in Note 2 of
the Company's 1999 Annual Report to Shareholders. Summarized financial
information concerning the Company's reportable segments is shown in the
following table.
<TABLE>
<CAPTION>
Telephone Network & Internet Wireless Directory Cable Other Total
(in thousands) CLEC Assistance
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
As of and for the three months ended March 31, 2000
Revenues $7,969 $2,034 $3,473 $2,873 $3,332 $640 $1,255 $21,576
EBITDA 5,493 (69) 101 1,056 760 139 498 7,978
Depreciation &
Amortization 1,025 446 728 319 363 343 482 3,706
Total segment
Assets 46,276 26,912 18,864 8,711 13,720 19,861 12,477 146,821
Corporate assets 73,788
-------------
Total Assets $220,609
- ---------------------------------------------------------------------------------------------------------------------------------
As of and for the three months ended March 31, 1999
Revenues $7,701 $1,202 $502 $2,570 $2,874 $728 $1,441 $17,018
EBITDA 5,399 313 (264) 1,041 325 139 551 7,504
Depreciation &
amortization 901 267 87 210 280 644 422 2,811
Total segment
assets 42,953 15,646 2,329 8,290 13,848 25,426 13,786 122,278
Corporate assets 45,160
-------------
Total Assets $167,438
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(3) The weighted average number of common shares outstanding, which was used
to compute diluted net income per share in accordance with FASB
Statement No. 128, Earnings Per Share, were increased by 228,996 and
66,127 shares for the three months ended March 31, 2000 and 1999,
respectively, to reflect the assumed conversion of dilutive stock
options. The Company currently has 651,030 options outstanding to
acquire shares of common stock, of which 279,076 are currently
exercisable.
(4) The Company has a 21% common ownership interest in Virginia PCS
Alliance, L.C. (VA Alliance), a provider of personal communications
services (PCS) serving a 1.6 million populated area in central and
western Virginia. The Company is managing such build-out pursuant to a
service agreement. PCS operations began throughout the Virginia region
in the fourth quarter of 1997.
The Company has a 45% common ownership interest in the West Virginia PCS
Alliance, L.C. (WV Alliance), a provider of PCS serving a 2.0 million
populated area in West Virginia and parts of eastern Kentucky,
southwestern Virginia and eastern Ohio. The Company is managing this
build-out pursuant to a service agreement. The WV Alliance commenced
operations in the fourth quarter of 1998, offering services along the
Charleston and Huntington corridor and expanded to the northern corridor
of West Virginia, including the cities of Clarksburg, Fairmont and
Morgantown in the second quarter of 1999.
Summarized financial information for the VA Alliance and WV Alliance
("Alliances"), both of which are accounted for under the equity method,
are as follows (dollar amounts in millions):
8
<PAGE>
CFW COMMUNICATIONS COMPANY
Notes to Condensed Consolidated Financial Statements
Continued
<TABLE>
<CAPTION>
VA Alliance WV Alliance
(in thousands) March 31, 2000 December 31, 1999 March 31, 2000 December 31, 1999
-------------- ----------------- -------------- -----------------
<S> <C>
Current assets $ 11,663 $ 9,241 $ 17,494 $ 2,367
Noncurrent assets 104,709 111,601 48,764 51,130
Current liabilities 11,265 7,633 7,952 3,076
Long-term debt 116,119 131,478 62,394 51,125
Redeemable preferred interest 15,410 15,192 - -
</TABLE>
<TABLE>
<CAPTION>
VA Alliance WV Alliance
For the Three Months Ended, For the Three Months Ended,
March 31, 2000 March 31, 1999 March 31, 2000 March 31, 1999
-------------- -------------- -------------- --------------
<S> <C>
Net sales $ 4,480 $ 2,417 $ 2,626 $ 257
Gross profit (loss) 2,164 584 291 (18)
Net loss applicable to common owners (7,325) (6,533) (4,805) (2,179)
Company's share of net loss (1,523) (1,359) (2,144) (972)
</TABLE>
The Company has entered into guaranty agreements whereby the Company is
committed to provide guarantees of up to $71.0 million of the
Alliance's debt and redeemable preferred obligations. Such guarantees
become effective as obligations are incurred by the Alliances. At March
31, 2000, the Company has guaranteed $57.2 million of the Alliances'
obligations.
(5) Acquisition, disposition and investment
In February 2000, the Company acquired 4,400 Internet subscribers from
Twin County Internet Access (TCIA) for a purchase price of $1.0 million.
TCIA is located in Galax, VA and serves parts of Southwestern Virginia
and Northern North Carolina.
In March 2000, the Company sold 10 towers for $3.2 million and the
Alliances sold a total of 123 towers for $38.5 million to Crown Castle
International Corp (Crown). In April 2000, the Alliances sold a total of
18 towers for $5.7 million to Crown. In connection with these
transactions, the Company has certain future leaseback and other
commitments. Accordingly, these gains have been deferred for book
purposes and will be amortized over the life of the leaseback agreement.
(6) Income taxes
The provision for income taxes differs from the amount of income tax
determined by applying the applicable Federal statutory rate to earnings
before income taxes, as a result of the following:
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
------------------- --------------------
<S> <C>
Tax provision at Federal statutory rate 34.00% 34.00%
State income taxes, net of Federal tax benefit 3.96% 3.96%
Non deductible goodwill 9.68% 2.30%
Tax credits, net of basis adjustment - (3.64%)
------------------- --------------------
Anticipated effective tax rate 47.64% 36.62%
</TABLE>
In addition to the increased effective tax rate, the Company is
anticipating that its current tax provision will be significantly
greater than prior periods as a result of the recognition of the entire
tower gain for tax purposes. However, the effective tax rate will not
change as a result of this transaction.
9
<PAGE>
CFW COMMUNICATIONS COMPANY
Item 2. Management's Discussion And Analysis
Of Financial Conditions And Results Of Operations
Three Months Ended March 31, 2000 and 1999
OVERVIEW
CFW Communications Company (CFW or the Company) is an integrated communications
provider. The Company provides a broad range of products and services to
business and residential customers in Virginia, West Virginia, Kentucky and
Tennessee. These communications products and services include digital personal
communications services (PCS), dial-up Internet access, high-speed data services
such as Digital Subscriber Line (DSL) and dedicated service, local telephone,
long distance, cellular, paging, wireless and wireline cable television,
directory assistance, competitive local access, and alarm monitoring and
installation.
The Company's strategy is to be a regional full-service provider of
communications products and services to customers within an expanding service
area. The Company has implemented this strategy through acquisitions,
investments in spectrum licenses and internal growth through capital investment.
In addition, the Company has leveraged its existing switching platform and fiber
optic network by introducing new services such as long distance directory
assistance, long distance services to local telephone customers and surrounding
communities, cable television, local Internet access, and various enhanced
services such as Call Waiting and Caller Identification. These activities
continue to contribute to growth in the Company's operating revenues. In
addition to these activities, the Company has commenced offering, in selected
markets within Virginia and West Virginia, a competitive local telephone service
and digital subscriber line (DSL) Internet service. The Company will further
expand its operations base and its service offerings in new markets throughout
2000.
As a result of the Company's increasing focus on and growth in digital PCS,
Internet access and competitive local telephone (CLEC) services, a significant
portion of the Company's operating revenues and operating cash flows (operating
cash flow is defined as operating income before depreciation and amortization)
are being generated by businesses other than the mature telephone operations.
Throughout 2000, management expects continued growth in revenue from its current
consolidated operations. However, the Company is experiencing lower operating
margins due to start-up costs of newer businesses associated with expansion into
new markets and introduction of new service offerings throughout the region.
This is expected to continue.
As mentioned above, the Company references operating cash flows as one measure
of operating performance. Operating cash flows are commonly used in the wireless
communications industry and by financial analysts and others who follow the
industry to measure operating performance. Operating cash flows should not be
construed as an alternative to operating income or cash flows from operating
activities (both as determined in accordance with generally accepted accounting
principles) or as a measure of liquidity.
Through the Virginia PCS Alliance, L.C. (VA Alliance) and West Virginia PCS
Alliance, L.C. (WV Alliance), and other PCS joint ventures, the Company has
acquired PCS radio spectrum licenses for markets with an aggregate population of
5.4 million people. These licenses have enabled the Company, as managing member
of both Alliances, to deploy PCS services in central and western Virginia and
central West Virginia and will enable the Company to provide services in
additional markets in Virginia, West Virginia, Maryland, Ohio, Pennsylvania,
Kentucky and Tennessee. The VA Alliance completed its first full year of
operation in 1998 and the WV Alliance commenced offering PCS services in the
Charleston and Huntington, WV corridor in the fourth quarter of 1998. The WV
Alliance commenced offering PCS services in the Clarksburg, Fairmont and
Morgantown corridor in the second quarter of 1999. Due to start-up costs
resulting from the Alliances' digital products, the Alliances are generating
significant operating losses which are expected to continue in 2000. These
losses from equity investments are expected to exceed net income growth from
consolidated operations and will likely result in consolidated net income levels
below amounts reported in recent years.
The Company wishes to caution readers that these forward-looking statements and
any other forward-looking statements made by the Company are based on a number
of assumptions, estimates and projections including but not limited to,
continuation of economic growth and demand for wireless and wireline
communications services; continuation of current level of services for certain
material customers; reform initiatives being considered by the FCC being
relatively revenue neutral; significant competition in the Company's telephone
service area not emerging in 2000; the impact on capital requirements and
earnings from new business opportunities, expansions into new markets and
anticipated competitive activity not being greater than anticipated; and the
achievement of build-out, operational, capital, financing and marketing plans
relating to deployment of PCS services. Investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that any significant deviations from these
assumptions could cause actual results to differ materially from those in the
above and other forward-looking statements. Forward-looking statements included
herein are as of the date hereof and the Company undertakes no obligation to
revise or update such statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
10
<PAGE>
CFW COMMUNICATIONS COMPANY
Item 2. Management's Discussion And Analysis
Of Financial Conditions And Results Of Operations
Continued
RESULTS OF OPERATIONS
The Company had net income of $0.05 million, or $0.004 per share, for the first
quarter 2000. This represents a 96% decrease from net income of $1.3 million, or
$.102 per share for the first quarter 1999. Net income for the first quarter of
2000 included a $3.7 million loss ($1.9 million loss after-tax), up from $2.3
million ($1.4 million loss after-tax) in the first quarter of 1999, relating to
the Company's share of losses from our PCS investments which provides PCS
throughout the Company's Virginia and West Virginia marketplace.
Operating revenues were $21.6 million for the three months ended March 31, 2000
which is a 27% increase over operating revenues of $17.0 million for the three
months ended March 31, 1999 and up 11% over the fourth quarter of 1999.
Operating cash flows for the three months ended March 31, 2000 were $8.0
million, a 6% increase over first quarter 1999 operating cash flows of $7.5
million. Operating income for the three months ended March 31, 2000 was $4.3
million, a 9% decrease from first quarter 1999 operating income of $4.7 million.
These results reflect customer growth from our wireless, CLEC and Internet
businesses, with customers from these services totaling 94,900 as of March 31,
2000, a 56,900 customer increase or 150% over March 31, 1999. This growth came
from internal growth and expansion throughout our region in PCS, Internet and
CLEC and from Internet acquisitions. Operating cash flows increased due to
improved cash flow from Internet and directory assistance partially offset by
CLEC start-up losses which are significant in the new West Virginia markets.
Operating income decreased $0.4 million from the prior year comparable quarter
due to higher levels of depreciation and amortization generated from 1999 and
2000 Internet acquisitions and from the capital investments in our growth
businesses and the underlying supporting infrastructure.
OPERATING REVENUES
The total operating revenue increase of $4.6 million was fueled primarily by a
$3.0 million increase in the Internet business and a $0.8 million increase in
network and CLEC. Also, directory assistance, telephone and wireless contributed
$0.5 million, $0.3 million and $0.2 million, respectively. Internet and DSL
customers grew to 54,400 as of March 31, 2000, an increase of 43,900 customers
over March 31, 1999. Internet customer growth from acquisitions accounts for
33,500 of this total and the balance is from internal growth. CLEC customers
totaled 8,900 as of March 31, 2000 which represents an increase of 8,000
customers from the prior year comparable quarter.
WIRELINE COMMUNICATIONS
Revenues from the Company's wireline operations, which include telephone
revenues, fiber optic network usage and wireline cable revenues, increased $4.1
million or 42% for the three months ended March 31, 2000 versus the comparable
1999 period. As mentioned above, Internet accounted for $3.0 million of this
with network and telephone accounting for $0.8 million and $0.3 million,
respectively. Internet revenue growth was attributable to acquisitions, internal
customer growth and improved unit revenues. Network revenues includes revenues
from fiber optic network usage, CLEC, and long distance. $1.0 million of the
network increase was from CLEC revenues which totaled $1.3 million as of March
31, 2000. Telephone revenues includes local service, access and toll services,
directory advertising and calling feature revenues. The 3% increase in telephone
revenues was due to a period to period increase in access minutes of 13% and
access lines of 3%. Access lines totaled 38,300 as of March 31, 2000.
WIRELESS COMMUNICATIONS
Wireless communications is comprised of cellular, digital PCS, paging, and
voicemail and wireless cable. Revenues from these operations increased $0.2
million or 7% and customers grew 8% for the three months ended March 31, 2000
versus 1999. The Company had a combined 67,100 wireless customers as of March
31, 2000. Revenues from cellular, paging and voicemail, including access, air
time, and roaming charges, increased $0.3 million or 12% for this three month
period over the comparable period in the prior year. Access, airtime and roaming
revenues were up $0.7 million, partially offset by the related direct cost of
sales and $0.1 million increase in phone subsidies from a higher customer growth
rate.
11
<PAGE>
CFW COMMUNICATIONS COMPANY
Item 2. Management's Discussion And Analysis
Of Financial Conditions And Results Of Operations
Continued
DIRECTORY ASSISTANCE
Directory assistance revenue increased $0.5 million or 16% for the three months
ended March 31, 2000 versus the three months ended March 31, 1999, despite a 20%
decline in call volume. The 20% call volume decline was attributable to the
impact of call around plans versus traditional directory assistance traffic
being handled at our two call centers. New national directory assistance call
volume increased by 1.7 million calls or 230% over the prior year. The national
directory assistance offerings involve higher levels of service and price which
offset revenue declines from traditional directory assistance. In addition, a
new contract was entered into with AT&T in the first quarter of 2000 that
included a price increase for traditional directory assistance.
OTHER COMMUNICATIONS SERVICES
Other communications services revenue are derived from building and equipment
rentals charged to affiliates, sales, installation and maintenance of phone
systems and sales, installation and service of alarm monitoring systems. This
revenue stream decreased $0.2 million for the first quarter 2000 versus the
first quarter of 1999. Revenues from phone systems sales and services decreased
$0.2 million due to a shift in marketing and sales efforts from this business.
The Company's revenues from rentals, primarily for company owned assets, which
are being used by the Alliances, remained unchanged.
OPERATING EXPENSES
Operating expenses increased $4.1 million or 43% for the three month period
ended March 31, 2000 as compared to the same period in 1999. Of this increase,
$4.0 million represented period to period increases in the operating expenses of
the wireline businesses. Within the wireline business, Internet and network
comprised $2.6 million and $1.2 million, respectively, of the total increase.
$2.3 million of the Internet increase came from operations acquired after the
first quarter of 1999. The network operating expense increased as a result of
the expenses associated with increased fiber builds and those start-up costs
associated with launching or preparing to launch CLEC in new Virginia and West
Virginia markets.
MAINTENANCE AND SUPPORT EXPENSE
Maintenance and support expense, which includes property and equipment
maintenance, general engineering and general administration of plant operations,
increased $2.6 million or 78% for the three months ended March 31, 2000 versus
the comparable period of the prior year. Of this increase, $1.8 million is from
the Internet acquisitions, most of which occurred in the second half of 1999.
Additionally, network maintenance and support expenses increased $0.7 million
primarily due to CLEC rollout and engineering and operations support growth.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense increased $0.9 million or 32% for the
three months ended March 31, 2000 versus the comparable period in 1999. This is
due to a period to period increase in the property and equipment asset base of
approximately 19%, from $153 million as of March 31, 1999 to $182 million as of
March 31, 2000. Also, the Company realized an increase in cost in excess of net
assets of businesses acquired, or goodwill, of $12.5 million, from $14.3 million
as of March 31, 1999 to $26.8 million as of March 31, 2000. Depreciation and
amortization as a percent of the related assets increased from 1.7% in the first
quarter of 1999 to 1.8% in the first quarter of 2000. This increase is due to
shift in the composition of the asset base to more network plant and equipment
and a higher amount of goodwill which carry shorter lives.
CUSTOMER OPERATIONS EXPENSE
Customer operations expense, which includes marketing, product management,
product advertising, sales, publication of a regional telephone directory,
customer services, and directory assistance services increased $0.8 million or
17% for the three month period ended March 31, 2000 versus the same period of
the prior year. Internet operations and network increased $0.7 million ($0.3
million from acquisitions) and $0.4 million, respectively. The growth in this
area relates primarily to marketing and sales activities and customer care
growth in line with the related revenue growth. These increases were partially
offset by a decrease in directory assistance customer operations expense of $0.2
million. This decreased due to the lower call volume and the absence of start-
up costs incurred in the first quarter of 1999 associated with the
national database services and the Winchester, VA call center.
12
<PAGE>
CFW COMMUNICATIONS COMPANY
Item 2. Management's Discussion And Analysis
Of Financial Conditions And Results Of Operations
Continued
CORPORATE OPERATIONS EXPENSE
Corporate operations expense, which includes taxes other than income, executive,
planning, accounting, external relations, legal, purchasing, information
management, human resources and other general and administrative expenses
increased $0.7 million or 43% for the three month period ended March 31, 2000
versus the three month period ended March 31, 1999. Of this increase, $0.3
million related to acquired Internet operations and the remaining $0.4 million
represents growth in the corporate infrastructure. The corporate infrastructure
growth is commensurate with the significant customer growth and geographic
expansion.
EQUITY LOSS FROM PCS INVESTEES
The Company's share of losses from the VA PCS Alliance was $1.5 million for the
first quarter of 2000, an increase of $0.2 million from the first quarter of
1999. The Company has a 21% common ownership interest in the VA Alliance. The
Company's share of losses from the WV PCS Alliance, which commenced operations
in the latter part of the third quarter of 1998 and expanded significantly in
the second quarter of 1999, was $2.1 million for the first quarter of 2000, an
increase of $1.2 million over the first quarter of 1999. The Company has a 45%
common ownership interest in the WV Alliance. Combined customer growth during
the first quarter of 2000 totaled 11,000 customers. This compares to combined
customer growth in the first quarter of 1999 of 6,200 customers. Gross revenues
for the first quarter of 2000 were $4.5 million for VA PCS, compared to $2.4
million for the first quarter of 1999, and $2.6 million for WV PCS, compared to
$0.3 million in the first quarter of 1999. These increases, coupled with higher
handset trade-in activity associated with the introduction of next generation,
dual mode and data capable handset models, resulted in higher phone subsidies of
$2.3 million as compared to $1.0 million for the three months ended March 31,
2000 and 1999, respectively.
INCOME TAXES
Income taxes decreased $0.7 million for the three months ended March 31, 2000 as
compared to the same periods in 1999 due to the change in the pre-tax income for
the comparable periods. Additionally, the effective rate changed from 37% for
the first quarter of 1999 to 48% for the first quarter of 2000 (Note 6). The
higher effective tax rate results from non-deductible goodwill from 1999
Internet acquisitions being added back to a lower income level due to increased
PCS losses.
LIQUIDITY AND CAPITAL RESOURCES
In the three months ended March 31, 2000, net cash provided by operating
activities was $5.7 million. Principal changes in operating assets and
liabilities were as follows: Income taxes changed from a receivable position in
the first quarter of 1999 to a significant payables position in the first
quarter of 2000, a net change of $3.3 million and accounts payable decreased
$1.5 million. The income tax change was a result of the Company's share of
taxable income associated with the Alliances sale of tower assets (Note 5).
The Company's investing activities for the three months ended March 31, 2000
aggregated $11.2 million and included $7.7 million for the purchase of property
and equipment, $4.1 million of which represents telephone, network and Internet
circuit and network related electronic equipment, $0.5 million relates to
building and landscape and $0.4 million relates to billing software. The Company
also invested an additional $3.9 million in the Alliances and advanced another
$2.0 million to the Alliances. The Company received $3.2 million from the sale
of 10 towers (Note 5). The Company acquired customers and certain assets of an
Internet company (Note 5) for $0.7 million.
Net cash used for financing activities for the three months ended March 31, 2000
aggregated $5.6 million which represents payment of dividends on outstanding
capital stock of $1.5 million, a redemption payment on the senior notes of $12.7
million (see Note 5 in the 1999 Annual Report to Shareholders), additional
borrowing under lines of credit totaling $19.4 million and proceeds from the
exercise of stock options totaling $0.4 million.
Funds required for dividends, capital expenditures, interest and debt principal
payments, and partnership contributions are expected to be provided from
internal sources and borrowings drawn against available credit facilities. The
Company has entered into certain guarantee agreements relating to its investment
in the Alliances (Note 4). Management anticipates that funds required for
additional capital contributions to the Alliances will be provided from
increased cash flow resulting from lower estimated tax payments due to the
Company recognizing its proportionate share of the tax losses generated by the
Alliances, both limited liability companies, cash flows from operations and
borrowings under existing lines of credit of $60 million.
13
<PAGE>
CFW COMMUNICATIONS COMPANY
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In June 1999, the Company commenced an arbitration against the vendor
who provided the Company's previous PCS billing system. The claim
alleges that the vendor breachedcertain agreements and committed fraud
in relation to its installation andmaintenance of billing software for
the Company. The claim seeks in excess of $2.8 million in damages. In
April 2000, the vendor fileda response to the claim and, in addition,
filed counterclaimsseeking damages from the Company relating to the
installation and maintenance ofthe same software. The vendor's
counterclaims exceed $2.5 million in damages. The Company will continue
to pursue its claims against the vendor and believes that the
counterclaims asserted by the vendor are without merit.
Item 2. Changes In Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission Of Matters To A Vote Of Security Holders
None
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
(27) Financial Data Schedule
(B) Reports on Form 8-K - Form 8-K pertaining to the Company's
Shareholders Rights Plan was filed February 29, 2000 and is incorporated
herein by reference.
14
<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.
CFW COMMUNICATIONS COMPANY
May 14, 2000 /s/J. S. Quarforth
-----------------------------------------------------
J. S. Quarforth, Chairman and Chief Executive Officer
May 14, 2000 /s/M. B. Moneymaker
--------------------------------------------------
M. B. Moneymaker, Senior Vice President and
Chief Financial Officer, Treasurer, and Secretary
15
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