<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 September 30, 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 11/14/00 13,129,653
--------------------------
<PAGE>
CFW COMMUNICATIONS COMPANY
I N D E X
Page
Number
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets, September 30, 2000 and
December 31, 1999 3-4
Condensed Consolidated Statements of Income, Three and Nine
Months Ended September 30, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows Nine Months
Ended September 30, 2000 and 1999 6
Condensed Consolidated Statements of Shareholders' Equity,
Three and Nine Months Ended September 30, 2000 and 1999 7
Notes to Condensed Consolidated Financial Statements 8-14
Management's Discussion and Analysis of Financial Condition
and Results of Operations 15-23
PART II. OTHER INFORMATION 24
SIGNATURES 25-26
2
<PAGE>
<TABLE>
CFW COMMUNICATIONS COMPANY
Condensed Consolidated Balance Sheets
<CAPTION>
September 30,
2000 December 31,
(Unaudited) 1999
-------------------- ---------------------
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 39,318,550 $ 198,240
Accounts receivable, net of allowance of
$5.2 million ($1.1 million in 1999) 25,492,585 12,212,886
Materials and supplies 5,552,622 955,381
Prepaid expenses and other 2,807,669 572,339
Income tax receivable 417,134 1,999,715
Directory assistance assets - 8,023,326
-------------------- ---------------------
73,588,560 23,961,887
-------------------- ---------------------
Investments and Advances
Advance to affiliates 57,629,800 3,824,585
Securities and investments 24,829,596 39,109,476
Restricted cash 70,258,938 -
Property and Equipment
Land and building 26,416,750 23,526,095
Network plant and equipment 267,288,309 100,938,828
Furniture, fixtures, and other equipment 33,147,064 26,158,859
Radio spectrum licenses 383,949,680 15,478,079
-------------------- ---------------------
Total in service 710,801,803 166,101,861
Under construction 37,797,388 9,124,046
-------------------- ---------------------
748,599,191 175,225,907
Less accumulated depreciation 69,226,731 55,756,282
-------------------- ---------------------
679,372,460 119,469,625
-------------------- ---------------------
Other Assets
Goodwill and other intangibles, net of
accumulated amortization of $5.6 million
($2.4 million in 1999) 135,302,646 23,411,894
Deferred charges 21,081,717 359,294
Radio spectrum licenses and license deposits 7,864,963 7,864,836
-------------------- ---------------------
164,249,326 31,636,024
-------------------- ---------------------
$ 1,069,928,680 $ 218,001,597
==================== =====================
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
<TABLE>
CFW COMMUNCICATIONS COMPANY
Condensed Consolidated Balance Sheets
<CAPTION>
September 30, 2000 December 31, 1999
(Unaudited)
------------------------ ---------------------
Liabilities and Shareholders' Equity
<S> <C> <C>
Current Liabilities
Accounts payable $ 35,742,925 $ 9,552,592
Customers' deposits 2,912,379 448,995
Advance billings 4,821,476 2,677,044
Accrued payroll 1,975,879 1,030,413
Accrued interest 9,473,321 280,151
Other accrued liabilities 9,844,423 1,617,206
Deferred revenue 4,985,108 1,835,694
Directory assistance liabilities - 2,293,799
--------------------- ---------------------
69,755,511 19,735,894
--------------------- ---------------------
Long-Term Debt 526,463,138 37,684,783
--------------------- ---------------------
Long-term Liabilities
Deferred income taxes 46,630,939 31,077,684
Retirement benefits 11,862,833 10,741,020
Other 12,703,685 797,175
--------------------- ---------------------
71,197,457 42,615,879
--------------------- ---------------------
Minority Interests 1,258,439 1,781,241
--------------------- ---------------------
Redeemable and Convertible, Redeemable
Preferred stock 244,423,499 -
--------------------- ---------------------
Commitments
Shareholders' Equity
Common stock, no par 45,038,404 43,943,136
Stock warrants 22,873,680 -
Retained earnings 78,449,237 50,385,117
Unrealized gain on securities available
for sale, net 10,469,315 21,855,547
--------------------- ---------------------
156,830,636 116,183,800
--------------------- ---------------------
$ 1,069,928,680 $ 218,001,597
======================== =====================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
<TABLE>
CFW COMMUNICATIONS COMPANY
Condensed Consolidated Statements Of Income
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------- -------------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
---------------- ----------------- ------------------ -----------------
Operating Revenues
<S> <C> <C> <C> <C>
Wireline communications $ 15,287,209 $ 11,378,606 $ 43,859,715 $ 31,380,122
Wireless communications 17,460,975 5,623,540 29,158,797 16,095,078
Other communications services 675,730 1,107,630 2,533,587 3,164,590
---------------- ----------------- ------------------ -----------------
33,423,914 18,109,776 75,552,099 50,639,790
---------------- ----------------- ------------------ -----------------
Operating Expenses
Cost of sales 5,830,494 2,023,212 10,687,541 5,512,961
Maintenance and support 8,880,746 4,045,771 20,487,796 10,181,811
Depreciation and amortization 12,223,781 2,887,913 18,975,148 8,086,082
Asset write-down and impairment charges 5,624,672 2,713,221 5,624,672 2,713,221
Customer operations 10,978,067 2,870,465 18,369,006 8,311,927
Corporate operations 3,362,407 2,096,037 7,520,627 5,163,161
-----------------
---------------- ----------------- ------------------
46,820,167 16,636,619 81,664,790 39,969,163
---------------- ----------------- ------------------ -----------------
Operating Income (Loss) (13,396,253) 1,473,157 (6,112,691) 10,670,627
Other Income (Expenses)
Equity loss from PCS investees
VA PCS Alliances (840,531) (1,297,807) (3,679,095) (4,135,859)
WV PCS Alliances (1,933,520) (1,403,377) (5,750,428) (3,834,606)
Equity income from other wireless investees 12,036 45,665 110,665 133,431
Gain on sale of assets 62,633,282 8,366,378 62,633,282 8,366,378
Other financing costs (6,275,625) - (6,275,625) -
Interest expense (12,278,436) (399,745) (13,748,241) (1,076,261)
Other income, principally interest 3,039,371 63,128 3,499,201 193,957
---------------- ----------------- ------------------ -----------------
30,960,324 6,847,399 30,677,068 10,317,667
Income Taxes 12,316,709 2,274,000 12,229,395 3,470,237
---------------- ----------------- ------------------ -----------------
18,643,615 4,573,399 18,447,673 6,847,430
Minority Interests - (122,586) 105,092 (341,144)
---------------- ----------------- ------------------ -----------------
Income from continuing operations 18,643,615 4,450,813 18,342,581 6,506,286
Discontinued operations
Income (loss) from discontinued operations,
net of tax (290,545) (73,388) 396,160 505,973
Gain on sale of discontinued operations,
net of tax 16,496,984 - 16,496,984 -
---------------- ----------------- ------------------ -----------------
Net Income 34,850,054 4,377,425 35,235,725 7,012,259
Dividend requirements on preferred stock 5,670,371 - 5,670,371 -
---------------- ----------------- ------------------ -----------------
Net Income applicable to common shares $ 29,179,683 $ 4,377,425 $ 29,565,354 $ 7,012,259
--------------------------------------------------------------------------------------------------------------------------
Net income from continuing operations
per common share - basic $ 1.42 $ 0.34 $ 1.40 $ 0.45
Net income from continuing operations
per common share - diluted $ 1.38 $ 0.34 $ 1.37 $ 0.45
Net income per common share - basic $ 2.22 $ 0.33 $ 2.26 $ 0.45
Net income per common share - diluted $ 2.16 $ 0.33 $ 2.21 $ 0.45
Average shares outstanding - basic 13,127,996 13,050,090 13,098,652 13,037,438
Average shares outstanding - diluted 13,516,271 13,110,152 13,359,373 13,093,342
Cash dividends per common share $ - $ 0.11475 $ 0.11475 $ 0.34425
--------------------------------------------------------------------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
CFW COMMUNICATIONS COMPANY
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 2000 September 30, 1999
------------------------ -------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 35,235,725 $ 7,012,259
Deduct income from discontinued operations (396,160) (505,973)
Deduct gain on sale of discontinued operations (16,496,984) -
----------------- ------------------
Income from continuing operations 18,342,581 6,506,286
Adjustments to reconcile net income to net cash provided by operating
activities:
Gain on disposition of assets and investments (62,633,606) (8,317,646)
Asset write-down and impairment charges 5,624,672 2,713,221
Depreciation 16,420,289 7,402,254
Amortization 2,554,859 683,828
Deferred taxes 22,802,426 2,476,388
Retirement benefits 1,121,813 33,919
Other 2,004,176 895,248
Equity loss from PCS Alliances 9,427,897 7,837,034
Minority interests, net of distributions (522,802) 37,187
Other equity gains from investees (576,591) -
Changes in assets and liabilities from operations, net of effects of
acquisitions and dispositions:
Increase in accounts receivable (7,443,175) 135,258
(Increase) decrease in materials and supplies 179,612 (2,009,988)
Increase in other current assets (503,115) (703,743)
Changes in income taxes (9,495,088) 1,171,380
Increase in accounts payable 5,668,949 (992,849)
Increase (decrease) in other accrued liabilities 6,504,530 (284,164)
Increase in other current liabilities 4,081,369 273,352
================= ==================
Net cash provided by continuing operations 13,558,796 17,856,965
Net cash provided by discontinued operations (543,885) (2,891,456)
----------------- ------------------
Net cash provided by operating activities 13,014,911 14,965,509
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (34,152,541) (21,433,647)
Cash payment on purchase of PrimeCo VA (408,643,570) -
Investments in restricted cash (70,258,938) -
Proceeds from sale of discontinued operation 31,744,225 -
Purchase of minority interest in cellular partnership (10,745,236) -
Investments in PCS Alliances (15,292,138) (3,892,138)
Repayments from (advances to) PCS Alliances (53,805,215) 4,543,519
Proceeds from sale of tower and investments 3,200,000 9,463,434
Purchase of PCS licenses, net of minority interest - (1,349,898)
Acquisition of internet company and subscribers (1,364,376) (7,497,652)
Purchase of investments (5,000,000) -
Other 381,295 130,954
----------------- ------------------
Net cash used in investing activities (563,936,494) (20,035,428)
----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends on common shares (1,501,234) (4,492,029)
Payments on senior notes (12,727,272) (3,636,364)
Payment of debt financing closing costs (17,721,607) -
Proceeds from issuance of preferred stock and warrants 242,538,128 -
Proceeds from issuance of long-term debt 520,458,884 -
Payoff of VA PCS Alliance long-term debt (118,570,274) -
Additional borrowing (payments) under lines of credit, net (23,530,000) 12,893,056
Net proceeds from exercise of stock options 1,095,268 362,634
----------------- ------------------
Net cash provided by financing activities 590,041,893 5,127,297
----------------- ------------------
Decrease in cash and cash equivalents 39,120,310 57,378
Cash and cash equivalents:
Beginning 198,240 42,590
----------------- ------------------
Ending $ 39,318,550 $ 99,968
================= ==================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
CFW COMMUNICATIONS COMPANY
Consolidated Statements of Shareholders' Equity
<CAPTION>
Accumulated
Other Total
Common Stock Retained Comprehensive Shareholders'
Shares Amount Warrants Earnings Income Equity
------------ -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <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 of 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
Comprehensive income:
Net Income 337,261
Unrealized loss on securities
available for sale, net of $0.4
million of deferred tax benefit 685,514
Comprehensive income 1,022,775
Stock options exercised, net 22,124 421,893 421,893
------------ -------------- -------------- -------------- -------------- --------------
Balance, June 30, 2000 13,116,553 44,747,385 - 49,269,554 20,131,943 114,148,882
Comprehensive income:
Net Income 34,850,054
Dividend requirements on preferred
stock (5,670,371)
Unrealized loss on securities
available for sale, net of $6.1
million of deferred tax benefit (9,662,628)
Comprehensive income 19,517,055
Issuance of warrants 22,873,680 22,873,680
Stock options exercised, net 13,100 291,019 291,019
------------ -------------- -------------- -------------- -------------- --------------
Balance, September 30, 2000 13,129,653 $ 45,038,404 $ 22,873,680 $ 78,449,237 $ 10,469,315 $ 156,830,636
------------ -------------- -------------- -------------- -------------- --------------
Comprehensive income:
For the nine months ended September
30, 2000 $ 7,012,259
=============
For the nine months ended September
30, 1999 $ 18,179,122
=============
</TABLE>
See Notes to 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, which is derived
from audited financial statements, contain all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the
financial position as of September 30, 2000 and December 31, 1999, the
results of operations for the three and nine months ended September 30,
2000 and 1999 and cash flows for the nine months ended September 30,
2000 and 1999. The results of operations for the three and nine months
ended September 30, 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. In prior periods, the Company reported
wireless revenues net of cost of sales, primarily handsets. On June 1,
2000, the Company retroactively revised its reporting to no longer net
the cost of sales for handsets and to present these amounts as a
separate component of operating expenses. Operating revenues for
wireless communications were increased by an identical amount. This
revision was made because, in the opinion of management, it more
appropriately reflects the revenues and costs of its wireless operations
in accordance with industry practice.
(2) Prior to the third quarter transactions described in Notes 6,7,8 and 10,
the Company had five 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. As a result of the
third quarter transactions noted above, the Company has added a new
segment referred to as Wireless PCS. This segment includes the digital
PCS results of the Company's RSA 6 digital, VA East and VA PCS Alliance
PCS operations. The Company's RSA 6 analog operations, which were
disposed of in July 2000 (Note 7) and the Company's voicemail and paging
operations, both of which previously were reported under a wireless
segment, have been included in Other column. Summarized financial
information concerning all reportable segments, as adjusted for all
periods for the effect of the Company's discontinued operations (Note
10), is shown in the following table.
<TABLE>
<CAPTION>
Telephone Network & Internet Wireless PCS Cable Other Total
(in thousands) CLEC
--------------------------------------------------------------------------------------------------------------------------------
For the three months ended September 30, 2000
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $8,059 $2,681 $4,147 $15,315 $598 $2,624 $33,424
EBITDA 5,632 38 432 (2,770) 153 967 4,452
Depreciation &Amortization 1,075 516 1,361 8,140 311 821 12,224
Asset write-down charge - - - 5,625 - - 5,625
For the three months ended September 30, 1999
Revenues $7,918 $1,507 $1,552 $1,397 $652 $5,083 $18,109
EBITDA 5,371 335 (263) (724) 30 2,325 7,074
Depreciation &Amortization 933 329 376 21 517 712 2,888
Asset impairment charge - - - - 2,713 - 2,713
As of and for the nine months ended September 30, 2000
Revenues $24,049 $7,057 $11,559 $19,430 $1,836 $11,621 $75,552
EBITDA 16,611 (238) 823 (4,006) 410 4,887 18,487
Depreciation &Amortization 3,142 1,466 2,868 8,187 973 2,339 18,975
Asset write-down charge - - - 5,625 - - 5,625
Total segment
Assets 50,913 32,511 20,375 636,466 19,528 46,689 806,482
Corporate assets 263,447
Total Assets $1,069,929
For the nine months ended September 30, 1999
Revenues $23,428 $3,928 $2,818 $3,491 $2,093 $14,882 $50,640
EBITDA 16,396 837 (872) (2,137) 315 6,931 21,470
Depreciation & Amortization 2,755 879 611 57 1,797 1,987 8,086
Asset Impairment Charge - - - - 2,713 - 2,713
</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 169,796 and
60,062 shares for the three months ended September 30, 2000 and 1999,
respectively, and by 187,363 and 55,904 shares for the nine months ended
8
<PAGE>
CFW COMMUNICATIONS COMPANY
Notes to Condensed Consolidated Financial Statements
Continued
September 30, 2000 and 1999, respectively, to reflect the assumed
conversion of dilutive stock options. Additionally, the Company issued
stock warrants in July 2000 (Note 6) and the weighted average number of
common shares outstanding increased by 218,479 and 73,358 shares for the
three and nine months ended September 30, 2000, respectively, in the
computation of diluted earnings per share. The Company currently has
806,948 options outstanding and 1.3 million warrants outstanding to
acquire shares of common stock. Of these, 257,042 options and no
warrants are currently exercisable.
(4) As of September 30, 2000, the Company had a 65% common ownership
interest in the Virginia PCS Alliance, L.C. (VA Alliance), a provider of
personal communications services (PCS) serving a 1.7 million populated
area in central and western Virginia. The Company is managing the
build-out of this area pursuant to a service agreement. PCS operations
began throughout the Virginia region in the fourth quarter of 1997. On
July 25, 2000, the Company converted its preferred interest to common
interest and exercised its right to fund the redemption of the VA
Alliances' Series A preferred membership interest. Pursuant to this, the
Company increased its common interest from 21% to 65% and commenced
consolidating the VA Alliance as of July 26, 2000 (Note 8).
As of September 30, 2000, the Company had a 45% common ownership
interest in the West Virginia PCS Alliance, L.C. (WV Alliance), a PCS
provider serving a 2.0 million populated area in West Virginia and parts
of eastern Kentucky, southwestern Virginia and eastern Ohio. The Company
is managing the build-out of this area 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") is contained in the table below.
<TABLE>
Virginia PCS Alliance L.C.
Condensed Statement of Income
(Unaudited)
<CAPTION>
(Dollars in thousands except per share Three Months Ended Nine Months Ended
--------------------------------------- ------------------ -----------------
amounts)
September 30, 2000 September 30, 1999 September 30, 2000 September 30, 1999
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Operating Revenue
Subscriber Revenues $ 3,145 $ 2,075 $ 8,819 $ 5,417
Wholesale/Roaming Revenues 2,421 839 5,357 2,131
Equipment Revenues 265 240 1,071 812
Other Revenues 469 488 1,481 1,464
-------------------- -------------------- -------------------- --------------------
6,300 3,642 16,728 9,824
,
Operating Expenses, before depreciation
and amortization
Cost of Sales 2,673 1,565 7,138 4,417
Maintenance and Support 2,224 1,607 6,274 4,963
Customer Operations 2,668 1,843 7,442 5,697
Corporate Operations 698 398 2,105 1,583
-------------------- -------------------- -------------------- --------------------
8,263 5,413 22,959 16,660
-------------------- -------------------- -------------------- --------------------
Operating Cash Flows (EBITDA) (1,963) (1,771) (6,231) (6,836)
Depreciation and Amortization 2,125 2,642 6,197 7,495
Asset Write-Down and Impairment 5,625 - 5,625 -
Charges
-------------------- -------------------- -------------------- --------------------
Operating Loss (9,713) (4,413) (18,053) (14,331)
Other Expenses, principally interest, 5,132 1,511 10,439 4,583
net
-------------------- -------------------- -------------------- --------------------
Net Loss $ (14,845) $ (5,924) $ (28,492) $ (18,914)
==================== ==================== ==================== ====================
Company's Share of Net Loss $ (841) $ (1,298) $ (3,679) $ (4,136)
==================== ==================== ==================== ====================
</TABLE>
The above table represents full periods of operation. The Company's share of the
net loss for the third quarter 2000 and nine months ended September 30, 2000
shown above represents the Company's 21% ownership interest through the period
ending July 25, 2000. The operations of the Virginia PCS Alliance L.C. were
consolidated into CFW Communications effective July 26, 2000.
9
<PAGE>
CFW COMMUNICATIONS COMPANY
Notes to Condensed Consolidated Financial Statements
Continued
As a result of the PrimeCo VA acquisition (See Note 6 below) and planned R&B
merger, both of which utilize Lucent switch equipment, the Company decided to
convert to a uniform Lucent switch equipment platform. Accordingly, the Company
has recognized a $5.6 million write-down of its Motorola wireless switch
equipment.
In July 2000, the Virginia PCS Alliance redeemed its $12.9 million series A
redeemable preferred stock and entered into a new financing agreement with the
Company, using the proceeds from such financing to repay $118.3 million of
borrowings from the Rural Telephone Finance Cooperative. In connection with
these transactions, the Virginia PCS Alliance recognized $1.5 million of
make-whole finance charges.
<TABLE>
West Virginia PCS Alliance L.C.
Condensed Statement of Income
Unaudited
<CAPTION>
(Dollars in thousands except per share Three Months Ended Nine Months Ended
--------------------------------------- ------------------ -----------------
amounts)
-------- September 30, 2000 September 30, 1999 September 30, 2000 September 30, 1999
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Operating Revenue
Subscriber Revenues $ 3,008 $ 578 $ 7,381 $ 985
Wholesale/Roaming Revenues 763 137 1,535 137
Equipment Revenues 186 160 955 351
Other Revenues - - - -
-------------------- -------------------- -------------------- --------------------
3,957 875 9,871 1,473
Operating Expenses, before depreciation
and amortization
Cost of Sales 2,197 702 6,470 1,402
Maintenance and Support 1,804 1,110 4,794 2,970
Customer Operations 1,598 993 5,128 2,568
Corporate Operations 499 296 1,525 1,302
-------------------- -------------------- -------------------- --------------------
6,098 3,101 17,917 8,242
-------------------- -------------------- -------------------- --------------------
Operating Cash Flows (EBITDA) (2,141) (2,226) (8,046) (6,769)
Depreciation and Amortization 550 613 1,713 1,305
-------------------- -------------------- -------------------- --------------------
Operating Loss (2,691) (2,839) (9,759) (8,074)
Other Expenses, principally interest, net 1,197 307 2,683 520
-------------------- -------------------- -------------------- --------------------
Net Loss $ (3,888) $ (3,146) $ (12,442) $ (8,594)
==================== ==================== ==================== ====================
Company's Share of Net Loss $ (1,934) $ (1,403) $ (5,750) $ (3,834)
==================== ==================== ==================== ====================
</TABLE>
The operations of the West Virginia PCS Alliance L.C. are reported using the
equity method of accounting by CFW Communications for all periods presented.
Effective upon the planned merger with R&B Communications, the operations of the
West Virginia PCS Alliance L.C. will be consolidated.
In July 2000, the West Virginia PCS Alliance entered into a new financing
agreement with the Company, using the proceeds from such financing to repay
$51.1 million of borrowings from the Rural Telephone Finance Cooperative. At
September 30, 2000 the $57.5 million had been advanced to the WV Alliance which
has been reflected as long-term debt in the table below and as Advances to
Affiliates in the Company's consolidated balance sheet. In connection with this
transaction, the West Virginia PCS Alliance recognized $.3 million of make-whole
finance charges.
10
<PAGE>
CFW COMMUNICATIONS COMPANY
Notes to Condensed Consolidated Financial Statements
Continued
<TABLE>
West Virginia PCS Alliance L.C.
Condensed Balance Sheet
Unaudited
<CAPTION>
(Dollars in thousands) September 30, 2000 December 31, 1999
------------------- -------------------
Assets
<S> <C> <C>
Current Assets $ 4,489 $ 2,367
Investments - 2,506
Property & Equipment, net 53,950 45,422
Other Assets 3,117 3,202
------------------- ------------------
Total Assets $ 61,556 $ 53,497
=================== ==================
Liabilities and Shareholders' Equity
Current Liabilities $ 3,434 $ 3,076
Long-Term Debt 57,458 51,125
Other Long-Term Liabilities 12,836 -
Shareholder's' Equity (12,172) (704)
------------------- ------------------
Total Liabilities and Shareholders' Equity $ 61,556 $ 53,497
=================== ==================
</TABLE>
(5) 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 May 2000, the Company acquired
2,195 Internet subscribers from Heart of Virginia Communications, Inc.
("HOVAC") for a purchase price of $0.3 million. HOVAC is located in
Farmville, VA.
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, gains on the sales have been deferred for book
purposes and is being amortized over a ten year expected leaseback
period..
(6) On July 26, 2000, the Company closed on the acquisition of PrimeCo
Personal Communications, L.P. PCS licenses, assets and operations in the
Richmond and Hampton Roads areas of Virginia ("PrimeCo VA") for cash of
$408.6 million, the assumption of approximately $20.0 million of lease
obligations and the transfer of a limited partnership interest and the
assets, licenses and operations of our analog wireless operation, with a
combined value of approximately $78.5 million. This acquisition was
accounted for under the purchase method of accounting. The Company's
results of operations include PrimeCo VA for the period July 26, 2000
through September 30, 2000.
The Company obtained financing through issuance of unsecured Senior
Notes for $280 million, Subordinated Notes for $95 million, a Senior
Secured Credit Facility of up to $325 million and various preferred
stock offerings of $250 million. These financing transactions closed
concurrent with or just prior to the PrimeCo VA acquisition. The Company
used the proceeds of the financing vehicles to fund the PrimeCo VA
acquisition, to repay substantially all of its existing indebtedness and
that of the Alliances, and for future expansion. Prior to this closing,
the Company had entered into a bridge financing arrangement which was
not utilized. Accordingly, the Company has expensed $5.6 million in
bridge financing commitment fees during the period.
The Senior Notes were issued at 98.61% of par value and contain a 13.0%
coupon rate. They mature in August 2010. Approximately $69.1 million was
placed in escrow to pre-fund the first four interest payments. The
Senior Notes are redeemable early at a redemption price of up to 106.5%,
reducing to 100% by August 2008 and contain various financial covenants.
Additionally, these notes were issued with warrants to purchase an
aggregate of 504,000 shares of the Company's common stock at a price of
$47.58 per share. The warrants have been valued at $6.9 million using
the Black-Scholes option-pricing model, are exercisable one year from
July 2000, and expire August 2010. The Senior Notes were recorded net of
the $3.9 million discount associated with the issue price and $6.9
million for the related warrants.
The Subordinated Notes were issued at par and contain a 13.5% coupon
rate. They mature in February 2011. These notes are subordinate to all
senior indebtedness, including the senior notes. These notes contain
early redemption features similar to the senior notes. The notes were
issued with warrants to purchase an aggregate of 300,000 shares of the
Company's common stock at a price of $0.01 per share. These warrants
have been valued at $12.2 million using the Black-Scholes option-pricing
model, are exercisable one year from July 2000 and expire February 2011.
The Subordinated Notes were recorded net of the $12.2 million for the
related warrants.
11
<PAGE>
CFW COMMUNICATIONS COMPANY
Notes to Condensed Consolidated Financial Statements
Continued
As of September 30, 2000, the Company has borrowed $150 million of the
$325 million senior secured term loans. The loans contain a tranche A
term loan of $50 million, tranche B term loan of $100 million, tranche C
term loan of $75 million and a revolving credit facility of $100
million. These loans begin maturing in four years with final maturities
occurring in seven to eight years. The loans bear interest at rates 3%
to 4% above the Eurodollar rate or 2.5% to 3% above the federal funds
rates. The loans contain certain financial covenants and restrictions as
to their use.
The Company has incurred loan origination fees and other closing costs
related to the above financing totaling $18.7 million which are
classified as deferred charges on the Company's balance sheet. These
costs are being amortized using the straight- line method to interest
expense over the life of the respective instrument.
The preferred stock offering contained Series B convertible, redeemable
preferred stock of $112.5 million, Series C convertible, redeemable
preferred stock of $60.3 million, and Series D redeemable preferred
stock of $77.2 million. The Series B preferred stock converts to common
stock at $41 per share, contains warrants to purchase an aggregate of
500,000 shares of the Company's common stock at a price of $50 per share
and pays an 8.5% per annum dividend. The warrants have been valued at
$3.8 million using the Black-Scholes option-pricing model, are
exercisable one year from July 2000 and expire February 2011. The Series
C preferred stock converts to common stock at $43 per share and pays an
8.5% per annum dividend. The Series C conversion price goes to $45 per
share and the dividend rate goes to 5.5% upon shareholder approval. The
Series D pays an 18% per annum dividend. Upon shareholder approval, as
required within the terms of the Series D preferred stock, the Series D
converts to Series C with a conversion price of $45 per share and a
dividend rate of 5.5%. Closing costs associated with the preferred stock
totaled $11.2 million. These costs are netted against the preferred
stock item on the balance sheet. As of September 30, 2000 the Company
had accrued a dividend requirement of $5.7 million, in the aggregate for
the preferred series based on their current dividend and interest terms
and amortization of issuance costs and discounts. This amount has been
added to the principal amount of the preferred stock since payment is
contemplated to be in additional shares of the respective preferred
stock. Accordingly, the $5.7 million has not been reflected in the
accompanying Statement of Cash Flows. On December 4, 2000 the Company's
shareholders will vote on the revised terms of the Series C Preferred
and the conversion of the Series D Preferred and, if approved, the
Company would adjust the dividend accrual to reflect the revised
dividend terms.
Concurrent with closing the PrimeCo VA acquisition and above financing,
$149.4 million of the amount borrowed under the senior term loans was
loaned to the Alliances, which they used to repay their indebtedness to
the Rural Telephone Finance Cooperative ("RTFC"). Additionally, of the
total proceeds obtained from all financing sources, the Company paid
$408.6 million to PrimeCo as part of the acquisition consideration, paid
$43.0 million of their outstanding borrowings under previously existing
lines of credit, placed $69.1 million in escrow to be used to fund the
first four interest payments on the senior notes, acquired additional
common ownership interest in the VA Alliance for $11.4 million, and has
incurred approximately $36 million in transaction fees and costs and
issued warrants valued at $22.9 million relating to all of the
transactions discussed herein. Of the total transaction fees and costs,
$6.3 million has been recognized as bridge financing costs with the
majority of the remainder to be recognized through amortization and
accretion over the expected life of the related asset or debt
obligation.
In September 2000, the Company entered into two five-year interest rate
swap agreements to modify the interest characteristics on $162.5 million
of debt under the $325 million senior credit facility from a variable
rate to a fixed rate basis. These agreements involve the Company paying
an amount based on a fixed interest rate of 6.8% and receiving an amount
based on one-month London Interbank Offered Rates (LIBOR) variable
interest rate (6.6% at September 30, 2000), calculated on a $162.5
million notional amount. The senior credit facility provides for payment
of a LIBOR based variable interest rate plus an interest rate ranging
from 2.75% to 4.0%, depending on the respective loan tranche. At
September 30, 2000, with $100 million of Term Loan B and $50 million of
Term Loan C outstanding, the interest rate swap provided a fixed rate
totaling 10.8% and 9.5% for the Term Loan B and Term Loan C,
respectively.
(7) In connection with the aforementioned acquisition of PrimeCo VA, the
Company exchanged the cellular analog assets and operations of VA RSA6
and its 22% limited partnership interest in VA RSA5 as part of the
consideration paid in the acquisition. The exchange was valued at $78.5
million, in the aggregate, and resulted in a book gain of $62.6 million,
before tax. VA RSA6's analog operations contributed revenues of $0.7
million and $ 3.0 million for the three month periods ending September
30, 2000 and 1999, respectively, and contributed revenues of $5.6
million for the period January 1, 2000 through July 25, 2000, the date
of disposition, and $8.7 million for the period January 1, 1999 through
September 30, 1999. VA RSA6's analog operations contributed EBITDA of
$.2 million and $ 1.7 million for the three month periods ending
September 30, 2000 and 1999, respectively, and contributed EBITDA of
$2.7 million for the period January 1, 2000 through July 25, 2000, the
date of disposition, and $4.8 million for the period January 1, 1999
through September 30, 1999. The equity income from VA RSA5 was not
material for the periods presented.
12
<PAGE>
CFW COMMUNICATIONS COMPANY
Notes to Condensed Consolidated Financial Statements
Continued
(8) Concurrent with the closing of the PrimeCo VA acquisition and the
aforementioned debt and equity financing, the VA Alliance redeemed its
series A preferred membership interest for $16.8 million. This payment
included consideration for redemption of $12.9 million in principal,
$2.8 million in accrued interest and $1.1 million in early redemption
fees. The Company then exercised its right to fund $11.4 million of this
redemption in exchange for additional common membership interest in the
VA Alliance. The Company also elected to convert its convertible
preferred membership interest in the VA Alliance into common membership
interest. These redemptions and conversions increased the Company's
common membership interest in the VA Alliance from 21% to 65%. As
mentioned in Note 4 above, the Company consolidated the operations of
the VA Alliance as of July 26, 2000.
(9) On June 16, 2000, the Company's Board of Directors approved an agreement
and plan of merger with R&B Communications, Inc. ("R&B"). Under the
terms of that agreement, the Company will issue approximately 3.7
million shares of its common stock in exchange for 100% of R&B's
outstanding common stock. This transaction remains subject to
shareholder and regulatory approval. The transaction will be accounted
for using the purchase method of accounting.
R&B is an Integrated Communications Provider (ICP) supplying local and
long distance telephone service, and dial-up and high-speed Internet
service to business and residential customers in Roanoke, Virginia and
the surrounding area, as well as in the New River Valley of Virginia.
R&B increased its ownership in the VA Alliance to 26% in the third
quarter 2000 by exercising its right to fund $1.6 million of the series
A preferred membership redemption and converting its Series B preferred
membership interests to common interest. R&B has a 34% common membership
interest in the WV Alliance. Upon completion of the merger with R&B, the
Company will own 91% and 79% of the VA Alliance and WV Alliance,
respectively. Accordingly, the WV Alliance would also be consolidated
concurrent with the closing of the R&B merger.
(10) Effective July 11, 2000, pursuant to a stock purchase agreement dated
May 17, 2000 with telegate AG, a Federal Republic of Germany
corporation, the Company sold the capital stock of CFW Information
Services, Inc., through which directory assistance operations are
conducted. In exchange, the Company received $32.0 million in cash and
$3.5 million in stock from telegate AG and recognized a $27.6 million
gain, before tax, ($16.5 million after tax). As such, the directory
assistance operation is treated as a discontinued operation in these
financial statements. Accordingly, the overhead costs which had been
allocated to this business segment, but were not specifically identified
and incremental to the directory assistance operations, were
reclassified as corporate expenses and included as "other" in Note 2.
These costs totaled $.4 million and $.5 million for the nine months
ended September 30, 2000 and 1999, respectively, and $.1 million and $.2
million for the three months ended September 30, 2000 and 1999,
respectively.
Components of amounts pertaining to the discontinued operations are
reflected in the financial statements and are presented in the following
table:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(In thousands; unaudited) September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------------------------------ -------------------- --------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Operating revenues $ 4 $ 3,280 $ 6,792 $ 9,147
Operating income (493) (110) 639 677
Income taxes (benefit) (187) (37) 252 190
Income (loss) from operations of
discontinued segment $ (291) $ (73) $ 396 $ 506
------------------------------------ ----- -------------- ------ -------------- ----- ------------ ----- -------------
<CAPTION>
(In thousands; unaudited) September 30, 2000 December 31, 1999
------------------------------------------------- -------------------- ---------------------
Net assets of discontinued operations:
Current assets $ - $ 1,612
Property and equipment, net - 6,411
-------------- --------------
Assets of discontinued segment $ - $ 8,023
-------------- --------------
Current liabilities - 1,654
Deferred taxes - 527
Retirement benefits - 113
-------------- --------------
Liabilities of discontinued operations $ - $ 2,294
-------------- --------------
</TABLE>
13
<PAGE>
CFW COMMUNICATIONS COMPANY
Notes to Condensed Consolidated Financial Statements
Continued
(11) As a result of the PrimeCo VA acquisition and the planned R&B merger,
both of which utilize Lucent switch equipment, the Company decided to
convert to a uniform Lucent switch equipment platform. Accordingly, the
Company has recognized a $5.6 million ($3.4 million after tax)
write-down of existing equipment in the third quarter 2000. This
represents a write-down to its estimated net realizable value with
planned disposition in the first half of 2001.
In the third quarter of 1999, the Company recognized an asset impairment
charge relating to certain wireless analog cable equipment of $2.7
million ($1.7 million after tax). The Company provides wireless analog
cable services over MMDS spectrum. Acquisitions of MMDS spectrum by
Sprint Corp. and MCI WorldCom are expected to accelerate development of
digital equipment for high speed digital data, and possibly voice,
applications. As a result of these actions, an analysis of cash flows in
each market and an assessment of the alternative uses for this spectrum,
the Company determined that the carrying value of certain wireless
analog cable equipment was impaired. The wireless analog cable
equipment, which was deemed to be impaired in value, was written-down to
estimated net realizable value of $0.3 million based on the Company's
assessment of fair value of similar used equipment.
(12) The effective tax rate for the Company changed significantly, from 35%
for the nine months ended September 30, 1999 to 40% for the nine months
ended September 30, 2000. The tax rate in 2000 is slightly above the
statutory rate due to an increase in non-deductible goodwill from the
Internet acquisitions which occurred over the last 18 months and other
non-deductible goodwill. Although the nondeductible goodwill increases
the effective rate, the percentage increase over the statutory rate is
only 1% as income before taxes is significantly higher due to the gains
described in Notes 7 and 10. In the prior year, tax credits and the
favorable treatment of a significant charitable contribution caused the
prior year rate to be below statutory rates. 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, as well as the gains on sale of the directory assistance (Note
10). The Company is anticipating the deferral of a significant portion
of the tax cost associated with the disposition of its analog cellular
assets and operations as a result of the like-kind exchange (Notes 6 and
7).
(13) The Company has entered into a three-year agreement with Lucent which
sets forth the commitment, terms and conditions under which the Company
would purchase up to $100 million of wireline and wireless equipment and
services. As of September 30, 2000, the Company has committed to
purchase under this contract approximately $40 million of equipment and
services.
(14) The pro forma unaudited results of operations for the nine months ended
September 30, 2000 and September 30, 1999, assuming consummation of the
transactions more fully described in Notes 6, 7, 8 and 10 as of January
1, 1999 are as follows:
(In thousands, except per share data) Nine Months Ended
September 30th
2000 1999
-------------- ------------
Operating revenues $ 107,856 $ 85,273
EBITDA 4,140 11,217
Net loss (63,145) (53,752)
Dividend requirements on preferred stock 22,750 22,750
Loss applicable to common shares (85,895) (76,503)
Net loss per common share:
Basic and diluted (6.57) (5.87)
14
<PAGE>
CFW COMMUNICATIONS COMPANY
Item 2. Management's Discussion And Analysis
Of Financial Condition And Results Of Operations
Overview
CFW Communications Company (the "Company") is a leading regional
integrated communications provider offering a broad range of wireless and
wireline products and services to business and residential customers in
Virginia, West Virginia, Kentucky, Tennessee and North Carolina. We own our own
digital PCS licenses, fiber optic network, switches and routers, which enables
us to offer our customers end-to-end connectivity in the regions that we serve.
This facilities-based approach allows us to control product quality and generate
operating efficiencies. As of September 30, 2000, the Company, combined with the
VA Alliance and WV Alliance and including the subscribers obtained in the
PrimeCo VA acquisition, had approximately 157,700 digital PCS subscribers and
approximately 52,500 combined ILEC (incumbent local exchange carrier) and CLEC
(competitive local exchange carrier) access lines installed. PrimeCo VA
operations accounted for 88,300 of the total PCS subscribers.
Historically, we have derived much of our revenues from our ILEC
services. As a result of our increasing focus on and growth in digital PCS,
Internet access and CLEC services, a significant portion of our operating
revenues and EBITDA (earnings before interest, taxes, depreciation and
amortization and asset write-down and impairment charges) are being generated by
businesses other than our ILEC. These newer businesses have generated lower
operating margins due to start-up costs associated with expansion into new
markets and introduction of new service offerings throughout the region. As we
expand our markets through start-up activities and acquisitions of new
businesses and introduce new products, we expect these lower operating margins
to continue.
We have recently significantly expanded the scope of the geographic
markets that we serve and focused our growth efforts on our core communications
services, primarily digital PCS services, Internet access, including dedicated,
high-speed DSL and dial-up services, high-speed data transmission and local
telephone services. Through September 30, 2000, we have completed the following:
o acquisition of the wireless licenses, assets and operations of PrimeCo
Personal Communications, L.P. ("PrimeCo") in the Richmond and Hampton
Roads, Virginia markets ("PrimeCo VA and referred to within the
Company's operations as VA East");
o issuance and sale of $375 million of debt securities in a private
placement;
o closing on $325 million in new senior credit facility, with $150
million borrowed on the date of the PrimeCo VA closing;
o payment of existing senior indebtedness and refinancing of the VA & WV
Alliance debt obligations;
o issuance and sale of Series B, Series C and Series D Preferred Stock;
o entered into an agreement to acquire certain PCS licenses currently
owned by AT&T that will add 2.5 million POPs in certain markets in
Maryland and Pennsylvania, with closing remaining subject to
regulatory approval;
o redemption of the series A preferred membership interest in the VA
Alliance and conversion of series B preferred membership interest into
common interest;
o dispositions of RSA 5 and the analog assets and operations of RSA 6 in
connection with the transaction with PrimeCo;
o disposition of our directory assistance operations; and
o execution of a merger agreement with R&B Communications, an integrated
communications provider in a geographic market contiguous to ours.
This agreement is subject to regulatory and shareholder approval and
is expected to close towards the end of the fourth quarter of 2000 or
early 2001.
Collectively these events are referred to as the "Transactions" elsewhere in
this document.
Due to the disposition of the directory assistance operation in July 2000, the
Company has accounted for the directory assistance operation as a discontinued
operation and, therefore, the directory assistance operating results are
separated in the financial statements from the results of continuing operations
and are separately discussed after the income taxes section below.
As a result of the Transactions (Notes 6, 7, 8 and 10), third quarter results
differ significantly from the first and second quarter of 2000 and the prior
year comparable quarters. Additionally, the fourth quarter of 2000 will differ
significantly from the third quarter 2000 as the VA East acquisition and VA
Alliance consolidation were consummated on July 26, 2000 and therefore, the
results of operations contain less than a full quarter of activities for these
businesses. The Company will report significant losses from operations due to
addition of the VA East operations, consolidation of the VA Alliance results,
significant goodwill and licenses amortization and the significant increases in
interest related costs.
The discussion and analysis herein should be read in conjunction with the
financial statements and the notes thereto included herein. Much of the
discussion in this section involves forward-looking statements. Our actual
results may differ significantly from the results suggested by these
forward-looking statements. The Company wishes to caution readers that these
forward-looking statements and any other forward-looking statements made by the
15
<PAGE>
CFW COMMUNICATIONS COMPANY
Item 2. Management's Discussion And Analysis
Of Financial Condition And Results Of Operations
Continued
Company are based on a number of assumptions, estimates and projections
including but not limited to, changes in industry conditions created by federal
and state legislation and regulations; successful integration of acquisitions;
the achievement of build-out, operational, capital, financing and marketing
plans relating to deployment of PCS services; retention of our existing customer
base and service levels and our ability to attract new customers; continuation
of economic growth and demand for wireless and wireline communications services;
rapid changes in technology; the competitive nature of the wireless telephone
and other communications services industries; the effects of inflation and price
changes not being greater than anticipated, adverse changes in the roaming rates
we charge and pay; the capital intensity of the wireless telephone business and
our debt structure; our substantial debt obligations and our ability to service
those obligations; the cash flow and financial performance of our subsidiaries;
restrictive covenants and consequences of default contained in our financing
arrangements; completion of our anticipated merger with R&B Communications; our
opportunities for growth through acquisitions and investments and our ability to
manage this growth; the level of demand for competitive local exchange services
in smaller markets; our ability to manage and monitor billing; and possible
health effects of radio frequency transmission. 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
Revenues
Our revenues are generated from the following categories:
o wireless communications, including digital PCS, analog cellular
(disposed of on July 26, 2000), paging, voice mail and wireless
cable, which consists primarily of video services;
o wireline communications, including telephone revenues, fiber
optic network usage, or carrier's carrier services, Internet,
CLEC, long distance and cable television revenues; and
o other communications services revenues, including revenues from
our sale and lease of communications equipment and security alarm
monitoring and installation and rental of property and equipment
primarily to the Alliances.
Operating Expenses
Our operating expenses are generally incurred from the following
categories:
o cost of sales, including handset equipment costs, usage-based
access charges, including long distance, roaming charges, and
other direct costs. We sell handsets to our customers at a price
below our cost. Previously, we have netted these discounts and
costs against our revenues. We have reclassified prior periods to
conform them to our new policy of separately reporting cost of
sales;
o maintenance and support expenses, including costs related to
specific property and equipment, as well as indirect costs such
as engineering and general administration of property and
equipment;
o depreciation and amortization, including amortization of goodwill
from acquired assets and capital outlays to support continued
business expansion;
o asset impairment charges, if applicable;
o customer operations expenses, including marketing, product
management, product advertising, sales, publication of a regional
telephone directory, customer services and directory services;
o corporate operations expenses, including taxes other than income,
executive, accounting, legal, purchasing, information management,
human resources and other general and administrative expenses.
Other Income (Expenses)
Our other income (expenses) are generated (incurred) from interest
income and expense, dividend income, equity income or loss from RSA 5 (through
July 25, 2000), equity income or loss from the Virginia Alliance (through July
25, 2000) and West Virginia Alliance, gain on sale of investments and assets and
loss on write-down of investments.
16
<PAGE>
CFW COMMUNICATIONS COMPANY
Item 2. Management's Discussion And Analysis
Of Financial Condition And Results Of Operations
Continued
Income Taxes
Our income tax liability and effective tax rate increases or decreases
based upon changes in a number of factors, including our pre-tax income or loss,
losses sustained by the Alliances, net operating losses and related
carryforwards, alternative minimum tax credit carryforwards, gain or loss on the
sale of assets and investments, write-down of assets and investments,
non-deductible amortization, investment and employment tax credits, and
charitable contributions and other tax deductible amounts.
Results of Operations
Overview
Revenue increased $15.3 million, or 85%, from $18.1 million to $33.4
million, and $25.0 million, or 49%, from $50.6 million to $75.6 million for the
respective three and nine month periods ended September 30, 2000 as compared to
1999. EBITDA decreased $2.6 million, or 37%, from $7.1 million to $4.5 million,
and $3.0 million, or 14%, from $21.5 million to $18.5 million, for the
respective three and nine month periods ended September 30, 2000 and 1999.
Operating income decreased $14.9 million from $1.5 million to $(13.4) million,
and $16.8 million, from $10.7 million to $(6.1) million for the respective three
and nine month periods ended September 30, 2000 and 1999.
These results reflect customer growth from our wireless, CLEC and
Internet businesses, with customers from these services totaling 228,400 as of
September 30, 2000, a 162,190 customer increase from September 30, 1999. Over
half of this growth was from the acquisition of PrimeCo VA (hereinafter referred
to as "VA East"). In addition to this, the Company experienced significant
internal growth and expansion throughout our markets in PCS, Internet and CLEC
and from Internet acquisitions. EBITDA decreased primarily due to the inclusion
of the VA Alliance in the Company's consolidated operating results in the
current year and the acquisition of VA East. Also, CLEC start-up losses are in
the current versus the prior year due to expansion, particularly in our new West
Virginia markets. Operating income decreased from the prior year comparable
quarter and nine month period due to the decrease in EBITDA coupled with the
higher levels of depreciation and significant increases in amortization of
licenses, goodwill and other intangibles generated from acquisitions and from
capital investments in our growth businesses and underlying supporting
infrastructure. Finally, the Company recognized an asset impairment charge of
$5.6 million in the third quarter of 2000 related to wireless switch equipment
scheduled to be replaced. An asset impairment charge of $2.7 million was
recognized in the third quarter of 1999 related to wireless analog cable
equipment.
Net income for the three and nine months ended September 30, 2000 was
$34.9 million and $35.2 million, respectively. The nine month results included a
gain of $62.6 million ($37.6 million, net of tax) on the exchange of RSA6 analog
assets and operations, along with the Company's 22% limited partnership interest
in VA RSA5 in connection with the VA East acquisition. Also, the Company
recognized a gain on the sale of the directory assistance segment of $27.6
million ($16.5 million, net of tax) and non-recurring bridge financing
commitment charges of $6.3 million. Interest expense net of interest income,
amounted to $10.2 million ($6.1 million after tax), and the Company's share of
unconsolidated PCS losses totaled $2.8 million ($1.7 million after tax) and $9.4
million ($5.7 million after tax) for the three and nine months ended September
30, 2000, respectively. As discussed in Note 3, the Alliances were accounted for
on the equity method prior to the consolidation of the VA Alliance on July 26,
2000.
Net income for the three and nine months ended September 30, 1999 was
$4.4 million and $7.0 million, respectively. This included a $2.7 million loss
($1.6 million loss after-tax) and $8.0 million loss ($4.8 million loss after
tax) for the three and nine month periods, respectively, relating to our equity
share of losses from our investments in the Alliances.
Operating Revenues
Operating revenues increased $15.3 million, or 85%, from $18.1 million
for the three months ended September 30, 1999 to $33.4 million for the three
months ended September 30, 2000. Operating revenues increased $25.0 million, or
49%, from $50.6 million for the nine months ended September 30, 1999 to $75.6
million for the nine months ended September 30, 2000.
Wireless Communications Revenues. Wireless communications revenues
increased $11.8 million, and $13.1 million, or 81%, for the respective three and
nine month periods ended September 30, 2000 as compared to September 30, 1999.
Wireless communications revenues were $17.4 million and $29.2 million for the
three and nine months ended September 30, 2000, as compared to $5.6 million and
$16.1 million for the three and nine months ended September 30, 1999.
17
<PAGE>
CFW COMMUNICATIONS COMPANY
Item 2. Management's Discussion And Analysis
Of Financial Condition And Results Of Operations
Continued
o Digital PCS Revenue. Revenues for digital PCS increased $13.9 million
from $1.3 million for the three months ended September 30, 1999 to
$15.2 million for the three months ended September 30, 2000 and
increased $15.9 million from $3.5 million for the nine months ended
September 30, 1999 to $19.4 million for the nine months ended
September 30, 2000. The increase was primarily attributable to the
consolidation of the VA Alliance into the Company's operating results
(Notes 4 and 8), the acquisition of VA East (Note 6) and significant
customer growth in the Company's core market. Consolidation of the VA
Alliance and the acquisition of VA East accounted for 91% and 82% of
the total increase in the three and nine months ended September 30,
2000 versus the prior year comparable periods. Excluding customers
from the WV Alliance, as their revenue is not included in the results
of operations, the Company had 133,500 digital customers as of
September 30, 2000, which represented a 108,800 increase in the number
of digital customers from September 1999.
o Other Wireless Revenues. Revenues for analog cellular, paging and
voicemail decreased $2.0 million, or 56%, from $3.6 million for the
three months ended September 30, 1999 to $1.6 million for the three
months ended September 30, 2000 and decreased $2.6 million, or 25%,
from $10.5 million for the nine months ended September 30, 1999 to
$7.9 million for the nine months ended September 30, 2000. This
decrease reflects the absence of analog cellular revenues for over two
months in the third quarter 2000, as that business was sold in
connection with the VA East acquisition (Note 7) on July 26, 2000.
o Wireless Cable Revenues. Wireless cable revenues decreased $.1
million, or 14%, from $.7 million for the three months ended September
30, 1999 to $.6 million for the three months ended September 30, 2000
and decreased $.3 million, or 12%, from $2.1 million for the nine
months ended September 30, 1999 to $1.8 million for the nine months
ended September 30, 2000.
Wireline Communications Revenues. Wireline communications revenues
increased $3.9 million, or 34%, and $12.5 million, or 39%, for the three and
nine month periods ended September 30, 2000 as compared to September 30, 1999,
respectively. Wireline communications revenues were $15.3 million and $43.9
million for the three and nine months ended September 30, 2000 and were $11.4
million and $31.4 million for the three and nine months ended September 30,
1999.
o Telephone Revenues. Telephone revenues, which include local service,
access and toll services, directory advertising and calling feature
revenues, increased $.2 million, or 1.8%, from $7.9 million for the
three months ended September 30, 1999 to $8.1 million for the three
months ended September 30, 2000 and increased $.5 million, or 2.6%,
from $23.5 million for the nine months ended September 30, 1999 to
$24.0 million for the nine months ended September 30, 2000. The
increase was due to an increase in access minutes of 11%, toll minutes
of 16%, and access lines of 5%.
o Fiber Optic Network Usage and CLEC Revenues. Revenues from fiber optic
network usage for carrier's carrier services and CLEC operations
increased $1.2 million, or 80%, from $1.5 million for the three months
ended September 30, 1999 to $2.7 million for the three months ended
September 30, 2000 and increased $3.2 million, or 80%, from $3.9
million for the nine months ended September 30, 1999 to $7.1 million
for the nine months ended September 30, 2000. Approximately $1.2
million and $3.0 million of these increases for the three and nine
month related periods was due to the growth in CLEC customers and
revenues. As of September 30, 2000, CLEC customers totaled 13,168, an
increase of 9,168 customers from September 30, 1999.
o Internet Revenues. Revenues from Internet services increased $2.5
million, from $1.6 million for the three months ended September 30,
1999 to $4.1 million for the three months ended September 30, 2000,
and increased $8.8 million, from $2.8 million for the nine months
ended September 30, 1999 to $11.6 million for the nine months ended
September 30, 2000. This revenue growth was attributable to
acquisitions, internal customer growth and improved unit revenues.
This growth in Internet services comprised the largest single
component of wireline revenue growth in the three months ended
September 30, 2000, as Internet and DSL customers grew to 57,600 as of
September 30, 2000, an increase of 25,900 customers from September 30,
1999. Internet customer growth from acquisitions accounted for 16,300
of this total, and 9,600 was from internal growth.
o Wireline Cable Revenues. Wireline cable revenues remained unchanged at
$.4 million and $1.2 million for the three and nine months ended
September 30, 2000 and 1999, respectively. This revenue stream is
stable due to a decrease in the level of marketing and sales and other
resources deployed to support the operation.
18
<PAGE>
CFW COMMUNICATIONS COMPANY
Item 2. Management's Discussion And Analysis
Of Financial Condition And Results Of Operations
Continued
Other Communications Services Revenues. Other communications services
revenues decreased $.4 million, or 36%, from $1.1 million to $.7 million for the
three months ended September 30, 1999 and 2000, respectively. Other
communications services revenues decreased $.6 million, or 19%, from $3.1
million for the nine months ended September 30, 1999 to $2.5 million for the
nine months ended September 30, 2000. Revenues from phone systems sales and
services decreased $.4 million due to a shift in marketing and sales efforts
from this business. Our revenues from rentals, primarily for company owned
assets, which are being used by the Alliances, decreased $.2 million as rental
from the VA Alliance had to be eliminated subsequent to the consolidation of
this business into the Company's results from operations.
Operating Expenses
Total Operating Expenses. Total operating expenses increased $30.2
million, from $16.6 million for the three months ended September 30, 1999 to
$46.8 million for the three months ended September 30, 2000. The consolidation
of the VA Alliance and the acquisition of VA East accounted for $27.5 million,
or 91%, of the total increase. An asset write-down charge of $5.6 million in the
third quarter 2000 as compared to an asset impairment charge of $2.7 million in
the third quarter 1999 accounted for $2.9 million of the increase. Operating
expenses, excluding depreciation and amortization and asset write-down and
impairment charges, increased $27.9 million, or 96%, from $29.2 million for the
nine months ended September 30, 1999 to $57.1 million for the nine months ended
September 30, 2000. The combined effect of the consolidation of the VA Alliance
and the acquisition of VA East accounted for 59% of the total increase for the
nine month periods ended September 30, 1999 and 2000. Wireline operating
expenses increased $3.2 million and $11.6 million for the three and nine month
periods, respectively, and wireless operating expenses increased $15.1 million
and a $16.9 million for the same periods, respectively. Within the wireline
business, Internet and network comprised 100% and 94% of the total wireline
increases for the three and nine months ended September 30, 1999 and 2000,
respectively.
Cost of Goods Sold. Cost of goods sold increased $3.8 million, from
$2.0 million for the three months ended September 30, 1999 to $5.8 million for
the three months ended September 30, 2000 and increased $5.2 million, or 94%,
from $5.5 million for the nine months ended September 30, 1999 to $10.7 million
for the nine months ended September 30, 2000. Of this increase, $3.4 million is
from the addition of VA Alliance and VA East.
Maintenance and Support Expenses. Maintenance and support expenses
increased $4.8 million, from $4.0 million for the three months ended September
30, 1999 to $8.8 million for the three months ended September 30, 2000, and
increased $10.3 million, from $10.2 million for the nine months ended September
30, 1999 to $20.5 million for the nine months ended September 30, 2000. This
increase was attributable to the addition of the VA Alliance and VA East in the
consolidated results for approximately the last two months of the period. These
entities accounted for $8.8 million of the total three and nine month increases.
Additionally, $3.1 million of the increase came from Internet acquisitions
occurring after September 30, 1999. Also, network and CLEC maintenance and
support expenses increased $.6 million and $2.1 million for the three and nine
month comparable periods resulting from CLEC rollout and engineering and
operations support growth. Other wireless maintenance and support is down $.6
million for the nine month period ended September 30, 2000 as compared to 1999
due to the sale of the analog business in July 2000. Other increases in
maintenance and support expenses were consistent with customer and revenue
growth.
Depreciation and Amortization Expenses. Depreciation and amortization
expense increased $9.3 million, from $2.9 million for the three months ended
September 30, 1999 to $12.2 million for the three months ended September 30,
2000, and increased $10.9 million, from $8.1 million for the nine months ended
September 30, 1999 to $19.0 million for the nine months ended September 30,
2000. Of this increase, $7.0 million (of which $1.9 million was amortization of
goodwill and other intangible assets, and $1.8 million was from amortization of
PCS licenses) came from the addition of the VA Alliance and VA East. Network and
CLEC depreciation increased $.8 million and $1.1 million for the three and nine
months ended September 30, 2000 as compared to 1999. This increase was due to an
increase in property and equipment of approximately 43%, from $21.3 million as
of September 30, 1999 to $30.5 million as of September 30, 2000. This increase
is due to a shift in the composition of the asset base to network plant and
equipment and a higher amount of goodwill from Internet acquisitions, both of
which carry shorter lives.
Customer Operations Expenses. Customer operations expense increased
$8.1 million, from $2.9 million for the three months ended September 30, 1999 to
$11.0 million for the three months ended September 30, 2000, and increased $10.1
million, or 121%, from $8.3 million for the nine months ended September 30, 1999
to $18.4 million for the nine months ended September 30, 2000. Aside from the
$6.2 million increase attributable to the addition of the VA Alliance and VA
19
<PAGE>
CFW COMMUNICATIONS COMPANY
Item 2. Management's Discussion And Analysis
Of Financial Condition And Results Of Operations
Continued
East, primary areas of increase were in the Internet and Network and CLEC
operations, which increased a combined $1.2 million and $3.2 million for the
three and nine months ended September 30, 2000 as compared to 1999. These
increases relate primarily to marketing and sales activities, customer care
costs primarily associated with adding new customers, and the 1999 internet
acquisitions, which were added in the last four months of 1999.
Corporate Operations Expenses. Corporate operations expense increased
$1.3 million, or 60%, from $2.1 million for the three months ended September 30,
1999 to $3.4 million for the three months ended September 30, 2000 and increased
$2.3 million, or 46%, from $5.2 million for the nine months ended September 30,
1999 to $7.5 million for the nine months ended September 30, 2000. Of this
increase, $.1 million and $.8 million for the three and nine months ended
September 30, 2000 over 1999, respectively, related to acquired Internet
operations and $.6 million relates to the VA Alliance and VA East. The remaining
increases represent growth in the corporate infrastructure associated with the
significant customer growth and the Company's geographic expansion.
Other Income (Expenses)
Total other income (expenses) increased $39.0 million, from $5.4
million for the three months ended September 30, 1999 to $44.4 million for the
three months ended September 30, 2000. Other income (expenses) increased $37.2
million, from an expense of $.4 million for the nine months ended September 30,
1999 to other income of $36.8 million for the nine months ended September 30,
2000.
Gains on sale of assets increased $54.2 million, from $8.4 million for
the three and nine months ended September 30, 1999 to $62.6 million for the
three and nine months ended September 30, 2000. The $8.4 million increase from
the prior year related to the gain on sale of a tower and the sale of the
Company's holdings in American Telecasting, Inc. The $62.6 million gain in the
current year related to the sale of the 22% limited partnership interest in RSA5
and the disposition of the RSA6 analog assets and operations (Notes 6 and 7).
The Company incurred bridge commitment financing fees and related
expenses of $6.3 million in the third quarter of 2000 (Note 6).
Interest expense increased $11.9 million and $12.7 million for the
three and nine months ended September 30, 2000 versus the comparable prior year
periods. These increases were due to additional financing to fund acquisitions
and other third quarter transactions, and to fund future growth activity in an
expanded market (Notes 6, 7, and 8). Other income, principally interest,
increased $3.0 million and $3.3 million for the three and nine months ended
September 30, 2000 as compared to 1999. This interest is generated from the $70
million of restricted cash required by debt covenants and the $57 million
advance to the WV Alliance in connection with the refinancing of its
indebtedness with the Rural Telephone Finance Cooperative in contemplation of
the pending consolidation of the WV Alliance (Notes 4, 6 and 9).
Our share of losses from the Virginia Alliance decreased $.5 million,
or 35%, from $1.3 million for the three months ended September 30, 1999 to $.8
million for the three months ended September 30, 2000 and decreased $.4 million,
or 11%, from $4.1 million to $3.7 million for the nine months ended September
30, 1999 and 2000. This is primarily due to the fact that equity accounting was
used through July 25, 2000 after which, as a result of the Company converting
its preferred interest to common interest and exercising its right to fund $11.4
million of the VA Alliance's series A preferred interest and thus obtaining a
controlling interest (increasing from 21% to 65%), the Company began
consolidating the VA Alliance results of operations. Our share of losses from
the West Virginia Alliance, which commenced operations in the latter part of the
third quarter of 1998 and expanded significantly in the second quarter of 1999,
increased $.5 million, or 38%, from $1.4 million for the three months ended
September 30, 1999 to $1.9 million for the three months ended September 30, 2000
and increased $1.9 million, or 50%, from $3.8 million for the nine months ended
September 30, 1999 to $5.7 million for the nine months ended September 30, 2000.
The Company's ownership interests in the VA and WV Alliance will increase to 91%
and 79%, respectively, upon completion of the R&B merger (Note 9), which is
expected to be completed by the fourth quarter of 2000 or early in the first
quarter of 2001. After this transaction is completed, both Alliances will be
consolidated into our financial statements.
Combined customer growth for the Alliances from September 30, 1999 to
September 30, 2000 totaled 127,200, with total customers exceeding 157,000 as of
September 30, 2000. Net sales increased $15.3 million for the nine months ended
September 30, 2000 from $11.3 million for the nine month period ending September
30, 1999 (Note 4).
Equity income from RSA 5 was not material for the three and nine months
ended September 30, 1999 and 2000. In July 2000, the Company's 22% limited
interest in RSA5 was sold to Verizon (previously PrimeCo) as part of
consideration for the PrimeCo VA acquisition (Note 7).
20
<PAGE>
CFW COMMUNICATIONS COMPANY
Item 2. Management's Discussion And Analysis
Of Financial Condition And Results Of Operations
Continued
Income Taxes
Income taxes increased $10.0 million, from $2.3 million for the three
months ended September 30, 1999 to $12.3 million for the three months ended
September 30, 2000, and increased $8.7 million, from $3.5 million for the nine
months ended September 30, 1999 to $12.2 million for the nine months ended
September 30, 2000. These increases were due to the change in the pre-tax income
for the comparable periods. Additionally, the effective rate changed from a
34.8% tax obligation for the nine months ended September 30, 1999 to a 39.7% tax
obligation for the nine months ended September 30, 2000. The effective tax rate
change is due to the continuing operations results turning from a profit to a
loss with non-deductible goodwill from 1999 Internet acquisitions being added
back to the pre-tax loss, offset by significant gains. This results in a tax
obligation greater than the statutory rate.
Discontinued Operations
In May 2000, the Company announced that it had entered into a
definitive agreement to sell its directory assistance operations. The Company
sold its directory assistance operations in July 2000. All periods presented on
the income statement have been restated to reflect the accounting for the
directory assistance segment as discontinued operations. Non-incremental
corporate overhead of $.2 million for the three month periods ended September
30, 2000 and 1999, and $.4 million and $.5 million for the nine month periods
ended September 30, 2000 and 1999, respectively, which was previously allocated
to this business segment, have been included in operating expenses of continuing
operations.
Liquidity and Capital Resources
The Company has funded its working capital requirements and capital
expenditures from net cash provided from operating activities and borrowings
under credit facilities. After closing on the PrimeCo VA operations (Note 7) and
the related financing, the Company had $175 million in unused borrowings
available under its senior credit facility.
Operating Cash Flows
In the nine months ended September 30, 2000, net cash provided by
operating activities was $13.0 million. Principal changes in operating assets
and liabilities were as follows: accounts receivable increased $7.4 million
resulting from the inclusion of the VA Allianceand VA East accounts receivable
totaling $10.2 million, offset by improved aging on receivables and increases in
receivable reserves; income taxes receivable changed from $2.0 million at
December 31, 1999 to $.4 million at September 30, 2000 due to taxes due on the
business dispositions (Note 6, 7, and 10) offset by tax benefits primarily from
PCS operating losses; and accounts payable and other liabilities changed by
$16.3 million from December 31, 1999, again primarily due to the inclusion of
the VA Allianceand the VA East operation in the Company's consolidated financial
position at September 30, 2000.
The Company's cash flows used in investing activities for the nine
months ended September 30, 2000 aggregated $563.9 million and include the
following:
o $34.2 million for the purchase of property and equipment,
o $408.6 million representing the cash portion of the acquisition price
for PrimeCo VA (Note 6),
o $70.3 million cash outlay relates to the purchase of restricted cash
investments equal to the first two years interest payments on the
senior notes,
o $31.7 million of proceeds from the sale of the directory assistance
operation (Note 10),
o $10.7 million cash outlay for the purchase of minority interest in the
cellular business which was subsequently disposed of through a
non-cash like-kind asset exchange in connection with the PrimeCo VA
acquisition,
o $15.3 of investments in the WV Alliance and VA Alliance ($3.9 million
in scheduled equity contributions and $11.4 million in connection with
the purchase of controlling common ownership interest (Note 8)),
o $53.8 million of net advances to the Alliances, the majority of which
was to the WV Alliance in order for them to pay off their existing
long-term debt in contemplation of the pending consolidation (Note 9),
o $3.2 million received from the sale of 10 towers and $1.4 million cash
outlay to acquire Internet subscribers (Note 5), and
o $5.0 million purchase of RTFC capital certificates in connection with
RTFC participation in the senior credit facility.
Net cash provided by financing activities for the nine months ended
September 30, 2000 aggregated $590.0 million which represents the following:
o Payment of dividends on outstanding common stock of $1.5 million in
the first quarter 2000,
o redemption payment on the senior notes of $12.7 million (see Note 5 in
the 1999 Annual Report to Shareholders),
o $17.7 million in payments for investment banking, legal and other
professional services associated with the issuance of long-term debt,
o $242.5 million in proceeds from the issuance of preferred stock and
the related warrants and $520.5 million in proceeds from the issuance
of long-term debt (Note 6),
o $118.6 million cash outlay to payoff certain VA Alliance debt,
o $23.5 million of cash outlay to payoff the Company's existing lines of
credit, and
o $1.1 million of net proceeds from the exercise of stock options.
Under restrictions related to the new debt financing (Note 7), we have
discontinued payment of dividends to common shareholders effective for the
quarter ending June 30, 2000. This will allow the Company to retain future
earnings, if any, to fund the development and growth of its businesses and to
service its debt obligations.
After the completion of the Transactions, our liquidity needs will be
influenced by numerous factors including:
o significantly reduced or negative EBITDA that we expect to continue
until at least into 2001, as a result of acquiring capital intensive
businesses in their early stages, entering new markets and disposing
of businesses that generate positive EBITDA;
o increased capital expenditures to support planned PCS network growth
and expansion, much of which is discretionary in nature, and to
support planned customer growth;
o our own continuing capital expenditures due to our ongoing strategy of
offering our services in new markets, adding new products and
services, and enhancing organic growth;
21
<PAGE>
CFW COMMUNICATIONS COMPANY
Item 2. Management's Discussion And Analysis
Of Financial Condition And Results Of Operations
Continued
o significant capital expenditures to become an integrated
communications provider in many of our existing, newly acquired and
other potential markets by offering a broader range of products and
services;
o capital expenditures for the Richmond and Hampton Roads markets
(PrimeCo VA acquisition) and R&B Communications;
o continued investment in the Alliances;
o future acquisitions; and o significantly increased interest expense.
After the completion of the Transactions, our liquidity sources include:
o cash flow from operations, if any;
o approximately $70.3 million held in the escrow account to fund the
first four interest payments on the senior notes;
o $175.0 million available under our new credit facility subject to
certain conditions;
o public and private debt and equity markets;
o disposition of additional non-core businesses and assets, such as
additional cell towers owned in VA East and wireline cable operations,
and investments; and
o interest on the escrow account.
We expect capital expenditures for the last three months of 2000 to be
between $30 and $40 million and for the year 2001 to be between $80 million to
$100 million. We expect these capital expenditures to be used to:
o support continued expansion of CLEC and Internet access services;
o add another building to support employee additions commensurate with
the growth in digital PCS, Internet and CLEC customers; and
o support the continued expansion of VA East, VA Alliance and WV
Alliance operations.
VA East and the Alliances have substantially satisfied their FCC build-out
requirements. Consequently, the expenditures above are generally discretionary,
permitting us to maintain flexibility in our business plans and capital
expenditures. Since these are generally discretionary expenditures, we cannot
assure you when, if ever, these proposed uses will be initiated or completed.
Based on our assumptions about the future of our operating results, our
capital expenditure needs, many of which are discretionary, and the availability
of borrowings under our new credit facility and our other sources of liquidity,
we believe that we will have sufficient capital resources until we begin
generating significant positive EBITDA. However, if any of our assumptions prove
incorrect or if we make additional acquisitions, we may not have sufficient
capital resources. If so, we may have to delay or abandon some of our
anticipated capital expenditures and our ability to make interest and principal
payments on the notes will be significantly impaired.
<PAGE>
CFW COMMUNICATIONS COMPANY
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For a description of Legal Proceeding, see the Form 10-Q filed by the
Company for the quarter ended March 31, 2000.
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
Not applicable
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 dated July 10, 2000, pertaining to the Agreement and Plan of
Merger with R&B Communications and the Letter Agreement with PrimeCo
relating to the Asset Exchange Agreement. Also attached are financial
statements of CFW Communications, PrimeCo's Richmond Major Trading
Area, R&B Communications, West Virginia PCS Alliance and Virginia PCS
Alliance.
Form 8-K dated July 24, 2000, pertaining to the Stock Purchase
Agreement with telegate AG.
Form 8-K dated August 4, 2000, pertaining to the Asset Exchange
Agreement with PrimeCo, the Articles of Amendment to CFW's Articles of
Incorporation relating to the Series B, Series C and Series D preferred
stock, the Senior Notes Indenture, the Subordinated Notes Indenture,
the Warrant Agreement with The Bank of New York, the Warrant Agreement
with WCAS Capital Partners, the Warrant Agreement with Welsh, Carson,
Anderson & Stowe VIII, L.P., the Amended and Restated Shareholders
Agreement with Welsh, Carson, Anderson & Stowe and Amendment No. 1 to
the Rights Agreement.
Form 8-K/A dated August 4, 2000, amending notes to CFW's financial
statements filed in the Form 8-K dated July 10, 2000.
Form 8-K/A dated August 14, 2000, incorporating pro forma consolidated
financial information from the Form 8-K dated July 24, 2000.
23
<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
November 14, 2000 /s/J. S. Quarforth
--------------------------------------------------
J. S. Quarforth, Chairman and Chief
Executive Officer
November 14, 2000 /s/M. B. Moneymaker
--------------------------------------------------
M. B. Moneymaker, Senior Vice President and
Chief Financial Officer, Treasurer, and Secretary
24
