<PAGE>
Exhibit 99.4.3
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
R&B Communications, Inc.
Daleville, Virginia
We have audited the accompanying consolidated balance sheet of R&B
Communications, Inc and subsidiaries as of December 31, 1999, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 1999 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of R&B
Communications, Inc. and subsidiaries as of December 31, 1999, and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
Richmond, Virginia
April 26, 2000, except for Note 9,
as to which the date is June 16, 2000
1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
R&B Communications, Inc.
Daleville, Virginia
We have audited the accompanying consolidated balance sheet of R&B
Communications, Inc., and subsidiaries as of December 31, 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years ended December 31, 1998 and 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of R&B
Communications, Inc., and its subsidiaries, as of December 31, 1998, and the
results of their operations and their cash flows for the years ended December
31, 1998 and 1997 in conformity with generally accepted accounting principles.
/s/ Phibbs Burkholder Geisert & Huffman
Harrisonburg, Virginia
February 19, 1999
2
<PAGE>
R&B COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents............................. $ 8,218,177 $ 6,909,613
Accounts receivable................................... 3,834,561 2,576,244
Materials and supplies................................ 354,878 323,518
Prepaid expenses and other............................ 230,094 9,712
Income taxes receivable............................... 2,680,774 2,598,952
----------- -----------
15,318,484 12,418,039
----------- -----------
Securities and Investments.............................. 18,811,889 8,441,698
----------- -----------
Property and Equipment
Land and building..................................... 4,497,672 4,397,674
Network plant and equipment........................... 21,231,445 19,600,655
Furniture, fixtures, and other equipment.............. 14,954,217 11,541,085
Radio spectrum licenses............................... 926,376 926,376
----------- -----------
Total in service.................................... 41,609,710 36,465,790
Less accumulated depreciation and amortization........ 16,594,851 13,999,963
----------- -----------
25,014,859 22,465,827
----------- -----------
Other Assets
Cash surrender value of life insurance................ 3,749,035 3,965,660
Radio spectrum licenses............................... 958,546 742,786
Other deferred charges................................ 59,548 91,220
----------- -----------
4,767,129 4,799,666
----------- -----------
$63,912,361 $48,125,230
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
R&B COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
----------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt................. $ 385,627 $ 365,626
Recognized losses in excess of investment in PCS
ventures............................................ 3,100,000 163,066
Accounts payable..................................... 1,493,424 1,065,070
Customers' deposits.................................. 26,483 28,602
Advance billings..................................... 702,649 633,254
Accrued payroll...................................... 118,023 90,880
Accrued interest..................................... 15,610 18,518
Other accrued liabilities............................ 707,328 674,808
Dividends payable.................................... 221,022 199,501
----------- -----------
6,770,166 3,239,325
----------- -----------
Long-Term Debt, net of current maturities.............. 7,520,082 7,907,901
----------- -----------
Long-Term Liabilities
Deferred income taxes................................ 10,100,000 4,105,674
Recognized losses in excess of investment in PCS
ventures............................................ 2,078,690 --
Deferred compensation................................ 1,772,000 1,472,000
Unamortized investment tax credits................... 109,463 142,428
----------- -----------
14,060,153 5,720,102
----------- -----------
Commitments and Contingencies
Shareholders' Equity
Common stock, $10 par value per share, authorized
100,000 shares; issued 61,669 shares (61,671 in
1998)............................................... 616,690 616,710
Retained earnings.................................... 24,845,542 29,241,142
Unrealized gain on securities available for sale,
net................................................. 10,099,728 1,400,050
----------- -----------
35,561,960 31,257,902
----------- -----------
$63,912,361 $48,125,230
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
R&B COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating Revenues
Wireline communications.............. $14,499,701 $11,703,381 $ 9,734,331
Wireless communications.............. 1,257,571 1,218,802 968,404
Other communications services........ 1,012,076 954,092 921,592
----------- ----------- -----------
16,769,348 13,876,275 11,624,327
----------- ----------- -----------
Operating Expenses
Maintenance and support.............. 4,917,215 3,398,213 2,311,849
Depreciation and amortization........ 2,808,093 2,340,046 2,104,554
Customer operations.................. 2,030,715 1,927,899 1,290,468
Corporate operations................. 2,356,231 1,862,416 1,699,749
----------- ----------- -----------
12,112,254 9,528,574 7,406,620
----------- ----------- -----------
Operating Income....................... 4,657,094 4,347,701 4,217,707
Other Income (Expenses)
Interest and dividend income......... 336,526 260,868 311,410
Other expenses, principally
interest............................ (685,171) (410,153) (557,105)
Equity loss from PCS investees
VA PCS Alliance.................... (5,427,347) (5,077,821) (821,936)
WV PCS Alliance.................... (4,564,475) (1,063,948) --
Equity income from other investees... 339,727 315,247 634,164
Gain on sale of assets and
investments......................... 252,483 30,677 5,079,593
----------- ----------- -----------
(5,091,163) (1,597,429) 8,863,833
Income Taxes (Benefit)................. (917,265) (758,938) 3,051,905
----------- ----------- -----------
Net Income (Loss)...................... $(4,173,898) $ (838,491) $ 5,811,928
=========== =========== ===========
Net income (loss) per common share--ba-
sic and diluted....................... $ (67.68) $ (13.48) $ 92.53
Average shares outstanding--basic and
diluted............................... 61,670 62,211 62,813
Cash dividends per share............... $ 3.60 $ 3.25 $ 3.00
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
R&B COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss)..................... $(4,173,898) $ (838,491) $ 5,811,928
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation........................ 2,747,121 2,279,074 2,043,582
Amortization........................ 60,972 60,972 60,972
Deferred taxes...................... 628,000 1,589,232 184,770
Retirement benefits other than
pensions........................... 300,000 267,000 178,000
Other............................... (241,819) (136,765) 64,043
Equity loss from wireless
investees.......................... 9,652,095 5,826,522 187,772
Gain on sale of investments......... (252,483) (30,677) (5,079,593)
Changes in assets and liabilities from
operations:
(Increase) decrease in accounts
receivable......................... (1,258,317) (870,920) 283,632
(Increase) in materials and
supplies........................... (31,360) (6,370) (51,783)
Increase (decrease) in other current
assets............................. (220,382) 163,249 (452,398)
(Increase) decrease in income taxes
receivable......................... (81,822) (2,348,152) 328,500
Increase (decrease) in accounts
payable............................ 428,354 109,650 (1,622,447)
Increase in other accrued
liabilities........................ 124,031 -- --
----------- ----------- -----------
Net cash provided by operating
activities......................... 7,680,492 6,064,324 1,936,978
----------- ----------- -----------
Cash Flows From Investing Activities
Purchases of property and equipment... (5,325,453) (3,776,869) (3,707,173)
Purchase of investment securities..... (281,818) (347,152) (85,982)
Purchases of licenses................. (215,760) -- --
Contributions to equity investments... (1,837,881) (978,764) (89,500)
Net (premium) proceeds on life
insurance policies................... 458,444 (144,593) (63,687)
Proceeds from the sale of investment
in partnership....................... -- -- 2,355,956
Proceeds from the sale of equipment... -- 4,103 22,013
Proceeds from sale of investment
securities........................... 989,925 313,464 11,430
Distributions from equity
investments.......................... 408,634 383,642 343,529
----------- ----------- -----------
Net cash used in investing
activities......................... (5,803,909) (4,546,169) (1,213,414)
----------- ----------- -----------
Cash Flows From Financing Activities
Cash dividends........................ (199,501) (187,080) (172,243)
Proceeds of short-term debt........... -- -- 748,000
Proceeds of long-term debt............ -- -- 850,500
Redemption of common stock............ (700) (345,450) (54,380)
Payments of long-term debt............ (367,818) (1,097,195) (1,075,344)
----------- ----------- -----------
Net cash provided by (used in)
financing activities............... (568,019) (1,629,725) 296,533
----------- ----------- -----------
Increase (decrease) in cash and cash
equivalents........................ 1,308,564 (111,570) 1,020,097
Cash and Cash Equivalents:
Beginning............................. 6,909,613 7,021,183 6,001,086
----------- ----------- -----------
Ending................................ $ 8,218,177 $ 6,909,613 $ 7,021,183
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE>
R&B COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Common Stock Other Total
---------------- Retained Comprehensive Shareholders'
Shares Amount Earnings Income Equity
------ -------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1,
1997................... 62,901 $629,010 $25,041,884 $ 519,285 $26,190,179
Comprehensive income:
Net Income............. 5,811,928
Unrealized losses on
securities available
for sale, net of
$61,726 deferred tax
effect................ (100,866)
Reclassification of
realized losses on
securities available
for sale, net of
$5,735 deferred tax
effect................ 9,389
Comprehensive income... 5,720,451
Redemption of 243 shares
of common stock........ (243) (2,430) (51,950) (54,380)
Dividends............... (187,148) (187,148)
------ -------- ----------- ----------- -----------
Balance, December 31,
1997................... 62,658 626,580 30,614,714 427,808 31,669,102
Comprehensive income:
Net Loss............... (838,491)
Unrealized gains on
securities available
for sale, net of
$606,524 of deferred
tax effect............ 991,274
Reclassification of
realized gains on
securities available
for sale, net of
$11,645 deferred tax
effect................ (19,032)
Comprehensive income... 133,751
Redemption of 987 shares
of common stock........ (987) (9,870) (335,580) (345,450)
Dividends............... (199,501) (199,501)
------ -------- ----------- ----------- -----------
Balance, December 31,
1998................... 61,671 616,710 29,241,142 1,400,050 31,257,902
Comprehensive income:
Net Loss............... (4,173,898)
Unrealized gains on
securities available
for sale, net of
$5,425,408 of deferred
tax effect............ 8,860,114
Reclassification of
realized gains on
securities available
for sale, net of
$92,047 deferred tax
effect................ (160,436)
Comprehensive income... 4,525,780
Redemption of 2 shares
of common stock........ (2) (20) (680) (700)
Dividends............... (221,022) (221,022)
------ -------- ----------- ----------- -----------
Balance, December 31,
1999................... 61,669 $616,690 $24,845,542 $10,099,728 $35,561,960
====== ======== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
7
<PAGE>
R&B COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies
R&B Communications, Inc. and its subsidiaries provide a broad range of
products and services to businesses, telecommunication carriers and
residential customers in the Roanoke Valley area of Virginia. The Company's
services include personal communications services ("PCS"), local telephone,
long distance, paging, voice-mail, wireless cable television, directory
assistance, competitive access, and local Internet access. Significant
accounting policies follow:
Accounting estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Principles of consolidation: The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
Revenue recognition: The Company's revenue recognition policy is to
recognize revenues when services are rendered or when products are
delivered, installed and functional, as applicable. Certain services of the
Company require payment in advance of service performance. In such cases,
the Company records a service liability at the time of billing and
subsequently recognizes revenue over the service period.
Cash and cash equivalents: For purposes of reporting cash flows, the
Company considers all highly liquid debt instruments with a purchased
maturity of three months or less to be cash equivalents. The Company places
its temporary cash investments with high credit quality financial
institutions. At times, such investments may be in excess of the FDIC
insurance limit.
Securities and investments: The Company has investments in debt and equity
securities and partnerships. Management determines the appropriate
classification of securities at the date of purchase and continually
thereafter. The classification of those securities and the related
accounting policies are as follows:
Available-for-sale securities: Securities classified as available for sale
are traded primarily on a national exchange and consist of securities that
the Company intends to hold for an indefinite period of time but not
necessarily to maturity. Decisions to sell a security classified as
available for sale are based on various factors including changes in market
conditions, liquidity needs and other similar factors. Securities available
for sale are stated at fair value and unrealized holding gains and losses,
net of the related deferred tax effect, are reported as a separate
component of shareholders' equity. Realized gains and losses, determined on
the basis of the cost of specific securities sold, are included in
earnings.
Equity method investments: Equity method investments consist of partnership
investments. Under this method, the Company's share in earnings or losses
of these companies is included in earnings. Where the Company has
guaranteed obligations of a partnership, or committed to make capital
investments in excess of carrying value, negative capital balances are
reported as liabilities.
Investments carried at cost: Cost method investments are those in which the
Company does not have significant ownership and for which there is no ready
market. Patronage equity received in connection with the acquisition of
long-term debt is included in this category.
Property and equipment: Property and equipment is stated at cost.
Accumulated depreciation is charged with the cost of property retired, plus
removal cost, less salvage. Depreciation is determined under the remaining
life method and straight-line composite rates. Buildings are depreciated
over lives from 35 to 50 years. Network plant and equipment are depreciated
over various lives from 5 to 50 years. Furniture, fixtures
8
<PAGE>
R&B COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies (Continued)
and other equipment are depreciated over various lives from 5 to 25 years.
Channel acquisition costs are amortized over a life of 30 years.
Depreciation provisions were approximately 7.2%, 6.8% and 6.5% of average
depreciable assets for the years 1999, 1998 and 1997, respectively.
Materials and supplies: The Company's materials and supplies inventory
consists both of items held for resale such as PCS and wireline phones,
pagers, and accessories, and materials for the maintenance and expansion of
plant operations. The Company values its inventory at the lower of average
cost or market. The market value is determined by reviewing current
replacement cost, marketability, and obsolescence.
Retirement plans: The Company sponsors a contributory defined contribution
plan under Internal Revenue Code Section 401(k) for all full-time employees
with at least one year of service. The Company contributes 50% of each
participant's annual contribution for contributions up to 4% of each
participant's annual compensation, and contributes 100% of each
participant's annual contribution for the next 2%. The employee elects the
type of investment fund from the equity and bond alternatives offered by
the plan.
The Company also sponsors a qualified profit-sharing plan to provide
retirement benefits for employees. The plan provides for a choice of a lump
sum distribution or periodic payments upon normal retirement at age 65,
permanent disability or death. The plan provides for voluntary
contributions and covers substantially all full-time employees. The
employer's contribution to the plan is determined annually by the Board of
Directors.
Income taxes: Deferred income taxes are provided on a liability method
whereby deferred tax assets are recognized for deductible temporary
differences and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets and liabilities are adjusted for the effects of changes
in tax laws and rates on the date of enactment.
Net income (loss) per common share: Basic net income per share was computed
by dividing net income by the weighted average number of common shares
outstanding during the year. The Company has no potential common stock
outstanding, such as stock options, warrants or convertible debt;
therefore, basic and diluted net income per share are the same.
Fair value of financial instruments: The fair values of financial
instruments recorded on the balance sheet, except securities and
investments, are not significantly different from the carrying amounts,
based on cash flows relative to similar instruments. Information as to
securities and investments is included elsewhere in Notes 1, 3 and 4. The
fair value of off-balance sheet guarantees, as described in Note 3, is not
determinable due to the nature of the transaction.
Note 2. Disclosures About Segments of an Enterprise and Related Information
The Company has five primary business segments which have separable management
focus and infrastructures and that offer different products and services.
These segments are as follows:
Telephone: The Company has a 99-year-old local telephone business subject
to the regulations of the State Corporation Commission of Virginia. This
business is an incumbent local exchange carrier (ILEC) in Botetourt County,
Virginia. Principle products offered by this business are local service,
which includes advanced calling features, network access, long distance
toll and directory advertising.
Network: In addition to the ILEC services, the Company directly or
indirectly owns a fiber optic network and provides transport services for
long distance, Internet and private network services. Additionally, the
network business began offering Competitive Local Exchange (CLEC) service
in 1998, currently providing services to customers in the Roanoke Valley of
Virginia.
9
<PAGE>
R&B COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Disclosures About Segments of an Enterprise and Related Information
(Continued)
Internet: The Company provides local Internet access services through a
local presence in the Roanoke Valley and surrounding areas of western
Virginia.
Wireless: The Company's wireless business provides paging and voicemail and
is marketed in the retail and business-to-business channels primarily
within the Company's Internet service territory.
Wireless Cable: The cable business offers wireless video cable service and
offers wireless cable high-speed Internet service to residential and
commercial subscribers in the Roanoke Valley.
Summarized financial information concerning the Company's reportable segments
is shown in the following table. The "Other" column includes certain
unallocated corporate related items, as well as results from the Company's
maintenance contract, directory advertising and retail businesses, which are
not considered separate reportable segments.
<TABLE>
<CAPTION>
Network Wireless Corporate
(in thousands) Telephone and CLEC Internet Wireless Cable and other Total
-------------- --------- -------- -------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1999
Revenues............... $ 8,945 $ 5,511 $593 $ 811 $ 714 $ 195 $16,769
EBITDA................. 4,536 2,581 77 335 (32) (32) 7,465
Depreciation &
Amortization.......... 1,581 561 77 85 453 51 2,808
Total Segment Assets... 36,893 10,071 406 573 2,706 13,263 63,912
1998
Revenues............... $ 8,102 $ 3,776 $311 $ 873 $ 607 $ 207 $13,876
EBITDA................. 4,026 2,294 (49) 524 (129) 21 6,687
Depreciation &
Amortization.......... 1,365 403 57 59 422 34 2,340
Total Segment Assets... 26,403 7,520 370 1,554 3,983 8,295 48,125
1997
Revenues............... $ 7,398 $ 2,626 $133 $ 907 $ 332 $ 228 $11,624
EBITDA................. 4,145 2,207 27 380 (366) (71) 6,322
Depreciation &
Amortization.......... 1,371 324 27 47 316 19 2,104
Total Segment Assets... 22,718 5,370 282 944 3,696 13,887 46,897
</TABLE>
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies (Note 1). The Company evaluates the
performance of its operating segments principally on operating revenues,
operating income and EBITDA, which the Company defines as operating income
plus depreciation and amortization. Corporate functions are allocated at cost
to the operating segments. Segment expenses contain an allocation of shared
expenses for general administration.
Note 3. Investments in Wireless Affiliates
At December 31, 1999, the Company had invested approximately $1,054,914
($895,593 at December 31, 1998) for 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. PCS operations began throughout the Virginia
region in the fourth quarter of 1997.
At December 31, 1999, the Company had invested approximately $5,976,262
($4,841,098 at December 31, 1998) for convertible preferred ownership interest
in the VA Alliance which is convertible beginning in 2000 into additional
common ownership interest. If converted, the Company would have a 37%
ownership interest in the VA Alliance. In December 1996, the VA Alliance also
issued $12.9 million of redeemable preferred ownership interest that can be
redeemed by the investor after December 31, 2001. In the event the investor
elects to redeem
10
<PAGE>
R&B COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Investments in Wireless Affiliates (Continued)
such preferred equity after such date, the Company may elect to fund $1.5
million of such obligation in exchange for additional common ownership in the
VA Alliance. In the event this redemption and funding occurs, and the Company
converts its convertible preferred ownership interest, the Company would have
a 26% common ownership interest in the VA Alliance.
The Company has committed to provide approximately $5.7 million additional
capital to the VA Alliance in installments of approximately $2.6 million in
2000 and 2001, and $.5 million in 2002. Such additional capital commitments
would be reduced by proceeds, if any, from future equity offerings by the VA
Alliance.
The Company has a 34% 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 eastern Kentucky, southwestern Virginia
and eastern Ohio. PCS operations began in Charleston and Huntington, West
Virginia, in the fourth quarter of 1998 and expanded to Morgantown and the
northern corridor of West Virginia in the second quarter of 1999.
The Company has committed to provide additional capital to the WV Alliance of
approximately $1.5 million in three equal annual installments beginning in
January 2000. Such additional capital commitments would be reduced by
proceeds, if any, from future equity offerings by the WV Alliance.
Summarized financial information for the VA Alliance and WV Alliance
("Alliances"), both of which are accounted for by the equity method, are as
follows:
<TABLE>
<CAPTION>
VA Alliance WV Alliance
------------------ -----------------
(in thousands) 1999 1998 1999 1998
-------------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Current assets.......... $ 9,241 $ 3,648 $ 2,367 $ 488
Noncurrent assets....... 111,601 100,668 51,130 30,644
Current liabilities..... 7,633 11,991 3,076 10,732
Noncurrent liabilities.. 131,478 90,301 51,125 9,237
Redeemable preferred
interest............... 15,192 14,345 -- --
<CAPTION>
VA Alliance WV Alliance
--------------------------- ------------------------
(in thousands) 1999 1998 1997 1999 1998 1997
-------------- -------- -------- ------- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $ 12,677 $ 3,200 $ 119 $ 3,087 $ 114 $ --
Gross profit(loss)...... 6,059 1,635 (197) (77) (107) --
Net loss applicable to
common owners.......... (26,139) (24,415) (3,952) (13,287) (3,103) --
Company's share of net
loss................... (5,427) (5,078) (834) (4,564) (1,064) --
</TABLE>
The Company has entered into guarantee agreements whereby the Company is
committed to provide guarantees of up to $34.3 million of the Alliances' debt
and redeemable preferred obligations. Such guarantees become effective as
obligations are incurred by the Alliances. At December 31, 1999, the Company
has guaranteed $29.3 million of the Alliance's obligations.
11
<PAGE>
R&B COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Securities and Investments
Investments consist of the following as of December 31:
<TABLE>
<CAPTION>
Carrying Values
-----------------------
Type of Ownership 1999 1998
----------------- ----------- ----------
<S> <C> <C> <C>
Available for Sale
MCI WorldCom, Inc. ........... Equity Securities $ 3,333,227 $3,004,747
Illuminet Holdings, Inc....... Equity Securities 13,538,360 447,285
ITC DeltaCom, Inc............. Equity Securities 325,119 160,000
CFW Communications, Inc....... Equity Securities 225,875 151,938
Other......................... Equity Securities 565,882 702,117
----------- ----------
17,988,463 4,466,087
----------- ----------
Equity Method
Virginia PCS Alliance, L.C.... Equity and Convertible
Preferred Interests (4,295,928) (163,066)
West Virginia PCS Alliance, Equity Interest
L.C.......................... (882,762) 3,194,496
Virginia Telecommunications Partnership Interest
Partnership.................. 297,348 323,483
Other......................... Partnership Interests 124,407 111,000
----------- ----------
(4,756,935) 3,465,913
----------- ----------
Cost Method
Rural Telephone Bank.......... Equity Securities 328,558 328,558
Other......................... Equity Securities 73,113 18,074
----------- ----------
401,671 346,632
----------- ----------
13,633,199 8,278,632
Amounts reported separately as
liabilities.................. 5,178,690 163,066
----------- ----------
$18,811,889 $8,441,698
=========== ==========
</TABLE>
In October 1999, Illuminet Holdings, Inc. ("ILUM") completed an initial public
offering ("IPO") and commenced being traded on the NASDAQ exchange under the
symbol ILUM. The Company holds 246,152 shares of ILUM at a cost of $447,285
with a market value of $13,538,360 on December 31, 1999 ($55.00 per share).
The Company sold an investment in American Telecasting, Inc. ("ATEL") in
September and October 1999, recognizing a $247,000 gain.
Changes in the unrealized gain (loss) on available for sale securities during
the years ended December 31, 1999 and 1998, reported as a separate component
of shareholders' equity are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Unrealized gain beginning, balance..................... $ 2,256,689 $ 689,568
Unrealized holding gains during the year............... 14,033,039 1,567,121
----------- ----------
Unrealized gain, ending balance........................ 16,289,728 2,256,689
Deferred tax effect related to net unrealized holding
gains................................................. 6,190,000 856,639
----------- ----------
Unrealized gain included in shareholders' equity....... $10,099,728 $1,400,050
=========== ==========
</TABLE>
12
<PAGE>
R&B COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Long-Term Debt
Long-term debt and lines of credit consist of the following as of December 31:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
5.00% note due in quarterly installments of principal and
interest of $28,353 through 2011........................ $ 987,048 $1,049,167
5.00% note due in quarterly installments of principal and
interest of $53,501 through 2015........................ 2,299,684 2,395,766
5.50% note due in monthly installments of principal and
interest of $ 23,650 through 2008 610,961 669,869
5.50% note due in monthly installments of principal and
interest of $42,403 through 2008........................ 1,087,497 1,196,475
6.05% note due in monthly installments of principal and
interest of $188 through 2026........................... 2,725,381 2,761,661
5.00% note due in quarterly installments of principal and
interest of $3,595 through 2021......................... 188,897 193,633
2.00% note due in quarterly installments of principal and
interest of $212 through 2007........................... 6,241 6,956
---------- ----------
7,905,709 8,273,527
Less: Current maturities................................. 385,627 365,626
---------- ----------
$7,520,082 $7,907,901
========== ==========
</TABLE>
The above items are secured by substantially all Company assets. As of
December 31, 1999, the Company has drawn down $2,893,924 on a $5,352,059
commitment from the Rural Telephone Bank (RTB). The amount outstanding on
these borrowings was $2,725,381 and $2,761,661 as of December 31, 1999 and
1998, respectively. The Company has 35 years to use the approved amount, and
is required to purchase stock in the RTB equal to 5% of the loan. This stock
is recorded in investments.
The Rural Utility Service restricts the payment of dividends by Roanoke and
Botetourt Telephone Company, Inc. to 60% of its total net earnings since
December 31, 1976. Total dividend distributions through December 31, 1999 were
$2,207,829 less than the amount allowed by this limitation.
Interest expense was $1.1 million, $0.7 million and $0.9 million for 1999,
1998 and 1997, respectively. Maturities of long-term debt for each of the next
five years are 2000--$385,627; 2001--$406,731; 2002--$428,994; 2003--$452,485;
and 2004--$477,269.
13
<PAGE>
R&B COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Income Taxes
The components of income tax expense are as follows for the years ended
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Current tax expense (benefit):
Federal tax expense(benefit)............ $ (949,388) $(2,100,995) $2,565,331
State tax expense(benefit).............. (595,877) (247,175) 301,804
----------- ----------- ----------
(1,545,265) (2,348,170) 2,867,135
Deferred tax expense
Federal deferred tax expense............ 558,424 1,417,779 160,920
State deferred tax expense.............. 69,576 171,453 23,850
----------- ----------- ----------
628,000 1,589,232 184,770
----------- ----------- ----------
$ (917,265) $ (758,938) $3,051,905
=========== =========== ==========
</TABLE>
Total income tax expense was different than an amount computed by applying the
graduated statutory federal income tax rates to income before taxes. The
reasons for the differences are as follows for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
----------- --------- ----------
<S> <C> <C> <C>
Computed tax at statutory rate............ $(1,730,995) $(543,125) $3,013,703
Tax credits, net of basis adjustment...... (32,965) (38,855) (41,802)
State income taxes (benefit), net of
federal income tax effect................ (590,128) (65,175) 221,899
Adjustment to prior year estimates........ 393,877 -- --
Nondeductible life insurance.............. 76,554 -- --
IRS audit adjustment...................... 942,162 -- --
Other, net................................ 24,230 (111,783) (141,895)
----------- --------- ----------
$ (917,265) $(758,938) $3,051,905
=========== ========= ==========
</TABLE>
Net deferred income tax assets and liabilities consist of the following
components at December 31:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Deferred income tax assets
Retirement benefits other than pension................. $ 673,360 $ 559,360
Compensated absences................................... 55,852 44,085
Net operating loss..................................... 3,012,823 --
Other.................................................. 242,270 205,217
----------- ----------
3,984,305 808,662
Deferred income tax liabilities:
PCS investments, net................................... 5,320,981 1,660,437
Property and equipment................................. 2,573,324 2,397,260
Unrealized gain on securities available for sale....... 6,190,000 856,639
----------- ----------
14,084,305 4,914,336
----------- ----------
Net deferred income tax liabilities.................... $10,100,000 $4,105,674
=========== ==========
</TABLE>
The Company has a net operating loss of approximately $8 million, which
expires in 2019.
14
<PAGE>
R&B COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Supplementary Disclosures of Cash Flow Information
The following information is presented as supplementary disclosures for the
Consolidated Statements of Cash Flows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- -------- ----------
<S> <C> <C> <C>
Cash payments (refunds) for:
Interest, net of capitalized interest of
$60,502 in 1999, $34,006 in 1998, and $62,406
in 1997...................................... $ 828,985 $532,431 $ 549,950
=========== ======== ==========
Income taxes, net............................. $(1,463,443) $ -- $2,535,476
=========== ======== ==========
</TABLE>
In 1997, the Company sold its share of a cellular telephone partnership. As a
portion of the total proceeds, the Company received approximately $4.3 million
in non-cash assets.
Note 8. Retirement Plans and Other Postretirement Benefits
Company matching contributions to the defined contribution plan totaled
$92,280, $72,356 and $64,245 in 1999, 1998 and 1997, respectively. Profit-
sharing contributions totaled $125,000, $100,000 and $100,000 in 1999, 1998
and 1997, respectively. These amounts are reflected in operating expenses in
the statement of operations.
The Company has adopted salary continuation plan agreements with certain of
its employees. The amount of the deferred compensation is based on 25-50% of
one's average salary in the last five years of employment. The compensation is
payable monthly over a 10-year period. The estimated costs of benefits that
will be paid after retirement is being accrued by charges to expense over the
eligible employee's service periods to the dates they are fully eligible for
benefits. Such charges were $300,000, $267,000, and $178,000 in 1999, 1998 and
1997, respectively.
Note 9. Subsequent Event (Merger with CFW Communications, Inc.)
On June 16, 2000, the Company's Board of Directors approved an agreement and
plan of merger with CFW Communications, Inc. Under the terms of that
agreement, shareholders of the Company will receive 60.27 shares of CFW
Communications, Inc. common stock for each outstanding share. The transaction
is subject to regulatory and shareholder approvals. Holders of a majority of
the Company's shares have agreed to vote in favor of the transaction.
15
<PAGE>
R&B COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents............................ $9,421,153 $8,218,177
Accounts receivable.................................. 2,389,373 3,834,561
Materials and supplies............................... 265,385 354,878
Prepaid expenses and other........................... 175,919 230,094
Income tax receivable................................ 2,680,774 2,680,774
---------- ----------
14,932,604 15,318,484
---------- ----------
Securities and Investments............................. 17,582,623 18,811,889
---------- ----------
Property and Equipment
Land and building.................................... 4,484,422 4,497,672
Network plant and equipment.......................... 22,969,684 21,231,445
Furniture, fixtures and other equipment.............. 14,136,533 14,954,217
Radio spectrum licenses.............................. 926,376 926,376
---------- ----------
Total in service................................... 42,517,015 41,609,710
Less accumulated depreciation........................ 17,391,621 16,594,851
---------- ----------
25,125,394 25,014,859
---------- ----------
</TABLE>
Other Assets
<TABLE>
<S> <C> <C>
Cash surrender value of life insurance............... 1,393,850 3,749,035
Radio spectrum licenses and license deposits......... 958,546 958,546
Other deferred charges............................... 82,672 59,548
----------- -----------
2,435,068 4,767,129
----------- -----------
$60,075,689 $63,912,361
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
16
<PAGE>
R&B COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
(unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
</TABLE>
<TABLE>
<S> <C> <C>
Current Liabilities
Current maturities of long-term debt............... $ 312,373 $ 385,627
Recognized losses in excess of investment in PCS
ventures.......................................... 1,318,298 3,100,000
Accounts payable................................... 559,038 1,493,424
Customers' deposits................................ 26,983 26,483
Advance billings................................... 602,634 702,649
Accrued payroll.................................... 104,584 118,023
Accrued interest................................... -- 15,610
Other accrued liabilities.......................... 269,078 707,328
Dividend payable................................... -- 221,022
------------ ------------
3,192,988 6,770,166
------------ ------------
Long-Term Debt....................................... 7,466,436 7,520,082
------------ ------------
Long-Term Liabilities
Deferred income taxes.............................. 8,736,926 10,100,000
Recognized losses in excess of investment in
PCS ventures...................................... 5,129,768 2,078,690
Deferred compensation.............................. 1,847,000 1,772,000
Unamortized investment tax credits................. 97,901 109,463
------------ ------------
15,811,595 14,060,153
------------ ------------
Shareholders' Equity
Common stock, no par............................... 616,690 616,690
Retained earnings.................................. 23,619,403 24,845,542
Unrealized gain on securities available for sale,
net............................................... 9,368,577 10,099,728
------------ ------------
33,604,670 35,561,960
------------ ------------
$ 60,075,689 $ 63,912,361
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
17
<PAGE>
R&B COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
----------- ----------
(Unaudited)
<S> <C> <C> <C>
Operating Revenues
Wireline communications.......................... $ 3,989,627 $3,454,636
Wireless communications.......................... 355,037 344,628
Other communications services.................... 199,024 126,932
----------- ----------
4,543,688 3,926,196
----------- ----------
Operating Expenses
Maintenance and support.......................... 1,207,972 693,259
Depreciation and amortization.................... 817,071 670,098
Customer operations.............................. 776,330 625,830
Corporate operations............................. 688,938 577,006
----------- ----------
3,490,311 2,566,193
----------- ----------
Operating Income................................... 1,053,377 1,360,003
Other Income (Expenses)
Interest and dividend income..................... 67,729 60,064
Other expenses, principally interest............. (108,260) (111,518)
Equity loss from PCS investees
VA PCS Alliance................................ (1,523,498) (1,374,540)
WV PCS Alliance................................ (1,647,580) (747,206)
Equity income from other investees............... 90,513 76,461
----------- ----------
(2,067,719) (736,736)
Income Tax Benefit................................. 841,580 297,333
----------- ----------
Net Loss........................................... $(1,226,139) $ (439,403)
=========== ==========
Net loss per common share--basic and diluted....... $ (19.883) $ (11.161)
Average shares outstanding--basic and diluted...... 61,669 61,671
Cash dividends per share........................... $ -- $ --
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
18
<PAGE>
R&B COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
----------- ----------
(Unaudited)
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss........................................ $(1,226,139) $ (439,403)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization................. 817,071 670,098
Deferred taxes (benefit)...................... (841,580) 502,127
Other......................................... 16,935 --
Equity loss from wireless investees........... 3,171,078 2,121,746
Changes in assets and liabilities from
operations:
(Increase) decrease in accounts receivable.... 1,445,188 (4,925,826)
Increase in materials and supplies............ 89,493 52,145
(Increase) decrease in other current assets... 54,175 (1,430,289)
Increase (decrease) in accounts payable....... (933,886) 3,673,174
Increase (decrease) in other accrued
liabilities.................................. (467,299) 429,023
Decrease in advance billings.................. (100,015) (31,330)
----------- ----------
Net cash provided by operating activities..... 2,025,021 621,465
----------- ----------
Cash Flows From Investing Activities
Purchases of property and equipment............. (927,606) (1,199,644)
Investments in PCS alliances.................... (1,901,702) (746,062)
Change in cash surrender value of officer's life
insurance...................................... 2,355,185 (576,362)
----------- ----------
Net cash used in investing activities......... (474,123) (2,522,068)
----------- ----------
Cash Flows From Financing Activities
Cash dividends.................................. (221,022) (199,501)
Payments on long-term debt...................... (126,900) (124,271)
----------- ----------
Net cash used in financing activities......... (347,922) (323,772)
----------- ----------
Increase (decrease) in cash and cash
equivalents.................................. 1,202,976 (2,224,375)
Cash and Cash Equivalents:
Beginning....................................... 8,218,177 6,909,613
----------- ----------
Ending.......................................... $ 9,421,153 $4,685,238
=========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
19
<PAGE>
R&B COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Common Stock Other Total
--------------- Retained Comprehensive Shareholders'
Shares Amount Earnings Income Equity
------ -------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> --- ---
Balance, December 31,
1998................... 61,671 $616,710 $29,241,142 $1,400,050 $31,257,902
Comprehensive income:
Net Income............. (439,403)
Unrealized gain on
securities available
for sale, net of
$323,963 of deferred
tax effect............ 528,572
Comprehensive income... 89,169
------ -------- ----------- ---------- -----------
Balance, March 31,
1999................... 61,671 $616,710 $28,801,739 $1,928,622 $31,347,071
====== ======== =========== ========== ===========
Balance, December 31,
1999................... 61,669 616,690 24,845,542 10,099,728 35,561,960
Comprehensive income:
Net Income............. (1,226,139)
Unrealized loss on
securities available
for sale, net of
$533,056 deferred tax
effect................ (731,151)
Comprehensive income... (1,957,290)
------ -------- ----------- ---------- -----------
Balance, March 31,
2000................... 61,669 $616,690 $23,619,403 $9,368,577 $33,604,670
====== ======== =========== ========== ===========
</TABLE>
See Notes to Consolidated Consolidated Financial Statements.
20
<PAGE>
R&B COMMUNICATIONS, INC.
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.
(2) The Company has 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 Financial Statements. Summarized financial information
concerning the Company's reportable segments is shown in the following
table. The "Other" column includes certain unallocated corporate items
which are not considered separate reportable segments.
<TABLE>
<CAPTION>
Network
and Wireless Corporate
Telephone CLEC Internet Wireless Cable and other Total
--------- ------- -------- -------- -------- --------- ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As of and for the three months ended March
31, 2000
Revenues................ 2,202 1,706 179 221 177 59 4,544
EBITDA.................. 914 866 (18) 81 3 25 1,871
Depreciation &
Amortization........... 426 212 20 25 121 13 817
Total Segment Assets.... 28,465 9,212 571 321 2,646 18,861 60,076
As of and for the three months ended March
31, 1999
Revenues................ 2,152 1,256 128 165 179 46 3,926
EBITDA.................. 1,230 639 23 85 40 13 2,030
Depreciation and
Amortization........... 361 109 18 18 151 13 670
Total Segment Assets.... 27,399 6,941 537 449 2,580 10,446 48,352
</TABLE>
(3) Basic net loss per share was computed by dividing net loss by the weighted
average number of common shares outstanding during the period. The Company
has no potential common stock outstanding, such as stock options, warrants
or convertible debt; furthermore, a net loss was incurred for the periods
presented. Therefore, basic and diluted net income per share are the same.
(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. PCS
operations began throughout the Virginia region in the fourth quarter of
1997.
The Company has a 34% 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 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 thousands):
21
<PAGE>
R&B COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
VA Alliance WV Alliance
----------------------------- -----------------------------
December 31, December 31,
March 31, 2000 1999 March 31, 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Current assets.......... $11,623 $ 9,241 $17,494 $ 2,367
Noncurrent assets....... 104,749 111,601 48,764 51,130
Current liabilities..... 11,265 7,633 7,952 3,076
Long-term liabilities... 125,482 131,478 62,394 51,125
Redeemable preferred
interest............... 15,410 15,192 -- --
<CAPTION>
VA Alliance WV Alliance
----------------------------- -----------------------------
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999 March 31, 2000 March 31, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <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) (1,375) (1,648) (1,149)
</TABLE>
The Company has entered into guaranty agreements whereby the Company is
committed to provide guarantees of up to $34.3 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 $29.3 million of the Alliances' obligations.
(5) 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>
<S> <C>
Tax provision at Federal statutory rate.............................. 34.00%
State income taxes, net of Federal tax benefit....................... 3.96%
Non deductible expenses.............................................. 0.51%
Anticipated effective tax rate..................................... 38.47%
</TABLE>
(6) On June 16, 2000, the Company's Board of Directors approved an agreement
and plan of merger with CFW Communications, Inc. Under the terms of that
agreement, shareholders of the Company will receive 60.27 shares of CFW
Communications, Inc. common stock for each outstanding share. The
transaction is subject to regulatory and shareholder approvals. Holders of
a majority of the Company's shares have agreed to vote in favor of the
transaction.
22
