-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FIG4+pxaDQ8OjPkXr0LykhAw9KnnfzpsSD/St/mjybGS6MzKQ8/MsLhm6VBDWAkm d+XR9tPLOBzk2OH6WEp+uA== 0000927356-96-000331.txt : 19960517 0000927356-96-000331.hdr.sgml : 19960517 ACCESSION NUMBER: 0000927356-96-000331 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMNET CELLULAR INC CENTRAL INDEX KEY: 0000787912 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 840924904 STATE OF INCORPORATION: CO FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15056 FILM NUMBER: 96566524 BUSINESS ADDRESS: STREET 1: 5990 GREENWOOD PLZ BLVD STE 300 CITY: ENGLEWOOD STATE: CO ZIP: 80111 BUSINESS PHONE: 3036943234 MAIL ADDRESS: STREET 1: 5990 GREENWOOD PLAZA BLVD STREET 2: SUITE 300 CITY: ENGLEWOOD STATE: CO ZIP: 80111 FORMER COMPANY: FORMER CONFORMED NAME: CELLULAR INC DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q FORM 10-Q _______________ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________ (Mark one) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 1996 -------------- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number: 0-15056 ------- COMMNET CELLULAR INC. --------------------- (Exact name of registrant as specified in its charter) Colorado 84-0924904 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8350 East Crescent Parkway, Suite 400 Englewood, Colorado 80111 ------------------------- (Address of principal executive offices) (Zip Code) 303/694-3234 ------------ (Registrant's telephone number, including area code) N/A --- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- --------- The number of shares of the registrant's Common Stock outstanding as of May 9, 1996 was 13,855,245. COMMNET CELLULAR INC. FORM 10-Q - MARCH 31, 1996 INDEX
Part I Financial Information Page - ------ --------------------- ---- Item 1 Financial Statements Consolidated Condensed Balance Sheets - March 31, 1996 and September 30, 1995 1 Consolidated Condensed Statements of Operations - Three Months Ended March 31, 1996 and March 31, 1995 3 Consolidated Condensed Statements of Operations - Six Months Ended March 31, 1996 and March 31, 1995 4 Consolidated Condensed Statements of Cash Flows - Six Months Ended March 31, 1996 and March 31, 1995 5 Notes to Consolidated Condensed Financial Statements 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II Other Information - ------- ----------------- Item 6 Exhibits and Reports on Form 8-K 24
COMMNET CELLULAR INC. CONSOLIDATED CONDENSED BALANCE SHEETS Assets March 31, September 30, 1996 1995 - --------------------------------------- --------- ------------- (unaudited) Current assets: $29,086,728 $ 41,017,845 Cash and cash equivalents Accounts receivable, net of allowance for doubtful accounts of $1,944,157 and $1,957,810 at March 31, 1996 and September 30, 1995, respectively 12,323,487 13,673,168 Inventory and other 4,271,189 2,931,155 ------------ ----------- Total current assets 45,681,404 57,622,168 Investment in and advances to affiliates 60,539,551 56,918,738 Investment in cellular system equipment 8,694,980 5,426,686 Property and equipment, at cost: Cellular system equipment 112,222,682 107,433,095 Land, buildings and improvements 24,952,472 23,183,361 Furniture and equipment 21,116,984 18,636,304 ------------ ----------- 158,292,138 149,252,760 Less accumulated depreciation 48,878,580 43,963,285 ------------ ----------- Net property and equipment 109,413,558 105,289,475 Other assets, less accumulated amortization of $30,963,536 and $28,616,576 at March 31, 1996 and September 30, 1995, respectively: FCC licenses and filing rights 96,537,206 92,349,639 Deferred loan costs and other 6,912,871 8,061,250 ------------ ----------- Total other assets 103,450,077 100,410,889 $327,779,570 $325,667,956 ============ ============ See accompanying notes. -1- COMMNET CELLULAR INC. CONSOLIDATED CONDENSED BALANCE SHEETS (CONTINUED)
March 31, September 30, Liabilities and Stockholders' Equity 1996 1995 -------------------------------------- ------------- ------------- (unaudited) Current liabilities: Accounts payable $ 8,089,997 $ 9,266,607 Accrued liabilities 5,700,212 4,861,608 Accrued interest 3,209,698 3,264,934 Obligation under capital leases due within one year 317,682 318,188 ------------- ------------- Total current liabilities 17,317,589 17,711,337 Long-term debt: Secured bank financing 35,397,100 36,262,558 Obligation under capital leases due after one year 11 3/4% senior subordinated discount notes 297,988 449,230 11 1/4% subordinated notes 134,085,180 126,644,799 8.75% convertible subordinated notes 80,000,000 80,000,000 - 3,000,000 Minority interests 3,344,154 2,944,370 Commitments Stockholders' equity: Preferred Stock, $.01 par value; 1,000,000 shares authorized; no shares issued - - Common Stock, $.001 par value; 40,000,000 shares authorized; 13,798,145 and 13,442,967 shares issued at March 31, 1996 and September 30, 1995, respectively 13,798 13,443 Capital in excess of par value 166,151,717 159,381,589 Accumulated deficit (108,827,956) (100,739,370) ----------- ------------ Total stockholders' equity 57,337,559 58,655,662 ----------- ------------ $327,779,570 $325,667,956
See accompanying notes. -2- COMMNET CELLULAR INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
1996 1995 ---- ---- Revenues: Cellular service $ 18,201,146 $ 13,183,430 In-roaming 5,088,032 3,618,440 Equipment sales 301,013 2,262,429 -------------- ------------- 23,590,191 19,064,299 Costs and expenses: Cellular operations: Cost of cellular service 4,536,335 3,857,580 Cost of equipment sales (Note 4) 2,311,714 2,444,340 General and administrative 5,257,554 5,538,565 Marketing and selling 5,222,400 4,636,754 Depreciation and amortization 4,362,447 3,504,070 Corporate: General and administrative 2,160,711 1,801,849 Depreciation and amortization 1,375,849 551,433 Less amounts allocated to nonconsolidated affiliates (1,595,772) (1,677,818) -------------- ------------- 23,631,238 20,656,773 -------------- ------------- Operating loss (41,047) (1,592,474) Equity in net loss of affiliates (431,536) (1,653,944) Minority interest in net income of consolidated affiliates (161,701) (137,521) Loss on sales of affiliates and other (250,000) - Interest expense (7,192,042) (6,379,743) Senior lender patronage income 413,112 763,843 Interest income 2,929,063 3,163,146 -------------- ------------- Net loss $ (4,734,151) $ (5,836,693) ============== ============= Net loss per common share $ (0.35) $ (0.49) ============== ============= Weighted average shares outstanding 13,719,121 11,842,412 ============== =============
See accompanying notes. -3- COMMNET CELLULAR INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS SIX MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
1996 1995 ---- ---- Revenues: Cellular service $ 36,260,246 $ 26,084,654 In-roaming 10,807,544 7,425,880 Equipment sales 1,593,180 4,829,228 -------------- -------------- 48,660,970 38,339,762 Costs and expenses: Cellular operations: Cost of cellular service 9,356,000 7,692,715 Cost of equipment sales (Note 4) 4,526,440 5,072,459 General and administrative 11,143,430 10,381,459 Marketing and selling 10,773,449 10,088,444 Depreciation and amortization 8,775,177 6,901,272 Corporate: General and administrative 3,742,505 3,721,863 Depreciation and amortization 2,081,477 1,128,096 Less amounts allocated to nonconsolidated affiliates (3,232,729) (3,232,688) -------------- -------------- 47,165,749 41,753,620 -------------- -------------- Operating income (loss) 1,495,221 (3,413,858) Equity in netloss of affiliates (1,442,507) (2,735,777) Minority interest in net income of consolidated affiliates (369,333) (261,004) Gain (loss) on sales of affiliates and other (250,000) 67,247 Interest expense (14,403,886) (12,650,585) Senior lender patronage income 413,112 763,843 Interest income 6,468,807 5,955,762 -------------- -------------- Net loss $(8,088,586) $(12,274,372) ============== ============== Net loss per common share $ (0.60) $ (1.04) ============== ============== Weighted average shares outstanding 13,589,433 11,792,419 ============== ==============
See accompanying notes. -4- COMMNET CELLULAR INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
1996 1995 ---- ---- Operating activities: Net loss $ (8,088,586) $ (12,274,372) Adjustments to reconcile net loss to net cash provided by operating activities: Minority interest 369,333 261,004 Depreciation and amortization 10,856,654 8,029,368 Equity in net loss of affiliates 1,442,507 2,735,777 Loss (gain) on sales of affiliates and other 250,000 (67,247) Loss on sale of available-for-sale securities - 221,598 Interest expense on 11 3/4% senior discount notes 7,440,381 6,637,560 CoBank patronage income (289,179) (534,690) Accrued interest on advances to affiliates (5,388,587) (5,570,098) Change in operating assets and liabilities, net of effects from consolidating acquired interests: Accounts receivable 1,351,065 128,779 Inventory and other (1,340,034) 904,908 Accounts payable and accrued liabilities 195,911 (90,218) Accrued interest (55,236) 364,360 ------------- ------------- Net cash provided by operating activities 6,744,229 746,729 Investing activities: Purchase of available-for-sale securities (986,170) (11,553) Sale of available-for-sale securities 986,170 21,427,411 Additions to investments in and advances to affiliates (2,738,558) (2,426,811) Additions to investment in cellular system equipment (2,256,774) (7,514,562) Additions to property and equipment (14,389,241) (12,528,606) Reduction in (additions to) other assets 127,407 (14,396) Proceeds from sales of interests in affiliates 613,700 1,835,349 Purchase of interests in affiliates, net of cash acquired and net of assets and liabilities recorded due to consolidation (6,147) (2,439,005) ------------- ------------- Net cash used by investing activities (18,649,613) (1,672,173)
See accompanying notes. -5- COMMNET CELLULAR INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED) SIX MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
1996 1995 ---- ---- Financing activities: Proceeds from secured bank financing $ 1,750,000 $ 13,408,742 Payments of secured bank financing (2,563,154) (653,364) Reduction of obligation under capital leases (151,748) (285,171) Issuance of Common Stock, net of offering costs 939,169 770,117 ------------- ------------ Net cash provided (used) by financing activities (25,733) 13,240,324 ------------- ------------ Net increase (decrease) in cash and cash equivalents (11,931,117) 12,314,880 Cash and cash equivalents at beginning of period 41,017,845 2,081,591 ------------ ------------ Cash and cash equivalents at end of period $ 29,086,728 $ 14,396,471 ============ ============ Supplemental schedule of additional cash flow information and noncash activities: Cash paid during the six-month period for interest $ 7,018,741 $ 5,648,665 Purchase of cellular system equipment through accounts payable 3,654,870 1,896,337 Purchases of interests in affiliates financed with Common Stock 2,922,156 2,969,056 Conversion of convertible subordinated debentures to Common Stock 2,909,158 2,983 See accompanying notes. -6-
COMMNET CELLULAR INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited) 1. Basis of presentation --------------------- CommNet Cellular Inc. and its majority-owned affiliates (the "Company"), in its opinion, has included all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations for the periods presented. The consolidated condensed financial statements and notes thereto should be read in conjunction with the financial statements and notes for the years ended September 30, 1993, 1994 and 1995 included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1995. The results of operations for the six months ended March 31, 1996 are not necessarily indicative of the results for a full year. Certain amounts relating to March 31, 1995 have been reclassified to correspond to the March 31, 1996 classification. 2. Business acquisitions and sales ------------------------------- During the six months ended March 31, 1996, the Company acquired interests in several markets. In certain of these transactions, the Company issued shares of its Common Stock. As a result of these transactions, capital increased by approximately $2,922,000 and other assets increased by approximately $5,782,000. In addition, the Company disposed of its interest in one managed market. As a result of this transaction, other assets decreased by approximately $457,000. 3. Stockholders' equity -------------------- Changes to Common Stock during the six months ended March 31, 1996 were as follows: Common Stock Capital in -------------------------- Excess of Shares Amount Par Value -------------------------- ------------ Balance at September 30, 1995 13,442,967 $13,443 $159,381,589 Issuance of Common Stock: Debenture conversion 200,000 200 2,908,958 Aggregate shares issued in unrelated nonsignificant acquisitions 107,803 108 2,922,048 Exercise of options 47,375 47 939,122 ---------- -------- ------------ Balance at March 31, 1996 13,798,145 $13,798 $166,151,717 ========== ======== ============ -7- COMMNET CELLULAR INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited) 4. Cost of equipment sales ----------------------- In February 1996, the Company began providing cellular telephones, batteries and chargers that remained the property of CommNet Cellular Inc. to certain new and existing subscribers. Such equipment was expensed when delivered to a customer and service activated. The following table reflects estimates of activity in the three and six months ended March 31, 1996 giving effect to the costs associated with the program described above. Three Months Six Months ended ended March 31, 1996 March 31, 1996 -------------- -------------- Cost of equipment sales $ 738,714 $ 2,953,440 Cost of equipment owned by the Company, but provided to subscribers to use: New Subscribers 1,153,000 1,153,000 Existing subscribers 420,000 420,000 -------------- -------------- $ 2,311,714 $ 4,526,440 ============= ============== 5. Income taxes ------------ Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. As of March 31, 1996, the Company had a substantial net deferred tax asset that has been reserved with a valuation allowance of 100%. Therefore, no deferred tax expense was necessary. 6. Subsequent events ----------------- In April 1996, the Company purchased additional interests ranging from 8% to 38% in two managed and one nonmanaged RSA markets and one managed and one nonmanaged MSA markets for approximately $975,000 in cash and 56,725 shares of the Company's Common Stock. -8- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General - ------- The Company generated operating income during the six months ended March 31, 1996 as growth in penetration and subscriber usage continued. In addition, the Company expects that operating income before depreciation and amortization ("EBITDA"), which was positive during the six months ended March 31, 1996, will also be positive in future fiscal periods (although there can be no assurance that this will be the case). Certain financial analysts consider EBITDA a meaningful measure of an entity's ability to meet long-term financial obligations, and growth in EBITDA a meaningful barometer of future profitability, especially in a capital-intensive industry such as cellular telecommunications. However, EBITDA should not be considered in isolation to, or be construed as having greater significance than, other indicators of an entity's performance. The results discussed below may not be indicative of future results. Consolidated results of operations include the revenues and expenses of those markets in which the Company holds a greater than 50% interest. The results of operations of 44 markets, all of which were consolidated for the entire quarter, are included in the consolidated results for the quarter ended March 31, 1996. The results of operations of 44 markets, 42 of which were consolidated for the entire quarter, are included in the consolidated results for the quarter ended March 31, 1995. Consolidated results of operations also include the operations of Cellular, Inc. Financial Corporation ("CIFC"), the Company's wholly-owned financing subsidiary, as well as the operations of Cellular Inc. Network Corporation ("CINC"), a wholly-owned subsidiary through which the Company holds interests in certain cellular licenses. Equity in net loss of affiliates includes the Company's share of net loss in the markets in which the Company's interest is 50% or less but 20% or greater. For the quarter ended March 31, 1996, 20 markets were accounted for under the equity method, compared to 31 such markets for the quarter ended March 31, 1995. Markets in which the Company's interest is less than 20% are accounted for under the cost method. Eighteen markets were accounted for under the cost method for each of the quarters ended March 31, 1996 and 1995. Interest income reflects interest income derived from the financing activities of CIFC and the Company with nonconsolidated affiliates, as well as interest income derived from the Company's short-term investments. CIFC has entered into loan agreements with the Company's affiliates pursuant to which CIFC makes loans to such entities for the purpose of financing or refinancing the affiliates' costs of construction and operation of cellular telephone systems. Such loans are financed with funds borrowed by CIFC from CoBank, ACB, as agent for a syndicate of lenders ("CoBank") and from the Company and bear interest at CIFC's average borrowing rate. From time to time, the Company advances funds on an interim basis to affiliates. These advances typically are refinanced through CIFC. To the extent that the cellular markets in which the Company holds an interest generate positive cash flow, the cash is used to repay borrowings by the affiliates from CIFC and thereafter will be used to make cash distributions to equity holders, including the Company. Results of Operations - --------------------- Three Months Ended March 31, 1996 and 1995. Cellular service revenues, ------------------------------------------ including in-roaming revenues, increased 39% from $16,802,000 for the quarter ended March 31, 1995 to $23,289,000 for the quarter ended March 31, 1996. The growth was primarily due to the increase in the number of subscribers in consolidated markets. In addition to increases in market penetration, growth resulted from an increase in the number of markets consolidated for the entire quarter from 42 during the quarter ended March 31, 1995 to 44 during the quarter ended March 31, 1996. Growth in subscribers accounted for 84% of the increase, and the number of consolidated -9- markets accounted for 16% of the increase. In-roaming revenues increased by 41%, or $1,470,000, from $3,618,000 for the quarter ended March 31, 1995 to $5,088,000 for the quarter ended March 31, 1996 due to increased coverage in cellular markets and to industry-wide subscriber increases. In-roaming revenues are expected to increase in the future as a result of further industry-wide growth in subscribers and the Company's expansion of its coverage, particularly along highway corridors; however, roaming rates may decline, consistent with expected industry trends. Average monthly revenue per subscriber, including in-roaming revenues, decreased from $60 for the quarter ended March 31, 1995 to $55 for the quarter ended March 31, 1996, reflecting the benefit of declining prices to the consumer and lower usage by new subscribers which is consistent with an overall industry trend. However, in-roaming revenues per subscriber decreased only $1, from $13 to $12, reflecting the larger scale benefit of the Company's cell site expansion program. Cost of service decreased as a percentage of service revenues from 23% for the quarter ended March 31, 1995 to 19% for the quarter ended March 31, 1996, as revenues derived from the growing subscriber base outpaced the fixed components of cost of service. Equipment sales decreased 87% from $2,262,000 for the quarter ended March 31, 1995 to $301,000 for the quarter ended March 31, 1996 due to the Company's introduction of its new customer satisfaction and pricing program. The program packages a handset, airtime and long distance within one area code for one monthly fee. This resulted in no recognition of handset revenue. After January 1996, sales of accessories accounted for the majority of the Company's equipment sales. Cost of equipment sales decreased 5% from $2,444,000 for the quarter ended March 31, 1995 to $2,312,000 for the quarter ended March 31, 1996. Approximately $1,153,000 and $420,000 of the current quarter cost of equipment sales relates to equipment provided to new and existing customers, respectively, that they agreed to return to the Company if they terminate service. Although the Company retains ownership, it carried such equipment at no value in its balance sheet. The Company expects similar negative equipment margins in the future as the Company subsidizes use of handsets in order to shift consumer focus to the value of the cellular service. However, reductions in other components of acquisition costs per new subscriber, such as commissions and advertising, may occur. General and administrative costs of cellular operations decreased 5% from $5,539,000 for the quarter ended March 31, 1995 to $5,258,000 for the quarter ended March 31, 1996, primarily due to reductions to bad debt expense, offset by increased customer billing expense and customer service support staff. General and administrative costs as a percentage of service revenues decreased from 33% for the quarter ended March 31, 1995 to 23% for the quarter ended March 31, 1996. The decrease is primarily due to revenues increasing at a faster rate than incremental general and administrative costs. Marketing and selling costs increased 13% from $4,637,000 for the quarter ended March 31, 1995 to $5,222,000 for the quarter ended March 31, 1996, primarily as a result of the number of subscribers added in consolidated markets. The majority of these costs were incremental sales commissions offset by reductions in advertising costs and marketing overhead. Marketing costs per net new subscriber decreased 14% from $648 for the quarter ended March 31, 1995 to $555 for the quarter ended March 31, 1996, as a result of increased net subscriber additions which outpaced increases in costs incurred. The Company is continuing to expand its retail presence to capitalize on retail trade while driving down commission costs. Depreciation and amortization relating to cellular operations increased from $3,504,000 for the quarter ended March 31, 1995 to $4,362,000 for the quarter ended March 31, 1996, primarily related to increased property and equipment balances. -10- Corporate costs and expenses for the quarter ended March 31, 1995 were $675,000, which represented gross expenses of $2,353,000 less amounts allocated to nonconsolidated affiliates of $1,678,000. Corporate costs and expenses for the quarter ended March 31, 1996 were $1,941,000, which represented gross expenses of $3,537,000 less amounts allocated to nonconsolidated affiliates of $1,596,000. The increase in corporate costs and expenses is due primarily to the acceleration of depreciation expense related to certain corporate assets and expenses related to paging activity and roaming fraud which were not allocated to affiliates. Equity in net loss of affiliates decreased 74% from $1,654,000 for the quarter ended March 31, 1995 to $432,000 for the quarter ended March 31, 1996. The decrease is due to decreased losses in nonconsolidated affiliates which included a one-time gain in one nonmanaged market. Operating results of the markets that continue to be accounted for under the equity method are expected to improve consistently. Interest expense increased 13% from $6,380,000 for the quarter ended March 31, 1995 to $7,192,000 for the quarter ended March 31, 1996 due to the higher interest rate on the subordinated notes than on the convertible subordinated notes which were redeemed with the proceeds of the subordinated notes, and the higher accreted discount note balance. Cash paid for interest increased 34% from $4,260,000 for the quarter ended March 31, 1995 to $5,703,000 for the quarter ended March 31, 1996. The CoBank patronage distribution decreased 46% from $764,000 in March 1994 to $413,000 in March 1995. The patronage distribution is calculated using the Company's prior calendar year interest expense compared to total interest paid to CoBank by all patrons. Interest income decreased 7% from $3,163,000 for the quarter ended March 31, 1995 to $2,929,000 for the quarter ended March 31, 1996. The decrease is due to the consolidation of affiliates during the quarter ended March 31, 1995, offset by higher cash balances. Six Months Ended March 31, 1996 and 1995. Cellular service revenues, ---------------------------------------- including in-roaming revenues, increased 40% from $33,511,000 for the six months ended March 31, 1995 to $47,068,000 for the six months ended March 31, 1996. The growth was primarily due to the increase in the number of subscribers in consolidated markets. In addition to increases in market penetration, growth resulted from an increase in the number of markets consolidated for the entire six months from 42 during the six months ended March 31, 1995 to 44 during the six months ended March 31, 1996. Growth in subscribers accounted for 78% of the increase, and the number of consolidated markets accounted for 22% of the increase. In-roaming revenues increased by 46%, or $3,382,000, from $7,426,000, for the six months ended March 31, 1995 to $10,808,000 for the six months ended March 31, 1996 due to increased coverage in cellular markets and to industry- wide subscriber increases. In-roaming revenues are expected to increase in the future as a result of further industry-wide growth in subscribers and the Company's expansion of its coverage, particularly along highway corridors; however, roaming rates may decline, consistent with expected industry trends. Average monthly revenue per subscriber, including in-roaming revenues, decreased from $65 for the six months ended March 31, 1995 to $58 for the six months ended March 31, 1996, reflecting the benefit of declining prices to the consumer and lower usage by new subscribers which is consistent with an overall industry trend. However, in-roaming revenues per subscriber decreased only $1, from $14 to $13, reflecting the larger scale benefit of the Company's cell site expansion program. Cost of service decreased as a percentage of service revenues from 23% for the six months ended March 31, 1995 to 20% for the six months ended March 31, 1996, as revenues derived from the growing subscriber base outpaced the fixed components of cost of service. -11- Equipment sales decreased 67% from $4,829,000 for the six months ended March 31, 1995 to $1,593,000 for the six months ended March 31, 1996 due to the Company's introduction of its new customer satisfaction and pricing program. The program packages a handset, airtime and long distance within one area code for one monthly fee. This resulted in no recognition of equipment revenue. After January 1996, sales of accessories accounted for the majority of the Company's equipment sales. Cost of equipment sales decreased 11% from $5,072,000 for the six months ended March 31, 1995 to $4,526,000 for the six months ended March 31, 1996. Approximately $1,153,000 and $420,000 of the current period cost of equipment sales relates to equipment provided to new and existing customers, respectively, that they agreed to return to the Company if they terminate service. Although the Company retains ownership, it carried such equipment at no value in its balance sheet. The Company expects similar negative equipment margins in the future as the Company subsidizes use of handsets in order to shift consumer focus to the value of the cellular service. However, reductions in other components of acquisition costs per new subscriber, such as commissions and advertising, may occur. General and administrative costs of cellular operations increased 7% from $10,381,000 for the six months ended March 31, 1995 to $11,143,000 for the six months ended March 31, 1996, due to the growth in the customer base and the number of consolidated markets. The majority of these costs were incremental customer billing expense and customer service support staff, offset by reductions to bad debt expense. General and administrative costs as a percentage of service revenues decreased from 31% for the six months ended March 31, 1995 to 24% for the six months ended March 31, 1996. The decrease is primarily due to revenues increasing at a faster rate than incremental general and administrative costs. Marketing and selling costs increased 7% from $10,088,000 for the six months ended March 31, 1995 to $10,773,000 for the six months ended March 31, 1996, primarily as a result of the number of subscribers added in consolidated markets. The majority of these costs were incremental sales commissions offset by reductions in advertising costs and marketing overhead. Marketing costs per net new subscriber decreased 10% from $526 for the six months ended March 31, 1995 to $471 for the six months ended March 31, 1996, as a result of increased net subscriber additions which outpaced increases in costs incurred. The Company is continuing to expand its retail presence to capitalize on retail trade while driving down commission costs. Depreciation and amortization relating to cellular operations increased from $6,901,000 for the six months ended March 31, 1995 to $8,775,000 for the six months ended March 31, 1996, primarily related to increased property and equipment balances. Corporate costs and expenses for the six months ended March 31, 1995 were $1,617,000, which represented gross expenses of $4,850,000 less amounts allocated to nonconsolidated affiliates of $3,233,000. Corporate costs and expenses for the six months ended March 31, 1996 were $2,591,000, which represented gross expenses of $5,824,000 less amounts allocated to nonconsolidated affiliates of $3,233,000. The increase in corporate costs and expenses is due primarily to the acceleration of depreciation expense related to certain corporate assets and expenses related to paging activity and roaming fraud which were not allocated to affiliates. Equity in net loss of affiliates decreased 47% from $2,736,000 for the six months ended March 31, 1995 to $1,443,000 for the six months ended March 31, 1996. The decrease is due to decreased losses in nonconsolidated affiliates which included a one-time gain in one nonmanaged market. Operating results of the markets that continue to be accounted for under the equity method are expected to improve consistently. However, such improvement may not be apparent in comparison to prior periods which included the results of profitable markets that were sold in July 1995. Interest expense increased 14% from $12,651,000 for the six months ended March 31, 1995 to $14,404,000 for the six months ended March 31, 1996 due to the higher interest rate on the -12- subordinated notes than on the convertible subordinated notes which were redeemed with the proceeds of the subordinated notes, and the higher accreted discount note balance. Cash paid for interest increased 24% from $5,649,000 for the six months ended March 31, 1995 to $7,019,000 for the six months ended March 31, 1996. The CoBank patronage distribution decreased 46% from $764,000 in March 1995 to $413,000 in March 1996. The patronage distribution is calculated using the Company's prior calendar year interest expense compared to total interest paid to CoBank by all patrons. Interest income increased 9% from $5,956,000 for the six months ended March 31, 1995 to $6,469,000 for the six months ended March 31, 1996. The increase is related to higher cash balances and an increase in note receivable balances from nonconsolidated affiliates. Acquisitions and Sales - ---------------------- In November 1995, the Company purchased additional interests ranging from 18% to 19% in three managed markets for 28,283 shares of the Company's Common Stock. In March 1996, the Company purchased additional interests ranging from 43% to 44% in two managed RSA markets for 79,520 shares of the Company's Common Stock. In April 1996, the Company acquired interests in one managed MSA and one managed RSA market for a net purchase price of $1,011,000, comprised of the Company's interest in one managed RSA market (transferred in November 1995), common stock, cash and forgiveness of certain obligations. Also in April 1996, the Company purchased additional interests ranging from 8% to 38% in two managed and one nonmanaged RSA markets and one managed and one nonmanaged MSA markets for approximately $392,000 in cash and 44,415 shares of the Company's Common Stock. In January 1996, the Company entered into a series of agreements to partition the New Mexico 1 RSA, to sell its interest in the southern portion of the market and to acquire the interest of U S West NewVector Group in the northern portion of the market. The transaction is expected to be consummated during the third fiscal quarter of 1996. The Company has also entered into an agreement to purchase additional interests in one nonmanaged RSA for an aggregate purchase price of $1,581,000 payable in cash or shares of the Company's Common Stock. The Company continues to pursue acquisitions to the extent they enhance or extend its network or increase shareholder value, although there can be no assurance any such acquisition will be consummated. Changes in Financial Condition - ------------------------------ Net cash provided by operating activities was $6,744,000 during the six months ended March 31, 1996. This was primarily due to net loss after adjustments to reconcile to net cash provided by operating activities of $6,593,000. Net cash used by investing activities was $18,650,000 for the six months ended March 31, 1996. This was due primarily to $16,646,000 required to fund the purchase of property and equipment and investment in cellular system equipment, and $2,739,000 to fund additional investments in and advances to affiliates. -13- Net cash used by financing activities was $26,000 for the quarter ended March 31, 1996. This is primarily due to reductions to long-term debt and capital leases of $964,000, offset by $939,000 of cash from the issuance of Common Stock upon exercise of options. Liquidity and Capital Resources - ------------------------------- General. CommNet Cellular Inc. (referred to herein as the "parent ------- company") is effectively a holding company and, accordingly, must rely on distributions, loan repayments and other intercompany cash flows from its affiliates and subsidiaries to generate the funds necessary to satisfy the parent company's capital requirements. On a consolidated basis, the Company's principal source of liquidity is the Credit Agreement, pursuant to which CoBank has agreed to lend up to $165,000,000 to CIFC (the "credit facility"). Of the $165,000,000, $140,000,000 may be reloaned by CIFC to the Company's affiliates for the construction, operation and expansion of cellular telephone systems including up to $5,000,000 for the construction and operation of a paging network. The remaining $25,000,000 is reserved for acquisitions by CINC. Of the $140,000,000, up to $80,000,000 is available to be borrowed by CIFC to be repaid to the parent company and used for general corporate purposes, including capital expenditures, debt service and acquisitions. The Credit Agreement restricts the ability of the Company's affiliates and subsidiaries, a substantial number of which are consolidated for financial statement purposes, to make distributions to the parent company until such affiliates and subsidiaries have repaid all outstanding debt to CIFC. As a result, a portion of the Company's consolidated cash flows and cash balances is not available to satisfy the parent company's capital and debt service requirements. The Company's budgeted capital requirements consist primarily of (i) parent company capital expenditures, working capital, debt service and certain potential acquisitions and (ii) the capital expenditures, working capital, other operating and debt service requirements of the affiliates. In addition to budgeted capital requirements, the Company is constantly evaluating the acquisition of additional cellular properties, and to the extent the Company consummates future acquisitions, additional capital may be required. As of March 31, 1996, the Company had unused commitments under the Credit Agreement of $129,603,000, of which approximately $58,475,000 was available to be repaid to the parent company for general corporate purposes. In addition to the liquidity provided by the Credit Agreement, at March 31, 1996 the Company, on a consolidated basis, had available $29,087,000 of cash and cash equivalents. In September 1995, holders of the Company's 8.75% Convertible Senior Subordinated Notes elected to convert $1,950,000 of the $4,950,000 outstanding notes into 130,004 shares of the Company's Common Stock. In January 1996, the remaining notes were converted into 200,000 shares of the Company's Common Stock. On a consolidated basis, the Company's capital expenditures for the six months ended March 31, 1996 and the quarter ended March 31, 1996 were $16,066,000 and $7,014,000, respectively. Capital expenditures in managed markets, including corporate capital, for the remainder of the fiscal year are expected to be $34,700,000 for additional cell sites, expansion of channel capacity and switching and transmission upgrades. The Company's capital expenditures for fiscal 1997 are expected to total approximately $45,000,000 - $50,000,000, including $10,000,000 for the construction of the Company's paging system, $25,000,000 for additional cell sites, radio channels and to expand overall capacity and $10,000,000 - $15,000,000 to satisfy customers who are predominately using portable (.6 watt) phones as opposed to transportable or mobile (3.0 watt) phones. The actual level of capital expenditures may differ based upon rate of return analyses or fluctuations in cash flows from operations. The Company's near-term debt service requirements will consist primarily of interest payments on the indebtedness incurred under the Credit Agreement and interest payments on the Company's 11 1/4% Subordinated Notes. Interest on the Company's 11 3/4% Senior Subordinated Discount Notes is payable in cash commencing March 1, 1999. The Company anticipates its cash -14- interest expense for the balance of fiscal year 1996 will be $6,250,000. Revolving loan indebtedness outstanding under the Credit Agreement will be converted to term loan indebtedness at December 31, 1996 and will be amortized over the next four years; however, the Company is currently in discussion with CoBank to modify certain provisions of the current facility which may include the loan term period. See "The Credit Agreement" below. The Company believes operating cash flow, existing cash balances and borrowing availability under the Credit Agreement, will be sufficient to meet all future anticipated capital requirements of the parent company and its affiliates and debt service requirements of the Company at both the parent company level and on a consolidated basis. Although the Company believes that the foregoing sources of liquidity will be sufficient to meet budgeted capital expenditures and debt service requirements of the parent company and the affiliates, there can be no assurance that this will be the case. In such event, the Company believes it will be able to satisfy its capital expenditure and debt service requirements with unrestricted operating cash flow; however, the Company may be required to reduce discretionary capital spending. To the extent the Company's cash flow is not sufficient to satisfy such requirements, the Company will be required to raise funds through additional financings or asset sales. The Company continually evaluates the acquisition of cellular properties. Acquisitions are likely to require capital in addition to the budgeted capital requirements described above, and such requirements may in turn require the issuance of additional debt or equity securities. The Company's ability to finance the acquisition of additional cellular properties with debt financing may be constrained by certain restrictions contained in its existing debt instruments. In such event, the Company would be required to seek amendments to such instruments. There can be no assurance that such amendments could be obtained on terms acceptable to the Company. The Credit Agreement. Pursuant to the Credit Agreement, CoBank has agreed -------------------- to loan up to $165,000,000 to CIFC to be reloaned by CIFC to affiliates of the Company for the construction, operation and expansion of cellular telephone systems including $25,000,000 to fund acquisitions of additional cellular systems, subject to certain conditions. As of March 31, 1996, $58,475,000 was available under the Credit Agreement to be borrowed from CoBank by CIFC and repaid to the parent company for general corporate purposes. As of March 31, 1996, the outstanding balance under the Credit Agreement was approximately $35,397,000. The Credit Agreement provides, at the Company's option, for interest at 1.00% over prime (9.25% at March 31, 1996) or 2.50% over LIBOR (7.98% at March 31, 1996). The interest rate margins are subject to reduction upon the maintenance of certain debt to cash flow ratios for the prior four quarters. The Credit Agreement is a revolving loan which converts to a four- year term loan on December 31, 1996; however, the Company is in discussion with CoBank to modify certain provisions of the current facility which may include extending the loan term period. The loan is secured by a first lien upon all of the assets of CIFC and each of the affiliates to which funds are advanced by CIFC. In addition, the Company has guaranteed the obligations of CIFC to CoBank and has granted CoBank a first lien on all of the assets of the Company as security for such guaranty. In accordance with the Company's desire to minimize interest rate fluctuations and to improve the predictability of costs incurred throughout its growth stage, CIFC fixed interest rates on approximately $35,090,000 of its long-term debt payable to CoBank at an average rate of 10.8% which matures during 1996. Additionally, CIFC has entered into a prime-based interest rate swap with CoBank as a means of controlling interest rates on $2,500,000 of its variable rate loans. This swap agreement was entered into on July 1, 1993 for a three-year period ending July 1, 1996. The swap agreement requires CIFC to pay a fixed rate of 7.01% over the term of the swap, and CoBank to pay a floating rate of prime (8.25% at March 31, 1996). The weighted average interest rate of borrowings under the Credit Agreement, after giving effect to the swap, was 10.73% at March 31, 1996. -15- The Credit Agreement prohibits the payment of cash dividends, limits the use of borrowings, prohibits any other senior borrowings, restricts expenditures for certain investments, requires positive working capital and requires the maintenance of certain liquidity, capitalization, debt, debt service and cash interest ratios. The requirements of the Credit Agreement were established in relation to the anticipated capital and financing needs of the Company's affiliates and their anticipated results of operations. The Company is currently in compliance with all covenants and anticipates it will continue to meet the requirements of the Credit Agreement. Approval may be required from the syndicate for waivers or other amendments to the Credit Agreement requested by CIFC or the Company. -16- SUPPLEMENTAL INFORMATION General. The Company operates, manages and finances cellular telephone ------- systems, primarily in rural markets in the mountain and plains regions of the United States. The Company's cellular interests currently represent approximately 3,409,000 net Company pops in 82 markets located in 14 states. These markets consist of 72 RSA markets having a total of 5,243,000 pops and 10 MSA markets having a total of 1,302,000 pops, of which the Company's interests represent 2,727,000 net Company pops and 682,000 net Company pops, respectively. The Company currently manages 55 of the 82 markets in which it holds an interest and owns a greater than 50% interest in 44 of its 55 managed markets. The Company currently finances entities holding interests representing approximately 4,274,000 pops, of which 3,409,000 are included in net Company pops and 865,000 are attributable to parties other than the Company. Pops refers to the estimated population of a market as initially licensed by the Federal Communications Commission ("FCC"). Systems in which the Company holds an interest constitute the largest geographic collection of contiguous cellular markets in the United States. The Company has concentrated on creating an integrated network of contiguous cellular systems comprised of markets which are managed by the Company. The network currently consists of 55 markets (48 RSA and 7 MSA markets) spanning nine states and represents approximately 4,043,000 total pops and 3,110,000 net Company pops. As of March 31, 1996, the RSA and MSA managed markets had 131,422 and 49,084 subscribers, respectively. Information regarding the Company's net interest in each cellular licensee and the market subject to such license, as of May 9, 1996, is summarized in the following table. The table does not reflect transactions that are pending or under negotiation. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Acquisitions and Sales."
Net Company MSA or Interest 1994 Net Company RSA Code (1) State in Licensee (2) Population (3)(6) Pops (4) - ------------- ----- --------------- ----------------- ------------ MSAs: 141 Minnesota 16.34% 243,518 39,791 185 Indiana 16.67% 170,313 28,391 241*(5) Colorado 73.99% 127,299 94,189 253*(5) Iowa 74.50% 118,105 87,988 267*(5) South Dakota 51.00% 133,987 68,333 268*(5) Montana 77.05% 122,871 94,672 279 Maine 11.11% 102,441 11,380 289*(5) South Dakota 100.00% 113,831 113,831 297*(5) Montana 100.00% 81,938 81,938 298*(5) North Dakota 70.00% 87,835 61,485 --------- --------- Total MSA 1,302,138 681,998
Net Company MSA or Interest 1994 Net Company RSA Code (1) State in Licensee (2) Population (3)(6) Pops (4) - ------------- ----- --------------- ----------------- ------------ RSAs: 348* Colorado 10.00% 45,211 4,521 349*(5) Colorado 61.75% 63,315 39,097 351*(5) Colorado 61.75% 65,026 40,154 352*(5) Colorado 66.00% 26,890 17,747 353*(5) Colorado 100.00% 68,119 68,119 354*(5) Colorado (B1) 69.40% 45,689 31,708 355* Colorado 49.00% 45,026 22,063 356* Colorado (B1) 49.00% 27,671 13,559 389 Idaho 50.00% 66,552 33,276 390 Idaho 33.33% 15,911 5,303 392*(5) Idaho (B1) 100.00% 136,677 136,677 393*(5) Idaho 91.64% 288,252 264,154 415 Iowa 10.11% 155,924 15,770 416 Iowa 38.50% 108,063 41,603 417*(5) Iowa 100.00% 152,917 152,917 419* Iowa 44.92% 54,653 24,549 420*(5) Iowa 100.00% 63,395 63,395 424 Iowa 35.00% 66,706 23,347 425* Iowa 13.28% 107,924 14,337 426* Iowa 49.14% 85,106 41,820 427* Iowa 49.17% 102,917 50,601 428 Kansas 3.07% 28,006 860 429 Kansas 3.07% 31,188 957 430 Kansas 3.07% 52,587 1,614 431 Kansas 3.07% 127,201 3,905 432 Kansas 3.07% 31,075 954 433 Kansas 3.07% 20,183 620 434 Kansas 3.07% 81,665 2,507 435 Kansas 3.07% 127,567 3,916 436 Kansas 3.07% 58,095 1,784 437 Kansas 3.07% 105,951 3,253 438 Kansas 3.07% 81,692 2,508 439 Kansas 3.07% 42,526 1,306 440 Kansas 3.07% 28,891 887 441 Kansas 3.07% 172,162 5,285 442 Kansas 3.07% 155,265 4,767 512 Missouri (B1) 14.70% 56,387 8,289 523*(5) Montana (B1) 100.00% 68,744 68,744 523*(5) Montana (B2) 98.85% 72,353 71,521 524*(5) Montana (B1) 79.40% 37,090 29,449 526*(5) Montana (B1) 100.00% 23,028 23,028 527*(5) Montana 100.00% 180,555 180,555 528*(5) Montana 80.88% 64,321 52,020 529*(5) Montana 87.25% 29,807 26,007 530*(5) Montana 80.88% 85,945 69,508 531*(5) Montana 100.00% 31,508 31,508 532*(5) Montana 100.00% 19,628 19,628
-18-
Net Company MSA or Interest 1994 Net Company RSA Code (1) State in Licensee (2) Population (3)(6) Pops (4) - ------------- ----- --------------- ----------------- ------------ 553* New Mexico 16.33% 251,919 41,143 555 New Mexico 12.25% 78,980 9,675 557 New Mexico 16.33% 56,850 9,285 580*(5) North Dakota 53.36% 101,590 54,208 581* North Dakota 49.00% 59,678 29,242 582 North Dakota 41.45% 90,940 37,694 583* North Dakota 49.00% 65,368 32,030 584*(5) North Dakota 61.75% 48,986 30,249 634*(5) South Dakota 100.00% 36,122 36,122 635*(5) South Dakota 100.00% 22,501 22,501 636*(5) South Dakota 100.00% 53,892 53,892 638*(5) South Dakota (B1) 100.00% 16,774 16,774 638*(5) South Dakota (B2) 100.00% 8,385 8,385 639*(5) South Dakota (B1) 100.00% 33,501 33,501 639*(5) South Dakota (B2) 100.00% 5,586 5,586 640*(5) South Dakota 64.49% 65,711 42,377 641*(5) South Dakota 61.13% 71,915 43,962 642* South Dakota 49.00% 92,384 45,268 675*(5) Utah 100.00% 53,271 53,271 676*(5) Utah 100.00% 91,208 91,208 677*(5) Utah (B3) 100.00% 38,644 38,644 678*(5) Utah 80.00% 23,676 18,941 718*(5) Wyoming 66.00% 47,112 31,094 719*(5) Wyoming 100.00% 73,641 73,641 720*(5) Wyoming 100.00% 148,567 148,567 --------- --------- Total RSA 5,242,565 2,727,357 ========= ========= Total MSA and RSA 6,544,703 3,409,355 ========= =========
- ------------ (1) MSA ranking is based on population as established by the FCC. RSAs have been numbered by the FCC alphabetically by state. (2) Represents the net ownership interest of the Company in the licensee for a cellular telephone system in the respective market. Net ownership of greater than 50% does not necessarily represent a controlling interest in such licensee. (3) Derived from the Strategic Marketing, Inc. 1994 population estimates. (4) Net Company Pops represents net Company interest in licensee multiplied by 1994 population. (5) The operations of these markets are currently reflected on a consolidated basis in the Company's consolidated financial statements. The operations of the other markets in which the Company holds an interest are reflected in such financial statements on either an equity or a cost basis. (6) Represents population within the market area initially licensed by the FCC. The number of pops which are covered by radio signal in a market is expected to be marginally lower than the market's total pops on a going- forward basis. Markets managed by the Company are denoted by an asterisk (*). -19- Subscriber Growth Table - ----------------------- Information regarding subscribers to the MSA and RSA cellular systems managed by the Company is summarized by the following table:
Number of Estimated Population Number of Operating Systems of Operating Systems Subscribers --------------------------- --------------------------- --------------------- Subscriber Total MSA RSA Total MSA RSA Total MSA RSA Growth ----- --- --- ----- --- --- ----- --- --- ---------- Sept. 30, 1987 0 0 0 0 0 0 0 0 0 Sept. 30, 1988 4 4 0 504,529 504,529(1) 0 424 424 0 Sept. 30, 1989 4 4 0 500,804 500,804(2) 0 1,362 1,362 0 221.23% Sept. 30, 1990 18 4 14 1,687,481 500,804(2) 1,186,677(2) 6,444 3,513 2,931 373.13% Sept. 30, 1991 49 5 44 3,509,779 566,722(3) 2,943,057(3) 17,952 6,387 11,565 178.58% Sept. 30, 1992 49 5 44 3,509,779 566,722(3) 2,943,057(3) 35,884 11,119 24,765 99.89% Sept. 30, 1993 50 6 44 3,665,758 644,526(4) 3,021,232(4) 60,381 17,898 42,483 68.27% Sept. 30, 1994 55 7 48 3,906 063 771,660(5) 3,134,403(5) 99,002 30,711 68,291 63.96% Sept. 30, 1995 56 7 49 4,220,975 785,866(6) 3,435,109(6) 151,482 42,401 109,081 53.01% Dec. 31, 1995 55 7 48 4,043,143 785,866(6) 3,257,277(6) 168,465 46,381 122,084 11.21% March 31, 1996 55 7 48 4,043,143 785,866(6) 3,257,277(6) 180,506 49,084 131,422 7.15%
_______________ (1) Derived from 1988 Donnelley Market Service population estimates. (2) Derived from 1989 Donnelley Market Service population estimates. (3) Derived from 1990 Census Report. (4) Derived from 1992 Donnelley Market Service population estimates. (5) Derived from 1993 Strategic Marketing, Inc. population estimates. (6) Derived from 1994 Strategic Marketing, Inc. population estimates. Supplemental Information: SELECTED COMBINED AND PROPORTIONATE OPERATING RESULTS OF CELLULAR LICENSEES The following table presents operating data for all cellular licensees in which the Company holds an interest. The "Combined," "Financed Proportionate" and "Company Proportionate" operating results, which are not included in the Company's consolidated financial statements, are provided to assist in understanding the results of the licensees in which the Company holds an interest. Generally accepted accounting principles ("GAAP") prescribe inclusion of revenues and expenses for consolidated interests (generally interests of more than 50%), but not for equity interests (generally interests of 20% to 50%) or cost interests (generally interests of less than 20%). Equity accounting ordinarily results in the same net income as consolidation; however, the net operating results are reflected on one line below operating income. Operating activity related to interests accounted for under the cost method are not reflected at all in a GAAP operating statement.
Six Months ended March 31, ------------------------------------------------------------------------------------------------------------ 1996 1995 1996 1995 1996 1995 -------------------------------- ------------------------------------------ -------------------------------- Combined (1) Financed Proportionate (2) Company Proportionate (3) -------------------------------- ------------------------------------------ -------------------------------- MANAGED MARKETS Revenues: Cellular service $44,085,004 $32,869,320 $40,890,071 $30,545,635 $32,112,239 $23,628,951 In-roaming 13,891,021 9,504,822 12,817,823 8,927,874 10,102,971 6,645,832 Equipment sales 1,793,860 2,436,845 1,640,082 2,259,232 1,324,523 1,687,086 ------------- ------------- ------------- ------------- ------------- ------------- Total revenues 59,769,885 44,810,987 55,347,976 41,732,741 43,539,733 31,961,869 Costs and expenses involving cash: Cost of sales: Cellular service (including in-roaming) 11,564,492 9,719,179 10,767,237 9,186,918 8,380,235 6,797,354 Equipment sales 5,257,928 2,811,436 4,740,717 2,576,201 3,769,073 1,945,158 General and administrative 13,620,435 12,923,156 12,650,411 12,131,513 9,938,771 9,333,603 Marketing and selling 13,398,248 12,698,455 12,350,150 11,814,069 9,711,943 9,026,762 ------------- ------------- ------------- ------------- ------------- ------------- Total cash costs and expenses 43,841,103 38,152,226 40,508,515 35,708,701 31,800,022 27,102,877 ------------- ------------- ------------- ------------- ------------- ------------- EBITDA $15,928,782 $ 6,658,761 $14,839,461 6,024,040 $11,739,711 $ 4,858,992 ============= ============ ============ ============ ============ ============ Capital expenditures $16,634,826 $18,119,233 $15,844,611 $15,892,540 $14,731,082 $11,926,090 Subscriber count 180,506 124,057 154,921 114,834 119,849 87,518 Total markets 55 55 55 55 55 55 NONMANAGED MARKETS Revenues: Cellular service (including in-roaming) $43,836,503 $35,592,108 $ 7,014,230 $10,628,092 $4,231,194 $5,543,288 Equipment sales 3,574,803 2,934,029 383,433 853,782 275,451 490,090 ------------- ------------- ------------- ------------- ------------- ------------- Total revenues 47,411,306 38,526,137 7,397,663 11,481,874 4,506,645 6,033,378 Costs and expenses involving cash: Cost of sales: Cellular service 10,324,007 11,713,506 1,942,075 3,487,467 1,131,587 1,784,999 Equipment sales 3,727,575 2,050,558 455,677 631,365 314,752 347,255 General and administrative 8,775,811 7,457,553 1,483,533 2,219,846 864,493 1,157,470 Marketing and selling 9,522,960 10,644,801 1,537,717 3,141,880 995,922 1,660,914 Total cash costs ------------- ------------- ------------- ------------- ------------- ------------- and expenses 32,350,353 31,866,418 5,419,002 9,480,558 3,306,754 4,950,638 ------------- ------------- ------------- ------------- ------------- ------------- EBITDA $15,060,953 $ 6,659,719 $1,978,661 $ 2,001,316 $1,199,891 $1,082,740 ============= ============= ============= ============= ============== ============= Capital expenditures $ 4,216,348 $18,885,247 $1,582,580 $ 6,159,696 $ 962,632 $3,230,609 Subscriber count 116,727 107,118 15,486 31,064 19,395 16,771 Total markets 27 38 27 38 27 38
-21-
Six Months ended March 31, -------------------------- 1996 1995 ---- ---- Reconciliation From Company Proportionate EBITDA to Consolidated Reporting Total proportionate EBITDA (managed and nonmanaged markets) $12,939,602 $ 5,941,732 Proportionate depreciation and amortization (7,687,228) (5,957,343) Proportionate interest expense (5,151,134) (4,477,732) Equity in nonlicensee affiliates (2,310,339) (2,613,204) Minority interests (66,535) (1,145,423) Intercompany interest 4,620,783 3,882,931 Amortization of license costs not owned by affiliates (1,243,013) (1,062,466) Unallocated corporate expenses (2,591,253) (1,617,271) Gain (loss) on sales of affiliates (250,000) 67,247 Interest expense (net) and other (6,349,469) (5,292,843) ----------- ------------ Consolidated net income (loss) $(8,088,586) $(12,274,372) =========== ============
_______________ (1) Includes 100% of the operating activity of all licensees, regardless of the Company's owner-ship interest. This is essentially equivalent to consolidating all licensees regardless of ownership percentage. (2) Includes that percentage of a licensee's operating results which equals the Company's ownership interest as well as the ownership interest held by affiliates of the Company that are financed by CIFC. (3) Includes only that percentage of a licensee's operating results which corresponds to the Company's ownership interest. This is essentially equivalent to a pro rata consolidation. -22- The following table presents "Financed Proportionate" operating results and other cash activity of the cellular licensees in which the Company holds an interest, as well as incremental cash activity of the Company. Financed Proportionate activity represents cash flows that are allocable to the Company which, when received, will be used to pay the Company's obligations to CoBank. Six Months ended March 31, ------------------------------ 1996 1995 -------------- ------------- Revenues: Cellular service (including in-roaming) $ 60,722,124 $ 50,101,601 Equipment sales 2,023,515 3,113,014 -------------- ------------- Total revenues 62,745,639 53,214,615 Cash costs and expenses: Cost of sales: Cellular service (including in-roaming) 12,709,312 12,674,385 Equipment sales 5,196,394 3,207,566 General and administrative 14,133,944 14,351,359 Marketing and selling 13,887,867 14,955,949 ------------- ------------ Total operating expenses 45,927,517 45,189,259 ------------- ------------ EBITDA 16,818,122 8,025,356 Cash interest expense (net) (7,018,741) (5,648,665) Capital expenditures, including corporate (17,427,191) (22,052,236) Changes in operating assets and liabilities and other (4,147,112) (591,896) ------------- ------------ Cash (used) by financed cellular licensee affiliates (11,774,922) (20,267,441) Acquisition activity involving cash 607,553 (603,656) Nonlicensee cash corporate expenses (738,015) (1,241,492) Changes to long-term debt and equity involving cash (25,733) 13,240,324 ------------- ------------ Change in cash and short-term investments $ (11,931,117) $ (8,872,265) ============= ============ -23- PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. - ------ -------------------------------- (a) Exhibits (b) Reports on Form 8-K filed during the quarter ended March 31, 1996: None. -24- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COMMNET CELLULAR INC. (Registrant) Date: May 15, 1996 By: /s/ Daniel P. Dwyer ------------------- Daniel P. Dwyer Executive Vice President, Treasurer & Chief Financial Officer Date: May 15, 1996 By: /s/ Andrew J. Gardner --------------------- Andrew J. Gardner Senior Vice President and Controller (Principal Accounting Officer) -25- EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS SEP-30-1996 OCT-01-1995 MAR-31-1996 29,086,728 0 14,267,644 1,944,157 4,271,189 45,681,404 158,292,138 48,878,580 327,779,570 17,317,589 249,780,268 0 0 166,165,515 108,827,956 327,779,570 48,660,970 48,660,970 13,882,440 47,165,749 4,820,079 258,412 14,403,886 (8,088,586) 0 (8,088,586) 0 0 0 (8,088,586) 0 0 SALES: Includes both cellular and equipment revenue. EPS-PRIMARY: Primary earnings per share is not presented as the difference between basic EPS and primary EPS is insignificant. EPS-DILUTED: Fully diluted EPS is not presented as all CS-equivalents are anti-dilutive.
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