Rural Cellular
Corporation Announces Record Third Quarter 2005 Roaming
Revenue
Nov. 7, 2005
Rural Cellular Corporation announces record roaming revenue
and third quarter 2005 financial results.
Richard P. Ekstrand, President and Chief Executive Officer,
commented: "The success of our network construction
efforts are now being reflected in our record 65% increase in
roaming minutes this quarter. As we look to our continued
strong performance on the roaming front, and increasing LSR,
we are keenly focused on improving customer retention and
increasing our customer base."
Ekstrand added: "I am also pleased with our recent
senior subordinated notes offering, which significantly
increases our financial flexibility."
RCC's third quarter operating highlights reflect:
-- EBITDA increase to $60.8 million,
-- A 65% increase in outcollect roaming minutes over 3Q
2004,
-- Continued network construction and handset transitions,
-- Increased service revenue from higher LSR,
-- Exchange of preferred stock for common stock, and
-- Expanded billing arrangement with VeriSign
Communications Services.
Events subsequent to September 30, 2005:
-- Declaration and payment of 11 3/8% Senior Exchangeable
Preferred Stock Dividends,
-- Conversion of Class T Convertible Preferred Stock back
into Common Stock,
-- Sale of $175 million of seven-year senior subordinated
floating rate notes,
-- Borrowing $58 million under the Company's Revolving
Credit Agreement.
Revenue and customers
Service Revenue. RCC's service revenue increased to $98.3
million for the quarter. This improvement resulted from LSR
increasing to $51 for the quarter compared to $48 last year.
Driving the higher LSR were increased access and features
revenue together with increased USF payments. USF payments
were $10.8 million during the third quarter of 2005 compared
to $7.6 million last year. The Company's regulatory
pass-through charges were $3.4 million during the quarter
compared to $3.2 million in 2004.
Customers. The Company's decline in customer retention
continues to reflect billing, technology, and service related
issues encountered during the commercial introduction of its
GSM networks. Customer migrations this quarter were
approximately 46,000 while gross customer postpaid adds were
41,000. RCC's total customers were 704,605 at September 30,
2005 and 716,755 at June 30, 2005.
Roaming Revenue. Roaming revenue for the quarter increased
to $41.8 million compared to $29.7 million in the third
quarter of 2004. Roaming yield was approximately $0.13 per
minute in 2005 and $0.16 per minute in 2004. During the
quarter, voice roaming minutes increased 65% over the third
quarter of 2004. Additionally, 85% of the Company's roaming
minutes came from next generation technology compared to 72%
during the second quarter of this year.
Equipment Subsidy. Reflecting strong customer demand for
next generation products, the Company's net per customer
subsidy this quarter was $63. Equipment revenue increased
47.1% to $8.2 million for 2005. Equipment cost increased 36.9%
to $13.7 million for 2005.
Operating costs
Network Cost. RCC's network cost for the third quarter of
2005 increased to $32.9 million, reflecting additional costs
of operating multiple networks (analog, TDMA, GSM/GPRS/EDGE
and CDMA/1XRTT networks), and cell sites added since September
30, 2004. Network costs include incollect expense which was
$12.1 million during the quarter as compared to $12.3 million
last year. Per minute incollect cost for the third quarter of
2005 was approximately $0.11 per minute compared to $0.13 last
year.
Selling, General and Administrative. SG&A increased to
$40.9 million in the quarter. Contributing to the increase in
SG&A were an increase in customer service expenses, sales
and marketing costs, higher bad debt expense, costs to clear
the increase in outcollect minutes, and severance costs
related to the reorganization announced in August.
Interest Expense. Interest expense for the three months
ended September 30, 2005, increased to $43.8 million. The
increase in interest expense for the quarter primarily
reflects a significant decrease in gain on repurchase or
exchange of senior exchangeable preferred stock reported last
year at this time.
Components of Interest Expense Three months ended
(in thousands) September 30,
------------------
2005 2004
-------- --------
Interest expense on credit agreement................ $- $-
Interest expense on senior secured notes............ 10,531 9,564
Interest expense on senior notes.................... 8,023 8,023
Interest expense on senior subordinated notes....... 10,320 10,320
Amortization of debt issuance costs................. 1,170 1,148
Write-off of debt issuance costs.................... 92 269
Senior and junior preferred stock dividends......... 13,969 13,331
Effect of derivative instruments.................... (172) (172)
Gain on repurchase and exchange of senior
exchangeable preferred stock....................... (131) (7,296)
Other............................................... (26) (58)
-------- --------
$43,776 $35,129
======== ========
Gain on repurchase of preferred stock. During the third
quarter, the Company did not repurchase any shares of 11 3/8%
senior exchangeable preferred stock. During the three months
ended September 30, 2004, RCC repurchased 22,750 shares of its
11 3/8% senior exchangeable preferred stock for $19.0 million.
These shares had accrued $3.5 million in unpaid dividends. The
corresponding $7.3 million gain on repurchase of preferred
shares was recorded as a reduction of interest expense.
Gain on exchange of 11 3/8% senior exchangeable preferred
stock preferred stock for common stock. During the three
months ended September 30, 2005, the Company exchanged 9,535
shares of its 11 3/8% senior exchangeable preferred stock for
an aggregate of 1,070,190 shares of its Class A common stock
in negotiated transactions. The shares were issued in reliance
upon the exemption from registration provided in Section
3(a)(9) of the Securities Act of 1933, as amended. These
transactions resulted in a gain of $131,000, which was
recorded as a reduction of interest expense.
Capital expenditures
Total capital expenditures for the third quarter and year
to date were approximately $12.9 million and $77.5 million,
respectively.
About the Company
Rural Cellular Corporation, based in Alexandria, Minnesota,
provides wireless communication services to Midwest,
Northeast, South and Northwest markets located in 15 states.
Forward-looking statements
Statements about RCC's future prospects are forward-looking
and, therefore, involve certain risks and uncertainties,
including but not limited to: competitive considerations,
success of customer enrollment and retention initiatives, the
ability to increase wireless usage and reduce customer
acquisition costs, the ability to deploy new network
technology on a timely basis, the ability to service debt, and
other factors discussed in RCC's Report on Form 10-K for the
year ended December 31, 2004 and from time to time in its
other filings with the Securities and Exchange Commission.
Consolidated Operating Data: Three months ended Nine months ended
September 30, September 30,
2005 2004 2005 2004
--------- -------- ---------- ----------
Penetration (1) (2)........... 9.6% 10.5% 9.6% 10.5%
Retention (3)................. 97.0% 97.8% 97.3% 98.0%
Average monthly revenue per
customer (4)................. $74 $63 $65 $60
Local service revenue per
customer (5)................. $51 $48 $50 $46
Acquisition cost per customer
(6).......................... $477 $442 $484 $428
Voice customers at period end
Postpaid.................. 601,699 636,655
Prepaid................... 12,931 21,018
Wholesale................. 89,975 81,890
---------- ----------
Total customers....... 704,605 739,563
========== ==========
Direct marketed POPs (1)
RCC Cellular.............. 5,651,000 5,525,000
Wireless Alliance......... 754,000 754,000
---------- ----------
Total POPs............ 6,405,000 6,279,000
========== ==========
(1) Reflects 2000 U.S. Census Bureau data updated for December 2002.
(2) Represents the ratio of wireless voice customers, excluding
wholesale customers, at the end of the period to population served
("POPs").
(3) Determined for each period by dividing total postpaid wireless
voice customers discontinuing service during such period by the
average postpaid wireless voice customers for such period
(customers at the beginning of the period plus customers at the
end of the period, divided by two), dividing that result by the
number of months in the period, and subtracting such result from
one.
(4) Determined for each period by dividing service revenue (not
including pass-through regulatory fees) and roaming revenue by the
monthly average postpaid customers for such period.
(5) Determined for each period by dividing service revenue (not
including pass-through regulatory fees) by the monthly average
postpaid customers for such period.
(6) Determined for each period by dividing selling and marketing
expenses, net cost of equipment sales, and depreciation of rental
telephone equipment by the gross postpaid wireless voice customers
added during such period.
Reconciliation of Non-GAAP Financial Measures to Comparable
GAAP Measures
The Company utilizes certain financial measures that are
not calculated in accordance with accounting principles
generally accepted in the United States, or GAAP, to assess
the Company's financial performance. A non-GAAP financial
measure is defined as a numerical measure of a company's
financial performance that (i) excludes amounts, or is subject
to adjustments that have the effect of excluding amounts, that
are included in the comparable measure calculated and
presented in accordance with GAAP in the statement of income
or statement of cash flows or (ii) includes amounts, or is
subject to adjustments that have the effect of including
amounts, that are excluded from the comparable measure so
calculated and presented. The Company's method of computation
may not be comparable to other similarly titled measures of
other companies.
EBITDA is the sum of earnings before interest, taxes,
depreciation and amortization, impairment of assets, interest
and dividend income, and other expense. EBITDA margin is
calculated as EBITDA divided by total revenues. The Company
believes that EBITDA and EBITDA margin provide an important
perspective on its operating results and its ability to
service long-term obligations, to fund continuing growth, and
to continue as a going concern. EBITDA and EBITDA margin are
not intended to represent alternatives to net income or cash
flows from operating, financing, or investing activities (as
determined in accordance with GAAP) as a measure of
performance and are not representative of funds available for
discretionary use due to the Company's financing obligations.
The following table reconciles EBITDA to net income (loss)
the most comparable GAAP financial measure.
(in thousands) Three months ended Nine months ended
September 30, September 30,
------------------ -------------------
2005 2004 2005 2004
--------- -------- --------- ---------
EBITDA.......................... $60,801 $59,630 $159,702 $172,667
Depreciation and amortization... (24,549) (19,474) (71,475) (55,389)
Stock based compensation........ (321) - (429) -
Impairment of assets............ - - (7,020) -
Interest expense................ (43,776) (35,129) (124,104) (121,884)
Interest and dividend income.... 249 424 911 1,370
Other........................... (125) (14) (149) (78)
Income tax benefit.............. 104 - 313 -
--------- -------- --------- ---------
Net income (loss).............. $(7,617) $5,437 $(42,251) $(3,314)
========= ======== ========= =========
The following table summarizes the reconciliation of EBITDA
margin to net income (loss) as a percentage of total revenues.
(All items shown as % of total revenue)
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
2005
2004 2005 2004
--------- -------- -------- --------
EBITDA............................
41.0% 45.0%
39.4% 45.6%
Depreciation and amortization.....
(16.6) (14.7) (17.6)
(14.6)
Stock based compensation..........
(0.2)
-
(0.1) -
Impairment of
assets..............
-
-
(1.7) -
Interest expense..................
(29.5) (26.5) (30.6)
(32.2)
Interest and dividend income......
0.2
0.3
0.2 0.4
Other.............................
(0.1)
0.0
0.0 0.0
Income tax benefit................
0.1
-
0.1 -
--------- -------- -------- --------
Net income (loss)................
(5.1)% 4.1% (10.3)%
(0.8)%
========= ======== ======== ========
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
(In
Thousands)
September 30, December 31,
2005
2004
------------- ------------
CURRENT ASSETS:
Cash and cash
equivalents..................
$35,766 $85,339
Accounts receivable, less allowance for
doubtful accounts of $4,127 and
$2,456....
76,236 62,549
Inventories................................
8,806 7,658
Other current
assets.......................
4,766 4,175
------------- ------------
Total current
assets.....................
125,574 159,721
------------- ------------
PROPERTY AND EQUIPMENT,
net.................
278,019 276,133
LICENSES AND OTHER ASSETS:
Licenses,
net..............................
548,513 548,513
Goodwill,
net..............................
348,684 348,682
Customer lists,
net........................
33,946 47,868
Deferred debt issuance costs,
net..........
25,882 30,228
Other assets,
net..........................
6,196 6,305
------------- ------------
Total licenses and other
assets..........
963,221 981,596
------------- ------------
$1,366,814 $1,417,450
============= ============
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' DEFICIT
(Unaudited)
September 30, December 31,
(In thousands, except per share
data)
2005
2004
------------- ------------
CURRENT LIABILITIES:
Accounts
payable...........................
$37,000 $52,465
Current portion of long-term
debt..........
15
81
Advance billings and customer
deposits.....
12,062 11,076
Accrued
interest...........................
17,871 41,112
Other accrued
expenses.....................
12,368 9,679
------------- ------------
Total current
liabilities................
79,316 114,413
LONG-TERM LIABILITIES.......................
1,747,138 1,733,079
------------- ------------
Total
liabilities........................
1,826,454 1,847,492
------------- ------------
REDEEMABLE PREFERRED
STOCK..................
176,597 166,296
SHAREHOLDERS' DEFICIT:
Class A common stock; $.01 par value;
200,000 shares authorized, 13,140 and
11,836
outstanding........................
131 118
Class B common stock; $.01 par value;
10,000 shares authorized, 453 and 540
outstanding...............................
5
5
Additional paid-in
capital.................
207,212 193,347
Accumulated
deficit........................
(843,998) (791,446)
Unearned
compensation......................
(1,408) (698)
Accumulated other comprehensive
income.....
1,821 2,336
------------- ------------
Total shareholders'
deficit..............
(636,237) (596,338)
------------- ------------
$1,366,814 $1,417,450
============= ============
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(Unaudited)
(In
thousands,
For the Three Months For the Nine Months
except per share
data) Ended
September 30, Ended September 30,
-------------------- -------------------
2005
2004
2005 2004
---------- --------- --------- ---------
REVENUE:
Service...................... $98,287
$97,093 $291,847 $280,657
Roaming......................
41,785 29,739
86,519 81,745
Equipment....................
8,220 5,589
26,694 16,450
---------- --------- --------- ---------
Total revenue..............
148,292 132,421 405,060
378,852
---------- --------- --------- ---------
OPERATING EXPENSES:
Network costs, excluding
depreciation................
32,885 27,768
88,377 77,073
Cost of equipment sales......
13,738 10,035
42,747 30,627
Selling, general and
administrative..............
40,868 34,988
114,234 98,485
Depreciation and amortization
24,549 19,474
71,475 55,389
Stock based
compensation.....
321
-
429 -
Impairment of
assets.........
-
-
7,020 -
---------- --------- --------- ---------
Total operating expenses...
112,361 92,265
324,282 261,574
---------- --------- --------- ---------
OPERATING INCOME..............
35,931 40,156
80,778 117,278
---------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense............. (43,776)
(35,129) (124,104) (121,884)
Interest and dividend
income
249
424
911 1,370
Other........................
(125)
(14)
(149) (78)
---------- --------- --------- ---------
Other expense, net......... (43,652)
(34,719) (123,342) (120,592)
---------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME
TAX BENEFIT..................
(7,721) 5,437
(42,564) (3,314)
---------- --------- --------- ---------
INCOME TAX BENEFIT............
(104)
-
(313) -
---------- --------- --------- ---------
NET INCOME (LOSS).............
(7,617) 5,437
(42,251) (3,314)
---------- --------- --------- ---------
PREFERRED STOCK DIVIDEND...... (3,534)
(3,253) (10,301) (9,581)
---------- --------- --------- ---------
NET INCOME (LOSS) APPLICABLE
TO COMMON SHARES............. $(11,151)
$2,184 $(52,552) $(12,895)
========== ========= ========= =========
NET INCOME (LOSS) PER BASIC
SHARE........................
$(0.89) $0.18
$(4.24) $(1.05)
========== ========= ========= =========
NET INCOME (LOSS) PER DILUTED
SHARE........................
$(0.89) $0.17
$(4.24) $(1.05)
========== ========= ========= =========
WEIGHTED AVERAGE SHARES USED
TO COMPUTE INCOME (LOSS) PER
SHARE:
Basic......................
12,517 12,251
12,388 12,234
Diluted....................
12,517 12,795
12,388 12,234
COMPREHENSIVE LOSS:
NET INCOME (LOSS) APPLICABLE
TO COMMON SHARES............. $(11,151)
$2,184 $(52,552) $(12,895)
---------- --------- --------- ---------
Adjustments - derivative
financial instruments.......
(172) (172)
(515) 2,291
---------- --------- --------- ---------
TOTAL COMPREHENSIVE INCOME
(LOSS)....................... $(11,323)
$2,012 $(53,067) $(10,604)
========== ========= ========= =========
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
(In
Thousands)
September 30,
-------------------
2005 2004
--------- ---------
OPERATING ACTIVITIES:
Net
loss..........................................$(42,251)
$(3,314)
Adjustments to reconcile to net cash provided by
(used in) operating activities:
Depreciation and
amortization................... 71,475
55,389
Loss on write-off of debt issuance
costs........ 243
12,605
Mark-to-market adjustments - financial
instruments....................................
- 4,339
Gain on repurchase of preferred
stock........... (5,685) (22,573)
Non-cash preferred stock
dividends.............. 3,797
21,144
Impairment of
assets............................
7,020 -
Stock based
compensation........................
429 -
Deferred income
taxes...........................
(313) -
Other...........................................
3,528 5,931
Change in other operating elements:
Accounts
receivable...........................
(13,893) 2,088
Inventories...................................
(1,148) 846
Other current
assets..........................
(432) (361)
Accounts
payable..............................
(3,936) (8,827)
Advance billings and customer
deposits........
986 1,120
Accrued preferred stock
dividends............. 37,842 20,967
Accrued
interest.............................. (19,443) (13,024)
Other accrued
expenses........................
2,591 (1,857)
--------- ---------
Net cash provided by operating
activities.............................
40,810 74,473
--------- ---------
INVESTING ACTIVITIES:
Purchases of property and equipment...............
(77,521) (61,602)
Net proceeds from property
exchange...............
- 13,573
Proceeds from sale of property and
equipment......
118 54
Other.............................................
(125) 4
--------- ---------
Net cash used in investing activities... (77,528)
(47,971)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock related to
employee stock purchase plan and stock
options...
587 187
Repayments of long-term debt under the credit
agreement........................................
- (525,724)
Proceeds from issuance of 8 1/4% senior secured
notes............................................
- 350,000
Proceeds from issuance of senior secured floating
rate
notes.......................................
- 160,000
Repurchase of preferred stock.....................
(13,355) (68,351)
Payments to settle interest rate
swaps............
- (7,645)
Payments of debt issuance
costs...................
- (13,928)
Other.............................................
(87) (161)
--------- ---------
Net cash used in financing
activities.......... (12,855) (105,622)
--------- ---------
NET DECREASE IN CASH...............................
(49,573) (79,120)
CASH AND CASH EQUIVALENTS, at beginning of year....
85,339 142,547
--------- ---------
CASH AND CASH EQUIVALENTS, at end of period........
$35,766 $63,427
========= =========
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