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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
----------------------
333-36804
Commission file number
MADISON RIVER CAPITAL, LLC
(Exact Name of Registrant as Specified in Its Charter)
Delaware 56-2156823
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
103 South Fifth Street
Mebane, North Carolina 27302
(Address of Principal Executive Offices, Including Zip Code)
(919) 563-1500
(Registrant's Telephone Number, Including Area Code)
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 ___
---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
--- ---
As of May 12, 2004, the Registrant had 211,583,892 Class A member interests
outstanding. All member interests are owned by Madison River Telephone
Company, LLC.
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MADISON RIVER CAPITAL, LLC
Index to Form 10-Q
Part I - Financial Information Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 2004 (Unaudited)
and December 31, 2003............................................................1
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited) - Three Months Ended March 31, 2004 and 2003.........................2
Consolidated Statement of Member's Capital (Unaudited)- Three Months
Ended March 31, 2004.............................................................3
Condensed Consolidated Statements of Cash Flows (Unaudited) - Three Months
Ended March 31, 2004 and 2003....................................................4
Notes to Condensed Consolidated Financial Statements (Unaudited)...................5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations....................................................................12
Item 3. Quantitative and Qualitative Disclosures About Market Risks........................22
Item 4. Controls and Procedures............................................................22
Part II - Other Information
Item 1. Legal Proceedings..................................................................23
Item 6. Exhibits and Reports on Form 8-K...................................................23
Signature....................................................................................24
i
Part I
ITEM 1 - FINANCIAL STATEMENTS
MADISON RIVER CAPITAL, LLC
Condensed Consolidated Balance Sheets
(Dollars in thousands)
March 31, 2004 December 31, 2003
-------------- -----------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 15,248 $ 28,143
Accounts receivable, less allowance for uncollectible accounts
of $1,015 and $1,181 in 2004 and 2003, respectively 10,433 11,339
Receivables, primarily from interexchange carriers, less
allowance for uncollectible accounts of $2,108 and $2,617
in 2004 and 2003, respectively 5,781 5,190
Rural Telephone Finance Cooperative stock to be redeemed - 1,354
Rural Telephone Finance Cooperative patronage capital receivable 600 2,976
Other current assets 3,938 3,873
--------- ---------
Total current assets 36,000 52,875
--------- ---------
Telephone plant and equipment 476,925 472,262
Less accumulated depreciation and amortization (162,202) (150,727)
--------- ---------
Telephone plant and equipment, net 314,723 321,535
--------- ---------
Other assets:
Rural Telephone Finance Cooperative stock, at cost 42,659 42,659
Goodwill 366,332 366,332
Other assets 24,306 23,741
--------- ---------
Total other assets 433,297 432,732
--------- ---------
Total assets $ 784,020 $ 807,142
========= =========
Liabilities and member's capital
Current liabilities:
Accounts payable and accrued expenses $ 31,242 $ 39,898
Other current liabilities 6,302 6,174
Current portion of long-term debt 7,039 6,996
--------- ---------
Total current liabilities 44,583 53,068
--------- ---------
Noncurrent liabilities:
Long-term debt 617,926 630,217
Other liabilities 83,304 84,369
--------- ---------
Total noncurrent liabilities 701,230 714,586
--------- ---------
Total liabilities 745,813 767,654
Member's capital:
Member's interest 251,284 251,284
Accumulated deficit (209,589) (208,308)
Accumulated other comprehensive loss (3,488) (3,488)
--------- ---------
Total member's capital 38,207 39,488
--------- ---------
Total liabilities and member's capital $ 784,020 $ 807,142
========= =========
See Notes to Condensed Consolidated Financial Statements.
1
MADISON RIVER CAPITAL, LLC
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Dollars in thousands)
(Unaudited)
Three Months Ended March 31,
----------------------------
2004 2003
---------- ----------
Operating revenues:
Local services $ 32,693 $ 30,934
Long distance services 3,806 3,814
Internet and enhanced data services 4,840 3,814
Edge-out services 3,131 3,601
Miscellaneous telecommunications service and equipment 4,109 2,977
-------- --------
Total operating revenues 48,579 45,140
-------- --------
Operating expenses:
Cost of services 13,435 11,036
Depreciation and amortization 12,109 12,354
Selling, general and administrative expenses 10,168 9,294
-------- --------
Total operating expenses 35,712 32,684
-------- --------
Net operating income 12,867 12,456
Interest expenses (15,173) (15,669)
Other income, net 865 500
-------- --------
Loss before income taxes (1,441) (2,713)
Income tax benefit 160 346
-------- --------
Net loss (1,281) (2,367)
Other comprehensive (loss) income:
Unrealized losses on marketable equity securities in quarter - (198)
Reclassification adjustment for realized losses included in net loss - 213
-------- --------
Other comprehensive income - 15
-------- --------
Comprehensive loss $ (1,281) $ (2,352)
======== ========
See Notes to Condensed Consolidated Financial Statements.
2
MADISON RIVER CAPITAL, LLC
Condensed Consolidated Statement of Member's Capital
(Dollars in thousands)
Accumulated
Other
Member's Accumulated Comprehensive
Interest Deficit Income (Loss) Total
---------- ----------- ------------- ---------
Balance at December 31, 2003 $ 251,284 $ (208,308) $ (3,488) $ 39,488
Net loss - (1,281) - (1,281)
--------- ---------- ------- --------
Balance at March 31, 2004 (unaudited) $ 251,284 $ (209,589) $ (3,488) $ 38,207
========= ========== ======= ========
See Notes to Condensed Consolidated Financial Statements.
3
MADISON RIVER CAPITAL, LLC
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Three Months Ended March 31,
----------------------------
2004 2003
---------- ----------
Operating activities
Net cash provided by operating activities $ 3,020 $ 3,512
-------- --------
Investing activities
Purchases of telephone plant and equipment (4,945) (1,508)
Redemption of Rural Telephone Finance Cooperative stock, net 1,354 2,039
Change in other assets (21) 344
-------- --------
Net cash (used for) provided by investing activities (3,612) 875
-------- --------
Financing activities
Payments on long-term debt (12,303) (6,728)
-------- --------
Net cash used for financing activities (12,303) (6,728)
-------- --------
Net decrease in cash and cash equivalents (12,895) (2,341)
Cash and cash equivalents at beginning of year 28,143 19,954
-------- --------
Cash and cash equivalents at end of first quarter $ 15,248 $ 17,613
======== ========
See Notes to Condensed Consolidated Financial Statements.
4
MADISON RIVER CAPITAL, LLC
Notes To Condensed Consolidated Financial Statements
(Unaudited)
1. GENERAL
Madison River Capital, LLC (the "Company"), a wholly-owned subsidiary of
Madison River Telephone Company LLC ("MRTC"), was organized on August 26,
1999 as a limited liability company under the provisions of the Delaware
Limited Liability Company Act. Under the provisions of this Act, the member's
liability is limited to the Company's assets provided that the member returns
to the Company any distributions received. The Company offers a variety of
telecommunications services to business and residential customers in the
Southeast and Midwest regions of the United States including local and long
distance voice, high speed data, Internet access and fiber transport.
The primary purpose for which the Company was founded was the
acquisition, integration and operation of rural local exchange telephone
companies ("RLECs"). Since January 1998, the Company has acquired four RLECs
located in North Carolina, Illinois, Alabama and Georgia. These RLECs served
approximately 216,100 voice access and DSL connections as of March 31, 2004.
The Company's RLECs manage and operate an edge-out competitive local
exchange carrier ("CLEC") business serving business customers primarily in
markets in North Carolina, Illinois and Louisiana, and that also provides
fiber transport services to other businesses, primarily in the Southeast.
These operations are referred to as Edge-Out Services, or EOS. The EOS
markets were developed in close proximity, or edged-out, from the RLEC
operations by utilizing a broad range of experienced and efficient resources
provided by the RLECs. At March 31, 2004, the EOS operations served
approximately 14,700 voice access and high speed data connections.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of the Company and its wholly-owned and majority-owned
subsidiaries as follows:
* Gallatin River Holdings, LLC and its subsidiary ("GRH"), a wholly-owned
subsidiary
* Madison River Communications, LLC and its subsidiary ("MRC"), a wholly-
owned subsidiary
* Madison River Holdings Corp. ("MRH"), a wholly-owned subsidiary
* Madison River LTD Funding Corp. ("MRLTDF"), a wholly-owned subsidiary
* Mebtel, Inc. ("Mebtel"), a wholly-owned subsidiary
* Gulf Coast Services, Inc. and its subsidiaries ("GCSI"), a wholly-
owned subsidiary
* Coastal Communications, Inc. and its subsidiaries ("CCI"), a
majority-owned subsidiary
* Madison River Management, LLC ("MRM"), a wholly-owned subsidiary
* Madison River Long Distance Solutions, Inc. ("MRLDS"), a wholly-owned
subsidiary
* Mebtel Long Distance Solutions, Inc. ("MLDS"), a wholly-owned
subsidiary
These financial statements have been prepared by the Company in
accordance with generally accepted accounting principles for interim
financial information and are in the form prescribed by the Securities and
Exchange Commission in instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The interim unaudited financial statements should be read in
conjunction with the audited financial statements of the Company as of and
for the year ended December 31, 2003. Such financial statements are included
in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2003 filed with the Securities and Exchange Commission on March
30, 2004. The amounts presented in the condensed consolidated balance sheet
as of December 31, 2003 were derived from the audited financial statements
included in the Form 10-K. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary for a
fair presentation have been included. Operating results for the three-month
period ended March 31, 2004 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2004.
Certain amounts in the 2003 condensed consolidated financial statements
have been reclassified to conform to the 2004 presentation. These
reclassifications had no effect on net loss or member's capital as previously
reported.
5
MADISON RIVER CAPITAL, LLC
Notes To Condensed Consolidated Financial Statements, Continued
(Unaudited)
3. TELEPHONE PLANT AND EQUIPMENT
Telephone plant and equipment consisted of the following:
March 31, December 31,
2004 2003
--------- ------------
(in thousands)
Land, buildings and general equipment $ 53,963 $ 53,652
Central office equipment 159,690 157,572
Poles, wires, cables and conduit 232,338 230,772
Leasehold improvements 2,536 2,533
Software 18,679 18,600
Construction-in-process 9,719 9,133
--------- ---------
Total telephone plant and equipment $ 476,925 $ 472,262
========= =========
4. RESTRUCTURING CHARGE
In the fourth quarter of 2001, a subsidiary of the Company, MRC, recorded
a $2.8 million restructuring charge associated with the subsidiary's decision
to reduce its sales and marketing efforts and eliminate redundant support
services. The charge was recognized in accordance with EITF 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring)." The
amounts recorded consist primarily of the costs associated with future
obligations on non-cancelable leases for closed sales offices, redundant
network operations centers and future switching facilities, net of any
estimated sublease income, losses from the abandonment of fixed assets and
leasehold improvements associated with those leased facilities and legal
related expenses. As of March 31, 2004, the following amounts were recorded
related to this restructuring charge:
2004
Balance at first quarter Balance at
December 31, 2003 payments March 31, 2004
----------------- ------------- --------------
(in thousands)
Future lease obligations $ 542 $ 41 $ 501
Legal related expenses 31 - 31
------ ----- ------
$ 573 $ 41 $ 532
====== ===== ======
In the third quarter of 2002, in completing the development of the EOS as
a true edge-out CLEC operations, the Company realigned each of the EOS's
operating regions in North Carolina, Illinois and New Orleans under the
Company's RLECs in those respective regions. The RLECs assumed
responsibility for managing and directing the EOS operations in those
regions. Correspondingly, the Company recognized a restructuring charge of
$2.8 million related to the realignment for the elimination of redundant
management, marketing and support services and the structuring of a more
efficient network. The charge was recognized in accordance with EITF 94-3.
The amounts recorded consisted primarily of the costs associated with future
obligations on non-cancelable leases for certain facilities that will no
longer be used, net of estimated sublease income, losses from the abandonment
of fixed assets and leasehold improvements associated with those leased
facilities, expenses associated with the elimination of thirty employees and
related expenses. As of March 31, 2004, the following amounts were recorded
related to this restructuring charge:
2004
Balance at first quarter Balance at
December 31, 2003 payments March 31, 2004
----------------- ------------- --------------
(in thousands)
Future lease obligations $ 271 $ 25 $ 246
====== ===== ======
The remaining liability as of March 31, 2004 is recorded as $0.3 million in
accrued expenses and $0.5 million in other long-term liabilities.
6
MADISON RIVER CAPITAL, LLC
Notes To Condensed Consolidated Financial Statements, Continued
(Unaudited)
5. LONG-TERM DEBT AND LINES OF CREDIT
Long-term debt and lines of credit outstanding consist of the following at:
March 31, December 31,
2004 2003
---------- ------------
(in thousands)
First mortgage notes collateralized by substantially all LTD assets:
RTFC note payable in quarterly principal installments plus interest
through November 2016, interest accrued at RTFC's base variable
rate plus 1.00% (5.20% at March 31, 2004). $ 11,680 $ 11,680
RTFC note payable in quarterly principal installments plus interest
through November 2016, interest accrued at a fixed annual rate
of 5.65% (rate expires August 2006). 5,924 5,924
RTFC note payable in quarterly principal installments plus interest
through November 2016, interest accrued at a fixed annual rate
of 5.65% (rate expires August 2006). 951 951
RTFC note payable in quarterly principal installments plus interest
through November 2016, interest accrued at a fixed annual rate
of 6.95% (rate expires November 2004). 102,486 102,486
RTFC note payable in quarterly principal installments plus interest
through November 2016, interest accrued at a fixed annual rate
of 5.65% (rate expires August 2006). 5,557 5,557
RTFC note payable in quarterly principal installments plus interest
through November 2016, interest accrued at a fixed annual rate
of 5.65% (rate expires August 2006). 67,384 67,384
RTFC note payable in quarterly principal installments plus interest
through November 2016, interest accrued at a fixed annual rate
of 5.65% (rate expires August 2006). 3,544 3,544
RTFC note payable in quarterly principal installments plus interest
through November 2016, interest accrued at a fixed annual rate
of 9.05% (rate expires October 2004). 122,063 122,063
RTFC note payable in quarterly principal installments plus interest
through November 2016, interest accrued at a fixed annual rate
of 5.65% (rate expires August 2006). 7,778 7,778
RTFC note payable in quarterly principal installments plus interest
through November 2016, interest accrued at a fixed annual rate
of 9.0% (rate expires April 2005). 99,226 99,226
RTFC secured line of credit loan, maturing March 2005 with interest
Payments due quarterly at the RTFC's line of credit base rate plus
0.5% (5.20% at March 31, 2004). - 10,000
Mortgage note payable due in January 2004, interest at a fixed rate of 8%,
secured by land and building. - 2,303
Unsecured 13 1/4% senior notes payable, due March 1, 2010, with interest
Payable semiannually on March 1 and September 1, net of debt discount
of $2,021 and $2,076, respectively. 197,979 197,924
Convertible note payable to related party 393 393
-------- --------
624,965 637,213
Less current portion 7,039 6,996
-------- --------
$ 617,926 $ 630,217
======== ========
7
MADISON RIVER CAPITAL, LLC
Notes To Condensed Consolidated Financial Statements, Continued
(Unaudited)
5. LONG-TERM DEBT AND LINES OF CREDIT, Continued
The loan facilities provided by the RTFC are primarily with MRLTDF. In
July 2003, MRLTDF executed an amendment to its loan agreement with the RTFC
(the "Amendment"). Under the terms of the Amendment, the loan agreement was
extended to November 2016. The Amendment also provided a reduction in
scheduled principal payments through 2010. Quarterly principal payments
through 2010 are $2.3 million with the first scheduled principal payment
occurring in the third quarter of 2004. Beginning in 2011, scheduled
principal payments increase, ranging from $8.9 million to $17.5 million per
quarter through the end of 2016. The Company continues to make quarterly
interest payments to the RTFC. Annually, beginning in 2005, the Company will
be required to calculate excess cash flow, as defined in the Amendment, for
the RLECs subject to the loan agreement using the preceding year's financial
results. If the calculation indicates excess cash flow, the Company will be
required to make a mandatory prepayment of principal to the RTFC equivalent
to the amount of excess cash flow. Such mandatory prepayment will be made in
the second quarter of the year in which the calculation is made.
Under the Amendment, interest rates on the outstanding term loans are at
their prevailing RTFC fixed or variable base rate plus a 1.0% interest rate
adder. Prior to the Amendment, interest rates on these term loans were at
the prevailing RTFC fixed or variable base rate plus interest rate adders
ranging from 0.35% to 0.75%. The 1.0% interest rate adder is subject to
performance pricing which will provide for a reduction in the interest rate
adder as the Total Leverage Ratio, as defined in the Amendment, decreases.
The prior interest rate adders had no performance pricing associated with
them. In addition, the financial ratio requirements were revised under the
Amendment including requiring annual RTFC approval of a three-year rolling
capital expenditure budget and obtaining RTFC consent for any acquisitions or
disposals of local exchange assets.
The terms of the RTFC loan agreement, including the Amendment, contain
various financial and administrative covenants that are tested on an annual
basis. The covenants are based on the combined financial results of MRLTDF
and its subsidiaries, GRH, MRLDS and MLDS. In addition, among other things,
these combined entities are restricted in their ability to (i) declare or pay
dividends to their respective parents, under specified circumstances, (ii)
limited in their ability to make intercompany loans or enter into other
affiliated transactions, (iii) sell assets and make use of the proceeds, and
(iv) incur additional indebtedness above certain amounts without the consent
of the RTFC. At March 31, 2004, the Company was in compliance with the terms
and conditions of the loan agreement.
Prior to the Amendment, the loan facilities were secured by a first
mortgage lien on the operating assets and revenues of GRH and MRLTDF and its
subsidiaries consisting of Mebtel, GCSI, CCI and MRM. In addition,
substantially all of the outstanding equity interests of the RLECs were
pledged in support of the facilities. As part of the Amendment, the RTFC was
additionally granted a first mortgage lien on the assets of MRH, MLDS and
MRLDS and the equity interests in those entities were pledged in support of
the loan facilities thereby providing the RTFC a security interest in all of
the assets, revenues and substantially all of the equity interests of the
RLECs. In addition, as provided for in the Amendment, in the event that the
senior notes are retired, the Company will grant the RTFC a first mortgage
lien on the operating assets and revenues of MRC.
MRLTDF has an undrawn $31.0 million secured revolving line of credit with
the RTFC that is fully available and expires in March 2005. Interest is
payable quarterly at the RTFC's line of credit base rate plus 0.5% per annum.
At December 31, 2003, MRLTDF had drawn down $10.0 million under this line of
credit, which was repaid during the first quarter of 2004.
The Company also has an undrawn $10.0 million line of credit that is
fully available to Coastal Utilities, Inc., a subsidiary of CCI, that expires
in March 2005. This line of credit contains an annual paydown provision
which requires that the balance outstanding against the line of credit be
reduced to zero for five consecutive days in every 360-day period. Interest
is payable quarterly at the RTFC's line of credit base rate plus 1.0% per
annum. Effective April 30, 2004, as required by the Amendment, MRLTDF
granted the RTFC a first lien security interest in the assets of Coastal
Utilities, Inc. to secure this line of credit.
8
MADISON RIVER CAPITAL, LLC
Notes To Condensed Consolidated Financial Statements, Continued
(Unaudited)
5. LONG-TERM DEBT AND LINES OF CREDIT, Continued
The Company has outstanding 131/4% senior notes that mature in March 2010
and have semiannual interest payments due on March 1 and September 1 of each
year. Under the terms of the indenture that governs the senior notes, the
Company must comply with certain financial and administrative covenants. The
Company is, among other things, restricted in its ability to (i) incur
additional indebtedness, (ii) pay dividends, (iii) redeem or repurchase
equity interests, (iv) make various investments or other restricted payments,
(v) create certain liens or use assets as security in other transactions,
(vi) sell certain assets or utilize certain asset sale proceeds, (vii) merge
or consolidate with or into other companies or (viii) enter into transactions
with affiliates. At March 31, 2004, the Company was in compliance with the
terms of its indenture.
The Company had a note payable to the former shareholders of Coastal
Utilities that was secured by land and buildings used in Coastal Utilities
operations. The note bore interest at 8% and was fully repaid in January
2004.
The Company has a convertible note payable to a member of MRTC with an
outstanding principal balance of $0.4 million as of March 31, 2004. The note
payable accrues interest at 8% per annum. The principal amount and unpaid
interest are due in October 2011. The note is unsecured and, at any time
prior to the payment of the entire principal amount, the holder may convert
all unpaid principal and accrued interest into Class A members' equity of
MRTC.
6. BENEFIT PLANS
Net periodic benefit costs for the Company's pension plan and other
postretirement benefit plans for the quarters ended March 31, 2004 and 2003
are as follows:
Defined benefit pension plan Other postretirement benefits
March 31, March 31, March 31, March 31,
2004 2003 2004 2003
--------- --------- --------- ---------
(in thousands)
Service cost $ 98 $ 105 $ 12 $ 9
Interest cost 187 172 26 24
Expected return on plan assets (190) (148) - -
Amortization of net loss (gain) 79 24 (37) (39)
Amortization of prior service cost - - (21) (24)
----- ----- ----- -----
Total net periodic benefit cost $ 174 $ 153 $ (20) $ (30)
===== ===== ===== =====
The Company expects to contribute approximately $2.1 million to its
pension plan in 2004. The Company made a contribution of $0.5 million in
January 2004.
During the first quarter of 2003, the Company notified its employees who
are not members of bargaining units that the accrual of benefits in the non-
contributory, defined benefit pension plan, sponsored by MRTC, in which the
employees participated was frozen effective February 28, 2003. As a result
of this action, Statement of Financial Accounting Standards No. 88,
Employer's Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits became effective. The curtailment
resulted in an immediate net gain of $2.8 million, of which $2.7 million was
recognized as a reduction of pension expenses in the first quarter and $0.1
million as a reduction of capital expenditures. The impact of the gain was
allocated between the Company and its subsidiaries, who also participate in
the plan. Although the accrual of benefits in the pension plan is frozen,
the Company has a continuing obligation to fund the plan and will continue to
recognize an annual net periodic pension expense while the plan is still in
existence.
9
MADISON RIVER CAPITAL, LLC
Notes To Condensed Consolidated Financial Statements, Continued
(Unaudited)
7. SEGMENT INFORMATION
The Company offers a variety of telecommunications services to business
and residential customers including local and long distance voice, high speed
data, Internet access and fiber transport. In accordance with the
requirements of Statement of Financial Accounting Standards No. 131,
Disclosure about Segments of an Enterprise and Related Information, ("SFAS
131") the Company's operations are classified into two reportable business
segments. The first segment consists of the Company's four RLECs that
provide regulated and nonregulated telecommunication services in their
franchised territories. The second segment consists of the EOS operations
that are in close proximity to the RLEC territories and are managed and
operated as a line of business of the RLECs. Although both segments provide
similar types of telecommunication services, are operated and managed by
common management teams and share common resources, certain differences exist
in the businesses of the RLECs and the EOS that the Company has evaluated to
indicate two segments. Included in these differences between the RLECs and
the EOS are: (i) the extent to which each segment's operations are regulated,
(ii) different approaches in the way each segment markets its services, (iii)
positions within their respective markets and therefore how they price their
services and (iv) composition of each segment's customer base. In addition,
each segment's financial and operating results are evaluated separately by
the chief operating decision maker of the Company. Periodically, the Company
will analyze these factors, among others, to determine the appropriate
reportable business segments required under SFAS 131.
The Company's two reportable segments follow the same accounting
principles and policies used for the Company's consolidated financial
statements. Revenues by product line are disclosed in the Consolidated
Statement of Operations. The RLEC generates revenues from the provision of
local and long distance voice services, Internet and enhanced data services
and miscellaneous services. The EOS generates revenues from provision of
local and long distance voice services, Internet and enhanced data services,
transport services and miscellaneous services. All operations and assets are
located in the United States. The following tables summarize the revenues
and net operating income for each segment for the three month periods ended
March 31, 2004 and 2003:
Three month period ended
--------------------------
March 31, March 31,
2004 2003
--------- ---------
(in thousands)
Total revenues:
RLEC operations $ 46,113 $ 42,203
EOS 3,163 3,616
------- -------
49,276 45,819
Less intersegment revenues (697) (679)
------- -------
Total reported revenues $ 48,579 $ 45,140
======= =======
Net operating income (loss):
RLEC operations $ 15,733 $ 15,031
EOS (2,866) (2,575)
------- -------
Total reported net operating
income $ 12,867 $ 12,456
======= =======
At March 31, 2004 and December 31, 2003, total assets by segment, net of
intersegment investments and other intersegment balances, were as follows:
March 31, December 31,
2004 2003
--------- ------------
(in thousands)
Total assets:
RLEC operations $ 827,202 $ 868,472
EOS 443,236 432,326
---------- ----------
1,270,438 1,300,798
Less intersegment assets (486,418) (493,656)
---------- ----------
Total reported assets $ 784,020 $ 807,142
========== ==========
10
MADISON RIVER CAPITAL, LLC
Notes To Condensed Consolidated Financial Statements, Continued
(Unaudited)
8. RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities" ("VIEs"), the primary objective
of which is to provide guidance on the identification of entities for which
control is achieved through means other than voting rights and to determine
when and which business enterprise should consolidate the VIEs. This new
model applies when either (1) the equity investors (if any) do not have a
controlling financial interest or (2) the equity investment at risk is
insufficient to finance the entity's activities without additional financial
support. FIN 46 also requires additional disclosures. The Interpretation was
effective immediately for interests acquired subsequent to January 31, 2003
and was effective March 31, 2004 for interests in VIEs created before
February 1, 2003. The Company has not obtained an interest in any VIEs since
January 31, 2003. The Company determined that an unconsolidated company in
which it holds an investment accounted for under the equity method is a VIE
under FIN 46 but the Company is not the primary beneficiary of the VIE. As a
result, the provisions of FIN 46 did not have an impact on the Company's
financial condition or results of operations.
11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements in this Form 10-Q constitute "forward-looking
statements" that involve risks and uncertainties. Forward-looking statements
generally can be identified by the use of forward-looking words such as
"may," "will," "expect," "intend," "estimate," "anticipate," "plan," "seek"
or "believe," or by discussion of strategy that involves risks and
uncertainties. We believe that the expectations reflected in such forward-
looking statements are accurate. However, we cannot assure you that such
expectations will occur. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of various
factors, including, but not limited to:
* the competition in, and the financial stability of, the
telecommunications industry;
* the passage of legislation, court decisions or regulatory changes
adversely affecting the telecommunications industry;
* our ability to repay our outstanding indebtedness;
* our ability to raise additional capital on acceptable terms and on a
timely basis; and
* the advent of new technology.
For more information, see the "Risk Factors" section beginning on page
18 of our Annual Report on Form 10-K for the fiscal year ended December 31,
2003 (File No. 333-36804) filed with the Securities and Exchange Commission.
Except as required by law, we are not obligated to publicly release any
revisions to these forward-looking statements to reflect events or
circumstances occurring after the filing of this Form 10-Q or to reflect the
occurrence of unanticipated events.
References in this Form 10-Q to "we," "us" and "our" mean Madison River
Capital, LLC and its subsidiaries.
Overview
We are an established RLEC providing communications services and
solutions to business and residential customers in the Southeast and Midwest
regions of the United States. Our integrated service offerings include local
and long distance voice, high-speed data, Internet access and fiber
transport. At March 31, 2004, we had 230,809 voice, DSL and high speed data
connections in service.
Our RLECs are located in North Carolina, Illinois, Alabama and Georgia.
We also provide edge-out services as a CLEC in territories that are in close
proximity to our RLECs. We currently provide edge-out services to medium and
large customers in three markets: (i) the Triangle (Raleigh, Durham and
Chapel Hill) and the Triad (Greensboro and Winston-Salem) in North Carolina;
(ii) Peoria and Bloomington in Illinois and (iii) New Orleans, Louisiana and
nearby cities. The management and operating responsibility for the edge-out
operations are provided by the managers of the respective RLECs.
As part of our edge-out services, we maintain a 2,300 route mile fiber
optic network, the majority of which comprises a long-haul network in the
southeast United States that connects Atlanta, Georgia and Dallas, Texas, two
of the five Tier I Network Access Points. Further, the route connects other
metropolitan areas such as Mobile and Montgomery, Alabama; Biloxi,
Mississippi; New Orleans, Louisiana; and Houston, Texas. We have designated
Atlanta and Dallas as our Internet egress points. We use our fiber optic
network to support our dial-up, DSL and high speed Internet services provided
in our RLEC operations and our edge-out services which use our network to
connect to the Internet. Because we have found the fiber transport business
to be extremely competitive and price driven, we do not anticipate actively
expanding this line of business at this time.
The objective of our current business plan is to maintain and grow our
cash flows and to be a leading provider of telecommunications services in our
operating markets in the Southeast and Midwest. Since our inception, our
principal activities have been the acquisition, integration, operation and
improvement of our RLECs. In acquiring our four RLECs, we purchased
businesses with positive cash flow, government and regulatory authorizations
and certifications, operating support systems, management and key personnel
and facilities. Our RLECs are continuing to develop these established
markets with successful marketing of vertical services and DSL, primarily
through bundling of products, and is controlling expenses through the use of
business process management tools and other methods. In our edge-out
services, our strategy is to maintain sustainable positive cash flow from
this line of
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business and to continue the development of a profitable customer base. We
have established rigorous criteria for evaluating new customers and the
desirability of renewing existing contracts.
Factors Affecting Future Operations
The following is a discussion of the primary factors that we believe will
affect our operations over the next few years.
Revenues
To date, our revenues have been derived principally from the sale of
voice and data communications services to business and residential customers
in our established RLEC markets. For the quarter ended March 31, 2004,
approximately 93.6% of our operating revenues came from our RLEC operations
and 6.4% from our edge-out services. For the fourth quarter ended December
31, 2003, approximately 93.1% of our operating revenues came from our RLEC
operations and 6.9% from our edge-out services. We intend to focus on
continuing to generate increasing revenues in our RLEC operations and edge-
out services from voice services (local and long distance), Internet access
and enhanced data and other services. The sale of communications services to
customers in our RLEC markets will continue to provide the predominant share
of our revenues for the foreseeable future. We do not anticipate significant
growth in revenues from our edge-out services as we continue to focus on a
business plan that provides sustainable positive cash flows from that line of
business. Our transport business, which provides services to other carriers
and major accounts, will grow revenues only if certain profit margins are
obtained without making significant additional capital investments and will
primarily continue to support our retail Internet service business.
At March 31, 2004, we had 230,809 connections in service compared to
222,868 connections in service at March 31, 2003, an increase of 7,941
connections or 3.6%. Our RLEC operations had 216,099 connections in service
at March 31, 2004 and 206,240 connections in service at March 31, 2003, an
increase of 9,859 connections or 4.8%. For the edge-out services,
connections in service at March 31, 2004 and March 31, 2003 were 14,710 and
16,628, respectively, a decrease of 1,918 connections or 11.5%.
The services we offer to customers may be purchased separately, but are
increasingly being included in a package with selected other service
offerings, often referred to as bundling, and sold at a discount. An
important part of our sales and marketing strategy for our RLECs emphasizes
the bundling of services and the benefits it provides to our customers. We
have recently introduced a residential bundled offering which we have branded
as our "No Limits" package. The "No Limits" bundle is marketed to our
residential customers at approximately $85 per month, with the price varying
slightly by location. Customers sign a one-year service agreement with this
bundled package. The "No Limits" package offers:
* unlimited local telephone service;
* unlimited nationwide long distance;
* unlimited use of our most popular custom calling features including
caller identification and voicemail; and
* unlimited use of our high-speed DSL service for Internet access.
After a successful introduction in our North Carolina market in July, the
"No Limits" bundled offering was introduced in each of our other three RLEC
markets in the latter part of the fourth quarter of 2003. Our results show
that the "No Limits" package has been successful in increasing penetration
rates in services such as DSL and long distance and we expect this trend to
continue during 2004. Many of our customers selecting the "No Limits"
package are new DSL subscribers and long distance customers and this has led
to an overall increase in our average revenue per unit. We intend to
continue to offer other combined service discounts and programs designed to
give customers incentives to buy bundled services.
The number of DSL subscribers we serve in our RLECs has continued to
increase. With the introduction of our "No Limits" package, we have seen the
rate of net additions in DSL subscribers accelerate in the first quarter of
2004 compared to prior quarters. We believe we have been successful in
addressing competition from new high speed Internet access product
introductions, particularly by cable operators, in our markets in recent
years. We believe that the execution of our strategy and our ability to
deliver a quality DSL product at a competitive price and in a timely manner
has made us the provider of choice in our markets. Although we cannot be
certain, we anticipate that our DSL product will continue to provide a source
of increasing revenues for our RLECs in future quarters although we don't
expect to maintain the rate of net additions that we have experienced in the
first quarter of 2004. As of March 31, 2004, we had 30,646 DSL connections
in service, an increase of 6,465 connections from 24,181 DSL connections in
service at December 31, 2003 and an increase of 12,711 connections from
17,935 DSL connections in service at March 31, 2003. Our penetration rate
for installed DSL connections reached 16.5% of our RLEC voice access lines at
March 31, 2004 compared to 13.0% at December 31, 2003 and 9.5% at March 31,
2003.
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As we have increased the number of DSL connections we serve, we have
experienced a decrease in the number of dial-up Internet accounts we service.
At March 31, 2004, we had 20,663 dial-up Internet customers which was a
decrease of 6,255 customers, or 23.2%, from 26,918 dial-up Internet customers
at March 31, 2003. We believe that a large percentage of the decrease in
dial-up Internet customers is the result of customers migrating from our
dial-up Internet service to our high-speed DSL.
We have also been successful in growing other revenues in our RLECs
including the provision of long distance and vertical services to our
customers. At March 31, 2004, we had 99,172 long distance accounts compared
to 93,229 long distance accounts at March 31, 2003. In addition, our
penetration rates for voicemail, caller identification, call waiting and call
forwarding have increased over March 31, 2003.
In recent quarters, we have seen a decline in the number of voice access
lines in service in our RLECs. For the quarter ended March 31, 2004, the
RLECs finished with 185,453 voice access lines in service, which is a
decrease of 2,852 voice access lines from 188,305 voice access lines in
service at March 31, 2003. Approximately 78.2% of the decrease in voice
access lines is the result of a decrease in second lines in service. We
believe this is the result of our existing customers migrating from our dial-
up Internet service where they also purchase a second line to our DSL service
where they no longer need a second line. Therefore, as we increase the
number of DSL connections we serve, correspondingly, we are experiencing a
decrease in the number of second lines we serve. At March 31, 2004, we have
approximately 7,530 second lines remaining in service. In addition, our
Illinois operations accounted for all of our losses of primary voice access
lines, defined as total voice access lines less second lines. A persistent
weakness in the local economies that Gallatin River Communications in
Illinois serves has led to unemployment and certain business losses and,
therefore, a decline in voice access lines served in this market. We are
uncertain at this time regarding the trend for voice access lines in this
market in the near future. Our remaining three RLECs showed growth in the
number of primary voice access lines served at March 31, 2004 when compared
to March 31, 2003.
In March 2004, military officials at Fort Stewart in Hinesville, Georgia,
announced that the 3rd Infantry Division stationed there has received orders
to prepare for a full deployment by February 2005. Our RLEC, Coastal
Utilities, Inc., serves the Hinesville area including the military base. We
are currently gathering information regarding this deployment and plan to
assess the impact on our operations and cash flows at a future date. The
full extent of the impact on our operations is difficult to predict and will
vary depending on, among other factors, the duration of the troop deployment.
As many details regarding this troop deployment are unavailable at this time,
we are unable to project the range of the impact of this deployment on
Coastal Utilities or our operations as a whole.
We are currently in the preliminary stages of assessing the potential
benefits of adding video services to the suite of products we offer to our
customers. Since we are early in the planning process, at this time we are
not certain what types of video services we may offer, if any, or what types
of technology we may use to deliver these services to our customers.
We have experienced a decrease in revenues from our edge-out services in
the first quarter of 2004 compared to the first quarter of 2003 as new sales
of services and renewals of expiring customer contracts have not been enough
to replace customers that do not continue with our service. At March 31,
2004, our edge-out services had 14,030 voice access lines and 680 high speed
data connections in service. At March 31, 2003, our edge-out services served
15,911 voice access lines and 717 high-speed data connections. The decrease
in voice access lines is attributed primarily to the loss of one customer in
North Carolina as the result of a merger. We are focusing our efforts on
only adding customers that meet certain profitability criteria and on
increasing our profitability and margins for services provided to existing
customers when renegotiating their contracts at expiration.
Bankruptcies by interexchange carriers in recent years, including MCI
WorldCom and Global Crossing, have impacted our financial results including
our revenues and cash flows. The final resolution of these bankruptcies
through the legal process and/or any regulatory changes that may arise from
these events may have a material impact on our business. Without additional
clarification or regulatory changes that recognize the additional financial
burdens placed on LECs, we may be unable to appropriately protect ourselves
against the financial impact associated with any future bankruptcies of
interexchange carriers or other telecommunication providers.
Expenses
With the completion of each of our four RLEC acquisitions in 1998, 1999
and 2000, we focused on integrating the acquired operations into our existing
business and on identifying opportunities to leverage off of common resources
and to use best practices to increase productivity and efficiencies in our
operations. To accomplish this, we implemented business process management
tools and we shared information on successful operating practices across the
enterprise. We have centralized many of our business and back office
functions, including network management, network operations, information
technology, procurement, regulatory, finance, accounting, legal and human
resources. Accordingly, we experienced fairly significant decreases in
operating expenses in our RLEC
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operations in recent years. More recently, the rate at which operating
expenses in the RLECs were decreasing has slowed, producing fairly comparable
results from period to period. We seek to maintain the expense reductions
that we have achieved in the RLECs in recent years.
Our edge-out services have been focused on achieving sustainable positive
cash flow. An important part of this strategy was the decision, in the
fourth quarter of 2001, to slow the rate at which we were adding new voice
and high speed data connections in the edge-out services. With slower
planned growth, fewer sales personnel were needed and, as a result, fewer
provisioners, sales engineers, customer care and other support personnel were
required. In addition, certain fixed facility and overhead costs were
reduced or eliminated. To facilitate our strategy of slower planned growth,
we also completed the transformation of the edge-out services as a true edge-
out CLEC by placing the responsibility for managing and operating the edge-
out service markets with the managers of our respective RLECs. This allowed
for additional reductions in operating expenses as we were able to eliminate
a number of redundant operations in the edge-out services. We also groomed
our network to reduce the costs of delivering services to customers by
replacing more expensive special access circuits with circuits provided for
in our interconnection agreements with the incumbent local exchange carriers.
In combination, these adjustments led to significant decreases in operating
expenses in our edge-out services. Since the fourth quarter of 2002,
operating expenses in our edge-out services have remained relatively
consistent. In the near term, barring any unforeseen events, we expect that
further decreases in operating expenses, if any, should be minimal.
Our primary operating expenses consist of cost of services, selling,
general and administrative expenses and depreciation and amortization.
Cost of services
Our cost of services includes:
* plant specific costs and expenses, such as network and general support
expense, central office switching and transmission expense, information
origination/termination expense and cable and wire facilities expense;
* plant nonspecific costs, such as testing, provisioning, network,
administration, power and engineering;
* the cost of leasing unbundled copper loop lines and high capacity digital
lines from the ILECs to connect our customers and other carriers'
networks to our network;
* the cost of leasing transport from ILECs or other providers where our
fiber transport capacity is not available; and
* the cost of collocating in ILEC central offices.
We have a resale agreement with Global Crossing to provide long distance
transmission services. This agreement contains minimum volume commitments.
Although we believe that we will meet these commitments, we may not be
successful in generating adequate long distance business to absorb our
minimum volume commitment and will be required to pay for long distance
transmission services that we are not using. We renewed our agreement with
Global Crossing during the third quarter of 2003 on a long-term basis with
lower minimum volume commitments than existed in the previous contract.
We have entered into interconnection agreements with BellSouth, Verizon,
Sprint and SBC which allow, among other things, the edge-out services to
lease unbundled network elements from these ILECs, at contracted rates
contained in the interconnection agreements. We use these network elements
to connect our edge-out services customers with our network. Other
interconnection agreements may be required by our edge-out services. In
addition, the edge-out services currently has the necessary certifications to
operate in the states where it has customers.
Selling, general and administrative expenses
Selling, general and administrative expenses include:
* selling and marketing expenses;
* expenses associated with customer care;
* billing and other operating support systems; and
* corporate expenses.
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We market our business services through agency relationships and
professional sales people. We market our consumer services primarily through
our professional customer sales and service representatives. We offer
competitive compensation packages including sales commissions and incentives.
We have operating support and other back office systems that we use to
enter, schedule, provision and track customer orders, test services and
interface with trouble management, inventory, billing, collection and
customer care service systems for the access lines in our operations. We may
review and consider the benefits offered by the latest generation of systems,
and, if we implement new systems, we expect that our operating support
systems and customer care expenses may increase.
Depreciation and amortization expenses
We recognize depreciation expense for our telephone plant and equipment
that is in service and is used in our operations, excluding land which is not
depreciated. Our regulated RLEC operations use straight-line rates approved
by the public utility commissions in the states where we have regulated
telephone plant in service. In our unregulated RLEC operations and in our
edge-out services, telephone plant and equipment is depreciated over lives,
determined according to the class of the asset, ranging from three years to
33 years.
Amortization expense is recognized primarily for our intangible assets
considered to have finite lives on a straight-line basis. In accordance with
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"), goodwill and intangible assets deemed to have
indefinite lives are no longer permitted to be amortized but are subject to
impairment tests at least annually in accordance with the tenets of SFAS 142.
Summary
Our actual future operating results may differ from our current
projections, and those differences may be material. Our revenues may not
increase or even continue at their current levels, and we may not achieve or
maintain our target levels for expenses or profitability. We may not be able
to generate cash from operations in future periods at the levels we currently
project or at all. We anticipate that in the next year, most of our capital
expenditures will be directed at maintaining our existing networks and
accommodating growth in demand for our services, primarily from high speed
Internet access services.
Results of Operations
Quarter Ended March 31, 2004 compared to Quarter Ended March 31, 2003
Total revenues for the quarter ended March 31, 2004 were $48.6 million,
an increase of $3.5 million, or 7.6%, from total revenues of $45.1 million
for the quarter ended March 31, 2003. The increase is attributable to a $4.0
million increase in revenues in the RLEC operations that was partially offset
by a decrease of $0.5 million in revenues from edge-out services. For the
first quarter of 2004, the RLEC operations reported revenues of $45.5
million, an increase of $4.0 million, or 9.4%, from revenues in the first
quarter of 2003 of $41.5 million. The increase in revenues consists
primarily of a $1.8 million increase in local service revenues, a $1.0
million increase in Internet and enhanced data revenues and a $1.1 million
increase in miscellaneous telecommunications revenues. The increase in local
service revenues is primarily the result of higher network access revenues in
the RLECs as access minutes of use have increased 4.9% in the first quarter
of 2004 compared to the first quarter of 2003. In addition, approximately
$1.0 million of the increase in network access revenues is attributed to non-
recurring revenues from wireless settlements and other carrier access
revenues. The increase in Internet and enhanced data revenues is attributed
to an increase in DSL connections. DSL connections at March 31, 2004
increased approximately 12,711 connections, or 70.9%, from DSL connections at
March 31, 2003. Much of the growth in DSL connections is the result of the
Company's new No Limits bundled offering. The Company introduced the No
Limits package in its North Carolina market during the third quarter of 2003.
Based on our successful results with this offering in North Carolina, the
Company introduced the No Limits package in its remaining three RLECs during
the fourth quarter of 2003 where it has also received strong market
acceptance. The increase in miscellaneous telecommunications service and
equipment revenues is attributed largely to higher revenues of approximately
$0.6 million from one-time construction projects and a decrease in
uncollectibles of $0.3 million. Revenues in the edge-out services in the
first quarter of 2004 were $3.1 million, a decrease of $0.5 million, or
13.1%, from revenues of $3.6 million in the first quarter of 2003. A
decrease in local service revenues represented approximately 91.7% of the
total decrease in revenues in the edge-out services. The decrease in local
service revenues is attributed primarily to a decrease in the number of voice
access lines in service during the first quarter of 2004 compared to the same
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period in 2003. At March 31, 2004, the edge-out services had 14,030 voice
access lines in service, a decrease of 1,881 voice access lines, or 11.8%
from voice access lines in service at March 31, 2003.
Revenues from voice services, which are comprised of local, network
access and long distance services, as a percentage of total revenues, were
approximately 79.2% and 82.2% for the quarters ended March 31, 2004 and 2003,
respectively. The RLEC operations and the edge-out services provided
approximately 93.6% and 6.4% of total revenues, respectively in the first
quarter of 2004.
Total operating expenses increased $3.0 million from $32.7 million, or
72.4% of total revenues in the first quarter of 2003, to $35.7 million, or
73.5% of total revenues in the first quarter of 2004. The increase is
attributable to an increase in operating expenses in the RLEC operations of
approximately $3.2 million in the first quarter of 2004 compared to the first
quarter of 2003. In the edge-out services, operating expenses in the first
quarter of 2004 were approximately $0.2 lower than operating expenses in the
first quarter of 2003. For the RLEC operations, the operating expenses in
the first quarter of 2003 include the favorable impact of a one-time, non-
cash gain of approximately $2.1 million for a pension curtailment. The gain
resulted in a reduction in pension expense in the RLEC operations whereas no
comparable gain was recognized in the first quarter of 2004. In addition,
the increase in operating expenses in the first quarter of 2004 can be
attributed to higher access expenses of $0.6 million, primarily from an
increase in access minutes of use related to the No Limits package, and a
$0.6 million increase in operating expenses for DSL modems used in the RLEC
operations in the first quarter of 2004. Prior to the third quarter of 2003,
DSL modems were capitalized under the Company's accounting policies.
However, beginning in the third quarter of 2003, the Company began expensing
DSL modems as their cost fell below the threshold for capitalization.
Partially offsetting this increase in operating expenses was a reduction in
long-term incentive expense of $1.2 million in the first quarter of 2004 when
compared to the first quarter of 2003.
In the edge-out services, operating expenses in the first quarter of 2004
were $6.0 million, which is $0.2 million, or 2.9%, lower than operating
expenses of $6.2 million in the first quarter of 2003. Cost of services and
selling, general and administrative expenses decreased slightly in the first
quarter of 2004 compared to the same period in 2003. Depreciation and
amortization expenses decreased approximately $0.4 million in the first
quarter of 2004 compared to the first quarter of 2003 as a result of lower
capital additions in the edge-out services in recent years. The strategy to
achieve positive cash flow in the edge-out services with a slower targeted
growth rate and the realignment of the edge-out service operations under the
responsibility of the RLECs has significantly reduced the amount of capital
expenditures made to support this line of business. Offsetting these
decreases in operating expenses is the $0.6 million impact of the pension
curtailment gain recognized as a reduction of pension expenses in the first
quarter of 2003 for which no comparable gain was recognized in the first
quarter of 2004.
Net operating income increased $0.5 million, or 3.3%, from $12.4 million
in the first quarter of 2003, or 27.6% of total revenues to $12.9 million in
the first quarter of 2004, or 26.5% of total revenues. Net operating income
for the RLEC operations in the first quarter of 2003 was $15.8 million
compared to $15.0 million in the first quarter of 2002, an increase of $0.8
million, or 4.7%. The net operating loss in the edge-out services increased
$0.3 million, from a net operating loss of $2.6 million in the first quarter
of 2003 to a net operating loss of $2.9 million in the first quarter of 2004.
Interest expense decreased $0.5 million from $15.7 million, or 34.7% of
total revenues in the first quarter of 2003, to $15.2 million, or 31.2% of
total revenues in the first quarter of 2004. The decrease is attributed to a
lower weighted average balance of long-term debt outstanding in the first
quarter of 2004 compared to the first quarter of 2003.
Other income was $0.9 million in the first quarter of 2004 compared to
$0.5 million in the first quarter of 2003, an increase of $0.4 million. The
increase is attributed primarily to approximately $0.2 million in realized
losses on the disposal of marketable equity securities in the first quarter
of 2003 whereas no comparable realized losses were recognized in the first
quarter of 2004.
Net loss decreased $1.1 million from $2.4 million, or 5.2% of total
revenues, in the first quarter of 2003, to $1.3 million, or 2.6% of total
revenues, in the first quarter of 2004, as a result of the factors discussed
above. The RLEC operations reported net income of $8.3 million in the first
quarter of 2004, an increase of $1.4 million, or 19.1%, compared to the first
quarter of 2003. In the first quarter of 2004, the edge-out services
reported a net loss of $9.6 million compared to a net loss of $9.3 million in
the first quarter of 2003, a change of $0.3 million, or 2.6%.
Liquidity and Capital Resources
We are a holding company with no business operations of our own. Our only
significant assets are the capital stock/member interests of our
subsidiaries. Accordingly, our only sources of cash to pay our obligations
are cash on hand and distributions from our subsidiaries from their net
earnings and cash flow. Even if our subsidiaries
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determine to pay a dividend on, or make a distribution in respect of, their
capital stock/member interests, we cannot guarantee that our subsidiaries
will generate sufficient cash flow to pay such a dividend or distribute such
funds or that they will be permitted to pay such dividend or distribution
under the terms of their credit facilities.
At March 31, 2004, we had total liquidity of $56.2 million which consists
of cash and cash equivalents of $15.2 million and available borrowings on our
lines of credit with the RTFC of $41.0 million. As a result of our amendment
with the RTFC, which is further described below, our liquidity position has
been enhanced. We believe the reductions in the scheduled principal payments
under the amendment provide us with additional liquidity and greater
operating flexibility during the next several years. In addition, we have
remained focused on implementing operating improvements and efficiencies in
our business processes to reduce our operating expenses as well as
maintaining a disciplined approach to evaluating and making capital
expenditures and accordingly, our use of cash to fund our operations and
facilities has been reduced.
At March 31, 2004, we had a working capital deficit of approximately $8.6
million compared to a working capital deficit of $23.5 million at March 31,
2003. The improvement is attributed primarily to the change in the current
portion of long-term debt as a result of the amendment entered into with the
RTFC in the third quarter of 2003. Under the amendment, we do not make any
scheduled principal payments to the RTFC until the third quarter of 2004.
Therefore, our current portion of long-term debt was $7.0 million at March
31, 2004 compared to $28.1 million at March 31, 2003, a change of $21.1
million. Under the terms of the amendment, our scheduled principal payments
through 2010 are significantly less than under our previous agreement. As
discussed below, we may be required to make annual mandatory prepayments
equivalent to any excess cash flow as defined in the amendment in addition to
our scheduled principal payments. These mandatory payments for excess cash
flow will be based on our RLECs year-end financial results, beginning in 2005
based on the results of the 2004 fiscal year. We are uncertain what
mandatory prepayments will have to be made, if any, at this time.
Operating Activities. For the quarters ended March 31, 2004 and 2003, we
generated cash from operating activities of $3.0 million and $3.5 million,
respectively.
Investing Activities. For the quarter ended March 31, 2004, net cash
used for investing activities was $3.6 million and consisted of $4.9 million
in cash used for the purchase of telephone plant and equipment partially
offset by cash received from the redemption of subordinated capital
certificates by the RTFC in the amount of $1.4 million. For the quarter
ended March 31, 2003, net cash provided by investing activities was $0.9
million and consisted primarily of $2.0 million in cash received from the
redemption of subordinated capital certificates by the RTFC and was partially
offset by the purchase of telephone plant and equipment in the amount of $1.5
million.
Financing Activities. For the quarters ended March 31, 2004 and 2003,
net cash used in financing activities was $12.3 million and $6.7 million and
consisted of payments on long-term debt.
Long-Term Debt and Revolving Credit Facilities
We or our subsidiaries have outstanding term and revolving credit
facilities totaling $426.6 million with the RTFC, which were entered into in
connection with our four RLEC acquisitions. In addition, we have outstanding
$200.0 million in 13 1/4% senior notes that are due in March 2010 and a $0.4
million miscellaneous note payable. In January 2004, a $2.3 million mortgage
note payable entered into at the time of the Coastal Communications
acquisition and secured by land and buildings used in those operations was
repaid in full.
RTFC Debt Facilities
Our subsidiary, MRLTDF, is the borrower under a loan agreement with the
RTFC. MRLTDF is the holding company for three of our RLECs: Mebtel, GCSI and
CCI. Our fourth RLEC, GRH, has provided a guaranty to the RTFC and its
operating assets and revenues are subject to a first mortgage lien in favor
of the RTFC.
As of March 31, 2004, MRLTDF had approximately $426.6 million in term
loans outstanding with the RTFC. Of this amount, $414.9 million in term
loans bear fixed interest rates that range between 5.65% and 9.05%, with a
weighted average rate approximating 7.7%. The fixed interest rates expire at
various times, beginning in October 2004 through August 2006, depending on
the terms of the note. Upon the expiration of the fixed interest rates, the
term loans will convert to the RTFC's prevailing base variable interest rate
plus a 1.0% interest rate adder. We have the ability to allow the interest
rate on a term loan to remain variable or to choose a fixed rate as is then
available and in effect for similar loans for any portion or all of the
principal amount then outstanding on the term loan, provided the RTFC offers
a fixed rate. The remaining $11.7 million term loan has a variable interest
rate of 5.2% at March 31, 2004.
In July 2003, MRLTDF executed an amendment to its loan agreement with the
RTFC which, among other things, allows greater operating flexibility through
an increase in our available liquidity. Under the terms of the
18
amendment, our loan agreement was extended to November 2016. The amendment
also provided us with a reduction in scheduled principal payments through
2010. Quarterly principal payments through 2010 are approximately $2.3
million with the first scheduled principal payment occurring in the third
quarter of 2004. Beginning in 2011, scheduled principal payments increase,
ranging from $8.9 million to $17.5 million per quarter through the end of
2016. We continue to pay quarterly interest payments to the RTFC. We also
may be required to make annual prepayments of principal based on our
financial results. Annually, beginning in 2005, we will calculate excess
cash flow as defined in the amendment using the preceding year's financial
results. If the calculation indicates excess cash flow, we will make a
mandatory prepayment equivalent to the amount of excess cash flow to reduce
the principal outstanding to the RTFC. The payment will be required to be
made in the second quarter of the year in which the calculation is made.
Under the terms of the amendment, interest rates on our outstanding term
loans are at their prevailing RTFC fixed or variable base rate plus a 1.0%
interest rate adder. Prior to the amendment, interest rates on these term
loans were at their prevailing RTFC fixed or variable base rate plus interest
rate adders ranging from 0.35% to 0.75%. The 1.0% interest rate adder is
subject to performance pricing which will provide for a reduction in the
interest rate adder as our Total Leverage Ratio, as defined in the amendment,
decreases. The interest rate adder will remain at 1.0% while the Total
Leverage Ratio is greater than 5.0 to 1.0. It decreases to 0.75% when the
Total Leverage Ratio is between 4.0 to 1.0 and 5.0 to 1.0 and decreases to
0.5% when the Total Leverage Ratio is less than 4.0 to 1.0. The prior
interest rate adders had no performance pricing associated with them.
In addition, certain covenants were added or revised under the amendment
and we will continue to test our compliance with our financial ratios, as
defined in the amendment, on an annual basis. Included in our covenants,
among others, are requirements that we obtain RTFC approval of a forward-
looking, three-year capital expenditure budget on an annual basis and obtain
RTFC consent before completing any acquisitions or disposals of local
exchanges. Our covenants regarding payment of dividends by MRLTDF and GRH
remained substantially the same as under the existing agreement. In
addition, the amendment allows us to repurchase our senior notes without RTFC
consent in amounts not to exceed $2.0 million per quarter and $6.0 million
per year.
Prior to the amendment, the loan facilities were secured by a first
mortgage lien on substantially all of the operating assets and revenues of
the RLECs. In addition, substantially all of the outstanding equity
interests of the RLECs were pledged in support of the facilities. As part of
the amendment, the RTFC was additionally granted a first mortgage lien on the
assets of MRH, which is the parent of MRLTDF, MLDS and MRLDS, and the equity
interests in those entities were pledged in support of the loan facilities
thereby providing the RTFC with a first lien security interest in all of the
assets and revenues and substantially all of the equity interests of the
RLECs. In addition, as provided for in the amendment, in the event that the
senior notes are retired, we will grant the RTFC a first mortgage lien on the
operating assets and revenues of Madison River Communications, LLC.
As a condition of obtaining long-term financing from the RTFC, we
purchased subordinated capital certificates ("SCCs") that represent ownership
interests in the RTFC equal to 10% of the amount borrowed. The RTFC financed
the purchase of the SCCs by increasing the balance advanced for a loan by an
amount equal to the SCCs purchased.
At March 31, 2004, we owned $42.7 million in SCCs. The SCCs are redeemed
for cash on an annual basis, at par, in an amount equivalent to 10% of the
term loan principal that was repaid in the prior year. Therefore, in the
first quarter of 2004, based on principal payments of $13.5 million made to
the RTFC in 2003, we received approximately $1.4 million in cash for SCCs
that were eligible to be redeemed. In March 2003, the RTFC redeemed
approximately $2.0 million of our SCCs for cash. As we have made no
principal payments yet in 2004 to the RTFC, we currently have no SCCs that
are eligible for redemption in 2005.
We also receive a share of the RTFC's net margins in the form of
patronage capital refunds. Patronage capital is allocated based on the
percentage that our interest payments contribute to the RTFC's gross margins.
Currently, 70% of the RTFC's patronage capital allocation is retired with
cash after the end of the year, and 30% is paid in the form of patronage
capital certificates. The patronage capital certificates will be retired with
cash in accordance with the RTFC's board-approved rotation cycle which is
currently a fifteen year cycle.
In addition to the term loans, we also have two secured revolving lines
of credit with the RTFC. One line of credit is a $31.0 million facility at
MRLTDF and has no annual paydown provisions. This line of credit expires in
March 2005 and bears interest at the RTFC base rate for a standard line of
credit plus 50 basis points, or 5.2% at March 31, 2004. During the first
quarter of 2004, we repaid the $10.0 million we had advanced against this
line of credit at December 31, 2003. The entire $31.0 million is fully
available to be drawn. The second line of credit is a $10.0 million facility
that is available to Coastal Utilities, Inc. for general corporate purposes
and expires in March 2005. Under the terms of this line of credit facility,
we must repay all amounts advanced under this facility within 360 days of the
first advance and bring the outstanding amount to zero for a period of five
consecutive days in each 360-day period. This line of credit is fully
available to be drawn and bears interest at the RTFC base rate for a
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standard line of credit plus 100 basis points. This line of credit was
initially unsecured. Under the terms of the amendment executed in July 2003,
we agreed to provide the RTFC with a first lien security interest in the
assets of Coastal Utilities, Inc. to secure this line of credit which we
completed in April 2004. We intend to negotiate the extension of these lines
of credit with the RTFC during 2004.
As discussed above, the terms of the RTFC loan agreement, as amended,
contains various financial and administrative covenants including ratios that
are tested on an annual basis. The ratios are tested against the combined
financial results of MRLTDF and its subsidiaries, as well as GRH, MRLDS and
MLDS. In addition, among other things, these combined entities are
restricted in their ability to: (i) declare or pay dividends to their
respective parents, under specified circumstances, (ii) limited in their
ability to make intercompany loans or enter into other affiliated
transactions, (iii) sell assets and make use of the proceeds, and (iv) incur
additional indebtedness above certain amounts without the consent of the
RTFC. As a result of these provisions of the loan agreement, as amended, any
cash generated by MRLTDF and its subsidiaries, GRH, MRLDS or MLDS and any
amounts available under the line of credit facilities discussed above may
only be available to those entities and not to us or our other subsidiaries
to fund our obligations. At March 31, 2004, MRLTDF was in compliance with
the terms of its loan agreement, as amended, with the RTFC.
Senior Notes
Madison River Capital is the issuer of $200.0 million in publicly traded
13 1/4% senior notes outstanding that are due in March 2010. Interest is
payable semiannually on March 1 and September 1 of each year. The senior
notes are registered with the SEC and are subject to the terms and conditions
of an indenture. At March 31, 2004, the senior notes had a carrying value of
$198.0 million, which is net of a $2.0 million unamortized discount.
Under the terms of the indenture, Madison River Capital and its
restricted subsidiaries must comply with certain financial and administrative
covenants. Among other things, Madison River Capital and its restricted
subsidiaries are limited in their ability to: (i) incur additional
indebtedness, (ii) pay dividends or make other distributions to Madison River
Telephone or others holding an equity interest in a restricted subsidiary,
(iii) redeem or repurchase equity interests, (iv) make various investments or
other restricted payments, (v) create certain liens or use assets as security
in other transactions, (vi) sell certain assets or utilize certain asset sale
proceeds, (vii) merge or consolidate with or into other companies or (vii)
enter into transactions with affiliates. At March 31, 2004, Madison River
Capital was in compliance with the terms of its senior notes indenture.
Other Long-Term Debt
Our other indebtedness consists of a miscellaneous note payable of $0.4
million that bears interest at 8.0% and is due on demand.
Capital Requirements
We require significant capital to fund our working capital needs,
including our working capital deficit, our debt service requirements and our
capital expenditures. In the near term, we expect that our primary uses of
cash will include:
* scheduled principal and interest payments on our long-term debt;
* the maintenance and growth of our telephone plant and network
infrastructure;
* funding redemptions of Series A stock put to CCI per the terms of a
shareholders agreement with the former shareholders of Coastal
Utilities, Inc.;
* the maintenance, upgrade and integration of operating support systems and
other automated back office systems;
* sales and marketing expenses;
* corporate overhead; and
* personnel and related expenses.
As discussed above, our amendment with the RTFC has significantly lowered
our scheduled principal payments to the RTFC through 2010, thereby reducing
the capital required to service our financing and increasing our liquidity.
We currently estimate that cash required to fund capital expenditures in
2004 will be approximately $12.0 million to $13.0 million. For the first
quarter ended March 31, 2004, our capital expenditures were approximately
$4.9 million and for the year ended December 31, 2003, our capital
expenditures were approximately $12.2 million. Our use of cash for capital
expenditures in 2003 and 2002 was significantly less than we have incurred in
prior
20
years. This is a result of several factors. First, we invested a
significant amount in capital additions during 2000 and 2001 to build-out and
enhance our telephone plant and network facilities in our markets. Absent
major changes in the technology that we employ, we believe that we have
facilities in place capable of providing a high level of service to our
customers without significant alterations or enhancements. We anticipate
that a large portion of our capital expenditures in 2004 will be directed
toward maintaining our existing facilities. Second, we have experienced
slower growth in recent quarters for our RLEC operations including losses in
the number of voice access lines we serve. In addition, we have not expanded
our edge-out services into any new markets, nor do we have any current
intentions to expand into new markets, and our existing edge-out operations
have not demonstrated any growth as part of our business plan to generate
sustainable cash flow. Therefore, there is minimal demand currently to
expand our telephone plant or network facilities. During 2004, the demand
for use of capital in the expansion of our telephone plant and network
facilities will be assessed, in part, using factors such as the increase in
demand for access lines and communications services and the introduction of
new technologies that will provide an appropriate return on capital invested.
We are currently in the preliminary stages of assessing the potential
benefits of adding video services to the suite of products we offer to our
customers. Since we are early in the planning process, at this time we are
not certain what types of video services we may offer, if any, or what types
of technology we may use to deliver these services to our customers.
Depending on the outcome of this process, we may see an increase in our
capital expenditures in future periods to support the delivery of this
service to our customers.
As part of the consideration paid in the Coastal Communications, Inc. ("CCI")
acquisition in March 2000, we issued to the former shareholders of Coastal
Utilities 300 shares of Series A non-voting common stock and 300 shares of
Series B non-voting common stock of CCI in the face amount of $10.0 million
and $5.0 million, respectively. The Series A and Series B stock had put and
call features that were defined pursuant to the terms of a shareholders
agreement and were exercisable by the holders and CCI. In 2002, MRTC, our
parent, completed an agreement with these former shareholders that, among
other things, modified certain provisions of the shareholders agreement.
Under the terms of the agreement, the former shareholders exchanged certain
of their equity interests in CCI for equity in MRTC and a note payable from
MRTC. In addition, CCI redeemed 30 shares of Series A stock in CCI retained
by the former shareholders for $33,333.33 per share, or approximately $1.0
million, at the closing of the transaction. Under the terms of CCI's amended
shareholders agreement, the former shareholders have the right to require CCI
to redeem their remaining 120 shares of Series A stock in increments not to
exceed 30 shares at $33,333.33 per share, or an aggregate value of $1.0
million, in any thirteen-month period. Accordingly, the former shareholders
put 30 shares of Series A stock to CCI in June 2003 and CCI redeemed the
shares for approximately $1.0 million. We expect that the next redemption of
30 shares for $1.0 million will occur in July 2004.
During 2002, after consultation with our tax advisors, we amended certain
prior year income tax returns that resulted in refunds to the Company of
approximately $7.8 million. We received the refunds in 2002 and recorded
them as deferred income tax liabilities. In the third quarter of 2003, the
Internal Revenue Service, as part of an audit, verbally notified us that our
position taken in the amended tax returns would be disallowed and in the
fourth quarter, we received formal notice of such action by the IRS. The
refunds impacted by this IRS notification totaled approximately $5.1 million
and these amounts continue to be included in our deferred income tax
liabilities. Based on discussions with our tax advisors, we believe that our
position is appropriate under current tax laws and we intend to defend the
position taken in our amended income tax returns. We continue to accrue
interest expense of approximately $0.1 million quarterly related to these
refunds until the issue is resolved. At this time, we cannot assure you that
we will prevail in our defense of our position taken in the amended income
tax returns and we are uncertain as to the amount of time it will take to
resolve. If we are not successful, we may be required to repay the amounts
received for refunds plus accrued interest. We believe this matter may take
up to two years to resolve. The remaining $2.7 million in refunds, which
were not included in the IRS notification and for which the statute of
limitations for audit adjustments had expired, were recognized as an income
tax benefit in the fourth quarter of 2003. However, in May 2004, we were
verbally notified by the IRS that it may file suit against us to recover this
amount as erroneous refunds. As of May 12, 2004, we had not been served nor
had we received any formal notification from the IRS on how it intends to
proceed or if it will proceed at all with a lawsuit.
Under the terms of MRTC's Operating Agreement, at any time on or after
January 16, 2006, certain members may require MRTC to purchase all of their
member units at an amount equal to the fair market value of the units. We may
be required to fund this obligation of our parent company.
Based on our business plan, we currently project that cash and cash
equivalents on hand, available borrowings under our credit facilities and our
cash flow from operations will be adequate to meet our foreseeable
operational liquidity needs, including funding our working capital deficit,
for the next 12 months. However, our actual cash
21
needs may differ from our estimates, and those differences could be material.
Our future capital requirements will depend on many factors, including, among
others:
* the extent to which we consummate any significant additional
acquisitions;
* our success in maintaining a net positive cash flow in our edge-out
operations;
* the demand for our services in our existing markets;
* our ability to acquire, maintain, develop, upgrade and integrate the
necessary operating support systems and other back office systems; and
* regulatory, technological and competitive developments.
We may be unable to access the cash flow of our subsidiaries since
certain of our subsidiaries are parties to credit or other borrowing
agreements that restrict the payment of dividends or making intercompany
loans and investments, and those subsidiaries are likely to continue to be
subject to such restrictions and prohibitions for the foreseeable future. In
addition, future agreements that our subsidiaries may enter into governing
the terms of indebtedness may restrict our subsidiaries' ability to pay
dividends or advance cash in any other manner to us.
To the extent that our business plans or projections change or prove to
be inaccurate, we may require additional financing or require financing
sooner than we currently anticipate. Sources of additional financing may
include commercial bank borrowings, other strategic debt financing, sales of
non-strategic assets, vendor financing or the private or public sales of
equity and debt securities. We cannot assure you that we will generate
sufficient cash flow from operations in the future, that anticipated revenue
growth will be realized or that future borrowings or equity contributions
will be available in amounts sufficient to provide adequate working capital,
service our indebtedness or make anticipated capital expenditures. Failure to
obtain adequate financing, if necessary, could require us to significantly
reduce our operations or level of capital expenditures which could have a
material adverse effect on our projected financial condition and results of
operations.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Although we invest our short-term excess cash balances, the nature and
quality of these investments are restricted under our internal investment
policies. These investments are limited primarily to U.S. Treasury agreement
and agency securities, certain time deposits and high quality repurchase
agreements and commercial paper. We do not invest in any derivative or
commodity type instruments. Accordingly, we are subject to minimal market
risk on our investments.
Our long term secured debt facilities with the RTFC mature in 2016. As of
March 31, 2004, we had fixed rate secured debt with the RTFC of $414.9
million at a weighted average rate of 7.7%. The fixed rates on the term
loans expire beginning October 2004 through August 2006. Upon the expiration
of the fixed interest rates, the term loans will convert to the RTFC's
prevailing base variable interest rate plus a 1.0% interest rate adder. We
have the ability to allow the interest rate on a term loan to remain variable
or to choose a fixed rate as is then available and in effect for similar
loans for any portion or all of the principal amount then outstanding on the
term loan, provided the RTFC offers a fixed rate. In addition, we have a
miscellaneous note for $0.4 million bearing an 8.0% fixed interest rate. Our
senior notes have a stated fixed rate of 13.25%. In addition to our fixed
rate facilities, we have an $11.7 million term loan with the RTFC that bears
variable interest at 5.2%. A one percent change in the underlying interest
rates for the variable rate debt would have an immaterial impact of less than
$117,000 per year on interest expense. Accordingly, we are subject to only
minimal interest rate risk on our long-term debt while our fixed
rates are in place.
ITEM 4 - CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures
Our management, with the participation of our Chairman and Chief
Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the "Exchange Act")), as of the end of the period covered
by this report. Based on such evaluation, the Chairman and Chief Executive
Officer and Chief Financial Officer have concluded that, as of the end of
such period, our disclosure controls and procedures are effective.
(b) Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the fiscal quarter to which this report relates that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
22
Part II
Item 1. LEGAL PROCEEDINGS
On May 7, 2004, a lawsuit was filed in the United States District Court
for the Southern District of Alabama that named as defendants our
subsidiaries, Gulf Telephone Company and Gulf Coast Services, Inc., our
parent, Madison River Telephone Company, LLC, and certain of our officers
and directors among others including former directors and officers and other
third party plan administrators and advisors to the Gulf Telephone Company
Employee Stock Ownership Plan. The suit, entitled David Eslava, et. al. vs.
-------------------------
Gulf Telephone Company, et. al. Civil Action No. 04-297-BH-B, alleges certain
- ------------------------------------------------------------
ERISA violations. We have engaged legal counsel and we intend to vigorously
defend against all claims.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------- ----------------------------------------------------------
3.1 Certificate of Formation of the Registrant (incorporated
by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-4 (File No. 333-36804)
filed with the Securities and Exchange Commission on May
11, 2000 (the "May Form S-4"))
3.2 Limited Liability Company Agreement of the Registrant
(incorporated by reference to Exhibit 3.2 to the May Form
S-4)
31.1 Certification of Chief Executive Officer of Madison River
Capital, LLC pursuant to Rule 13a-14(a)/Rule 15d-14(a) of
the Securities Exchange Act of 1934, as amended
31.2 Certification of Chief Financial Officer of Madison River
Capital, LLC pursuant to Rule 13a-14(a)/Rule 15d-14(a) of
the Securities Exchange Act of 1934, as amended
32.1 Certification of Chief Executive Officer of Madison River
Capital, LLC pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
32.2 Certification of Chief Financial Officer of Madison River
Capital, LLC pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
(b) Reports on Form 8-K
On March 4, 2004, we filed a Current Report on Form 8-K dated March 4,
2004 containing a press release announcing our financial and operating
results for the fourth quarter and year ended December 31, 2003.
On March 9, 2004, we filed a Current Report on Form 8-K dated March 9,
2004 containing certain supplementary information placed on the
Investor Relations page of our website that further elaborated on
amounts and calculations included in the press release announcing our
financial and operating results for the fourth quarter and year ended
December 31, 2003 and discussed on the subsequent conference call.
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SIGNATURE
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.
MADISON RIVER CAPITAL, LLC
Date: May 13, 2004 /s/ PAUL H. SUNU
---------------------------------------
Name: Paul H. Sunu
Title: Managing Director, Chief
Financial Officer and Secretary
24
EXHIBIT INDEX
Exhibit
Number Description
------- -------------------------------------------------------------
3.1 Certificate of Formation of the Registrant (incorporated by
reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-4 (File No. 333-36804) filed with the
Securities and Exchange Commission on May 11, 2000 (the "May
Form S-4"))
3.2 Limited Liability Company Agreement of the Registrant
(incorporated by reference to Exhibit 3.2 to the May
Form S-4)
31.1 Certification of Chief Executive Officer of Madison River
Capital, LLC pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended
31.2 Certification of Chief Financial Officer of Madison River
Capital, LLC pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended
32.1 Certification of Chief Executive Officer of Madison River
Capital, LLC pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer of Madison River
Capital, LLC pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
24