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 September 30, 2001


o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 333-71051

DOBSON/ SYGNET COMMUNICATIONS COMPANY

(Exact name of registrant as specified in its charter)


Oklahoma (State or other jurisdiction of incorporation or organization)		73-1547216 (I.R.S. Employer Identification No.)

14201 Wireless Way Oklahoma City, Oklahoma (Address of principal executive offices)		73134 (Zip Code)

(405) 529-8500

(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 o

As of November 5, 2001, there were 100 shares of the registrant’s $1.00 par value Common Stock outstanding.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
		Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30, 2000
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES

DOBSON/SYGNET COMMUNICATIONS COMPANY

INDEX TO FORM 10-Q


Item
Number			Page

PART I. FINANCIAL INFORMATION

	1	Condensed Consolidated Financial Statements (Unaudited):
		Condensed Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000		3
		Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2001 and 2000		4
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001 and 2000		5
		Notes to Condensed Consolidated Financial Statements		6
	2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		8
	3	Quantitative and Qualitative Disclosure about Market Risk		14
PART II. OTHER INFORMATION

	1	Legal Proceedings		15
	2	Changes in Securities and Use of Proceeds		15
	3	Defaults Upon Senior Securities		15
	4	Submission of Matters to a Vote of Security Holders		15
	5	Other Information		15
	6	Exhibits and Reports on Form 8-K		16

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DOBSON/SYGNET COMMUNICATIONS COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


			September 30,			December 31,
			2001			2000

ASSETS

CURRENT ASSETS:
Cash and cash equivalents			$	2,527,467		$	8,871,817
Restricted cash and investments				12,740,156			26,153,677
Accounts receivable, net				23,317,647			20,433,870
Inventory				3,495,445			3,977,359
Other current assets				1,335,074			1,011,633

	Total current assets			43,415,789			60,448,356

PROPERTY, PLANT AND EQUIPMENT, net				78,083,333			72,257,805

OTHER ASSETS:
Wireless license acquisition costs, net				584,947,293			620,824,915
Deferred financing costs, net				36,713,332			40,558,866
Customer list, net				19,910,875			26,614,038
Other				97,551			285,897

	Total other assets			641,669,051			688,283,716

		Total assets	$	763,168,173		$	820,989,877

LIABILITIES AND STOCKHOLDER’S EQUITY

CURRENT LIABILITIES:
Accounts payable			$	7,847,180		$	10,637,640
Accrued expenses				11,905,332			6,042,906
Deferred revenue and customer deposits				5,149,228			4,386,131
Current portion of long-term debt				14,250,000			14,250,000

	Total current liabilities			39,151,740			35,316,677

Payables — affiliates				17,264,107			26,740,660
Long-term debt, net of current portion				485,449,254			520,636,754
Deferred income taxes				105,088,912			123,772,343
STOCKHOLDER’S EQUITY:
Common stock, $1.00 par value, 500 shares authorized and 100 shares issued and outstanding				100			100
Additional paid-in capital				239,632,804			207,632,804
Retained deficit				(123,418,744	)		(93,109,461	)

	Total stockholder’s equity			116,214,160			114,523,443

		Total liabilities and stockholder’s equity	$	763,168,173		$	820,989,877

The accompanying notes are an integral part of these condensed consolidated balance sheets.

DOBSON/ SYGNET COMMUNICATIONS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



			Three Months Ended						Nine Months Ended
			September 30,						September 30,

			2001			2000			2001			2000

OPERATING REVENUE:
	Service revenue		$	35,484,375		$	30,994,869		$	99,843,863		$	84,753,815
	Roaming revenue			13,115,378			11,824,762			33,908,862			30,165,139
	Equipment and other revenue			1,638,777			2,027,794			5,264,170			6,794,765

		Total operating revenue		50,238,530			44,847,425			139,016,895			121,713,719

OPERATING EXPENSES:
	Cost of service			11,750,235			9,903,148			32,456,096			24,596,726
	Cost of equipment			5,254,691			4,075,601			16,002,674			14,353,591
	Marketing and selling			6,268,221			5,803,604			18,774,249			18,818,387
	General and administrative			6,986,672			6,500,993			21,046,867			18,296,739
	Depreciation and amortization			19,076,399			16,852,611			56,549,085			51,478,132

		Total operating expenses		49,336,218			43,135,957			144,828,971			127,543,575

OPERATING INCOME (LOSS)				902,312			1,711,468			(5,812,076	)		(5,829,856	)
INTEREST EXPENSE				(13,354,860	)		(16,071,767	)		(44,055,211	)		(49,273,801	)
OTHER INCOME, net				396,951			525,471			981,347			1,853,893

LOSS BEFORE INCOME TAXES				(12,055,597	)		(13,834,828	)		(48,885,940	)		(53,249,764	)
INCOME TAX BENEFIT				4,581,127			5,257,233			18,576,657			20,234,910

NET LOSS			$	(7,474,470	)	$	(8,577,595	)	$	(30,309,283	)	$	(33,014,854	)

BASIC NET LOSS APPLICABLE TO COMMON STOCKHOLDER PER COMMON SHARE			$	(74,745	)	$	(85,776	)	$	(303,093	)	$	(330,149	)

BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING				100			100			100			100

The accompanying notes are an integral part of these condensed consolidated financial statements.

DOBSON/ SYGNET COMMUNICATIONS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



			Nine Months Ended September 30,

			2001			2000

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss			$	(30,309,283	)	$	(33,014,854	)
Adjustments to reconcile net loss to net cash provided by operating activities —
	Depreciation and amortization			56,549,085			51,478,132
	Amortization of financing costs			3,927,228			3,907,333
	Deferred income taxes			(18,843,431	)		(20,425,234	)
	Other			135,671			(4,146	)
Changes in current assets and liabilities —
	Accounts receivable			(2,883,777	)		(7,679,816	)
	Other current assets			(518,006	)		480,911
	Accounts payable			(2,829,803	)		2,904,247
	Accrued expenses			5,862,426			5,678,862
	Deferred revenues and customer deposits			763,097			612,185

		Net cash provided by operating activities		11,853,207			3,937,620

CASH FLOWS FROM INVESTING ACTIVITIES:
	Capital expenditures			(19,910,655	)		(25,749,317	)
	Increase in receivable-affiliate			—			(499,693	)
	(Decrease) increase in payable-affiliate			(9,476,553	)		8,919,449
	Proceeds from sales of assets			20,500			38,881
	Other investing activities			188,345			315,954

		Net cash used in investing activities		(29,178,363	)		(16,974,726	)

CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from long-term debt			58,500,000			16,000,000
	Repayments of long-term debt			(93,687,500	)		(72,738,246	)
	Capital contributions			32,000,000			58,500,000
	Maturity of restricted investments, net of interest			14,250,000			10,870,000
	Other financing activities			(81,694	)		(199,995	)

		Net cash provided by financing activities		10,980,806			12,431,759

NET DECREASE IN CASH AND CASH EQUIVALENTS				(6,344,350	)		(605,347	)
CASH AND CASH EQUIVALENTS, beginning of period				8,871,817			2,259,212

CASH AND CASH EQUIVALENTS, end of period			$	2,527,467		$	1,653,865

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
	Cash paid for interest		$	35,486,122		$	21,414,508

The accompanying notes are an integral part of these condensed consolidated financial statements.

DOBSON/ SYGNET COMMUNICATIONS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The condensed consolidated balance sheets of Dobson/ Sygnet Communications Company (“the Company”) as of September 30, 2001 and December 31, 2000, the condensed consolidated statements of operations for the three and nine months ended September 30, 2001 and 2000 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2001 and 2000 are unaudited. In the opinion of management, such financial statements include all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of financial position, results of operations, and cash flows for the periods presented.

The condensed consolidated balance sheet data at December 31, 2000 was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The financial statements presented herein should be read in connection with the Company’s December 31, 2000 consolidated financial statements included in the Company’s Form 10-K for the fiscal year ended December 31, 2000.

1. ORGANIZATION

The Company was incorporated under the name Front Nine Holdings, Inc. as an Oklahoma corporation on July 23, 1998. Subsequently, the Company changed its name to Dobson/ Sygnet Communications Company (the “Company”) and amended its certificate of incorporation on December 2, 1998 to reflect this change. The Company is a wholly owned subsidiary of Dobson Communications Corporation (“Dobson Communications”) and is a provider of rural and suburban wireless telephone services.

2. STOCKHOLDER’S EQUITY

The Company received equity contributions of $32.0 million and $58.5 million during the nine months ended September 30, 2001 and 2000, respectively, from its parent company, Dobson Communications. These contributions were used to repay debt under the Company’s credit facility.

On January 1, 2001, in accordance with SFAS 133, the Company recorded an asset and a net gain to comprehensive income totaling $0.6 million relating to its outstanding interest rate hedges, thus increasing the Company’s total equity. However, on March 30, 2001, these hedges expired leaving no remaining impact to the Company’s financial position.

3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board, (“FASB”), issued Statements of Financial Accounting Standards, (“FAS”), No. 141, “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets.” These standards prohibit the application of the pooling-of-interests method of accounting for business combinations effective June 30, 2001 and require companies to stop amortizing existing goodwill and intangible assets with indefinite lives effective January 1, 2002. In addition, any goodwill or indefinite life intangible assets acquired between July 1, 2001 and December 31, 2001 would not be amortized. Under the new rules, companies would test for impairment of goodwill or indefinite life intangibles at least annually and would only adjust the carrying amount of these intangible assets upon an impairment of the goodwill or indefinite life intangible assets. The Company has not yet determined the effect these new accounting standards may have on the amortization of its existing wireless license acquisition costs. These standards may also require companies to stop amortizing intangible assets associated with wireless licenses effective January 1, 2002, as those licenses may be considered intangible assets with indefinite lives. The Company will be required to implement these standards effective January 1, 2002.

DOBSON/ SYGNET COMMUNICATIONS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The Company has not yet determined the effect that this new accounting standard may have on its results of operations, financial position and cash flows. The Company will be required to implement this standard effective January 1, 2003.

In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This statement replaces SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” However, it maintains the fundamental provisions of SFAS No. 121 for recognition and measurement of the impairment of long-lived assets to be held and used and for measurement of long-lived assets to be disposed of by sale. This statement applies to all long-lived assets, including discontinued operations, and replaces the provisions of APB Opinion No. 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business,” for the disposal of segments of a business. This statement requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell. The Company is currently assessing the impact of this standard on its results of operations, financial position and cash flows. The Company will be required to implement this standard effective January 1, 2002.

DOBSON/ SYGNET COMMUNICATIONS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis presents factors, which we believe are relevant to an assessment and understanding of our consolidated financial position and results of operations. This financial and business analysis should be read in conjunction with our condensed consolidated financial statements and the related notes.

Overview

We own and operate rural and suburban wireless communication systems serving a large cluster of properties. As of September 30, 2001, our system covered a total population of 2.4 million and we had approximately 277,000 subscribers. Our wireless systems are located in Youngstown, Ohio, Erie, Pennsylvania, and in primarily rural and suburban areas between the Cleveland, Akron-Canton, Pittsburgh, Buffalo and Rochester metropolitan areas.

Revenue

Our operating revenue consists of service revenue, roaming revenue and equipment and other revenue.

We primarily derive service revenue by providing wireless services to our subscribers. The industry has experienced a trend of declining average revenue per minute as competition among wireless service providers has led to reduction in rates for airtime. These declines have been generally offset by significant increases in average minutes of use per subscriber. We believe that the industry trend toward increasing minutes of use per subscriber will continue to offset declining revenues per minute of use due to the continued popularity of single rate calling plans and the enhanced service capacity of recently developed digital networks.

We derive roaming revenues by providing service to subscribers of other wireless providers when those subscribers “roam” into our markets and use our systems to carry their calls. Roaming accounted for 26.1%, 26.4%, 24.4% and 24.8% of our revenue for the three months ended September 30, 2001 and 2000, and the nine months ended September 30, 2001 and 2000, respectively. Roaming revenue typically yields higher average per minute rates and higher margins than revenue from our subscribers. We achieve these higher margins because we incur relatively lower incremental costs related to network operation, customer service and collections in servicing roaming customers as compared to our home subscribers. However, even though roaming revenue yields higher margins than revenue from our subscribers, the yields are declining due to increased market pressures and competition between wireless providers. Our roaming yield (roaming revenue, which includes airtime, toll charges and surcharges, divided by roaming minutes of use) was $0.31, $0.39, $0.32 and $0.38 for the three months ended September 30, 2001 and 2000, and the nine months ended September 30, 2001 and 2000, respectively. Roaming revenue tends to be impacted by seasonality. We typically have higher roaming revenue during the second and third quarters of each year, as users tend to travel more and therefore use their wireless phones more during the spring and summer months. Despite the decline in our roaming yield, we have seen overall roaming revenue increase due to increases in roaming minutes of use.

We include any toll, or long-distance, revenues related to our wireless and roaming services in service revenue and roaming revenue. Equipment revenue is revenue from selling wireless equipment to our subscribers.

Costs and Expenses

Our primary operating expense categories include cost of service, cost of equipment, marketing and selling, general and administrative and depreciation and amortization.

Our cost of service consists primarily of costs to operate and maintain our facilities utilized in providing service to customers and amounts paid to third-party wireless providers for providing service to our subscribers when our subscribers roam into their markets.

DOBSON/ SYGNET COMMUNICATIONS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Our cost of equipment represents the cost associated with telephone equipment and accessories sold to customers. In recent years, we and other wireless providers have increased the use of discounts on phone equipment and free phone promotions, as competition between service providers has intensified. As a result, we have incurred, and expect to continue to incur, losses on equipment sales, which have resulted in increased marketing and selling costs per gross additional subscriber. While we expect to continue these discounts and promotions, we believe that these promotions will result in increased revenue from increases in the number of wireless subscribers.

Our marketing and selling costs include advertising, compensation paid to sales personnel and independent agents and all other costs to market and sell wireless products and services. We pay commissions to direct sales personnel and independent agents for new business generated.

Our general and administrative costs include all infrastructure costs, including costs for customer support, billing, collections, and corporate administration.

Our depreciation and amortization expense represents the costs associated with the depreciation of our fixed assets and the amortization of our intangible assets, primarily wireless license acquisition costs and customer lists.

Results of Operations

In the text below, financial statement numbers have been rounded; however, the percentage changes are based on the actual financial statement numbers.

Three Months Ended September 30, 2001 Compared to Three Months Ended September 30, 2000

Operating revenue. For the three months ended September 30, 2001, total operating revenue increased $5.4 million, or 12.0%, to $50.2 million from $44.8 million for the comparable period in 2000. Total service, roaming and equipment and other revenue represented 70.6%, 26.1% and 3.3%, respectively, of total operating revenue during the three months ended September 30, 2001 and 69.1%, 26.4%, and 4.5%, respectively, of total operating revenue during the three months ended September 30, 2000.

The following table sets forth the components of our operating revenue for the three months ended September 30, 2001 and 2000:



			Three Months Ended
			September 30,

			2001		2000


			($ in thousands)
Operating revenue:
	Service revenue		$	35,484	$	30,995
	Roaming revenue			13,116		11,824
	Equipment and other revenue			1,639		2,028

		Total	$	50,239	$	44,847

Service revenue increased $4.5 million, or 14.5%, to $35.5 million in the three months ended September 30, 2001 from $31.0 million in the same period of 2000. This increase was primarily attributable to increased penetration and usage. Our subscriber base increased 13.2% to approximately 277,000 at September 30, 2001 from approximately 244,700 at September 30, 2000. The average monthly service revenue per subscriber increased 2.3% to $43 for the three months ended September 30, 2001 from $42 for the comparable period in 2000. Our average monthly service revenue per subscriber has been positively impacted by changes in the mix between digital and analog subscribers in our subscriber base. On September 30, 2001, 72.2% of our subscribers were on digital rate plans compared to 29.5% at September 30, 2000. Our digital rate plans typically produce higher service revenue per subscriber and allow subscribers to use more minutes in a larger home area than our analog rate plans.

DOBSON/ SYGNET COMMUNICATIONS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Roaming revenue increased $1.3 million, or 10.9%, to $13.1 million in the three months ended September 30, 2001 from $11.8 million for the comparable period of 2000. This increase was primarily attributable to increased roaming minutes due to expanded coverage areas and increased usage in our markets.

Equipment and other revenue decreased $0.4 million, or 19.2%, to $1.6 million in the three months ended September 30, 2001 from $2.0 million in the same period of 2000. This decrease is due to an increase in phone discounts during the three months ended September 30, 2001, as a result of more competitive markets.

Cost of service. For the three months ended September 30, 2001, the total cost of service increased $1.9 million, or 18.7%, to $11.8 million from $9.9 million for the comparable period in 2000. This increase is primarily the result of the increased number of subscribers and the migration of our subscribers from analog rate plans to new digital rate plans. As described with our service revenue above, on average, our digital subscribers use more minutes than our analog subscribers. This increased usage also increases the minutes used by our subscribers outside of our markets, thus increasing the expenses we are charged by third-party wireless providers.

Cost of equipment. For the three months ended September 30, 2001, cost of equipment increased by $1.2 million, or 28.9%, to $5.3 million from $4.1 million in the same period of 2000. This increase is due to an increase in gross subscriber additions.

Marketing and selling costs. Marketing and selling costs increased $0.5 million, or 8.0%, to $6.3 million for the three month period ended September 30, 2001, from $5.8 million in the comparable period of 2000. This increase resulted from an increase in the number of gross subscriber additions and the related sales force compensation expenses. The number of gross subscribers added in the third quarter of 2001 increased 27.1% to 23,000, compared to approximately 18,100 added in the third quarter of 2000.

General and administrative expense. For the three months ended September 30, 2001, general and administrative cost increased $0.5 million, or 7.5%, to $7.0 million from $6.5 million for the comparable period in 2000. This increase was primarily the result of increased infrastructure costs, including customer service, billing, collections and administrative costs as a result of the overall growth. Our average monthly general and administrative costs per subscriber remained constant at $9 for the three months ended September 30, 2001 and 2000.

Depreciation and amortization expense. Depreciation and amortization expense increased $2.2 million, or 13.2%, to $19.1 million in the three months ended September 30, 2001 from $16.9 million in the same period of 2000. This increase is a result of additional depreciation on fixed assets acquired in 2000 and 2001.

Interest expense. For the three months ended September 30, 2001, interest expense decreased $2.7 million, or 16.9%, to $13.4 million from $16.1 million in the same period of 2000. The decrease was primarily a result of decreased interest rates and the reduction of our outstanding balance on our revolving credit facility in the three months ended September 30, 2001 compared to the same period in 2000.


	*Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30, 2000*

Operating revenue. For the nine months ended September 30, 2001, total operating revenue increased $17.3 million, or 14.2%, to $139.0 million from $121.7 million for the comparable period in 2000. Total service, roaming and equipment and other revenue represented 71.8%, 24.4% and 3.8%, respectively, of total operating revenue during the nine months ended September 30, 2001 and 69.6%, 24.8%, and 5.6%, respectively, of total operating revenue during the nine months ended September 30, 2000.

The following table sets forth the components of our operating revenue for the nine months ended September 30, 2001 and 2000:



			Nine Months Ended
			September 30,

			2001		2000


			($ in thousands)
Operating revenue:
	Service revenue		$	99,844	$	84,754
	Roaming revenue			33,909		30,165
	Equipment and other revenue			5,264		6,795

		Total	$	139,017	$	121,714

Service revenue increased $15.0 million, or 17.8%, to $99.8 million in the nine months ended September 30, 2001 from $84.8 million in the same period of 2000. This increase was primarily attributable to increased penetration and usage. Our subscriber base increased 13.2% to approximately 277,000 at September 30, 2001 from approximately 244,700 at September 30, 2000. The average monthly service revenue per subscriber increased 5.3% to $42 from $40 for the nine months ended September 30, 2001 compared to the same period in 2000. Our average monthly service revenue per subscriber has been positively impacted by changes in the mix between digital and analog subscribers in our subscriber base. On September 30, 2001, 72.2% of our subscribers were on digital rate plans compared to 29.5% at September 30, 2000. Our digital rate plans typically produce higher service revenue per subscriber and allow subscribers to use more minutes in a larger home area than our analog rate plans.

Roaming revenue increased $3.7 million, or 12.4%, to $33.9 million in the nine months ended September 30, 2001 from $30.2 million for the comparable period of 2000. This increase was primarily attributable to increased roaming minutes due to expanded coverage areas and increased usage in our markets.

Equipment and other revenue decreased $1.5 million, or 22.5%, to $5.3 million in the nine months ended September 30, 2001 from $6.8 million in the same period of 2000. This decrease is due to increased phone discounts for the nine months ended September 30, 2001, as a result of more competitive markets.

Cost of service. For the nine months ended September 30, 2001, the total cost of service increased $7.9 million, or 32.0%, to $32.5 million from $24.6 million for the comparable period in 2000. This increase is primarily the result of the increased number of subscribers and the migration of our subscribers from analog rate plans to new digital rate plans. As described with our service revenue above, on average, our digital subscribers use more minutes than our analog subscribers. This increased usage also increases the minutes used by our subscribers outside of our markets, thus increasing the expenses we are charged by third-party wireless providers.

Cost of equipment. For the nine months ended September 30, 2001, cost of equipment increased $1.6 million, or 11.5%, to $16.0 million from $14.4 million in the same period of 2000, primarily as a result of equipment transactions related to the migrations of our existing subscribers from analog service to digital service and an increase in total gross subscriber additions for the nine months ended September 30, 2001 compared to the same period in 2000.

Marketing and selling costs. Marketing and selling costs remained constant at $18.8 million for the nine month periods ended September 30, 2001, and 2000. The stability of marketing and selling costs is reasonable with our slight increase in gross subscriber additions of only 6.5% in the nine months ended September 30, 2001 compared to the same period in 2000.

General and administrative expense. For the nine months ended September 30, 2001, general and administrative cost increased $2.7 million, or 15.0%, to $21.0 million from $18.3 million for the comparable period in 2000. This increase was primarily the result of increased infrastructure costs, including customer service, billing, collections and administrative costs as a result of the overall growth. Our average monthly general and administrative costs per subscriber remained constant at $9 for the nine months ended September 30, 2001 and 2000.

DOBSON/ SYGNET COMMUNICATIONS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Depreciation and amortization expense. Depreciation and amortization expense increased $5.0 million, or 9.9%, to $56.5 million in the nine months ended September 30, 2001 from $51.5 million in the same period of 2000. This increase is a result of additional depreciation on fixed assets acquired in 2000 and 2001.

Interest expense. For the nine months ended September 30, 2001, interest expense decreased $5.2 million, or 10.6%, to $44.1 million from $49.3 million in the same period of 2000. The decrease was primarily a result of decreased interest rates and the reduction of our outstanding balance on our revolving credit facility in the nine months ended September 30, 2001 compared to the same period in 2000.

Liquidity and Capital Resources

We have required, and will likely continue to require, substantial capital to further develop, expand and upgrade our wireless telephone systems and those we may acquire. We have financed our operations through cash flows from operating activities, bank debt, capital contributions from our parent and the sale of debt securities.

At September 30, 2001, we had working capital of $4.3 million (a ratio of current assets to current liabilities of 1.1:1) and an unrestricted cash balance of $2.5 million, which compares to working capital of $25.1 million (a ratio of current assets to current liabilities of 1.7:1) and an unrestricted cash balance of $8.9 million at December 31, 2000.

Our net cash provided by operating activities totaled $11.9 million and $3.9 million for the nine month periods ended September 30, 2001, and 2000, respectively. The increase of $8.0 million was primarily due to the increase in depreciation and amortization.

Our net cash used in investing activities totaled $29.2 million and $17.0 million for the nine months ended September 30, 2001, and 2000, respectively. The increase of $12.2 million was primarily due to a decrease in payables-affiliates.

Our net cash provided by financing activities was $11.0 million for the nine month period ended September 30, 2001, compared to net cash used by financing activities of $12.4 million for the nine months ended September 30, 2000. Financing activity for the nine months ended September 30, 2001 consisted primarily of proceeds from long-term debt of $58.5 million, a capital contribution from our parent company, Dobson Communications, of $32.0 million and maturities of restricted investments of $14.3 million, offset by repayments of long-term debt totaling $93.7 million.

Our capital expenditures were $19.9 million for the nine months ended September 30, 2001 and we expect our capital expenditures to be approximately $20 to $25 million for all of 2001. The amount and timing of capital expenditures may vary depending on the rate at which we expand and develop our wireless systems and whether we consummate additional acquisitions.

Our wholly-owned subsidiary, Sygnet Wireless, Inc, has credit facilities for an aggregate of $339.6 million, consisting of a $40.4 million reducing revolving credit facility and $299.2 million of term loan facilities. Interest on the revolving credit facility and the term loan facilities is based on a prime rate or a LIBOR formula, and has ranged between 5.4% and 10.5% since inception. As of September 30, 2001, we had $299.7 million outstanding under our credit facility and we had $16.1 million of availability. Obligations under our new facilities are secured by a pledge of the capital stock of our subsidiary as well as a lien on substantially all of our assets and those of our operating subsidiary. The credit facility requires that we maintain certain financial ratios. The failure to maintain such ratios would constitute an event of default, notwithstanding our ability to meet debt service obligations. As of September 30, 2001, we have maintained the required financial ratios. We cannot provide assurance that we will continue to maintain these required ratios and our ability to borrow under our credit facility will be limited by the requirement that, on a quarterly basis, the amount available under our credit facility will reduce until it terminates. The $200.0 million senior notes bear an interest rate of 12.25% and mature in 2008. We used approximately $67.7 million of the net proceeds to purchase securities pledged to secure the first six semi-annual interest payments, which began June 15, 1999.

DOBSON/ SYGNET COMMUNICATIONS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Although we cannot provide any assurance, we believe that, assuming successful implementation of our strategy, including the further development of our wireless systems and growth in our cash flow, borrowings under the credit facility and cash flow from operations, will be sufficient to satisfy our capital expenditures, working capital and debt service obligations for the next twelve months. However, we will need to refinance the credit facilities and the senior notes at their maturities, which begin in 2007. The credit facilities are currently being amortized quarterly. Our ability to refinance will depend on, among other things, our financial condition at the time, the restrictions in the instruments governing our indebtedness and other factors, including market conditions beyond our control. The actual amount and timing of our future capital requirements may differ materially from our estimates as a result of, among other things, the demand for our services and regulatory, technological and competitive developments. Sources of additional financing may include commercial bank borrowings, vendor financing and the sale of equity or debt securities. We cannot assure you that any such financing will be available on acceptable terms or at all.

Effect of New Accounting Standards

In July 2001, the Financial Accounting Standards Board, (“FASB”), issued Statements of Financial Accounting Standards, (“FAS”), No. 141, “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets.” These standards prohibit the application of the pooling-of-interests method of accounting for business combinations effective June 30, 2001 and require companies to stop amortizing existing goodwill and intangible assets with indefinite lives effective January 1, 2002. In addition, any goodwill or indefinite life intangible assets acquired between July 1, 2001 and December 31, 2001 would not be amortized. Under the new rules, companies would test for impairment of goodwill or indefinite life intangibles at least annually and would only adjust the carrying amount of these intangible assets upon an impairment of the goodwill or indefinite life intangible assets. We have not yet determined the effect these new accounting standards may have on the amortization of our existing wireless license acquisition costs. These standards may also require companies to stop amortizing intangible assets associated with wireless licenses effective January 1, 2002, as those licenses may be considered intangible assets with indefinite lives. We will be required to implement these standards effective January 1, 2002.

In July 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” This statement provides accounting and reporting standards for costs associated with the retirement of long-lived assets. It requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. We have not yet determined the effect that this new accounting standard may have on our results of operations, financial position and cash flows. We will be required to implement this standard effective January 1, 2003.

In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This statement replaces SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” However, it maintains the fundamental provisions of SFAS No. 121 for recognition and measurement of the impairment of long-lived assets to be held and used and for measurement of long-lived assets to be disposed of by sale. This statement applies to all long-lived assets, including discontinued operations, and replaces the provisions of APB Opinion No. 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business,” for the disposal of segments of a business. This statement requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell. We are currently assessing the impact of this standard on our results of operations, financial position and cash flows. We will be required to implement this standard effective January 1, 2002.

DOBSON/ SYGNET COMMUNICATIONS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Forward-Looking Statements

The description of our plans set forth herein, including planned capital expenditures and acquisitions, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These plans involve a number of risks and uncertainties. Important factors that could cause actual capital expenditures, acquisition activity or our performance to differ materially from the plans include, without limitation, our ability to satisfy the financial covenants of our outstanding debt instruments and to raise additional capital; our ability to manage our rapid growth successfully and to compete effectively in our wireless business against competitors with greater financial, technical, marketing and other resources; changes in end-user requirements and preferences; the development of other technologies and products that may gain more commercial acceptance than those of ours; and adverse regulatory changes. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update or revise these forward-looking statements to reflect events or circumstances after the date hereof including, without limitation, changes in our business strategy or planned capital expenditures, or to reflect the occurrence of unanticipated events.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our primary market risk relates to changes in interest rates. Market risk is the potential loss arising from adverse changes in market prices and rates, including interest rates. We do not enter into derivatives or other financial instruments for trading or speculative purposes. The objective of our financial risk management is to minimize the negative impact of interest rate fluctuations on our earnings and equity. On March 30, 2001, our interest rate swap that effectively fixed the interest rate on $85.0 million of the principal outstanding on our credit facility expired. Thus, we currently are not involved with any derivatives or other financial instruments.

The fair market value of long-term fixed interest rate debt is subject to interest rate risk. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. Based on our market risk sensitive instruments outstanding at September 30, 2001, we have determined that there was no material market risk exposure to our consolidated financial position, results of operations or cash flows as of such date.

DOBSON/ SYGNET COMMUNICATIONS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable

Item 2. Changes in Securities and Use of Proceeds

Not applicable

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable

Item 5. Other Information

Not applicable

DOBSON/ SYGNET COMMUNICATIONS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

The following exhibits are filed as a part of this report:


Exhibit			Method of
Number		Description	Filing

	3.1	Registrant’s Amended Certificate of Incorporation.		(2)[3.1]
	3.2	Registrant’s Amended Bylaws.		(2)[3.2]
	4.1	Indenture dated December 23, 1998 between Registrant, as Issuer, and United States Trust Company of New York, as Trustee.		(1)[4.1]
	4.2	Form of Note under Indenture (contained in Exhibit 4.1 hereto).		(1)[4.1]
	4.3	Pledge Agreement dated December 23, 1998 between Registrant, as Pledgor, and NationsBanc Montgomery Securities LLC, Lehman Brothers, Inc., First Union Capital Markets, a division of Wheat First Securities, Inc. and TD Securities (USA) Inc., as Initial Purchasers, and United States Trust Company of New York, as Trustee.		(2)[4.3]
	4.4	Credit Agreement among the Agents and Lenders named therein and Dobson/ Sygnet Operating Company, dated as of December 23, 1998.		(2)[4.5]
	10.1.1	Cellular One License Agreement effective December 1, 1996, between Cellular One Group and Eric Cellular Telephone Company.		(2)[10.3]
	10.1.2	Cellular One License Agreement, effective as of December 17, 1996, between Cellular One Group and Sygnet Communications, Inc. (PA-1)		(2)[10.3.2]
	10.1.3	Cellular One License Agreement, effective as of November 7, 1996, between Cellular One Group and Sygnet Communications, Inc. (PA-6)		(2)[10.3.3]
	10.1.4	Cellular One License Agreement, effective as of January 30, 1997, between Cellular One Group and Sygnet Communications, Inc. (PA-7)		(2)[10.3.4]
	10.1.5	Cellular One License Agreement, effective as of January 1, 1996, between Cellular One Group and Sygnet Communications, Inc. (NY-3)		(2)[10.3.5]


(1)	Filed as an exhibit to the Current Report on Form 8-K of Dobson Communications Corporation (333-23769) filed on January 7, 1999, as the exhibit number indicated in brackets and incorporated by reference herein.

(2)	Filed as an exhibit to Dobson/ Sygnet Communications Company’s Registration Statement on Form S-4 (Registration No. 333-71051), as the exhibit number indicated in brackets and incorporated by reference herein.

(b) Reports on Form 8-K

Not applicable

DOBSON/ SYGNET COMMUNICATIONS COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	DOBSON/ SYGNET COMMUNICATIONS COMPANY

Date: November 13, 2001


	By:	/s/ EVERETT R. DOBSON



	Everett R. Dobson
	Chairman of the Board and
	Chief Executive Officer

Date: November 13, 2001


	By:	/s/ BRUCE R. KNOOIHUIZEN



	Bruce R. Knooihuizen
	Vice President and Chief Financial Officer
	(principal financial officer)

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DOBSON SYGNET COMMUNICATIONS CO 10-Q