SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 1-14108
360 COMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
47-0649117
(I.R.S. Employer Identification No.)
8725 W. Higgins Road
Chicago, Illinois
60631-2702
(773) 399-2500
(Address and telephone number of principal executive offices)
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
On September 30, 1998, 1,000 shares of the registrant's common stock were
outstanding (100% owned by ALLTEL Corporation).
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements ............................................1
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................*
Item 2. Changes in Securities ...........................................14
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.................................14
- -----------------------------------------------------------------------------
* No reportable information under this item.
Forward-Looking Statements:
- ---------------------------
When used in this Report, the words "intends," "expects," "plans," "estimates,"
"projects," "believes," "anticipates," and similar expressions are intended to
identify forward-looking statements. Specifically, statements included in this
Report that are not historical facts, including statements about the Company's
beliefs and expectations about continued market and industry growth rates are
forward-looking statements. Such statements are subject to risks and
uncertainties that could cause actual results or outcomes to differ materially.
Such risks and uncertainties include, but are not limited to, the degree to
which the Company is leveraged and the restrictions imposed on the Company under
its existing debt instruments that may adversely affect the Company's ability to
finance its future operations, to compete effectively against better capitalized
competitors and to withstand downturns in its business or the economy generally;
the continued downward pressure on the prices charged for cellular equipment and
services resulting from increased competition in the Company's markets; the lack
of assurance that the Company's ongoing network improvements and scheduled
implementation of digital technology in its markets will be sufficient to meet
or exceed the capabilities and quality of competing networks; the effect on the
Company's operations and financial performance of changes in the regulation of
cellular activities; the degree to which the Company incurs significant costs as
a result of cellular fraud; higher than anticipated expenditures associated with
the Company's Year 2000 efforts and the other factors discussed in the Company's
filings (File No. 1-14108) with the Securities and Exchange Commission.
Forward-looking statements included in this Report speak only as of the date
hereof and the Company undertakes no obligation to revise or update such
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
i
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
360 COMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
ASSETS 1998 1997
------ ------------- ------------
Current Assets: (Unaudited)
Cash and cash equivalents $ 6,975 $ 3,471
Accounts receivable, less allowances
of $7,900 and $6,602, respectively 115,943 100,472
Other receivables 37,263 26,981
Unbilled revenue 40,553 35,618
Inventory 29,832 34,354
Prepaid expenses and other 23,564 14,051
---------- ----------
Total current assets 254,130 214,947
---------- ----------
Property, plant and equipment 1,890,919 1,750,097
Less: accumulated depreciation 690,483 561,140
---------- ----------
Property, plant and equipment, net 1,200,436 1,188,957
---------- ----------
Investments in unconsolidated entities 488,470 459,669
Intangibles, net 1,021,852 1,045,007
Other assets 22,267 18,124
---------- ----------
Total assets $2,987,155 $2,926,704
========== ==========
LIABILITIES AND SHAREOWNERS' EQUITY
-----------------------------------
Current Liabilities
Trade accounts and other payables $ 171,181 $ 241,127
Interim financing 499,315 -
Short-term borrowings - 18,150
Advance billings 38,150 31,779
Accrued taxes 8,989 17,846
Accrued agent commissions 16,214 11,923
Other 111,805 46,386
---------- ----------
Total current liabilities 845,654 367,211
---------- ----------
Long-term debt 1,328,413 1,825,347
---------- ----------
Deferred Credits and Other Liabilities
Deferred income taxes 107,485 45,250
Postretirement and other benefit obligations 5,243 6,347
---------- ----------
Total deferred credits and other liabilities 112,728 51,597
---------- ----------
Minority interests in consolidated entities 172,378 173,248
---------- ----------
Shareowners' Equity
Common stock ($.01 par value: 1,000 shares
authorized, issued and outstanding in 1998,
1,000,000,000 shares authorized; issued and
outstanding 121,267,127 shares in 1997) - 1,233
Additional paid-in capital 745,233 774,938
Accumulated deficit (217,251) (229,437)
Treasury stock, at cost
(2,097,021 shares in 1997) - (37,433)
---------- ----------
Total shareowners' equity 527,982 509,301
---------- ----------
Total liabilities and shareowners' equity $2,987,155 $2,926,704
========== ==========
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
1
<PAGE>
<TABLE>
360 COMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------- --------------------
1998 1997 1998 1997
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
Operating revenues:
Service revenues $407,672 $335,245 $1,134,319 $958,049
Equipment sales 12,851 12,264 39,652 36,568
-------- -------- ---------- --------
Total operating revenues 420,523 347,509 1,173,971 994,617
-------- -------- ---------- --------
Operating expenses:
Cost of service 45,698 37,127 130,247 118,899
Cost of equipment sales 23,347 28,486 77,211 81,329
Other operations expense 22,427 19,177 57,247 51,182
Sales, marketing and advertising expenses 54,948 54,438 178,271 170,692
General, administrative and other expenses 90,114 77,399 262,409 230,698
Depreciation and amortization 51,893 45,376 152,455 137,738
Merger and integration expenses 136,579 - 136,579 -
-------- -------- ---------- --------
Total operating expenses 425,006 262,003 994,419 790,538
-------- -------- ---------- --------
Operating income (loss) (4,483) 85,506 179,552 204,079
Interest expense (33,005) (33,570) (99,845) (97,603)
Minority interests in net income
of consolidated entities (19,364) (13,534) (50,922) (39,451)
Equity in net income of
unconsolidated entities 20,793 16,536 53,243 44,454
Other income, net 1,221 73 32,817 3,060
-------- -------- ---------- --------
Income (loss) before income taxes (34,838) 55,011 114,845 114,539
Income tax expense 34,216 26,132 102,660 54,408
-------- -------- ---------- --------
Net income (loss) $(69,054) $ 28,879 $ 12,185 $ 60,131
======== ======== ========== ========
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
</TABLE>
2
<PAGE>
360 COMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the Nine Months
Ended September 30,
-------------------
1998 1997
--------- --------
Operating Activities
Net income $ 12,185 $ 60,131
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 152,455 137,738
Deferred income taxes 52,608 27,822
Gain on sale of cellular investments (33,357) (3,029)
Equity in net income of unconsolidated
entities, net of distributions (17,078) (24,639)
Minority interests in net income of
consolidated entities 50,921 39,451
Changes in operating assets and liabilities,
excluding acquisitions
Receivables, net (30,688) 4,115
Other current assets 4,522 2,551
Trade accounts and other payables (69,946) (48,771)
Accrued expenses and other
current liabilities 67,224 9,353
Noncurrent assets and liabilities, net 19,946 (3,985)
Other, net (4,895) 2,453
--------- --------
Net Cash Provided by Operating Activities 203,897 203,190
--------- --------
Investing Activities
Capital expenditures (140,653) (154,234)
Acquisitions of additional interests in
consolidated entities (20,543) (61,685)
Divestitures of cellular investments 21,634 3,888
Investments in unconsolidated entities and other - (80,735)
--------- --------
Net Cash Used for Investing Activities (139,562) (292,766)
--------- --------
Financing Activities
Net payments under bank revolving credit facility (600,000) (50,000)
Proceeds from long-term debt 100,000 200,000
Debt issuance costs (856) (1,609)
Net short-term borrowings (payments) (18,150) (14,575)
Purchases of common stock for treasury - (24,152)
Changes in interim financing 499,315 -
Distributions to minority investors (43,017) (17,878)
Other, net 1,877 1,008
--------- --------
Net Cash Provided by (Used for) Financing Activities (60,831) 92,794
--------- --------
Increase in Cash and Cash Equivalents 3,504 3,218
Cash and Cash Equivalents at Beginning of Period 3,471 2,554
--------- --------
Cash and Cash Equivalents at End of Period $ 6,975 $ 5,772
========= ========
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
3
<PAGE>
360 COMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Consolidation and Presentation
360 Communications Company and Subsidiaries (the "Company") provide
wireless voice and data telecommunications services. The Company also markets
residential long distance and paging services in the states in which the
Company provides wireless service. The Company operates as a general and
limited partner and majority owner of cellular systems in various metropolitan
and rural service areas and as a limited minority partner or manager in other
cellular systems. The accompanying consolidated financial statements include
the accounts of the Company and its wholly owned and majority-owned
subsidiaries. The assets, liabilities and results of operations of entities
(both corporations and partnerships) in which the Company has a controlling
interest have been consolidated. The ownership interests of noncontrolling
owners in such entities are reflected as minority interests. The Company
accounts for all other investees using the equity method of accounting. All
significant intercompany accounts and transactions have been eliminated.
The unaudited consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and are presented in
accordance with the rules and regulations of the Securities and Exchange
Commission applicable to interim financial information. In the Company's
opinion, the unaudited consolidated financial statements include all adjustments
necessary to present fairly the financial position and results of operations for
each interim period presented. All such adjustments are of a normal recurring
nature. These financials should be read in conjunction with the consolidated
financial statements, including the notes thereto, included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997.
2. Merger Agreement with ALLTEL Corporation
On July 1, 1998, the Company and ALLTEL Corporation ("ALLTEL") completed
the merger of an ALLTEL subsidiary with and into the Company under a definitive
merger agreement entered into on March 16, 1998. Under terms of the merger
agreement, the Company became a wholly-owned subsidiary of ALLTEL, and each
outstanding share of the Company's common stock was converted into the right to
receive .74 of a share of ALLTEL common stock, par value $1.00 per share (89.8
million shares in the aggregate). At the time of the merger, all shares held in
treasury by the Company were retired and the cost of the treasury shares were
charged to additional paid in capital. In addition, each issued and outstanding
share of common stock of the ALLTEL subsidiary involved in the merger was
converted into one validly issued, fully paid and non-assessable share of common
stock of the surviving corporation representing 1,000 shares of common stock,
$0.01 par value. A summary of the Company's shareowners' equity before and after
the merger is as follows:
<TABLE>
<CAPTION>
At June 30, 1998 At July 1, 1998
-------------------------------- ---------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Common stock 121,443,845 $ 1,233,641 1,000 $ 10
Additional paid-in capital - 777,533,036 - 745,227,114
Acccumulated deficit - (148,198,854) - (148,198,854)
Treasury stock, at cost 1,920,303 (33,539,553) - -
----------- ------------ ----- ------------
Total shareowners' equity 123,364,148 $597,028,270 1,000 $597,028,270
=========== ============ ===== ============
</TABLE>
4
<PAGE>
3. Merger and Integration Expenses:
During the third quarter of 1998, the Company recorded transaction
costs of $136.6 million related to the merger with ALLTEL. The merger and
integration expenses include professional and financial advisors' fees of $17.4
million, severance and employee-related expenses of $48.7 million and other
integration costs of $70.5 million. The merger and integration plan approved by
ALLTEL's board of directors provides for the reduction of 447 employees,
primarily in the Company's corporate support functions, to be completed by the
first quarter of 1999. As of September 30, 1998, the Company had paid $4.2
million in severance and employee-related expenses and 40 out of the total 447
employee reductions had been completed. Included in the other integration costs
are costs associated with the early termination of certain service obligations.
The following is a summary of activity related to the Company's merger and
integration accrual:
(In Thousands)
--------------
Total merger and integration costs $136,579
Cash outlays (54,182)
--------
Accrued reserve balance at September 30, 1998 $ 82,397
========
4. Acquisitions and Divestitures
During the third quarter of 1998, the Company divested its remaining 10%
ownership interest in the Reading, Pennsylvania market. The Company recognized a
gain of $1.8 million in other income on this transaction. During the second
quarter of 1998, the Company acquired minority interests in two of its
controlled markets and divested 5.85% of its ownership interest in the Reading,
Pennsylvania market. The Company recognized a gain of $1.1 million in other
income on this transaction. During the first quarter of 1998, the Company
divested its 27.9% interest in the Omaha, Nebraska, cellular market through the
sale of its interest in the Omaha Cellular General Partnership. This divestiture
was initiated by the managing partner's exercise of an option to acquire the
Company's interest pursuant to a preexisting agreement. The Company recognized a
gain of $30.5 million in other income ($18.1 million, net of tax) on this
transaction. Also during the first quarter of 1998, the Company acquired a
minority interest in one of its controlled markets.
During the first and second quarters of 1997, the Company divested
ownership interests in certain unconsolidated entities as well as in one of its
controlled markets. During the second quarter of 1997, the Company and BellSouth
Corporation ("BellSouth") combined their interests in two partnerships that own
and control cellular licenses and operations in Richmond, Virginia, and Orlando,
Florida. The resulting partnership is owned approximately 75% by BellSouth and
25% by the Company, with the Company assuming management responsibilities of the
cellular operations in Richmond. In connection with this transaction, the
Company contributed $80 million to the resulting partnership. In 1997, the
Company acquired minority interests in 15 of its controlled markets, which
increased its ownership interest to 100% in 10 of those markets.
5
<PAGE>
5. Comprehensive Income
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." This statement requires that
all items recognized under accounting standards as components of comprehensive
income be reported in a full set of general purpose financial statements. The
Company does not have any components of comprehensive income to report.
6. Related Party Transactions
The Company obtains short-term financing from, and invests short-term
excess funds with ALLTEL. At September 30, 1998, the Company had a payable to
ALLTEL which totaled $499.3 million and is included in interim financing in the
accompanying balance sheets. The interest rates charged on amounts payable to
ALLTEL approximate current market rates.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
GENERAL
The following is a discussion and analysis of the historical results of
operations and financial condition of 360 Communications Company and
Subsidiaries (the "Company") and factors affecting the Company's financial
resources. This discussion should be read in conjunction with the consolidated
financial statements, including the notes thereto, set forth herein under
"Financial Statements" and the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997. This discussion contains forward-looking
statements which are qualified by reference to, and should be read in
conjunction with, the Company's discussion regarding such statements as
set forth under "Forward-Looking Statements" (See Table of Contents on page i of
this Report).
COMPLETION OF MERGER WITH ALLTEL CORPORATION
As more fully discussed in note 2 to the unaudited interim consolidated
financial statements, on July 1, 1998, the Company and ALLTEL Corporation
("ALLTEL") completed the merger of an ALLTEL subsidiary with and into the
Company (the "Merger"). At the effective time of the Merger, the Company became
a wholly owned subsidiary of ALLTEL, and each outstanding share of the Company's
common stock (other than shares owned by ALLTEL, ALLTEL subsidiaries, the
Company's subsidiaries, or held as treasury stock by the Company) was converted
into the right to receive .74 of a share of the common stock, par value $1.00
per share, of ALLTEL (89.8 million shares in aggregate).
Results for the third quarter of 1998 were affected by merger and
integration expenses recorded by the Company in connection with its merger with
ALLTEL. The merger and integration expenses, which total $136.6 million on a
pretax basis, include professional and financial advisors' fees, severance and
employee-related expenses and other integration costs, including costs
associated with the early termination of certain service obligations. See note 3
to the unaudited interim consolidated financial statements for additional
information regarding the merger and integration expenses recorded by the
Company.
In connection with the completion of the Merger, the Company terminated the
Second Amended and Restated Credit Agreement dated as of December 5, 1997 among
the Company and a number of banks and institutional lenders (the "Credit
Facility"), and ALLTEL refinanced the outstanding borrowings thereunder
(approximately $495 million) through its existing credit facilities. The
refinancing of the Credit Facility borrowings was recorded as an advance from
ALLTEL and is included in interim financing in the consolidated balance sheet of
the Company as of September 30, 1998. Also, on July 1, 1998, the Company's
common stock was delisted for trading from the New York Stock Exchange, the
Pacific Exchange and the Chicago Stock Exchange.
7
<PAGE>
RESULTS OF OPERATIONS
Service Revenues
Service revenues increased 21.6% and 18.4% in the three and nine months
ended September 30, 1998, respectively, when compared to the corresponding 1997
periods, primarily from growth in the number of cellular customers. The number
of cellular customers increased to 2,801,000 at September 30, 1998, from
2,450,000 at September 30, 1997, resulting in a 14.3% increase. Service revenues
also increased in the three and nine month periods of 1998 due to increased
usage of the Company's network.
Consistent with the rest of the cellular industry, the Company has
experienced increased penetration in the consumer market, fueled by declining
cellular telephone equipment prices and increased promotional activities, an
increased awareness of wireless communications, widespread distribution channels
in consumer-oriented retail locations and expanded network coverage and
capacity. The Company expects this trend to continue. Service revenue per
average customer per month was $48.65 and $46.12 during the three months ended
September 30, 1998 and 1997, respectively, and $46.61 and $45.69 during the nine
months ended September 30, 1998 and 1997, respectively. The increases in service
revenue per average customer per month in both the three and nine month periods
of 1998 were primarily due to increased usage of the Company's network and
decreased promotional activities. The Company will continue to implement
marketing and sales strategies to manage service revenues per average customer
per month. However, the Company expects that service revenue per average
customer per month will continue to be impacted by increased penetration into
lower-usage market segments.
Roaming airtime minutes increased during the three and nine months ended
September 30, 1998. Roaming revenues as a percent of service revenues increased
during the three months ended and were virtually flat during the nine months
ended September 30, 1998. The Company expects that roaming rates between
carriers will continue to be reduced which may reduce revenues derived from
cellular service users who roam into the Company's systems. The Company expects
roaming airtime to increase as reduced roaming rates between carriers ultimately
are passed on to customers.
Cost of Service
Cost of service as a percent of service revenues was 11.2% and 11.1% for
the three months ended September 30, 1998 and 1997, respectively, and 11.5% and
12.4% for the nine months ended September 30, 1998 and 1997, respectively. A
reduction in unbillable fraudulent roaming activities, renegotiated wholesale
roaming rates, renegotiated long distance contracts in 1997, and reduced
interconnection rates paid to local telephone companies were key factors
favorably impacting the decline in cost of service as a percent of service
revenues during the nine months ended September 30, 1998. Long-distance
telecommunications and operator services are provided to the company by Sprint
Corporation based on terms and conditions of contracts governing such charges.
8
<PAGE>
Cost to Acquire New Customers
Cost to acquire a new cellular customer decreased 5.0% in the three month
period and increased 5.0% in the nine month period ended September 30, 1998,
respectively. The decrease in the cost to acquire a new cellular customer for
the three month period primarily reflects reduced advertising costs due to the
merger with ALLTEL, as the Company limited its promotional activities until all
of its retail locations could be converted to the ALLTEL brand name. The
increase in cost to acquire for the nine month period of 1998 was primarily the
result of distributing costs over a lower number of acquired customers when
compared to the corresponding prior period. Also contributing to the increase in
the cost to acquire was increased sales from external distribution channels
which were partially offset by a continued reduction in the wholesale prices for
cellular phones.
Other Operations Expense and General Administrative and Other Expenses
Other operations expense and general, administrative and other expenses
increased principally due to growth in the cellular customer base. During the
three months ended September 30, 1998 and 1997, these expenses as a percent of
service revenues were 27.6% and 28.8%, respectively, and 28.2% and 29.4% during
the nine months ended September 30, 1998 and 1997, respectively. The decreases
in both the three and nine month periods of 1998 are attributable to economies
of scale realized as a result of customer growth.
Depreciation and Amortization
During the three and nine months ended September 30, 1998, amortization
expense decreased 4.2% and 6.2% when compared to the corresponding periods in
1997 due to a reduction in the amount of amortizable goodwill related to
cellular properties acquired in the fourth quarter of 1996. The Company
periodically assesses the ongoing value of these intangible assets and expects
the carrying amounts to be fully recoverable.
During the three and nine months ended September 30, 1998, depreciation
expense increased 18.3% and 14.3% when compared to the corresponding periods in
1997. The increases in depreciation expense are primarily due to additional
capital investment in the Company's network. Depreciation expense as a percent
of service revenues for the three months ended September 30, 1998 and 1997 was
10.8% and 11.1%, respectively, and 11.4% and 11.8% for the nine months ended
September 30, 1998 and 1997, respectively.
Interest Expense
When compared to the corresponding periods of 1997, interest expense
decreased slightly in the three months and increased $2.2 million or 2% in the
nine months ended September 30, 1998, respectively. The increase in the nine
month period of 1998 primarily reflects the issuance of $100 million of 6.65%
Senior Notes issued in January 1998, partially offset by decreased borrowings
outstanding under the Company's Credit Facility. Long-term debt currently
consists of $450 million of 7 1/8% Senior Notes due 2003, $450 million of 7 1/2%
Senior Notes due 2006, $200 million of 7.6% Senior Notes due 2009, $100 million
of 6.65% Senior Notes due 2008 and approximately $128 million of 9% subordinated
promissory notes.
9
<PAGE>
The Company also utilizes advances from ALLTEL in the form of interim
financing to fund daily cash requirements. Interest rates charged on amounts
payable to ALLTEL approximate current market rates.
Minority Interests in Net Income of Consolidated Entities
Minority interests in net income of consolidated entities represents other
investors' interests in the operating results of cellular systems in which the
Company has a controlling interest. The increases for the three and nine months
ended September 30, 1998 were primarily due to the Company's improved operating
results.
Equity in Net Income of Unconsolidated Entities
Equity in net income of unconsolidated entities represents the Company's
share of operating results of cellular systems in which the Company does not
have a controlling interest. Equity earnings increased for the three and nine
months ended September 30, 1998, when compared to the prior year period,
primarily as a result of increased income generated by minority cellular
investments in markets that continue to mature.
Income Taxes
The Company's income tax expense increased for the three and nine months
ended September 30, 1998, when compared to the corresponding period in 1997
primarily due to the growth in the Company's earnings from continuing
operations, excluding the impact of the merger and integration expenses. The
Company did not recognize a tax benefit related to the non-deductible portion of
the merger and integration expenses.
Liquidity and Capital Resources
Cash Flows - Operating Activities
Net cash provided by operating activities were $203.9 million and $203.2
million for the nine months ended September 30, 1998 and 1997, respectively.
Cash flows provided by operations for the nine month period of 1998 increased
due to the improved operating results of the Company, excluding the merger and
integration expenses and an increase in deferred income taxes. These increases
in cash flows provided by operations were offset by changes in working capital
requirements and by gains realized from the sale of cellular investments.
Cash Flows - Investing Activities
Capital expenditures were $140.7 million and $154.2 million for the nine
months ended September 30, 1998 and 1997, respectively. Total capital
expenditures for the calendar year 1998 are projected to be $250 million. During
the second and third quarters of 1998, the Company began commercially offering
digital service to its customers in the Raleigh, North Carolina; Greensboro,
North Carolina; Greenville, South Carolina; Norfolk and Richmond, Virginia; and
Toledo, Ohio service areas. On a limited basis, the Company has increased its
ownership interests in certain of its controlled markets. See note 4 to the
unaudited interim consolidated financial statements for a discussion of
acquisitions and divestitures.
10
<PAGE>
Cash Flows - Financing Activities
As previously discussed, in connection with the merger with ALLTEL,
approximately $495 million of borrowings outstanding under the Company's Credit
Facility were refinanced by ALLTEL. The refinancing of the Credit Facility
borrowings is included in the net change in interim financing for the nine
months ended September 30, 1998.
The Company also receives advances from ALLTEL in the form of interim
financing to support its daily cash requirements. Any excess cash is used to
repay the advance from ALLTEL. Prior to its merger with ALLTEL, the Company
utilized short-term borrowings based on market interest rates to support its
daily cash requirements.
In the first quarter of 1998, the Company issued $100 million in aggregate
principal amount of its 6.65% Senior Notes due 2008. The net proceeds received
by the Company from the sale of these debt securities were used to repay a
portion of the borrowings outstanding under the Credit Facility.
In the first quarter of 1997, the Company issued $200 million in aggregate
principal amount of its 7.6% Senior Notes due 2009. The net proceeds received by
the Company from the sale of these debt securities were used to repay a portion
of the borrowings outstanding under the Credit Facility.
Other Financial Information
During the first nine months of 1998, there were no material changes in
the market risks discussed in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and for Hedging Activities", ("SFAS 133"). This Statement
establishes accounting and reporting standards requiring that every derivative
instrument be recorded on the balance sheet as either an asset or liability
measured at fair value. SFAS 133 requires that changes in a derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate and
assess the effectiveness of transactions that receive hedge accounting. SFAS 133
is effective for fiscal years beginning after June 15, 1999, and cannot be
applied retroactively. The Company has not yet quantified the impacts of
adopting SFAS 133 on its financial statements; however, SFAS 133 could increase
the volatility of reported earnings and other comprehensive income once adopted.
11
<PAGE>
Year 2000 Compliance
The Year 2000 issue affects the Company's internal computer systems and
infrastructure, as well as certain services that the Company provides to its
customers. The Company plans to achieve Year 2000 compliance by June 30, 1999.
The Company's Year 2000 plan consists of eight phases: (i) Awareness; (ii)
Inventory; (iii) Third-Party Strategies; (iv) Risk Assessment; (v) Planning;
(vi) Remediation; (vii) Testing; and (viii) Implementation.
For the Company's internal computer systems and software, systems and
services that the Company provides to its customers and for which the Company is
responsible, the Awareness and Inventory phases have been completed. The Company
has commenced work on and plans to complete the Third-Party Strategies phase by
November 30, 1998, the Planning phase by December 15, 1998, the Risk Assessment
phase by December 31, 1998, and the Remediation, Testing and Implementation
phases by June 30, 1999.
For the Company's infrastructure, including facilities and embedded
technologies, the Company has completed the Awareness and Inventory phases and
has commenced work on and plans to complete the Third-Party Strategies, Planning
and Risk Assessment phases by November 30, 1998 and the Remediation, Testing,
and Implementation phases by June 30, 1999.
As part of its Year 2000 plan, the Company has implemented a third party
management process and is continuing to contact its vendors, suppliers and other
third parties upon which the Company depends regarding their plans for making
their products, services and systems Year 2000 compliant. The Company's ability
to meet its target completion dates is dependent upon the timely provision of
upgrades or other solutions from its vendors and suppliers. Some third party
upgrades or other solutions may not be available until early 1999, which may
delay the Company's completion of its Remediation, Testing, and Implementation
phases. The Company is also dependent upon other third parties who provide
essential services (such as utilities, interexchange carriers, etc.) to make
their critical systems Year 2000 compliant in a timely manner. Generally, the
Company does not have the ability to test those systems for Year 2000 compliance
and, instead, must rely on the third parties' representations.
Contingency planning to maintain and restore service in the event of a
natural disaster, power failure, or software related interruption has long been
part of the Company's standard business practices. The Company is working to
leverage this experience in the development and implementation of its Year 2000
contingency plans, which assess the potential for business disruption in various
scenarios, including a possible, but unlikely, "worst case" scenario involving
the interruption of telecommunications services and/or interruption of customer
billing, operating and other information systems, and provide for key-operation
back-up and alternative solutions for recovery. The Company expects to complete
contingency planning for its critical systems by December 31, 1998.
12
<PAGE>
The Company estimates the total cost of its Year 2000 efforts to be between
$5 and $6 million. As of September 30, 1998, the Company has incurred
approximately $2 million of that amount. Some of the Company's Year 2000 costs
are not incremental, but rather represent the redeployment of existing
resources. The Company continues to evaluate the estimated costs associated with
its Year 2000 efforts based on actual experience. The Company believes, based on
available information, that its Year 2000 costs will not have a material adverse
effect on its results of operations.
The above information is based on the Company's current best estimates
using numerous assumptions of future events. Given the complexity of the Year
2000 issues and possible unidentified risks, actual results may vary from those
anticipated and discussed above.
13
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
As previously discussed, in connection with the merger with ALLTEL, on
July 1, 1998, the Company's common stock, $0.01 par value per share was
converted into the right to receive .74 of a share of ALLTEL common stock, par
value $1.00 per share. Also on July 1, 1998, the Company's common stock was
delisted for trading from the New York Stock Exchange, the Pacific Exchange
and the Chicago Stock Exchange.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
The following exhibits are included in this Form 10-Q report:
Exhibit
No. Description of Exhibits
---- -----------------------
(27) Financial Data Schedule for the nine months ended
September 30, 1998.
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during the quarter for which this
report is filed.
14
<PAGE>
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.
360 COMMUNICATIONS COMPANY
By: /s/ Jeffery R. Gardner
Jeffery R. Gardner
Senior Vice President - Finance
(Principal Accounting Officer)
Date: November 13, 1998
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FINANCIAL
STATEMENTS INCLUDED AS PART OF 360 COMMUNICATIONS' THIRD QUARTER 10-Q.
</LEGEND>
<CIK> 0001003959
<NAME> 360 COMMUNICATIONS
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,975
<SECURITIES> 0
<RECEIVABLES> 153,206
<ALLOWANCES> 7,900
<INVENTORY> 29,832
<CURRENT-ASSETS> 254,130
<PP&E> 1,890,919
<DEPRECIATION> 690,483
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0
0
<COMMON> 0
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<SALES> 39,652
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<LOSS-PROVISION> 136,579
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