SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
----------------------------------
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 0-28262
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AMERICAN PORTABLE TELECOM, INC.
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(Exact name of registrant as specified in its charter)
Delaware 39-1706857
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8410 West Bryn Mawr, Suite 1100, Chicago, Illinois 60631
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 399-4200
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 No X
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date
Class Outstanding at May 31, 1996
Common Shares, $1 par value 31,336,000 Shares
Series A Common Shares, $1 par value 40,000,000 Shares
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<PAGE>
AMERICAN PORTABLE TELECOM, INC.
1ST QUARTER REPORT ON FORM 10-Q
INDEX
Page No.
Part I. Financial Information
Management's Discussion and Analysis of
Results of Operations and Financial Condition 2-4
Consolidated Statements of Operations -
Three Months Ended March 31, 1996 and 1995 5
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1996 and 1995 6
Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995 7
Notes to Consolidated Financial Statements 8-9
Part II. Other Information 10
Signatures 11
<PAGE>
PART I. FINANCIAL INFORMATION
AMERICAN PORTABLE TELECOM, INC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
- - ---------------------
Three Months Ended 3/31/96 Compared to Three Months Ended 3/31/95
American Portable Telecom, Inc. (the "Company" - NASDAQ symbol: APTI), an
82.8%-owned subsidiary of Telephone and Data Systems, Inc. ("TDS"), was formed
to acquire Personal Communications Services ("PCS") licenses from the Federal
Communications Commission ("FCC"), construct PCS networks in its Metropolitan
Trading Areas ("MTAs") and offer wireless PCS communications services in these
areas.
The Company acquired eight licenses in the FCC broadband Block A and Block B PCS
auction which concluded in March 1995. Prior to acquiring the licenses, the
Company devoted substantially all of its efforts to planning for and
participating in the PCS auction. Since its acquisition of PCS licenses, the
Company has been devoting substantially all of its efforts to ramp up, including
recruiting an experienced management team, developing and executing a business
plan, raising capital and designing and constructing a PCS network in each of
its six primary MTAs (Minneapolis, Tampa-St. Petersburg-Orlando, Houston,
Pittsburgh, Kansas City and Columbus). Effective December 31, 1995, TDS
contributed $289.2 million of equity to the Company to cover the original cost
of the eight PCS licenses. The Company's principal focus in 1996 continues to be
the development of its PCS business in its six primary MTAs and this focus will
continue until the expected launch of commercial service in early 1997.
Generally, costs incurred by the Company that are capitalized as work in process
include expenditures for the design, construction and testing of the Company's
PCS networks as well as the cost to relocate dedicated private microwave links
currently operating in the Company's spectrum in its six primary MTAs. Costs
associated with developing information systems are also capitalized. The Company
capitalizes interest where appropriate on certain of its work in process
expenditures and on the cost of the licenses associated with its six primary
MTAs.
The Company's results of operations for 1996 compared to 1995 reflect primarily
increased activities undertaken to prepare the Company's MTAs for initiation of
commercial PCS services. The Company expects no operating revenues in 1996 as
commercial service is not anticipated to commence until early 1997, and expects
its net losses to continue to increase during 1996 as the Company continues its
business development activities.
Development costs-affiliate, decreased $168,000 in 1996, largely as a result of
the continuing growth of the Company's management and operating teams and
ability to independently coordinate the development of its PCS business.
Development costs-affiliate represent management services incurred in the
development of the Company's business and marketing plans.
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<PAGE>
Development costs-other increased $1.7 million in 1996, primarily due to
increased consulting fees incurred in the development of the Company's business
and marketing plans. The increase in development costs-other is also
attributable to a slight increase in legal expenses incurred in the continuing
effort to prepare the Company's MTAs for commercial PCS services.
General and administrative expenses increased $3.6 million in 1996 primarily as
a result of the growth of the Company's management and operating teams and the
resulting increases in salaries, employee benefit costs and overhead expenses.
Other income-affiliate increased $332,000 in 1996 primarily as a result of the
interest income associated with the $28.8 million note receivable-affiliate, for
which payment was received from TDS on February 14, 1996, that was due in
connection with TDS's contribution to the equity capital of the Company in 1995.
Effective December 31, 1995, TDS had contributed $289.2 million of equity to the
Company to cover the original cost of the PCS licenses by converting
approximately $260.4 million of the amount outstanding under the revolving
credit agreement and issuing a note payable to the Company for the balance of
approximately $28.8 million. The $28.8 million in funds received by the Company
in February were invested in interest bearing cash equivalents with TDS.
Interest expense-affiliate increased $1.2 million in 1996 as a result of an
increase in the quarterly average balance outstanding in the Company's
borrowings under the revolving credit agreement with TDS.
Income tax benefit decreased $117,000 in 1996 primarily due to a decrease in the
Company's effective tax rate resulting from increases in the estimated valuation
allowance associated with deferred tax assets. For financial reporting purposes,
the Company computes its federal income taxes as if it were not a member of the
TDS consolidated group for federal income tax purposes.
The Company and TDS entered into a tax allocation agreement which became
effective as of January 1, 1996, pursuant to which, among other things, TDS no
longer reimburses the Company on a current basis for losses or credits used by
TDS in the year they are generated. Instead, the Company calculates its losses
and credits as if it were a separate affiliated group and the Company will be
able to carry forward its losses and credits, if any, to reduce future tax
liabilities.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
The costs of development, construction and start-up activities of the Company
will require substantial capital. The Company expects to incur significant
operating losses and to generate negative cash flow from operating activities
during the next several years, while it develops and constructs its PCS networks
and builds a PCS customer base.
Cash flows used in operating activities was $6.2 million in 1996 and cash flows
provided by operating activities was $232.7 million in 1995. The cash used in
1996 resulted primarily from the $6.7 million net loss generated for the
quarter. The cash provided in 1995 resulted largely from a $233.4 million
increase in accounts payable-other consisting primarily of the remaining $231.1
million due the FCC for licenses acquired in the broadband Block A and Block B
PCS auction.
Cash flows from financing activities provided $30.6 million in 1996 and $36.1
million in 1995. In 1996 the Company received from TDS $28.8 million
representing the balance due in connection with TDS's $289.2 million
contribution to the equity capital of the Company in 1995. The 1995
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<PAGE>
equity contribution was made to cover the original cost of the licenses acquired
in the FCC broadband Block A and Block B PCS auction. The remaining $1.8 million
cash flow from financing activities in 1996 was generated by borrowings under
the Company's revolving credit agreement with TDS. Cash flows from financing
activities in 1995 were also generated by borrowings under the revolving credit
agreement.
Cash flows from investing activities required cash totaling $10.9 million in
1996 and $268.8 million in 1995. Such cash requirements in 1996 consisted
primarily of additions to property and equipment (primarily computer equipment,
office equipment, and leasehold improvements) and capitalized network design,
site acquisition and information system development costs totaling $10.0
million. Cash requirements in 1995 relates entirely to the Company's acquisition
of eight licenses in the FCC broadband Block A and Block B PCS auction.
The Company plans to construct networks in its six primary MTAs. Construction
of the network infrastructure will begin in the second quarter of 1996.
Marketing and selling activities and commercial operations are anticipated to
commence in early 1997.
The Company anticipates construction, development and introduction of PCS
networks and services will require substantial capital and operating
expenditures over the next several years. While construction (including
microwave relocation), and other start-up activities may be impacted by many
factors, the Company estimates that the aggregate funds required through
December 31, 1998 will total approximately $830 million ($420 million in 1996,
$340 million in 1997 and $70 million in 1998). This amount includes an estimated
$585 million of capital expenditures for construction of the PCS networks ($370
million in 1996, $205 million in 1997 and $10 million in 1998) and $245 million
of estimated working capital requirements.
The Company expects 1996 capital expenditures and expenditures for start-up and
development activities to be financed using a variety of resources, including
but not limited to, borrowings under the TDS revolving credit agreement, vendor
financing and equity investors in the Company. In March 1996, the Company
selected Nokia Telecommunications, Inc. ("Nokia") as its sole supplier of
infrastructure equipment during the initial build out of its PCS networks. Nokia
has agreed in principle to provide up to $200 million in financing for the
equipment. Additionally, at March 31, 1996, the Company had an income tax
receivable-affiliate from TDS totaling approximately $12.6 million. In April of
1996, the Company sold 12,250,000 of its common shares, approximately 17.2% of
total outstanding shares, at a price of $17 per share in an initial public
offering. The net proceeds from the offering, after underwriters fees and
estimated expenses, and after repayment of the outstanding balance under the TDS
revolving credit agreement, were approximately $133 million. The Company also
has available $250 million under the revolving credit agreement. The Company
believes that its capital resources should be sufficient to fund the
development, construction and operating costs of the Company's PCS networks at
least through the second quarter of 1997. Sources of additional capital may
include additional vendor financing, private equity and debt financings by the
Company or its subsidiaries.
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<PAGE>
AMERICAN PORTABLE TELECOM, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
Three Months Ended
March 31,
------------------ Cumulative
July 23, 1991 to
1996 1995 March 31, 1996
-------- --------- --------------
OPERATING EXPENSES
Development costs - affiliate $ 177 $ 345 $ 2,424
Development costs - other 1,954 266 5,917
General and administrative 3,615 -- 7,201
---------- ---------- ----------
OPERATING (LOSS) (5,746) (611) (15,542)
Other income - affiliate 333 1 390
---------- ---------- ----------
(LOSS) BEFORE INTEREST
AND INCOME TAXES (5,413) (610) (15,152)
Interest expense - affiliate 1,305 61 2,461
---------- ---------- ----------
(LOSS) BEFORE INCOME TAXES (6,718) (671) (17,613)
Income tax (benefit) (47) (164) (2,990)
---------- ---------- ----------
NET (LOSS) $ (6,671) $ (507) $ 14,623
========== ========== ==========
WEIGHTED AVERAGE COMMON
AND SERIES A COMMON SHARES(000s) 59,086 59,086 59,086
(NOTE 2)
(LOSS) PER COMMON SHARE $ (0.11) $ (0.01) $ (0.25)
========== ========== ==========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
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<PAGE>
AMERICAN PORTABLE TELECOM, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Three Months Ended
March 31,
-------------------------- Cumulative
July 23, 1991 to
1996 1995 March 31, 1996
--------- ----------- ------------
(Dollars in thousands)
CASH FLOWS FROM
OPERATING ACTIVITIES
Net (loss) $ (6,671) $ (507) $ (14,623)
Add (Deduct) adjustments to
reconcile net (loss) to net
cash provided (used) by
operating activities:
Depreciation 189 -- 236
Change in cash - restricted (6) -- (422)
Change in accounts payable
- affiliates and accrued
interest - affiliate (1,174) 16 1,607
Change in accounts payable
- other 2,455 233,396 8,856
Change in income tax refund
receivable - affiliate (139) (34) (12,641)
Change in deferred tax
asset/liability - net (248) (164) 9,494
Change in other assets
and deferred costs (632) -- (833)
--------- ----------- ----------
(6,226) 232,707 (8,326)
--------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Change in note receivable
- affiliate 28,836 -- 28,836
Change in revolving credit
agreement - TDS 1,781 36,087 322,377
Issuance of common stock -- -- 40
---------- ----------- ----------
30,617 36,087 351,253
---------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in PCS licenses -- (268,794) (305,818)
Change in temporary cash and
other investments - affiliate (872) 20 (1,195)
Additions to work in process (8,743) -- (16,801)
Additions to property
and equipment (1,294) -- (5,370)
---------- ----------- ----------
(10,909) (268,774) (329,184)
---------- ----------- ----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 13,482 20 13,743
CASH AND CASH EQUIVALENTS-
Beginning of period 261 10 --
---------- ----------- ----------
End of period $ 13,743 $ 30 $ 13,743
========== =========== ==========
The accompanying notes to consolidated financial statements are
an integral part of these statements.
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<PAGE>
AMERICAN PORTABLE TELECOM, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, 1996 December 31, 1995
---------------- -----------------
(Dollars in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents - affiliate $ 13,743 $ 261
Cash - restricted 422 416
Temporary cash investments - affiliate 239 107
Other investments - affiliate 956 216
Note receivable - affiliate -- 28,836
Income tax refund receivable - affiliate 12,641 12,502
Other 248 201
------------- ------------
28,249 42,539
------------- ------------
FIXED ASSETS AND LICENSES
Property and equipment -
net of accumulated depreciation of $236
and $47, respectively 5,134 4,029
Work in process ($945 affiliate) 16,801 8,058
Investment in PCS licenses 305,818 305,818
------------- ------------
327,753 317,905
------------- ------------
OTHER DEFERRED COSTS 585 --
------------- ------------
TOTAL ASSETS $ 356,587 $ 360,444
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - affiliates $ -- $ 1,284
Accounts payable - other 8,856 6,401
Accrued interest - affiliate 1,607 1,497
------------- ------------
10,463 9,182
------------- ------------
REVOLVING CREDIT AGREEMENT - TDS 62,019 60,238
------------- ------------
DEFERRED TAX LIABILITY 9,494 9,742
------------- ------------
COMMON SHAREHOLDERS' EQUITY
Common stock, $1.00 par value;
authorized 10,000 shares; issued and
outstanding 1,000 shares 1 1
Additional paid-in capital 289,233 289,233
Deficit accumulated during the
development stage (14,623) (7,952)
------------- ------------
274,611 281,282
------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 356,587 $ 360,444
============= ============
The accompanying notes to consolidated financial statements
are an integral part of these statements
-7-
<PAGE>
AMERICAN PORTABLE TELECOM, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these consolidated
financial statements be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's
Current Report on Form 8-K filed June 7, 1996.
The accompanying unaudited consolidated financial statements contain all
adjustments (consisting of only normal recurring items) necessary to
present fairly the financial position as of March 31, 1996 and December
31, 1995, and the results of operations and cash flows for the three
months ended March 31, 1996 and 1995. The results of operations for the
three months ended March 31, 1996 and 1995, are not necessarily indicative
of the results to be expected for the full year.
2. Net (Loss) per Common Share for the three months ended March 31, 1996 and
1995, was computed based on the number of Common Shares outstanding during
the period adjusted to give retroactive effect to the recapitalization in
conjunction with the Company's 1996 initial public offering, as if this
transaction had occurred at January 1, 1995.
3. The following summarizes certain noncash transactions, and interest and
income taxes paid.
Three Months Ended
March 31,
1996 1995
---------- ----------
(Dollars in thousands)
Interest paid $ -- $ --
Income taxes paid -- --
Accrued interest converted to debt under
the Revolving Credit Agreement $ 1,432 $ --
The Company has also capitalized $237,000 of interest in the first quarter
of 1996.
4. In the first quarter of 1996, the Company changed its policy of amortizing
PCS licenses effective January 1, 1996, to amortizing the licenses upon
commencement of service, expected to be in early 1997. This change was
made to provide a better matching of expenses with revenues and to conform
to industry standards.
5. Recapitalization. On March 28, 1996, TDS, as the sole shareholder of the
Company, executed a consent to action in lieu of a meeting, voting all
1,000 shares of common stock of the Company
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<PAGE>
then outstanding for the approval of a Restated Certificate of
Incorporation of the Company. Such Restated Certificate of Incorporation
authorized (a) 60,000,000 Common Shares, $1.00 par value per share; (b)
60,000,000 Series A Common Shares, $1.00 par value per share; (c)
60,000,000 Series B Common Shares, $1.00 par value per share; and (d)
10,000,000 Preferred Shares, $1.00 par value per share. Upon the filing of
the Restated Certificate of Incorporation with the Secretary of State of
the State of Delaware on April 19, 1996, the 1,000 shares of common stock
of the Company theretofore held by TDS were converted into 19,086,000
Common Shares and 40,000,000 Series A Common Shares of the Company.
Initial Public Offering. The Company sold 12,250,000 Common Shares at a
price of $17 per share in an initial public offering on April 25, 1996.
Proceeds of the Offering, net of underwriting discounts and commissions,
totaled $195.3 million. The Company used a portion of the net proceeds to
repay TDS approximately $62.0 million and expects to use the balance of
the funds to partially finance construction, development and operating
costs incurred to establish its PCS networks.
-9-
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
See Item 4.b.
Item 4. Submission of Matters to a Vote of Security-Holders.
(a) On February 19, 1996, TDS, as the sole shareholder of the Company,
executed a consent to action in lieu of a meeting, voting all 1,000 shares of
common stock of the Company then outstanding for the election of the following
persons as directors:
James Barr III
LeRoy T. Carlson
LeRoy T. Carlson, Jr.
Walter C.D. Carlson
Rudolph E. Hornacek
J. Clarke Smith
Murray L. Swanson
Donald W. Warkentin
(b) On March 28, 1996, TDS, as the sole shareholder of the Company,
executed a consent to action in lieu of a meeting, voting all 1,000 shares of
common stock of the Company then outstanding for the approval of a Restated
Certificate of Incorporation of the Company. Such Restated Certificate of
Incorporation authorized (a) 60,000,000 Common Shares, $1.00 par value per
share; (b) 60,000,000 Series A Common Shares, $1.00 par value per share; (c)
60,000,000 Series B Common Shares, $1.00 par value per share; and (d) 10,000,000
Preferred Shares, $1.00 par value per share. Upon the filing of the Restated
Certificate of Incorporation with the Secretary of State of the State of
Delaware on April 19, 1996, the 1,000 shares of common stock of the Company
theretofore held by TDS were converted into 19,086,000 Common Shares and
40,000,000 Series A Common Shares of the Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 11 - Computation of earnings per common share.
(b) Exhibit 27 - Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1996.
-10-
<PAGE>
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.
AMERICAN PORTABLE TELECOM, INC
(Registrant)
Date June 7, 1996
/s/ DONALD W. WARKENTIN
---------------------------
Donald W. Warkentin
President
(Chief Executive Officer)
Date June 7, 1996
/s/ J. CLARKE SMITH
---------------------------
J. Clarke Smith
Vice President-Finance and Administration
(Chief Financial Officer)
Date June 7, 1996
/s/ B. SCOTT DAILEY
---------------------------
B. Scott Dailey
Controller
(Principal Accounting Officer)
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<PAGE>
Exhibit 11
American Portable Telecom, Inc. and Subsidiaries
(A Development Stage Enterprise)
Computation of Earnings Per Common Share
(in thousands, except per share amounts)
Three Months Ended March 31, 1996 1995
- - ---------------------------- ----- ----
Primary Earnings
Net (Loss) $ (6,671) $ (507)
========== ==========
Primary Shares
Weighted average number of Common and Series A
Common Shares Outstanding* 59,086 59,086
========== ==========
Primary Earnings per Common Share
Net (Loss) $ (.11) $ (.01)
========== ==========
* Weighted average number of Common and Series A Common Shares Outstanding was
calculated based on the number of Common Shares outstanding during the period
adjusted to give retroactive effect to the recapitalization in conjunction with
the Company's initial public offering, as if this transaction had occurred at
January 1, 1995.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements of American Portable Telecom, Inc. as of March
31, 1996, and for the three months then ended, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 14,404
<SECURITIES> 956
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28,249
<PP&E> 5,370
<DEPRECIATION> 236
<TOTAL-ASSETS> 356,587
<CURRENT-LIABILITIES> 10,463
<BONDS> 62,019
<COMMON> 1
0
0
<OTHER-SE> 274,610
<TOTAL-LIABILITY-AND-EQUITY> 356,587
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,746
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,305
<INCOME-PRETAX> (6,718)
<INCOME-TAX> (47)
<INCOME-CONTINUING> (6,671)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,671)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
