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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-Q/A
(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, 1999
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 333-60639
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AMERICAN CELLULAR CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 22-3043811
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
</TABLE>
1375 East Woodfield Road, Suite 700
Schaumburg, Illinois 60173
(Address of principal executive offices)
Registrant's telephone number, including area code: (847) 995-8770
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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
Company was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
The number of shares of Class A Common Stock, par value $.01 per share, and
Class B Common Stock, par value $.01 per share, of the Company outstanding as
of December 14, 1999 was approximately 254,672 and 14,715, respectively. There
is no trading market for the Common Stock of the Company.
EXPLANATORY NOTE
This Form 10-Q/A for the quarterly period ended September 30, 1999 amends
and restates in its entirety the Company's Form 10-Q for the quarterly period
ended September 30, 1999, as filed with the Securities and Exchange Commission
on November 15, 1999. This Form 10-Q/A is being filed to reflect the deferred
tax provision and related liability as of September 30, 1999.
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
--------
<C> <S> <C>
Item 1. Financial Information
Condensed Consolidated Balance Sheets--September 30, 1999
and December 31, 1998....................................... 1
Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 1999 and 1998, and the Nine
Months Ended September 30, 1999 and the Period from February
26, 1998 (Date of Formation) to September 30, 1998.......... 2
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1999 and the Period from February
26, 1998 (Date of Formation) to September 30, 1998..... .... 3
Notes to Condensed Consolidated Financial Statements........ 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 14
Item 2. Changes in Securities and Use of Proceeds................... 14
Item 3. Defaults Upon Senior Securities............................. 14
Item 4. Submission of Matters to a Vote of Security Holders......... 14
Item 5. Other Information........................................... 14
Item 6. Exhibits and Reports on Form 8-K............................ 15
</TABLE>
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PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 43,330 $ 34,015
Restricted short-term investments................. 27,729 26,550
Accounts receivable, net of allowance for doubtful
accounts of $1,062 in 1999 and $2,084 in 1998.... 39,367 26,494
Inventories....................................... 4,117 2,005
Prepaids and other current assets................. 2,128 1,569
---------- ----------
Total current assets............................ 116,671 90,633
Cellular facilities, equipment, and other, net...... 177,703 159,792
Other assets........................................ 1,203,756 1,267,175
---------- ----------
Total assets.................................... $1,498,130 $1,517,600
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................. $ 4,000 $ 3,000
Accounts payable.................................. 5,457 6,022
Interest payable.................................. 28,359 22,061
Accrued operating expenses........................ 12,407 16,620
Income and other taxes payable.................... 7,679 3,398
Deferred revenue.................................. 5,926 6,170
Other current liabilities......................... 1,307 989
---------- ----------
Total current liabilities....................... 65,135 58,260
Long-term debt...................................... 1,193,134 1,195,971
Deferred income taxes............................... 3,977 --
Stockholders' equity:
Series A cumulative redeemable preferred stock,
$0.01 par value, $100 liquidation value, net of
$2,000 notes receivable from stockholders;
authorized 5,000,000 shares; 3,250,000 shares
issued and outstanding, including $53,862 in 1999
and $21,375 in 1998 of accrued dividends......... 376,862 344,375
Common stock, $0.01 par:
Class A: Authorized 475,000 shares; issued and
outstanding 254,672 shares....................... 3 3
Class B: Authorized 25,000 shares; 15,315 shares
issued and 14,715 shares outstanding at September
30, 1999 and 19,687 shares issued and 19,387
outstanding at December 31, 1998................. -- --
Additional paid-in capital........................ 25,191 25,191
Accumulated deficit............................... (166,172) (106,200)
---------- ----------
Total stockholders' equity...................... 235,884 263,369
---------- ----------
Total liabilities and stockholders' equity...... $1,498,130 $1,517,600
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
1
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AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months February 26, 1998
Ended Ended Ended (date of formation)
September 30, September 30, September 30, to September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------------
<S> <C> <C> <C> <C>
Revenues
Subscriber revenues..... $ 31,658 $ 27,828 $ 92,346 $ 27,828
Roaming revenues........ 34,480 19,592 75,989 19,592
Toll revenues........... 13,494 10,163 30,409 10,163
Equipment sales......... 2,725 1,682 7,087 1,682
Other................... 2,348 1,840 6,238 1,840
-------- -------- -------- --------
Total revenues........ 84,705 61,105 212,069 61,105
Costs and expenses
Cost of cellular
service................ 7,055 4,922 18,154 4,922
Cost of equipment sold.. 5,111 3,246 13,128 3,246
General and
administrative......... 11,387 8,974 32,565 8,974
Sales and marketing..... 7,632 7,410 21,972 7,410
Depreciation and
amortization........... 24,696 22,506 72,607 22,506
Non-recurring charges... -- 76 -- 4,154
-------- -------- -------- --------
Total costs and
expenses............. 55,881 47,134 158,426 51,212
-------- -------- -------- --------
Operating income........ 28,824 13,971 53,643 9,893
Other income (expense)
Interest expense........ (27,121) (29,875) (80,620) (33,864)
Interest income......... 1,121 1,588 3,454 3,744
Other income, net....... 23 250 82 250
-------- -------- -------- --------
(25,977) (28,037) (77,084) (29,870)
-------- -------- -------- --------
Income (loss) before
provision for income
taxes.................. 2,847 (14,066) (23,441) (19,977)
Provision for income
taxes.................. (3,988) -- (4,044) --
-------- -------- -------- --------
Net loss................ $ (1,141) $(14,066) $(27,485) $(19,977)
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
2
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AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Nine Months February 26, 1998
Ended (date of formation)
September 30, to September 30,
1999 1998
------------- -------------------
<S> <C> <C>
Operating activities
Net loss.................................... $(27,485) $ (20,352)
Adjustment to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization expense..... 72,607 22,881
Amortization of deferred financing costs.. 3,306 2,264
Deferred income tax expense............... 3,977 --
Accretion of discount on Senior Notes..... 163 88
Amortization of premium on restricted
investments.............................. 229 199
Change in working capital components:
Accounts receivable..................... (12,873) (3,642)
Inventories............................. (2,112) (492)
Prepaids and other current assets....... (559) (1)
Accounts payable........................ (565) (1,351)
Interest payable........................ 6,298 28,175
Accrued operating expenses.............. (4,213) 4,005
Income and other taxes payable.......... 4,281 298
Deferred revenue........................ (244) 1,084
Other current liabilities............... 318 399
-------- -----------
Net cash provided by operating
activities........................... 43,128 33,555
Investing activities
Acquisition of cellular operations, net of
cash acquired.............................. -- (1,418,272)
Purchase of fixed assets.................... (43,581) (6,457)
Change in restricted investments, net....... 12,187 (82,612)
-------- -----------
Net cash used in investing
activities........................... (31,394) (1,507,341)
Financing activities
Proceeds from sale of preferred and common
stock.................................... -- 348,186
Proceeds from issuance of Senior Notes.... -- 282,834
Borrowings against (repayments of) credit
facility................................. (2,000) 916,000
Deferred financing costs.................. (419) (36,192)
-------- -----------
Net cash provided by (used in)
financing activities................. (2,419) 1,510,828
-------- -----------
Increase in cash and cash equivalents....... 9,315 37,042
Cash and cash equivalents at beginning of
period................................... 34,015 --
-------- -----------
Cash and cash equivalents at end of
period................................... $ 43,330 $ 37,042
======== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
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AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with rules and regulations of the Securities and
Exchange Commission for interim financial reporting. In the opinion of
management, the accompanying condensed consolidated financial statements
reflect all adjustments, consisting only of normal recurring accruals,
considered necessary for a fair presentation of the results for the interim
period. The results of operations for the interim period are not necessarily
indicative of the results for a full year. These condensed consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's 1998 Annual Report on
Form 10-K.
2. Reclassifications
Certain items have been reclassified in the 1998 consolidated financial
statements to conform to the current presentation.
3. Sale of Business
On October 5, 1999, American Cellular Corporation (the "Company") entered
into an Agreement and Plan of Merger, (the "Merger Agreement") pursuant to
which a newly-formed joint venture of Dobson Communications Corporation and
AT&T Wireless Systems, Inc. will, subject to the terms and conditions set
forth in the Merger Agreement, acquire the Company by merging a wholly-owned
subsidiary of the joint venture with and into the Company (the "Merger").
Pursuant to the Merger Agreement, each share of Class A common stock, par
value $.01 per share, of the Company will, at the effective time of the Merger
(the "Effective Time"), be converted into the right to receive $3,244.24 per
share in cash, plus interest thereon for the period commencing January 1, 2000
through and including the closing date at a rate of 8% per annum (the "Common
Stock Purchase Price"). As provided in the Merger Agreement, the Common Stock
Purchase Price is subject to adjustment in the event any shares of common
stock are repurchased by the Company pursuant to stock repurchase rights prior
to the Effective Time.
The Merger Agreement further provides that each share of non-voting Class B
common stock, par value $.01 per share, of the Company issued and outstanding
immediately prior to the Effective Time will become fully vested and will
automatically be converted into one share of Class A common stock at the
Effective Time in accordance with the terms of the grant thereof and, as such,
will thereupon be subject to conversion into the right to receive the Common
Stock Purchase Price. In addition, each share of non-voting Series A Preferred
Stock, par value $.01 per share, of the Company issued and outstanding
immediately prior to the Effective Time will, consistent with the terms of
such preferred stock designated in the Company's certificate of incorporation,
be converted at the Effective Time into the right to receive $100 per share in
cash plus all accrued but unpaid dividends thereon to and including the
Effective Time.
Concurrent with the execution of the Merger Agreement, certain stockholders
of the Company executed a Stockholder Voting Agreement, dated as of October 5,
1999, pursuant to which, among other things, such stockholders agreed to vote
all shares beneficially owned by such persons in favor of the Merger and each
of the other transactions contemplated by the Merger Agreement at any meeting
of the Company's stockholders in connection with the Merger (or otherwise to
consent in writing thereto, as the case may be). A majority of the
stockholders of the Company voted to approve the Merger Agreement and the
transactions contemplated thereby, including the Merger, at a meeting of the
stockholders held on October 5, 1999.
The completion of the Merger, which is expected to close in the first
quarter of 2000, is subject to certain conditions, including the expiration or
earlier termination of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the approval of the
Federal Communications Commission.
4
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AMERICAN CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Other Assets
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Goodwill/cellular licenses........................ $1,175,479 $1,175,479
Investments in cellular operations................ 35,531 35,531
Deferred financing costs.......................... 35,982 35,563
Restricted investments............................ 29,377 42,972
Subscriber lists.................................. 11,233 11,233
Accumulated amortization.......................... (83,846) (33,603)
---------- ----------
$1,203,756 $1,267,175
========== ==========
</TABLE>
Goodwill/cellular licenses represent the excess of purchase price over the
fair market value assigned to the net tangible and identifiable intangible
assets of the business acquired.
5
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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 American Cellular Corporation ("American
Cellular" or the "Company") and factors affecting the Company's financial
resources. This discussion should be read in conjunction with the Company's
financial statements, including the notes thereto, included in this Amended
Quarterly Report on Form 10-Q/A (the "Report").
On June 25, 1998, American Cellular acquired PriCellular Corporation
("PriCellular") pursuant to an Agreement and Plan of Merger dated March 6,
1998 (the "PriCellular Merger Agreement") for approximately $1.5 billion (the
"PriCellular Merger"). The acquisition was recorded in accordance with the
purchase method of accounting. The cost of the acquisition was allocated to
the tangible and intangible assets and liabilities assumed based on their
respective fair values. PriCellular had been partially owned (6.39%) by a
group of investors, which also own 27.2% of American Cellular (the 6.39% is
considered the continuing ownership interest). The cost to acquire the
continuing ownership interest in the net assets of PriCellular in excess of
the predecessor basis ($44.4 million) has been reflected as a reduction of
stockholders' equity of American Cellular pursuant to generally accepted
accounting principles.
American Cellular accounted for the PriCellular Merger using purchase
accounting. Accordingly, the PriCellular and American Cellular financial
statements reflect different bases of accounting and capitalization which can
significantly impact depreciation, amortization, interest and related tax
expenses. However, for purposes of the following discussion regarding 1999 and
1998 activity, the pre-and post-acquisition financial information has been
combined to provide the reader with an indication of the trend of results.
Specifically, the results of operations of American Cellular for the nine
months ended September 30, 1999 will be compared with the results of
operations of American Cellular and PriCellular on a combined basis for the
nine months ended September 30, 1998.
Results of Operations of American Cellular
General
The results for the current three month period ending September 30, 1999
reflect the continuation of the growth of the Company's operations and
subscriber additions. Net subscriber additions from internally generated sales
were approximately 23,200 for the three months and 63,400 for the nine months
ended September 30, 1999 compared to 19,100 and 49,900 for the same periods of
the prior year. The Company ended the current period with approximately
397,900 subscribers resulting in penetration of 8.13% compared to 305,100 and
penetration of 6.24% for the same period of the prior year.
Earnings before interest, taxes, depreciation and amortization ("EBITDA"),
which excludes non-recurring charges and gain (loss) on sale of investments in
cellular operations, amounted to $53.5 million for the third quarter of 1999
compared to $36.8 million for the same period in 1998. For the current nine
month period EBITDA amounted to $126.3 million compared to $90.5 million for
the same period in 1998. Although the Company has experienced positive results
when measured by EBITDA, it expects to incur net accounting losses for the
foreseeable future. EBITDA is utilized as a measurement of performance within
the industry, although it should not be regarded as an alternative to either
operating income or net income as an indicator of operating performance or to
cash flows as a measure of liquidity. Further, EBITDA is not a GAAP-based
financial measure, and it should not be considered as an alternative to GAAP-
based measures of financial performance.
6
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<TABLE>
<CAPTION>
American
Cellular
Period from
American American American February 26,
Cellular Cellular Cellular 1998 (Date of PriCellular Combined
Three Months Three Months Nine Months Formation) Six Months Nine Months
Ended Ended Ended through Ended Ended
September 30, September 30, September 30, September 30, June 30, September 30,
1999 1998 1999 1998 1998 1998
------------- ------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 84,705 $ 61,105 $212,069 $ 61,105 $ 97,530 $158,635
Cost of cellular
service................ (7,055) (4,922) (18,154) (4,922) (9,771) (14,693)
Cost of equipment sold.. (5,111) (3,246) (13,128) (3,246) (5,365) (8,611)
General and
administrative......... (11,387) (8,974) (32,565) (8,974) (18,010) (26,984)
Sales and marketing..... (7,632) (7,410) (21,972) (7,410) (12,220) (19,630)
Depreciation and
amortization........... (24,696) (22,506) (72,607) (22,506) (17,553) (40,059)
Non-recurring charges... -- (76) -- (4,154) (4,889) (9,043)
-------- -------- -------- -------- -------- --------
Operating income........ 28,824 13,971 53,643 9,893 29,722 39,615
Interest income
(expense), net......... (26,000) (28,287) (77,166) (30,120) (37,385) (67,505)
Gain (loss) on sale of
assets................. -- -- -- -- (133) (133)
Other income............ 23 250 82 250 1,510 1,760
Provision for income
taxes.................. (3,988) -- (4,044) -- -- --
-------- -------- -------- -------- -------- --------
Net loss................ $ (1,141) $(14,066) $(27,485) $(19,977) $ (6,286) $(26,263)
======== ======== ======== ======== ======== ========
</TABLE>
- --------
Note: Certain reclassifications have been made to the PriCellular Corporation
financial statements for the six months ended June 30, 1998 to conform
with the American Cellular Corporation classification and disclosure
for comparability purposes.
Three Months Ended September 30, 1999 Compared with the Three Months Ended
September 30, 1998
Revenues increased from $61.1 million in 1998 (consisting of $27.8 million
for subscriber revenue, $19.6 million for roaming revenue, $10.2 million for
toll revenue, $1.7 million for equipment sales and $1.8 million for other
revenue) to $84.7 million in 1999 (consisting of $31.7 million for subscriber
revenue, $34.5 million for roaming revenue, $13.5 million for toll revenue,
$2.7 million for equipment sales and $2.3 million for other revenue). The
increase represents the continuing growth in the cellular industry impacting
both subscriber and roaming revenues, and the effect of improved coverage in
the Company's markets as a result of the increase in the number of cell sites
in its systems.
Total costs and expenses increased from $47.1 million in 1998 (consisting
of $4.9 million for cost of cellular service, $3.2 million for cost of
equipment sales, $9.0 million for general and administrative expense,
$7.4 million for sales and marketing expense, $22.5 million for depreciation
and amortization expense and $0.1 million for non-recurring charges) to $55.9
million in 1999 (consisting of $7.1 million cost of cellular service, $5.1
million for cost of equipment sales, $11.4 million for general and
administrative expense, $7.6 million for sales and marketing expense and $24.7
million for depreciation and amortization expense). The primary factor
contributing to the increase in expenses is the growth in the subscriber base
and the increase in cellular service minutes provided. Cost of cellular
service represents 8.9% of cellular service, roaming and toll revenue in 1999
compared to 8.5% for the same period in 1998. Operating expenses consisting of
the cost of cellular service, cost of equipment sold, general and
administrative expense and sales and marketing expense decreased as a percent
of total revenues from 40.2% for the three months ended September 30, 1998 to
36.8% for the current three month period. This reduction represents cost
efficiencies the Company has realized while
7
<PAGE>
achieving a 21% increase in growth in net subscriber additions over the same
period in 1998 and leveraging of various fixed costs over increased revenues.
Depreciation and amortization expense reflects the acquisition of PriCellular
by the Company.
The decrease in net interest expense from $28.3 million for the three
months ended September 30, 1998 to $26.0 million for the same period in 1999
is primarily the result of the decrease in marginal interest rates charged
by the banks on the Company's credit facility. Other income decreased from
$250,000 to $23,000 principally due to amortization of a covenant not to
compete that was fully amortized in 1998.
The provision for income taxes in 1999 relates to current state income tax
requirements and an interim deferred tax provision of $4.0 million related to
the utilization of preacquisition net operating loss carryforwards.
Utilization of such preacquisition tax benefits has not resulted in a
reduction to goodwill in accordance with SFAS No. 109, "Accounting for Income
Taxes" because the Company expects taxable losses for the fourth quarter that
will offset these amounts. Rather, the liability associated with this
provision has been reflected as part of deferred taxes.
Nine Months Ended September 30, 1999 Compared with the Combined Nine Months
Ended September 30, 1998
Revenues increased from $158.6 million in 1998 (consisting of $80.0 million
for subscriber revenue, $44.7 million for roaming revenue, $22.4 million for
toll revenue, $4.6 million for equipment sales and $6.9 million for other
revenue) to $212.1 million in 1999 (consisting of $92.4 million for subscriber
revenue, $76.0 million for roaming revenue, $30.4 million for toll revenue,
$7.1 million for equipment sales and $6.2 million for other revenue). The
increase represents the continuing growth in the cellular industry impacting
both subscriber and roaming revenues, and the effect of improved coverage in
the Company's markets as a result of the increase in the number of cell sites
in its systems.
Total costs and expenses increased from $119.0 million in 1998 (consisting
of $14.7 million for cost of cellular service, $8.6 million for cost of
equipment sales, $27.0 million for general and administrative expense, $19.6
million for sales and marketing expense, $40.1 million for depreciation and
amortization expense and $9.0 million for non-recurring charges) to $158.4
million in 1999 (consisting of $18.1 million cost of cellular service, $13.1
million for cost of equipment sales, $32.6 million for general and
administrative expense, $22.0 million for sales and marketing expense and
$72.6 million for depreciation and amortization expense). The primary factor
contributing to the increase in expenses is the growth in the subscriber base
and the increase in cellular service minutes provided. Cost of cellular
service represents 9.1% of cellular service, roaming and toll revenue in 1999
compared to 10.0% for the same period in 1998. Operating expenses consisting
of the cost of cellular service, cost of equipment, general and administrative
expense and sales and marketing expense decreased as a percent of total
revenues from 44.1% for the nine months ended September 30, 1998 to 40.5% for
the current nine month period. This reduction represents cost efficiencies the
Company has realized while achieving a 27% increase in growth in net
subscriber additions over the same period in 1998 and leveraging of various
fixed costs over increased revenues. Depreciation and amortization expense
reflects the acquisition of PriCellular by the Company.
The increase in net interest expense from $67.5 million for the nine months
ended September 30, 1998 to $77.2 million in 1999 is primarily the result of
the acquisition of PriCellular by the Company and the related financing. Other
income decreased from $1.8 million to $0.1 million principally due to
amortization of a covenant not to compete that was fully amortized in 1998.
The provision for income taxes in 1999 relates to current state income tax
requirements and an interim deferred tax provision of $4.0 million related to
the utilization of preacquisition net operating loss carryforwards.
Utilization of such preacquisition tax benefits has not resulted in a
reduction to goodwill in accordance with SFAS No. 109, "Accounting for Income
Taxes" because the Company expects taxable losses for the fourth quarter that
will offset these amounts. Rather, the liability associated with this
provision has been reflected as part of deferred taxes.
8
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Liquidity and Capital Resources
Cash Flows
As of September 30, 1999, the Company had approximately $43.3 million of
cash and cash equivalents and approximately $51.5 million of working capital.
Net cash generated by operations was approximately $43.1 million. Cash used in
investing activities was approximately $31.4 million, consisting of fixed
asset additions of $43.6 million less $12.2 million of net proceeds from the
maturity of restricted investments. Cash used in financing activities was
approximately $2.4 million consisting of $2.0 million for scheduled repayment
of debt and $0.4 million of deferred financing costs.
Earnings before interest, taxes, depreciation and amortization ("EBITDA"),
which excludes non-recurring charges and gain (loss) on sale of investments in
cellular operations, amounted to $53.5 million for the three months ended
September 30, 1999 compared to $36.8 million for 1998 or an increase of 45%.
Management believes that EBITDA is an effective measure of operating
performance because it is industry practice to use a multiple of EBITDA as one
method of evaluating cellular properties. EBITDA does not represent cash flow
from operations as defined by GAAP, and is not necessarily indicative of cash
available to fund all cash flow needs and should not be considered as an
alternative to net income. The Company expects to incur net accounting losses
for the foreseeable future due to interest and non-cash charges such as
depreciation and amortization.
Liquidity and Capital Requirements
The Company has long-term debt aggregating approximately $1.2 billion.
Substantially all such indebtedness was incurred to pay the consideration to
the PriCellular stockholders in the PriCellular Merger, repay the indebtedness
of PriCellular, pay the related fees and expenses and purchase the restricted
securities.
The Company has $914 million outstanding under a bank syndicated Credit
Facility. The Credit Facility provides the Company up to $1 billion in four
tranches ($450 million on Tranche A, $200 million for each Tranche B and C,
and up to $150 million on the Revolver Loan). Interest is payable quarterly at
the adjusted prime rate plus the applicable margin for each tranche (0.625%
for the Revolver and Tranche A, 1.5% for Tranche B and 1.75% for Tranche C) or
LIBOR plus the applicable margin for each tranche (1.625% for the Revolver and
Tranche A, 2.750% for Tranche B and 2.750% for Tranche C), based on the
Company's consolidated leverage ratio. As of September 30, 1999, the interest
rates applicable on the tranches of the Credit Facility ranged from
approximately 7.225% to 8.35%, yielding a weighted average rate of 7.76%. The
Credit Facility contains several financial covenants related to Company's
leverage and debt service ratios. The Company is in compliance with the terms
of those covenants. Other covenants also contain restrictions on the
incurrence of additional debt, the payment of dividends, the incurrence of
liens, and payments and transfer of net assets.
As part of its interest rate management program, the Company utilizes
interest swap and collar agreements to hedge variable interest rate risk under
the Credit Facility. At September 30, 1999, the Company had interest rate
collars with an aggregate notional amount of $656.3 million, effectively
fixing the LIBOR rate between 5.38% and 6.00%, expiring in 2001. At September
30, 1999, the Company had an interest rate swap with a notional amount of
$98.3 million, effectively fixing the LIBOR rate to 5.84%, expiring in 2001.
The fair value of the Company's interest rate agreements is $2.7 million at
September 30, 1999 based on the current underlying spot rates.
As a result of the PriCellular Merger, the Company has significant cash
requirements for debt service and expansion and operation of its cellular
systems. To meet its liquidity needs, the Company will rely on internally
generated funds, borrowings under the Revolver Loan of the Credit Facility,
and restricted securities. At September 30, 1999, the Company had $84 million
available under the Revolver Loan of the Credit Facility. A portion of the
Company's debt bears interest floating rates; therefore, its financial
condition is and will continue to be affected by changes in prevailing
interest rates.
9
<PAGE>
For fiscal 1999, the Company intends to fund its interest obligations,
capital expenditures and working capital requirements with cash flows from
operations, borrowings under the Revolver Loan of the Credit Facility and the
restricted securities. If the sale of the Company is not consummated, the
Company may need to raise additional capital to fund the acquisition and
integration of additional cellular systems, in future periods. The Company may
raise such funds through bank financings or public or private offerings of its
securities. There can be no assurance that the Company will be able to secure
such funding, if necessary, or on favorable terms. If the Company is not
successful in securing such funding, the Company's ability to pursue its
business strategy may be impaired and results of operations of future periods
may be adversely affected.
The Company plans to continue to expand its marketing efforts which will
include, but are not limited to, an increase in funds for advertising,
cellular telephone inventory purchases and other expenditures relating to
subscriber growth. During the 1999 calendar year, American Cellular
anticipates that it will spend an aggregate of approximately $53 million in
capital expenditures. However, actual capital requirements may change. The
ability of the Company to meet its debt service obligations and reduce its
total debt will be dependent on the future performance of the Company, which
in turn, will be subject to general economic conditions and to financial,
business and other factors, including factors beyond the Company's control.
Year 2000 Issues
The term "Year 2000 problem" is a general term used to describe the various
problems that may result from the improper processing of dates and time-
sensitive calculations by computers and other machinery as the year 2000 is
reached. These problems generally arise from the fact that most of the world's
computer hardware and software has historically used only two digits to
identify the year component of a date. This will often result in a computer
reading a date of "00" as meaning, 1900, and not 2000. Problems may also arise
from other sources, including the use of special codes and conventions in
software that make use of a date field.
The Company's Year 2000 issue is primarily the result of the Company's
reliance on third party vendors for the major systems integral to its
operations. These systems include all hardware and software directly related
to the Company's cellular networks, interconnect systems which provide for the
delivery of data and voice messaging between the Company's networks and
networks of other carriers, information management systems that provide
customer support and billing functionality, and other administrative systems
that support the operations. The Company is also reliant upon third party
manufacturers that provide cellular telephone equipment and accessories that
are sold to the Company's subscribers. The Company is working with its vendors
to ensure Year 2000 compliance of these systems. However, if required
modifications to these systems are not completed, the Year 2000 issue could
have a material impact on the operations of the Company.
Status of Becoming Year 2000 Compliant
The Company's Year 2000 readiness program involves the following four
phases: system assessment, remediation, testing and implementation. To date,
the Company has substantially completed its assessment of all systems that
could be significantly affected by the Year 2000 issue. The assessment
indicated all of the systems could be affected because of the heavy reliance
on information technology products and services. The assessment also indicated
that hardware and software used in administrative operations are also at risk.
The Company has been gathering information about the Year 2000 compliance
status of its vendors that support these systems. The Company's vendors are at
various stages in their Year 2000 compliance programs, and there is no
assurance that each vendor will achieve its goals. Additionally, the Company
has identified all carriers that provide direct interconnect services for
local or long distance telephone services and requested certification as to
Year 2000 compliance. However, there is no assurance that the Company will be
able to test these systems beyond the representations of these carriers.
While management considers that the assessment phase of the Company's Year
2000 program is substantially completed, the Company will continue to review
all areas of operations to identify any other potential Year 2000 issues. In
addition, any new system that may be implemented during the remainder of the
year will be evaluated for Year 2000 compliance prior to the deployment of the
system.
10
<PAGE>
In the remediation phase, the Company is determining the Year 2000
compliance status of each component of each system identified as a risk during
the assessment phase. This process includes contacting each vendor and
obtaining representations regarding the Year 2000 compliance of that vendor's
products as it impacts the Company's systems. In the event that a product is
determined to be non-compliant, the Company is requesting information as to
the vendor's procedures to bring the product into compliance. The Company's
vendors are at various stages in their Year 2000 compliance programs, and
there is no assurance that each vendor will achieve its goals. This phase is
approximately 98.8% completed overall and is expected to be 100% completed by
November, 1999.
In the testing phase, the Company is performing its own evaluation of Year
2000 compliance and, to the extent possible, testing each system or component
in a forward date environment to insure compliance of the system. Although the
Company can verify Year 2000 compliance of its systems in this fashion, the
complexity and variability of systems to which the Company interconnects
prohibits the testing of the telecommunications network as a whole. For
example, the failure of a local power grid or local exchange carrier as a
result of a Year 2000 event will adversely affect the performance of the
Company's cellular network. This phase is approximately 98.8% completed
overall and is expected to be 100% completed by November, 1999.
The implementation phase involves the deployment of Year 2000 compliant
software upgrades and patches into the operating systems, the development of
contingency plans and work around procedures for those systems found to be
non-compliant and the replacement of non-compliant hardware and software used
in administrative support functions. This phase is approximately 98.8%
completed overall and is expected to be 100% completed by November, 1999.
No systems that are considered to be material to the operations and that
are not expected to be Year 2000 compliant have been identified. Set forth
below is a table of the various systems of the Company and the level of
completion of each of the phases of the Company's Year 2000 readiness program
with respect to such systems.
COMPLIANCE PROGRAM PHASE
<TABLE>
<CAPTION>
Systems Assessment Remediation Testing Implementation
- ------- ---------- ----------- ------- --------------
<S> <C> <C> <C> <C>
Cellular Networks....... 100% Completed 96.8% Completed 96.8% Completed 96.8% Completed
Expected Expected Expected
Completion Date Completion Date Completion Date
November, 1999 November, 1999 November, 1999
Interconnect Systems.... 100% Completed 99.1% Completed 0% Completed 99.1% Completed
Expected Expected Expected
Completion Date Completion Date
November, 1999 Not Applicable November, 1999
Information Management
Systems................ 100% Completed 99.3% Completed 99.3% Completed 99.3% Completed
Expected Expected Expected
Completion Date Completion Date Completion Date
November, 1999 November, 1999 November, 1999
Other Administrative
Systems................ 100% Completed 99.9% Completed 99.9% Completed 99.9% Completed
Expected Expected Expected
Completion Date Completion Date Completion Date
November, 1999 November, 1999 November, 1999
</TABLE>
11
<PAGE>
Costs Related to Year 2000 Compliance
The Company will utilize internal resources in completing its Year 2000
readiness plan. Company personnel are assigned specific tasks relating to Year
2000 compliance on the basis of technical skill and availability. The Company
does not account for the time spent on Year 2000 compliance as a separate item
as these costs are not incremental to the operations. The Company has budgeted
for software upgrade costs relating to vendor software of approximately
$100,000. The Company also anticipates an additional $100,000 required to
replace administrative hardware and software that are not Year 2000 compliant.
As of October 31, 1999, actual expenditures for these items were approximately
$75,000.
Risks Associated with Year 2000 Issues
Management believes that it has an effective program in place to resolve
those Year 2000 issues in which it can exert significant influence. As noted
in the table above, the program is not yet completed. In the event the Company
does not complete the additional phases of the program, the Company would be
unable to provide cellular telephone service, invoice customers or collect
payments. Disruption of cellular service would also negatively impact customer
satisfaction, which may impact future sales and growth of the operations. In
addition, disruptions in the economy generally resulting from Year 2000 issues
could materially adversely affect the Company. The amount of potential
liability or lost revenue to the Company cannot be reasonably estimated at
this time.
Year 2000 Contingency Plans
The Company is in the process of developing contingency plans with its
primary vendors for cellular network operations and information management
services. These plans include detail recovery plans, vendor contacts and work
around procedures upon the occurrence of a Year 2000 event. The Company will
continue to evaluate the necessity and adequacy of its contingency plans as
additional information relating to the Year 2000 readiness of its vendors
becomes available.
Year 2000 Forward-Looking Statements
The foregoing Year 2000 discussions contain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such statements, including without limitation, anticipated costs and dates by
which the Company expects to complete certain actions, are based on
management's best current estimates, which are derived utilizing numerous
assumptions about future events, including continued availability of certain
resources, representations derived from third parties and other factors.
However, there can be no guarantee that these estimates will be achieved, and
the actual results could differ materially from those anticipated. Specific
factors that might cause such material differences include, but are not
limited to, the ability to identify and remediate all relevant information
technology and non-information technology systems, results of Year 2000
testing, adequate resolution of Year 2000 issues by business and other third
parties who are service providers, suppliers or customers of the Company,
unanticipated system costs, the adequacy of and the ability to develop and
implement contingency plans and similar uncertainties. The "forward-looking
statements" made in the foregoing Year 2000 discussion speak only as to the
date such statements are made, and the Company undertakes no obligation to
update any forward-looking statement to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. The foregoing information constitutes a Year 2000
readiness disclosure under the Year 2000 Information and Readiness Disclosure
Act.
Uncertainties Associated with Forward Looking Statements
American Cellular has made in this Report, and from time to time may
otherwise make, statements which constitute forward looking statements. These
statements include statements regarding the intent, belief, plans or current
expectations of the Company, its directors or its officers primarily with
respect to the Company's
12
<PAGE>
operations and financial performance. Investors are cautioned that any such
forward looking statements are not guarantees of future performance and
involve risks and uncertainties, and that actual results may differ materially
from those in the forward looking statements as a result of various factors.
Some of these factors may include: (i) the Company's high degree of leverage
and the requirement for significant and sustained growth in the Company's cash
flow to meet its debt service requirements; (ii) the Company's limited
operating history, the Company's history of net losses and the expectation of
future losses; (iii) the Company's prospects in the event of a general
economic downturn; (iv) that the Company will be managed by a new team of
senior management; (v) that members of the Company's management have other
commitments; (vi) competition from the other cellular operator in the
Company's clusters or from other technologies; (vii) that new Systems and
Systems recently acquired may not perform as expected; (viii) that the
telecommunications industry is subject to rapid and significant changes in
technology; (ix) that the Company relies upon the registered service mark
CELLULAR ONE(R) to market the services of its non-wireline systems; (x) that
there is potential for adverse regulatory change and the need for renewal of
cellular licenses; (xi) fluctuations in market value of licenses; (xii)
equipment failure or natural disaster; (xiii) concerns about RF emissions;
(xiv) the costs associated with the unauthorized use of the Company's network;
(xv) that the Indenture governing the Notes imposes significant operating and
financial restrictions on the Company; (xvi) the potential effect of the
pending acquisition of the Company or the failure of such acquisition to
occur; and (xvii) the potential effect of Year 2000 computer issues.
Fluctuations in Quarterly Results
Traditionally, subscriber revenues fluctuate from quarter to quarter and
are influenced by such factors as weather, holiday periods and typical
vacation periods. Additionally, losses are generally higher in the fourth
quarter due to the lower revenues coupled with higher sales and marketing
costs incurred during the holiday sales season.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not currently involved in any pending legal proceedings that
individually, or in the aggregate, are material to the Company.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held a special meeting of stockholders on October 5, 1999 (the
"Special Meeting"). At such Special Meeting, the following matters were
submitted to the stockholders for approval: (1) the acquisition of the Company
by a newly-formed joint venture of Dobson Communications Corporation and AT&T
Wireless Systems, Inc. pursuant to an Agreement and the Plan of Merger, dated
as of October 5, 1999 (the "Merger Agreement"), and the transactions
contemplated thereby, and (2) the payments and benefits, including the
acceleration of the timing of such payments, to executive officers and other
employees holding shares of Class B common stock of the Company to be made or
which could be made in connection with the transactions contemplated by the
Merger Agreement in accordance with Section 280G of the Internal Revenue Code
of 1986, as amended (the "Executive Payments"). With respect to the approval
of proposed acquisition of the Company pursuant to the Merger Agreement and
the transactions contemplated by the Merger Agreement, 250,386 shares were in
favor, 357 shares abstained and 3,929 shares were absent. With respect to the
approval of the Executive Payments, 243,214 shares were in favor, 7,529 shares
abstained and 3,929 shares were absent.
Item 5. OTHER INFORMATION
On October 5, 1999, the Company entered into the Merger Agreement pursuant
to which a newly-formed joint venture of Dobson Communications Corporation and
AT&T Wireless Systems, Inc. will, subject to the terms and conditions set
forth in the Merger Agreement, acquire the Company by merging a wholly-owned
subsidiary of the joint venture with and into the Company (the "Merger").
Pursuant to the Merger Agreement, each share of Class A common stock, par
value $.01 per share, of the Company will, at the effective time of the Merger
(the "Effective Time"), be converted into the right to receive $3,244.24 per
share in cash, plus interest thereon for the period commencing January 1, 2000
through and including the closing date at a rate of 8% per annum (the "Common
Stock Purchase Price"). As provided in the Merger Agreement, the Common Stock
Purchase Price is subject to adjustment in the event any shares of common
stock are repurchased by the Company pursuant to stock repurchase rights prior
to the Effective Time.
The Merger Agreement further provides that each share of non-voting Class B
common stock, par value $.01 per share, of the Company issued and outstanding
immediately prior to the Effective Time will become fully vested and will
automatically be converted into one share of Class A common stock at the
Effective Time in accordance with the terms of the grant thereof and, as such,
will thereupon be subject to conversion into the right to receive the Common
Stock Purchase Price. In addition, each share of non-voting Series A Preferred
Stock, par value $.01 per share, of the Company issued and outstanding
immediately prior to the Effective Time will, consistent with the terms of
such preferred stock designated in the Company's certificate of incorporation,
be converted at the Effective Time into the right to receive $100 per share in
cash plus all accrued but unpaid dividends thereon to and including the
Effective Time.
14
<PAGE>
Concurrent with the execution of the Merger Agreement, certain stockholders
of the Company executed a Stockholder Voting Agreement, dated as of October 5,
1999, pursuant to which, among other things, such stockholders agreed to vote
all shares beneficially owned by such persons in favor of the Merger and each
of the other transactions contemplated by the Merger Agreement at any meeting
of the Company's stockholders in connection with the Merger (or otherwise to
consent in writing thereto, as the case may be). A majority of the
stockholders of the Company voted to approve the Merger Agreement and the
transactions contemplated thereby, including the Merger, at the Special
Meeting.
The completion of the Merger, which is expected to close in the first
quarter of 2000, is subject to certain conditions, including the expiration or
earlier termination of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the approval of the
Federal Communications Commission. There can be no assurance that the Merger
will be consummated.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The exhibits to this Report are listed on the Exhibit Index included
elsewhere herein.
(b) Reports on Form 8-K:
None.
15
<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 Cellular Corporation
Registrant
/s/ James J. Walter, Jr.
By: _________________________________
James J. Walter, Jr.
Vice President of Finance,
Chief Financial Officer and
Secretary
Dated: December 14, 1999
16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
9.1 Form of Stockholder Voting Agreement dated as of October 5, 1999 by
and among American Cellular Corporation, ACC Acquisition LLC, ACC
Acquisition Co. and the stockholders party thereto.*
10.1 Agreement and Plan of Merger dated as of October 5, 1999 among ACC
Acquisition LLC, ACC Acquisition Co. and American Cellular
Corporation.*
10.2 Form of Termination Agreement dated as of October 5, 1999 by and among
American Cellular Corporation and the stockholders party thereto.*
27.1 Amended Financial Data Schedule for the nine months ended September
30, 1999.
</TABLE>
- --------
* Filed Previously.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 43,330,000
<SECURITIES> 27,729,000
<RECEIVABLES> 40,429,000
<ALLOWANCES> (1,062,000)
<INVENTORY> 4,117,000
<CURRENT-ASSETS> 116,671,000
<PP&E> 217,688,000
<DEPRECIATION> (39,985,000)
<TOTAL-ASSETS> 1,498,130,000
<CURRENT-LIABILITIES> 65,135,000
<BONDS> 1,193,134,000
0
376,862,000
<COMMON> 3,000
<OTHER-SE> (140,981,000)
<TOTAL-LIABILITY-AND-EQUITY> 1,498,130,000
<SALES> 212,069,000
<TOTAL-REVENUES> 212,069,000
<CGS> 31,282,000
<TOTAL-COSTS> 158,426,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,620,000
<INCOME-PRETAX> (23,441,000)
<INCOME-TAX> (4,044,000)
<INCOME-CONTINUING> (27,485,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,485,000)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
