<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): January 27, 1995
VANGUARD CELLULAR SYSTEMS, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
NORTH CAROLINA 0-16560 56-1549590
(State or other Jurisdiction (Commission File (IRS Employer
of Incorporation) Number) Identification No.)
</TABLE>
<TABLE>
<S> <C>
2002 PISGAH CHURCH ROAD, SUITE 300, GREENSBORO, NC 27455
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (910) 282-3690
</TABLE>
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
This report is being filed with respect to the consummation of an
acquisition previously reported as pending and to present and update other
previously filed material.
On January 27, 1995, the Registrant acquired all of the assets of Sunshine
Cellular, a general partnership ("Sunshine"), for a purchase price of $51.3
million in cash, subject to certain closing adjustments. Sunshine is the FCC
license holder for the nonwireline cellular telephone system in the Pennsylvania
8-Union rural service area ("PA-8 RSA"). The purchase price was financed with
borrowings under the Registrant's $675 million credit facility with a group of
lenders led by The Bank of New York and The Toronto-Dominion Bank as managing
agents ("the 1994 Credit Facility"). The Asset Purchase Agreement between the
Registrant and Sunshine is incorporated by reference as an exhibit hereto.
On December 14, 1994, the Registrant purchased from Crowley Cellular
Telecommunications Limited Partnership ("Crowley LP") all of the outstanding
stock of Crowley Cellular Telecommunications Binghamton, Inc. ("Crowley Inc.")
for a purchase price of 1,766,674 shares of the Registrant's Class A Common
Stock and $5.2 million in cash, subject to certain closing adjustments. Crowley
LP was the sole shareholder of Crowley Inc. Crowley Inc. is the Federal
Communications Commission ("FCC") license holder for the nonwireline cellular
telephone system in the Elmira, New York metropolitan statistical area ("Elmira
MSA") and is the general partner and 97% owner of the partnership that is the
FCC license holder for the nonwireline cellular telephone system in the
Binghamton, New York metropolitan statistical area ("Binghamton MSA").
Concurrently with this acquisition, the Registrant acquired the remaining
minority interest of the partnership that holds the Binghamton FCC license for a
cash price of $900,000. The cash portion of the purchase price for each
acquisition was financed with borrowings under the Registrant's then existing
$390 million loan agreement with a group of lenders led by The Bank of New York
and The Toronto-Dominion Bank as managing agents (the "1993 Loan Agreement"). On
December 23, 1994, the Registrant closed the 1994 Credit Facility which
refinanced the 1993 Loan Agreement. The stock issued by Registrant in payment of
part of the purchase price for Crowley, Inc. was registered under the Securities
Act of 1933 for resale to the public by Crowley LP. The Stock Purchase Agreement
between the Registrant, Crowley LP and Crowley, Inc. is incorporated by
reference as an exhibit hereto.
Historical financial statements and pro forma financial information with
respect to these acquisitions is included herewith under Item 7.
In addition to the foregoing, on October 24, 1994 the Registrant completed
the closing of the acquisition of the holder of the FCC licenses for the West
Virginia 1 -- Mason rural service area ("WV-1 RSA") and the Maine
4 -- Washington rural service area ("ME-4 RSA") for an aggregate purchase price
of approximately $6.7 million in cash and $3.3 million in Class A Common Stock.
This transaction did not involve businesses that are significant under
Regulation S-X. Accordingly, financial statements and pro forma financial
information are not included herein with respect thereto nor is the acquisition
agreement filed as an exhibit.
The terms of each of the foregoing transactions were arrived at through
private negotiation and were based primarily on the population of the markets to
be acquired and the value of existing operations and the subscriber base. The
Registrant intends to continue to use the assets of the acquired markets in
those respective markets.
1
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) The following historical financial statements are filed herewith on the
pages indicated:
<TABLE>
<S> <C>
Crowley Cellular Telecommunications Binghamton, Inc. and Subsidiary
Consolidated Balance Sheets as of December 31, 1993 and September 30, 1993 and 1994.................................... 3
Consolidated Statements of Operations for the year ended December 31, 1993 and for the nine months ended September 30,
1993 and 1994....................................................................................................... 4
Consolidated Statements of Cash Flows for the year ended December 31, 1993 and for the nine months ended September 30,
1993 and 1994....................................................................................................... 5
Notes to Consolidated Financial Statements............................................................................. 6
Report of Independent Public Accountants............................................................................... 10
Sunshine Cellular
Balance Sheets as of December 31, 1993 and September 30, 1994.......................................................... 11
Statements of Operations and Partners' Capital for the year ended December 31, 1993 and the nine months ended September
30, 1993 and 1994................................................................................................... 12
Statements of Cash Flows for the year ended December 31, 1993 and the nine months ended September 30, 1993 and 1994.... 13
Notes to the Financial Statements...................................................................................... 14
Report of Independent Public Accountants............................................................................... 17
</TABLE>
(b) The following unaudited pro forma consolidated financial information of
Vanguard Cellular Systems, Inc. and Subsidiaries (the Registrant) is
filed herewith:
<TABLE>
<S> <C>
Pro Forma Consolidated Balance Sheets -- September 30, 1994............................................................ 18
Pro Forma Consolidated Statements of Operations for the year ended December 31, 1993................................... 19
Pro Forma Consolidated Statements of Operations for the nine months ended September 30, 1994........................... 20
Notes to Pro Forma Consolidated Financial Information.................................................................. 21
</TABLE>
The unaudited pro forma consolidated statements of operations give effect
to the acquisition of Crowley, Inc. and the related partnership interests (the
"Crowley Transaction") and the acquisition of Sunshine Cellular (the "Sunshine
Transaction") as if they had occurred on January 1, 1993, and the unaudited pro
forma balance sheet data gives effect to the Crowley Transaction and the
Sunshine Transaction as if they had occurred on September 30, 1994. The
following pro forma financial information assumes that the Sunshine Transaction
was made with cash borrowed under the Registrant's 1993 Loan Agreement in effect
on the assumed dates of occurrence.
The unaudited pro forma consolidated financial information has been
prepared by the Registrant based upon the historical financial statements of the
Registrant, Crowley, Inc. and Sunshine. The unaudited pro forma consolidated
financial information gives effect to the acquisitions under the purchase method
of accounting and to certain assumptions and adjustments described more fully in
the accompanying notes. This unaudited pro forma consolidated financial
information may not be indicative of the results that actually would have
occurred if the transactions had been completed on the dates indicated or of the
results which may be obtained in the future. The unaudited pro forma
consolidated financial information should be read in conjunction with the
financial statements and notes thereto for the Registrant included in its Form
10-K for the year ended December 31, 1993 and the Form 10-Q for the period ended
September 30, 1994 and financial statements and notes thereto of Crowley, Inc.
and Sunshine included in this Form 8-K.
(c) The Exhibits furnished in connection with this report are as follows:
2(a) Stock Purchase Agreement by and among Crowley Cellular
Telecommunications Limited Partnership, Crowley Cellular Telecommunications
Binghamton, Inc. and Vanguard Cellular Systems, Inc., dated as of August 5,
1994 and filed as Exhibit 2(a) to the Registrant's Form 10-Q for the
quarter ended June 30, 1994, is incorporated by reference herein.
2(b) Asset Purchase Agreement dated September 26, 1994 by and between
Vanguard Cellular Systems, Inc. and Sunshine Cellular ("Sunshine
Agreement") filed as Exhibit 2(b) to the Registrant's Current Report on
Form 8-K filed on September 30, 1994, is incorporated by reference herein.
23 Consent of Arthur Andersen LLP.
2
<PAGE>
CROWLEY CELLULAR TELECOMMUNICATIONS BINGHAMTON, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30
1993 1993 1994
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................................................................ $ 142,311 $ 200,149 $ 315,304
Accounts receivable, net of allowance of $10,700 at December 31, 1993, $10,700
at September 30, 1993, and $12,700 at September 30, 1994...................... 983,374 989,135 1,165,366
Inventory....................................................................... 111,424 143,217 277,215
Prepaid expenses................................................................ 70,924 52,477 67,549
Due from affiliates............................................................. -- -- 513,314
Total current assets........................................................ 1,308,033 1,384,978 2,338,748
PROPERTY AND EQUIPMENT:
Leasehold improvements.......................................................... 1,081,447 1,036,995 1,083,634
Buildings....................................................................... 343,399 281,026 343,399
Towers.......................................................................... 482,462 386,359 489,401
Switching equipment............................................................. 1,007,045 947,273 995,825
Network equipment............................................................... 2,656,197 2,581,277 2,671,572
Microwave equipment............................................................. 206,807 206,807 206,807
Furniture and fixtures.......................................................... 856,945 845,895 877,932
Vehicles........................................................................ 66,433 66,433 81,501
6,700,735 6,352,065 6,750,071
Less -- Accumulated depreciation and amortization............................... 3,041,513 2,862,079 3,534,752
Property and equipment, net................................................. 3,659,222 3,489,986 3,215,319
OTHER ASSETS, net of accumulated amortization of $4,302,739 at December 31,
1993, $4,061,714 at September 30, 1993, and $4,968,580 at September 30, 1994:
Cellular franchise costs...................................................... 8,988,543 9,189,436 8,394,331
Organization, start-up and financing costs.................................... 512,889 545,141 447,260
Software license costs........................................................ 8,000 10,000 2,000
Reorganization costs.......................................................... -- 5,879 --
Other assets, net........................................................... 9,509,432 9,750,456 8,843,591
$ 14,476,687 $ 14,625,420 $ 14,397,658
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of bank notes payable........................................... $ 575,362 $ -- $ 740,435
Accounts payable................................................................ 153,219 115,413 162,171
Accrued expenses................................................................ 485,468 371,655 535,444
Accrued interest payable........................................................ 67,174 50,000 --
Current portion of deferred revenue............................................. 666,667 666,667 166,667
Due to affiliates............................................................... 333,605 233,733 --
Total current liabilities................................................... 2,281,495 1,437,468 1,604,717
LONG-TERM LIABILITIES:
Bank notes payable.............................................................. 6,328,984 6,904,346 6,478,802
Subordinated notes payable...................................................... 2,535,920 2,485,113 1,336,380
Deferred revenue................................................................ -- 166,667 --
Total long-term liabilities................................................. 8,864,904 9,556,126 7,815,182
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY...................................... 71,111 77,534 84,473
SHAREHOLDER'S EQUITY:
Common stock, no par value, 3,000 shares authorized, 100 shares issued and
outstanding................................................................... 1,000 1,000 1,000
Paid-in capital................................................................. 15,288,543 15,288,543 16,628,646
Retained deficit --
Balance, beginning of period.................................................. (11,404,732) (11,404,732) (12,030,366)
Net income (loss) for the period.............................................. (625,634) (330,519) 294,006
Balance, end of period........................................................ (12,030,366) (11,735,251) (11,736,360)
Total shareholder's equity.................................................. 3,259,177 3,554,292 4,893,286
$ 14,476,687 $ 14,625,420 $ 14,397,658
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
<PAGE>
CROWLEY CELLULAR TELECOMMUNICATIONS BINGHAMTON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30
DECEMBER 31, 1993 1993 1994
<S> <C> <C> <C>
(UNAUDITED)
REVENUES:
Cellular services........................................................... $ 6,099,029 $4,469,605 $5,993,603
Equipment sales and other................................................... 523,287 329,378 379,367
Total revenues......................................................... 6,622,316 4,798,983 6,372,970
OPERATING EXPENSES:
System operations........................................................... 2,358,657 1,695,885 2,320,004
Cost of equipment sales..................................................... 944,621 498,216 697,268
Selling..................................................................... 755,078 528,670 481,608
General and administrative.................................................. 1,579,455 1,204,409 1,341,070
Depreciation and amortization............................................... 1,641,686 1,221,228 1,171,408
Total operating expenses............................................... 7,279,497 5,148,408 6,011,358
Income (loss) from operations.......................................... (657,181) (349,425) 361,612
OTHER (INCOME) EXPENSE:
Interest.................................................................... 578,209 392,781 453,971
Other....................................................................... (601,429) (409,783) (399,727)
Other (income) expense, net............................................ (23,220) (17,002) 54,244
Income (loss) before minority interest................................. (633,961) (332,423) 307,368
MINORITY INTEREST IN INCOME (LOSS) OF CONSOLIDATED SUBSIDIARY................. (8,327) (1,904) 13,362
NET INCOME (LOSS) FOR THE PERIOD.............................................. $ (625,634) $ (330,519) $ 294,006
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
CROWLEY CELLULAR TELECOMMUNICATIONS BINGHAMTON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30
DECEMBER 31, 1993 1993 1994
<S> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) for the period............................................ $ (625,634) $ (330,519) $ 294,006
Adjustments to reconcile net income (loss) for the period to net cash
provided by (used in) operating activities --
Minority interest in income (loss) of consolidated subsidiary............ (8,327) (1,904) 13,362
Depreciation and amortization............................................ 1,641,686 1,221,228 1,171,408
Loss on sale of property and equipment................................... -- -- 60,547
Changes in operating assets and liabilities-Accounts receivable, net..... (186,345) (192,106) (181,992)
Inventory.............................................................. 18,468 (13,325) (165,791)
Prepaid expenses....................................................... 20,506 38,953 3,375
Accounts payable....................................................... (84,513) (122,319) 8,952
Accrued expenses....................................................... (504,545) (618,358) 49,976
Accrued interest payable............................................... (26,459) (43,633) (67,174)
Net cash provided by (used in) operating activities................. 244,837 (61,983) 1,186,669
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt borrowings................................................... 445,672 394,865 619,452
Long-term debt repayments................................................... -- -- (1,504,101)
Decrease in deferred revenue................................................ (666,667) (500,000) (500,000)
Increase (decrease) in due to (from) affiliates, net........................ 604,137 504,265 (846,919)
Capital contribution........................................................ -- -- 1,340,103
Net cash provided by (used in) financing activities................. 383,142 399,130 (891,465)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......................................... (747,590) (398,709) (168,190)
Proceeds from sale of property and equipment................................ 211 -- 45,979
Increase in other assets.................................................... (23,720) (23,720) --
Purchase of minority interest in consolidated subsidiary.................... (230,000) (230,000) --
Net cash used in investing activities............................... (1,001,099) (652,429) (122,211)
NET INCREASE (DECREASE) IN CASH FOR THE PERIOD................................ (373,120) (315,282) 172,993
CASH, beginning of the period................................................. 515,431 515,431 142,311
CASH, end of the period....................................................... $ 142,311 $ 200,149 $ 315,304
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest.................................... $ 463,327 $ 436,414 $ 521,145
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
CROWLEY CELLULAR TELECOMMUNICATIONS BINGHAMTON, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
(NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1994, ARE UNAUDITED)
NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING AND
REPORTING POLICIES
Crowley Cellular Telecommunications Binghamton, Inc. (Crowley Inc. -- a
wholly owned subsidiary of Crowley Cellular Telecommunications, L.P. (Crowley
LP)) was formed on August 10, 1988, to conduct cellular operations in Elmira,
New York, under a franchise issued by the Federal Communications Commission
(FCC). Crowley Inc. also maintains a majority investment (96.9651% at December
31, 1993, and September 30, 1993 and 1994) in Binghamton CellTelCo. (BCTC),
which conducts cellular operations in Binghamton, New York, under a franchise
issued by the FCC. The franchises are geographically limited to specific market
boundaries defined by the U.S. Census Bureau as Standard Metropolitan
Statistical Areas, or SMSA's.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Crowley Inc.
and its majority-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
On July 27, 1993, Crowley Inc. acquired an additional 1.0001% ownership
interest in its majority-owned subsidiary for $230,000.
INVENTORY
Inventory is stated at the lower of cost, determined under the first-in,
first-out method, or market. All inventory is finished goods.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Property and equipment are being
depreciated or amortized using an accelerated method. The estimated useful lives
are as follows:
<TABLE>
<CAPTION>
ASSET DESCRIPTION ASSET LIFE
<S> <C>
Leasehold improvements....................... 31.5 years
Buildings.................................... 31.5 years
Towers....................................... 7 years
Switching equipment.......................... 7 years
Network equipment............................ 7 years
Microwave equipment.......................... 7 years
Furniture and fixtures....................... 5 to 7 years
Vehicles..................................... 5 years
</TABLE>
OTHER ASSETS
Other assets include cellular franchise costs, which represent amounts paid
to acquire the FCC authorizations, and organization, start-up, financing,
software license and reorganization costs. These assets are amortized on a
straight-line basis over the following lives:
<TABLE>
<CAPTION>
ASSET DESCRIPTION ASSET LIFE
<S> <C>
Cellular franchise costs..................... 15 years
Organization and start-up costs.............. 5 years
Financing costs.............................. 9 years
Software license costs....................... 5 years
Reorganization costs......................... 5 years
</TABLE>
6
<PAGE>
CROWLEY CELLULAR TELECOMMUNICATIONS BINGHAMTON, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING AND
REPORTING POLICIES -- Continued
INCOME TAXES
In February, 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes," which requires a change from the deferred method to the asset and
liability method of accounting for income taxes. Under the asset and liability
method, deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. Crowley Inc. adopted SFAS No.
109 effective January 1, 1993.
Partnership losses of BCTC have been included in the taxable income of
Crowley Inc. to the extent of allocations in accordance with the terms of the
partnership agreement. Due to net losses incurred, no income taxes are due and,
accordingly, no provision for income taxes has been reflected in the
accompanying statements of operations. Crowley Inc. has aggregate tax net
operating losses (which approximate book net operating losses) of approximately
$11,300,000, $10,900,000 and $11,600,000 as of December 31, 1993, and September
30, 1993 and 1994, respectively, which may be utilized to offset future taxable
income of Crowley Inc. Crowley Inc. has not recognized any benefit to be derived
from future recognition of net operating losses.
REVENUES
Cellular service revenue is recognized when earned. Recurring monthly
subscriber revenues are billed in advance. The unearned portion of the
subscriber revenue is deferred and included in accrued expenses in the
accompanying consolidated balance sheets. Sales of mobile phone equipment and
related services are recorded at the point the goods and services are delivered.
INTERIM FINANCIAL DATA
In management's opinion, the unaudited interim consolidated financial
statements for the nine months ended September 30, 1993 and 1994, are presented
on a basis consistent with the audited consolidated financial statements, and
all adjustments, consisting only of normal recurring adjustments, which are
necessary to present fairly the operating results have been reflected. The
results of operations for interim periods are not necessarily indicative of
operations for the full fiscal year.
NOTE 2 -- BANK NOTES PAYABLE
Crowley Inc. has approximately $6,900,000 outstanding at December 31, 1993,
under a Third Amended and Restated Loan Agreement (Agreement) dated January 7,
1992. The Agreement is between Crowley LP and its wholly owned subsidiaries,
including Crowley Inc., and various banks. Interest is payable quarterly at
adjusted prime (6% at December 31, 1993, 6% at September 30, 1993, and 7.75% at
September 30, 1994) or LIBOR plus 1% (5% and 4.5625% at December 31, 1993, and
5.1875% at September 30, 1993).
Under the Agreement, up to $35,000,000 is available to Crowley Inc. and up
to $35,000,000 is available to Crowley LP's entire subsidiary group, subject to
the maintenance of certain covenants and overall borrowing limitations for
Crowley LP's entire subsidiary group. At December 31, 1993, available borrowings
totaled $35,000,000 for Crowley LP's entire subsidiary group. Crowley LP's
subsidiaries are required to pay commitment fees equal to 1/2% per annum on the
excess of available borrowings over amounts outstanding and 1/8% per annum on
the excess of the original commitment over available borrowings. There are no
compensating balances required.
The Agreement calls for Crowley LP's subsidiaries to maintain certain
quarterly financial ratios, which include debt to the population of the markets
served by the subsidiaries, along with other financial ratios. In addition, the
Agreement places certain restrictions on, among other things, the use of funds,
additional indebtedness, payment of dividends by Crowley LP's subsidiaries and
the sale of assets or the stock of Crowley LP's subsidiaries. As of December 31,
1993, and September 30, 1994, Crowley LP's subsidiaries were in compliance with
all requirements.
Amounts outstanding under the Agreement are secured by the joint and
several guarantee of each subsidiary of Crowley LP and by all of the
subsidiaries' assets. In addition, Crowley LP has pledged the stock of each
subsidiary as security and
7
<PAGE>
CROWLEY CELLULAR TELECOMMUNICATIONS BINGHAMTON, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 2 -- BANK NOTES PAYABLE -- Continued
each limited partner of Crowley LP and each shareholder of Crowley LP's general
partner has also pledged his partnership interest and stock, respectively, as
additional security.
The amounts outstanding under the Agreement were converted to term loans on
June 30, 1994, which mature over a period of six years. Under the provisions of
the term loans, bank notes payable as of December 31, 1993, will mature as
follows:
<TABLE>
<S> <C>
1994............................................................ $ 575,362
1995............................................................ 1,150,724
1996............................................................ 1,150,724
1997............................................................ 1,150,724
1998............................................................ 1,150,724
1999 and thereafter............................................. 1,726,088
$6,904,346
</TABLE>
Certain provisions of the Agreement require Crowley LP's subsidiaries to
make prepayments should certain levels of cash flow, as defined, be achieved. No
prepayments were required under these provisions during 1993.
NOTE 3 -- SUBORDINATED NOTES PAYABLE
Subordinated notes payable consist of notes payable to limited partners of
Crowley LP, bearing interest at 8%. Notes payable to limited partners of Crowley
LP are subordinate to all other debt of Crowley Inc. The outstanding amounts are
secured by the stock of Crowley Inc. In addition, each limited partner of
Crowley LP and each shareholder of Crowley LP's general partner has pledged his
partnership interest and stock, respectively, as additional security. The
amounts outstanding under these notes mature on June 30, 1995; however, under
the terms of the Agreement described in Note 2, the creditors have agreed not to
demand payment until September 30, 1999, 90 days following an acceleration of
the bank notes payable, or 365 days following an event of default under the
agreements between these subordinated lenders and Crowley Inc., whichever occurs
first.
NOTE 4 -- RELATED-PARTY TRANSACTIONS
Crowley Cellular Telecommunications, Inc. (CCTI), the general partner of
Crowley LP, performs certain administrative services on behalf of Crowley Inc.
and its subsidiary. MLC Industries, Inc. (MLC), whose shareholders are limited
partners of Crowley LP, manages the operations and performs certain
administrative services on behalf of Crowley Inc. Certain costs allocated for
these services, totaling approximately $510,000, $389,000 and $453,000 during
the year ended December 31, 1993, and the nine months ended September 30, 1993
and 1994, respectively, are included in general and administrative expense in
the accompanying consolidated statements of operations.
Management and director's fees of approximately $23,000, $17,200 and
$15,200 were paid to a partner of Crowley LP during the year ended December 31,
1993, and the nine months ended September 30, 1993 and 1994, respectively.
8
<PAGE>
CROWLEY CELLULAR TELECOMMUNICATIONS BINGHAMTON, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 5 -- LEASES
Crowley Inc. leases office equipment and rents office and tower facilities
under operating lease agreements. These leases expire at various times through
2017. At December 31, 1993, future minimum annual lease payments under these
operating leases are as follows:
<TABLE>
<S> <C>
1994............................................................ $ 207,000
1995............................................................ 208,000
1996............................................................ 201,000
1997............................................................ 196,000
1998............................................................ 164,000
1999 and thereafter............................................. 800,000
$1,776,000
</TABLE>
Rent expense for 1993 was $186,000. Rent expense for the nine months ended
September 30, 1993 and 1994, was $136,000 and $153,000, respectively.
NOTE 6 -- OTHER INCOME
In 1992, Crowley Inc. received $2,000,000 for an agreement not to compete
entered into in connection with Crowley LP's sale of certain of its wholly owned
subsidiaries. This amount was deferred and is being amortized into income over
the three-year term of the agreement. Accordingly, $666,667, $500,000 and
$500,000 of other income is reflected in the accompanying consolidated
statements of operations for the year ended December 31, 1993, and the nine
months ended September 30, 1993 and 1994, respectively.
NOTE 7 -- EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF AUDITORS' REPORT
In July and December, 1994, Crowley LP contributed capital of approximately
$1,340,000 and $7,700,000, respectively, to Crowley, Inc. In December, 1994,
BCTC distributed approximately $1,000,000 to its partners, of which
approximately $970,000 was received by Crowley, Inc. Crowley, Inc. used the
capital contributions from Crowley LP and distribution from BCTC to retire all
bank and subordinated notes payable.
In December, 1994, Crowley LP sold its interest in the outstanding common
stock of Crowley, Inc. to an unrelated third party for approximately 1,766,674
shares of the Purchaser's common stock and $5,200,000 in cash.
9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDER OF
CROWLEY CELLULAR TELECOMMUNICATIONS
BINGHAMTON, INC.:
We have audited the accompanying consolidated balance sheet of CROWLEY
CELLULAR TELECOMMUNICATIONS BINGHAMTON, INC. (a Delaware corporation) AND
SUBSIDIARY as of December 31, 1993, and the related consolidated statements of
operations and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Crowley Cellular
Telecommunications Binghamton, Inc. and Subsidiary as of December 31, 1993, and
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
As explained in Note 1 to the consolidated financial statements, effective
January 1, 1993, the Company adopted the requirements of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
ARTHUR ANDERSEN LLP
Chicago, Illinois,
March 8, 1994
10
<PAGE>
SUNSHINE CELLULAR
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER SEPTEMBER
31, 30,
1993 1994
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash......................................................................................... $ 121,016 $ 439,108
Accounts receivable, net of allowance for doubtful accounts of $39,000 and $25,000........... 472,362 727,406
Cellular telephone inventories............................................................... 146,727 196,899
Prepaid expenses............................................................................. 9,958 21,792
TOTAL CURRENT ASSETS...................................................................... 750,063 1,385,205
PROPERTY AND EQUIPMENT, at cost:
Buildings and leasehold improvements......................................................... 172,381 172,381
Cellular telephone system equipment.......................................................... 6,844,086 7,114,245
Office furniture and equipment............................................................... 259,326 304,784
7,275,793 7,591,410
Less-accumulated depreciation................................................................ (700,687) (1,088,911)
6,575,106 6,502,499
Construction in progress..................................................................... 163,892 144,592
6,738,998 6,647,091
OTHER ASSETS, net of accumulated amortization of $61,000 and $92,000........................... 224,603 194,059
$ 7,713,664 $ 8,226,355
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt............................................................ $ -- $ 1,859,807
Accounts payable and accrued expenses........................................................ 502,652 539,638
Customer deposits............................................................................ 8,800 21,300
TOTAL CURRENT LIABILITIES................................................................. 511,452 2,420,745
DIVESTITURE DEPOSITS (Note 5).................................................................. 275,000 275,000
LONG TERM DEBT (Note 4)........................................................................ 10,875,491 9,585,161
LOANS FROM PARTNERS (Note 8)................................................................... 350,000 350,000
COMMITMENTS AND CONTINGENCIES (Notes 6, 7 and 9)
PARTNERS' DEFICIT.............................................................................. (4,298,279) (4,404,551)
$ 7,713,664 $ 8,226,355
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
11
<PAGE>
SUNSHINE CELLULAR
STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER NINE MONTHS ENDED
31, SEPTEMBER 30,
1993 1993 1994
<S> <C> <C> <C>
REVENUES:
Service fees................................................................... $ 2,663,275 $ 1,892,221 $ 3,441,281
Cellular telephone equipment revenues.......................................... 560,238 309,393 546,108
3,223,513 2,201,614 3,987,389
COSTS AND EXPENSES:
Cost of service................................................................ 602,066 442,202 602,557
Cost of cellular telephone equipment........................................... 536,874 292,501 599,167
Marketing and selling.......................................................... 747,163 482,993 813,167
General and administrative..................................................... 1,469,908 1,155,790 963,398
Depreciation and amortization.................................................. 477,875 356,369 388,223
3,833,886 2,729,855 3,366,512
INCOME (LOSS) FROM OPERATIONS.................................................... (610,373) (528,241) 620,877
INTEREST INCOME.................................................................. 2,732 2,227 3,120
INTEREST EXPENSE................................................................. (780,140) (595,473) (730,269)
NET LOSS......................................................................... (1,387,781) (1,121,487) (106,272)
BEGINNING PARTNERS' DEFICIT...................................................... (2,910,498) (2,910,498) (4,298,279)
ENDING PARTNERS' DEFICIT......................................................... $(4,298,279) $(4,031,985) $(4,404,551)
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
12
<PAGE>
SUNSHINE CELLULAR
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER NINE MONTHS ENDED
31, SEPTEMBER 30,
1993 1993 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss......................................................................... $(1,387,781) $(1,121,487) $(106,272)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation.................................................................. 477,270 355,795 388,224
Amortization of deferred financing costs...................................... 40,837 53,629 30,544
Changes in current items:
Accounts receivable, net.................................................... (188,500) (184,628) (255,044)
Cellular telephone inventories.............................................. (118,664) (54,189) (50,172)
Accounts payable and accrued expenses....................................... (105,071) (24,611) 36,986
Other....................................................................... 1,850 (7,225) 666
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES...................... (1,280,059) (982,716) 44,932
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment.............................................. (1,015,474) (395,058) (296,317)
Proceeds from divestiture deposit................................................ 275,000 275,000 --
NET CASH USED IN INVESTING ACTIVITIES.................................... (740,474) (120,058) (296,317)
CASH FLOWS FROM FINANCING ACTIVITIES -- Proceeds of long-term debt................. 1,981,077 1,024,452 569,477
NET INCREASE (DECREASE) IN CASH.......................................... (39,456) (78,322) 318,092
BEGINNING CASH BALANCE............................................................. 160,472 160,472 121,016
ENDING CASH BALANCE................................................................ $ 121,016 $ 82,150 $ 439,108
SUPPLEMENTAL DISCLOSURES:
Interest paid.................................................................... $ 752,271 $ 552,700 $ 703,973
Partner loan to satisfy other payables........................................... $ 350,000 $ 350,000 $ --
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
13
<PAGE>
SUNSHINE CELLULAR
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION
Sunshine Cellular, a Maryland general partnership ("Sunshine"), is a
provider of cellular telephone service to the Union, Pennsylvania (PA-8) RSA.
Sunshine was formed on November 13, 1989 and the PA-8 RSA became operational in
January, 1992.
Sunshine operates under the trade name of CELLULARONE which is the trade
name many nonwireline carriers have adopted to provide conformity throughout the
industry.
NOTE 2 -- SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
CELLULAR TELEPHONE INVENTORIES
Inventories, consisting primarily of cellular telephones held for resale,
are valued at the lower of first-in, first-out (FIFO) cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is calculated on
a straight-line basis for financial reporting purposes over the following
estimated useful lives:
<TABLE>
<S> <C>
Buildings and leasehold improvements.................................................... 15-40 years
Cellular telephone system equipment..................................................... 10-15 years
Office furniture and equipment.......................................................... 5-7 years
</TABLE>
REVENUE RECOGNITION
Service fees are recognized at the time cellular services are provided and
service fees related to prebilled services are not recognized until earned.
Cellular telephone equipment revenues consist primarily of sales of cellular
telephones to subscribers and are recognized at the time equipment is delivered
to the subscriber.
INCOME TAXES
Income taxes are not payable by or provided for Sunshine. Partners are
taxed individually on their respective shares of Sunshine's earnings.
Partnership net income is allocated based on the partner's ownership interest.
NOTE 3 -- OTHER ASSETS
Other assets include deferred financing costs which are being amortized
over 8 years, the period of the related debt agreement. Amortization of $41,000,
$54,000 and $31,000 has been included in interest expense in the accompanying
December 31, 1993, September 30, 1993 and September 30, 1994 statements of
operations.
NOTE 4 -- LONG-TERM DEBT
On August 28, 1991, Sunshine secured financing for its system construction,
equipment and working capital needs from NTFC Capital Corporation in the
aggregate amount of $10,926,000. During 1993, this financing was amended to
increase the borrowing availability to $12,426,000. This debt is collateralized
by all of the assets of Sunshine and the personal guarantees of two of the
partners for $1,750,000 of the total borrowings.
This debt consists of three separate borrowing agreements as follows:
EQUIPMENT LOAN -- This loan is to be used exclusively for the purchase
of equipment and services. In 1993, the maximum borrowing capacity of the
equipment loan increased from $3,642,000 to $4,177,000. Monthly payments
consist of interest only until the commencement of principal payments
discussed below. Interest is payable at the 90 day commercial paper rate
(5.20% at September 30, 1994) plus 4.25%. As of December 31, 1993 and
September 30, 1994, the balance due on the equipment portion of the loan
was $3,633,000 and $3,779,000, respectively.
14
<PAGE>
SUNSHINE CELLULAR
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
NOTE 4 -- LONG-TERM DEBT -- Continued
CONSTRUCTION LOAN -- This loan is to be used exclusively for
construction of Sunshine's cellular telephone systems. In 1993, the maximum
borrowing capacity of the construction loan increased from $3,642,000 to
$4,607,000. Monthly payments consist of interest only until the
commencement of principal payments discussed below. Interest is payable at
the 90 day commercial paper rate plus 4.25%. As of December 31, 1993 and
September 30, 1994, the balance due on the construction portion of the loan
was $3,642,000 and $4,248,000, respectively.
WORKING CAPITAL LOAN -- This loan is to be used for normal operating
expenses of Sunshine. The maximum borrowing capacity of the working capital
loan is $3,642,000. Monthly payments consist of interest only until the
commencement of principal payments discussed below. Interest is payable at
the 90 day commercial paper rate plus 4.25%. As of December 31, 1993 and
September 30, 1994, the balance due on the working capital loan was
$3,600,000 and $3,418,000, respectively.
Principal was originally scheduled to be repaid beginning September 1, 1994 on
the sum borrowed under the three loans as follows:
<TABLE>
<S> <C>
For the first through the twenty-fourth payment 1.250% of the principal balance
For the twenty-fifth through the thirty-sixth 1.667% of the principal balance
For the thirty-seventh through the fifty-ninth 2.083% of the principal balance
For the sixtieth payment the remaining balance due
</TABLE>
Sunshine and NTFC Capital Corporation entered into an agreement to defer
until March 1, 1995 all principal repayments originally scheduled to be paid
from September 1, 1994 through February 1, 1995.
As of September 30, 1994, scheduled maturities of long-term debt,
considering the deferral of principal repayments described above, are as
follows:
<TABLE>
<CAPTION>
Year ending September 30,
<S> <C>
1995............................. $ 1,860,000
1996............................. 1,764,000
1997............................. 2,337,000
1998............................. 3,099,000
1999............................. 2,385,000
$11,445,000
</TABLE>
Sunshine is required to repay all outstanding debt with the proceeds from
the sale of its assets to Vanguard, (See Note 9). In addition, Sunshine is also
required to pay a prepayment premium of 1% of the outstanding long-term debt
balance, or approximately $115,000 as of September 30, 1994, in the event of
early retirement of the debt.
NOTE 5 -- SETTLEMENT OF LITIGATION
In June 1993, Sunshine and Vanguard settled certain outstanding litigation.
Under the terms of this settlement, Vanguard paid Sunshine $550,000 of which
$275,000 is to be applied toward the purchase price to be paid by Vanguard in
the proposed asset sale discussed in Note 9. An additional $275,000 was
recognized as a reduction of general and administrative expenses for the nine
months ended September 30, 1993, and the year ended December 31, 1993.
Additionally, both parties dismissed all claims filed in the dispute.
15
<PAGE>
SUNSHINE CELLULAR
NOTES TO THE FINANCIAL STATEMENTS -- CONTINUED
NOTE 6 -- LEASES
Sunshine leases office facilities and cell sites under noncancellable
leases expiring through 2003. Rent expense for the year ended December 31, 1993
and the nine months ended September 30, 1993 and 1994 was $96,000, $74,000, and
$92,000, respectively. As of September 30, 1994, the estimated future minimum
lease payments required under these lease agreements are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
<S> <C>
1995......................................... 110,000
1996......................................... 109,000
1997......................................... 103,000
1998......................................... 104,000
1999......................................... 102,000
Thereafter................................... 222,000
$750,000
</TABLE>
NOTE 7 -- MANAGEMENT AGREEMENT
Sunshine currently has a management agreement with Minerich Cellular
Management Group, Inc. (MCMG) to assist in building, operating and managing the
cellular system. Monthly management fees of $16,000 are charged to operations.
In connection with the sale of Sunshine's assets to Vanguard (See Note 9),
the management agreement with MCMG will be terminated. Under the terms of the
agreement, Sunshine will be required to pay a termination fee of approximately
$1,400,000 to MCMG upon cancellation of the agreement.
NOTE 8 -- LOANS FROM PARTNERS
In 1993, Sunshine received advances from its partners of $350,000. These
loans, which were made for working capital needs, are subordinated to the
borrowings from NTFC Capital Corporation and have no defined repayment terms or
interest provisions. The Partners do not intend to demand repayment within the
twelve months ended September 30, 1995.
NOTE 9 -- SUBSEQUENT EVENT
On January 27, 1995, Sunshine and its partners sold substantially all of
the assets of Sunshine to Vanguard for a cash purchase price of $51.3 million.
Upon the closing of the sale, Sunshine repaid all obligations under its
long-term debt facility including the long-term debt prepayment premium of
$115,000. Following the closing of the sale, Sunshine liquidated substantially
all of its outstanding liabilities including $1,250,000 of the MCMG termination
fee and $350,000 of loans from partners. The remaining proceeds from the sale
will be first used to liquidate all other outstanding liabilities, with the
remainder of the proceeds being distributed to the partners.
16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO SUNSHINE CELLULAR:
We have audited the accompanying balance sheets of Sunshine Cellular (a
Maryland general partnership) as of December 31, 1993 and September 30, 1994,
and the related statements of operations and partners' capital and cash flows
for the year ended December 31, 1993 and the nine month periods ended September
30, 1993 and 1994. These financial statements are the responsibility of the
partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sunshine Cellular as of
December 31, 1993 and September 30, 1994, and the results of its operations and
its cash flows for the year ended December 31, 1993 and the nine month periods
ended September 30, 1993 and 1994 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Greensboro, North Carolina,
November 4, 1994 (except with respect
to the matter discussed in Note 9,
as to which the date is February 13, 1995).
17
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEETS -- SEPTEMBER 30, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
VANGUARD
CELLULAR
SYSTEMS, INC. ACQUIRED PRO FORMA
(AMOUNTS IN THOUSANDS) AND SUBSIDIARIES ENTITIES (1) ADJUSTMENTS
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................... $ 5,515 $ 754 $ 0
Accounts receivable, net....................................... 19,498 1,787 0
Cellular telephone inventories................................. 5,946 474 0
Prepaid expenses............................................... 759 90 0
Other.......................................................... 0 514 (514)(7)
Total current assets........................................ 31,718 3,619 (514)
INVESTMENTS...................................................... 209,080 8,394 76,605(8)
PROPERTY AND EQUIPMENT, net...................................... 96,367 9,863 0
OTHER ASSETS, net................................................ 9,732 643 7,161(8)
Total assets................................................ $ 346,897 $ 22,519 $ 83,252
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.............................. $ 0 $ 2,600 $ (2,600)(9)
Accounts payable and accrued expenses.......................... 26,411 1,132 (339)(8)
Customer deposits and unearned revenues........................ 551 188 (21)(8)
Total current liabilities................................... 26,962 3,920 (2,960)
LONG-TERM DEBT, net of current portion........................... 302,647 18,025 39,386(9)
MINORITY INTERESTS............................................... 2,548 85 (85)(8)
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock (38,594 actual and 40,404 pro forma
shares outstanding)......................................... 386 1 (1)(8)
18(10)
Additional capital in excess of par value...................... 186,724 16,628 (16,628)(8)
47,382(10)
Net unrealized holding losses.................................. (3,537) 0 0
Accumulated deficit............................................ (168,833) (16,140) 16,140(8)
Total shareholders' equity.................................. 14,740 489 46,911
Total liabilities and shareholders' equity.................. $ 346,897 $ 22,519 $ 83,252
<CAPTION>
PRO FORMA
(AMOUNTS IN THOUSANDS) CONSOLIDATED
<S> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................... $ 6,269
Accounts receivable, net....................................... 21,285
Cellular telephone inventories................................. 6,420
Prepaid expenses............................................... 849
Other.......................................................... 0
Total current assets........................................ 34,823
INVESTMENTS...................................................... 294,079
PROPERTY AND EQUIPMENT, net...................................... 106,230
OTHER ASSETS, net................................................ 17,536
Total assets................................................ $ 452,668
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.............................. $ 0
Accounts payable and accrued expenses.......................... 27,204
Customer deposits and unearned revenues........................ 718
Total current liabilities................................... 27,922
LONG-TERM DEBT, net of current portion........................... 360,058
MINORITY INTERESTS............................................... 2,548
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock (38,594 actual and 40,404 pro forma
shares outstanding)......................................... 404
Additional capital in excess of par value...................... 234,106
Net unrealized holding losses.................................. (3,537)
Accumulated deficit............................................ (168,833)
Total shareholders' equity.................................. 62,140
Total liabilities and shareholders' equity.................. $ 452,668
</TABLE>
The accompanying notes to pro forma condensed financial information are an
integral part of this statement.
18
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
VANGUARD
CELLULAR
SYSTEMS, INC. ACQUIRED PRO FORMA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) AND SUBSIDIARIES ENTITIES (1) ADJUSTMENTS
<S> <C> <C> <C>
REVENUES:
Service Fees................................................... $ 98,960 $ 7,569 $ 0
Cellular telephone equipment revenues.......................... 9,929 1,083 0
Other.......................................................... 175 0 0
109,064 8,652 0
COSTS AND EXPENSES:
Cost of service................................................ 14,461 1,768 0
Cost of cellular telephone equipment........................... 13,410 1,482 0
Marketing and selling.......................................... 21,693 1,502 0
General and administrative..................................... 34,218 3,049 0
Depreciation and amortization.................................. 25,160 2,120 2,193(2)
108,942 9,921 2,193
INCOME (LOSS) FROM OPERATIONS.................................... 122 (1,269) (2,193)
NET LOSSES ON DISPOSITIONS....................................... (657) 0 0
INTEREST EXPENSE................................................. (15,389) (1,358) (3,054)(3)
1,358(4)
OTHER, net....................................................... 795 605 0
LOSS BEFORE MINORITY INTEREST.................................... (15,129) (2,022) (3,889)
MINORITY INTEREST................................................ (154) 8 (8)(11)
NET LOSS BEFORE EXTRAORDINARY ITEM............................... $(15,283) $ (2,014) $(3,897)
NET LOSS PER SHARE BEFORE EXTRAORDINARY ITEM..................... $ (0.40)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (6)......... 37,888
<CAPTION>
PRO FORMA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED
<S> <C>
REVENUES:
Service Fees................................................... $106,529
Cellular telephone equipment revenues.......................... 11,012
Other.......................................................... 175
117,716
COSTS AND EXPENSES:
Cost of service................................................ 16,229
Cost of cellular telephone equipment........................... 14,892
Marketing and selling.......................................... 23,195
General and administrative..................................... 37,267
Depreciation and amortization.................................. 29,473
121,056
INCOME (LOSS) FROM OPERATIONS.................................... (3,340)
NET LOSSES ON DISPOSITIONS....................................... (657)
INTEREST EXPENSE................................................. (18,443)
OTHER, net....................................................... 1,400
LOSS BEFORE MINORITY INTEREST.................................... (21,040)
MINORITY INTEREST................................................ (154)
NET LOSS BEFORE EXTRAORDINARY ITEM............................... $(21,194)
NET LOSS PER SHARE BEFORE EXTRAORDINARY ITEM..................... $ (0.53)(5)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (6)......... 39,665
</TABLE>
The accompanying notes to pro forma condensed financial information are an
integral part of this statement.
19
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
HISTORICAL
VANGUARD
CELLULAR
SYSTEMS, INC. ACQUIRED PRO FORMA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) AND SUBSIDIARIES ENTITIES (1) ADJUSTMENTS
<S> <C> <C> <C>
REVENUES:
Service Fees................................................... $104,076 $ 8,185 $ 0
Cellular telephone equipment revenues.......................... 12,246 925 0
Other.......................................................... 2,241 0 0
118,563 9,110 0
COSTS AND EXPENSES:
Cost of service................................................ 15,934 1,673 0
Cost of cellular telephone equipment........................... 19,219 1,296 0
Marketing and selling.......................................... 23,970 1,295 0
General and administrative..................................... 31,220 2,304 0
Depreciation and amortization.................................. 17,359 1,559 728(2)
107,702 8,127 728
INCOME FROM OPERATIONS........................................... 10,861 983 (728)
NET LOSSES ON DISPOSITIONS....................................... (212) 0 0
INTEREST EXPENSE................................................. (15,113) (1,184) (2,730)(3)
1,184(4)
OTHER, net....................................................... 70 402 0
LOSS BEFORE MINORITY INTEREST.................................... (4,394) 201 (2,274)
MINORITY INTEREST................................................ (167) (13) 13(11)
NET LOSS......................................................... $ (4,561) $ 188 $(2,261)
NET LOSS PER SHARE............................................... $ (0.12)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (6)......... 38,477
<CAPTION>
PRO FORMA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED
<S> <C>
REVENUES:
Service Fees................................................... $112,261
Cellular telephone equipment revenues.......................... 13,171
Other.......................................................... 2,241
127,673
COSTS AND EXPENSES:
Cost of service................................................ 17,607
Cost of cellular telephone equipment........................... 20,515
Marketing and selling.......................................... 25,265
General and administrative..................................... 33,524
Depreciation and amortization.................................. 19,646
116,557
INCOME FROM OPERATIONS........................................... 11,116
NET LOSSES ON DISPOSITIONS....................................... (212)
INTEREST EXPENSE................................................. (17,843)
OTHER, net....................................................... 472
LOSS BEFORE MINORITY INTEREST.................................... (6,467)
MINORITY INTEREST................................................ (167)
NET LOSS......................................................... $ (6,634)
NET LOSS PER SHARE............................................... $ (0.16)(5)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (6)......... 40,244
</TABLE>
The accompanying notes to pro forma condensed financial information are an
integral part of this statement.
20
<PAGE>
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
For purposes of determining the pro forma effects on the consolidated
statement of operations for the year ended December 31, 1993 and the nine months
ended September 30, 1994, the pro forma adjustments and eliminations have been
made as if the Crowley Transaction and the Sunshine Transaction had occurred on
January 1, 1993. For the purposes of determining the pro forma effects on the
condensed consolidated balance sheet as of September 30, 1994, the pro forma
adjustments and eliminations have been made as if the Crowley Transaction and
the Sunshine Transaction had occurred on September 30, 1994. The following pro
forma adjustments have been made:
(1) These amounts reflect the combined historical data of Crowley, Inc.
and Sunshine as of or for the periods indicated, reclassified to
conform with the presentation of the Registrant's financial
statements.
(2) This adjustment reflects additional amortization of deferred cellular
license acquisition costs and the acquired customer base arising from
the acquisitions of Crowley, Inc. and Sunshine. The deferred cellular
license acquisition costs are being amortized over 40 years in
accordance with the Registrant's policy. The cost of the acquired
customer base is being amortized over the expected service period for
these customers which is estimated to be approximately four years.
(3) This adjustment reflects interest expense attributable to the $57.4
million of borrowings that would have been necessary to consummate the
acquisitions on January 1, 1993. The adjustment assumes the borrowings
would be funded from the Facility B Loan of the Registrant's 1993 Loan
Agreement and would bear interest at the Eurodollar Rate plus 2.5%.
For the year ended December 31, 1993 and for the nine months ended
September 30, 1994, the average Eurodollar rate was 3.32% and 4.34%,
respectively. This additional interest expense is offset by a
reduction in the commitment fee equal to .5% of the borrowings. If the
assumed rate varied by 1/8% in each period, consolidated interest
expense on all outstanding borrowings of the Registrant in each period
for the year ended December 31, 1993 and for the nine months ended
September 30, 1994, would have varied by approximately $340,000 and
$310,000, respectively.
(4) This adjustment eliminates interest expense incurred by Crowley, Inc.
and Sunshine during the year ended December 31, 1993 and the nine
months ended September 30, 1994 of $1.4 million and $1.2 million,
respectively. This interest expense relates to long-term debt of
Crowley, Inc. that was retired prior to the Crowley Transaction and
long-term debt of Sunshine that was not assumed by the Registrant.
(5) The pro forma net loss per share is computed based on the weighted
average shares outstanding adjusted for the additional shares issued
to fund part of the Crowley Transaction.
(6) Reflects 3 for 2 stock split effected in the form of a 50% stock
dividend paid on August 24, 1994.
(7) This adjustment reflects the required settlement of "due from
affiliate" of Crowley Inc. prior to the consummation of the Crowley
Transaction.
(8) These adjustments reflect the consummation of the Crowley Transaction
and the Sunshine Transaction, the allocation of the purchase prices,
the elimination of certain liabilities not assumed from Sunshine and
the consolidation of Crowley Inc. and Sunshine as if the acquisitions
had occurred on September 30, 1994.
(9) This adjustment reflects additional borrowings of $57.4 million under
the Registrant's 1993 Loan Agreement incurred primarily to fund these
transactions. Additionally, this adjustment also reflects (i) the
retirement of $8.6 million of Crowley, Inc. long-term debt (including
current portion) which occurred prior to the consummation of the
Crowley Transaction and (ii) the elimination of $11.8 million of
Sunshine long-term debt (including current portion) that was not
assumed in the Sunshine Transaction.
(10) This adjustment reflects the issuance of the Registrant's Class A
Common Stock to fund part of the Crowley Transaction.
(11) This adjustment reflects the adjustment for Minority interest in
Losses (Income) due to the acquisition of the remaining minority
interest of the partnership that holds the Binghamton MSA FCC license.
21
<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.
VANGUARD CELLULAR SYSTEMS, INC.
By: /s/ Stephen L. Holcombe
STEPHEN L. HOLCOMBE
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Date: February 13, 1995
22
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. PAGE
<C> <S> <C>
*2(a) Stock Purchase Agreement by and among Crowley Cellular Telecom-
munications Limited Partnership, Crowley Cellular Telecommunications
Binghamton, Inc. and Vanguard Cellular Systems, Inc., dated as of August
5, 1994 and filed as Exhibit 2(a) to the Registrant's Form 10-Q for the
quarter ended June 30, 1994.
*2(b) Asset Purchase Agreement dated September 26, 1994 by and between
Vanguard Cellular Systems, Inc. and Sunshine Cellular ("Sunshine
Agreement") filed as Exhibit 2(b) to the Registrant's Current Report on
Form 8-K filed on September 30, 1994.
23 Consent of Arthur Andersen LLP.
</TABLE>
* Incorporated by reference to the statement or report indicated.
23
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Vanguard Cellular Systems, Inc.:
As independent public accountants, we hereby consent to the incorporation
of our report dated March 8, 1994 and our report dated November 4, 1994 included
in this Form 8-K, into the Company's previously filed Form S-4 Registration
Statement No. 33-35054, Form S-8 Registration Statement No. 33-22866, Form S-8
Registration Statement No. 33-36986, Form S-8 Registration Statement No.
33-69824 and Form S-8 Registration Statement No. 33-53559.
(Signature of Arthur Andersen LLP)
ARTHUR ANDERSEN LLP
Greensboro, North Carolina,
February 13, 1995
