UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the period ended March 31, 1994.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _____________ to ________________
Commission File Number: 1-9854
McCaw Cellular Communications, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 91-1379052
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5400 Carillon Point, Kirkland, Washington 98033
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(Address of principal executive offices) (Zip Code)
(206) 827-4500
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of April 29, 1994.
Common stock, $0.01 par:
Class A 149,687,295 shares
Class B 59,530,951 shares
<PAGE>
<PAGE> 1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
March 31, December 31,
1994 1993
---------- -----------
ASSETS
- - ---------------------
Current assets:
Cash and cash equivalents $215,706 $ 138,908
Marketable securities 41,879 57,661
Accounts receivable, net 353,856 326,584
Other 111,843 106,041
--------- ---------
Total current assets 723,284 629,194
Property and equipment, net 1,679,535 1,616,480
Licensing costs and other intangible
assets, net 4,770,160 4,762,992
Investments 1,947,741 1,960,863
Other assets 95,770 95,400
--------- ---------
Total assets $9,216,490 $9,064,929
========== ==========
LIABILITIES AND STOCKHOLDERS'
DEFICIENCY
- - ----------------------------
Current liabilities:
Current portion of long-term debt $173,281 $ 158,925
Accounts payable 106,575 159,129
Accrued expenses 335,086 333,481
Unearned revenues and customer
deposits 79,265 69,118
--------- ---------
Total current liabilities 694,207 720,653
Long-term debt, net of current
portion 5,097,599 4,989,746
Net deferred tax liability 1,972,634 1,955,687
Other noncurrent liabilities 136,464 131,499
--------- ---------
Total liabilities 7,900,904 7,797,585
--------- ---------
(continued)<PAGE>
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(In Thousands)
(Unaudited)
March 31, December 31,
1994 1993
---------- -----------
LIABILITIES AND STOCKHOLDERS'
DEFICIENCY (continued)
- - ---------------------
Redeemable preferred stock of
a subsidiary $1,338,823 $1,305,248
---------- ----------
Stockholders' deficiency:
Common stock 2,090 2,086
Additional paid-in capital 2,911,540 2,888,565
Deficit (2,936,867) (2,928,555)
---------- ----------
Total stockholders' deficiency (23,237) (37,904)
---------- ----------
Total liabilities and
stockholders' deficiency $9,216,490 $9,064,929
========== ==========
See notes to condensed consolidated financial statements.
<PAGE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended March 31,
1994 1993
----------------------------
Net revenues $630,802 $ 479,968
--------- ---------
Expenses:
Operating 435,278 298,828
Corporate 6,411 4,040
Depreciation 66,417 50,286
Amortization of intangible assets 42,859 47,759
--------- ---------
550,965 400,913
--------- ---------
Income from operations 79,837 79,055
--------- ---------
Other income (expense):
Interest expense (67,250) (108,729)
Gain (loss) on dispositions
of assets, net (918) 51,692
Interest income 2,623 6,647
Equity in income of unconsolidated
investees 36,973 13,419
Other -- 5,885
--------- ---------
(28,572) (31,086)
--------- ---------
Income before income tax expense
and minority interest 51,265 47,969
Tax expense (20,089) (25,004)
--------- ---------
Income before minority interest 31,176 22,965
Minority interest:
Income of consolidated subsidiaries (5,913) (3,399)
Provision for preferred stock
dividend of a subsidiary (33,575) (33,575)
--------- ---------
Net loss $(8,312) $(14,009)
========= =========
Weighted average common shares
outstanding 208,763 192,098
========= =========
Net loss per common share $(0.04) $(0.07)
========= =========
See notes to condensed consolidated financial statements.
<PAGE>
<PAGE> 4
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended March 31,
1994 1993
----------------------------
Net cash provided by operating
activities $56,975 $40,814
-------- --------
Cash flows from investing activities:
Purchase or acquisition of:
Marketable securities (13,138) (56,626)
Property and equipment, net (144,159) (92,874)
Licensing costs and other
intangible assets, net (21,729) (1,856)
Investments (6,425) (11,958)
Sale or redemption of marketable
securities 28,932 92,030
Distributions and repayment of
advances from investees 54,701 25,195
Contributions from minority
interest holders -- 8,158
Other investing activities, net (4,080) (704)
-------- --------
Net cash used in investing activities(105,898) (38,635)
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt 153,500 40,000
Principal payments on long-term debt(31,291) (51,396)
Net proceeds from issuance of
common stock 3,512 403,568
-------- --------
Net cash provided by financing
activities 125,721 392,172
-------- --------
Net increase in cash and
cash equivalents 76,798 394,351
Cash and cash equivalents,
beginning of period 138,908 201,606
-------- --------
Cash and cash equivalents,
end of period $215,706 $595,957
======== ========
(continued)<PAGE>
<PAGE> 5
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In Thousands)
(Unaudited)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Three Months Ended March 31,
1994 1993
----------------------------
Cash paid for:
Interest $64,150 $113,143
======= ========
Taxes, net $12,822 $11,532
======= ========
See notes to condensed consolidated financial statements.
<PAGE>
<PAGE> 6
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1994
1. Basis of presentation:
The condensed consolidated financial statements included
herein have been prepared by McCaw Cellular Communications,
Inc. and its majority-owned subsidiary companies (the
Company), including LIN Broadcasting Corporation (together
with its subsidiaries, LIN), without audit, pursuant to the
rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures
normally included in financial statements prepared in
accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and
regulations. These condensed consolidated financial
statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included
in the Form 10-K, as amended, for the year ended December
31, 1993 of the Company and its majority-owned subsidiary
LIN.
The financial information included herein reflects all
adjustments (consisting of normal recurring adjustments)
which are, in the opinion of management, necessary to a fair
presentation of the results for interim periods. The
results of operations for the three month period ended March
31, 1994 are not necessarily indicative of the results to be
expected for the full year.
2. Net loss per share:
Net loss per share is computed based on the weighted average
number of common and common equivalent shares outstanding
during the period. In periods where the Company has
reported a net loss, only common shares outstanding are
considered since the assumed conversion of options and
convertible securities would be antidilutive.
<PAGE>
<PAGE> 7
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
3. Litigation:
In May 1990, a suit was filed in the United States District
Court for the District of Columbia against the Company by
the former owners (the "Charisma Group") of cellular
interests which the Company acquired in 1986 and 1987 and
some of which the Company sold in its transaction with
Contel Cellular Inc. (the "Charisma Litigation"). The suit
alleges that the transaction with Contel breached an
agreement that would have required the Company to share with
the Charisma Group up to 25 percent of the net capital
gains from such sale.
During the same period in 1986 and 1987 that the Company
acquired cellular interests from the Charisma Group, the
Company acquired similar interests from Maxcell Telecom
Plus, Inc. ("Maxcell"). On November 1, 1993, Maxcell and
its parent, Telecom Plus, Inc. ("TPI") filed a suit in the
Circuit Court, Palm Beach County, Florida alleging that the
Company made certain oral representations to the former
owners of Maxcell that they would be treated identically to
the Charisma Group in connection with their sale of
interests to the Company, and that the alleged agreement
made by the Company with the Charisma Group violated that
oral agreement (the "TPI Litigation"). In an apparent
response to defendant's motion to dismiss, plaintiff filed
an amended complaint. Plaintiff's allegations in the
amended complaint include claims for fraud, breach of
contract, breach of implied contract, interference with
contract, breach of fiduciary duty, constructive trust,
promissory estoppel, breach of covenant of good faith and
fair dealing, conspiracy and concealment. Various types of
relief including rescission, reformation, damages and
punitive damages are sought. Former owners of Charisma are
co-defendants individually and as class defendants.
The Company believes that the Plaintiffs in both suits are
not entitled to the relief sought and is defending the
lawsuits vigorously. The Company initially filed a response
to the complaint denying the allegations in the Charisma
Litigation and asserting various affirmative defenses, and
has subsequently filed counter claims and third-party claims
in such litigation. The Company also filed two motions for
summary judgment dismissing the Charisma Litigation. The
Court denied those summary judgment motions. Discovery in
the Charisma Litigation is proceeding; no trial date has
been set. In the TPI litigation, defendant's motion to
dismiss was granted in part and denied in part. The Company
and Charisma have both moved to stay further proceedings in
the TPI Litigation pending resolution of the Charisma
Litigation. TPI is expected to oppose the motion to stay.
If the motion to stay is not granted, discovery will
commence in the TPI Litigation. No trial date has been set
<PAGE>
<PAGE> 8
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
3. Litigation (continued):
in the TPI Litigation. Management believes the results of
the Charisma Litigation and the TPI Litigation will not have
a material adverse impact on the financial position or
results of operations of the Company.
On August 15, 1993, the Company entered into a Memorandum of
Understanding which would result in the settlement of the
litigation entitled In re McCaw Cellular Communications,
Inc. Shareholders Litigation, Consolidated Civil Action No.
12793, described in the Company's Current Report on Form 8-
K, dated November 17, 1992. The settlement is subject to
approval by the court, consummation of the Company's
proposed merger with AT&T Corp. ("AT&T") and other
customary conditions. The defendants have denied, and
continue to deny, that they have committed any violations of
law and, as the Memorandum of Understanding states, are
entering into the settlement solely to eliminate the burden
and expense of further litigation. If approved, the
settlement will release all claims of the Company's
stockholders in connection with or that arise out of the
subject matter of the action, the Company's proposed
strategic alliance with AT&T (which was abandoned when the
proposed merger with AT&T was agreed to), the proposed
merger, the negotiation and consideration of such
transactions, and the fiduciary or disclosure obligations of
any of the defendants (or other persons to be released) with
respect to any of the foregoing. It is expected that the
Company's stockholders separately will be provided a notice
containing further information regarding the proposed
settlement and related proceedings, including a settlement
hearing to be scheduled by the court.
The Company is also party to certain litigation in the
ordinary course of business and to routine filings with the
Federal Communications Commission (FCC), state regulatory
authorities and other proceedings which management believes
are immaterial to the Company.
4. Merger with AT&T:
On August 16, 1993, the Company entered into an Agreement
and Plan of Merger (the "Merger Agreement") with AT&T,
pursuant to which the Company would become a wholly owned
subsidiary of AT&T and each share of Class A Common Stock
and Class B Common Stock of the Company would be converted
into one AT&T common share, subject to certain adjustments.
Each outstanding option to purchase the Company's stock
would be assumed by AT&T and would be exercisable for a
proportionate number of AT&T common shares. The merger has
been approved by the respective Boards of Directors of AT&T
and the Company and the Company's stockholders, but is
subject to the satisfaction of several conditions, including
the receipt of necessary governmental consents.<PAGE>
<PAGE> 9
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
4. Merger with AT&T (continued):
Each party has a right to terminate the Merger Agreement if
it has not closed by September 30, 1994. Separately, AT&T
has agreed to purchase at the Company's option, exercisable
in the event the Merger Agreement is terminated,
approximately 11.7 million newly issued shares of the
Company's Class A Common Stock at $51.25 per share, for a
total price of $600 million. This right will not be
exercisable if the merger is completed. Such transaction
would be subject to the receipt of necessary governmental
approvals, which have not yet been applied for or received.
On April 5, 1994, the United States District Court for the
District of Columbia issued an Order in the case entitled
United States v. Western Electric Co. Inc., et al., Civil
Action No. 82-0192, declaring that AT&T's acquisition of the
Company's interest in cellular properties controlled by a
Bell Operating Company would violate Section I(D) of the
Modification of Final Judgment (the "Decree"), United States
v. American Telephone and Telegraph Co., 552 F. Supp. 131,
226-34 (D.D.C. 1982), aff'd sub nom, Maryland v. United
States, 460 U.S. 1001 (1983), and that AT&T must seek a
waiver or modification of the Decree in order to proceed
with the Merger. There can be no assurance as to whether,
or when, the Court will grant any such waiver or
modification.
Pursuant to the Merger Agreement, on February 8, 1994, the
Company, through a wholly owned subsidiary, entered into a
credit agreement with AT&T which provided the Company with
the ability to borrow amounts from AT&T for specific
purposes as described in the credit agreement (the "AT&T
Credit Agreement"). Under the AT&T Credit Agreement,
interest is payable quarterly at an applicable margin in
excess of the prevailing LIBOR rate and is fixed for a
period ranging from one month to twelve months. Amounts
outstanding under the AT&T Credit Agreement are due and
payable two years after the earlier of (i) the closing under
the Merger Agreement or (ii) the termination of the Merger
Agreement. The assets of the wholly owned subsidiary are
pledged as security for this debt. As of April 30, 1994,
$73.5 million was outstanding under the AT&T Credit
Agreement.
<PAGE>
<PAGE> 10
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The results of operations for the three month period ended March
31, 1994 are not necessarily indicative of the results to be
expected for the full year.
Three months ended March 31, 1994 and 1993
Net Revenues
Consolidated net revenues increased 31 percent to $630.8 million
for the three months ended March 31, 1994 compared with $480.0
million for the three months ended March 31, 1993. Net revenues
for the Company's cellular operations for the three months ended
March 31, 1994 were $556.7 million and represented 88 percent of
the total consolidated net revenues of the Company for the
period. Net revenues for the three months ended March 31, 1994
of the broadcast segment and messaging and other segment were
$35.3 million and $38.7 million, respectively, and each accounted
for 6 percent of the Company's consolidated net revenues for the
period ending March 31, 1994.
Net revenues for the Company's cellular operations increased 33
percent to $556.7 million for the three months ended March 31,
1994 compared with $418.6 million for the three months ended
March 31, 1993. This increase in net revenues results primarily
from a 39 percent increase in the cellular subscriber base, which
was partially offset by a decrease in average revenue per
cellular subscriber, a trend that the Company expects may
continue as the subscriber base continues to grow.
Net revenues for the Company's broadcast operations increased 11
percent to $35.3 million for the three months ended March 31,
1994 from $31.7 million for the three months ended March 31,
1993. This increase reflects improvement in the economy which
stimulated increased advertiser spending.
Net revenues for the Company's messaging and other segment
increased 30 percent to $38.7 million in the three months ended
March 31, 1994 compared with $29.7 million for the three months
ended March 31, 1993. This increase is due primarily to the
continuing growth of messaging net revenues and the increase in
revenues from the Company's start-up air-to-ground communications
operations. Total messaging net revenues continue to grow due to
a 27 percent increase in the messaging subscriber base, primarily
through growth in the segment's existing markets. The first
quarter 1994 messaging net revenue per subscriber declined from
the first quarter 1993, a trend the Company expects may continue
as the messaging subscriber base continues to grow.<PAGE>
<PAGE> 11
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS (continued)
Operating Expenses
Consolidated operating expenses, exclusive of corporate expenses,
for the three months ended March 31, 1994 were $435.3 million, an
increase of $136.5 million or 46 percent, from the three months
ended March 31, 1993. A significant portion of these expenses is
attributable to the Company's cellular operations, which
accounted for 86 and 84 percent of the Company's total operating
expenses for the three month periods ended March 31, 1994 and
1993, respectively.
Operating expenses, exclusive of depreciation and amortization,
for the cellular segment increased to $373.4 million, an increase
of $121.9 million, or 48 percent, from the three months ended
March 31, 1993. A significant portion of this increase resulted
from an increase in cost of equipment sales and marketing costs
incurred as a result of the Company's 61 percent increase in
gross subscriber additions in the period ended March 31, 1994
over the period ended March 31, 1993. Operating expenses as a
percentage of net revenues for the cellular segment increased to
67 percent compared to 60 percent for the period ended March 31,
1993. Operating costs, exclusive of depreciation and
amortization for the broadcast segment increased $1.7 million, or
9 percent, to $21.9 million for the three months ended March 31,
1994. These costs as a percentage of net revenues of the
broadcast operations decreased to 62 percent for the three months
ended March 31, 1994 from 64 percent for the three months ended
March 31, 1993. Operating expenses, exclusive of depreciation
and amortization, of the messaging and other segment increased by
47 percent over the three months ended March 31, 1993 to $40.0
million for the three months ended March 31, 1994. This increase
primarily resulted from the Company's start-up air-to-ground
communications operations.
Depreciation and amortization increased from $98.0 million in the
three months ended March 31, 1993 to $109.3 million for the same
period in 1994. Contributing to this 11 percent increase in
depreciation and amortization is the Company's improvement and
expansion of its existing cellular, messaging and air-to-ground
systems offset in part by a decrease in amortization expense due
to fully amortized assets. Depreciation and amortization is
expected to continue increasing due to continued improvement and
expansion of the Company's cellular, messaging and air-to-ground
systems, including the implementation of digital cellular
service.
<PAGE>
<PAGE> 12
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS (continued)
Other Income and Expenses
Interest expense was $67.3 million for the three months ended
March 31, 1994, a $41.5 million or 38 percent decrease from the
three months ended March 31, 1993. This decrease primarily
resulted from the redemption of the Company's approximately $400
million of outstanding convertible senior subordinated debentures
in April 1993, and the redemption of the Company's remaining
publicly held fixed rate debt on December 31, 1993. On December
31, 1993, the Company's approximate $1.2 billion of publicly held
debt was replaced with lower cost borrowings under the McCaw Bank
Credit Facilities (as defined below).
Gain on dispositions of assets, net of $51.7 million for the
three months ended March 31, 1993 decreased to a loss of $0.9
million for the three months ended March 31, 1994. The 1993 gain
of $51.7 million consisted primarily of the gain recognized on
the sale to Associated Communications Corporation of the
Company's interests in the A Block cellular systems in Albany,
Glens Falls and Rochester, New York.
Equity in income of unconsolidated investees was $37.0 million
for the three months ended March 31, 1994 compared with $13.4
million for the same period in 1993. This increase is primarily
attributable to improved operating results of and an increase in
ownership percentage in Bay Area Cellular Telephone Company,
improved operating results of LIN's unconsolidated affiliates,
effective September 1, 1993, the inclusion of the CMT Partners as
an unconsolidated investee, and lower amortization expense due to
fully amortized assets.
For the reasons discussed above, the net loss of $14.0 million
for the three months ended March 31, 1993 decreased to a net loss
of $8.3 million for the three months ended March 31, 1994.
REGULATION AND COMPETITION
In addition to B Block cellular competition, the Company and its
unconsolidated affiliates expect to face competition from
enhanced specialized mobile services (ESMR) operations, such as
Nextel, which are launching cellular-like services in the
Company's California markets. Other ESMR networks are scheduled
to begin either operation or construction in other cities as
well.
In September 1993, the FCC adopted rules for the licensing of
personal communications services ("PCS"). While the Company and
other cellular carriers will be eligible to compete for these
licenses, the amount of PCS spectrum that cellular carriers may
acquire in their own cellular market areas is limited.
<PAGE>
<PAGE> 13
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
REGULATION AND COMPETITION (continued)
Furthermore, the FCC's rules provide for as many as seven PCS
licenses in any market area, so the likelihood of additional
competition in wireless services has increased. The FCC has also
established Rand-McNally Major Trading Areas ("MTAs") and Basic
Trading Areas ("BTAs") as the licensing areas for PCS services.
Both MTAs and BTAs are larger than a cellular MSA or RSA. In
some instances, an MTA may exceed in size the Company's cluster
of cellular licenses in a particular geographic region. It is
expected that PCS licenses will begin to be awarded in 1994.
Several parties to the FCC proceeding including the Company have
petitioned for reconsideration of certain aspects of the PCS
rules and it is possible that the FCC could amend its rules based
upon these petitions.
Some of the PCS spectrum is already used by cellular carriers for
microwave transmissions. The FCC has determined that the
existing microwave users must be phased out or relocated to new
frequencies once PCS is deployed. However, the FCC's rules
enable displaced microwave users to obtain compensation from PCS
licensees for vacating PCS spectrum and provide for a transition
period before incumbent microwave users are forced to relocate.
Pursuant to the Omnibus Budget Reconciliation Act of 1993, signed
into law in August 1993, the FCC will auction the spectrum that
it has allocated for PCS licenses. Auctions are scheduled to
begin in late 1994. The FCC has recently adopted generic rules
for conducting auctions and is still considering proposed rules
for broadband PCS licenses. These proposed rules include a
provision for the submission of bids to acquire all licenses
available within a common spectrum block, thus offering a new PCS
entrant the possibility of obtaining national coverage. Because
the auction rules are only preliminary, it is uncertain how they
will affect the Company's competitive position.
The Omnibus Budget Reconciliation Act of 1993 also specifies that
cellular and other commercial mobile providers should be subject
to similar regulatory treatments, including federal pre-emption
of state rate and entry regulation and exemption from tariffing
requirements. A state may petition the FCC for the right to
regulate the rates of commercial mobile providers but must
demonstrate that rates will be unreasonable without the state's
regulatory oversight. States that currently regulate cellular
must petition the FCC by August 10, 1994, in order to retain rate
regulatory jurisdiction while the petition is reviewed by the
FCC. It is unclear which, if any, states will petition the FCC.
In light of the uncertainty as to how the legislation will be
implemented, and as to the nature of the additional competitive
services covered thereby, it is impossible to quantify the impact
of these legislative and regulatory initiatives or such
competition on the Company at this time.<PAGE>
<PAGE> 14
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Company utilizes capital to make acquisitions of cellular and
messaging interests (which may include the acquisition of stock
of publicly traded corporations), to complete the construction of
and to operate and expand its communications systems, to fund
start-up operating losses for its transmitting systems and to
cover interest payments on its indebtedness. Moreover, as
subscribers are added and usage increases, it will be necessary
to make additional capital expenditures for the purchase of
additional sites and operating equipment. The Company is in the
process of changing equipment to accommodate the transition from
analog to digital cellular service. The conversion from analog
to digital equipment will require significant expenditures but
will expand the capacity of the Company's cellular systems. The
Company expects its capital expenditures in 1994 in connection
with the planned expansion of digital service to total
approximately $110 million and otherwise expects that it will
continue to invest cash to grow its businesses at levels similar
to or in excess of its 1993 investing activity.
Net cash provided by operating activities totaled $57.0 million
for the three months ended March 31, 1994, an increase of $16.2
million from the March 31, 1993 total of $40.8 million. A
significant portion of the Company's cash provided by operations
is derived from the Company's cellular operations.
Interest expense decreased 38 percent to $67.3 million for the
quarter ended March 31, 1994. This decrease primarily resulted
from the redemption of the Company's approximately $400 million
of outstanding convertible senior subordinated debentures in
April 1993, and the redemption of the Company's remaining
publicly held fixed rate debt on December 31, 1993. On December
31, 1993 the Company's approximate $1.2 billion of publicly held
debt was replaced with lower cost borrowings under the McCaw Bank
Credit Facilities.
The Company does not expect its operations to generate sufficient
cash to meet its expenditure requirements for the next few years.
Historically the Company has raised capital through the issuance
of public indebtedness, bank borrowings and the sale of equity or
assets. There can be no assurance that the Company will be able
to obtain such additional financing or sell assets when needed,
or if it is able to obtain such financing or sell assets, that
the terms will be favorable to the Company. The Company will be
required by the terms of the McCaw Bank Credit Facilities to
apply the proceeds of certain asset sales to the repayment of
loans thereunder.
<PAGE>
<PAGE> 15
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES (continued)
The Company's indebtedness is due and payable over several years.
The revolving period under the McCaw Bank Credit Facilities ends
on March 31, 1996, at which time the obligation to repay
principal commences. If the Company does not have sufficient
internally generated funds to repay its indebtedness at maturity,
it may issue additional indebtedness, sell equity or sell assets
to refinance such maturing indebtedness. There can be no
assurance that such issuances or sales will be possible or, if
carried out, that the terms thereof will be favorable to the
Company or its security holders.
In connection with the Merger Agreement, AT&T and the Company
entered into a credit agreement under which financing is
available for certain acquisitions and other business
opportunities. In addition, AT&T has agreed to purchase
approximately 11.7 million newly issued shares of Class A Common
Stock for a total purchase price of $600 million in the event
that the Merger Agreement is terminated. See Footnote 4 to the
Company's condensed consolidated financial statements included
herein.
In connection with its acquisition of a controlling interest in
LIN in 1990, the Company entered into the Private Market Value
Guarantee (PMVG) with LIN for the benefit of the public
stockholders of LIN. Pursuant to the PMVG, the Company is
required, beginning January 1, 1995, either to offer to purchase
the remaining outstanding shares of LIN at private market value
(an Acquisition) or put LIN in its entirety up for sale. If the
Company decides to proceed with an Acquisition, it may pay the
purchase price in cash or any combination of cash, common equity
securities and/or nonconvertible senior or subordinated "current
cash pay" debt securities that LIN's independent directors
believe in good faith will have an aggregate market value on a
fully distributed basis of not less than the private market value
purchase price. If the Company determines not to proceed with an
Acquisition, there can be no certainty that LIN will be sold to a
third party. The Company's completion of an Acquisition may
diminish the Company's liquidity, either through draws by the
Company on outstanding facilities, the refinancing of such
facilities or the issuance of securities which, by their nature,
may limit the ability of the Company to issue further securities
for other purposes. Conversely, if LIN is sold, it is likely
that such transaction will enhance the Company's liquidity.
There can be no assurance as to whether the Company will
determine to make an Acquisition or not or, if it does determine
to proceed with an Acquisition, what the price for the remaining
outstanding interest in LIN will be, the manner in which it will
be financed and what effect the payment of such purchase price
will have on the Company's liquidity.
<PAGE>
<PAGE> 16
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES (continued)
It is the Company's policy to carefully monitor the state of its
business, cash requirements and capital structure. From time to
time, the Company may enter into transactions pursuant to which
debt is extinguished, such as the CMT Partners transaction, the
redemption of convertible debentures, the sale of stock to AT&T
and the proposed merger with AT&T. The Company will continue to
explore other such opportunities, which could include sales of
assets or equity, joint ventures, reorganizations or further
recapitalizations. There can be no assurance that any further
such transactions will be undertaken, or, if undertaken, will be
favorable to stockholders.
McCaw Bank Credit Facilities
Under the McCaw Bank Credit Facilities, interest is payable at
the applicable margin plus, at the Company's discretion, the
prevailing prime, LIBOR or CD rate. Interest is fixed for a
period ranging from one month to twelve months, depending on
availability of the interest basis selected, although if the
Company selects a prime-based loan, the interest rate will
fluctuate during the period as the prime rate fluctuates. The
applicable margin for each loan will be determined on the basis
of the Company's ratio of adjusted total debt (as determined
under the McCaw Bank Credit Facilities) to cash flow (i.e., net
income, excluding extraordinary items, plus depreciation,
amortization, interest expense, reserves for deferred taxes and
other non cash items deducted in determining net income). For
example, if the ratio was 6.0 to 1 or greater, the applicable
margin for LIBOR, CD and prime loans would be 1-5/8%, 1-3/4% and
5/8%, respectively, while if the ratio was less than 4.5 to 1,
such margins would be 1-1/8%, 1-1/4% and 1/8%, respectively.
Beginning on March 31, 1996 and at the end of each fiscal quarter
thereafter until the maturity date (which will be on or about
March 31, 2000), the Company will be required to make payments
amortizing the amount outstanding under the McCaw Bank Credit
Facilities on December 31, 1995. In addition, the Company will
be required to apply cash proceeds from certain sales of assets
not reinvested in similar assets, and, after January 1, 1996, all
excess cash flow, to the prepayment of loans.
The McCaw Bank Credit Facilities contain covenants restricting
certain activities by the Company and its restricted
subsidiaries, including, without limitation, restrictions on (i)
investments in unrestricted subsidiaries, (ii) the incurrence of
debt, (iii) distributions and dividends to stockholders, (iv)
mergers and sales of assets, (v) prepayments of subordinated
indebtedness, (vi) the creation of liens, and (vii) the issuance
of preferred stock.
<PAGE>
<PAGE> 17
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES (continued)
McCaw Bank Credit Facilities (continued)
In addition, the Company and its subsidiaries are required to
maintain compliance with certain financial covenants set forth in
the McCaw Bank Credit Facilities. The Company is required to
maintain certain ratios of outstanding indebtedness to the number
of pops owned. The Company is also required to maintain ratios
of senior debt and combined debt to cash flow in compliance with
amounts specified in the McCaw Bank Credit Facilities.
Substantially all the Company's assets, consisting of the stock
of its first-tier (i.e., direct) subsidiaries, are pledged as
security for repayment of amounts due under the McCaw Bank Credit
Facilities.
Although the Company is currently in compliance with all
covenants under the McCaw Bank Credit Facilities, because the
ratios of indebtedness to cash flow required to be maintained by
the McCaw Bank Credit Facilities decrease each quarter through
1996, it will be necessary over that time period for the Company
either to continue to increase cash flow or to reduce debt in
order to remain in compliance.
The McCaw Bank Credit Facilities contain customary events of
default, including (i) failure to make principal or interest
payments when due, (ii) failure to comply with covenants, (iii)
misrepresentations, (iv) defaults on other indebtedness, (v)
material adverse change in the business, condition, operations,
performance or properties of the Company, (vi) unpaid judgments,
and (vii) standard ERISA and bankruptcy defaults. In addition,
it shall be an event of default if, except in connection with the
AT&T Merger, the Designated Party under the McCaw Shareholders
Agreement fails to be entitled to appoint a majority of the Board
of Directors of the Company or if the McCaw Family (as defined)
fails to hold at least 20 million shares subject to the McCaw
Shareholders Agreement.
The ability of the Company to comply with the covenants contained
in the McCaw Bank Credit Facilities may be affected by events
beyond its control. If the Company fails to service its
indebtedness or satisfy the covenants contained in the McCaw
Bank Credit Facilities or the agreements relating to its other
indebtedness, the Company will be in default. In such an event,
holders of the Company's indebtedness will be able to exercise
their rights including the right to declare all the borrowed
funds and interest thereon immediately due and payable. If the
Company were unable to repay such indebtedness, the holders of
such indebtedness could proceed against their collateral, if any.
Substantially all the Company's assets, including its stock in
subsidiaries and its ownership interests in entities holding
cellular licenses, are pledged or encumbered as security for
indebtedness.
<PAGE>
<PAGE> 18
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES (continued)
LIN's Credit Facilities
LIN has arranged financing through two bank facilities. LIN
Cellular Network, Inc. ("LCNI"), a wholly-owned subsidiary of LIN
(owning all of LIN's cellular operations other than
Philadelphia), has an aggregate of $1,459 million outstanding and
$240 million available as of March 31, 1994 (the "Cellular
Facility"). LIN Television Corporation ("LTC"), a wholly-owned
subsidiary of LIN (owning all of LIN's television operations
other than WOOD-TV), has $211 million outstanding and no
additional amounts available as of March 31, 1994 (the "Broadcast
Facility", and collectively, the "LIN Bank Credit Facilities").
LIN's Credit Facilities prohibit the payment of dividends and
distributions to LIN by its major operating subsidiaries, thereby
effectively limiting the ability of LIN to transfer funds to the
Company.
Funds available under the McCaw Bank Credit Facilities can only
be utilized by the Company and certain of its subsidiaries other
than LIN. Proceeds from LIN's Credit Facilities are only
available to LIN and its subsidiaries. For additional
information regarding LIN's credit facilities, see LIN's current
Annual Report on Form 10 K.
LCH's Redeemable Preferred Stock
On August 10, 1990, LIN completed its acquisition of Metromedia
Company's interest in the New York City A Block Licensee (the
"Metromedia Transaction"). In addition to the cash portion of
the purchase price for the Metromedia interests, LIN's
subsidiary, LCH Communications, Inc. ("LCH"), issued $850 million
of newly issued Class A Redeemable Preferred Stock (the "LCH
Preferred Stock") to Metromedia. Metromedia has subsequently
transferred the LCH Preferred Stock to a subsidiary of Comcast
Corporation. The holder of the LCH Preferred Stock is entitled
to appoint two members of the LCH Board of Directors and will be
entitled to dividends if and when declared by the Board. LCH may
redeem the Preferred Stock at any time at a price equal, at its
option, to either:
(1) all of the issued and outstanding capital stock of LCH's
subsidiary (LIN-Penn), which holds GuestInformant and LIN's
ownership interest in the Philadelphia A Block cellular
system, plus cash equal to 15 percent of the fair market
value of all businesses (currently, only WOOD, formally
WOTV, LIN's broadcast business in Grand Rapids - Kalamazoo -
Battle Creek, Michigan) then operated by LCH (the Operating
Business Portion); or
<PAGE>
<PAGE> 19
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES (continued)
LCH's Redeemable Preferred Stock (continued)
(2) a cash amount equal to the greater of (a) the fair market
value of the issued and outstanding capital stock of LIN-
Penn plus the Operating Business Portion and (b) $850
million, plus, in each case, dividends which would have
accrued on the LCH Preferred Stock from the issuance date
(to the extent not previously paid) at the rate of 15.8
percent per year.
LCH is required to redeem the LCH Preferred Stock in the year
2000 (if not redeemed prior to such time) at a price comparable
to that described above. In certain circumstances, the holder of
the LCH Preferred Stock may require the corporate parent of LCH
to purchase the LCH Preferred Stock.
<PAGE>
<PAGE> 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In May 1990, a suit was filed in the United States District
Court for the District of Columbia against the Company by
the former owners (the "Charisma Group") of cellular
interests which the Company acquired in 1986 and 1987 and
some of which the Company sold in its transaction with
Contel Cellular Inc. (the "Charisma Litigation"). The suit
alleges that the transaction with Contel breached an
agreement that would have required the Company to share with
the Charisma Group up to 25 percent of the net capital gains
from such sale.
During the same period in 1986 and 1987 that the Company
acquired cellular interests from the Charisma Group, the
Company acquired similar interests from Maxcell Telecom
Plus, Inc. ("Maxcell"). On November 1, 1993, Maxcell and
its parent, Telecom Plus, Inc. ("TPI") filed a suit in the
Circuit Court, Palm Beach County, Florida alleging that the
Company made certain oral representations to the former
owners of Maxcell that they would be treated identically to
the Charisma Group in connection with their sale of
interests to the Company, and that the alleged agreement
made by the Company with the Charisma Group violated that
oral agreement (the "TPI Litigation"). In an apparent
response to defendant's motion to dismiss, plaintiff filed
an amended complaint. Plaintiff's allegations in the
amended complaint include claims for fraud, breach of
contract, breach of implied contract, interference with
contract, breach of fiduciary duty, constructive trust,
promissory estoppel, breach of covenant of good faith and
fair dealing, conspiracy and concealment. Various types of
relief including rescission, reformation, damages and
punitive damages are sought. Former owners of Charisma are
co-defendants individually and as class defendants.
The Company believes that the Plaintiffs in both suits are
not entitled to the relief sought and is defending the
lawsuits vigorously. The Company initially filed a response
to the complaint denying the allegations in the Charisma
Litigation and asserting various affirmative defenses, and
has subsequently filed counter claims and third-party claims
in such litigation. The Company also filed two motions for
summary judgment dismissing the Charisma Litigation. The
Court denied those summary judgment motions. Discovery in
the Charisma Litigation is proceeding; no trial date has
been set. In the TPI Litigation, defendant's motion to
dismiss was granted in part and denied in part. The Company
and Charisma have both moved to stay further proceedings in
the TPI Litigation pending resolution of the Charisma
Litigation. TPI is expected to oppose the motion to stay.
If the motion to stay is not granted, discovery will
commence in the TPI Litigation. No trial date has been set
in the TPI Litigation. Management believes the results of
the Charisma Litigation and the TPI Litigation will not have
a material adverse impact on the financial position or
results of operations of the Company.<PAGE>
<PAGE> 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings (continued)
On August 15, 1993, the Company entered into a Memorandum of
Understanding which would result in the settlement of the
litigation entitled In re McCaw Cellular Communications,
Inc. Shareholders Litigation, Consolidated Civil Action No.
12793, described in the Company's Current Report on Form 8-
K, dated November 17, 1992. The settlement is subject to
approval by the court, consummation of the Company's
proposed merger with AT&T Corp. ("AT&T") and other customary
conditions. The defendants have denied, and continue to
deny, that they have committed any violations of law and, as
the Memorandum of Understanding states, are entering into
the settlement solely to eliminate the burden and expense of
further litigation. If approved, the settlement will
release all claims of the Company's stockholders in
connection with or that arise out of the subject matter of
the action, the Company's proposed strategic alliance with
AT&T (which was abandoned when the proposed merger with AT&T
was agreed to), the proposed merger, the negotiation and
consideration of such transactions, and the fiduciary or
disclosure obligations of any of the defendants (or other
persons to be released) with respect to any of the
foregoing. It is expected that the Company's stockholders
separately will be provided a notice containing further
information regarding the proposed settlement and related
proceedings, including a settlement hearing to be scheduled
by the court.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held a special meeting of stockholders on March
25, 1994 to vote upon a proposal to approve and adopt the
Merger Agreement, and the merger of an AT&T subsidiary into
McCaw as provided for in the Merger Agreement. The results
of the voting were as follows:
In Favor Opposed Broker Non-Votes Abstained
722,304,708 57,356 0 109,070
Item 5. Other information
(a) Attachment of supplemental financial data.
<PAGE>
<PAGE> 22
McCAW CELLULAR COMMUNICATIONS, INC.
SUPPLEMENTAL FINANCIAL DATA
PROPORTIONATE OPERATING DATA
(Unaudited)
($ in thousands)
The following table sets forth unaudited, supplemental financial
data for the Company's cellular segment reflecting proportionate
consolidation of entities in which the Company has a substantial
interest. This presentation differs from the consolidation
methodology used to prepare the Company's principal financial
statements in accordance with generally accepted accounting
principles. The proportionate cellular operating data reflects
the Company's ownership percentage of systems consolidated for
financial reporting purposes (including approximately 52 percent
of LIN's proportionate results), and the Company's ownership
percentage of certain of its significant unconsolidated investees
(which are accounted for on the equity method for financial
reporting purposes).
Three Months Ended March 31,
1994 1993
----------------------------
Service revenue $493,086 $ 362,570
Equipment revenue, net (1,111) 487
--------- ----------
Net revenues 491,975 363,057
--------- ----------
Direct costs and expenses
excluding marketing 164,403 118,911
Marketing expenses 126,176 80,492
Depreciation 57,021 42,005
Amortization of intangible assets 41,654 51,835
--------- ----------
Total operating costs 389,254 293,243
--------- ----------
Operating income
proportionate basis $102,721 $ 69,814
========== ==========
Proportionate subscribers(1) 2,117,000 1,439,000
(1) As of March 31, 1994, 100% of subscribers in markets in
which the Company (exclusive of LIN) owned at least a 50%
interest plus 100% of the subscribers of the cellular
systems serving the markets in the CMT Partnership was
1,743,000 and average penetration in such markets was 3.35%.
The Company's (exclusive of LIN's) proportionate share of
subscribers based on its March 31, 1994 ownership position
in markets where it owned an interest was 1,615,000. As of
March 31, 1994, 100% of subscribers in markets in which LIN
owned an interest was 1,575,000 and average penetration in
such markets was 3.67%. LIN's proportionate share of such
subscribers based on its ownership position at March 31,
1994 was approximately 958,000.
<PAGE>
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
McCaw Cellular Communications, Inc.
(Registrant)
Date: May 16, 1994
STEVEN W. HOOPER
-----------------------------------
Steven W. Hooper
Chief Financial Officer
