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 June 30, 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.
-------------------------------------------------------------
(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 July 29, 1994.
Common stock, $0.01 par:
Class A 151,970,084 shares
Class B 59,043,501 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)
June 30, December 31,
1994 1993
---------- -----------
ASSETS
- - ----------------------
Current assets:
Cash and cash equivalents $165,265 $138,908
Marketable securities 25,590 57,661
Accounts receivable, net 376,201 326,584
Other 105,665 106,041
---------- ---------
Total current assets 672,721 629,194
Property and equipment, net 1,870,615 1,616,480
Licensing costs and other
intangible assets, net 4,932,898 4,762,992
Investments 1,527,684 1,960,863
Other assets 100,714 95,400
---------- ---------
Total assets $9,104,632 $9,064,929
========== ==========
LIABILITIES AND STOCKHOLDERS'
INVESTMENT (DEFICIENCY)
- - ---------------------------------
Current liabilities:
Current portion of long-term debt $187,505 $ 158,925
Accounts payable 92,550 159,129
Accrued expenses 356,208 333,481
Unearned revenues and customer
deposits 72,773 69,118
---------- ---------
Total current liabilities 709,036 720,653
(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)
June 30, December 31,
1994 1993
---------- -----------
LIABILITIES AND STOCKHOLDERS'
DEFICIENCY (continued)
- - -----------------------------
Long-term debt, net of
current portion $5,338,605 $4,989,746
Net deferred tax liability 1,965,965 1,955,687
Other noncurrent liabilities 75,461 65,994
---------- ---------
Total liabilities 8,089,067 7,732,080
---------- ---------
Minority interests 445,253 65,505
---------- ---------
Redeemable preferred stock
of a subsidiary -- 1,305,248
---------- ---------
Stockholders' investment (deficiency):
Common stock 2,098 2,086
Additional paid-in capital 3,347,641 2,888,565
Deficit (2,799,914) (2,928,555)
Unrealized holding gain on
available-for-sale securities 20,487 --
---------- ---------
Total stockholders' investment
(deficiency) 570,312 (37,904)
---------- ---------
Total liabilities and
stockholders' investment
(deficiency) $9,104,632 $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 Six Months
Ended June 30, Ended June 30,
----------------- ----------------
1994 1993 1994 1993
---- ---- ----- ----
Net revenues $682,685 $540,477 $1,313,487 $1,020,445
-------- -------- ---------- ----------
Expenses:
Operating 454,203 325,103 889,481 623,931
Corporate 6,499 4,717 12,910 8,757
Depreciation 63,267 52,564 129,684 102,850
Valuation loss on
equipment -- 46,583 -- 46,583
Amortization of
intangible assets 44,907 43,182 87,766 90,941
------- ------- ------- -------
568,876 472,149 1,119,841 873,062
------- ------- --------- -------
Income from
operations 113,809 68,328 193,646 147,383
------- ------ ------- -------
Other income (expense):
Interest expense (75,982) (96,240) (143,232) (204,969)
Gain (loss) on
dispositions of
assets, net 16,653 (264) 15,735 51,428
Interest income 2,492 5,403 5,115 12,050
Equity in income of
unconsolidated
investees 41,899 19,290 78,872 32,709
Other -- (307) -- 5,578
------- ------- ------- -------
(14,938) (72,118) (43,510) (103,204)
------- ------- ------- -------
Income (loss) before
income tax benefit
(expense) and
minority interest 98,871 (3,790) 150,136 44,179
Tax benefit (expense) 44,195 2,270 24,106 (22,734)
------- ------- ------- -------
(continued)
<PAGE>
<PAGE> 4
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
----------------- ----------------
1994 1993 1994 1993
---- ---- ----- ----
Income (loss) before
minority interest $143,066 $(1,520) $174,242 $21,445
Minority interest:
(Income) loss of
consolidated
subsidiaries (6,113) 12,999 (12,026) 9,600
Provision for preferred
stock dividend of
a subsidiary -- (33,575) (33,575) (67,150)
------- ------- ------- -------
Net income (loss) $136,953 $(22,096) $128,641 $(36,105)
======== ========= ======== =========
Weighted average common
shares outstanding 209,229 205,612 208,997 198,892
======== ========= ======== =========
Net income (loss)
per common share $0.65 $(0.11) $0.62 $(0.18)
======== ========= ======== =========
See notes to condensed consolidated financial statements.
<PAGE>
<PAGE> 5
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended June 30,
1994 1993
----------------------------
Net cash provided by operating
activities $153,090 $109,940
-------- --------
Cash flows from investing activities:
Purchase or acquisition of:
Marketable securities (13,219) (179,187)
Property and equipment, net (385,854) (200,950)
Licensing costs and other
intangible assets, net (198,631) (1,623)
Investments (20,615) (22,104)
Sale or redemption of marketable
securities 45,461 170,775
Sale of investments and
distributions and repayment
of advances from investees 96,017 50,940
Distributions to minority
interest holders (559) (9,459)
Contributions from minority
interest holders 5,100 25,103
Other investing activities, net (28,338) (489)
-------- --------
Net cash used in investing
activities (500,638) (166,994)
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt 570,000 60,350
Principal payments on
long-term debt (192,541) (348,487)
Redemption of preferred stock (13,167) --
Net proceeds from issuance of
common stock 9,613 408,273
-------- --------
Net cash provided by financing
activities 373,905 120,136
-------- --------
(continued)
<PAGE>
<PAGE> 6
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)
Six Months Ended June 30,
1994 1993
----------------------------
Net increase in cash and
cash equivalents $26,357 $63,082
Cash and cash equivalents,
beginning of period 138,908 201,606
-------- --------
Cash and cash equivalents,
end of period $165,265 $264,688
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $136,662 $202,933
======== ========
Taxes, net $42,647 $31,788
======== ========
See notes to condensed consolidated financial statements.
<PAGE>
<PAGE> 7
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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. Certain
reclassifications have been made to the financial statements
for previous periods to conform with the current period's
presentation. The results of operations for the three and
six month periods ended June 30, 1994 are not necessarily
indicative of the results to be expected for the full year.
2. Net income (loss) per share:
Net income (loss) per share is computed based on the
weighted average number of common and common equivalent
shares outstanding during the period. In the periods in
which the Company has reported a net loss, only common
shares outstanding are considered since the assumed
conversion of options would be antidilutive. A separate
income per share calculation for the excess of carrying
amount of the Redeemable Preferred Stock over the fair value
of consideration transferred to the holder of the Redeemable
Preferred Stock (see Footnote 6) added to net income
available to common stockholders is as follows:<PAGE>
<PAGE> 8
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
2. Net income (loss) per share (continued):
Three Months Six Months
Ended June 30, Ended June 30,
----------------- ----------------
1994 1993 1994 1993
---- ---- ----- ----
Net income (loss) $136,953 ($22,096) $128,641 $(36,105)
Excess carrying value
of Redeemable
Preferred Stock over
fair value of
consideration
transferred 407,588 -- 407,588 --
-------- -------- -------- --------
$544,541 ($22,096) $536,229 ($36,105)
======== ======== ======== ========
Net income (loss) per
common share $0.65 ($0.11) $0.62 ($0.18)
Amount per common share -
excess carrying value
of Redeemable Preferred
Stock over fair value
of consideration
transferred 1.95 -- 1.95 --
-------- -------- -------- --------
Net income (loss) per
common share including
excess of carrying
value of Redeemable
Preferred Stock over
fair value of
consideration
transferred $2.60 ($0.11) $2.57 ($0.18)
======== ======== ======== ========
3. Accounting Change:
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting
for Certain Investments in Debt and Equity Securities."
SFAS No. 115 requires the Company to report equity
securities which are classified as available-for-sale at
fair value, with unrealized gains and losses excluded from
net income and reported as a separate component of
stockholders' investment.
<PAGE>
<PAGE> 9
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
3. Accounting Change (continued):
The cumulative effect of adopting SFAS No. 115 at January 1,
1994 was to increase investments and stockholders'
investment $45.2 million to reflect unrealized holding
gains. At June 30, 1994, the Company's aggregate cost and
market value in available-for-sale securities was $23.5
million and $44.0 million, respectively, resulting in
unrealized holding gains of $20.5 million.
4. 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.
<PAGE>
<PAGE> 10
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
4. Litigation (continued):
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; trial has been set
for January 16, 1995. In the TPI litigation, defendant's
motion to dismiss was granted in part and denied in part.
Discovery has commenced 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.
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. A settlement hearing has been
scheduled by the court for September 19, 1994. 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
<PAGE>
<PAGE> 11
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
4. Litigation (continued):
obligations of any of the defendants (or other persons to be
released) with respect to any of the foregoing. The
Company's stockholders have been provided a notice
containing further information regarding the proposed
settlement and related proceedings.
On August 8, 1994, Bell Atlantic Corporation, Bell Atlantic
Mobile Systems, Inc., NYNEX Corporation and NYNEX Mobile
Communications, Inc. filed a suit against AT&T and the
Company in the United States District Court for the Eastern
District of New York. See further discussion of this suit
in Footnote 5, of Item 1 below.
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.
5. 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.
Each party will have 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 .<PAGE>
<PAGE> 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
5. Merger with AT&T (continued):
On July 15, 1994, the Company and AT&T entered into a
stipulation with the Department of Justice that permits the
proposed merger between the Company and AT&T to be
consummated under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and provides for the entry of a
consent decree imposing certain conditions on the operations
of the merged companies. It is expected that the decree
will be entered by the United States District Court for the
District of Columbia at a later date.
On August 8, 1994, Bell Atlantic Corporation, Bell Atlantic
Mobile Systems, Inc., NYNEX Corporation and NYNEX Mobile
Communications, Inc. filed suit against AT&T and the Company
in the United States District Court for the Eastern District
of New York (Civil Action No. 94-3682). The complaint
alleges that the Company's proposed merger (the "Merger")
with AT&T would violate Section 7 of the Clayton Act by
decreasing competition in local cellular telephone service
markets and eliminating competition between AT&T and the
Company in the long distance cellular service market. The
plaintiffs request a prompt hearing, a preliminary
injunction, a judgment that the Merger violates Section 7 of
the Clayton Act, and a permanent injunction prohibiting AT&T
and the Company from merging, consolidating or affiliating
pursuant to the Merger or otherwise and prohibiting AT&T
from acquiring any direct or indirect interest in the
Company, in addition to costs and reasonable attorneys'
fees. The obligations of AT&T and the Company to consummate
the Merger are subject to the condition that there be no
preliminary or permanent injunction by any court prohibiting
consummation of the Merger or permitting such consummation
only subject to any conditions or restrictions unacceptable
to AT&T in its reasonable judgment. Although the Company
believes that the plaintiffs are not entitled to the relief
sought, there can be no assurance that AT&T and the Company
will prevail in this action.
The closing of the merger is also subject to the receipt of
FCC approval and a waiver from the United States District
Court for the District of Columbia as required by its April
5, 1994 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, as defined, would violate Section I(D) of the <PAGE>
<PAGE> 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
5. Merger with AT&T (continued):
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). AT&T has filed its request
for such waiver and oral argument took place on July 21,
1994. 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 and
July 12, 1994, the Company, through wholly owned
subsidiaries, entered into credit agreements with AT&T
which provide the Company with the ability to borrow amounts
from AT&T for specific purposes as described therein. Under
such credit agreements, 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 such credit agreements
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 stock of the wholly owned
subsidiaries of the borrowers is pledged as security for
these debts. Amounts borrowed under the July 12, 1994
agreement are guaranteed by the Company. As of August 4,
1994, $153.0 million was outstanding under these credit
agreements.
6. Redemption of preferred stock of a subsidiary:
On June 24, 1994, LIN's subsidiary, LCH Communications
("LCH"), redeemed all the outstanding Redeemable Preferred
Stock of LCH held by Comcast Cellular Communications, Inc.,
a subsidiary of Comcast Corporation, in exchange for all of
the capital stock of a subsidiary of LCH, whose assets
consisted primarily of LIN's 49.99 percent interest in the
Philadelphia "A Block" cellular system (Philadelphia) and
GuestInformant (a publisher of advertiser-supported hard
cover magazines placed in hotel rooms).
As a result of the redemption, the Company eliminated its
net assets related to Philadelphia and GuestInformant,
recorded a gain on sale of assets of $11.9 million and
recorded a tax benefit of $73.6 million due to the
transaction's impact on deferred taxes. There was also an
increase in additional paid-in capital and minority
interests of $407.6 million and $376.2 million,
respectively, due to the preferred stock redemption.
<PAGE>
<PAGE> 14
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (continued)
7. Pending Transaction:
On June 8, 1994, LIN announced that it intends to distribute
the common stock of its subsidiary, LIN Television
Corporation, to LIN's stockholders on a tax-free basis. LIN
also announced that it and LIN Television Corporation
entered into a definitive agreement to acquire WTNH-TV, the
ABC affiliate in Hartford-New Haven, Connecticut from Cook
Inlet Communications Corporation for approximately $120
million in cash and 11.5 percent of the common stock of LIN
Television Corporation. These transactions will create a
public company which owns seven network-affiliated
television stations, including stations in Dallas,
Indianapolis, and Norfolk.
Following the spin-off, it is expected that approximately 42
percent of LIN Television Corporation's shares will be
publicly owned and approximately 46 percent will be owned by
the Company. These transactions are subject to FCC and
other approvals. The Internal Revenue Service has ruled
that no gain or loss will be recognized by (and no amount
will be included in the income of) the stockholders of LIN
as a result of the spin-off. The closing of the WTNH
acquisition and the spin-off are expected to occur by year-
end 1994.
<PAGE>
<PAGE> 15
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 and six month periods
ended June 30, 1994 are not necessarily indicative of the results
to be expected for the full year.
Three months ended June 30, 1994 and 1993
Net Revenues
Consolidated net revenues increased 26 percent to $682.7 million
for the three months ended June 30, 1994 compared with $540.5
million for the three months ended June 30, 1993. Net revenues
for the Company's cellular operations for the three months ended
June 30, 1994 were $603.7 million and represented 89 percent of
consolidated net revenues of the Company for the period. Net
revenues for the three months ended June 30, 1994 of the
broadcast segment and messaging and other segment were $44.0
million and $35.0 million, respectively, and accounted for 6
percent and 5 percent, respectively, of the Company's
consolidated net revenues for the three month period ended June
30, 1994.
Net revenues for the Company's cellular operations increased 29
percent to $603.7 million for the three months ended June 30,
1994 compared with $469.8 million for the three months ended June
30, 1993. This increase in net revenues resulted primarily from
a 43 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 10
percent to $44.0 million for the three months ended June 30, 1994
from $39.9 million for the three months ended June 30, 1993.
This increase reflects continued improvement in the local
economies where the Company operates, which stimulated increased
advertiser spending.
Net revenues for the Company's messaging and other segment
increased 13 percent to $35.0 million in the three months ended
June 30, 1994 compared with $30.8 million for the three months
ended June 30, 1993. This increase is due primarily to the <PAGE>
<PAGE> 16
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS (continued)
continuing growth of messaging net revenues and an increase in
revenues from the Company's air-to-ground communications
operations. Total messaging net revenues continue to grow due to
a 30 percent increase in the messaging subscriber base, primarily
through growth in the segment's existing markets. The 1994
messaging net revenue per subscriber declined from 1993, a trend
the Company expects may continue as the messaging subscriber base
continues to grow.
Operating Expenses
Consolidated operating expenses, exclusive of corporate expenses,
for the three months ended June 30, 1994 were $454.2 million, an
increase of $129.1 million or 40 percent, from the three months
ended June 30, 1993. A significant portion of these expenses is
attributable to the Company's cellular operations, which
accounted for 86 percent of the Company's total operating
expenses for the three months ended June 30, 1994.
Operating expenses, exclusive of depreciation and amortization,
for the cellular segment, increased to $388.6 million, an
increase of $113.9 million, or 41 percent, from the three months
ended June 30, 1993. A significant portion of this increase
resulted from increases in marketing and administrative costs as
a result of the segment's increase in subscriber additions in the
three month period ended June 30, 1994 over the three month
period ended June 30, 1993. Operating expenses as a percentage
of net revenues for the cellular segment increased to 64 percent
compared to 58 percent for the three month period ended June 30,
1993. Operating costs associated with the broadcast operations
increased $0.8 million, or 4 percent, to $21.7 million for the
three months ended June 30, 1994. These costs as a percentage of
net revenues of the broadcast operations decreased to 49 percent
for the three months ended June 30, 1994 from 52 percent for the
three months ended June 30, 1993. Operating expenses, exclusive
of depreciation and amortization, of the messaging and other
segment increased by 49 percent over the three months ended June
30, 1993 to $43.9 million for the three months ended June 30,
1994. This increase primarily resulted from the Company's air-
to-ground communications operations.
Depreciation and amortization increased from $95.7 million in the
three months ended June 30, 1993 to $108.2 million for the same
period in 1994. Contributing to this 13 percent increase in
depreciation and amortization is the Company's improvement and <PAGE>
<PAGE> 17
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS (continued)
expansion of its existing cellular, messaging and air-to-ground
systems. Depreciation and amortization is expected to continue
to increase due to continued improvement and expansion of the
Company's cellular, messaging and air-to-ground systems including
the implementation of digital cellular service.
The valuation loss on equipment in the second quarter of 1993 was
related to a write-down as a result of a decision to replace the
Dallas cellular system. As a result, minority interests in net
income (loss) of consolidated subsidiaries was significantly
affected during the same period as the Dallas minority interest
holders absorbed their share of the loss.
Other Income and Expenses
Interest expense was $76.0 million for the three months ended
June 30, 1994, a $20.3 million or 21 percent decrease from the
three months ended June 30, 1993. This decrease primarily
resulted from the redemption of the Company's publicly held fixed
rate debt 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.
Equity in income of unconsolidated investees was $41.9 million
for the three months ended June 30, 1994 compared with $19.3
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 CMT Partners as an
unconsolidated investee; and improved operating results in the
Company's investment in Hong Kong.
As discussed in Footnote 6 to the Company's condensed
consolidated financial statements included herein, on June 24,
1994 a subsidiary of LIN redeemed all of its outstanding
Redeemable Preferred Stock. As a result of this transaction, the
Company recorded a gain on sale of assets of $11.9 million and a
tax benefit, due to the transaction's impact on deferred taxes,
of $73.6 million in its results for the three month period ended
June 30, 1994. Also, the provision for preferred stock dividend
of $33.6 million was not made during the quarter and will not be
made in the future.
<PAGE>
<PAGE> 18
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 (continued)
For the reasons discussed above, the Company experienced net
income of $137.0 million for the three months ended June 30, 1994
compared to a net loss of $22.1 million for the three months
ended June 30, 1993.
Six months ended June 30, 1994 and 1993
Net Revenues
Consolidated net revenues increased 29 percent to $1,313.5
million for the six months ended June 30, 1994 compared with
$1,020.4 million for the six months ended June 30, 1993. Net
revenues for the Company's cellular operations for the six months
ended June 30, 1994 were $1,160.5 million and represented 88
percent of consolidated net revenues of the Company for the
period. Net revenues for the six months ended June 30, 1994 of
the broadcast segment and messaging and other segment were $79.3
million and $73.7 million, respectively, and each accounted for 6
percent of the Company's consolidated net revenues for the period
ended June 30, 1994.
Net revenues for the Company's cellular operations increased 31
percent to $1,160.5 million for the six months ended June 30,
1994 compared with $888.3 million for the six months ended June
30, 1993. This increase in net revenues results primarily from a
43 percent increase in the cellular subscriber base, which was
partially offset by a decrease in average revenue per cellular
subscriber, a trend the Company expects may continue as the
subscriber base continues to grow.
Net revenues for the Company's broadcast operations increased 11
percent to $79.3 million for the six months ended June 30, 1994
from $71.6 million for the six months ended June 30, 1993. This
increase reflects continued improvement in the local economies
where the Company operates, which stimulated increased advertiser
spending.
Net revenues for the Company's messaging and other segment
increased 22 percent to $73.7 million in the six months ended
June 30, 1994 compared with $60.5 million for the six months
ended June 30, 1993. This increase is due primarily to the
continuing growth of messaging net revenues and the increase in
revenues from the Company's air-to-ground communications
operations. Total messaging net revenues continue to grow due to <PAGE>
<PAGE> 19
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS (continued)
Net Revenues (continued)
a 30 percent increase in the messaging subscriber base, primarily
through growth in the messaging segment's existing markets. The
1994 messaging net revenue per subscriber declined from 1993, a
trend the Company expects may continue as the messaging
subscriber base continues to grow.
Operating Expenses
Consolidated operating expenses, exclusive of corporate expenses,
for the six months ended June 30, 1994 were $889.5 million, an
increase of $265.6 million or 43 percent, from the six months
ended June 30, 1993. A significant portion of these expenses is
attributable to the Company's cellular operations, which
accounted for 86 percent of the Company's total operating
expenses for the six months ended June 30, 1994.
Operating expenses, exclusive of depreciation and amortization,
for the cellular segment increased to $762.0 million, an increase
of $235.8 million, or 45 percent from the six months ended June
30, 1993. A significant portion of this increase resulted from
increases in marketing and administrative costs as a result of
the segment's increase in subscriber additions in the six month
period ending June 30, 1994 over the six month period ended June
30, 1993. Operating expenses as a percentage of net revenues for
the cellular segment increased to 66 percent compared to 59
percent for the six month period ended June 30, 1993. Operating
costs associated with the broadcast operations increased $2.5
million, or 6 percent, to $43.6 million for the six months ended
June 30, 1994. These costs as a percentage of net revenues of
the broadcast operations decreased to 55 percent for the six
months ended June 30, 1994 from 57 percent for the six months
ended June 30, 1993. Operating expenses, exclusive of
depreciation and amortization, of the messaging and other segment
increased by 48 percent over the six months ended June 30, 1993
to $83.9 million for the six months ended June 30, 1994. This
increase primarily resulted from increased expenses related to
the Company's air-to-ground communications operations.
Depreciation and amortization increased from $193.8 million in
the six months ended June 30, 1993 to $217.5 million for the same
period in 1994. Contributing to this 12 percent increase is the
Company's improvement and expansion of its existing cellular,
messaging and air-to-ground systems. Depreciation and
<PAGE>
<PAGE> 20
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS (continued)
Operating Expenses (continued)
amortization is expected to continue to increase due to continued
improvement and expansion of the Company's cellular, messaging
and air-to-ground systems including the implementation of digital
cellular service.
The valuation loss on equipment in the second quarter of 1993 was
related to a write-down as a result of a decision to replace the
Dallas cellular system. As a result, minority interests in net
income (loss) of consolidated subsidiaries was significantly
affected during the same period as the Dallas minority interest
holders absorbed their share of the loss.
Other Income and Expenses
Interest expense was $143.2 million for the six months ended June
30, 1994, a $61.7 million or 30 percent decrease from the six
months ended June 30, 1993. This decrease primarily resulted
from the redemption of the Company's approximate $400 million
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. The Company's approximate
$1.2 billion of publicly held debt was replaced with lower cost
borrowings under the McCaw Bank Credit Facilities.
Equity in income of unconsolidated investees was $78.9 million
for the six months ended June 30, 1994 compared with $32.7
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 CMT Partners as an
unconsolidated investee; and improved operating results in the
Company's investment in Hong Kong.
As discussed in Footnote 6 to the Company's condensed
consolidated financial statements included herein, on June 24,
1994 a subsidiary of LIN redeemed all of its outstanding
Redeemable Preferred Stock. As a result of this transaction, the
Company recorded a gain on sale of assets of $11.9 million and a
tax benefit, due to the transaction's impact on deferred taxes,
of $73.6 million in its results for the six month period ended
June 30, 1994. Also, the provision for preferred stock dividend
of $33.6 million was not made during the second quarter and will
not be made in the future.<PAGE>
<PAGE> 21
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 (continued)
For the reasons discussed above, the Company experienced net
income of $128.6 million for the six months ended June 30, 1994
compared to a net loss of $36.1 million for the six months ended
June 30, 1993.
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) operators such as
Nextel, which has launched cellular-like services in the
Company's California markets. Other ESMR networks have begun to
operate or construct networks in other cities.
In late 1993 and early 1994, the FCC adopted a series of rules
for the licensing of new messaging and voice-grade mobile
communications services, commonly called personal communications
services ("PCS"). For the first time, the FCC will assign
spectrum to PCS licensees by means of auctions. In July 1994, the
FCC auctioned 10 national messaging licenses, two of which were
purchased by a subsidiary of the Company for $160 million.
Numerous regional messaging licenses will be auctioned in the
future, probably later this year.
In addition to establishing a program to assign messaging - or
narrowband PCS licenses - the FCC has promulgated regulations for
issuing new voice-grade licenses - or broadband PCS licenses - by
means of auctions, which are expected to begin in December 1994.
Under FCC rules, as many as six broadband PCS licenses will be
issued for a given geographic area, increasing the likelihood of
additional competition for wireless services. Broadband PCS
licenses will be issued for 51 Major Trading Areas ("MTAs") and
493 Basic Trading Areas ("BTAs"), which are generally larger than
cellular MSAs and RSAs. In many instances an MTA exceeds in size
the Company's cluster of cellular licenses in a particular
geographic region.
The FCC's broadband PCS rules allow the Company to bid on
licenses for MTAs and BTAs in areas in which it does not
currently have a significant cellular presence, and to acquire
broadband PCS licenses aggregating up to 40 MHz in such areas.
The Company is restricted to acquiring only one 10 MHz license,
however, in any area in which it maintains a significant
ownership interest in cellular networks.<PAGE>
<PAGE> 22
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
REGULATION AND COMPETITION (continued)
The Omnibus Budget Reconciliation Act of 1993 and implementing
rules adopted by the FCC specify that cellular and other
commercial mobile providers should be subject to similar
regulatory treatment, 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 had to petition the FCC
by August 10, 1994 in order to retain rate regulatory
jurisdiction while the petition is reviewed by the FCC. A few of
the states in which the Company operates cellular systems, such
as California and New York, currently regulate cellular rates and
have chosen to petition the FCC to retain their jurisdiction.
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 adding 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. In
connection with the planned expansion of digital service the
Company has spent approximately $60 million for the six months
ended June 30, 1994, and for the entire year expects such capital
expenditures to be approximately $120 million. Otherwise, the
Company 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 $153.1 million
for the six months ended June 30, 1994, an increase of $43.2
million from the June 30, 1993 total of $109.9 million. A
significant portion of the Company's cash provided by operations
is derived from the Company's cellular operations.
<PAGE>
<PAGE> 23
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Result of Operations
LIQUIDITY AND CAPITAL RESOURCES (continued)
Interest expense decreased 30 percent to $143.2 million for the
six months ended June 30, 1994. This decrease primarily resulted
from the redemption of the Company's approximate $400 million
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 described below).
The Company does not expect that its operations will generate
sufficient cash to meet its expenditure requirements for the next
few years. Historically the Company has raised capital through
bank borrowings, the issuance of public indebtedness 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.
The Company's indebtedness is due and payable over several years.
The revolving periods under the McCaw bank credit facilities and
the Claircom Credit Agreement (as described below) end on March
31, 1996 and December 31, 1996, respectively, 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 issuance's 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 credit agreements 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 5 to the Company's condensed
consolidated financial statements included herein.
<PAGE>
<PAGE> 24
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES (continued)
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, beginning January 1,
1995 the Company is required to begin the process of determining
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.
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
transactions will be undertaken, or, if undertaken, will be
favorable to stockholders.
<PAGE>
<PAGE> 25
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
Under McCaw's bank credit facilities (the "McCaw Bank Credit
Facilities"), interest is payable at the applicable margin above,
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. As of
August 4, 1994, $3,540 million was outstanding under the McCaw
Bank Credit Facilities.
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.
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. <PAGE>
<PAGE> 26
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES (continued)
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 will 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.
Funds available under the McCaw Bank Credit Facilities can only
be utilized by the Company and certain of its subsidiaries other
than LIN.<PAGE>
<PAGE> 27
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES (continued)
Claircom Credit Agreement
On June 7, 1994, Claircom Communications Group, L.P. (Claircom),
a subsidiary of the Company, entered into a $250 million
revolving credit facility (Claircom Credit Agreement). Interest
is payable at the applicable margin above, at Claircom's
discretion, LIBOR, a defined Base Rate (the greater of prime or
Federal Funds Effective Rate) or a combination thereof.
The revolving period under the Claircom Credit Agreement ends on
December 31, 1996, at which time the obligation to repay
principal commences. Outstanding principal is payable in 20
quarterly installments beginning on March 31, 1997, with final
maturity at December 31, 2001.
The Claircom Credit Agreement is guaranteed by the Company. The
Claircom Credit Agreement includes certain financial covenants
including maximum capital expenditures, minimum revenue, maximum
total debt to operating cash flow, minimum operating cash flow to
total cash interest and minimum operating cash flow to pro forma
debt service. Certain of these covenants do not go into effect
until June 1995. The Claircom Credit Agreement is collateralized
by the capital stock of Claircom and each of its direct and
indirect subsidiaries engaged in the business of providing air-
to-ground telephone services in the United States. As of August
4, 1994, $20.0 million was outstanding under the Claircom Credit
Agreement.
LIN's Credit Facilities
LIN has bank credit facilities for both its cellular business and
broadcast business (collectively, the "LIN Credit Facilities").
LIN Cellular Network, a wholly owned subsidiary of LIN, which
holds all of LIN's cellular interests, has two bank credit
facilities. Under the Senior Credit Facility, LIN had $1,502.5
million outstanding and $180 million available as of June 30,
1994. Under the Senior Unsecured Facility, LIN had $150 million
outstanding and $50 million available as of June 30, 1994. The
Senior Unsecured Facility was entered into in June 1994. With
the exception of security, interest rate and final maturity of
March 31, 2001, the terms and conditions of the Senior Unsecured
Facility are largely identical to the Senior Credit Facility.
LIN Television Corporation, a wholly owned subsidiary of LIN
which owns six television broadcast stations, had $199.3 million
outstanding and no additional funds available as of June 30, 1994
on its bank credit facility.<PAGE>
<PAGE> 28
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 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.
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 June 24, 1994, LCH redeemed all of its outstanding Redeemable
Preferred Stock held by Comcast, in exchange for all of the
capital stock of a subsidiary of LCH, whose assets consisted
primarily of a 49.99 percent interest in the Philadelphia "A
Block" cellular system (Philadelphia) and GuestInformant (a
publisher of advertiser-supported hard cover magazines placed in
hotel rooms).
As a result of the redemption, the Company eliminated its net
assets related to Philadelphia and GuestInformant, recorded a
gain on sale of assets of $11.9 million and recorded a tax
benefit of $73.6 million due to the transactions impact on
deferred taxes. There was also an increase in additional paid-in
capital and minority interests of $407.6 million and $376.2
million, respectively, due to the preferred stock redemption.
<PAGE>
<PAGE> 29
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; trial has been set
for January 16, 1995. In the TPI Litigation, defendant's
motion to dismiss was granted in part and denied in part.<PAGE>
<PAGE> 30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings (continued)
Discovery has commenced 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.
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. A settlement hearing has been scheduled by the
court for September 19, 1994. 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. The Company's stockholders
have been provided a notice containing further information
regarding the proposed settlement and related proceedings.
On August 8, 1994, Bell Atlantic Corporation, Bell Atlantic
Mobile Systems, Inc., NYNEX Corporation and NYNEX Mobile
Communications, Inc. filed a suit against AT&T and the
Company in the United States District Court for the Eastern
District of New York. See further discussion of this suit
in Footnote 5 of Item 1 elsewhere in this Form 10-Q.
<PAGE>
<PAGE> 31
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders was held on
May 20, 1994.
The following members were elected to the Company's Board of
Directors to hold office for the ensuing year.
Nominee Votes For Votes Withheld
Craig O. McCaw 105,108,431 340,993
Wayne M. Perry 105,122,278 327,146
James L. Barksdale 105,108,175 341,249
John E. McCaw, Jr. 105,088,654 360,770
Bruce R. McCaw 105,088,728 360,696
Stuart M. Sloan 105,122,178 327,246
Harold S. Eastman 105,108,432 340,992
Harold W. Anderson 105,118,951 330,473
Daniel J. Evans 105,117,704 331,720
John C. McDonald 105,121,149 328,275
Malcolm Argent 105,107,236 342,188
Bruce R. Bond 105,107,393 342,031
Item 5. Other information
(a) Attachment of supplemental financial data.
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
1. On April 6, 1994, the Company filed a Current Report on
Form 8-K dated April 5, 1994 in respect of the
following:
(a) The United States District Court for the District
of Columbia required that AT&T obtain a wavier
prior to the closing of the Merger. See Footnote
5 of Item 1 elsewhere in this Form 10-Q.<PAGE>
<PAGE> 32
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K (continued):
2. On June 6, 1994, the Company filed a Form 8-K/A,
Amendment No. 4 to Current Report on Form 8-K dated
August 16, 1993, as amended April 18, 1994, October 12,
1993 and October 29, 1993, in respect of the following:
(a) The definitive merger agreement entered into by
AT&T and the Company on August 16, 1993. See
Footnote 5 of Item 1 elsewhere in this Form 10-Q.
3. On July 11, 1994, the Company filed a Current Report on
Form 8-K dated June 24, 1994 in respect of the
following:
(a) The redemption of LCH Preferred Stock. See
Footnote 6 of Item 1 elsewhere in this Form 10-Q.
The items reported in such current reports were Item 5
(Other Events) and Item 7 (Financial Statements, Pro Forma
Financial Information and Exhibits.).
<PAGE>
<PAGE> 33
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 Six Months
Ended June 30, Ended June 30,
----------------- ----------------
1994 1993 1994 1993
---- ---- ----- ----
Service revenue $543,047 $402,123 $1,036,133 $764,693
Equipment revenue, net (732) 808 (1,843) 1,295
------- ------- ------- -------
Net revenues 542,315 402,931 1,034,290 765,988
------- ------- ------- -------
Direct costs and expenses
excluding marketing 178,959 123,337 343,362 242,248
Marketing expenses 138,252 90,632 264,428 171,124
Depreciation 52,662 43,352 109,683 85,357
Valuation loss on
equipment -- 13,891 -- 13,891
Amortization of
intangible assets 44,099 41,725 85,753 93,560
------- ------- ------- -------
Total operating
costs 413,972 312,937 803,226 606,180
------- ------- ------- -------
Operating income
proportionate basis $128,343 $89,994 $231,064 $159,808
======== ======== ======== ========
Proportionate
subscribers(1) 2,259,000 1,558,000 2,259,000 1,558,000
(continued)
<PAGE>
<PAGE> 34
McCAW CELLULAR COMMUNICATIONS, INC.
SUPPLEMENTAL FINANCIAL DATA
PROPORTIONATE OPERATING DATA (continued)
(Unaudited)
($ in thousands)
(1) As of June 30, 1994, 100% of subscribers in markets which
the Company (exclusive of LIN) owned at least a 50% interest
in plus 100% of the subscribers of the cellular systems
serving the markets of CMT Partners Joint Venture was
1,914,000 and average penetration in such markets was 3.7%.
The Company's (exclusive of LIN's) proportionate share of
subscribers based on its June 30, 1994 ownership position in
markets where it owned an interest was 1,778,000. As of
June 30, 1994, 100% of subscribers in markets in which LIN
owned an interest was 1,396,000 and average penetration in
such markets was 3.7%. LIN's proportionate share of such
subscribers based on its ownership position at June 30, 1994
was approximately 918,000.
<PAGE>
<PAGE> 35
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: August 15, 1994
STEVEN W. HOOPER
------------------------------------
Steven W. Hooper
Chief Financial Officer
