<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-16714
CONTEL CELLULAR INC.
(Exact name of registrant as specified in its charter)
DELAWARE 58-1413513
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
245 Perimeter Center Parkway, Atlanta, Georgia 30346
(Address of principle executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 804-3400
Indicate by check whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock $1 par value Outstanding at July 31, 1994
Class A 9,950,733 shares
Class B 90,000,000 shares
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
CONTEL CELLULAR INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands, except per share)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues and Sales:
Service revenues $ 127,419 $ 83,535 $ 238,294 $ 156,385
Equipment sales 7,898 5,855 16,240 10,701
-------- ------- ------- -------
135,317 89,390 254,534 167,086
-------- ------- ------- -------
Costs and Expenses:
Cost of services 16,007 10,184 29,874 20,787
Cost of equipment sales 15,119 10,093 30,561 17,912
Selling, general and administrative 62,808 43,679 125,671 86,754
Depreciation 20,222 17,068 40,081 32,508
Amortization of FCC licenses,
goodwill and other intangibles 9,320 10,332 18,988 20,643
------- ------- -------- -------
123,476 91,356 245,175 178,604
------- ------- -------- -------
Operating Income (Loss) 11,841 (1,966) 9,359 (11,518)
Interest expense, net 43,733 39,830 85,833 82,633
Other expense (income), net (351) (1,381) 1,232 (1,198)
------- ------- -------- -------
Loss before Minority Interests (31,541) (40,415) (77,706) (92,953)
Minority interests (1,074) (109) (2,128) 159
------- ------- -------- -------
Loss from Consolidated Operations (32,615) (40,524) (79,834) (92,794)
Equity in earnings of 16,405 11,153 26,828 15,628
unconsolidated partnerships
Gains on sales of partnership
interests 3,941 - 33,128 -
------- ------- -------- -------
Loss before Income Taxes (12,269) (29,371) (19,878) (77,166)
Benefit from income taxes (2,794) (9,537) (1,800) (23,845)
------- ------- -------- -------
Net Loss $(9,475) $(19,834) $(18,078) $(53,321)
======= ======= ======== =======
Net Loss Per Share $ (0.09) $ (0.20) $ (0.18) $ (0.53)
Average Common Shares Outstanding 99,951 99,947 99,951 99,947
<FN>
The accompanying condensed notes to consolidated financial statements are an
integral part of these statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - Continued
<TABLE>
CONTEL CELLULAR INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
1994 1993
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (18,078) $ (53,321)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities -
Depreciation 40,081 32,508
Amortization of FCC licenses, goodwill
and other intangibles 18,988 20,643
Deferred income taxes 18,939 22,098
Gains on sales of partnership interests (33,128) -
Other, net (6,763) (8,513)
Changes in current assets and current liabilities
excluding the effects of acquisitions and
dispositions (35,865) 8,102
-------- --------
Net Cash Provided (Used) (15,826) 21,517
-------- --------
Cash Flows from Investing Activities:
Capital expenditures (95,348) (43,095)
Acquisitions (21,707) (18,421)
Repayment of advances to unconsolidated
partnerships, net 4,762 9,698
Contributions to unconsolidated partnerships (4,793) (8,571)
Proceeds from sales of partnership interests 50,591 -
Other, net 2,502 2,725
-------- --------
Net Cash Used (63,993) (57,664)
-------- --------
Cash Flows from Financing Activities:
Reduction to current portion of long-term
obligations (6,000) -
Proceeds from notes payable - affiliate 84,492 29,098
Contributions from minority partners 1,745 6,678
Other, net 39 -
-------- --------
Net Cash Provided 80,276 35,776
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 457 (371)
Cash and Cash Equivalents at Beginning of Year 278 1,641
-------- --------
Cash and Cash Equivalents at End of Period $ 735 $ 1,270
======== ========
Supplemental Disclosures:
Income tax benefits received $ (7,794) $ (26,722)
Interest paid $ 69,825 $ 68,189
<FN>
The accompanying condensed notes to consolidated financial
statements are an integral part of these statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - Continued
<TABLE>
CONTEL CELLULAR INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands, except share amounts)
(Unaudited)
<CAPTION>
June 30, December 31,
1994 1993
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 735 $ 278
Accounts receivable-trade, net of allowance for
doubtful accounts of $6,966 and $4,674 70,940 53,673
Advances to unconsolidated partnerships 4,528 8,039
Inventories 6,037 6,765
Other 4,145 4,616
--------- ---------
86,385 73,371
--------- ---------
Investments and Other Assets:
FCC licenses, goodwill and other intangibles,
net of accumulated amortization of $176,794
and $157,806 1,289,228 1,287,437
Investments in and advances to unconsolidated
partnerships 182,114 163,755
Long-term notes receivable 9,225 3,565
Deferred charges and other 1,872 2,065
--------- ---------
1,482,439 1,456,822
--------- ---------
Property and Equipment, at Cost:
Land 19,958 20,001
Buildings and towers 127,706 121,993
Equipment 546,754 477,589
Furniture and fixtures 4,461 4,299
Assets under construction 75,069 82,660
--------- ---------
773,948 706,542
Accumulated depreciation (211,734) (183,751)
--------- ---------
562,214 522,791
--------- ---------
$ 2,131,038 $ 2,052,984
========= =========
<FN>
The accompanying condensed notes to consolidated financial
statements are an integral part of these balance sheets.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - Continued
<TABLE>
CONTEL CELLULAR INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands, expept share amounts)
(Unaudited)
<CAPTION>
June 30, December 31,
1994 1993
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current portion of long-term obligations $ - $ 6,000
Accounts payable-construction and trade 32,576 60,407
Accounts payable-affiliates 5,405 23,552
Advance billings and customer deposits 4,096 3,638
Accrued interest - affiliates 54,730 37,591
Accrued taxes - other 24,081 18,536
Accrued expenses and other current liabilities 37,638 25,054
--------- --------
158,526 174,778
--------- --------
Long-term Obligations:
Notes payable - affiliates 1,985,843 1,901,726
Other 36,792 36,792
--------- ---------
2,022,635 1,938,518
--------- ---------
Deferred Income Taxes 170,149 151,881
Other Deferred Credits 24,227 14,333
Minority Interests 14,761 14,695
Stockholders' Deficit:
Class A common stock,
$1 par value; authorized 100,000,000
shares, issued 10,000,000 shares 10,000 10,000
Class B common stock, $1 par value;
authorized 100,000,000
shares, issued 90,000,000 shares 90,000 90,000
Paid-in capital 33,344 33,358
Accumulated deficit (391,383) (373,305)
Cost of 49,267 and 51,267 shares of Class A
common stock in treasury (1,221) (1,274)
--------- ---------
(259,260) (241,221)
--------- ---------
$ 2,131,038 $ 2,052,984
========= =========
<FN>
The accompanying condensed notes to consolidated financial statements are an
integral part of these balance sheets.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - Continued
CONTEL CELLULAR INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. General
The unaudited Condensed Consolidated Financial Statements
included herein have been prepared by Contel Cellular Inc.
(the "Company"), 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. However, in the
opinion of management of the Company, the Condensed
Consolidated Financial Statements include all adjustments
necessary to present fairly the financial information for
such periods. These Condensed Consolidated Financial
Statements should be read in conjunction with the
Consolidated Financial Statements and the notes thereto
included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1993.
2. Significant Accounting Policies
Certain reclassifications have been made to prior year
amounts to conform to current year presentation.
3. Acquisitions and Dispositions of Partnership Interests
In January 1994, the Company purchased 100 percent of the
cellular system serving Tennessee RSA 2 and the remaining 51
percent interest in Tennessee RSA 3 at a combined purchase
price of $21 million, representing approximately 321,000
POPs ("POPs" refer to the population of a market area
multiplied by a company's percentage ownership in the
cellular system serving that market).
During the second quarter of 1994, the Company purchased an
additional interest in Tuscaloosa, Indiana RSAs 7, 8 and 9,
and Alabama RSA 1 for $1.6 million. These combined purchases
added 33,000 POPs.
In January, the Company sold its 60 percent interest or
approximately 202,000 POPs in the cellular system serving
the Manchester, New Hampshire MSA. The sale resulted in a
pretax gain of $29.0 million. During May, the Company sold
its 67 percent interest or approximately 165,000 POPs in the
cellular system serving Oregon RSA 5. The sale generated a
pretax gain of $1.3 million. In addition, the Company sold
its non-controlling interest in Iowa RSAs 8 and 14 and South
Dakota RSAs 5 and 6. Combined POPs for the non-controlling
interests sold amounted to approximately 25,000.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Contel Cellular Inc. (the "Company"), through its subsidiaries or
through partnerships, provides cellular telecommunications
services in various metropolitan statistical areas ("MSAs") and
rural service areas ("RSAs") throughout the United States. As of
July 31, 1994, the Company owned controlling interests in and
managed cellular systems serving 32 MSAs and owned non-
controlling interests in systems serving 27 other MSAs. The
Company also held controlling interests in 27 RSA markets, owned
non-controlling interests in and managed 13 RSA markets and held
non-controlling interests in 19 other RSA markets and a cellular
system in Mexico. All systems controlled or managed by the
Company were operational at July 31, 1994.
ACQUISITIONS AND DISPOSITIONS OF INTERESTS IN CELLULAR SYSTEMS
During the first quarter of 1994, the Company purchased 100
percent of the cellular system serving Tennessee RSA 2 and the
remaining 51 percent interest in Tennessee RSA 3 at a combined
purchase price of $21 million, representing approximately 321,000
POPs ("POPs" refer to the population of a market area multiplied
by a company's percentage ownership in the cellular system
serving that market). During the second quarter of 1994, the
Company purchased an additional 0.4 percent interest in
Tuscaloosa, 3.1 percent interest in Indiana RSAs 7, 8 and 9, and
8.3 percent interest in Alabama RSA 1. Combined purchases during
the second quarter of approximately $1.6 million resulted in
33,000 additional POPs.
In January 1994, the Company sold its 60 percent interest in the
cellular system serving Manchester, New Hampshire MSA, as part of
the definitive agreement reached with NYNEX Mobile Communications
Company in December 1993. The sale represented approximately
202,000 POPs and resulted in a pretax gain of $29.0 million.
During May, the Company sold its 67 percent interest or 165,000
POPs in the cellular system serving Oregon RSA 5. The sale
generated a pretax gain of $1.3 million. In addition, the company
sold its 16.7 percent interest in Iowa RSA 8, 5.6 percent interest
in Iowa RSA 14, 33.3 percent interest in South Dakota RSA 5,
and 14.3 percent interest in South Dakota RSA 6. Combined POPs
for the non-controlling interests sold amounted to approximately
25,000.
<PAGE>
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1994 COMPARED TO THREE AND
SIX MONTHS ENDED JUNE 30, 1993
Net loss decreased by $10.4 million and $35.2 million for the
three and six months ended June 30, 1994. The decrease in net
loss reflects the continuation of the Company's efforts to
increase revenues through subscriber growth, reduce acquisition
costs per subscriber through expanding and diversifying our
distribution and minimize increases in overhead expenses. These
efforts contributed to operating income, the first time in the
Company's history, for both the three and six month periods ended
June 30, 1994 of $11.8 million and $9.4 million, respectively.
Consolidated revenues and sales increased $45.9 million and $87.4
million for the three and six months ended June 30, 1994, or 51
percent and 52 percent, compared with the same periods in 1993.
The increase was primarily attributable to revenues generated
from subscriber gains as the Company's subscriber base increased
60 percent from 389,400 at June 30, 1993 to 621,600 at June 30,
1994. Partially offsetting the increase in revenue growth from
subscriber additions was a decline in average monthly revenue per
subscriber for the six months of 1994 to $70, as compared to $74
in the corresponding prior year period. This decline primarily
reflects lower usage due to the increasing number of casual and
security users in the Company's subscriber base.
Equipment revenues improved $2.0 and $5.5 million for the three
and six month periods ended June 30, 1994 over the corresponding
prior year period, while the cost of equipment sales increased
$5.0 million and $12.6 million, respectively, for the same
periods. Negative equipment margins reflect competition in
equipment pricing in the Company's markets and various promotions
designed to attract new subscribers.
Cost of services, which primarily includes operating expenses
such as maintenance and utilities, cost of long distance,
facility expenses and other employee related costs, increased
$5.8 million and $9.1 million for the three and six months ended
June 30, 1994, as compared to the corresponding periods in 1993.
The increases are primarily attributable to higher costs
associated with facilities and employee related costs necessary
to support an average subscriber base that is 60 percent higher
than the prior year.
The increase in selling, general and administrative expense was
$19.1 million and $38.9 million for the three and six months
ended June 30, 1994, as compared with the corresponding 1993
periods. These increases were primarily attributable to
acquisition costs associated with the significant increase in new
subscribers added, as well as additional employee related costs
to support the larger subscriber base and expansion of
operations.
Depreciation expense increased $3.2 million and $7.6 million, for
the three and six months ended June 30, 1994, as compared to the
corresponding periods in 1993. The increase is due to a higher
depreciable base in 1994.
Equity in earnings of unconsolidated partnerships for the three
and six months ended June 30, 1994 increased $5.3 million and
$11.2 million as compared to the corresponding 1993 periods.
These increases were primarily due to improved earnings in a
majority of the unconsolidated MSA partnerships as a result of
strong subscriber growth throughout the industry. Additionally,
in the first quarter of 1993, many of the Company's unconsolidated
partnerships recorded a cumulative catch-up charge related to the
adoption of the Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions".
Gains on sales of partnership interests were $3.9 million and
$33.1 million for the three and six months ended June 30, 1994.
The first quarter gain of $29.2 million was primarily due to the
sale of Manchester. The second quarter gain included $1.3
million from the sale of Oregon RSA 5 and the recognition of a
$2.6 million previously deferred gain from the sale of Kentucky
RSA 6.
The effective combined federal and state income t ax rate was
22.8 percent and 9.1 percent for the three and six months ended
June 30, 1994, as compared to 32.5 percent and 30.9 percent for
the corresponding periods of 1993. The change in effective rate
was primarily attributable to $2.6 million of additional state
taxes incurred during the first quarter related to the
aforementioned sale of Manchester.
<PAGE>
FINANCIAL CONDITION
The Company requires capital to construct and enhance cellular
systems, to fund operating costs for systems which the Company
manages, to make periodic interest payments on outstanding debt,
to fund acquisitions and to fund investments in unconsolidated
partnerships. In addition, the Company continues to assess
opportunities associated with other cellular interests,
particularly in areas near or adjacent to the Company's current
service areas.
Cash flow from operating activities during the first six months
of 1994 decreased by $37.3 million. Cash used from operations
was $15.8 million as compared to cash provided of $21.5 million
in the corresponding prior period. The decrease in cash flow from
operations was primarily attributable to the decrease in payables
for construction and trade due to timing of payments and the
increase in receivables due to the increase in sales.
Capital expenditures in both MSA and RSA markets controlled by
the Company increased $52.3 million for the six months ended June
30, 1994, as compared to the corresponding prior period. Capital
expenditures are required to increase capacity, expand coverage
and improve the quality of the cellular network as the subscriber
base continues to grow. Total capital expenditures are expected
to be approximately $250 million in 1994. It is currently
estimated that these capital expenditures will be funded by
proceeds from operations, the sale of non-strategic properties,
additional borrowings from GTE and contributions from minority
partners.
As a limited partner, the Company is required to fund its
proportionate share of the construction and working capital
requirements of unconsolidated partnerships. Additionally, in
certain unconsolidated RSA markets where the Company is managing
partner, funds required for construction expenditures and working
capital are advanced by the Company and are subsequently
reimbursed through partnership contributions and/or from
operating results. Net cash used for contributions to
unconsolidated partnerships, net of reimbursements of advances,
increased $1.2 million from the prior year.
Proceeds from sales of partnership interests provided cash of
$50.6 million for the six month period ended June 30, 1994,
primarily due to the sale of Manchester and Oregon RSA 5. Refer
to "acquisitions and dispositions of interests in cellular
systems" for more information regarding interest and POPs sold
relating to these sales.
During the six month period ended June 30, 1994, the Company
borrowed an additional $84.5 million under its line of credit
arrangement with GTE, primarily to fund capital requirements.
Total borrowings under this line of credit were $422 million at
June 30, 1994 and are expected to continue to increase in 1994,
and for several years into the future, as the Company borrows to
fund interest payments on its debt and to fund capital
requirements due to growth and development of its operations.
For consolidated partnerships, financing is obtained by the
Company as needed for operations. This financing is reimbursed
through contributions from minority partners. The $4.9 million
decrease in cash provided by contributions from minority partners
is due to the timing and amount of requests for capital
contributions based on construction schedules and market
operating performance. The Company expects to continue making
capital contributions to the unconsolidated partnerships and
receiving capital contributions from minority partners. The
timing and amounts of such contributions and advances are subject
to the future operations, construction and working capital
requirements of these partnerships.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CONTEL CELLULAR INC.
(Registrant)
Date: August 12, 1994 By: /s/ Theodore J. Carrier
Theodore J. Carrier
Treasurer and Chief Financial Officer
