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 March 31, 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 April 30, 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 data)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1994 1993
<S> <C> <C>
Revenues and Sales:
Service revenues $ 110,875 $ 72,850
Equipment sales 8,342 4,846
-------- --------
119,217 77,696
-------- --------
Costs and Expenses:
Cost of services 13,867 10,603
Cost of equipment sales 15,442 7,819
Selling, general and administrative 62,863 43,075
Depreciation 19,859 15,440
Amortization of FCC licenses,
goodwill and other intangibles 9,668 10,311
-------- --------
121,699 87,248
-------- --------
Operating Loss (2,482) (9,552)
Interest expense, net 42,100 42,803
Other expense, net 1,583 183
-------- --------
Loss before Minority Interests (46,165) (52,538)
Minority interests (1,054) 268
-------- --------
Loss from Consolidated Operations (47,219) (52,270)
Equity in earnings of unconsolidated
partnerships 10,423 4,475
Gains on sales of partnership interests 29,187 -
-------- --------
Loss before Income Taxes (7,609) (47,795)
Provision (benefit) for income taxes 994 (14,308)
-------- --------
Net Loss $ (8,603) $(33,487)
-------- --------
Net Loss Per Share $ (0.09) $ (0.34)
-------- --------
Average Common Shares Outstanding 99,951 99,947
-------- --------
<FN>
The accompanying condensed notes to consolidated financial statements are
an integral part of these statements.
-2-
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - Continued
<TABLE>
CONTEL CELLULAR INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1994 1993
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (8,603) $ (33,487)
Adjustments to reconcile net loss to net
cash used by operating activities -
Depreciation 19,859 15,440
Amortization of FCC licenses, goodwill
and other intangibles 9,668 10,311
Deferred income taxes 9,423 11,322
Gains on sales of partnership interests (29,187) -
Other, net 1,197 1,292
Changes in current assets and current
liabilities excluding the effects of
acquisitions and dispositions (24,224) (61,288)
-------- --------
Net Cash Used (21,867) (56,410)
-------- --------
Cash Flows from Investing Activities:
Capital expenditures (39,494) (14,750)
Acquisitions, net of cash acquired (20,953) -
Repayment of advances to unconsolidated
partnerships, net 2,938 11,613
Contributions to limited partnerships (3,531) (4,466)
Proceeds from sales of partnership
interests 38,028 -
Other, net (1,015) (559)
-------- --------
Net Cash Used (24,027) (8,162)
-------- --------
Cash Flows from Financing Activities:
Proceeds from notes payable - affiliate,
net 46,200 62,559
Contributions from minority partners 1,072 2,584
Other, net 39 -
-------- --------
Net Cash Provided 47,311 65,143
-------- --------
Net Increase in Cash and Cash Equivalents 1,417 571
Cash and Cash Equivalents at Beginning
of Year 278 1,641
-------- --------
Cash and Cash Equivalents at End of Period $ 1,695 $ 2,212
-------- --------
Supplemental Disclosures:
Income taxes paid $ 15,153 $ 13,192
-------- --------
Interest paid $ 24,289 $ 63,298
-------- --------
<FN>
The accompanying condensed notes to consolidated financial statements are
an integral part of these statements.
-3-
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - Continued
<TABLE>
CONTEL CELLULAR INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands, except share amounts)
(Unaudited)
<CAPTION>
March 31, December 31,
1994 1993
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,695 $ 278
Accounts receivable-trade, net of allowance
for doubtful accounts of $5,489 and $4,674 58,858 53,673
Advances to unconsolidated partnerships 5,994 8,039
Tax benefits receivable - affiliate 5,082 -
Inventories 5,410 6,765
Other 1,988 4,616
-------- --------
79,027 73,371
-------- --------
Investments and Other Assets:
FCC licenses, goodwill and other intangibles,
net of accumulated amortization of $167,474
and $157,806 1,298,589 1,287,437
Investments in and advances to unconsolidated
partnerships 170,329 163,755
Deferred charges and other 5,639 5,630
---------- ----------
1,474,557 1,456,822
---------- ----------
Property and Equipment, at Cost:
Land 19,447 20,001
Buildings and towers 123,628 121,993
Equipment 526,191 477,589
Furniture and fixtures 4,358 4,299
Assets under construction 56,995 82,660
---------- ----------
730,619 706,542
Accumulated depreciation (197,066) (183,751)
---------- ----------
533,553 522,791
---------- ----------
$ 2,087,137 $ 2,052,984
---------- ----------
<FN>
The accompanying condensed notes to consolidated financial statements are
an integral part of these balance sheets.
-4-
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - Continued
<TABLE>
CONTEL CELLULAR INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands, except share amounts)
(Unaudited)
<CAPTION>
March 31, December 31,
1994 1993
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current portion of other long-term
obligations $ 6,000 $ 6,000
Accounts payable-construction and trade 43,011 60,407
Accounts payable-affiliates - 23,552
Advance billings and customer deposits 3,940 3,638
Accrued interest - affiliates 54,818 37,591
Accrued taxes - other 20,706 18,536
Accrued expenses and other current liabilities 34,738 25,054
---------- ----------
163,213 174,778
---------- ----------
Long-term Obligations:
Notes payable - affiliates 1,947,551 1,901,726
Other 36,792 36,792
---------- ----------
1,984,343 1,938,518
---------- ----------
Deferred Income Taxes 159,266 151,881
Other Deferred Credits 17,089 14,333
Minority Interests 13,011 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 (381,908) (373,305)
Cost of 49,267 and 51,267 shares of Class A
common stock in treasury (1,221) (1,274)
---------- ----------
(249,785) (241,221)
---------- ----------
$ 2,087,137 $ 2,052,984
---------- ----------
<FN>
The accompanying condensed notes to consolidated financial statements are
an integral part of these balance sheets.
-5-
</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
During the first quarter of 1994, the Company purchased 100%
of the cellular system serving Tennessee RSA 2 and the
remaining 51% 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). In January 1994, the Company
sold its 60% interest in the MSA system serving Manchester, New
Hampshire, as part of the definitive agreement reached with
NYNEX Mobile Communications Company in December 1993. Also in
the first quarter of 1994, the Company completed the sale of
its interest in Iowa RSA 1. These sales resulted in a pretax
gain of $29.2 million ($15.5 million after-tax) and represented
approximately 206,000 POPs.
<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
April 30, 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 26 RSA markets, owned
non-controlling interests in and managed 17 RSA markets, held non-
controlling interests in 25 other RSA markets and in a cellular
system in Mexico. All systems controlled or managed by the
Company were operational at April 30, 1994.
ACQUISITIONS OF INTERESTS IN CELLULAR SYSTEMS
In January 1994, the Company purchased 100% of the cellular
system serving Tennessee RSA 2, which has approximately 156,000
"POPs" ("POPs" refer to the population of a market area
multiplied by a company's percentage ownership in the cellular
system serving that market). In addition, the Company increased
its ownership interest in the cellular system serving Tennessee
RSA 3, from 49% to 100%, increasing the Company's total POPs for
this RSA from 158,000 to approximately 323,000.
In January 1994, the Company completed the sale of its 60%
controlling interest in the Manchester MSA and its 7.07% minority
interest in Iowa RSA 1, representing approximately 202,000 POPs
and 4,000 POPs, respectively.
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1994 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1993
Consolidated revenues and sales increased $41.5 million for the
three months ended March 31, 1994, or 53%, compared with the same
period in 1993. The increase was primarily attributable to
revenues generated from subscriber gains as the Company's
subscriber base increased 61% from 352,000 at March 31, 1993 to
567,700 at March 31, 1994. Partially offsetting the increase in
revenue growth from subscriber additions was a decline in average
revenue per subscriber for the three-month 1994 period to $68, as
compared to $70 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 of $8.3 million improved $3.5 million for the
three-month period ended March 31, 1994 over the corresponding
prior year period, while the cost of equipment sales increased
$7.6 million, for the same periods. The high 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 operations expenses
such as maintenance and utilities, cost of long distance and cost
of wholesale services purchased under preferred roaming
agreements, increased $3.3 million for the three months ended
March 31, 1994, as compared to the corresponding period in 1993.
The increase is primarily attributable to higher costs associated
with wholesale services, facilities and the Company's expanded
operations and increased subscriber base.
The increase in selling, general and administrative expense was
$19.8 million for the three months ended March 31, 1994, as
compared with the corresponding 1993 period. This increase was
primarily attributable to acquisition costs associated with the
significant increase in new subscribers added during the first
quarter of 1994, as well as additional employee related costs to
support the larger subscriber base and expansion of operations.
Depreciation expense increased $4.4 million, for the three months
ended March 31, 1994, as compared to the corresponding period in
1993. The increase was primarily due to a higher depreciable
base in 1994.
Equity in earnings of unconsolidated partnerships for the three
months ended March 31, 1994, increased $5.9 million as compared
to the corresponding 1993 period. The increase was primarily due
to improved earnings in a majority of the unconsolidated MSA
partnerships as a result of the strong subscriber growth reported
by the cellular industry for 1993. Additionally, many of the
Company's unconsolidated partnerships recorded costs related to
the adoption of FAS 106 in the first quarter of 1993.
Gains on sales of partnership interests were $29.2 million in the
first quarter of 1994, primarily reflecting the gain on sale of
the Manchester, New Hampshire MSA to NYNEX Mobile Communications
Company as part of a definitive agreement announced in the fourth
quarter of 1993.
The combined federal and state effective income tax rate for the
first quarter of 1994 was 13.1% and was primarily driven by the
gains on sales of partnership interests of $29.2 million,
partially offset by losses from consolidated operations of $47.2
million. The comparative effective rate for the first quarter of
1993 was 29.9% and was recorded as a tax benefit due to pretax
losses of $47.8 million. The combined federal and state
effective income tax rate is below the federal statutory rate of
35%, primarily due to the impact of state income taxes, net of
federal tax benefits and the amortization of goodwill.
<PAGE>
FINANCIAL CONDITION
The Company requires capital to construct and enhance cellular
systems, to fund operating costs for systems which the Company
manages, including distributions of profit to limited partners,
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 used by operating activities during the first quarter of
1994 was $21.9 million as compared to $56.4 million in the
corresponding prior period. This improvement was primarily
attributed to higher cash operating margins, and a favorable
change in working capital.
Capital expenditures in both MSA and RSA markets controlled by
the Company increased $24.7 million for the three months ended
March 31, 1994, as compared to the corresponding prior period,
primarily due to increased construction requirements resulting
from the strong growth in subscribers. 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 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 by contributions to limited
partners, net of reimbursements of advances, for the three months
ended March 31, 1994, was $.6 million as compared to net cash
provided of $7.1 million for the same period in 1993. This
change is a result of higher repayments of outstanding advances
in 1993 and the timing and amount of capital contributions to
limited partnerships.
During the three month period ended March 31, 1994, the Company
borrowed an additional $45.8 million under its line of credit
arrangement with GTE, primarily to fund capital and operating
requirements. Total borrowings under this line of credit were
$381 million at March 31, 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.
In consolidated markets which the Company controls, it obtains
the necessary financing to ensure proper management of the
operations. This financing is reimbursed through contributions
from minority partners. The $1.5 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 construction
and working capital requirements of these partnerships as
determined by the managing partner.
<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: May 12, 1994 By: THEODORE J. CARRIER
Theodore J. Carrier
Treasurer and Chief Financial Officer
