<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 September 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 October 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 data)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues and Sales:
Service revenues $ 140,032 $ 91,359 $ 378,326 $ 247,744
Equipment sales 9,341 6,817 26,743 17,518
-------- -------- -------- --------
149,373 98,176 405,069 265,262
-------- -------- -------- --------
Costs and Expenses:
Cost of services 19,583 11,580 49,457 32,367
Cost of equipment sales 19,429 12,251 51,152 30,163
Selling, general and administrative 56,358 47,192 182,029 133,946
Depreciation 18,919 17,726 59,000 50,234
Amortization of FCC licenses,
goodwill and other intangibles 9,181 10,445 28,169 31,088
-------- -------- -------- --------
123,470 99,194 369,807 277,798
-------- -------- -------- --------
Operating Income (Loss) 25,903 (1,018) 35,262 (12,536)
Interest expense, net 46,098 42,856 131,931 125,489
Other expense (income), net 45 (102) 1,277 (1,300)
-------- -------- -------- --------
Loss before Minority Interests (20,240) (43,772) (97,946) (136,725)
Minority interests (1,720) 313 (3,848) 472
-------- -------- -------- --------
Loss from Consolidated Operations (21,960) (43,459) (101,794) (136,253)
Equity in earnings of
unconsolidated partnerships 21,682 12,236 48,510 27,864
Gains on sales of cellular
interests 43,220 8,326 76,348 8,326
-------- -------- -------- --------
Income (Loss) before income taxes 42,942 (22,897) 23,064 (100,063)
Provision for (Benefit from)
income taxes 18,504 (5,836) 16,704 (29,681)
-------- -------- -------- --------
Net Income (Loss) $ 24,438 $(17,061) $ 6,360 $ (70,382)
======== ======== ======== ========
Net Income (Loss) Per Share $ 0.24 $ (0.17) $ 0.06 $ (0.70)
Average Common Shares Outstanding 99,951 99,949 99,951 99,949
<FN>
The accompanying notes are an integral part of these condensed
financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - Continued
<TABLE>
CONTEL CELLULAR INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1994 1993
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (loss) $ 6,360 $ (70,382)
Adjustments to reconcile net income (loss)
to net cash used by operating activities -
Depreciation 59,000 50,234
Amortization of FCC licenses, goodwill
and other intangibles 28,169 31,088
Deferred income taxes 28,409 37,027
Gains on sales of cellular interests (76,348) (8,326)
Other, net (14,549) (13,770)
Changes in current assets and current liabilities
excluding the effects of acquisitions
and dispositions (78,252) (27,153)
--------- ---------
Net Cash Used (47,211) (1,282)
--------- ---------
Cash Flows from Investing Activities:
Capital expenditures (139,345) (81,377)
Acquisitions (22,321) (18,823)
Repayment of advances to unconsolidated
partnerships, net 10,845 8,907
Contributions to unconsolidated partnerships (10,289) (11,769)
Proceeds from sales of cellular interests 96,320 13,222
Other, net 2,421 (567)
--------- ---------
Net Cash Used (62,369) (90,407)
Cash Flows from Financing Activities:
Reduction to current portion of long-term
obligations (6,000) (6,000)
Proceeds from notes payable - affiliate 110,262 89,532
Contributions from minority partners 5,094 9,192
Other, net 39 22
--------- ---------
Net Cash Provided 109,395 92,746
Net Increase (Decrease) in Cash and Cash Equivalents (185) 1,057
Cash and Cash Equivalents at Beginning of Year 278 1,641
--------- ---------
Cash and Cash Equivalents at End of Period $ 93 $ 2,698
========= =========
Supplemental Disclosures:
Income tax benefits received $ (15,884) $ (44,734)
Interest paid $ 152,693 $ 148,935
<FN>
The accompanying notes are an integral part of these condensed
financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - Continued
<TABLE>
CONTEL CELLULAR INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands, except share amounts)
(Unaudited)
<CAPTION>
September 30, December 31,
1994 1993
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 93 $ 278
Accounts receivable-trade, net of allowance
for doubtful accounts of $8,639 and $4,674 80,095 53,673
Advances to unconsolidated partnerships 1,743 8,039
Inventories 11,611 6,765
Other 5,814 4,616
--------- ---------
99,356 73,371
--------- ---------
Investments and Other Assets:
FCC licenses, goodwill and other intangibles,
net of accumulated amortization of $185,975
and $157,806 1,279,918 1,287,437
Investments in and advances to unconsolidated
partnerships 194,873 163,755
Long-term notes receivable 19,229 3,565
Deferred charges and other 1,625 2,065
---------- ----------
1,495,645 1,456,822
Property and Equipment, at Cost:
Land 20,949 20,001
Buildings and towers 134,653 121,993
Equipment 569,245 477,589
Furniture and fixtures 4,874 4,299
Assets under construction 78,895 82,660
---------- ----------
808,616 706,542
Accumulated depreciation (227,916) (183,751)
---------- ----------
580,700 522,791
---------- ----------
$ 2,175,701 $ 2,052,984
========== ==========
<FN>
The accompanying notes are an integral part of these condensed
financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - Continued
<TABLE>
CONTEL CELLULAR INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands, except share amounts)
(Unaudited)
<CAPTION>
September 30, December 31,
1994 1993
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current portion of long-term obligations $ 6,000 $ 6,000
Accounts payable-construction and trade 15,513 60,407
Accounts payable-affiliates 27,577 23,552
Advance billings and customer deposits 4,665 3,638
Accrued interest - affiliates 19,827 37,591
Accrued taxes - other 27,444 18,536
Accrued expenses and other current liabilities 45,141 25,054
---------- ----------
146,167 174,778
---------- ----------
Long-term Obligations:
Notes payable - affiliates 2,011,613 1,901,726
Other 30,792 36,792
---------- ----------
2,042,405 1,938,518
Deferred Income Taxes 179,450 151,881
Other Deferred Credits 24,348 14,333
Minority Interests 18,151 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 (366,943) (373,305)
Cost of 49,267 and 51,267 shares of Class A
common stock in treasury (1,221) (1,274)
---------- ----------
(234,820) (241,221)
---------- ----------
$ 2,175,701 $ 2,052,984
========== ==========
<FN>
The accompanying notes are an integral part of these condensed
financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS - Continued
CONTEL CELLULAR INC.
NOTES TO CONDENSED 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 Cellular 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 1994, the Company completed the sales of certain
properties, as part of the definitive agreement reached with
NYNEX Mobile Communications Company ("NYNEX") in December of
1993. In January 1994, the Company completed the sale of
its 60 percent interest in the cellular system serving the
Manchester, New Hampshire MSA. Also, during September 1994,
the Company completed the sale of its 36.6 percent interest
in New Hampshire RSA 2, 100 percent interest in the
Burlington, Vermont MSA, and 83.3 percent interest in
Vermont RSAs 1 and 2. Combined POPs for the properties sold
to NYNEX amounted to approximately 746,000 and resulted in
an after-tax gain of $40.6 million.
Additional sales completed during 1994 include 100 percent
of Oregon RSA 5, 50 percent of North Carolina RSA 1, 7.1
percent of Iowa RSA 1, 16.7 percent of Iowa RSA 8, 5.6
percent of Iowa RSA 14, 33.3 percent of South Dakota RSA 5
and 14.3 percent of South Dakota RSA 6. Combined POPs for
these properties sold amounted to approximately 281,000 and
resulted in an after-tax gain of $2.2 million.
<PAGE>
FINANCIAL STATEMENTS - Continued
4. Acquisition Offer from GTE
On September 8, 1994, GTE proposed to acquire the remaining
10 percent ownership of Contel Cellular Inc. Under the
terms of the offer, a GTE subsidiary would merge into Contel
Cellular Inc. and the holders of the approximately 10
million Class A common shares of Contel Cellular Inc. would
receive $22.50 per share in cash. GTE's Class B shares of
Contel Cellular Inc. common stock would be converted into
shares of the merged entity.
A special committee of independent Contel Cellular Inc.
directors has been appointed to review the proposed
transaction. The special committee has retained an
independent advisor to evaluate the transaction on behalf of
the Contel Cellular Inc. shareholders. Currently, a
definitive merger agreement has not been executed.
<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
October 31, 1994, the Company owned controlling interests in and
managed cellular systems serving 31 MSAs and owned non-
controlling interests in systems serving 27 other MSAs. The
Company also held controlling interests in 25 RSA markets, owned
non-controlling interests in and managed 11 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 October 31, 1994.
On September 8, 1994, GTE proposed to acquire the remaining 10
percent ownership of Contel Cellular Inc. Currently, a
definitive merger agreement has not been executed. Refer to Note
4 of the Condensed Notes to Financial Statements for information
relating to the "Acquisition Offer from GTE".
ACQUISITIONS AND DISPOSITIONS OF INTERESTS IN CELLULAR SYSTEMS
During the third quarter of 1994, the Company completed the sales
of certain non-strategic properties to NYNEX, which were
previously announced. The sales include the Company's 36.6
percent interest in New Hampshire RSA 2, 100 percent interest in
the Burlington, Vermont MSA and 83.3 percent interest in Vermont
RSAs 1 and 2. The Company also sold its 50 percent interest in
North Carolina RSA 1, during the third quarter of 1994.
During September, the Company announced that it had signed a
definitive agreement with Crowley Cellular to acquire 100 percent
of the Huntsville, Alabama MSA and Alabama RSA 2 as well as an 80
percent controlling interest in Alabama RSA 1. These purchases
represent approximately 515,000 POPs. Also, during the third
quarter of 1994, the Company executed a definitive agreement to
purchase an additional 29.2 percent interest or approximately
97,000 POPs in California RSA 4. The aforementioned purchases
are subject to certain regulatory approvals.
<PAGE>
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED TO THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 1993
Net income improved by $41.5 million and $76.7 million,
respectively, for the three and nine months ended September 30,
1994, compared with the same periods in 1993. The improvement in
net income includes an increase in after-tax gains on sales of
non-strategic properties of $20.0 million and $38.9 million,
respectively, for the three and nine months during 1994. The
improvement in net income was also attributable to the Company's
on-going efforts to increase revenues through subscriber growth
while reducing acquisition costs per subscriber through expanding
and diversifying distribution and minimizing increases in
overhead expenses.
Consolidated revenues and sales increased $51.2 million and
$139.8 million, respectively, for the three and nine months ended
September 30, 1994, or 52 percent and 53 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 55 percent from 434,300 at
September 30, 1993, to 672,600 at September 30, 1994. Partially
offsetting the increase in revenue growth from subscriber
additions was a decline in average monthly revenue per subscriber
for the nine months of 1994 to $70, as compared to $74 in the
corresponding prior year period. This decline reflects lower
usage due to the increasing number of casual and security users
in the Company's subscriber base.
Equipment sales improved $2.5 and $9.2 million, respectively, for
the three and nine month periods ended September 30, 1994, as
compared to the corresponding prior year periods, while the cost
of equipment sales increased $7.2 million and $21.0 million,
respectively, for the same periods. Negative equipment margins
reflect competition in equipment pricing in the Company's markets
and various equipment promotions intended 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
$8.0 million and $17.1 million, respectively, for the three and
nine months, ended September 30, 1994, as compared to the
corresponding periods in 1993. The increases are primarily
attributable to higher costs associated with supporting
additional cell sites and employee related costs required to
support the expanded cellular network.
The increase in selling, general and administrative expense was
$9.2 million and $48.1 million, respectively, for the three and
nine months, ended September 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, as well as additional employee
related costs to support the subscriber base which is 55 percent
greater than the corresponding prior year period.
Depreciation expense increased $1.2 million and $8.8 million,
respectively, for the three and nine months, ended September 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 nine months, ended September 30, 1994, increased $9.4 million
and $20.6 million, respectively, 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 charge related
to the adoption of the Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Post-Retirement
Benefits Other Than Pensions".
Pre-tax gains on sales of cellular interests were $43.2 million
and $76.4 million, respectively, for the three and nine months,
ended September 30, 1994. During the third quarter of 1994,
gains on sales of cellular interests were primarily attributable
to the $19.2 million gain from the sale of Burlington, $17.7
million gain from the sale of Vermont RSAs 1 and 2, and $4.5
million gain from the sale of New Hampshire RSA 2. Year-to-date
gains from sales also includes a $29 million gain from the sale
of Manchester during the first quarter of 1994.
The effective combined federal and state income tax rate was 43.1
percent and 72.4 percent, respectively, for the three and nine
months, ended September 30, 1994, as compared to 25.5 percent and
29.7 percent for the corresponding periods of 1993. The change
in effective rate was primarily attributable to $5.2 million of
additional state taxes related to the aforementioned gains on
sales of cellular interests. The change in the effective tax
rate was also impacted by recurring permanent differences, such
as amortization of goodwill purchased prior to 1993, which
reduced prior year tax benefits but increased the current year
tax obligation.
<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 used from operations during the first nine months, of 1994
increased by $45.9 million. Cash used from operations was $47.2
million as compared to $1.3 million in the corresponding prior
period. The increase in cash used 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 service revenues.
Capital expenditures in both MSA and RSA markets controlled by
the Company increased $58.0 million for the nine months, ended
September 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 provided by reimbursements of
advances, net of contributions to unconsolidated partnerships,
increased $3.4 million from the prior year.
Proceeds from sales of cellular interests provided cash of $96.3
million for the nine month period ended September 30, 1994,
primarily due to the proceeds from the non-strategic properties
sold to NYNEX of $90.6 million. Refer to "Acquisitions and
Dispositions of Interests in Cellular Systems" for more
information regarding interest and POPs relating to these sales.
During the nine month period ended September 30, 1994, the
Company borrowed an additional $110.3 million from GTE, primarily
to fund capital requirements to expand its network. Borrowings
from GTE 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 cellular systems. During
March of 1994, GTE provided the Company with a letter stating
there are currently no plans or intentions to discontinue
providing financial support to the Company and would not demand
payment before October 15, 1995.
For consolidated partnerships, financing is obtained by the
Company as needed for operations. This financing is reimbursed
through contributions from minority partners. The $4.1 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: November 10, 1994 By: /s/ Theodore J.Carrier
Theodore J. Carrier
Treasurer and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 93
<SECURITIES> 0
<RECEIVABLES> 88734
<ALLOWANCES> (8639)
<INVENTORY> 11611
<CURRENT-ASSETS> 99356
<PP&E> 808616
<DEPRECIATION> (227916)
<TOTAL-ASSETS> 2175701
<CURRENT-LIABILITIES> 146167
<BONDS> 0
<COMMON> 100000
0
0
<OTHER-SE> (334820)
<TOTAL-LIABILITY-AND-EQUITY> 2175701
<SALES> 26743
<TOTAL-REVENUES> 405069
<CGS> 51152
<TOTAL-COSTS> 369807
<OTHER-EXPENSES> 1277
<LOSS-PROVISION> 10293
<INTEREST-EXPENSE> 131931
<INCOME-PRETAX> 23064
<INCOME-TAX> 16704
<INCOME-CONTINUING> 6360
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6360
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
