SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended March 31,
1996.
( ) 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 0-27416
RURAL CELLULAR CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MINNESOTA 41-1693295
(STATE OR OTHER JURISDICTION (I.R.S.EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2819 HIGHWAY 29 SOUTH, MIDWAY MALL
ALEXANDRIA, MINNESOTA 56308
(320) 762-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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. YES (X) NO ( )
Number of shares of common stock outstanding as of the close of
business on April 30, 1996:
CLASS A 7,328,230
CLASS B 1,525,053
<TABLE>
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TABLE OF CONTENTS
PAGE NUMBER
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
CONSOLIDATED BALANCE SHEETS-
AS OF MARCH 31, 1996 AND DECEMBER 31, 1995 ........................ 3 - 4
CONSOLIDATED STATEMENTS OF OPERATIONS-
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 ....................... 5
CONSOLIDATED STATEMENTS OF CASH FLOWS-
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 ........................ 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ........................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .......... 8 - 11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ............................... 12
SIGNATURE PAGE ............................................................. 13
</TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 5,700,269 $ 125,137
Accounts receivable, net 3,314,710 3,019,720
Inventories 1,035,347 628,016
Other current assets 151,597 95,693
------------ ------------
Total current assets 10,201,923 3,868,566
------------ ------------
<S> <C> <C>
PROPERTY AND EQUIPMENT:
Land 1,124,287 1,075,202
Buildings and towers 8,899,910 8,721,385
Equipment 26,183,634 16,066,315
Furniture and fixtures 2,433,109 2,193,718
Assets under construction 2,811,124 3,721,584
Less - Accumulated depreciation (9,151,336) (8,261,125)
------------ ------------
Net property and equipment 32,300,728 23,517,079
------------ ------------
INVESTMENTS AND OTHER ASSETS:
Investments in unconsolidated affiliates 1,378,215 1,165,891
Restricted investments 884,845 709,955
Other investments 33,304 31,375
Deferred charges, less accumulated amortization
of $727,092 and $677,184 -- 49,908
Paging licenses and other assets, less accumulated
amortization of $120,748 and $114,358 317,320 795,707
------------ ------------
Total investments and other assets 2,613,684 2,752,836
------------ ------------
$ 45,116,335 $ 30,138,481
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
<TABLE>
<CAPTION>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 41,415 $ 2,725,496
Accounts payable 12,103,527 4,041,906
Advance billings and customer deposits 1,074,180 964,463
Accrued interest 150,859 312,304
Other accrued liabilities 302,808 239,598
------------ ------------
Total current liabilities 13,672,789 8,283,767
LONG-TERM DEBT 65,500 16,397,209
------------ ------------
Total liabilities 13,738,289 24,680,976
------------ ------------
SHAREHOLDERS' EQUITY:
Undesignated shares, $.01 par value;
10,000,000 shares authorized;
no shares issued and outstanding -- --
Class A common stock, $.01 par value;
15,000,000 shares authorized;
7,328,230 and 4,302,667 shares issued and outstanding 73,283 43,027
Class B common stock, $.01 par value;
5,000,000 shares authorized;
1,525,053 and 1,680,753 shares issued and outstanding 15,251 16,808
Additional paid-in capital 34,445,849 8,412,634
Accumulated deficit (3,156,337) (3,014,964)
------------ ------------
Total shareholders' equity 31,378,046 5,457,505
------------ ------------
$ 45,116,335 $ 30,138,481
============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
<TABLE>
<CAPTION>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------- -----------
1996 1995
----------- -----------
<S> <C> <C>
REVENUES:
Service revenues $ 4,407,035 $ 2,793,351
Roamer revenues 906,645 730,837
Equipment sales 367,993 367,378
----------- -----------
Total revenues 5,681,673 3,891,566
----------- -----------
OPERATING EXPENSES:
Network costs 1,594,381 1,074,770
Cost of equipment sales 495,786 362,227
Selling, general and administrative 2,873,554 1,419,286
Depreciation and amortization 970,215 745,899
----------- -----------
Total operating expenses 5,933,936 3,602,182
----------- -----------
OPERATING INCOME (LOSS) (252,263) 289,384
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (191,169) (332,727)
Interest and dividend income 290,757 6,903
Equity in earnings of unconsolidated
affiliates 12,552 --
----------- -----------
Other income (expense), net 112,140 (325,824)
----------- -----------
LOSS BEFORE INCOME TAX (140,123) (36,440)
INCOME TAX PROVISION 1,250 5,500
----------- -----------
NET LOSS $ (141,373) $ (41,940)
=========== ===========
NET LOSS PER COMMON SHARE $ (.02) $ (.01)
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 7,546,087 5,983,420
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<TABLE>
<CAPTION>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
------------ ------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (141,373) $ (41,940)
Adjustments to reconcile net loss to net cash
provided by operating activities -
Depreciation and amortization 970,215 745,899
Gain on restricted investments (176,783) (7)
Equity in earnings of unconsolidated
affiliates (12,553) --
Change in other operating elements:
Accounts receivable (294,990) 322,488
Inventories (407,331) 152,384
Other current assets (55,904) 23,737
Accounts payable 8,061,621 (269,355)
Advance billings and customer deposits 109,717 33,460
Accrued liabilities (98,235) (105,919)
------------ ------------
Net cash provided by
operating activities 7,954,384 860,747
------------ ------------
INVESTING ACTIVITIES:
Purchases of property and equipment, net (9,697,565) (400,297)
Contributions to unconsolidated affiliates (199,771) (116,193)
Purchase of restricted investments -- (37,171)
Other, net (6,214) (100,734)
------------ ------------
Net cash used in
investing activities (9,903,550) (654,395)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock,
net of offering costs 26,540,088 --
Proceeds from issuance of long-term debt 1,998,000 189,000
Repayment of long-term debt (21,013,790) (55,053)
------------ ------------
Net cash provided by
financing activities 7,524,298 133,947
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,575,132 340,299
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD 125,137 236,122
------------ ------------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 5,700,269 $ 576,421
============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying consolidated balance sheet as of March 31, 1996, and the
consolidated statements of operations and cash flows for three months ended
March 31, 1996 and 1995, have been prepared by the Company without audit. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at March 31, 1996 and for all periods presented have
been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's December 31,
1995 Form 10-K. The results of operations for the period ended March 31, 1996
are not necessarily indicative of the operating results for the full fiscal
year.
2. SHAREHOLDERS' EQUITY:
During the quarter ended March 31, 1996, the Company completed an initial
public offering (the Offering) of 3,450,000 shares of Class A Common Stock, of
which 2,869,863 shares were sold by the Company and 580,137 previously issued
shares were sold by certain shareholders. The Company received net proceeds of
approximately $26.0 million from the Offering with the proceeds used to repay
long-term debt and to provide capital for future expansion. In connection with
the Offering, the exercise price of 150,600 employee stock options was fixed at
$10.00 per share, the price at which the stock was sold to the public in this
Offering.
3. SUPPLEMENTAL DISCLOSURE OF CONSOLIDATED CASH FLOW INFORMATION:
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THREE MONTHS ENDED MARCH 31,
--------------------------------------
1996 1995
---------------- ---------------
<S> <C> <C>
Cash paid during the period for interest $ 352,559 $ 370,258
Cash paid during the period for income taxes $ -- $ 5,500
</TABLE>
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of commercial paper with original
maturities of three months or less.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents certain statements of operations data as a
percentage of total revenues as well as other cellular performance indicators
for the periods indicated.
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
----- -----
REVENUES:
Service revenues 77.5% 71.8%
Roamer revenues 16.0 18.8
Equipment sales 6.5 9.4
----- -----
Total revenues 100.0 100.0
----- -----
OPERATING EXPENSES:
Network costs 28.0 27.6
Cost of equipment sales 8.7 9.3
Selling, general, and administrative 50.6 36.5
Depreciation and amortization 17.1 19.2
----- -----
Total operating expenses 104.4 92.6
----- -----
OPERATING INCOME (LOSS) (4.4) 7.4
----- -----
OTHER INCOME (EXPENSE):
Interest expense (3.4) (8.6)
Interest and dividend income 5.1 .2
Equity in earnings of
unconsolidated affiliates .2 --
----- -----
Other income (expense), net 1.9 (8.4)
----- -----
LOSS BEFORE INCOME TAX (2.5) (1.0)
INCOME TAX PROVISION -- .1
----- -----
NET LOSS (2.5)% (1.1)%
===== =====
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
----- -----
OTHER CELLULAR PERFORMANCE INDICATORS:
Penetration 5.2% 3.1%
Subscriber growth 16.8% 7.9%
Average monthly retention 98.9% 99.0%
Average monthly revenue per subscriber $ 59 $ 63
Acquisition cost per gross subscriber(1) $320 $438
(1) Determined by dividing the amounts of all sales and marketing costs,
agent commissions, and gain or losses on cellular telephone sales by
the gross subscribers added each period.
REVENUES. Service revenues increased 57.8% to $4,407,035 for the quarter
ended March 31, 1996 from $2,793,351 for the comparable prior period, resulting
primarily from the 66.6% increase since March 31, 1995 in the number of cellular
subscribers. Service revenues for the quarter ended March 31, 1996 include
$167,578 for paging services. The Company's cellular subscriber base rose 16.8%
during the quarter ended March 31, 1996 to 31,272 subscribers. This growth
resulted in a market penetration rate of 5.2% for the quarter ended March 31,
1996, up significantly from 3.1% for the comparable prior period.
Roamer revenues increased 24.1% to $906,645 for the quarter ended March 31,
1996 from $730,837 for the comparable prior period. This increase was primarily
due to a 78% increase in the number of roamer minutes, resulting in part from
expanded coverage provided by additional cell sites added in 1995 and overall
increased usage of the Company's cellular service by a greater number of roamers
in the Company's cellular service area. While total roamer revenues increased,
the average revenue per roamer declined due in part to reciprocal agreements
with certain surrounding carriers in which the Company discounted its
intercarrier exchange rates.
Equipment sales increased less than 1% to $367,993 for the quarter ended
March 31, 1996 from $367,378 for the comparable prior period reflecting the
Company's strategy of leasing rather than selling equipment to cellular
subscribers. As the Company continues to lease equipment to cellular
subscribers, the Company expects that equipment sales will remain flat or
decline.
OPERATING EXPENSES. Network costs increased as a percentage of total
revenues to 28.0% for the quarter ended March 31, 1996 from 27.6% for the
comparable prior period and increased by 48.3% to $1,594,381 from $1,074,770.
These increases reflect additional operating costs from new cell sites that were
added during 1995. Network costs include switching and transport costs and the
expenses associated with the maintenance and operation of its cellular and
paging network facilities.
Selling, general, and administrative expenses ("SG&A") increased as a
percentage of total revenue to 50.6% for the quarter ended March 31, 1996 from
36.5% for the comparable prior period, due primarily to an increase in the
number of commissions paid as a result of the Company's successful marketing and
promotion strategies and to additional employees and incremental wage and
benefit increases. SG&A expenses include salaries, benefits, and operating
expenses such as marketing, bad debt, customer support, accounting,
administration, commissions, and billing.
Depreciation and amortization expenses increased 30.1% to $970,215 for the
quarter ended March 31, 1996 from $745,899 for the comparable prior period,
resulting primarily from a continued increase in investments in the Company's
network facilities.
OPERATING INCOME (LOSS). Operating loss for the quarter ended March 31,
1996 totaled $252,263 or 4.4% as a percentage of total revenues as compared to
operating income of $289,384 and an operating margin of 7.4% in the comparable
prior period. The decrease resulted from an increase in commissions and
increases in other operating costs.
OTHER INCOME. Interest and dividend income increased to $290,757 for the
quarter ended March 31, 1996 from $6,903 for the comparable prior period, as a
result of interest income on higher average cash balances which resulted from
the completion of the Company's initial public offering and increased dividend
income from restricted investments due to a patronage refund from the St.
Paul Bank for Cooperatives, the Company's principal lender. Interest paid
decreased due to the use of the offering proceeds to pay down substantially all
the Company's outstanding debt, including all capital lease obligations.
NET LOSS. Loss before income taxes increased to $140,123 for the quarter
ended March 31, 1996 from $36,440 in the comparable prior period. The provision
for taxes of $1,250 for the quarter ended March 31, 1996 reflects state
corporate minimum income taxes. Net loss increased to $141,373 in the first
quarter of 1996 from $41,940 in the first quarter of 1995.
SEASONALITY
The Company experiences seasonal fluctuations in revenues and operating
income (loss). The Company's average monthly revenue per cellular subscriber has
historically increased during the second and third calendar quarters. These
increases reflect greater demand in the Company's cellular service area by
weekend and recreational subscribers and use in seasonal industries, such as
agriculture and construction. Because the Company's cellular service area
includes many seasonal recreational areas, the Company expects that roaming
revenues will continue to be more seasonally volatile than service revenues.
The Company believes that the anticipated increase in cellular usage,
together with the increased number of subscribers, reduced marketing expense,
and enhanced operating leverage, should result in net income for the second
quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary liquidity requirements are for operating expenditures
and for expanding its network facilities. As of March 31, 1996, the Company had
64 cell sites and 32 paging transmitters. The Company will continue to construct
additional cell sites and purchase cellular equipment in order to increase
capacity as subscriber and usage volumes increase. Specific capital requirements
of the Company will be based on the property, equipment, and network facilities
requirements associated with the Company's expansion plans and rate of
subscriber growth. The Company currently anticipates that it will spend
approximately $14 million for capital expansion during the last three quarters
of 1996.
Net cash provided by operating activities during the three months ended
March 31, 1996 and 1995 was $7,954,384 and $860,747, respectively. The primary
source of the increase during the first quarter of fiscal 1996 was an increase
in accounts payable of $8,061,621, resulting from the expansion of the digital
microwave network facilities under construction through March 1996.
Net cash used in investing activities during the three months ended March
31, 1996 and 1995 was $9,903,550 and $654,395, respectively. The principal use
of cash in fiscal year 1996 was for the purchase of property and equipment for
the Company's cellular network and construction of the digital microwave
network, which became operational in the second quarter of 1996. The Company
recently began construction of a new corporate office headquarters in
Alexandria, Minnesota, completion of which is expected in the fourth quarter of
1996. The total cost of the new building is anticipated to be approximately $2.5
million. The funds for this project will come from working capital and
additional borrowing under the credit facility with the St. Paul Bank for
Cooperatives.
Net cash provided by financing activities during the three months ended
March 31, 1996 and 1995 was $7,524,298 and $133,947, respectively. In February
1996, the Company completed its Offering of 2,869,863 shares of Class A Common
Stock and received proceeds of $26,061,914, net of offering expenses of $478,153
and $149,659 paid in 1995 and 1996, respectively. The Company used approximately
$20,484,759 of the net proceeds to repay substantially all outstanding debt. The
Company intends to use the remaining net proceeds of the Offering, together with
the funds available under its credit facility, to fund planned capital
expenditures and operating expenses.
FORWARD-LOOKING INFORMATION
Forward-looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. There are
certain important factors that could cause results to differ materially from
those anticipated by some of the statements made herein. Investors are cautioned
that all forward-looking statements involve risks and uncertainty. Some of the
factors that could affect results are the impact of seasonality on cellular
usage, higher than planned operating expenses and capital expenditures, and how
quickly new customers become profitable.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
11 STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
27 FINANCIAL DATA SCHEDULE
(b) REPORTS ON FORM 8-K
NO REPORTS ON FORM 8-K WERE FILED DURING THE QUARTER ENDED MARCH 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
RURAL CELLULAR CORPORATION
(Registrant)
Date: May 14, 1996 /s/ Richard Ekstrand
---------------------- -----------------------------------------
Richard Ekstrand
(President and Chief Executive Officer)
Date: May 14, 1996 /s/ Tony Gebhard
---------------------- -----------------------------------------
Tony Gebhard
(Manager of Accounting)
RURAL CELLULAR CORPORATION AND SUBSIDIARIES EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
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<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
NET LOSS $ (141,373) $ (41,940)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
COMMON SHARES OUTSTANDING 5,983,420 5,983,420
WEIGHTED AVERAGE COMMON SHARES ISSUED DURING THE PERIOD 1,562,667 --
----------- -----------
7,546,087 5,983,420
=========== ===========
NET LOSS PER COMMON SHARE $ (.02) $ (.01)
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,700,269
<SECURITIES> 0
<RECEIVABLES> 3,481,022
<ALLOWANCES> 166,312
<INVENTORY> 1,035,347
<CURRENT-ASSETS> 10,201,923
<PP&E> 41,452,064
<DEPRECIATION> 9,151,336
<TOTAL-ASSETS> 45,116,335
<CURRENT-LIABILITIES> 13,672,789
<BONDS> 0
0
0
<COMMON> 88,534
<OTHER-SE> 31,289,512
<TOTAL-LIABILITY-AND-EQUITY> 45,116,335
<SALES> 367,993
<TOTAL-REVENUES> 5,681,673
<CGS> 495,786
<TOTAL-COSTS> 2,090,167
<OTHER-EXPENSES> 3,749,979
<LOSS-PROVISION> 93,790
<INTEREST-EXPENSE> 191,169
<INCOME-PRETAX> (140,123)
<INCOME-TAX> 1,250
<INCOME-CONTINUING> (141,373)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (141,373)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
