<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 1, 1997
RURAL CELLULAR CORPORATION
- -------------------------------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
MINNESOTA
- -------------------------------------------------------------------------------
(State or other Jurisdiction of Incorporation)
0-27416 41-1693295
- -------------------------------------------------------------------------------
(Commission File Number) (IRS Employer Identification No.)
3905 DAKOTA STREET S.W., ALEXANDRIA, MINNESOTA 56308
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (320) 762-2000
---------------------------
- -------------------------------------------------------------------------------
Former Name or Former Address, if Changed Since Last Report
<PAGE>
The only purpose of this amendment is to file certain financial statements
and exhibits required by Item 7 to the Registrant's Current Report on Form 8-K
dated May 1, 1997, originally filed on May 15, 1997.
SIGNATURE
Pursuant to requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
RURAL CELLULAR CORPORATION
By /s/Richard P. Ekstrand
-----------------------
Richard P. Ekstrand
Its President and Chief Executive Officer
Dated: July 15, 1997
2
<PAGE>
Item 7. Financial Statements and Exhibits.
The following financial statements and pro forma financial information are filed
as part of this Report:
(a) Financial Statements of Businesses Acquired
<TABLE>
<CAPTION>
Unity Cellular System, Inc. and Subsidiary Financial Statements: Page
<S> <C>
- - Report of Independent Public Accountants F-1
- - Consolidated Balance Sheets as of December 31, 1996 and 1995 F-2
- - Consolidated Statements of Operations for the Years Ended
December 31, 1996 and 1995 F-4
- - Consolidated Statements of changes in Stockholder's equity for
the Years Ended December 31, 1996 and 1995 F-5
- - Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995 F-6
- - Notes to Consolidated Financial Statements F-7
- - Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 1997 and
December 31, 1996 F-14
- - Condensed Consolidated Statements of Operations (Unaudited) for the Three Months
Ended March 31, 1997 and March 31, 1996 F-16
- - Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months
Ended March 31, 1997 and March 31, 1996 F-17
- - Notes to Unaudited Condensed Consolidated Financial Statements F-18
(b) Pro Forma Financial Information PF-1
- - Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 1997 PF-2
- - Unaudited Pro Forma Consolidated Statement of Operations for the Year
Ended December 31, 1996 PF-4
- - Unaudited Pro Forma Consolidated Statement of Operations for the
Three Months Ended March 31, 1997 PF-5
- - Notes to Unaudited Pro Forma Consolidated Financial Statements PF-6
</TABLE>
3
<PAGE>
(c) Exhibits.
*2.1 Asset Purchase Agreement dated December 23, 1996 by and among the
Registrant, Unity Cellular Systems, Inc., InterCel Licenses, Inc. and
InterCel, Inc. (filed as an exhibit to Report on Form 8-K dated
December 23, 1996 and incorporated by reference herein)
*2.2 Partnership Interest Purchase Agreement dated April 18, 1997 by
and between Cellco Partnership dba Bell Atlantic NYNEX Mobile, Inc.
and MRCC, Inc.
*10 Loan Agreement dated May 1, 1997 among the Registrant and The
Toronto Dominion Bank, Bank Boston, N.A., St. Paul Bank for
Cooperatives, CoBank, Fleet National Bank, First National Bank of
Maryland, Societe Generale, New York Branch, and Merita Bank Ltd New
York Branch (the "Banks"), BankBoston, N.A. and St. Paul Bank for
Cooperatives (the "Co-Agents"), and Toronto Dominion (Texas), Inc.
(the "Administrative Agent")
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Arthur Andersen LLP
*Filed previously
4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Unity Cellular System, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheets of UNITY CELLULAR
SYSTEM, INC. (a Maine corporation) AND SUBSIDIARY as of December 31, 1996 and
1995 and the related consolidated statements of operations, changes in
stockholder's equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Unity Cellular
System, Inc. and subsidiary as of December 31, 1996 and 1995 and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
As explained in Note 1 to the financial statements, effective January 1,
1996, the Company changed its method of accounting for promotional costs.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 3, 1997 (except Note 6, as to which the date is May 1, 1997)
F-1
<PAGE>
UNITY CELLULAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
- --------------------------------------------------- ------------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $186,288,853 $ 96,238
Short-term investments 75,658,893 0
Accounts receivable, less allowance for doubtful
accounts of $99,244 and $152,842 in 1996 and
1995, respectively 2,085,419 1,843,118
Accounts receivable--affiliate 0 38,692
Inventories 586,299 397,362
Deferred income taxes (Note 5) 0 159,258
Prepaid expenses and other current assets 163,949 268,239
------------ ----------
Total current assets 264,783,413 2,802,907
------------ ----------
PROPERTY, PLANT, AND EQUIPMENT:
Land 414,172 353,160
Buildings and towers 2,747,622 2,676,425
Equipment 12,691,700 7,497,580
Furniture and fixtures 191,967 163,485
Assets under construction 0 50,249
------------ ----------
16,045,461 10,740,899
Less accumulated depreciation (2,866,302) (2,289,841)
------------ ----------
Property, plant, and equipment, net 13,179,159 8,451,058
------------ ----------
OTHER ASSETS:
Goodwill, net of accumulated amortization of
$2,057,090 and $1,445,484 in 1996 and 1995,
respectively 22,671,305 23,282,911
Deferred income taxes (Note 5) 610,628 2,002,648
Deferred charges and other, net of accumulated
amortization of $122,293 and $1,533,058 in 1996
and 1995, respectively 117,335 2,115,414
Other investments 389,515 389,515
------------ ----------
Total other assets 23,788,783 27,790,488
------------ ----------
Total assets $301,751,355 $39,044,453
------------ ----------
------------ ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-2
<PAGE>
UNITY CELLULAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1996 1995
- --------------------------------------------------- ------------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 485,397 $ 542,123
Accounts payable--affiliate 102,573 0
Accrued expenses and other current liabilities 893,689 865,648
Accrued income taxes 3,222,662 0
Advanced billings and customer deposits 365,039 361,638
------------ ----------
Total current liabilities 5,069,360 1,769,409
------------ ----------
DEFERRED REVENUE 389,515 389,515
------------ ----------
DUE TO PARENT (NOTE 3) 264,015,666 14,734,789
------------ ----------
MINORITY INTEREST IN CELLULAR PARTNERSHIP 2,535,408 2,674,159
------------ ----------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
STOCKHOLDER'S EQUITY:
Common stock, $1 par value; 100,000 shares
authorized, 100 shares issued and outstanding in
1996 and 1995 100 100
Additional paid-in capital 18,405,321 18,405,321
Retained earnings 11,335,985 1,071,160
------------ ----------
Total stockholder's equity 29,741,406 19,476,581
------------ ----------
Total liabilities and stockholder's equity $301,751,355 $39,044,453
------------ ----------
------------ ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE>
UNITY CELLULAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- -----------
<S> <C> <C>
REVENUES AND SALES:
Monthly access revenue $ 7,612,423 $ 6,269,260
Airtime revenue 3,277,268 2,561,826
Roaming revenue 1,288,357 1,235,981
Toll revenue 1,344,896 1,201,200
Installation, connection, and other revenue 388,797 345,960
------------ ----------
Total service revenues 13,911,741 11,614,227
Equipment sales 2,172,409 2,354,543
------------ ----------
Total revenues and sales 16,084,150 13,968,770
------------ ----------
OPERATING EXPENSES:
Cost of services 1,817,877 1,418,883
Cost of equipment sales 1,786,673 1,783,813
Operations 2,038,979 1,595,992
Selling, general, and administrative 4,094,293 3,386,380
Depreciation and amortization 4,190,078 3,184,061
------------ ----------
Total operating expenses 13,927,900 11,369,129
------------ ----------
OPERATING INCOME 2,156,250 2,599,641
------------ ----------
OTHER (INCOME) EXPENSE:
Interest expense 987,828 859,924
Interest income (15,207,288) 0
Other income (7,658) 0
------------ ----------
Total other (income) expense (14,227,118) 859,924
------------ ----------
INCOME BEFORE MINORITY INTEREST, INCOME TAXES, AND
CUMULATIVE EFFECT 16,383,368 1,739,717
MINORITY INTEREST IN LOSS OF CELLULAR PARTNERSHIP 473,578 129,547
------------ ----------
INCOME BEFORE INCOME TAXES 16,856,946 1,869,264
INCOME TAX PROVISION 5,338,940 994,964
------------ ----------
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 11,518,006 874,300
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE,
NET OF TAX BENEFIT OF $565,000 (NOTE 1) (1,253,181) 0
------------ ----------
NET INCOME $10,264,825 $ 874,300
------------ ----------
------------ ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
UNITY CELLULAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S
EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON
STOCK, TOTAL
$1 PAR PAID-IN RETAINED STOCKHOLDER'S
VALUE CAPITAL EARNINGS EQUITY
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $100 $18,405,321 $ 196,860 $18,602,281
Net income 0 0 874,300 874,300
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 100 18,405,321 1,071,160 19,476,581
Net income 0 0 10,264,825 10,264,825
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1996 $100 $18,405,321 $11,335,985 $29,741,406
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
UNITY CELLULAR SYSTEM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $10,264,825 $ 874,300
-------------- --------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Minority interest in loss of partnership (473,578) (129,547)
Cumulative effect of change in accounting principle, before tax
benefit 1,818,181 0
Depreciation and amortization 4,190,078 3,184,061
Deferred taxes, net 1,551,278 994,964
Changes in assets and liabilities:
Accounts receivable (242,301) (726,963)
Inventory (188,937) (23,871)
Prepaid expenses and other current assets 104,290 (146,392)
Deferred charges and other (1,676,239) (2,428,539)
Accounts payable, advanced billings and customer deposits,
and accrued expenses 3,197,378 169,476
-------------- --------------
Total adjustments 8,280,150 893,189
-------------- --------------
Net cash provided by operating activities 18,544,975 1,767,489
-------------- --------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to property, plant, and equipment (6,450,436) (2,683,162)
Increase in short-term investments (75,658,893) 0
Receipt of proceeds from RTFC capital certificates 0 1,840,592
-------------- --------------
Net cash used in investing activities (82,109,329) (842,570)
-------------- --------------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Increase (decrease) in due to parent 249,280,877 (1,663,368)
Capital contributed by minority partner in Northern Maine Partnership 334,827 687,532
Advances from affiliate 141,265 2,153
-------------- --------------
Net cash provided by (used in) financing activities 249,756,969 (973,683)
-------------- --------------
NET INCREASE (DECREASE) IN CASH 186,192,615 (48,764)
CASH, BEGINNING OF PERIOD 96,238 145,002
-------------- --------------
CASH, END OF PERIOD $186,288,853 $ 96,238
-------------- --------------
-------------- --------------
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
F-6
<PAGE>
UNITY CELLULAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OWNERSHIP
In February 1987, Unity Cellular System, Inc. ("UNICEL" or the "Company")
was formed as a wholly owned subsidiary of Unity Telephone Company
("Unity") to operate a cellular telephone system throughout central and
northern Maine, including the Bangor, Maine, metropolitan service area
and two rural service areas ("RSA2" and "RSA3"). UNICEL is the managing
partner, with a 51% interest of the RSA2 cellular partnership (the
"Northern Maine Partnership") (Note 2). On January 31, 1994, Unity spun off
all its assets and liabilities, except for its common stock of UNICEL, into
a newly formed company, Unitel. InterCel, Inc. ("InterCel") then
exchanged common stock and cash for all of the stock of the Company and
purchased, for cash, from two principal stockholders of Unity, warrants
entitling the holders to purchase common stock of the Company. The merger
was accounted for as a purchase. Accordingly, the excess of the
purchase price over the net book value of the assets is recorded as
goodwill in the accompanying consolidated balance sheets.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated balance sheets include the accounts of the
Northern Maine Partnership. All significant intercompany accounts and
transactions have been eliminated in consolidation.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements. Estimates also affect the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
REGULATION
The Company and its subsidiary are subject to the regulatory authority of
the Federal Communications Commission.
SOURCES OF SUPPLIES
The Company relies on local and long-distance telephone companies to
provide communications capacity. Although management feels that alternative
telecommunications facilities could be found in a timely manner, any
disruption of these services could have an adverse effect on operating
results.
F-7
<PAGE>
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand,
demand deposits, and short-term investments with original maturities of
three months or less.
SHORT-TERM INVESTMENTS
Investments having maturities of more than three months but less than one
year are categorized as held-to-maturity. Accordingly, they are carried at
cost, without recognition of gains or losses deemed to be temporary,
because the Company has both the intent and ability to hold these
investments to maturity. At December 31, 1996, the fair value of these
investments approximated cost.
REVENUE RECOGNITION
The Company earns revenues by providing cellular service to both local
subscribers and subscribers of other cellular carriers traveling (roaming)
through the Company's service area as well as from sales of cellular
equipment. Local service revenues consist of base monthly service fees and
airtime revenues. Base monthly service fees are billed one month in advance
and are recognized when earned. Airtime revenues are recognized when service
is provided. Roamer revenues consist of daily fees charged to certain
nonsubscribers (depending on the nonsubscriber's cellular carrier) for
roaming in the service area as well as airtime revenues for the use of the
cellular network. Roamer revenues are recognized when service is rendered.
Long-distance revenues (toll revenues) are charged to both local and roamer
users and are recognized when service is rendered. Local toll (intra-LATA)
revenue is passed through to the end user with no markup. Equipment sales
are recognized upon delivery of the equipment to the customer. Installation
and connection revenues are recognized when provided.
CREDIT RISK
The Company's accounts receivable potentially subject the Company to credit
risk, as collateral is generally not required. The Company's risk of loss is
limited due to advance billings to customers for services and the ability to
terminate access on delinquent accounts. The concentration of credit risk is
mitigated by the large number of customers comprising the customer base. The
carrying amount of the Company's receivables approximates their fair value.
INVENTORIES
The Company maintains inventories of cellular telephones and accessory parts
(i.e., antennae, batteries, cable, etc.) for resale. Inventory is valued at
the lower of cost (which approximates first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at fair market value as of January 31,
1994 (which approximates historical cost), including certain labor,
material, and overhead costs. The Company records depreciation using the
straight-line method over the estimated useful lives of the assets, as
follows:
Buildings and towers 10-20 years
Leasehold improvements 5-10 years
Equipment 3-10 years
Furniture and fixtures 5-10 years
F-8
<PAGE>
The Company's policy is to remove the cost and accumulated depreciation of
retirements from the accounts and recognize the related gain or loss upon
the disposition of assets. There were no material retirements in 1995.
During 1996, the Company purchased dual-mode analog/digital switching and
transmission equipment. In conjunction with this purchase, the Company
traded in its original switching equipment. The accumulated depreciation of
the original switching equipment was removed, and the net book value of the
original switching equipment, approximately $1,364,000, was included in the
cost basis of the acquired dual-mode analog/digital switching and
transmission equipment.
GOODWILL
Goodwill is stated at cost, less accumulated amortization, and is amortized
using the straight-line method over 40 years. The Company periodically
reviews the value assigned to goodwill to determine whether it has been
other than temporarily impaired by adverse conditions affecting the Company.
In management's opinion, there has been no diminution in the value assigned
to goodwill.
INCOME TAXES
The Company is included in the consolidated federal income tax return of
InterCel. Under a joint consolidated income tax agreement, current and
deferred income taxes are allocated to the Company based on its stand-alone
taxable income.
The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
which requires the use of the asset and liability approach for financial
accounting and reporting for income taxes.
OTHER ASSETS
Beginning in 1994, the Company began offering a promotional program under
which a customer could receive a substantial discount toward a cellular
phone in return for signing a noncancelable cellular telephone service
agreement for a term of one, two, or three years. Under the promotional
program, the Company deferred the cost associated with the program and
amortized such cost over the specific contract term. These costs are included
in deferred charges and other on the accompanying balance sheet as of
December 31, 1995. Should a customer cancel service prior to expiration of
his/her service agreement or be disconnected for nonpayment, the customer
becomes liable to the Company for the full original credit issued under this
program. It is the Company's policy to establish a full reserve for
receivables that arise as a result of such cancellations.
On January 1, 1996, the Company changed its method of accounting for
discounts offered through its promotional program. Rather than defer the
costs and amortize them over the contract term, the Company will expense the
discounts when provided. The change in accounting principle resulted in a
write-off of net deferred promotional costs of $1,253,181, which is net of
an income tax benefit of $565,000, for the year ended December 31, 1996, and
this amount is presented in the accompanying statement of operations as a
cumulative effect of change in accounting principle.
OTHER INVESTMENTS
Other investments consist of noninterest-bearing patronage capital
certificates ("PCCs") issued by the RTFC. The PCCs are issued annually and
may be distributed as cash in the future at the discretion of the RTFC's
board of directors. The Company did not receive any PCCs from the RTFC
during 1996 or 1995.
F-9
<PAGE>
DEFERRED REVENUE
Deferred revenue consists of RTFC PCCs issued in connection with certain
debt financing which will be paid in the future at the discretion of the
RTFC's board of directors. They will be recognized as income when cash is
received.
MINORITY INTEREST
Minority interest represents the minority partner's proportionate share of
the equity of the Northern Maine Partnership.
2. CELLULAR PARTNERSHIP
In June 1992, the Company entered into the Northern Maine Partnership with
New York Cellular Geographic Service Area ("NYCGSA"), a wholly owned
subsidiary of NYNEX Mobile Communication, Inc. The Northern Maine
Partnership owns and operates a cellular system in Maine RSA2 in Aroostook,
Somerset, and Piscataquis Counties.
Under the terms of the partnership agreement, the Company contributed
$2,325,600 to construct and begin operating the system in return for a 51%
ownership, and NYCGSA contributed the system construction permit, valued at
$2,234,400, for its 49% ownership. Subsequent capital requirements are to
be met based on the partners' respective ownership percentages.
In July 1995, NYCGSA transferred its interest to Cellco Partnership
("Cellco"). Cellco was formed pursuant to the merger of Bell Atlantic
Corporation and NYNEX Corporation.
In connection with the InterCel merger, UNICEL and InterCel entered into an
agreement with Cellco, the minority partner in the Northern Maine
Partnership, pursuant to which Cellco agreed not to exercise certain rights
under the partnership agreement.
The business and affairs of the Northern Maine Partnership are conducted by a
management committee (the "Management Committee"). The Management Committee
is composed of two individuals nominated by Cellco and three individuals
nominated by UNICEL.
The Northern Maine Partnership is functioning under a business plan for
1997, subject to review by the Management Committee, which includes capital
contributions from the partners to meet the expected operating and capital
needs of the Northern Maine Partnership through 1997. In management's
opinion, funds available from the partners are sufficient to meet the
operating and capital needs of the partnership through 1997 and beyond.
3. LONG-TERM DEBT
Subsequent to January 31, 1994, all RTFC obligations of the Company were
repaid by InterCel, and the Company executed notes payable, which is
presented as due to parent in the accompanying balance sheets, to InterCel
totaling approximately $18,085,000. For 1995, InterCel charged the Company
interest on the outstanding amount of the due to parent balance and
additional paid-in capital less gross goodwill at the rate of eight percent.
For 1996, InterCel charged the Company interest on the outstanding amount of
the due to parent balance (excluding all items related to the InterCel
offerings) and additional paid-in capital less gross goodwill and investment
balances at the rate of eight percent.
F-10
<PAGE>
InterCel's management has represented that the note, or any portion
thereof, will not be called in the normal course of business during 1997.
Accordingly, the unpaid balance of the note as of December 31, 1996 is
classified as long-term in the accompanying balance sheet.
4. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office and warehouse space, dedicated lines and trunk
access facilities, and computer equipment. The leasing of certain
dedicated lines and trunk access is with the parent of the minority
partner in the cellular partnership. Lease expense under these leases
totaled $908,283 and $553,649 during 1996 and 1995, respectively.
At December 31, 1996, the Company's minimum rental commitments under
noncancelable operating leases with initial or remaining terms of more
than one year were as follows:
1997 $ 339,016
1998 282,959
1999 203,903
2000 136,409
2001 127,918
Thereafter 429,405
----------
Total $1,519,610
----------
----------
Rental expense under these leases totaled $336,311 and $261,388 during
1996 and 1995, respectively.
LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. There are no material pending legal
proceedings to which the Company is a party.
5. INCOME TAXES
Components of the income tax provision are as follows as of December 31,
1996 and 1995:
1996 1995
---------- --------
Current provision $3,222,662 $ 0
Deferred provision 1,551,278 994,964
---------- --------
Total $4,773,940 $994,964
---------- --------
---------- --------
F-11
<PAGE>
The following is a summary of the items which caused recorded income
taxes to differ from taxes computed using the statutory federal income
tax rate:
1996 1995
---------- --------
Statutory federal tax rate 34% 34%
Increase (decrease) in tax
provision resulting from:
Goodwill amortization 1 11
State taxes, net of
federal benefit (4) 11
Other, net 1 (3)
---------- --------
32% 53%
---------- --------
---------- --------
The sources of the differences between the financial accounting and tax
bases of assets and liabilities which give rise to the deferred tax
assets as of December 31, 1996 and 1995 are as follows:
1996 1995
---------- ----------
Deferred tax assets:
Net operating loss carryforwards $1,049,866 $2,651,667
Allowance for doubtful accounts 30,854 42,598
Other 79,293 133,735
---------- ----------
1,160,013 2,828,000
Deferred tax liability:
Depreciation (549,385) (666,094)
---------- ----------
Net deferred tax asset 610,628 2,161,906
Less current portion 0 (159,258)
1996 1995
---------- ----------
Deferred tax asset--noncurrent $ 610,628 $2,002,648
---------- ----------
---------- ----------
6. ASSET SALE
Pursuant to an Asset Purchase Agreement, dated as of December 23, 1996,
between UNICEL; InterCel Licenses, Inc., a wholly owned subsidiary of
InterCel; and MRCC, Inc., a wholly owned subsidiary of Rural Cellular
Corporation ("MRCC"), MRCC acquired substantially all the assets and FCC
licenses of UNICEL, constituting UNICEL's cellular telephone operations
in Maine, for approximately $77.2 million, including $5.4 million held in
escrow, on May 1, 1997. Additionally, Cellco sold its interest in the
Northern Maine Partnership to MRCC.
7. EMPLOYEE BENEFIT PLAN
As a former subsidiary of Unitel, the Company included its employees as
participants in Unitel's pension plan (the "Plan") as of January 31,
1994. The Plan covered all eligible employees of Unitel, Unity Cable
Television, Inc., and the Company until April 29, 1994, when benefit
accruals for all plan participants who were employees of the Company were
terminated. On September 26, 1994, the Plan spun off all assets and
liabilities attributable to the Unity Telephone and subsidiary
participants. The Plan provides retirement, disability, and survivor
benefits to eligible employees. The Company's policy is to fund pension
cost in accordance with applicable regulations.
During fiscal 1996, the Company's interest in the Plan was merged with
the InterCel pension plan. Effective November 1, 1996, InterCel notified
participants of its intent to terminate the plan. The effective
F-12
<PAGE>
date of termination is expected in the first half of fiscal 1997. The
effects of the proposed termination were not material. The following
table sets forth the Company's portion of the defined benefit plan's
funded status as of December 31, 1996 and 1995:
1996 1995
---------- ----------
Actuarial present value of benefit
obligation:
Vested benefits:
Accumulated benefit obligation $(102,919) $(126,314)
Additional amounts related to
projected salary increases 0 0
---------- ----------
Projected benefit obligation (102,919) (126,314)
Less:
Fair value of plan assets 114,612 145,425
Unrecognized net loss 14,292 5,727
---------- ----------
Prepaid pension cost recognized in
the accompanying balance sheets $ 25,985 $ 24,838
---------- ----------
---------- ----------
The actuarial present value of the projected benefit obligation was
determined using a discount rate of 6% for 1996 and 1995, and the
expected long-term rate of return on assets was 6%.
The net periodic pension (income) cost for the years ended December 31,
1996 and 1995 was not material to the financial statements.
F-13
<PAGE>
UNITY CELLULAR SYSTEM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
ASSETS 1997 1996
- ---------------------------------------- ------------ ------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $208,594,917 $186,288,853
Short term investments -- 75,658,893
Accounts receivable, net 1,920,860 2,085,419
Inventories 414,741 586,299
Accounts receivable-affiliate 78,070 --
Prepaid expenses and other current assets 166,452 163,949
------------ ------------
Total current assets 211,175,040 264,783,413
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land 414,172 414,172
Buildings and towers 2,752,649 2,747,622
Equipment 13,050,044 12,691,700
Furniture and fixtures 191,967 191,967
Assets under construction 215,241 --
Less accumulated depreciation (3,604,473) (2,866,302)
------------ ------------
Property, plant and equipment, net 13,019,600 13,179,159
------------ ------------
INVESTMENTS AND OTHER ASSETS:
Goodwill, net 22,518,402 22,671,305
Deferred income taxes -- 610,628
Other investments 389,515 389,515
Deferred charges and other, net 89,688 117,335
------------ ------------
Total investments and other assets 22,997,605 23,788,783
------------ ------------
Total assets $247,192,245 $301,751,355
------------ ------------
------------ ------------
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
F-14
<PAGE>
UNITY CELLULAR SYSTEM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 1997 1996
- ---------------------------------------- ------------ ------------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 499,018 $ 587,970
Advance billing and customer deposits 349,777 365,039
Accrued income taxes 3,805,656 3,222,662
Other accrued expenses 912,669 893,689
------------ ------------
Total current liabilities 5,567,120 5,069,360
------------ ------------
DEFERRED REVENUE 389,515 389,515
------------ ------------
DEFERRED INCOME TAXES 704,055 --
------------ ------------
DUE TO PARENT 205,851,312 264,015,666
------------ ------------
MINORITY INTEREST 2,601,623 2,535,408
------------ ------------
STOCKHOLDER'S EQUITY:
Common stock, $1 par value, 100,000
shares authorized, 100 shares issued
and outstanding 100 100
Additional paid-in capital 18,405,321 18,405,321
Retained earnings 13,673,199 11,335,985
------------ ------------
Total stockholder's equity 32,078,620 29,741,406
------------ ------------
------------ ------------
Total liabilities and
stockholder's equity $247,192,245 $301,751,355
------------ ------------
------------ ------------
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
F-15
<PAGE>
UNITY CELLULAR SYSTEM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1997 1996
------------ ------------
REVENUES:
Service $3,166,477 $2,784,210
Roamer 242,477 215,986
Equipment 87,887 459,990
------------ ------------
Total revenues 3,496,841 3,460,186
------------ ------------
OPERATING EXPENSES:
Network costs 635,415 362,814
Cost of equipment sales 385,202 376,411
Selling, general and administrative 1,539,668 1,369,392
Depreciation and amortization 654,112 977,766
------------ ------------
Total operating expenses 3,214,397 3,086,383
------------ ------------
OPERATING INCOME 282,444 373,803
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense -- (205,966)
Interest income 3,256,662 2,300,756
Minority interest 112,791 255,844
------------ ------------
Other income, net 3,369,453 2,350,634
------------ ------------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT 3,651,897 2,724,437
INCOME TAX PROVISION 1,314,683 926,309
------------ ------------
INCOME BEFORE CUMULATIVE EFFECT 2,337,214 1,798,128
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE, NET -- (1,253,181)
------------ ------------
NET INCOME $2,337,214 $ 544,947
------------ ------------
------------ ------------
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
F-16
<PAGE>
UNITY CELLULAR SYSTEM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1997 1996
------------ ------------
OPERATING ACTIVITIES:
Net income $ 2,337,214 $ 544,947
Adjustments to reconcile to net
cash provided by operating activities:
Depreciation and amortization 654,112 977,766
Cumulative effect of change in accounting
principle -- 1,818,181
Deferred income taxes 1,314,683 361,309
Change in minority interest (112,791) (255,844)
Change in other operating elements:
Accounts receivable, net 164,559 141,016
Inventories 171,558 (16,266)
Prepaid expenses and other current
assets (2,503) 100,092
Accounts payable 13,621 (291,345)
Advance billings and customer deposits (15,262) (2,713)
Other accrued expenses 629,621 359,431
------------ ------------
Net cash provided by operating
activities 5,154,812 3,736,574
------------ ------------
INVESTING ACTIVITIES:
Purchases of property and equipment, net (341,650) (2,566,904)
Sale of short-term investments, net 75,658,893 (29,494,198)
------------ ------------
Net cash provided by (used in)
investing activities 75,317,243 (32,061,102)
------------ ------------
FINANCING ACTIVITIES:
Capital contributed by minority partner 179,006 177,461
Advances from, (repayments to) Affiliate (58,344,997) 281,340,250
------------ ------------
Net cash provided by (used in)
financing activities (58,165,991) 281,517,711
------------ ------------
NET INCREASE IN CASH 22,306,064 253,193,183
CASH, AT BEGINNING OF PERIOD 186,288,853 96,238
------------ ------------
CASH, AT END OF PERIOD
$208,594,917 $253,289,421
------------ ------------
------------ ------------
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements
F-17
<PAGE>
UNITY CELLULAR SYSTEM, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain amounts
for the three months ended March 31, 1997 and 1996, respectively, have
been reclassified to conform to Rural Cellular Corporation's ("RCC"),
presentation. These reclassifications had no effect on consolidated net
income (loss) or stockholder's equity.
(2) Pursuant to an Asset Purchase Agreement, dated as of December 23, 1996,
between Unity Cellular Systems, Inc., Intercel Licenses, Inc., a wholly
owned subsidiary of Intercel, Inc., and MRCC, Inc., a wholly owned
subsidiary of RCC, RCC acquired substantially all the assets and FCC
licenses of Unity Cellular Systems, Inc., and 51% interest in Northern
Maine Cellular Partnership, constituting Unity Cellular Systems'
cellular telephone operations in Maine for approximately $77.2 million,
including $5.4 million held in escrow on May 1, 1997. RCC also acquired
the remaining 49% interest in Northern Maine Cellular Partnership held
by an affiliate of Bell Atlantic NYNEX Mobile, Inc. for $7,357,350.
F-18
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements reflects
the acquisitions of Unity Cellular Systems, Inc. and Subsidiary (Unity) and
the 49% interest in Northern Maine Cellular Partnership (Northern Maine) by
Rural Cellular Corporation and Subsidiaries (RCC) including the pro forma
effects of the issuance of $105 million of long-term debt and the merger of
Unity and Northern Maine (collectively, Unicel).
The unaudited pro forma consolidated balance sheet includes the accounts of
RCC and Unicel as of March 31, 1997. The unaudited pro forma consolidated
statements of operations include the results of operations of RCC and Unicel
for the three months ended March 31, 1997 and for the year ended December 31,
1996. Refer to the Notes to Unaudited Pro Forma Consolidated Financial
Statements for discussion of the various pro forma adjustments made in
conjunction with the acquisition of Unicel. Such unaudited pro forma
consolidated financial statements assume that the acquisition was accounted
for under the purchase method of accounting as of March 31, 1997 for the
unaudited pro forma consolidated balance sheet and as of the beginning of the
period presented for the unaudited pro forma consolidated statements of
operations. In the opinion of management, all adjustments necessary to
present fairly such unaudited pro forma consolidated financial statements
have been made.
These unaudited pro forma consolidated financial statements should be
read in conjunction with the historical financial statements and the
notes thereto of Unity included elsewhere in this Form 8-K and the
historical financial statements and notes thereto of RCC which have been
included in RCC's report on Form 10-K for the year ended December 31,
1996 and report on Form 10-Q for the quarter ended March 31, 1997. The
unaudited pro forma consolidated financial statements are not
necessarily indicative of what the actual results of operations would
have been had the acquisition been consummated as of the date indicated
above, nor does it purport to represent the consolidated results of
operations for any future periods.
PF-1
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
ASSETS
PRO FORMA ADJUSTMENTS
RCC UNICEL --------------------- PRO FORMA
CURRENT ASSETS: HISTORICAL HISTORICAL DR. CR. ADJUSTED
---------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
CASH AND CASH EQUIVALENTS $ 75,151 $ 208,594,917 $ 105,000,000(2) $ 208,594,917(3) $ 4,238,885
84,742,350(2)
15,007,442(2)
1,086,474(4)
ACCOUNTS RECEIVABLE, NET 6,024,400 1,920,860 67,892(5) 240,220(6) 7,772,932
INVENTORIES 904,019 414,741 - - 1,318,760
ACCOUNTS RECEIVABLE, AFFILIATE - 78,070 - - 78,070
OTHER CURRENT ASSETS 797,670 166,452 - - 964,122
---------- ------------- ------------- ------------- ------------
TOTAL CURRENT ASSETS 7,801,240 211,175,040 105,067,892 309,671,403 14,372,769
---------- ------------- ------------- ------------- ------------
PROPERTY AND EQUIPMENT:
LAND 1,276,204 414,172 - - 1,690,376
BUILDINGS AND TOWERS 13,888,888 2,752,649 - 790,401(7) 15,851,136
EQUIPMENT 38,762,766 13,050,044 - 2,656,957(7) 49,155,853
FURNITURE AND FIXTURES 4,129,805 191,967 - 157,115(7) 4,164,657
ASSETS UNDER CONSTRUCTION 983,033 215,241 - - 1,198,274
LESS - ACCUMULATED DEPRECIATION (15,450,213) (3,604,473) 3,604,473(7) - (15,450,213)
---------- ------------- ------------- ------------- ------------
NET PROPERTY AND EQUIPMENT 43,590,483 13,019,600 3,604,473 3,604,473 56,610,083
---------- ------------- ------------- ------------- ------------
INVESTMENTS AND OTHER ASSETS:
INTANGIBLE ASSETS - 22,518,402 71,076,419(7) 22,518,402(8) 72,415,218
1,338,799(9)
LICENSES, NET 6,708,128 - - - 6,708,128
INVESTMENTS IN UNCONSOLIDATED
AFFILIATES 1,461,378 - - - 1,461,378
RESTRICTED INVESTMENTS 912,709 - - - 912,709
OTHER ASSETS, NET 1,231,934 389,515 1,086,474(4) 389,515(3) 1,592,964
725,444(9)
DEFERRED CHARGES - 89,688 - 89,688(3) -
---------- ------------- ------------- ------------- ------------
TOTAL INVESTMENTS AND OTHER ASSETS 10,314,149 22,997,605 73,501,692 23,723,049 83,090,397
---------- ------------- ------------- ------------- -----------
TOTAL ASSETS $61,705,872 $ 247,192,245 $ 182,174,057 $ 336,998,925 $154,073,249
---------- ------------- ------------- ------------- ------------
---------- ------------- ------------- ------------- ------------
THE ACCOMPANYING NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
PF-2
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
RCC UNICEL PRO FORMA ADJUSTMENTS PRO FORMA
CURRENT LIABILITIES: HISTORICAL HISTORICAL DR. CR. ADJUSTED
------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
CURRENT MATURITIES OF LONG-TERM DEBT $ 15,047,442 $ - $ 15,007,442(2) $ - 40,000
ACCOUNTS PAYABLE 3,610,561 499,018 - 4,109,579
ADVANCE BILLING AND CUSTOMER DEPOSITS - 349,777 - - 349,777
ACCRUED INCOME TAXES - 3,805,656 3,805,656(3) - -
OTHER ACCRUED LIABILITIES 2,397,013 912,669 - 613,355(9) 3,923,037
------------ ------------- ------------- ------------- ------------
TOTAL CURRENT LIABILITIES 21,055,016 5,567,120 18,813,098 613,355 8,422,393
------------ ------------- ------------- ------------- ------------
DEFERRED REVENUE - 389,515 389,515(3) - -
------------ ------------- ------------- ------------- ------------
DEFERRED INCOME TAX - 704,055 704,055(3) - -
------------ ------------- ------------- ------------- ------------
LONG-TERM DEBT 20,482 - - 105,000,000(2) 105,020,482
------------ ------------- ------------- ------------- ------------
DUE TO PARENT - 205,851,312 205,851,312(3) - -
------------ ------------- ------------- ------------- ------------
TOTAL LIABILITIES 21,075,498 212,512,002 225,757,980 105,613,355 113,442,875
------------ ------------- ------------- ------------- ------------
MINORITY INTEREST 5,674,029 2,601,623 2,601,623(1) - 5,674,029
------------ ------------- ------------- ------------- ------------
SHAREHOLDERS' EQUITY:
CLASS A COMMON STOCK, $.01 PAR VALUE
15,000,000 SHARES AUTHORIZED; 7,487,858
SHARES ISSUED AND OUTSTANDING 74,879 - - - 74,879
CLASS B COMMON STOCK, $.01 PAR VALUE
5,000,000 SHARES AUTHORIZED; 1,365,438
SHARES ISSUED AND OUTSTANDING 13,654 - - - 13,654
COMMON STOCK, $1 PAR VALUE, 100,000 SHARES
AUTHORIZED,
100 SHARES ISSUED AND OUTSTANDING 100 100(10)
ADDITIONAL PAID-IN CAPITAL 34,445,849 18,405,321 18,405,321(10) - 34,445,849
RETAINED EARNINGS 421,963 13,673,199 13,673,199(10) - 421,963
------------ ------------- ------------- ------------- ------------
TOTAL SHAREHOLDERS' EQUITY 34,956,345 32,078,620 32,078,620 - 34,956,345
------------ ------------- ------------- ------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 61,705,872 $ 247,192,245 $ 260,438,223 $105,613,355 $154,073,249
------------ ------------- ------------- ------------- ------------
------------ ------------- ------------- ------------- ------------
THE ACCOMPANYING NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
PF-3
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
RCC UNICEL PRO FORMA ADJUSTMENTS PRO FORMA
REVENUES: HISTORICAL HISTORICAL DR. CR. ADJUSTED
------------ ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
SERVICE $23,119,691 $ 12,623,384 $ - $ - $ 35,743,075
ROAMER 6,413,524 1,288,357 - - 7,701,881
EQUIPMENT 927,128 2,172,409 - - 3,099,537
------------ ------------- ------------- ------------- -----------
TOTAL REVENUES 30,460,343 16,084,150 - - 46,544,493
------------ ------------- ------------- ------------- -----------
OPERATING EXPENSES:
NETWORK COSTS 6,731,130 1,817,877 - - 8,549,007
COST OF EQUIPMENT SALES 1,374,980 1,786,673 - - 3,161,653
SELLING, GENERAL AND ADMINISTRATIVE 13,575,347 6,133,272 - - 19,708,619
DEPRECIATION AND AMORTIZATION 5,539,067 4,190,078 1,946,190(11) 611,606(3) 11,063,729
(4)
------------ ------------- ------------- ------------- -----------
TOTAL OPERATING EXPENSES 27,220,524 13,927,900 1,946,190 611,606 42,483,008
------------ ------------- ------------- ------------- -----------
OPERATING INCOME: 3,239,819 2,156,250 1,946,190 611,606 4,061,485
------------ ------------- ------------- ------------- -----------
OTHER INCOME (EXPENSE):
INTEREST EXPENSE (280,146) (987,828) 7,875,000(12) 987,828(3) (7,875,000)
280,146(13) -
INTEREST AND DIVIDEND INCOME 334,850 15,214,946 15,214,946(3) - 334,850
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES 51,519 - - - 51,519
MINORITY INTEREST 330,892 473,578 473,578(1) 330,892
------------ ------------- ------------- ------------- -----------
OTHER INCOME (EXPENSE), NET 437,115 14,700,696 23,563,524 1,267,974 (7,157,739)
------------ ------------- ------------- ------------- -----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT 3,676,934 16,856,946 25,509,714 1,879,580 (3,096,254)
INCOME TAX PROVISION 200,000 5,338,940 - 5,538,940(14) -
------------ ------------- ------------- ------------- -----------
INCOME BEFORE CUMULATIVE EFFECT 3,476,934 11,518,006 25,509,714 7,418,520 (3,096,254)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE, NET - (1,253,181) - - (1,253,181)
------------ ------------- ------------- ------------- -----------
NET INCOME (LOSS) $ 3,476,934 $ 10,264,825 $ 25,509,714 $ 7,418,520 $ (4,349,435)
------------ ------------- ------------- ------------- -----------
------------ ------------- ------------- ------------- -----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 8,508,908 8,508,908
EARNINGS (LOSS) PER SHARE $ 0.41 $ (0.51)
THE ACCOMPANYING NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
PF-4
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
RCC UNICEL PRO FORMA ADJUSTMENTS PRO FORMA
REVENUES: HISTORICAL HISTORICAL DR. CR. ADJUSTED
------------ ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
SERVICES $ 6,908,242 $ 3,166,477 $ - $ - $ 10,074,719
ROAMER 1,317,481 242,477 - - 1,559,958
EQUIPMENT SALES 96,714 87,887 - - 184,601
------------ ------------- ------------- ------------- -----------
TOTAL REVENUES 8,322,437 3,496,841 - - 11,819,278
------------ ------------- ------------- ------------- -----------
OPERATING EXPENSES:
NETWORK COSTS 2,000,215 635,415 - - 2,635,630
COST OF EQUIPMENT SALES 287,376 385,202 - - 672,578
SELLING, GENERAL AND ADMINISTRATIVE 4,426,573 1,539,668 - - 5,966,241
DEPRECIATION AND AMORTIZATION 1,962,781 654,112 486,548(11) 152,901(3) 2,950,540
(4)
------------ ------------- ------------- ------------- -----------
TOTAL OPERATING EXPENSES 8,676,945 3,214,397 486,548 152,901 12,224,989
------------ ------------- ------------- ------------- -----------
OPERATING INCOME (LOSS) (354,508) 282,444 486,548 152,901 (405,711)
------------ ------------- ------------- ------------- -----------
OTHER INCOME (EXPENSE):
INTEREST EXPENSE (215,209) - 1,968,750(12) 215,209(13) (1,968,750)
INTEREST AND DIVIDEND INCOME 62,347 3,256,662 3,256,662(3) - 62,347
EQUITY IN LOSSES OF UNCONSOLIDATED AFFILIATES 18,809 - - - 18,809
MINORITY INTEREST 448,554 112,791 112,791(1) - 448,554
------------ ------------- ------------- ------------- -----------
OTHER INCOME (EXPENSE), NET 314,501 3,369,453 5,338,203 215,209 (1,439,040)
------------ ------------- ------------- ------------- -----------
-
INCOME BEFORE INCOME TAX (40,007) 3,651,897 5,824,751 368,110 (1,844,751)
INCOME TAX PROVISION - 1,314,683 - 1,314,683(14) -
------------ ------------- ------------- ------------- -----------
NET INCOME (LOSS) $ (40,007) $ 2,337,214 5,824,751 1,682,793 $ (1,844,751)
------------ ------------- ------------- ------------- -----------
------------ ------------- ------------- ------------- -----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 8,853,296 8,853,296
LOSS PER SHARE $ (0.00) $ (0.21)
THE ACCOMPANYING NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
PF-5
<PAGE>
RURAL CELLULAR CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(1) The unaudited pro forma consolidated financial statements reflect RCC's
acquisitions of the assets of Unity and Northern Maine. Both acquisitions
are expected to be accounted for using the purchase method of accounting
and were consummated effective May 1, 1997. The financial statements of
Unity and Northern Maine have been combined for purposes of the pro
forma financial statement presentation.
(2) Reflects the issuance of $105,000,000 in long-term debt from RCC's
available line of credit of $140,000,000 with proceeds used to repay
borrowings of $15,007,442 under a loan agreement with St. Paul Bank for
Cooperatives and to acquire Unity and Northern Maine for $84,742,350.
(3) Reflects the exclusion of Unicel's assets and liabilities not acquired
by RCC provided for in the Asset Purchase Agreement.
(4) Reflects debt issuance costs incurred to obtain the line of credit with
Toronto Dominion Bank, which is being amortized over 8 years.
(5) Reflects customer deposits to be paid to RCC provided for in the Asset
Purchase Agreement.
(6) Reflects the adjustment to Unicel's accounts receivable to provide for
potentially uncollectible accounts.
(7) The allocation of the total purchase consideration for Unicel of
$84,742,350 assumes that the fair value of Unicel's assets and liabilities
equal their net book value (which is management's best judgment at this
time). Accordingly, the net purchase consideration has been reflected
as intangible assets as a result of the acquisition. The precise
allocation of the purchase price to the acquired assets and liabilities
is expected to be finalized by December 31, 1997.
(8) Reflects the elimination of Unicel's intangible assets in conjunction with
the acquisition.
(9) Reflects direct acquisition costs paid prior to or accrued at the
acquisition date.
(10) Reflects the elimination of Unicel's common stock, additional paid-in
capital and retained earnings in conjunction with the acquisition.
PF-6
<PAGE>
(11) Reflects intangible assets amortization of $72,415,218 as a result
of the acquisition, which is being amortized over 40 years.
(12) Reflects interest expense from the issuance of $105 million of long-term
debt (7.5% interest rate).
(13) Reflects the elimination of interest expense due to the retirement of
the borrowings outstanding under the loan agreement with St. Paul Bank
for Cooperatives.
(14) Reflects the elimination of RCC's and the exclusion of Unicel's income
tax provision due to the pro forma adjusted net loss before income
taxes. RCC has recorded a 100% valuation reserve against the resulting net
operating loss carryforwards.
PF-7
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 8-K/A, into Rural Cellular Corporation's
previously filed Registration statement File Nos. 333-10815, 333-10817,
333-28267, and 333-28269.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
July 15, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this Form
8-K/A.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
July 15, 1997
