<PAGE> 1
United States
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 June 30, 1996
or
[ ] 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 33-71002
33-71002-01
HORIZON CELLULAR TELEPHONE COMPANY, L.P.
HORIZON FINANCE CORPORATION
Exact name of registrant as specified in its charter
23-2617703
Delaware 23-2741164
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 Lindenwood Drive
Suite 125
Malvern, PA 19355
(Address of principal offices) (Zip Code)
(610) 651-5900
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
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
----- -----
As of August 12, 1996, 100 shares of Horizon Finance Corporation
Common Stock, par value $0.01 per share, were outstanding.
<PAGE> 2
HORIZON CELLULAR TELEPHONE COMPANY, L.P.
HORIZON FINANCE CORPORATION
SECOND QUARTER REPORT ON FORM 10-Q
INDEX
<TABLE>
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Operations -
Three months ended June 30, 1996 and 1995; six months ended
June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statement of Partners' Equity -
Six months ended June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows -
Six months ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements - June 30, 1996 . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
HORIZON CELLULAR TELEPHONE COMPANY, L.P.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------- -------------
Current assets: (Unaudited) (Note)
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 2,352,669 $ 1,626,815
Accounts receivable, less allowance for doubtful
accounts of $688,397 and $636,227 . . . . . . . . . . . 13,233,314 11,736,236
Inventory . . . . . . . . . . . . . . . . . . . . . . . . 934,660 770,734
Prepaid expenses . . . . . . . . . . . . . . . . . . . . 1,067,597 776,292
------------- -------------
Total current assets . . . . . . . . . . . . . . . . . . . 17,588,240 14,910,077
Property and equipment:
Cellular systems . . . . . . . . . . . . . . . . . . . . 67,331,256 63,394,251
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 7,863,152 6,479,176
------------- -------------
75,194,408 69,873,427
Accumulated depreciation . . . . . . . . . . . . . . . . (22,336,509) (17,446,935)
------------- -------------
52,857,899 52,426,492
Licenses, net of accumulated amortization of
$17,519,738 and $14,490,949 . . . . . . . . . . . . . . 222,055,119 225,082,036
Advances to affiliates . . . . . . . . . . . . . . . . . . 699,874 579,887
Other assets, net of accumulated amortization
of $17,261,443 and $14,047,654 . . . . . . . . . . . . . 18,797,720 21,700,279
------------- -------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $ 311,998,852 $ 314,698,771
============= =============
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . $ 3,242,396 $ 3,750,814
Accrued expenses . . . . . . . . . . . . . . . . . . . . 5,259,170 5,947,192
Deferred income . . . . . . . . . . . . . . . . . . . . . 2,116,255 1,746,712
Current portion of revolver . . . . . . . . . . . . . . . 4,875,000 1,000,000
------------- -------------
Total current liabilities . . . . . . . . . . . . . . . . . 15,492,821 12,444,718
Revolving credit agreement . . . . . . . . . . . . . . . . 69,625,000 77,500,000
11 3/8% senior subordinated notes . . . . . . . . . . . . . 179,067,859 169,431,376
Minority interest . . . . . . . . . . . . . . . . . . . . . 2,866,513 2,837,809
Partners' equity:
Partners' contributions . . . . . . . . . . . . . . . . . 127,197,323 127,197,323
Cumulative net loss . . . . . . . . . . . . . . . . . . . (82,250,664) (74,712,455)
------------- -------------
Total partners' equity . . . . . . . . . . . . . . . . . . 44,946,659 52,484,868
------------- -------------
Total liabilities and partners' equity . . . . . . . . . . $ 311,998,852 $ 314,698,771
============= =============
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See accompanying notes.
1
<PAGE> 4
HORIZON CELLULAR TELEPHONE COMPANY, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues and sales:
Subscriber revenues . . . . . . . . . . . . . . . . $ 9,733,534 $ 6,654,329 $ 18,833,646 $ 12,423,040
Roaming revenues . . . . . . . . . . . . . . . . . 8,566,413 5,876,977 15,498,273 10,238,987
Toll revenue . . . . . . . . . . . . . . . . . . . 1,478,653 1,066,041 2,711,070 1,789,561
Equipment sales . . . . . . . . . . . . . . . . . . 763,759 722,933 1,528,027 1,371,566
------------ ------------- ------------ ------------
Total revenues and sales . . . . . . . . . . . . . . 20,542,359 14,320,280 38,571,016 25,823,154
Costs and expenses:
Cost of services . . . . . . . . . . . . . . . . . 2,608,079 2,088,798 5,055,130 3,919,244
Cost of equipment sales . . . . . . . . . . . . . . 1,581,499 1,663,300 3,098,141 2,878,142
General and administrative . . . . . . . . . . . . 3,862,202 3,195,279 7,708,004 6,233,853
Selling . . . . . . . . . . . . . . . . . . . . . . 3,147,143 2,636,080 6,109,992 4,982,513
Depreciation and amortization . . . . . . . . . . . 4,991,895 4,401,947 10,346,221 8,601,551
------------ ------------- ------------ ------------
16,190,818 13,985,404 32,317,488 26,615,303
------------ ------------- ------------ ------------
Income (loss) from operations . . . . . . . . . . . 4,351,541 334,876 6,253,528 (792,149)
Interest expense, net of interest
income, totaling $15,371, $42,127, $28,549 and
$50,710, respectively . . . . . . . . . . . . . . . 6,942,193 6,394,261 13,761,413 12,420,756
------------ ------------- ------------ ------------
Loss before minority interest . . . . . . . . . . . . (2,590,652) (6,059,385) (7,507,885) (13,212,905)
Minority interest . . . . . . . . . . . . . . . . . . (27,185) 13,975 (30,324) 41,074
------------ ------------- ------------ ------------
Net loss . . . . . . . . . . . . . . . . . . . . . . $ (2,617,837) $ (6,045,410) $ (7,538,209) $(13,171,831)
============= ============== ============= =============
</TABLE>
See accompanying notes.
2
<PAGE> 5
HORIZON CELLULAR TELEPHONE COMPANY, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNER TOTAL
------------ ------------- ------------
<S> <C> <C> <C>
Partners' equity at December 31, 1995 . . . . . $ 51,640,002 $ 844,866 $ 52,484,868
Net loss . . . . . . . . . . . . . . . . . . . (7,387,445) (150,764) (7,538,209)
------------- ------------- ------------
Partners' equity at June 30, 1996 . . . . . . . $ 44,252,557 $ 694,102 $ 44,946,659
============= ============= ============
</TABLE>
See accompanying notes.
3
<PAGE> 6
HORIZON CELLULAR TELEPHONE COMPANY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . $ (7,538,209) $ (13,171,831)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . 10,346,221 8,601,551
Provision for bad debts . . . . . . . . . . . . . . . . . 349,413 237,898
Minority share of operating loss . . . . . . . . . . . . 30,324 (41,074)
Deferred interest . . . . . . . . . . . . . . . . . . . . 9,636,483 9,855,900
Amortization of deferred financing costs . . . . . . . . 822,114 735,305
Changes in operating assets and liabilities
(net of effect of companies acquired in 1995):
Accounts receivable . . . . . . . . . . . . . . . . . (1,846,491) (1,735,552)
Inventory . . . . . . . . . . . . . . . . . . . . . . (163,926) 104,435
Prepaid expenses . . . . . . . . . . . . . . . . . . (74,875) (227,301)
Accounts payable, accrued expenses and other . . . . (981,871) 138,671
Deferred income . . . . . . . . . . . . . . . . . . . 369,543 468,200
------------ ------------
Net cash provided by operating activities . . . . . . . . 10,948,726 4,966,202
INVESTING ACTIVITIES
Purchases of property and equipment,
net of $133,042, and $354,970, purchased on account
or financed . . . . . . . . . . . . . . . . . . . . . . . (5,371,753) (7,268,644)
License and systems acquisitions . . . . . . . . . . . . . -- (27,029,763)
Change in other assets . . . . . . . . . . . . . . . . . . (26,560) (22,618)
------------ ------------
Net cash used in investing activities . . . . . . . . . . . (5,398,313) (34,321,025)
FINANCING ACTIVITIES
Repurchase of partner's equity . . . . . . . . . . . . . . -- (168,237)
Proceeds from revolving credit agreement . . . . . . . . . 2,500,000 31,000,000
Repayment of revolving credit agreement . . . . . . . . . . (6,500,000) --
Advances to affiliate, net of $1,118,518 in 1995, noncash
minority investment in consolidated partnerships . . . . (824,559) (510,083)
------------ ------------
Net cash (used in) provided by financing activities . . . . (4,824,559) 30,321,680
------------ ------------
Net increase in cash and cash equivalents . . . . . . . . . 725,854 966,857
Cash and cash equivalents at beginning
of period . . . . . . . . . . . . . . . . . . . . . . . . 1,626,815 2,069,889
------------ ------------
Cash and cash equivalents at end of period . . . . . . . . $ 2,352,669 $ 3,036,746
============= =============
</TABLE>
See accompanying notes.
4
<PAGE> 7
HORIZON CELLULAR TELEPHONE COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Horizon
Cellular Telephone Company, L.P., a Delaware limited partnership, its
majority-owned subsidiary partnerships (the local operating companies and
Digital Radio, L.P.) and Horizon Finance Corporation, a wholly- owned
subsidiary of the Company which has no material assets (collectively referred
to as "HCTC" or the "Company"). Digital Radio, L.P. has had no operations
since its inception in 1993. All significant intercompany accounts and
transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the three-
and six-month periods ended June 30, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996. For
further information, refer to Note 4 (Recent Developments) below, together with
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1995.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. NEW ACCOUNTING STANDARDS
In March 1995, The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The Company adopted SFAS in the first
quarter of 1996, and the effect of the adoption was not material.
SFAS No. 123, "Accounting for Stock-Based Compensation," is effective
for fiscal years beginning after December 15, 1995. SFAS 123 provides
companies with a choice to follow the provisions of SFAS 123 in determining
stock-based compensation expense or to continue with the provisions of APB 25,
"Accounting for Stock Issued to Employees." The Company will continue to
follow APB 25 with respect to the Override and LPAR Plan and will provide
disclosures as required by SFAS 123 in the December 31, 1996 notes to the
consolidated financial statements.
4. RECENT DEVELOPMENTS
On March 22, 1996, two of the Company's subsidiaries entered into
definitive agreements to sell the FCC Operating Licenses, together with certain
operating assets and liabilities, of the Georgia RSA #6 and the Georgia RSA #2
(known collectively as the "Georgia Cluster") for a combined sales price of
approximately $90 million. The Company consummated such sales on July 5, 1996
and July 16, 1996, respectively.
5
<PAGE> 8
HORIZON CELLULAR TELEPHONE COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. RECENT DEVELOPMENTS (CONTINUED)
The Georgia Cluster covered approximately 474,000 pops and served
approximately 12,000 subscribers as of June 30, 1996. For the three- and
six-month periods ended June 30, 1996, the Georgia Cluster generated
approximately $3.4 and $6.4 million in total revenues and sales, $1.8 and $3.3
million of earnings before depreciation and amortization and interest expense,
and $0.4 and $0.6 million of net income, respectively, and accounted for
approximately $60.3 million of the Company's total consolidated assets at June
30, 1996.
On May 8, 1996, another of the Company's subsidiaries entered into a
definitive agreement to sell the FCC Operating License, together with certain
operating assets and liabilities, of West Virginia RSA #3 ("Monongalia") for
approximately $35 million. The Company consummated such sale on July 23, 1996.
Monongalia covered approximately 269,000 pops and served approximately
7,800 subscribers as of June 30, 1996. For the three- and six- month periods
ended June 30, 1996, Monongalia generated approximately $1.4 and $2.5 million
of total revenues and sales, $0.5 and $0.8 million of earnings before
depreciation and amortization and interest expense, and $0.2 and $0.6 million
of net loss, respectively, and accounted for approximately $16.4 million of the
Company's total consolidated assets at June 30, 1996.
In connection with the consummation of the sales of the Georgia
Cluster and Monongalia in July 1996, the Company repaid the entire outstanding
indebtedness under its revolving credit facility and the commitments thereunder
were terminated. This repayment resulted in an extraordinary charge of
approximately $2 million, which will be recognized in July 1996, for
unamortized financing fees. The Company currently retains approximately $40
million in cash proceeds from such sales and intends to use a significant
portion of these proceeds to make distributions to its partners for tax
purposes during the third quarter of 1996.
On July 11, 1996, three of the Company's subsidiaries entered into a
definitive agreement to sell the FCC Operating Licenses, together with certain
operating assets and liabilities, of New York RSA #3 ("Chautauqua"),
Pennsylvania RSA #1 ("Crawford"), Pennsylvania RSA #6 ("Lawrence"), and
Pennsylvania RSA #7 ("Indiana") for approximately $250 million.
Chautauqua, Crawford, Lawrence, and Indiana cover approximately
1,282,000 pops and served approximately 38,400 subscribers as of June 30, 1996.
For the three- and six-month periods ended June 30, 1996, these markets
generated approximately $7.9 and $15.1 million of total revenues and sales,
$3.9 and $7.2 million of earnings before depreciation and amortization and
interest expense, and $1.2 and $1.4 million of net income, respectively, and
accounted for approximately $116.8 million of the Company's total consolidated
assets at June 30, 1996. The sales of Chautauqua, Crawford, Lawrence and
Indiana are subject to certain regulatory and other approvals and are expected
to close early in the fourth quarter of 1996.
In accordance with the senior subordinated note indenture, the Company
has two alternatives for the remaining proceeds of the combined asset
sales/contracted sales: HCTC may: (i) reinvest the cash back into the
wireless communications business by either (a) investing in its existing
properties or (b) investing in a related business, including domestic or
international wireless communications or (ii) make an offer to purchase the
senior subordinated notes at 100% of their accreted value. While the indenture
provides these two alternatives, the Company intends on tendering for all $206
million of its senior subordinated notes. Such tender offer is expected to
commence during the third quarter of 1996.
The financial statements do not reflect either the estimated gain, or
any expenses or charges incurred or expected to be incurred related to the sale
of the Georgia Cluster, Monongalia, Chautauqua, Crawford, Lawrence and Indiana
or to the termination of the revolving credit facility.
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company owns and operates cellular telephone systems which are
primarily in the early stages of development. Despite the Company's early
stages of development, consolidated earnings before interest, depreciation, and
amortization (EBITDA) has been positive since 1993. Although there can be no
assurance, EBITDA is expected to continue to increase as growth in subscriber
and roaming revenues outpace variable cost increases.
Industry experience has shown that cellular systems typically incur
net losses and negative cash flow after capital expenditures in their initial
years of operations. Consistent with this experience, the Company has incurred
net losses since inception and expects to continue to incur net losses for the
next several years. As such, there can be no assurance that the Company's
future operations will generate operating or net income or sufficient cash flow
to fund debt service requirements and continued capital expenditures.
The consolidated results of operations include the revenues and
expenses of all the Systems since their respective dates of acquisition. The
following table sets forth the Systems owned as of June 30, 1996, the date
acquired, date operations commenced, and total pops:
<TABLE>
<CAPTION>
DATE COMMENCEMENT TOTAL
SYSTEM ACQUIRED OF OPERATIONS POPS
------ -------- ------------- ----
<S> <C> <C> <C>
MID-ATLANTIC CLUSTER:
MD-3 (Frederick) . . . . . . . . . . . . September 1991 January 1991 166,061
PA-6 (Lawrence) . . . . . . . . . . . . August 1991 September 1991 374,989
PA-10-W (Bedford) . . . . . . . . . . . October 1991 January 1992 49,094
PA-1 (Crawford) . . . . . . . . . . . . December 1992 April 1992 197,858
WV-3 (Monongalia) . . . . . . . . . . . December 1992 January 1991 268,755
NY-3 (Chautauqua) . . . . . . . . . . . March 1994 October 1991 492,406
MSA #257A (Hagerstown) . . . . . . . . . April 1994 August 1989 127,026
MSA #269A (Cumberland) . . . . . . . . . April 1994 November 1988 67,871
PA-7 (Indiana) . . . . . . . . . . . . . June 1995 July 1991 216,758
---------
Total 1,960,818
KENTUCKY CLUSTER:
KY-4 (Spencer) . . . . . . . . . . . . . November 1992 April 1993 232,030
KY-5 (Central Kentucky) . . . . . . . . October 1993 March 1992 155,384
KY-6 (Central Kentucky) . . . . . . . . October 1993 March 1991 251,085
KY-8 (Central Kentucky) . . . . . . . . October 1993 March 1992 117,540
---------
Total 756,039
GEORGIA CLUSTER:
GA-6 (Spalding) . . . . . . . . . . . . March 1993 April 1993 196,029
GA-2 (Dawson) . . . . . . . . . . . . . August 1994 April 1991 277,635
---------
Total 473,664
---------
COMPANY TOTAL 3,190,521
=========
</TABLE>
As discussed more fully in Note 4 (Recent Developments) to the
Company's financial statements located in Item 1 above, in July 1996 the
Company consummated the sales of its Monongalia, Spalding and Dawson Systems
and contracted to sell its Lawrence, Crawford, Chautauqua and Indiana Systems.
7
<PAGE> 10
RESULTS OF OPERATIONS
The comparability of the historical quarterly financial data is
impacted somewhat by the timing of the Indiana acquisition in June 1995.
Accordingly, any fluctuation between periods may not necessarily be
proportionate to the level of operating activity.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
Total revenues and sales increased approximately 43% to $20,542,000
for the three months ended June 30, 1996 from $14,320,000 for the comparable
period in 1995. Of this increase, $3,079,000 was due to an increase in
subscriber revenues, $2,689,000 was due to an increase in roaming revenues,
$413,000 was due to an increase in toll revenue, and $41,000 was due to an
increase in equipment sales. Subscriber revenues increased approximately 46%
to $9,734,000 (47% of total revenues and sales) for the three months ended
June 30, 1996 from $6,654,000 (46% of total revenues and sales) for the
comparable period in 1995. The growth in subscriber revenues was due primarily
to the growth in the number of subscribers associated with continued internal
expansion and the Indiana acquisition in June 1995: 96,648 subscribers (3.0%
penetration) at June 30, 1996 versus 63,847 subscribers (2.0% penetration) at
June 30, 1995. Roaming revenues increased approximately 46% to $8,566,000 (42%
of total revenues and sales) for the three months ended June 30, 1996 from
$5,877,000 (41% of total revenues and sales) for the comparable period in
1995. The growth in roaming revenues was due primarily to increased coverage
of the licensed service area through the addition of 22 cell sites. Although
roaming revenue comprises a significant portion of total revenues and sales,
the Company expects the relative significance of roaming revenue to decrease as
the Systems it operates continue to develop and the subscriber base relating to
such Systems expands. Toll revenue increased approximately 39% to $1,479,000
(7% of total revenues and sales) for the three months ended June 30, 1996 from
$1,066,000 (7% of total revenues and sales) for the comparable period in 1995.
The growth in toll revenue was due primarily to the increase in the number of
subscribers and growth in roaming revenues as noted above. Equipment sales
increased approximately 6% to $764,000 (4% of total revenues and sales) for the
three months ended June 30, 1996 from $723,000 (5% of total revenues and
sales) for the comparable period in 1995. The growth in equipment sales was
due primarily to the increase in the number of subscribers as noted above,
somewhat offset by continued decreases in cellular telephone equipment prices.
Consistent with industry practices, the Company frequently sells cellular
equipment at significant discounts, resulting in a negative gross margin. Such
practices are designed to attract and retain subscribers to allow the Company
to focus on its primary business of selling airtime, access, and other cellular
services.
Total monthly revenues per average subscriber (excluding equipment
sales) decreased 9%, to $72 for the three months ended June 30, 1996 from $79
for the comparable period in 1995. A decline in total monthly revenues per
average subscriber is consistent with industry trends and reflects, among other
things, (i) the distribution of roaming revenues over a much larger subscriber
base noted above, (ii) the fact that initial subscribers in a market tend to
use more cellular service than those who subscribe after a system has been in
operation for a period of time, and (iii) reductions in monthly service rates
consistent with industry practices.
Cost of services increased approximately 25%, to $2,608,000 (13% of
total revenues excluding equipment sales) for the three months ended June 30,
1996 from $2,089,000 (15% of total revenues excluding equipment sales) for the
comparable period in 1995. The growth in the Company's subscriber base and the
expansion of its cellular coverage areas has led to greater cost of services,
primarily in the areas of system network, subscriber billing and
administration. The decrease in cost of services as a percentage of total
revenues excluding equipment sales resulted from continued operational
efficiencies as well as the fact that certain costs are fixed in nature and are
being spread over an increasing revenue base.
Cost of equipment sales decreased approximately 5%, to $1,581,000 for
the three months ended June 30, 1996 from $1,663,000 for the comparable period
in 1995. The decrease was due primarily to an overall reduction in the
wholesale cost of equipment offset by the increase in the number of gross
subscriber additions, and their associated equipment purchases, as noted above.
General and administrative expenses increased approximately 21%, to
$3,862,000 (19% of total revenues and sales) for the three months ended June
30, 1996 from $3,195,000 (22% of total revenues and sales) for the comparable
period in 1995. The increase was due primarily to the increase in expenses as
a result of the overall growth of the
8
<PAGE> 11
Company. The decrease in general and administrative expenses as a percentage
of total revenues and sales resulted from continued efficiencies in the
Company's operations, as well as the fact that general and administrative
expenses tend to be somewhat fixed in nature and are being spread over an
increasing revenue base.
Selling expenses increased approximately 19%, to $3,147,000 (15% of
total revenues and sales) for the three months ended June 30, 1996 from
$2,636,000 (18% of total revenues and sales) for the comparable period in 1995.
The increase was due primarily to the growth in number of subscribers added.
Average acquisition cost (marketing costs plus equipment subsidy) per gross
subscriber addition was reduced approximately 5% to $325 for the three months
ended June 30, 1996 from $343 for the comparable period in 1995.
EBITDA increased approximately 97% to $9,343,000 (45% of total
revenues and sales) for the three months ended June 30, 1996 from $4,737,000
(33% of total revenues and sales) for the comparable period in 1995, primarily
as a result of increased subscriber and roaming revenue and efficiencies in
cost of services and general and administrative expenses, as previously
discussed.
Depreciation and amortization increased approximately 13%, to
$4,992,000 for the three months ended June 30, 1996 from $4,402,000 for the
comparable period in 1995. The increase was primarily the result of
amortization of license costs, additional property and equipment, and other
assets associated with the Indiana acquisition in 1995, as well as an increase
in depreciation related to additional cellular equipment placed into service
throughout 1995 and the first six months of 1996.
Interest expense increased approximately 9%, to $6,942,000 for the
three months ended June 30, 1996 from $6,394,000 for the comparable period in
1995. Average debt outstanding for the three months ended June 30, 1996 was
approximately $253.0 million at an average interest rate of 11.0%, compared to
$219.2 million at an average interest rate of 11.6% for the comparable period
in 1995. The increase was due primarily to increased accretion related to the
senior subordinated notes and borrowings under the revolving credit agreement.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Total revenues and sales increased approximately 49% to $38,571,000
for the six months ended June 30, 1996 from $25,823,000 for the comparable
period in 1995. Of this increase, $6,411,000 was due to an increase in
subscriber revenues, $5,259,000 was due to an increase in roaming revenues,
$922,000 was due to an increase in toll revenue, and $156,000 was due to an
increase in equipment sales. Subscriber revenues increased approximately 52%
to $18,834,000 (49% of total revenues and sales) for the six months ended June
30, 1996 from $12,423,000 (48% of total revenues and sales) for the comparable
period in 1995. The growth in subscriber revenues was due primarily to the
growth in the number of subscribers associated with continued internal
expansion and the Indiana acquisition in June 1995: 96,648 subscribers (3.0%
penetration) at June 30, 1996 versus 63,847 subscribers (2.0% penetration) at
June 30, 1995. Roaming revenues increased approximately 51% to $15,498,000
(40% of total revenues and sales) for the six months ended June 30, 1996 from
$10,239,000 (40% of total revenues and sales) for the comparable period in
1995. The growth in roaming revenues was due primarily to increased coverage
of the licensed service area through the addition of 22 cell sites. Although
roaming revenue comprises a significant portion of total revenues and sales,
the Company expects the relative significance of roaming revenue to decrease as
the Systems it operates continue to develop and the subscriber base relating to
such Systems expands. Toll revenue increased approximately 51% to $2,711,000
(7% of total revenues and sales) for the six months ended June 30, 1996 from
$1,790,000 (7% of total revenues and sales) for the comparable period in 1995.
The growth in toll revenue was due primarily to the increase in the number of
subscribers and growth in roaming revenues as noted above. Equipment sales
increased approximately 11% to $1,528,000 (4% of total revenues and sales) for
the six months ended June 30, 1996 from $1,372,000 (5% of total revenues and
sales) for the comparable period in 1995. The growth in equipment sales was
due primarily to the increase in the number of subscribers as noted above,
somewhat offset by continued decreases in cellular telephone equipment prices.
Consistent with industry practices, the Company frequently sells cellular
equipment at significant discounts, resulting in a negative gross margin. Such
practices are designed to attract and retain subscribers to allow the Company
to focus on its primary business of selling airtime, access, and other cellular
services.
Total monthly revenues per average subscriber (excluding equipment
sales) decreased 8%, to $70 for the six months ended June 30, 1996 from $76 for
the comparable period in 1995. A decline in total monthly revenues per
9
<PAGE> 12
average subscriber is consistent with industry trends and reflects, among other
things, (i) the distribution of roaming revenues over a much larger subscriber
base noted above, (ii) the fact that initial subscribers in a market tend to
use more cellular service than those who subscribe after a system has been in
operation for a period of time, and (iii) reductions in monthly service rates
consistent with industry practices.
Cost of services increased approximately 29%, to $5,055,000 (14% of
total revenues excluding equipment sales) for the six months ended June 30,
1996 from $3,919,000 (16% of total revenues excluding equipment sales) for the
comparable period in 1995. The growth in the Company's subscriber base and the
expansion of its cellular coverage areas has led to greater cost of services,
primarily in the areas of system network, subscriber billing and
administration. The decrease in cost of services as a percentage of total
revenues excluding equipment sales resulted from continued operational
efficiencies as well as the fact that certain costs are fixed in nature and are
being spread over an increasing revenue base.
Cost of equipment sales increased approximately 8%, to $3,098,000 for
the six months ended June 30, 1996 from $2,878,000 for the comparable period in
1995. The increase was due primarily to the increase in the number of gross
subscriber additions, and their associated equipment purchases, as noted above.
General and administrative expenses increased approximately 24%, to
$7,708,000 (20% of total revenues and sales) for the six months ended June 30,
1996 from $6,234,000 (24% of total revenues and sales) for the comparable
period in 1995. The increase was due primarily to the increase in expenses as
a result of the overall growth of the Company. The decrease in general and
administrative expenses as a percentage of total revenues and sales resulted
from continued efficiencies in the Company's operations, as well as the fact
that general and administrative expenses tend to be somewhat fixed in nature
and are being spread over an increasing revenue base.
Selling expenses increased approximately 23%, to $6,110,000 (16% of
total revenues and sales) for the six months ended June 30, 1996 from
$4,983,000 (19% of total revenues and sales) for the comparable period in 1995.
The increase was due primarily to the growth in number of subscribers added.
Average acquisition cost (marketing costs plus equipment subsidy) per gross
subscriber addition decreased approximately 9% to $320 for the six months ended
June 30, 1996 from $352 for the comparable period in 1995, mostly due to a
reduction in wholesale equipment cost.
EBITDA increased approximately 113% to $16,600,000 (43% of total
revenues and sales) for the six months ended June 30, 1996 from $7,809,000 (30%
of total revenues and sales) for the comparable period in 1995, primarily as a
result of increased subscriber and roaming revenue and efficiencies in cost of
services and general and administrative expenses, as previously discussed.
Depreciation and amortization increased approximately 20%, to
$10,346,000 for the six months ended June 30, 1996 from $8,602,000 for the
comparable period in 1995. The increase was primarily the result of
amortization of license costs associated with the Indiana acquisition in 1995,
as well as an increase in depreciation related to additional cellular equipment
placed into service throughout 1995 and the first six months of 1996.
Interest expense increased approximately 11%, to $13,761,000 for the
six months ended June 30, 1996 from $12,421,000 for the comparable period in
1995. Average debt outstanding for the six months ended June 30, 1996 was
approximately $251.4 million at an average interest rate of 10.9%, compared to
$212.3 million at an average interest rate of 11.7% for the comparable period
in 1995. The increase was due primarily to increased accretion related to the
senior subordinated notes, borrowings under the revolving credit agreement, and
a reduction in interest income earned on lower cash balances.
LIQUIDITY AND CAPITAL RESOURCES
In July, the Company consummated the sales of the Georgia Cluster and
Monongalia, and contracted to sell its Chautauqua, Crawford, Lawrence and
Indiana Systems. The expected proceeds of the combined asset sales/contracted
sales are approximately $375 million. In connection with the consummation of
the sales of the Georgia Cluster and Monongalia, the Company repaid the entire
outstanding indebtedness under its revolving credit facility and the
commitments thereunder were terminated. This repayment resulted in an
extraordinary charge of approximately $2 million, which will be recognized in
July 1996, for unamortized financing fees. The Company currently retains
approximately $40 million in cash proceeds from such sales and intends to use a
significant portion of these proceeds
10
<PAGE> 13
to make distributions to its partners for tax purposes during the third quarter
of 1996. In accordance with the senior subordinated note indenture, the
Company has two alternatives for the remaining proceeds of these asset
sales/contracted sales. HCTC may: (i) reinvest the cash back into the
wireless communications business by either (a) investing in its existing
properties or (b) investing in a related business, including domestic or
international wireless communications or (ii) make an offer to purchase the
senior subordinated notes at 100% of their accreted value. While the indenture
provides these two alternatives, the Company intends on tendering for all $206
million of its senior subordinated notes. Such tender offer is expected to
commence during the third quarter of 1996.
For the three- and six-month periods ended June 30, 1996, the combined
asset sales/contracted sales generated approximately $12.7 and $24.0 million of
total revenues and sales, $6.2 and $11.3 million of earnings before
depreciation and amortization and interest expense, and $1.4 and $1.4 million
of net income, respectively, and accounted for approximately $193.5 million of
the Company's total consolidated assets as of June 30, 1996.
The cellular telephone business requires substantial capital to
acquire, construct, and expand cellular telephone systems and to fund
operations. The Company has incurred approximately $5.4 million for capital
expenditures through June 30, 1996 to construct additional cell sites to
improve and expand signal coverage and to purchase additional radio equipment
to increase system capacity.
The Company's EBITDA has been positive since 1993. A continuation of
positive EBITDA would be consistent with the historical operating performance
of more established industry operators with longer operating histories.
Although there can be no assurances, management believes the Company's
continuing operations will result in operating cash flow which, along with
expected proceeds from the sales of Chautauqua, Crawford, Lawrence and Indiana,
will be sufficient to meet debt service and capital expenditure requirements.
If the Company does not experience the anticipated cash flow, the Company will
have to raise funds through such other measures as refinancings, additional
asset sales or reductions in capital expenditures.
CHANGES IN FINANCIAL CONDITION
June 30, 1996 compared with December 31, 1995. Current assets and net
working capital amounted to $17.6 million and $2.1 million, respectively, at
June 30, 1996 as compared to $14.9 million and $2.5 million, respectively, at
December 31, 1995. Compared to December 31, 1995, accounts receivable
increased $1.5 million, which reflects the growth in operating systems.
Compared to December 31, 1995, current liabilities increased by $3.0 million,
primarily the result of the current portion of the revolving credit agreement.
The Company generated approximately $10.9 million and $5.0 million in cash from
operations for the six month periods ended June 30, 1996 and 1995,
respectively.
Long-term debt increased to $253.6 million at June 30, 1996 from
$247.9 million at December 31, 1995, as a result of continuing accretion of
the senior subordinated notes throughout the first six months of 1996, offset
by $4.0 million of net repayments of borrowings under the revolving credit
agreement.
[The remainder of this page intentionally left blank.]
11
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
2.1 Asset Acquisition Agreement dated as of May 8, 1996
among Horizon Cellular Telephone Company of
Monongalia, L.P., Eastern Wireless Cellular
Corporation and PriCellular Corporation (Incorporated
by reference to Exhibit 2.1 to the Registrants'
Current Report on Form 8-K filed August 6, 1996).
2.2 First Amendment to Asset Acquisition Agreement dated
July 22, 1996 among Horizon Cellular Telephone
Company of Monongalia, L.P., Eastern Wireless
Cellular Corporation and PriCellular Corporation
(Incorporated by reference to Exhibit 2.2 to the
Registrants' Current Report on Form 8-K filed August
6, 1996).
(b) Reports on Form 8-K
During the three month period ended June 30, 1996, there were
no reports on Form 8-K filed by the Registrants.
12
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrants have duly caused this report to be signed on their behalf by
the undersigned thereunto duly authorized.
HORIZON CELLULAR TELEPHONE COMPANY, L.P.
By: KCCGP, L.P., its general partner
By: HORIZON, G.P., INC., its
corporate general partner
Date: August 14, 1996 By: /s/ Bruce M. Hernandez
----------------------------------
Bruce M. Hernandez, Vice President
and Chief Financial Officer
Date: August 14, 1996 By: /s/ Steven B. Figard
----------------------------------
Steven B. Figard, Vice
President - Chief Accounting
Officer
HORIZON FINANCE CORPORATION
Date: August 14, 1996 By: /s/ Bruce M. Hernandez
----------------------------------
Bruce M. Hernandez, Vice President
Date: August 14, 1996 By: /s/ Steven B. Figard
----------------------------------
Steven B. Figard, Vice
President - Assistant Treasurer
and Chief Accounting Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED BALANCE SHEET AT JUNE 30, 1996 (UNAUDITED) AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000898675
<NAME> HORIZON CELLULAR TELEPHONE CO. LP
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,352,669
<SECURITIES> 0
<RECEIVABLES> 13,921,711
<ALLOWANCES> 688,397
<INVENTORY> 934,660
<CURRENT-ASSETS> 17,588,240
<PP&E> 75,194,408
<DEPRECIATION> 22,336,509
<TOTAL-ASSETS> 311,998,852
<CURRENT-LIABILITIES> 15,492,821
<BONDS> 253,567,859
0
0
<COMMON> 0
<OTHER-SE> 44,946,659
<TOTAL-LIABILITY-AND-EQUITY> 311,998,852
<SALES> 38,571,016
<TOTAL-REVENUES> 38,571,016
<CGS> 8,153,271
<TOTAL-COSTS> 8,153,271
<OTHER-EXPENSES> 24,164,217
<LOSS-PROVISION> 349,413
<INTEREST-EXPENSE> 13,761,413
<INCOME-PRETAX> (7,507,885)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,507,885)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,538,209)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
