<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED SEPTEMBER 30, 1996 COMMISSION FILE NUMBER 0-21840
PITTENCRIEFF COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
STATE OF DELAWARE 75-2609476
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
1 VILLAGE DRIVE, SUITE 500, ABILENE, TEXAS 79606
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (915) 690-5800
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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding on the Registrant's common stock as of
November 8, 1996, was 26,163,225 shares of common stock.
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC.
INDEX TO FORM 10-Q
SEPTEMBER 30, 1996
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets
as of December 31, 1995 and September 30, 1996. 3
Consolidated Condensed Statements of Operations
for the Three Months and Nine Months Ended
September 30, 1995 and 1996. 4
Consolidated Condensed Statements of Cash Flows
for the Nine Months Ended September 30, 1995 and 1996. 5
Notes to Consolidated Condensed Financial Statements 6-9
ITEM 2: Management's Discussion and
Analysis of Financial Condition and
Results of Operations. 10-13
PART II. OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K 14
2
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PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share data)
ASSETS
<TABLE>
December 31, September 30,
1995 1996
------------------- -------------
(Derived from (Unaudited)
audited statements)
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................................. $ 568 $ 9,165
Accounts receivable:
Trade, less allowance for doubtful accounts of
$564 in 1995 and $278 in 1996......................................... 4,337 3,101
Employees............................................................... 499 233
Inventories, net.......................................................... 5,680 4,440
Deferred income taxes..................................................... 248 248
Prepaid expenses and other current assets................................. 1,891 986
---------- ----------
Total current assets.............................................. 13,223 18,173
Property and equipment, net (note 3)...................................... 41,207 39,692
FCC licenses and other assets, net........................................ 64,708 116,987
Goodwill, net............................................................. -- 19,420
Deferred income taxes..................................................... 754 --
---------- ----------
$ 119,892 $ 194,272
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable............................................................. $ 1,532 $ 5,982
Current portion of long-term debt......................................... 2,276 1,875
Accounts payable.......................................................... 4,319 742
Accrued liabilities....................................................... 2,379 2,459
---------- ----------
Total current liabilities......................................... 10,506 11,058
---------- ----------
Long-term debt, excluding current portion................................. 1,083 717
Finance obligation, excluding current portion............................. 12,513 11,863
Deferred income taxes..................................................... -- 16,009
Shareholders' equity
Common stock, $.01 par value, authorized 50,000,000 shares:
outstanding 14,204,722 shares in 1995 and 26,162,225 shares in 1996... 144 262
Additional paid-in capital.............................................. 111,413 175,347
Accumulated deficit..................................................... (15,767) (20,984)
Treasury stock at cost, 6,366,666 shares in 1995 and 1996............... -- --
---------- ----------
Total shareholders' equity........................................ 95,790 154,625
---------- ----------
$ 119,892 $ 194,272
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated condensed financial statements
3
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PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
<TABLE>
Three months ended Nine months ended
September 30, September 30,
------------------- -------------------
1995 1996 1995 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Radio services revenue...................... $ 5,220 $ 5,598 $15,960 $16,732
Rental income............................... 664 456 2,129 1,453
Equipment and parts sales................... 3,460 2,679 10,000 9,815
------- ------- ------- -------
9,344 8,733 28,089 28,000
Costs and expenses related to revenues:
Cost of operations.......................... 4,217 4,530 12,989 14,037
Cost of equipment and parts sales........... 2,728 2,383 7,840 8,539
General and administrative.................. 1,917 1,854 5,324 5,560
Depreciation and amortization............... 1,819 2,857 5,356 7,265
------- ------- ------- -------
10,681 11,624 31,509 35,401
------- ------- ------- -------
Operating loss............................ (1,337) (2,891) (3,420) (7,401)
Other income (expense):
Interest expense............................ (345) (1,082) (1,966) (2,189)
Gain on sales of assets, net (note 3)....... (29) 61 (29) 1,145
Interest income and other................... 19 21 600 164
------- ------- ------- -------
(355) (1,000) (1,395) (880)
------- ------- ------- -------
Loss before income taxes...................... (1,692) (3,891) (4,815) (8,281)
Income tax benefit............................ (627) (1,440) (1,782) (3,064)
------- ------- ------- -------
Net loss.................................. $(1,065) $(2,451) $(3,033) $(5,217)
------- ------- ------- -------
------- ------- ------- -------
Net loss per common share and
share equivalent............................. $ (0.07) $ (0.09) $ (0.22) $ (0.21)
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
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PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands, except per share data)
<TABLE>
Nine months ended
September 30,
--------------------
1995 1996
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss....................................................... $ (3,033) $(5,217)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation................................................. 3,982 4,466
Amortization of FCC licenses and other assets................ 1,373 2,233
Amortization of goodwill..................................... -- 566
Provision for doubtful accounts.............................. 549 356
Provision for inventory obsolescence......................... -- 225
Accretion and amortization of debt discount.................. 521 613
Gain on sale of assets, net ............................... -- (1,145)
Deferred income taxes........................................ (1,783) (3,064)
Change in assets and liabilities, net of effects
from acquisitions:
Accounts receivable........................................ (224) 1,415
Inventories, prepaid expenses and
other current assets....................................... (93) 2,288
Accounts payable and accrued liabilities................... (185) (3,661)
-------- -------
Net cash provided by (used in) operating activities........... 1,107 (925)
Cash flows from investing activities:
Acquisitions, net of cash acquired............................. (213) (1,734)
Capital expenditures........................................... (2,786) (1,683)
FCC licenses and other assets.................................. (1,554) (1,775)
Proceeds from sale of assets................................... 2,569 10,749
-------- -------
Net cash provided by (used in) investing activities............ (1,984) 5,557
Cash flows from financing activities:
Payments on notes payable...................................... (11,329) (4,056)
Payments on other long-term debt............................... (1,426) (1,220)
Payments on finance obligation................................. (1,209) (762)
Proceeds from short term borrowings............................ 700 9,524
Proceeds from other long-term debt and notes payable........... 234 38
Proceeds from finance obligation............................... 13,638 191
Net proceeds from issuance of common stock..................... 9 250
-------- -------
Net cash provided by financing activities...................... 617 3,965
-------- -------
Net increase (decrease) in cash and cash equivalents............. (260) 8,597
Cash and cash equivalents at beginning of period................. 698 568
-------- -------
Cash and cash equivalents at end of period....................... $ 438 $ 9,165
-------- -------
-------- -------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
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PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) GENERAL
(a) Description of Business
Pittencrieff Communications, Inc. and subsidiaries ("Company") are
engaged in the acquisition and operation of Specialized Mobile Radio
("SMR") wireless communication systems, primarily in the southwestern
United States. The Company also engages in sales of radios, equipment
service, radio rental, paging and microwave services.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of
Pittencrieff Communications, Inc. and its subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation.
(c) Interim Financial Information
In the opinion of management, the accompanying unaudited consolidated
condensed financial information of the Company contains all
adjustments, consisting only of those of a recurring nature, necessary
to present fairly the Company's financial position as of September 30,
1996, the results of operations for the three months and nine months
ended September 30, 1996 and 1995, and the consolidated condensed
statements of cash flows for the nine months ended September 30, 1996
and 1995. These financial statements are for interim periods and do
not include all detail normally provided in annual financial
statements and should be read in conjunction with the Company's 1995
Annual Report on Form 10-K. The results of operations for the nine
months ended September 30, 1996 and 1995 are not necessarily
indicative of the results to be expected for the respective full
years.
(d) Inventories
Inventories consist primarily of radios, accessories, parts and
supplies for the communications business and are stated at the lower
of average cost or market.
(e) Net Loss Per Common Share
Net loss per common share and share equivalent is based on the net
loss applicable to the weighted average number of common and common
equivalent shares outstanding of 26,162,225 and 14,283,827 for the
three months ended September 30, 1996 and 1995, respectively, and
25,441,504 and 14,003,915 for the nine months ended September 30, 1996
and 1995, respectively. Common stock equivalents were excluded
because the effect would be antidilutive.
6
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(2) ACQUISITIONS AND DISPOSITIONS
During 1995 and the nine months ended September 30, 1996 the Company
acquired several communications businesses located principally in Texas,
New Mexico, Arizona, Oklahoma, North Dakota and South Dakota. The
consideration for the acquisitions consisted of cash, notes payable and PCI
Common Stock.
The Company used the purchase method to account for these acquisitions.
The results of the acquired operations have been included in the Company's
consolidated condensed statements of operations from the acquisition dates.
In January and February, 1995, the Company sold substantially all of its
communications towers and sold certain FCC licenses and SMR equipment
located in Las Vegas, Nevada. The sales price for these two transactions
was paid with cash and notes receivable (see note 3). In March 1995, the
Company issued common stock, valued at $3,463,000, in payment of a note and
accrued interest issued pursuant to one of the Company's acquisitions
which was closed in 1994.
On January 16, 1996, the Company completed its Agreement and Plan of Merger
with Pittencrieff Communications, Inc., a Delaware corporation ("New PCI"),
pursuant to which the Company merged into New PCI, with New PCI as the
surviving corporation. Also on January 16, 1996, the Company finalized the
Contribution Agreement among New PCI, Advanced MobileComm, Inc., a
Massachusetts corporation ("AMI"), and a number of related and unrelated
companies and individuals (collectively, the "AMI Parties"), pursuant to
which the AMI Parties contributed to New PCI certain SMR assets and all the
capital stock of certain of the AMI Parties in exchange for 11,909,842
unregistered shares of the common stock $0.01 par value of New PCI (the
"Transaction").
In May 1996, the Company completed the acquisition of 26 800 MHz SMR
channels in Phoenix for additional cash consideration of $1.5 million. The
acquisition, as originally structured, had an initial closing in 1994
pending FCC approval, but the Company was relieved of its obligation to
complete the transaction because of the lack of timely FCC action. The FCC
subsequently approved the transfer of certain licenses, and the acquisition
was restructured on that basis.
In September 1996, the Company completed the sale of 70 900 MHz channels
located in San Diego, California for cash consideration of $9 million.
Under the terms of the sale, the purchaser has the right to utilize the SMR
equipment associated with the channels for a period of three years, at
which time the equipment will be returned to the Company or the purchaser
will reimburse the Company for the fair market value of the equipment.
The unaudited fair values assigned to assets acquired and liabilities
assumed, net of cash acquired in these acquisitions, are as follows (in
thousands):
Nine Months Ended
September 30,
--------------------
1995 1996
------ --------
Net working capital $ 36 $ 199
Property and equipment 544 2,317
FCC licenses and other assets 1,110 61,491
Goodwill -- 19,986
Deferred income tax liability -- (19,827)
------ --------
$1,690 $ 64,166
------ --------
------ --------
7
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(2) ACQUISITIONS AND DISPOSITIONS (CONTINUED)
The acquisitions were paid for as follows:
Nine Months Ended
September 30,
-------------------
1995 1996
------ -------
Cash $ 213 $ 1,734
Notes payable and long-term debt -- 266
Common stock 1,477 62,166
------ -------
$1,690 $64,166
------ -------
------ -------
Unaudited pro forma financial information for the nine months ended
September 30, 1995 and 1996 as though the 1995 and 1996 acquisitions and
dispositions had occurred as of January 1, 1995, is as follows (in
thousands, except per share amounts):
Nine Months Ended
September 30,
--------------------
1995 1996
------- --------
Revenues $32,097 $28,446
Operating loss (3,338) (7,379)
Loss before income taxes (2,170) (7,977)
Net loss (1,367) (5,026)
Net loss per common
share and share equivalent (0.05) (0.19)
------- --------
------- --------
(3) PROPERTY AND EQUIPMENT
During January and February 1995, the Company sold substantially all of its
communications towers and sold certain FCC Licenses and SMR equipment
located in Las Vegas, Nevada. The sales price of these transactions was
paid with cash of $16,900,000 and a note for $762,000. In connection with
the sale of the towers, the Company agreed to an initial eight year lease
of space on the towers that the Company utilizes for its own SMR services.
Additionally, the Company entered into a management agreement with respect
to the towers pursuant to which the Company operated the towers for a
monthly fee until December 31, 1995. The sale and leaseback of the
communications towers is accounted for by the financing method. Under the
financing method, lease payments, exclusive of an interest portion,
decrease the finance obligation. The towers continue to be reported as an
asset and are depreciated over the shorter of the lease term or their
useful lives. The sale of the FCC licenses and SMR equipment was accounted
for as a reduction of the applicable asset category. No gain or loss was
realized on this transaction.
As of June 30, 1996, the Company transferred certain 2 GHz licenses located
in Arizona as the result of recent FCC auctions for Personal Communications
Service ("PCS") licenses. The compensation received for these licenses was
paid with cash of $375,000 and short-term notes receivables of $775,000
which have been fully paid.
8
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(3) PROPERTY AND EQUIPMENT (CONTINUED)
In September 1996, the Company completed the sale of 70 900 MHz channels
located in San Diego, California for cash consideration of $9 million.
Under the terms of the sale, the purchaser has the right to utilize the SMR
equipment associated with the channels for a period of three years, at
which time the equipment will be returned to the Company or the purchaser
will reimburse the Company for the fair market value of the equipment. The
sale of the FCC licenses was accounted for as a reduction of the applicable
asset category. The subject channels were acquired by the Company in
January 1996 as part of the AMI Transaction, accordingly any net gain
realized was treated as a reallocation of the purchase price of the
remaining AMI assets.
(4) SUBSEQUENT EVENT
On October 2, 1996, the Company signed an Agreement of Merger and Plan of
Reorganization (the "Agreement") with Nextel Communications, Inc., Nextel
Finance Company and DCI Merger, Inc., (collectively referred to as
"Nextel") whereby the Company would become a wholly owned subsidiary of
Nextel in a tax-free transaction which calls for the exchange of one
registered Nextel share for 3.17 PCI shares, subject to certain
adjustments. Completion of the transaction is subject to satisfaction of
various conditions contained in the Agreement, approval by the Company's
stockholders and approval by the appropriate regulatory bodies.
9
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SEPTEMBER 30, 1996
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
Total revenues for the first nine months of 1996 remained substantially
unchanged at $28.0 million compared to $28.1 million in the same period in 1995.
Increases in radio services revenue were offset by declines in equipment and
parts sales and rental revenues. Equipment and parts sales decreased 2% from
$10.0 million in the first nine months of 1995 to $9.8 million in 1996. The
decrease was primarily due to the consolidation and closure of certain of the
Company's sales and service centers. Rental revenues decreased by 32% from
$2.1 million to $1.4 million during the period which reflects the continued
decrease in the Company's emphasis on rental programs. Decreases in rental
revenues and equipment and parts sales were offset by a $772,000 increase in
radio services revenue. This 5% increase for the nine months ended September
30, 1996 can be attributed to the additional subscribers acquired in the AMI
Transaction.
Cost of operations during the nine month period ended September 30, 1996,
increased to $14.0 million, up 8% as compared with $13.0 million in the same
period of 1995. This increase can be attributed to the assimilation of
operations acquired in the AMI Transaction as well as the costs incurred to
consolidate and close certain of the Company's sales and service centers. Cost
of equipment and parts sales increased from 78% of equipment and parts sales in
1995 to 87% in 1996 which reflects continued pricing competition in certain of
the Company's markets, accruals for inventory obsolescence and a new commission
program which also compensates sales personnel for additions to recurring
revenues, thereby adding a component to commissions unrelated to equipment
sales.
General and administrative expenses in the first nine months of 1996 increased
4% to $5.6 million compared with $5.3 million in the first nine months of 1995.
This increase is primarily attributable to the timing of certain professional
fees during the first six months of 1996 compared to the same period in 1995 and
additional professional fees incurred in connection with FCC and general legal
and tax matters during 1996. These increases were offset to some degree by
efficiencies realized with the implementation of a new information system and
decreases in the Company's estimate of bad debt expense.
EBITDA for the period ended September 30, 1996 was $136,000 or, a 93% decline
from the same period in 1995. This decline is principally due to the decreased
profit margins on equipment and parts sales, increased costs of operations as a
result of consolidation and closure of certain sales and service centers and the
added costs associated with the assimilation of operations acquired in the AMI
Transaction. ("EBITDA" is defined as earnings before interest, taxes,
depreciation, amortization and other income (expense)).
Depreciation and amortization expenses for the first nine months of 1996
increased to $7.3 million from $5.4 million during the first nine months of
1995. The increase is due to additions in property, equipment, licenses and
goodwill resulting from acquisitions completed in the first nine months of 1996
coupled with approximately $4 million of capital expenditures in 1995 and $3.5
million in the first nine months of 1996. The Company also adjusted the
depreciable life on its rental radios from five years down to three years which
generated an additional component to depreciation expense during the period.
Other income (expense) includes interest expense, interest income and gains on
sales of assets. The principal factor contributing to the $515,000 decrease in
other income (expense) from the first nine months of 1995 is $1.1 million in
gain on sales of assets in 1996 related to the sale of certain 2 GHz licenses.
Income tax benefit for the first six months of 1996 and 1995 reflects the
Company's income taxes at combined U.S. federal and state tax rates.
10
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PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
THREE MONTHS ENDED SEPTEMBER 30, 1996, COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
Total revenues for the third quarter of 1996 decreased to $8.7 million from $9.3
million in the same period of 1995, a decrease of 7%. Increases in radio
services revenue were offset by declines in equipment and parts sales and rental
revenues. Equipment and parts sales decreased 23% from $3.5 million in the
third quarter of 1995 to $2.7 million in 1996 due to the consolidation and
closure of certain of the Company's sales and service centers. Rental revenues
decreased by 31% from $664,000 to $456,000 as a result of the Company's move
away from rental programs. Decreases in rental revenues and equipment and parts
sales were offset by a $378,000 increase in radio services revenue. This 7%
increase for the nine months ended September 30, 1996 can be attributed to the
additional subscribers acquired in the AMI Transaction.
Cost of operations increased to $4.5 million for the three months ended
September 30, 1996, a 7% increase over the same period in 1995. This increase
reflects the larger scale of operations as a result of the AMI Transaction.
Cost of equipment parts and sales as a percentage of equipment and parts sales
increased from 79% in 1995 to 89% in 1996 primarily due to accruals for
inventory obsolescence and a new commission program which also compensates sales
personnel for additions to recurring revenues, thereby adding a component to
commissions unrelated to equipment sales.
General and administrative expenses in the third quarter of 1996 remained
substantially unchanged at $1.9 million when compared to the same quarter of
1995. Increases in professional fees incurred in connection with FCC and
general legal and tax matters were offset by efficiencies realized with the
implementation of a new information system and decreases in the Company's
estimate of bad debt expense.
EBITDA for the three month period ended September 30, 1996, decreased to $34,000
compared to $482,000 in the same period in 1995. This decrease is principally
due to decreased sales and profit margins on equipment and parts coupled with
the increased operating expenses realized as a result of the AMI Transaction.
Depreciation and amortization expense in the third quarter of 1996 increased by
57% to $2.9 million from $1.8 million in the same period of 1995, due to
increases in property, equipment, licenses and goodwill added from acquisitions
and capital expenditures during 1995 and 1996. The Company also adjusted the
depreciable life on its rental radios from five years down to three years which
generated an additional component to depreciation expense during the period.
Other income (expense) includes interest expense, interest income and gains on
sales of assets. The combined expense of $1 million in the third quarter of
1996 represents a $645,000 increase when compared to the same period of 1995.
This increase is principally due to interest expense realized in connection with
the Company's revolving loan and the related amortization of debt discounts.
Income tax benefit for the three months ended June 30, 1996 and 1995 reflects
the Company's income taxes at combined U.S. federal and state tax rates.
11
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATING ACTIVITIES:
During the first nine months of 1996, the Company experienced negative cash flow
from operating activities of $925,000 compared to positive cash flow of $1.1
million during the same period in 1995. This decrease can be attributed to the
significant use of working capital in 1996 to reduce accounts payable and
accrued liabilities which amounted to a $3.5 million net change between 1995 and
1996.
CASH FLOWS FROM INVESTING ACTIVITIES
During the first nine months of 1996, acquisition and capital expenditure
activities were funded through third party short-term indebtedness and proceeds
from the sale of assets. The Company invested $1.7 million in acquisitions and
$1.7 million in capital expenditures during the nine months ended September 30,
1996. The Company was also a successful bidder in the FCC's 900 MHz Auctions
("900 Auctions") which concluded in April 1996 and committed the Company for
$1.6 million which was paid in July 1996. Additionally, during this period, the
Company sold certain of its 2 GHz licenses in Arizona pursuant to the recent FCC
auctions of PCS licenses for cash of $375,000 and short-term notes receivable of
$775,000 which have been fully paid and 70 900 MHz channels located in San Diego
for cash consideration of $9 million.
CASH FLOWS FROM FINANCING ACTIVITIES
In addition to the proceeds from sales of assets during the first nine months of
1996, the Company utilized $7 million of its credit facility with First
Interstate Bank of Texas, N.A. to fund excess working capital and provide
financing for acquisitions and the Company's participation in the 900 Auctions.
CURRENT LIQUIDITY AND FUTURE CAPITAL NEEDS
On September 30, 1996, the Company had cash and cash equivalents of
approximately $9.2 million. The Company also had $20.4 million in long-term
debt, notes payable and a finance obligation at September 30, 1996. Third party
indebtedness predominantly consisted of a bank credit facility, various capital
asset financings, the finance obligation related to the tower sale, and amounts
due to sellers of acquired companies or assets. Although the Company provides
for deferred income taxes on its financial accounting income, it has access to
net operating loss carryforwards for tax purposes of approximately $26.3 million
as of December 31, 1995, of which $10.8 million is subject to a limitation under
Section 382 of the Internal Revenue Code of 1986. However, the available net
operating losses are expected to defer the payment of federal income tax in
1996.
In September 1996, the Company closed the transaction involving the sale of 70
900 MHz channels located in San Diego, California. The Company received cash
proceeds of $9 million as a result of this sale. Based on available cash and
cash flow from operations, the Company should not be cash constrained during the
period leading up to the closing of the proposed merger transaction with Nextel.
In October 1996, the Company repaid $5 million on its line of credit with First
Interstate Bank of Texas, N.A. ("First Interstate") and it is anticipated the
Company will liquidate the balance of the line of credit prior to its maturity
in March 1997.
In January 1995, the Company sold the majority of its communications towers
located throughout Texas, New Mexico, Oklahoma, Arizona, Colorado and Nevada
to Castle Tower Corporation. The Company sold 125 towers for a total
consideration of $15.1 million, consisting of (i) $8.1 million cash at
closing, (ii) a short-term promissory note for $6.4 million (subsequently
reduced to $6.3 million), and (iii) a long-term promissory note for $1.1
million (subsequently reduced to $762,000) payable over five years.
The short-term note was modified to provide for payment of $5.4 million in April
1995 with the reduced balance paid in November 1995. In connection with the
sale, the Company agreed to an initial eight year lease of space on the towers
that the Company currently utilizes for its own SMR services. Additionally, the
Company entered into a management agreement with respect to the towers pursuant
to which the Company managed the operation of the towers for a monthly fee for a
period of one year, ending December 31, 1995. Due to the non-recourse nature of
the long-term promissory note received by the Company, the transaction has been
accounted for by the financing method.
12
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (CONT.)
Prior to signing the Agreement with Nextel, the Company recognized that in order
to upgrade and expand its services, attract new subscribers and enhance its
ability to expand its footprint in certain areas, the Company may incur capital
expenditures to construct a network utilizing a channel compression technology.
As an initial step towards this goal, the Company participated in the 900
Auctions conducted by the FCC. The 900 Auctions included 20 blocks of 10
channels each of 900 MHz licenses auctioned on a MTA basis. The Company was the
successful bidder on 18 blocks located in four MTAs for a total consideration of
$1.6 million. The licenses obtained in the 900 Auctions will provide additional
capacity in certain areas of the Company's footprint. In November 1995, AMI's
indirect parent, FMR Corp. ("FMR"), loaned the Company $1 million ("Auction
Loan") for the bid deposit in order to participate in the 900 Auctions. The
loan was structured as a demand note, bearing interest at the prime rate plus 2%
and secured by a pledge of the capital stock of the Company's primary operating
subsidiary, A&B Electronics Inc. ("A&B"), and substantially all of the assets of
the Company, excluding accounts receivable and inventories.
On January 16, 1996, the Company closed the Transaction with the AMI Parties.
At that time, the Company entered into negotiations with FMR relative to a $20
million credit line. On January 31, 1996, the Company borrowed an additional
$1.5 million from FMR under the Auction Loan and the collateral was adjusted to
include a pledge of the capital stock of the companies acquired and a security
interest in the other assets acquired by PCI in the Transaction.
In March 1996, FMR agreed to make available a letter or letters of credit ("LC")
in the aggregate amount of up to $10 million for the purpose of securing a
revolving line of credit with First Interstate ("Revolving Loan"). The initial
line of credit is for $10 million and the proceeds, $7 million of which have
been advanced, are being used for acquisitions, including the 900 Auctions, and
working capital. The Revolving Loan was closed on March 18, 1996, and the
initial draw of $5 million was used to repay the $2.5 million Auction Loan and a
$500,000 working capital line with another bank, and the balance was made
available for working capital. FMR retained the collateral it received for the
Auction Loan and, additionally, the Company has pledged its accounts receivable
and inventories. The Company, FMR, and First Interstate also entered into a
tri-party agreement contemporaneous with the Revolving Loan, which provides that
FMR, upon five day's notice to First Interstate, can purchase the Revolving Loan
at its principal balance plus accrued interest and any unpaid fees or expenses
outstanding. FMR will then succeed to any rights as secured lender held by
First Interstate on the date of purchase. Upon the occurrence of an event of
default, as defined in the Revolving Loan, FMR will have ten business days
within which to exercise its right to purchase the Revolving Loan or cure or
remedy the event of default before First Interstate will draw against the LC.
The Revolving Loan has an initial term of one year, bears interest at LIBOR plus
1.5% (or First Interstate's prime rate), and is secured by the LC. As
consideration for pledging the LC, the Company issued warrants to FMR ("FMR
Warrants") for the purchase of 500,000 shares of PCI Common Stock. The FMR
Warrants have a term of ten years from issuance and were issued in two equal
tranches. Warrants to purchase 250,000 shares were issued upon closing of the
Revolving Loan at an exercise price of $4.50 per share. In September 1996, the
Company issued warrants to purchase an additional 250,000 shares at an exercise
price of $4.73 per share.
Pursuant to the Agreement entered into with Nextel, the Company will become a
wholly-owned subsidiary of a large public company. As a result of this
contemplated merger transaction, there should be no requirement for the
expenditure of funds for major capital projects or participation in any future
FCC spectrum auctions. However, there can be no assurance that the proposed
Nextel transaction will be consummated and, if not, the Company would be faced
with significant capital outlays in order to participate in the FCC's other
spectrum auctions and to implement an enhanced channel compression technology.
In such an event, the Company's financial resources would not be sufficient to
undertake projects of this magnitude. At present, other than the debt financing
arrangements that are currently in place as described herein, the Company has no
commitments with any third parties to obtain any additional debt or equity
financing that would be required. In the event new financing could not be
obtained on a timely basis, management's plans may include the sale of assets
and cost reductions. Results of operations for 1997 could be adversely impacted
if the Company was required to implement such plans.
13
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Agreement of Merger and Plan of Reorganization dated as of
October 2, 1996, by and between Nextel Communications, Inc.,
Nextel Finance Company, DCI Merger, Inc., and the Company
(incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K, dated October 4, 1996, as filed
with the Securities and Exchange Commission on October 7,
1996).
27 Financial Data Schedule
(b) Reports on Form 8-K
1. Current Report on Form 8-K dated October 4, 1996, as filed
with the Securities and Exchange Commission on October 7,
1996, describing the Agreement of Merger and Plan of
Reorganization dated as of October 2, 1996, with Nextel
Communications, Inc. ("Nextel"), providing for the merger of
the Company with a wholly owned subsidiary of Nextel.
14
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PITTENCRIEFF COMMUNICATIONS, INC.
(Registrant)
Date: November 13, 1996 /s/ WARREN D. HARKINS
-----------------------------------------
Warren D. Harkins
President and Chief Executive Officer
Duly Authorized Officer of the Registrant
/s/ THOMAS R. MODISETT
-----------------------------------------
Thomas R. Modisett
Vice President - Finance
Chief Financial and Accounting Officer
15
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<PERIOD-START> JAN-01-1996
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