<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 MARCH 31, 1997 COMMISSION FILE NUMBER 0-21840
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PITTENCRIEFF COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
STATE OF DELAWARE 75-2609476
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
1 VILLAGE DRIVE, SUITE 500, ABILENE, TEXAS 79606
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (915) 690-5800
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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
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The number of shares outstanding on the Registrant's common stock as of
May 6, 1997, was 26,163,225 shares of common stock.
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC.
INDEX TO FORM 10-Q
MARCH 31, 1997
PART I. FINANCIAL INFORMATION
Item 1: FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets
as of December 31, 1996 and March 31, 1997. 3
Consolidated Condensed Statements of
Operations for the Three Months Ended
March 31, 1996 and 1997. 4
Consolidated Condensed Statements of
Cash Flows for the Three Months Ended
March 31, 1996 and 1997. 5
Notes to Consolidated Condensed Financial
Statements 6-8
ITEM 2: Management's Discussion and
Analysis of Financial Condition and
Results of Operations. 9-11
PART II. OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K 11
2
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PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share data)
ASSETS
<TABLE>
December 31, March 31,
1996 1997
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(Derived from (Unaudited)
audited
statements)
<S> <C> <C>
Current Assets:
Cash and cash equivalents.............................. $ 4,552 $ 4,374
Accounts receivable:
Trade, less allowance for doubtful accounts of
$150 in 1996 and $169 in 1997....................... 2,603 2,308
Inventories............................................ 4,072 3,922
Deferred income taxes.................................. 286 286
Prepaid expenses and other current assets.............. 553 462
-------- --------
Total current assets................................ 12,066 11,352
Property and equipment, net (note 3)...................... 38,494 37,549
FCC licenses and other assets, net........................ 116,197 115,161
Goodwill, net of accumulated amortization of
$766 in 1996 and $943 in 1997.......................... 18,746 18,569
-------- --------
$185,503 $182,631
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable.......................................... $ 1,584 $ 2,075
Current portion of long-term debt and finance
obligation............................................ 1,853 1,820
Accounts payable....................................... 960 715
Accrued liabilities.................................... 2,371 2,183
-------- --------
Total current liabilities........................... 6,768 6,793
-------- --------
Long-term debt, excluding current portion.................. 581 449
Finance obligation, excluding current portion............. 11,544 11,425
Deferred income taxes..................................... 14,226 13,247
Shareholders' equity
Common stock, $.01 par value, authorized 50,000,000 shares:
outstanding 26,163,225 shares in 1996 and 1997...... 262 262
Additional paid-in capital............................. 175,352 175,352
Accumulated deficit.................................... (23,230) (24,897)
-------- --------
Total shareholders' equity.......................... 152,384 150,717
-------- --------
$185,503 $182,631
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
Three months ended
March 31,
---------------------
1996 1997
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Revenues:
Radio services revenue.................... $ 5,380 $ 5,507
Rental income............................ 514 397
Equipment and parts sales................ 3,246 2,289
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9,140 8,193
Costs and expenses related to revenues:
Cost of operations....................... 4,807 4,293
Cost of equipment and parts sales........ 2,733 1,954
General and administrative............... 1,853 1,698
Depreciation and amortization............ 2,093 2,090
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11,486 10,035
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Operating loss...................... (2,346) (1,842)
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Other income (expense):
Interest expense, ....................... (559) (937)
Gain on sales of assets, net (note 3).... 887 124
Interest income and other................ 39 9
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367 (804)
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Loss before income taxes...................... (1,979) (2,646)
Income tax benefit............................ (732) (979)
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Net loss............................ $(1,247) $(1,667)
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------- -------
Net loss per common share and
share equivalent......................... $ (0.05) $ (0.06)
------- -------
------- -------
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands, except share data)
<TABLE>
Three months ended
March 31,
-----------------
1996 1997
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<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(1,247) $(1,667)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation............................................ 1,343 1,129
Amortization of FCC licenses and other assets........... 748 784
Amortization of goodwill................................ -- 177
Provision for doubtful accounts......................... 185 82
Provision for obsolete inventory........................ -- 75
Accretion and amortization of debt discount............. 66 518
Gain on disposition of assets, net...................... (887) (124)
Deferred income taxes................................... (732) (979)
Change in assets and liabilities, net of effects
from acquisitions:
Accounts receivable................................... (17) 213
Inventories, prepaid expenses and
other current assets................................ 260 217
Accounts payable and accrued liabilities.............. (2,130) (181)
------- -------
Net cash provided by (used in) operating activities... (2,411) 244
Cash flows from investing activities:
Acquisitions, net of cash acquired...................... (286) --
Capital expenditures.................................... (507) (238)
FCC licenses and other assets........................... (64) --
Proceeds from sale of assets............................ 310 127
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Net cash used in investing activities................. (547) (111)
Cash flows from financing activities:
Payments on notes payable............................... (3,023) --
Payments on other long-term debt........................ (373) (229)
Payments on finance obligation.......................... (248) (273)
Proceeds from other long-term debt and notes payable.... 6,528 --
Proceeds from finance obligation........................ 191 191
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Net cash provided by (used in) financing activities... 3,075 (311)
------- -------
Net increase (decrease) in cash and cash equivalents........ 117 (178)
Cash and cash equivalents at beginning of period............ 568 4,552
------- -------
Cash and cash equivalents at end of period.................. $ 685 $4,374
------- -------
------- -------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
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 leasing, 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 March 31,
1997, the results of operations for the three months ended March 31,
1996 and 1997, and the consolidated condensed statements of cash flows
for the three months ended March 31, 1996 and 1997. 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 1996 Annual Report on Form 10-K. The
results of operations for the three months ended 1996 and 1997 are not
necessarily indicative of the results to be expected for the
respective full years.
(d) 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 24,020,526 and 26,163,225 for the
three months ended March 31, 1996 and 1997, respectively. Common
stock equivalents were excluded from the calculations because the
effect would be antidilutive.
6
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(2) ACQUISITIONS AND DISPOSITIONS
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, 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.
In May 1996, the Company completed the acquisition of 26 800 MHz SMR
channels in Phoenix, Arizona 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.
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 statements of operations from the acquisition dates.
In June 1996, the Company transferred certain 2 GHz licenses located in
Arizona as the result of FCC auctions for Personal Communications Service
licenses. The compensation received for these licenses was paid with cash
of $375,000 and short-term notes receivable of $775,000 which have been fully
paid.
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 fair values assigned to assets acquired and liabilities assumed, net
of cash acquired in these acquisitions, are as follows (in thousands):
1996 1997
--------- -------
Net working capital... . . . . . . . . . . . $ 199 $ --
Property and equipment . . . . . . . . . . . 2,173
FCC Licenses and other assets. . . . . . . . 60,103
Goodwill.. . . . . . . . . . . . . . . . . . 19,512
Deferred income tax liability. . . . . . . . (19,353)
--------- -------
Net purchase price . . . . . . . . . . . . . $ 62,634 $ --
--------- -------
--------- -------
The acquisitions were paid for as follows (in thousands):
1996 1997
--------- -------
Cash.. . . . . . . . . . . . . . . . . . . . $ 286 $ --
Notes payable and long-term debt . . . . . . 182
Common stock.. . . . . . . . . . . . . . . . 62,166
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$ 62,634 $ --
--------- -------
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7
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(2) ACQUISITIONS AND DISPOSITIONS (CONTINUED)
Unaudited pro forma financial information for the three months ended
March 31, 1996 and 1997 as though the 1996 acquisitions and dispositions had
occurred as of January 1, 1996, is as follows (in thousands, except per share
amounts):
1996 1997
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Revenues.. . . . . . . . . . . . . . . . . $ 9,557 $ 8,193
Operating loss.. . . . . . . . . . . . . . (2,337) (1,842)
Loss before income taxes . . . . . . . . . (1,687) (2,646)
Net loss . . . . . . . . . . . . . . . . . (1,063) (1,667)
Net loss per common share and
share equivalent . . . . . . . . . . . . . (0.04) (0.06)
The pro forma financial information does not purport to present the
results of operations that would have occurred had the transactions been
consummated on the date indicated or the Company's results for any future
period.
(3) MERGER TRANSACTION
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. The Agreement was
subsequently amended and restated in December 1996 ("Restated Agreement").
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.
(4) RECENT AUTHORITATIVE PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 128, EARNINGS PER
SHARE. FASB Statement No. 128 supersedes APB Opinion No. 15, EARNINGS PER
SHARE, and specifies the computation, presentation, and disclosure
requirements for earnings per share ("EPS") for entities with publicly held
common stock or potential common stock. It replaces Primary EPS and Fully
Diluted EPS with Basic EPS and Diluted EPS, respectively. Basic EPS, unlike
Primary EPS, excludes all dilution while Diluted EPS, like Fully Diluted EPS,
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock
or resulted in the issuance of common stock that then shared in the earnings
of the entity. The Company does not believe its adoption in 1997 of Statement
No. 128, EARNINGS PER SHARE, will have a material effect on its computation
or presentation of earnings per share information.
8
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MARCH 31, 1997
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997, COMPARED TO THREE MONTHS ENDED
MARCH 31, 1996
Total revenues decreased to $8.2 million in the first three months of 1997
from $9.1 million in the same period of 1996, a decrease of 10%. Increases
in radio services revenue were offset by declines in equipment and parts
sales and rental revenues. Equipment and parts sales decreased 29% from $3.2
million in the first three months of 1996 to $2.3 million in 1997. The
decrease was primarily due to the consolidation and closure of certain of the
Company's sales and service centers. Rental revenues decreased 23% from
$514,000 in 1996 to $397,000 in 1997 reflecting a continued decrease in the
Company's emphasis on rental programs. Decreases in rental revenues and
equipment and parts sales were offset by a $127,00 increase in radio services
revenue.
Cost of operations in the first quarter of 1997 decreased 11% to $4.3
million, compared with $4.8 million in the first three months of 1996. This
decrease can primarily be attributed to the realization of savings related to
the consolidation and closure of certain of the Company's sales and service
centers. Cost of equipment and parts as a percentage of equipment and parts
sales increased from 84% in 1996 to 85% in 1997 which reflects continued
pricing competition in certain of its markets.
General and administrative expenses in the first three months of 1997
decreased to $1.7 million from $1.9 million in the first quarter of 1996, a
decrease of 8%. This decrease is primarily attributable to the continued
realization of efficiencies related to the implementation of a new
information system, a reduced administrative burden resulting from the
consolidation and closure of certain sales and service centers and reduced
acquisition activity.
EBITDA for the first three months of 1997 increased to $248,000 from
($253,000) in the first three months of 1996. This increase is principally
due to a combination of operational and administrative efficiencies realized
with the closure and consolidation of certain sales and service centers and
continued savings related to the implementation of the Company's new
information systems. ("EBITDA" is defined as earnings before interest, taxes,
depreciation, amortization, and other income (expense).)
Depreciation and amortization expense in the first three months of 1997
remained substantially unchanged at $2.1 million when compared to the first
three months of 1996. This is due primarily to minimal acquisition activity
and a relative balance between capital expenditures and retirements during
the period.
Other income (expense) includes interest expense, interest income, and gains
on sales of assets. Interest expense increased $378,000 to $937,000 in the
first three months of 1997 as a result of the accelerated amortization of
debt discount associated with warrants issued in connection with the
Company's revolving line of credit. The principal factor contributing to the
$1.2 million decrease in other income (expense) is $1.1 million in gain on
sales related to the sale of certain 2 GHz licenses which occurred in the
first three months of 1996.
Income tax benefit for the first three months of 1996 and 1997 reflects the
Company's income taxes at combined U.S. federal and state tax rates.
9
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATING ACTIVITIES:
During the first three months of 1997 the Company experienced positive
cash flow from operating activities of $244,000 compared to negative cash
flow of $2.4 million during the same period in 1996. This increase can be
attributed to the significant use of working capital in 1996 to reduce
accounts payable and accrued liabilities which amounted to a $2.1 million net
change between 1996 and 1997. Also, during the first three months of 1997,
non-cash adjustments to the net loss were $939,000 more than 1996.
CASH FLOWS FROM INVESTING ACTIVITIES
Negative cash flows from investing activities of $111,000 were realized
during the first three months of 1997 compared to negative cash flow of
$547,000 for the first three months of 1996. This increase can be attributed
to the absence of acquisition activity in 1997 along with a reduced level of
capital expenditures which were offset by the proceeds from sales of assets.
CASH FLOWS FROM FINANCING ACTIVITIES
During 1996, the Company utilized $7 million of its revolving line of
credit ("Revolving Loan") with Wells Fargo Bank (Texas), N.A. ("Wells
Fargo"), formerly 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 MHz Auctions. The Company subsequently utilized $5
million in proceeds from the sale of assets to reduce this indebtedness. The
remaining $2 million payable under the Revolving Loan matured in March 1997
at the expiration of the initial one year term of the credit facility.
However, the revolving loan was renewed for an additional six month term due
September 1997 and will be repaid prior to the closing of the pending merger
with Nextel Communications, Inc.
CURRENT LIQUIDITY AND FUTURE CAPITAL NEEDS
On March 31, 1997, the Company had cash and cash equivalents of
approximately $4.4 million. The Company also had $15.8 million in long-term
debt, notes payable, and a finance obligation at March 31, 1997. Third party
indebtedness predominantly consisted of the Wells Fargo 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 $32.8 million as of December 31, 1996, of which $17.7 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 1997.
Pursuant to the Restated 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.
10
<PAGE>
PITTENCRIEFF COMMUNICATIONS, INC. AND SUBSIDIARIES
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Report includes "forward-looking statements" as that phrase is
defined in Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"). All
statements other than statements of historical or current facts, including,
without limitation, statements under the foregoing "Management's Discussion
and Analysis of Financial Condition and Results of Operations" section
regarding the Company's financial position, business strategy, and plans and
objectives of management of the Company for future operations, are
forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable,
such forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ materially from the Company's
expectations. Such risks and uncertainties include, without limitation,
fluctuations in demand, loss of subscribers, the quality and price of similar
or comparable wireless communications services, regulatory delays,
termination of proposed transactions, access to sources of capital, and
general economic conditions in the Southwest and the United States.
PART II: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedules
(b) Reports on Form 8-K.
None.
11
<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: May 6, 1997 /s/ Warren D. Harkins
---------------------------------------------------
President and Chief Executive Officer
Duly Authorized Officer of the Registrant
/s/ Thomas R. Modisett
---------------------------------------------------
Chief Financial Officer, Vice President - Finance,
Treasurer and Assistant Secretary
Chief Financial and Accounting Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,374
<SECURITIES> 0
<RECEIVABLES> 2,477
<ALLOWANCES> 169
<INVENTORY> 3,922
<CURRENT-ASSETS> 11,352
<PP&E> 54,777
<DEPRECIATION> 17,228
<TOTAL-ASSETS> 182,631
<CURRENT-LIABILITIES> 6,793
<BONDS> 0
0
0
<COMMON> 262
<OTHER-SE> 150,455
<TOTAL-LIABILITY-AND-EQUITY> 182,631
<SALES> 2,289
<TOTAL-REVENUES> 8,193
<CGS> 1,954
<TOTAL-COSTS> 10,035
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 82
<INTEREST-EXPENSE> 937
<INCOME-PRETAX> (2,646)
<INCOME-TAX> (979)
<INCOME-CONTINUING> (1,667)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,667)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> 0
</TABLE>
