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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
Form 10-Q
----------------
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the period ended September 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 1-13526
PriCellular Corporation
(Exact name of the registrant as specified in its charter)
Delaware 22-3043811
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
45 Rockefeller Plaza
New York, NY 10020
(Address of principal executive offices) (Zip Code)
----------------
(Registrant's telephone number, including area code) (212) 459-0800
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 periods 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 __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class A Common Stock, $0.01 Par Value -- 18,856,750 shares as of October 10,
1996
Class B Common Stock, $0.01 Par Value -- 19,643,245 shares as of October 10,
1996
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INDEX
PriCellular Corporation and Subsidiaries
<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheet -- September 30, 1996
and December 31, 1995.............................................. 2
Condensed Consolidated Statements of Operations -- Three and Nine
Months Ended September 30, 1996 and 1995........................... 3
Condensed Consolidated Statements of Cash Flows -- Nine Months
Ended September 30, 1996 and 1995.................................. 4
Notes to Condensed Consolidated Financial Statements................. 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 10
Part II. Other Information
Item 1. Legal Proceedings............................................... 14
Item 2. Changes in Securities........................................... 14
Item 3. Defaults Upon Senior Securities................................. 14
Item 4. Submission of Matters to a Vote of Security Holders............. 14
Item 5. Other Information............................................... 14
Item 6. Exhibits and Reports on Form 8-K................................ 14
Signatures.............................................................. 15
</TABLE>
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PriCellular Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in Thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
30, 1996 31, 1995
--------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 55,383 $ 123,444
Accounts receivable (less allowance of $2,837 in 1996 and $2,076 in 1995) 14,802 8,725
Inventory 1,731 1,651
Other current assets 3,258 4,744
--------- ---------
Total current assets 75,174 138,564
Fixed assets -- at cost:
Cellular facilities, equipment and other 73,710 58,050
Less accumulated depreciation (12,663) (6,009)
--------- ---------
Net fixed assets 61,047 52,041
Investment in cellular operations 36,581 37,386
Cellular licenses (less accumulated amortization of $10,165 in 1996 and
$3,833 in 1995) 390,373 305,375
Cellular license held for sale 8,179 --
Deferred financing costs (less accumulated amortization of $2,249 in 1996
and $1,029 in 1995) 10,214 11,386
Other assets 95 14
========= =========
Total assets $ 581,663 $ 544,766
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 17,913 $ 15,777
Long-term debt -- current portion 389 1,971
Income taxes payable 432 872
Other current liabilities 4,779 3,529
--------- ---------
Total current liabilities 23,513 22,149
Long-term debt 364,810 315,216
Other long-term liabilities 2,342 1,673
Stockholder's equity:
Preferred stock, $0.01 par: Series A, cumulative convertible:
Authorized 10,000,000 shares; issued and outstanding 96,000 1 1
Common stock, $0.01 par:
Class A: Authorized 100,000,000 shares (1996) and 40,000,000 shares (1995);
issued and outstanding 18,856,750 (1996) and 16,965,111 (1995) 189 170
Class B: Authorized 20,000,000 shares; issued and outstanding 19,643,245
(1996) and 21,587,030 (1995) 196 216
Additional paid-in capital 214,055 215,541
Accumulated deficit (23,443) (10,200)
--------- ---------
Total stockholders' equity 190,998 205,728
========= =========
Total liabilities and stockholders' equity $ 581,663 $ 544,766
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
2
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PriCellular Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in Thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
REVENUES
<S> <C> <C> <C> <C>
Cellular service $ 31,086 $ 10,599 $ 75,798 $ 23,696
Equipment sales 897 435 2,440 999
Other 864 492 2,977 492
-------- -------- -------- --------
32,847 11,526 81,215 25,187
COSTS AND EXPENSES
Cost of cellular service 8,479 2,620 20,999 6,353
Cost of equipment sold 2,407 1,326 6,822 2,825
General and administrative 4,675 2,256 12,349 5,277
Sales and marketing 4,044 1,995 11,568 4,002
Depreciation and amortization 5,516 2,462 15,416 6,461
-------- -------- -------- --------
25,121 10,659 67,154 24,918
-------- -------- -------- --------
Operating income 7,726 867 14,061 269
OTHER INCOME (EXPENSE)
Net gain on sale of investments in cellular
operations 177 -- 177 11,598
Interest expense, net (9,406) (4,051) (28,543) (10,719)
Other income, net 562 250 1,062 270
-------- -------- -------- --------
(8,667) (3,801) (27,304) 1,149
======== ======== ======== ========
Net income (loss) $ (941) $ (2,934) $(13,243) $ 1,418
======== ======== ======== ========
Net income (loss) after adjustment for accrued
Preferred Stock dividend $ (2,489) $ (2,934) $(17,849) $ 1,418
======== ======== ======== ========
Net income (loss) per common share $ (.07) $ (.09) $ (.46) $ .05
======== ======== ======== ========
Weighted average number of common shares
used in computation of net income (loss) per
common share 38,498,000 32,349,000 38,495,000 31,573,000
</TABLE>
See notes to condensed consolidated financial statements.
3
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PriCellular Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1996 1995
---- ----
<S> <C> <C>
Net cash provided by (used in) operating activities $ 26,935 $ (1,099)
--------- ---------
INVESTING ACTIVITIES
Redemption of short-term investments -- 991
Purchase of cellular equipment (12,966) (5,120)
Purchase of cellular licenses (1,925)
Sale of investment in cellular operations 26,614 19,478
Acquisition of cellular operations, net of cash (104,634) (126,690)
Amount deposited in escrow for Personal Communications System auction (2,500) --
Refund of escrow deposit relating to the Personal Communications
System auction 4,140 --
Amounts deposited in escrow to acquire cellular properties -- (8,000)
Investment in cellular operations (315) (258)
--------- ---------
Net cash used in investing activities (91,586) (119,599)
--------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt -- 178,914
Proceeds from sale of common stock, net -- 7,470
Proceeds from exercise of stock options 48 --
Repayments of notes payable and due to stockholder (1,875) (3,343)
Payments for deferred financing costs (48) (6,899)
Purchase and retirement of treasury stock (450) (770)
Costs incurred in connection with the registration of previously
unregistered stock and the issue of preferred and common stock (1,085) --
--------- ---------
Net cash (used in) provided by financing activities (3,410) 175,372
--------- ---------
(Decrease) increase in cash and cash equivalents (68,061) 54,674
Cash and cash equivalents at beginning of period 123,444 45,411
========= =========
Cash and cash equivalents at end of period $ 55,383 $ 100,085
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 881 $ 527
Income taxes 440 3,250
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
Purchase of cellular equipment -- 85
Debt issued in connection with acquisition of cellular license 19,429 8,763
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Conversion of Class B Common Stock to Class A Common Stock 15 --
</TABLE>
See notes to condensed consolidated financial statements.
4
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PriCellular Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1996
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of PriCellular
Corporation and its subsidiaries (the "Company"). All significant intercompany
items and transactions have been eliminated.
The consolidated financial statements have been prepared by the Company without
audit, in accordance with rules and regulations of the Securities and Exchange
Commission ("SEC"). In the opinion of management, the statements reflect all
adjustments necessary for a fair presentation of the results for the interim
periods. The results of operations for the interim periods are not necessarily
indicative of the results for a full year. These financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's 1995 Annual Report on Form 10-K.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share for the three and nine months ended September 30,
1996 and 1995 was computed by using the weighted average shares outstanding
during the periods after giving retroactive effect to the 5-for-4 Class A and
Class B Common Stock Splits in October 1996, March 1996 and August 1995. The net
loss per common share was increased for the impact of the accrued dividends
attributable to the Company's 6-1/4% Series A Cumulative Preferred Stock.
2. ACQUISITION OF CELLULAR OPERATIONS
NEW YORK CLUSTER
During April 1996, the Company consummated the acquisitions of the non-wireline
NY-6 RSA and 83% of the non-wireline Dutchess County, NY MSA ("Poughkeepsie, NY
MSA") from United States Cellular Corporation, boosting its New York contiguous
cluster to over 750,000 Pops.
5
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PriCellular Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
2. ACQUISITION OF CELLULAR OPERATIONS (CONTINUED)
The NY-6 RSA consists of approximately 111,000 Pops in Greene and Columbia
Counties between Albany and New York City. The NY-6 RSA abuts PriCellular's
previously acquired NY-5 RSA and includes 30 miles of the New York State
Thruway, 10 miles of the Interstate connecting the New England Thruway with the
New York State Thruway in Albany and 30 miles of the Taconic State Parkway. The
acquisition price of the NY-6 RSA was approximately $19,800,000.
The Poughkeepsie, NY MSA abuts the Company's NY-6 RSA and NY-5 RSA and extends
the Company's New York cluster across the Hudson Valley from the Connecticut and
Massachusetts borders 100 miles west to the Binghamton, NY area. The MSA has
approximately 263,000 Pops of which the Company acquired 83% for $178 per Pop or
$38,900,000, with one-half paid in cash and the balance in a three-year note
bearing interest at the prime rate.
During October 1996, the Company consummated an agreement with Vanguard Cellular
Systems, Inc. in which it exchanged certain of its Systems for, among other
things, the Orange County, NY MSA and an additional 11.1% of the Company's
majority-owned Poughkeepsie, NY MSA. Pursuant to the agreement, the Company
exchanged an aggregate of 548,016 Net Pops consisting of its OH-9 RSA, a portion
of its OH-10 RSA (excluding Perry and Hocking counties) and the Parkersburg,
WV/Marietta, OH MSA for the Orange County, NY MSA (324,323 Pops), 11.1% of the
Poughkeepsie, NY MSA (262,663 Pops), 12.2% of the Janesville, WI MSA (18,013 net
Pops) and approximately 23,571 additional net Pops, including small interests in
the Eau Claire, WI and Wausau, WI MSAs (in each of which the Company currently
has a majority interest). The Orange County, NY MSA abuts the Company's NY-5 RSA
to the north, the Company's Poughkeepsie, NY MSA to the east and the New York
City MSA of McCaw/AT&T Wireless to the south and east (bordering Westchester,
Putnam and Rockland counties).
6
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PriCellular Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
2. ACQUISITION OF CELLULAR OPERATIONS (CONTINUED)
MID-ATLANTIC CLUSTER
During February 1996, the Company consummated the acquisition of the
non-wireline cellular system serving the PA-9 RSA from United States Cellular
Corporation for approximately $26,100,000 or $139 per Pop. The PA-9 RSA has
approximately 188,000 Pops and abuts the Company's Ohio Cluster on the south and
McCaw/AT&T's Pittsburgh MSA on the north.
During July 1996, the Company consummated the acquisition of the non-wireline
cellular system serving the WV-3 RSA from Horizon Cellular Telephone Company for
approximately $34,700,000. The WV-3 RSA has approximately 269,000 Pops and abuts
the Company's PA-9 RSA and WV-2 RSA.
3. DISPOSITION OF CELLULAR OPERATIONS
On July 1, 1996, the Company consummated the sale of its AL-4 RSA for
approximately $27,500,000 in cash or $200 per Pop of which $2,500,000 is
attributable to a two year covenant not to compete. The Company acquired this
stand-alone RSA in November 1995 for $10,000,000 in cash and $10,000,000 in a
five-year, 4% note that was subsequently converted into 1,468,860 shares of the
Company's Class A Common Stock on the closing date. In addition, during the
quarter, the Company sold an investment in minority Pops. As a result of both
transactions, the Company recognized a net gain of $177,000.
The pro forma unaudited condensed results of operations for the nine months
ended September 30, 1996, assuming the acquisitions listed in Note 2 and the
disposition of the AL-4 RSA were consummated as of the beginning of the period,
are as follows:
<TABLE>
<S> <C>
Revenues.............................................. $ 82,199,000
Net loss.............................................. $ (16,415,000)
Net loss per common share............................. $ (0.55)
</TABLE>
7
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PriCellular Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
4. COMMON STOCK
On July 30, 1996, the Company completed a secondary offering of 2,500,000
outstanding shares of Class A Common Stock to the public. The Company requested
large and founding shareholders to register and sell a portion of their already
outstanding but privately held stock to increase liquidity of its Class A Common
Stock without creating dilution. McCaw/AT&T Wireless Services, Inc., Robert
Price, The Thomas H. Lee Company, Spectrum Equity Investors, L.P., Investment
Advisors, Inc. and The Public School Employes' Retirement System did not
participate in the offering. Aeneas Venture Corporation and Dominion Cellular,
Inc. have complied with the Company's request to create liquidity without
dilution and sold a portion of their shares.
During 1995, the Company's Board of Directors authorized the Company to purchase
up to 750,000 shares of its Common Stock on the open market or in private
transactions from time to time. To date, the Company has repurchased and retired
209,062 shares of its Common Stock.
On February 29, 1996 and October 1, 1996, the Board of Directors authorized a
5-for-4 common stock split in the form of a 25% stock dividend payable March 28,
1996 and October 18, 1996 to shareholders of record March 11, 1996 and October
2, 1996, respectively. Stockholders' equity has been restated to give
retroactive recognition to the stock split for all periods presented. In
addition, references in the financial statements to number of shares, per share
amounts and market price of the Company's common stock have been restated.
(See subsequent events for additional Class A Common Stock to be issued in
connection with the Kentucky acquisition.)
5. PENDING TRANSACTIONS
In a disputed acquisition on November 14, 1994, RFB Cellular, Inc. signed a
contract to acquire the MI-2 RSA. The Company believed it should have had the
right to purchase the property and initiated legal proceedings. In May 1995, as
a result of this litigation, the Court of Chancery of the State of Delaware
awarded the Company the right to acquire the MI-2 RSA. The defendant in the
lawsuit appealed the decision. On March 22, 1996, the Delaware Supreme Court
reversed the lower court's decision and ordered the Company to unwind the
8
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PriCellular Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statemaent (continued)
5. PENDING TRANSACTIONS (CONTINUED)
acquisition and sell the license and operating assets to the defendant. The
Company believes that the completion of this transaction will not result in any
material economic gain or loss and the loss of MI-2's operating results will not
be material to the Company's results of operations.
On September 4, 1996, the Company entered into an agreement with a subsidiary of
BellSouth Corporation pursuant to which it will effectively exchange, subject to
certain conditions including FCC approval, its stand-alone wireline Systems in
Alabama for the non-wireline WI-4 RSA plus $18,000,000 in cash ($2,000,000 of
which is attributable to a two-year covenant not to compete). The Systems to be
exchanged are the Company's 136,816 Pop Florence, AL MSA and its 62,035 Pop
AL-1B RSA. The WI-4 RSA abuts the Company's MI-1 RSA to the northeast, its WI-3
RSA to the northwest and its Wausau, WI MSA to the west.
On September 27, 1996, the Company entered into an agreement to purchase,
subject to certain conditions including FCC approval, the non-wireline WI-2 RSA
for approximately $4,300,000 in cash (approximately $51 per Pop). The system is
contiguous to the Company's Eau Claire, WI MSA, WI-1 and WI-3 RSA's and its MI-1
RSA.
6. SUBSEQUENT EVENTS
During October 1996, the Company entered into an agreement, subject to, among
other things, FCC approval and negotiation of definitive documentation, with a
subsidiary of Horizon Cellular Telephone Company, L.P. to purchase four
non-wireline RSAs in Kentucky consisting of approximately 775,000 Net Pops for
$116,500,000 consisting of $94,000,000 in cash and $22,500,000 in the Company's
Class A Common Stock. This will make the fourth operating cluster established by
the Company within two years of its Initial Public Offering.
The acquisition will be financed with approximately $140,000,000 of debt
financing which the Company is currently in the process of obtaining.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The current three month period ending September 30, 1996 reflects the continuing
strong financial growth of the Company's operations. Net subscriber additions
exceeded 46,000 and 16,000 for the nine and three months ended September 30,
1996, respectively.
Of the approximately 4,200,000 Pops in the Company's markets as of September 30,
1996, 2,400,000 or 57% are not included in the Company's financial results prior
to October 1, 1995. Thus a comparison for the three and nine month periods is
neither meaningful nor indicative of the Company's results of operations or
future growth.
Although the Company expects to incur net accounting losses for the foreseeable
future, due primarily to interest and amortization, it currently is experiencing
increased positive earnings before interest, taxes, depreciation and
amortization ("EBITDA").
Three Months Ended September 30, 1996 Compared with Three Months Ended September
30, 1995
Revenues for the quarter ended September 30, 1996 increased to $32,847,000
(consisting of cellular service revenues of $31,087,000, equipment sales
revenues of $897,000 and other revenues of $863,000) from $11,526,000
(consisting of cellular service revenues of $10,599,000, equipment sales
revenues of $435,000 and other revenue of $492,000).
Total operating expenses for the quarter ended September 30, 1996 increased to
$25,121,000 (consisting of cost of cellular service of $8,479,000, cost of
equipment sold of $2,407,000, general and administrative expenses of $4,675,000,
sales and marketing expenses of $4,044,000 and depreciation and amortization of
$5,516,000) from $10,659,000 of operating expenses for the quarter ended
September 30, 1995 (consisting of cost of cellular service of $2,620,000, cost
of equipment sold of $1,326,000, general and administrative expenses of
$2,256,000, sales and marketing expenses of $1,995,000 and depreciation and
amortization of $2,462,000).
The primary factors contributing to the increase in revenues, operating expenses
and operating income were through acquisitions of operating systems and the
growth from existing system operations.
10
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Interest expense, net, increased to $9,406,000 from $4,051,000 due to the
Company's issuance of $205,000,000 face amount of Senior Subordinated Discount
Notes at 12-1/4% in September 1995, $60,000,000 face amount of Senior
Subordinated Convertible Discount Notes at 10-3/4% in August 1995 and the
issuance of the Poughkeepsie note on April 23, 1996. The Company expects
interest expense to increase in the future as a result of the incurrence of
approximately $140,000,000 of debt financing in connection with the Kentucky
acquisition, which the Company is currently in the process of obtaining.
Other income for the current quarter consists of $250,000 resulting from the
Company's agreement not to compete with Western Wireless within the Lubbock, TX
MSA and $312,000 resulting from the Company's two year agreement not to compete
connected with the sale of the AL-4 RSA on July 1, 1996. The non-compete
agreement with Western Wireless was $3,000,000 over a three year period
commencing December 1, 1994. The prior three month period includes $250,000. The
non-compete agreement related to the sale of AL-4 was for $2,500,000 over a two
year period.
Other income (expense) includes for 1996 the sale of the Company's AL-4 RSA as
well as the sale of an investment in minority Pops which transactions resulted
in a net gain of $177,000.
Nine Months Ended September 30, 1996 Compared with Nine Months Ended September
30, 1995
Revenues for the nine months ended September 30, 1996 increased to $81,215,000
(consisting of cellular service revenues of $75,798,000, equipment sales
revenues of $2,440,000 and other revenues of $2,977,000) from $25,187,000
(consisting of cellular service revenues of $23,696,000, equipment sales
revenues of $999,000 and other revenue of $492,000).
Total operating expenses for the nine months ended September 30, 1996 increased
to $67,154,000 (consisting of cost of cellular service of $20,999,000, cost of
equipment sold of $6,822,000, general and administrative expenses of
$12,349,000, sales and marketing expenses of $11,568,000 and depreciation and
amortization of $15,416,000) from $24,918,000 (consisting of cellular service of
$6,353,000, cost of equipment sold of $2,825,000, general and administrative
expenses of $5,277,000, sales and marketing expenses of $4,002,000 and
depreciation and amortization of $6,461,000).
The principal factor contributing to the increases in revenues, operating
expenses and operating income was through acquisitions of operating systems and
the growth from existing system operations.
Other income (expense) includes for 1996 the sale of the Company's AL-4 RSA as
well as the sale of an investment in minority Pops which transactions resulted
in a net gain of $177,000. For 1995, other income (expense) includes the gain on
sale of the Company's investment in cellular operations of the non-wireline
system serving the Abilene, TX MSA.
11
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Interest expense, net, increased to $28,543,000 from $10,719,000 due primarily
to the Company's issuance of $205,000,000 face amount of Senior Subordinated
Discount Notes at 12-1/4% in September 1995, $60,000,000 face amount of Senior
Subordinated Convertible Discount Notes at 10-3/4% in August 1995 and the
issuance of the Poughkeepsie note on April 23, 1996. The Company expects
interest expense to increase in the future as a result of the incurrence of
approximately $140,000,000 of debt financing in connection with the Kentucky
acquisition, which the Company is currently in the process of obtaining.
Other income for the current nine month period consists of $750,000 resulting
from the Company's agreement not to compete with Western Wireless within the
Lubbock, TX, MSA and $312,000 resulting from the Company's two year agreement
not to compete connected with the sale of the AL-4 RSA on July 1, 1996. The
prior nine month period also includes $250,000 for the not to compete agreement
with Western Wireless.
Liquidity and Capital Resources
The cellular telephone business requires substantial capital to acquire,
construct and expand cellular telephone systems and to fund operating
requirements. The Company historically has financed its acquisitions and other
capital needs through the proceeds received from the issuance of debt
securities, the sale of equity interests, borrowings, vendor credit facilities
and, more recently, operating cash flow. As of September 30, 1996, the Company
had $55,383,000 of cash and cash equivalents and $51,661,000 of working capital.
During February 1996, the Company acquired substantially all of the assets of
the system serving the PA-9 RSA (which represents 188,000 Pops) for $139 per Pop
or $26,100,000 in cash. The PA-9 RSA abuts the Company's WV-2 RSA and
McCaw/AT&T's Pittsburgh, PA MSA.
During April 1996, the Company consummated the acquisition of the NY-6 RSA
consisting of approximately 111,000 Pops for approximately $19,800,000.
Additionally, the Company acquired 83% of the Poughkeepsie, NY MSA which has
approximately 263,000 Pops for approximately $38,900,000, with one-half paid in
cash and the balance in a three-year note bearing interest at the prime rate.
On July 1, 1996, the Company consummated the sale of its stand-alone AL-4 RSA
for approximately $27,500,000 in cash or $200 per Pop.
During July 1996, the Company consummated the acquisition of the non-wireline
cellular system serving the WV-3 RSA for approximately $34,700,000 in cash. The
WV-3 RSA has approximately 269,000 Pops and abuts the Company's PA-9 RSA and
WV-2 RSA.
During October 1996, the Company consummated an agreement with Vanguard Cellular
Systems, Inc., in which it exchanged certain of its Systems for, among other
things, the Orange County, NY MSA and an additional 11.1% of the Company's
majority-owned Poughkeepsie, NY MSA. Pursuant to the agreement, the Company
exchanged an aggregate of 548,016 Net
12
<PAGE> 14
Pops consisting of its OH-9 RSA, a portion of its OH-10 RSA (excluding Perry and
Hocking counties) and the Parkersburg, WV/Marietta, OH MSA for the Orange
County, NY MSA (324,323 Pops), 11.1% of the Poughkeepsie, NY MSA (262,663 Pops),
12.2% of the Janesville, WI MSA (18,013 Net Pops) and approximately 23,571
additional net Pops, including small interests in the Eau Claire, WI and Wausau,
WI MSAs (in each of which the Company currently has a majority interest). The
Orange County, NY MSA abuts the Company's NY-5 RSA to the north, the Company's
Poughkeepsie, NY MSA to the east and the New York City MSA of McCaw/AT&T
Wireless to the south and east (bordering Westchester, Putnam and Rockland
counties).
On September 4, 1996, the Company entered into an agreement with a subsidiary of
BellSouth Corporation pursuant to which it will effectively exchange, subject to
certain conditions including FCC approval, its stand-alone wireline Systems in
Alabama for the WI-4 RSA plus $18,000,000 in cash ($2,000,000 of which is
attributable to a two year covenant not to compete). The Systems to be exchanged
are the Company's 136,816 Pop Florence, AL MSA and its 62,035 Pop AL-1B RSA. The
WI-4 RSA abuts the Company's MI-1 RSA to the northeast, its WI-3 RSA to the
northwest and its Wausau, WI MSA to the west.
On September 27, 1996, the Company entered into an agreement to purchase,
subject to certain conditions including FCC approval, the WI-2 RSA for
approximately $4,300,000 in cash (approximately $51 per Pop). The system is
contiguous to the Company's Eau Claire, WI MSA, WI-1 and WI-3 RSA's and its MI-1
RSA.
During October 1996, the Company entered into an agreement, subject to, among
other things, FCC approval, and negotiation of definitive documentation, with a
subsidiary of Horizon Cellular Telephone Company, L.P. to purchase four RSAs in
Kentucky consisting of approximately 775,000 net Pops for $116,500,000
consisting of $94,000,000 in cash and $22,500,000 in the Company's Class A
Common Stock. This will establish the Company's fourth operating cluster within
two years of its Initial Public Offering.
The acquisition will be financed by the issuance of approximately $140,000,000
of debt financing, which the Company is currently in the process of obtaining.
In connection with the pending disposition of the MI-2 RSA, the Company expects
to receive gross proceeds of approximately $6,500,000.
The Company has expanded its marketing efforts significantly over prior periods,
including, but not limited to, the increased use of funds for advertising,
cellular telephone inventory purchases and other expenditures relating to
subscriber growth.
The Company has plans for future growth through acquisition which may require
additional financing. Although the Company has historically been able to obtain
such financing, there is no assurance that such financing will continue to be
available.
13
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In a disputed acquisition on November 14, 1994, RFB Cellular, Inc. signed a
contract to acquire the MI-2 RSA. The Company believed it should have had the
right to purchase the property and initiated legal proceedings. In May 1995, as
a result of this litigation, the Court of Chancery of the State of Delaware
awarded the Company the right to acquire the MI-2 RSA. The defendant in the
lawsuit appealed the decision. On March 22, 1996, the Delaware Supreme Court
reversed the lower court's decision and ordered the Company to unwind the
acquisition and sell the license and operating assets to the defendant. The
Company believes that the completion of this transaction will not result in any
economic gain or loss and the loss of MI-2's operating results will not be
material to the Company's results of operations.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
14
<PAGE> 16
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.
PriCellular Corporation
By: /s/ Robert Price
--------------------------
Name: Robert Price
Title: President/
By: /s/ Stuart Rosenstein
--------------------------
Name: Stuart Rosenstein
Title: Vice President of Finance/
Chief Financial Officer
Date: October 17, 1996
15
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