- --------------------------------------------------------------------------------
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 June 30, 1997
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.)
170 East Post Road
White Plains, NY 10601
- ---------------------------------- ---------------------------------
(Address of principal executive (Zip Code)
offices)
(914) 422-0800
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(Registrant's telephone number, including area code)
45 Rockefeller Plaza New York, NY 10020
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(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 - 19,657,472 shares as of July 18, 1997
Class B Common Stock, $0.01 Par Value - 14,755,275 shares as of July 18, 1997
- --------------------------------------------------------------------------------
<PAGE>
Index
PriCellular Corporation and Subsidiaries
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets--June 30, 1997
and December 31, 1996................................................. 2
Condensed Consolidated Statements of Operations--Three and
Six Months Ended June 30, 1997 and 1996............................... 3
Condensed Consolidated Statements of Cash Flows--Six Months Ended
June 30, 1997 and 1996................................................ 4
Notes to Condensed Consolidated Financial Statements................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................ 13
Item 2. Changes in Securities............................................ 13
Item 3. Defaults upon Senior Securities.................................. 13
Item 4. Submission of Matters to a Vote of Security Holders.............. 13
Item 5. Other Information................................................ 14
Item 6. Exhibits and Reports on Form 8-K................................. 14
Signature................................................................ 15
1
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
PriCellular Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in Thousands, except share data)
June December
30, 1997 31, 1996
---------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 89,868 $ 100,364
Accounts receivable (less allowance of $1,546 in
1997 and $1,767 in 1996) 18,961 13,429
Inventory 1,511 2,096
Other current assets 1,991 3,484
---------------------
Total current assets 112,331 119,373
Fixed assets--at cost:
Cellular facilities, equipment and other 107,781 76,955
Deposits on cellular equipment 5,886 10,100
Less accumulated depreciation (21,264) (13,728)
---------------------
Net fixed assets 92,403 73,327
Investment in cellular operations 37,007 39,641
Cellular licenses (less accumulated amortization of
$16,637 in 1997 and $10,415 in 1996) 500,338 377,808
Cellular licenses held for sale -- 13,721
Deferred financing costs (less accumulated
amortization of $4,058 in 1997
and $2,761 in 1996) 14,404 15,266
Cash committed for the acquisition of cellular
operations -- 91,400
Other assets 1,119 5,280
---------------------
Total assets $ 757,602 $ 735,816
=====================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 23,654 $ 24,848
Other current liabilities 3,250 4,776
---------------------
Total current liabilities 26,904 29,624
Long-term debt 547,032 524,517
Deferred taxes 3,797 --
Other long-term liabilities 1,468 1,756
Stockholders' equity:
Preferred Stock, $0.01 par:
Series A, cumulative convertible: authorized
10,000,000 shares; issued and
outstanding 96,000 shares 1 1
Common Stock, $0.01 par:
Class A: Authorized 100,000,000 shares;
issued and outstanding 19,657,472 shares
(1997) and 18,902,101 shares (1996) 197 189
Class B: Authorized 50,000,000 (1997) and
20,000,000 (1996) shares; issued and outstanding
18,750,220 shares (1997) and 19,510,736
shares (1996) 187 195
Additional paid-in capital 216,274 212,777
Accumulated deficit (38,258) (33,243)
---------------------
Total stockholders' equity 178,401 179,919
---------------------
Total liabilities and stockholders' equity $ 757,602 $ 735,816
=====================
See notes to condensed consolidated financial statements.
2
<PAGE>
PriCellular Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in Thousands, except share data)
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
-----------------------------------------------
Revenues
Cellular service $ 40,258 $ 25,199 $ 72,937 $ 44,711
Equipment sales 1,203 791 2,343 1,543
Other 1,711 1,116 3,458 2,114
-----------------------------------------------
43,172 27,106 78,738 48,368
Costs and expenses
Cost of cellular service 11,369 7,085 20,643 12,520
Cost of equipment sold 3,175 2,103 5,642 4,415
Selling, general and
administrative 12,432 7,814 23,710 15,198
Depreciation and amortization 7,572 4,847 14,296 9,038
-----------------------------------------------
34,548 21,849 64,291 41,171
-----------------------------------------------
Operating income 8,624 5,257 14,447 7,197
Other income (expense)
Gain (loss) on sale of
investment in cellular
operations (27) - 8,424 -
Interest expense, net (14,815) (10,861) (29,511) (19,999)
Other income 813 250 1,625 500
-----------------------------------------------
(14,029) (10,611) (19,462) (19,499)
-----------------------------------------------
Net income (loss) $ (5,405) $ (5,354) $ (5,015) $(12,302)
===============================================
Net income (loss) after
adjustment for accrued
preferred stock dividend $ (7,046) $ (6,888) $ (8,255) $(15,360)
===============================================
Net income (loss) per common
share $ (.18) $ (.18) $ (.21) $ (.40)
===============================================
Weighted average number of
common shares used in
computation of net income
(loss) per common share 38,408,000 38,491,000 38,731,000 38,495,000
See notes to condensed consolidated financial statements.
3
<PAGE>
PriCellular Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in Thousands)
Six Months Ended
June 30
1997 1996
-----------------------
Net cash provided by operating activities $ 12,166 $ 10,219
-----------------------
Investing activities
Purchase of cellular equipment (11,165) (7,804)
Proceeds from sale of investment in cellular
operations 1,255 --
Proceeds from sale of cellular operations 24,396 --
Acquisition of cellular operations (25,033) (69,991)
Investment in other assets and cellular operations (867) (264)
Refund of escrow and deposit for Personal
Communications Service auction 7,337 4,140
Amounts deposited in escrow to acquire cellular
properties -- (1,750)
Purchase of Cellular Information Systems, Inc.
shares (2,523) --
-----------------------
Net cash used in investing activities (6,600) (75,669)
-----------------------
Financing activities
Repayments of notes payable -- (1,776)
Costs incurred in connection with the issuance
of preferred and common stock (207) (741)
Payments for deferred financing costs (434) (49)
Proceeds from exercise of stock option 19 15
Purchase and retirement of common stock (15,440) (450)
-----------------------
Net cash used in financing activities (16,062) (3,001)
-----------------------
Decrease in cash and cash equivalents (10,496) (68,451)
Cash and cash equivalents at beginning of period 100,364 123,444
-----------------------
Cash and cash equivalents at end of period $ 89,868 $ 54,993
=======================
4
<PAGE>
PriCellular Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited) (continued)
(Dollars in Thousands)
Six Months Ended
June 30
1997 1996
------------------
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 8,884 $ 456
Income taxes 958 351
Supplemental schedule of noncash investing
activities
Common stock issued in connection
with acquisition of cellular operations 19,125 --
Utilization of cash committed for the acquisition
of cellular operations 91,400 --
Debt issued in connection with acquisition of
cellular license -- 19,429
Exchange of cellular investments for the
acquisition of cellular operations 1,350 --
Record deferred tax liability arising from the
acquisition of cellular operations 3,797 --
Supplemental schedule of noncash financing
activities
Conversion of Class B Common Stock to Class A
Common Stock 7 1
See notes to condensed consolidated financial statements.
5
<PAGE>
PriCellular Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation
The condensed consolidated financial statements include the accounts of
PriCellular Corporation and its subsidiaries (the "Company"). All significant
intercompany items and transactions have been eliminated.
The condensed consolidated financial statements have been prepared by the
Company without audit, in accordance with rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the statements
reflect all adjustments necessary for a fair presentation of the results for the
interim period. The results of operations for the interim period are not
necessarily indicative of the results for a full year. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's 1996 Annual
Report on Form 10-K.
Net Income (Loss) per Share
Net income (loss) per share for the three and six months ended June 30, 1997 was
computed by using the weighted average shares outstanding during the periods and
for the three and six months ended June 30, 1996 was computed by using the
weighted average shares outstanding during the period after giving retroactive
effect to the 5-for-4 Class A and Class B Common Stock splits in March and
October 1996.
During 1997, Statement of Financial Accounting Standards No. 128 "Earnings Per
Share" ("SFAS 128") was issued effective with periods ending December 15, 1997.
SFAS 128 simplifies the calculation of earnings per share ("EPS") and replaces
primary EPS under Opinion 15. Early adoption of SFAS 128 would not have a
material effect on the Company's EPS calculation.
2. Acquisition of Cellular Operations
On January 7, 1997, the Company established its fourth operating cluster by
consummating the acquisition of four RSAs in Kentucky from a subsidiary of
Horizon Cellular Telephone Company, L.P. ("Horizon"). The 785,000 Pop cluster
was acquired for approximately $96.4 million in cash, and 1,948,052 shares of
the Company's Class A Common Stock. On February 4, 1997, the Company repurchased
and retired the 1,948,052 shares from Horizon for $15.3 million.
6
<PAGE>
PriCellular Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
On January 7, 1997, the Company consummated the acquisition of the WI-4 RSA
consisting of approximately 119,000 Pops contiguous to its Upper Midwest cluster
from a subsidiary of BellSouth Corporation for approximately $6.3 million in
cash.
On May 29, 1997, the Company consummated the acquisition of three counties in
the WI-5 RSA consisting of approximately 81,000 Pops which abut its Eau Claire,
WI MSA, its WI-1 RSA and AT&T Wireless Services, Inc.'s Minneapolis MSA from
United States Cellular Corporation for approximately $10.6 million in cash and
the contribution of minority Pops (approximately 18,000 Pops).
The above acquisitions were accounted for using the purchase method of
accounting and are therefore included in the results of operations from the date
of acquisition.
Pro forma consolidated results of operations for the period ended June 30, 1996,
assuming the above mentioned acquisitions were consummated as of January 1,
1996, are as follows:
June 30,
1996
--------
Revenue $ 58,513
========
Net loss $(16,142)
========
Net loss per common share $ (.42)
========
3. Disposition of Cellular Operations
On January 7, 1997, the Company sold its stand-alone wireline systems serving
the Florence, AL MSA (136,816 Pops) and AL-1B RSA (62,035 Pops) for $24.4
million in cash, of which $2.0 million is attributable to a two year covenant
not-to-compete. The transaction resulted in a gain of approximately $8.5
million.
4. Common Stock
During 1995, the Company's Board of Directors authorized the Company to purchase
up to 750,000 shares of its Class A Common Stock on the open market or in
private transactions from time to time. During the first six months of 1997, the
Company repurchased and retired approximately 10,000 shares of its Class A
Common Stock on the open market at $10.37 per share.
7
<PAGE>
PriCellular Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
To date, the Company has repurchased and retired 286,700 shares of its Class A
Common Stock in the open market.
On February 4, 1997, the Company purchased, under separate authorization of its
Board of Directors, 1,948,052 shares of its Class A Common Stock from Horizon
which Horizon received in connection with the Kentucky cluster acquisition (see
Acquisition of Cellular Operations). These shares were subsequently retired by
the Company.
5. Subsequent Event
In July 1997, the Company repurchased and retired 3,994,945 shares of its Class
B Common Stock from Aeneas Venture Corp., an affiliate of Harvard Private
Capital Group, Inc. ("Harvard") at $9.00 per share which was the current market
price at the date of the transaction. In addition, 56,275 warrants to purchase
Class B Common Stock also owned by Harvard were redeemed at a net cash
expenditure of $3.83 per warrant ($9.00 current market price less $5.17 exercise
price).
8
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
The current three month period ending June 30, 1997 reflects the continuing
strong financial growth of the Company's operations. Net subscriber additions
exceeded 20,700 for the three months ended June 30, 1997 totaling over 35,000
for the six months. The Company ended the period with 199,800 subscribers
resulting in penetration of 4.1%.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
amounted to $17.0 million for the second quarter of 1997 compared to $10.4
million for the same period in 1996. Although the Company has experienced
positive results when measured by EBITDA, it expects to incur net accounting
losses for the foreseeable future. EBITDA is utilized as a measurement of
performance within the industry, although it should not be regarded as an
alternative to either operating income or net income as an indicator of
operating performance or to cash flows as a measure of liquidity. Further,
EBITDA is not a GAAP-based financial measure, and it should not be considered as
an alternative to GAAP-based measures of financial performance.
Due to the acquisition of the Kentucky cluster, WI-4 RSA, and disposition of the
Florence, Alabama MSA in early 1997, comparison to the same periods in 1996 is
neither meaningful nor indicative of future growth.
A comparison can be made of those markets that were owned by the Company
throughout the six and three month periods in 1997 and 1996. The markets
included in the comparison account for approximately 58% of Net Pops in 1997 and
approximately 65% of Net Pops in 1996. The following represents certain
operating results (000's omitted except for subscriber growth) for these
markets:
Three Months Six Months
Ended June 30, Ended June 30,
------------------ --------------------
1997 1996 1997 1996
-------- -------- --------- --------
Total revenue $ 22,877 $ 16,845 $ 41,903 $ 30,944
-------- -------- --------- --------
Operating income 5,465 3,369 8,898 5,055
-------- -------- --------- --------
EBITDA 9,364 6,743 16,593 11,415
-------- -------- --------- --------
Net subscriber additions 13,831 9,876 23,569 19,324
-------- -------- --------- --------
Penetration 4.7% 2.9% 4.7% 2.9%
-------- -------- --------- --------
9
<PAGE>
This data indicates that the Company experienced a significant amount of growth
from internal operations in addition to growth through acquisitions. Revenues
increased 36% and 35%, operating income increased 62% and 76% and EBITDA
increased 39% and 45% when comparing the second quarter of 1997 to the second
quarter of 1996 and the six month period of 1997 to the six month period of
1996, respectively.
Historical Results of Operations (000's omitted)
Three months ended June 30, 1997 compared with three months ended June 30, 1996.
Revenues for the quarter ended June 30, 1997 increased to $43,172 (consisting of
cellular service revenues of $40,258, equipment sales revenues of $1,203 and
other revenues of $1,711) from $27,106 (consisting of cellular service revenues
of $25,199, equipment sales revenues of $791 and other revenue of $1,116).
Total operating expenses for the quarter ended June 30, 1997 increased to
$34,548 (consisting of cost of cellular service of $11,369, cost of equipment
sold of $3,175, selling, general and administrative expenses of $12,432 and
depreciation and amortization of $7,572) from $21,849 of operating expenses for
the quarter ended June 30, 1996 (consisting of cost of cellular service of
$7,085, cost of equipment sold of $2,103, selling, general and administrative
expenses of $7,814 and depreciation and amortization of $4,847).
The primary factor contributing to the increase in revenues, operating expenses
and operating income was the acquisition of a significant portion of the
operating systems of the Company subsequent to June 30, 1996, the inclusion for
two months of the Company's NY-6 RSA and Poughkeepsie, NY MSA and the
acquisitions completed in the first quarter of 1997 which are therefore fully
reflected in the results for the three and six months of 1997, but only
partially included in the three months of 1996. Interest expense, net increased
to $14.8 million from $10.9 million due to the Company's issuance of $170.0
million of Senior Notes at 10-3/4% in November 1996.
Other income for the current three month period consists of revenue earned
directly from covenants not-to-compete of $813 thousand in 1997 and $250
thousand in 1996.
Six months ended June 30, 1997 compared with six months ended June 30, 1996.
Revenues for the six months ended June 30, 1997 increased to $78,738 (consisting
of cellular service revenues of $72,937, equipment sales revenues of $2,343 and
other revenues of $3,458) from $48,368 (consisting of cellular service revenues
of $44,711, equipment sales revenues of $1,543 and other revenues of $2,114).
10
<PAGE>
Total operating expenses for the six months ended June 30, 1997 increased to
$64,291 (consisting of cost of cellular service of $20,643, cost of equipment
sold of $5,642, selling, general and administrative expenses of $23,710 and
depreciation and amortization of $14,296) from $41,171 (consisting of cellular
service of $12,520, cost of equipment sold of $4,415, selling, general and
administrative expenses of $15,198 and depreciation and amortization of $9,038).
The primary factors contributing to the increase in revenues, operating expenses
and operating income was the acquisition of a significant portion of the
operating systems of the company subsequent to June 30, 1996, the inclusion for
only two of the six months of 1996 of the Company's NY-6 RSA and Poughkeepsie,
NY, MSA as well as the acquisitions during 1997.
Interest expense, net increased to $29.5 million from $20.0 million due to the
Company's issuance of $170.0 million of Senior Notes at 10-3/4% in November
1996.
The first six months of 1997 includes a gain from the sale of cellular
properties of $8.5 million resulting from the sale of the Florence AL MSA and
AL1-B RSA as well as revenue earned directly from covenants not to compete of
$1.6 million in 1997 and $500 thousand in 1996.
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 June 30, 1997, the Company had
$89.9 million of cash and cash equivalents and $85.4 million of working capital.
The Company is a holding company that conducts all of its operations through
subsidiaries. Substantially, all of the Company's operations are conducted
through its wholly owned subsidiary, Pricellular Wireless Corporation
("Wireless"). The terms of Wireless' outstanding indebtedness limits the payment
of dividends to the parent company. Accordingly, the parent company relies upon
its financing activities to satisfy its liquidity needs. As of July 11, 1997,
the parent company believes that it has sufficient cash and cash equivalents to
meet is liquidity needs through 1997.
During the first six months of 1997, the Company's principal sources of cash
were $24.4 million from the sale of the Florence, AL MSA and AL-1B RSA, $12.2
from operations and $5.0 million from the return of escrow for the acquisition
of the Kentucky Cluster.
11
<PAGE>
The principal uses of cash were $8.9 million for the payment of interest on the
10-3/4% Senior Notes, $6.3 million for the acquisition of the WI-4 RSA, $10.6
million for the acquisition of the WI-5 RSA, $11.2 million for the purchase of
cellular equipment and $96.4 million for the acquisition of the Kentucky Cluster
(of which $91.4 million was previously reflected as cash committed for the
acquisition of cellular operations on the balance sheet of the company at the
end of 1996, and not included in the opening cash balance of $100.4 million). In
addition to the cash used for the above acquisitions, the Company purchased and
retired the 1.9 million shares it originally issued to Horizon as part of the
Kentucky acquisition for $15.3 million.
Subsequent to June 30, 1997, the Company expended approximately $36.2 million to
repurchase previously outstanding Class B Common Stock and warrants to purchase
Class B Common Stock.
The cellular telephone industry requires significant capital expenditures when
acquiring new markets or upgrading existing markets. The Company has made a
commitment to enhance its markets' performance, particularly those acquired
during 1996, as well as expand its marketing effects which include, but are not
limited to, an increase in funds for advertising, cellular telephone inventory
purchases and other expenditures relating to subscriber growth.
The Company continually reviews plans for future growth through acquisitions
which may require additional financing. Although the Company has been able to
obtain such financing, there is no guarantee that such financing will be
available.
12
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting was held on May 14, 1997.
(a) The following members were elected to the Board of Directors:
Nominee For Against Withheld
----------------------------------------------------------------------
Robert Price 193,746,003 138,843 12,115
Steven Price 189,595,360 4,297,154 4,447
Kim I. Pressman 189,393,965 4,449,111 53,885
Brion Applegate 193,847,952 45,106 3,903
Scott M. Sperling 193,869,057 23,624 4,280
Scott I. Anderson 193,714,480 179,437 3,044
(b) The results of voting on the proposed amendment to the Company's
amended and restated Certificate of Incorporation which would increase
the authorized number of shares of the Company's Class B Common Stock,
par value $.01 per share from 20 million to 50 million.
For Against Withheld
----------------------------------------------------------------------
186,985,801 6,904,854 6,306
(c) The results of voting on the proposed amendment to the Company's 1994
Stock Option Plan to increase the number of shares available for award
thereunder.
For Against Withheld
----------------------------------------------------------------------
187,364,957 4,711,734 8,513
13
<PAGE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
14
<PAGE>
SIGNATURE
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/ Steven Price
-------------------------------------
Name: Steven Price
Title: President/Chief Executive Officer
By: /s/ Stuart Rosenstein
-------------------------------------
Name: Stuart Rosenstein
Title: Executive Vice President/Chief
Financial Officer
Date: August 1, 1997
15
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 89,868
<SECURITIES> 0
<RECEIVABLES> 20,507
<ALLOWANCES> 1,546
<INVENTORY> 1,511
<CURRENT-ASSETS> 112,331
<PP&E> 113,667
<DEPRECIATION> 21,264
<TOTAL-ASSETS> 757,602
<CURRENT-LIABILITIES> 26,904
<BONDS> 547,032
0
1
<COMMON> 384
<OTHER-SE> 178,016
<TOTAL-LIABILITY-AND-EQUITY> 757,602
<SALES> 2,343
<TOTAL-REVENUES> 78,738
<CGS> 5,642
<TOTAL-COSTS> 64,291
<OTHER-EXPENSES> (1,625)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,511
<INCOME-PRETAX> (5,015)
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<INCOME-CONTINUING> (5,015)
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