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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 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 33-88350
PRICELLULAR WIRELESS CORPORATION
(Exact name of the registrant as specified in its charter)
Delaware 13-3784318
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
170 East Post Road
White Plains, NY 10601
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(Address of principal executive offices) (Zip Code)
(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 - 100 shares as of July 18, 1997
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<PAGE>
Index
Pricellular Wireless 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.................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 11
Item 2. Changes in Securities.............................................. 11
Item 3. Defaults upon Senior Securities.................................... 11
Item 4. Submission of Matters to a Vote of Security Holders................ 11
Item 5. Other Information.................................................. 11
Item 6. Exhibits and Reports on Form 8-K................................... 11
Signature.................................................................. 12
1
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
Pricellular Wireless Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in Thousands, except share data)
June 30, December 31,
1997 1996
------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 65,377 $ 67,331
Accounts receivable (less allowance of $1,537
in 1997 and $1,767 in 1996) 18,586 13,429
Inventory 1,488 2,096
Other current assets 1,987 980
------------------------
Total current assets 87,438 83,836
Fixed assets--at cost:
Cellular facilities, equipment and other 107,602 76,943
Deposits on cellular equipment 5,886 10,100
Less accumulated depreciation (21,250) (13,728)
------------------------
Net fixed assets 92,238 73,315
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 $3,755 in 1997
and $2,542 in 1996) 13,252 14,031
Due from affiliates 454 --
Cash committed for the acquisition of cellular
operations -- 91,400
Other assets 258 5,197
------------------------
Total assets $ 730,985 $ 698,949
========================
Liabilities and stockholder's equity
Current liabilities:
Accounts payable and accrued expenses $ 22,456 $ 23,925
Other current liabilities 3,250 4,776
Due to affiliates -- 4,929
------------------------
Total current liabilities 25,706 33,630
Long-term debt 503,755 483,430
Deferred taxes 3,797 --
Other long-term liabilities 1,465 1,756
Stockholder's equity:
Common Stock, $0.01 par value per share:
100 shares issued and outstanding
Additional paid-in capital 230,767 211,642
Accumulated deficit (34,505) (31,509)
------------------------
Total stockholder's equity 196,262 180,133
------------------------
Total liabilities and stockholder's equity $ 730,985 $ 698,949
========================
See notes to condensed consolidated financial statements.
2
<PAGE>
Pricellular Wireless Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in Thousands)
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
------------------------------------------
Revenues
Cellular service $ 40,191 $ 25,199 $ 72,865 $ 44,474
Equipment sales 1,158 791 2,283 1,543
Other 1,389 1,116 3,136 2,114
------------------------------------------
42,738 27,106 78,284 48,131
Costs and expenses
Cost of cellular service 11,077 7,085 20,348 12,520
Cost of equipment sold 3,129 2,103 5,581 4,415
Selling, general and administrative 11,984 7,715 23,021 15,027
Depreciation and amortization 7,554 4,908 14,275 9,029
------------------------------------------
33,744 21,811 63,225 40,991
------------------------------------------
Operating income 8,994 5,295 15,059 7,140
Other income (expense)
Gain (loss) on sale of investment
in cellular operations (27) -- 8,424 --
Interest expense, net (includes
interest expense in 1996 of
$399 and $798, respectively,
to Parent) (14,226) (10,224) (28,104) (19,584)
Other income, net 813 250 1,625 500
------------------------------------------
(13,440) (9,974) (18,055) (19,084)
------------------------------------------
Net income (loss) $ (4,446) $ (4,679) $ (2,996) $(11,944)
==========================================
See notes to condensed consolidated financial statements.
3
<PAGE>
Pricellular Wireless 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 $ 11,000 $ 9,675
---------------------
Investing activities
Purchase of cellular equipment (10,998) (7,804)
Proceeds from sale of investment in cellular operations 1,255 --
Proceeds from sale of cellular operations 24,396 --
Acquisition of cellular operations (24,721) (43,912)
Investment in cellular operations -- (264)
Refund (deposit) of escrow 5,000 (1,750)
Purchase of Cellular Information Systems, Inc. shares (2,523) --
---------------------
Net cash used in investing activities (7,591) (53,730)
---------------------
Financing activities
Proceeds from capital contributions -- 33,613
Repayments of notes payable -- (1,776)
(Repayment to) proceeds from affiliate (4,929) 4,660
Payments for deferred financing costs (434) (49)
---------------------
Net cash (used in) provided by in financing activities (5,363) 36,448
---------------------
Decrease in cash and cash equivalents (1,954) (7,607)
Cash and cash equivalents at beginning of period 67,331 26,669
---------------------
Cash and cash equivalents at end of period $ 65,377 $ 19,062
=====================
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
Capital contribution of cellular operations 19,125 26,092
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 --
See notes to condensed consolidated financial statements.
4
<PAGE>
Pricellular Wireless Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation
PriCellular Wireless Corporation including its subsidiaries ("Wireless") was
incorporated on August 23, 1994. On October 21, 1994 PriCellular Corporation
(100% stockholder of Wireless) ("Parent") contributed all of the assets, net of
certain liabilities to Wireless. The transactions were accounted for in a manner
similar to a pooling of interests. Wireless and the businesses contributed to
Wireless are collectively referred to as the "Company." The Company is
principally engaged in the ownership and operation of cellular telephone
systems.
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.
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 Parent's Class A Common Stock.
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).
5
<PAGE>
Pricellular Wireless Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
2. Acquisition of Cellular Operations (continued)
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
--------
Revenues $ 58,276
========
Net loss $(12,726)
========
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. Subsequent Event
In July 1997, the Company transferred approximately $12.0 million in the form of
a dividend to the Parent. The dividend was within the terms of the restricted
payments covenants contained in the bond indentures.
6
<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 $17.4 million for the second quarter of 1997 compared to $10.5
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. Furthermore,
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 acquisitions of the Kentucky cluster, the 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 revenues $ 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%
-------- -------- -------- --------
7
<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 $42,738 (consisting of
cellular service revenues of $40,191 equipment sales revenues of $1,158 and
other revenues of $1,389) from $27,106 (consisting of cellular service revenues
of $25,199, equipment sales revenues of $791 and other revenues of $1,116).
Total operating expenses for the quarter ended June 30, 1997 increased to
$33,744 (consisting of cost of cellular service of $11,077, cost of equipment
sold of $3,129, selling, general and administrative expenses of $11,984 and
depreciation and amortization of $7,554) from $21,811 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 $7,715 and depreciation and amortization of $4,908).
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 and 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 $14.2 million from $10.2 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 $78,284 (consisting
of cellular service revenues of $72,865, equipment sales revenues of $2,283 and
other revenues of $3,136) from $48,131 (consisting of cellular service revenues
of $44,474, equipment sales revenues of $1,543 and other revenues of $2,114).
8
<PAGE>
Total operating expenses for the six months ended June 30, 1997 increased to
$63,225 (consisting of cost of cellular service of $20,348 cost of equipment
sold of $5,581 selling, general and administrative expenses of $23,021 and
depreciation and amortization of $14,275) from $40,991 (consisting of cellular
service of $12,520, cost of equipment sold of $4,415, selling, general and
administrative expenses of $15,027 and depreciation and amortization of $9,029).
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 $28.1 million from $19.6 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
AL-1B 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
$65.4 million of cash and cash equivalents and $61.7 million of working capital.
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, $11.0
million from operations and $5.0 million from the return of escrow for the
acquisition of the Kentucky Cluster.
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, $11.0 million for the purchase of
cellular equipment, $4.9 million for payments to an affiliate 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 $67.3 million).
Subsequent to June 30, 1997, the Company transferred approximately $12.0 million
in the form of a dividend to the Parent.
9
<PAGE>
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 expend its marketing effects which include, but are not
limited to, an increase in funds for advertising, cellular telephone inventory
purchase 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.
10
<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
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
11
<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 WIRELESS 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
12
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 65,377
<SECURITIES> 0
<RECEIVABLES> 20,123
<ALLOWANCES> 1,537
<INVENTORY> 1,488
<CURRENT-ASSETS> 87,438
<PP&E> 113,488
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<CURRENT-LIABILITIES> 25,706
<BONDS> 503,755
0
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<CGS> 5,581
<TOTAL-COSTS> 63,225
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