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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 March 31, 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.)
45 Rockefeller Plaza
New York, NY 10020
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(Address of principal executive offices) (Zip Code)
(212) 459-0800
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(Registrant's telephone number, including area code)
Not applicable
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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.
Common Stock, $0.01 Par Value - 100 shares as of April 20, 1997
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<PAGE>
Index
PriCellular Wireless Corporation and Subsidiaries
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets--March 31, 1997
and December 31, 1996.................................................. 2
Condensed Consolidated Statements of Operations--Three Months Ended
March 31, 1997 and 1996................................................ 3
Condensed Consolidated Statements of Cash Flows--Three Months Ended
March 31, 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...................................................10
Item 2. Changes in Securities...............................................10
Item 3. Defaults upon Senior Securities.....................................10
Item 4. Submission of Matters to a Vote of Security Holders.................10
Item 5. Other Information...................................................10
Item 6. Exhibits and Reports on Form 8-K....................................10
Signature...................................................................11
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)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 76,243 $ 67,331
Accounts receivable (less allowance of $1,626 in 1997 and $1,767 in 1996) 16,747 13,429
Inventory 1,616 2,096
Other current assets 1,767 980
---------------------------
Total current assets 96,373 83,836
Fixed assets--at cost:
Cellular facilities, equipment and other 98,784 76,943
Deposits on cellular equipment 10,100 10,100
Less accumulated depreciation (17,325) (13,728)
---------------------------
Net fixed assets 91,559 73,315
Investment in cellular operations 39,639 39,641
Cellular licenses (less accumulated amortization of $13,511 in 1997
and $10,415 in 1996) 485,445 377,808
Cellular licenses held for sale - 13,721
Deferred financing costs (less accumulated amortization of $3,108 in 1997
and $2,542 in 1996) 13,757 14,031
Cash committed for the acquisition of cellular operations - 91,400
Other assets 116 5,197
---------------------------
Total assets $726,889 $698,949
===========================
Liabilities and stockholder's equity
Current liabilities:
Accounts payable and accrued expenses $ 27,831 $ 23,925
Other current liabilities 2,715 4,776
Due to affiliate - 4,929
---------------------------
Total current liabilities 30,546 33,630
Long-term debt 493,305 483,430
Other long-term liabilities 2,203 1,756
Stockholder's equity:
Common Stock, $0.01 par value per share:
100 shares issued and outstanding
Additional paid-in capital 230,894 211,642
Accumulated deficit (30,059) (31,509)
---------------------------
Total stockholder's equity 200,835 180,133
---------------------------
Total liabilities and stockholder's equity $726,889 $698,949
===========================
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
PriCellular Wireless Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three months ended
March 31
1997 1996
---------------------------------------
<S> <C> <C>
Revenues
Cellular service $ 32,674 $ 19,275
Equipment sales 1,125 752
Other 1,747 998
---------------------------------------
35,546 21,025
Costs and expenses
Cost of cellular service 9,271 5,435
Cost of equipment sold 2,452 2,312
Selling, general and administrative 11,037 7,312
Depreciation and amortization 6,721 4,121
---------------------------------------
29,481 19,180
---------------------------------------
Operating income 6,065 1,845
Other income (expense)
Gain on sale of investment in cellular operations 8,451 -
Interest expense, net (13,878) (9,360)
Other income 812 250
---------------------------------------
(4,615) (9,110)
---------------------------------------
Net income (loss) $ 1,450 $ (7,265)
=======================================
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
PriCellular Wireless Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three months ended
March 31
1997 1996
---------------------------------
<S> <C> <C>
Net cash provided by operating activities $ 6,035 $ 5,166
---------------------------------
Investing activities
Purchase of cellular equipment (6,394) (5,278)
Purchase of cellular licenses (1,007) (437)
Proceeds from sale of investment in cellular operations 24,396 -
Acquisition of cellular operations (11,374) (27)
Investment in cellular operations - (271)
Refund of escrow 5,000 -
Purchase of Cellular Information Systems, Inc. shares (2,523) -
---------------------------------
Net cash provided by (used in) investing activities 8,098 (6,013)
---------------------------------
Financing activities
Proceeds from capital contributions - 13
Repayments of notes payable - (1,680)
Repayment of due to affiliate (4,929) -
Payments for deferred financing costs (292) (49)
---------------------------------
Net cash used in financing activities (5,221) (1,716)
---------------------------------
Increase (decrease) in cash and cash equivalents 8,912 (2,563)
Cash and cash equivalents at beginning of period 67,331 26,669
---------------------------------
Cash and cash equivalents at end of period $ 76,243 $ 24,106
=================================
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ - $ 119
Income taxes 1,307 348
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 -
</TABLE>
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
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.
Pro forma consolidated results of operations for the period ended March 31,
1996, assuming the acquisition of the four RSAs in Kentucky was consummated as
of January 1, 1996, is as follows:
March 31, 1996
-----------------
Revenue $ 25,652
=================
Net loss $ (9,470)
=================
5
<PAGE>
PriCellular Wireless Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
3. Disposition of Cellular Operations
On January 7, 1997, the Company sold its standalone 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. Pending Transactions
On March 18, 1997, the Company entered into an agreement with United States
Cellular Corporation to acquire, subject to FCC approval, three counties in the
WI-5 RSA with approximately 81,000 Pops which abut PriCellular's Eau Claire, WI
MSA, its WI-1 RSA and AT&T Wireless Services, Inc.'s Minneapolis MSA for cash
and minority pops.
On March 31, 1997, the Company purchased approximately 6% of the remaining
outstanding common stock of Cellular Information Systems Inc. ("CIS") that it
did not acquire in 1994 for approximately $2.9 million in cash. As a result of
this transaction, there remains less than one percent outstanding of CIS Common
Stock that the Company does not own. The Company may acquire the remaining
shares of CIS stock.
6
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
During the three months ended March 31, 1997, the Company acquired the Kentucky
Cluster for approximately $96.4 million in cash and 1,948,052 shares of Parent's
Class A Common Stock and the WI-4 RSA which has 119,000 Pops for approximately
$6.3 million. Additionally, the Florence Alabama system which had approximately
200,000 Pops was sold resulting in a gain of $8.5 million. Comparison of
operating results is not really meaningful due to the significant acquisitions
completed in the second, third and fourth quarters of 1996 as well as the
above-mentioned transactions which occurred on January 7, 1997. Thus, the
results of operations for the quarter ended March 31, 1997 are not comparable to
the previous quarter ended March 31, 1996. The results for the first quarter of
1997 reflect the strong operating performance of the Company. Earnings before
interest, taxes, depreciation and amortization ("EBITDA") amounted to $13.6
million for the first quarter of 1997 compared to $6.2 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. With the completion of the above-mentioned transactions, the
Company now owns approximately 4.8 million Pops and has approximately 179,000
subscribers resulting in penetration of approximately 3.7% compared to a
penetration of approximately 2.6% as of March 31, 1996.
Historical Results of Operations (000's omitted, except subscriber data)
Three months ended March 31, 1997 compared with three months ended March 31,
1996.
Revenues for the quarter ended March 31, 1997 increased to $35,546 (consisting
of cellular service revenues of $32,674, equipment sales revenues of $1,125 and
other revenues of $1,747) from $21,025 (consisting of cellular service revenues
of $19,275, equipment sales revenues of $752 and other revenues of $998).
Total operating expenses for the quarter ended March 31, 1997 increased to
$29,481 (consisting of cost of cellular service of $9,271, cost of equipment
sold of $2,452, selling, general and administrative expenses of $11,037 and
depreciation and amortization of $6,721) from $19,180 of operating expenses for
the quarter ended March 31, 1996 (consisting of cost of cellular service of
$5,435, cost of equipment sold of $2,312, selling, general and administrative
expenses of $7,312 and depreciation and amortization of $4,121).
7
<PAGE>
The primary factor contributing to the increase in revenues and operating
expenses was the Company's 1996 acquisitions subsequent to the first quarter
ending March 31, 1996 of the NY-6 RSA, the Poughkeepsie NY MSA and the Orange
County NY MSA as well as the acquisitions completed in the first quarter of 1997
which, are therefore reflected in the results of operations for the current
quarter end 1997 but not in the first quarter of 1996.
Other income (expense) for the first quarter of 1997 includes a gain on the sale
of cellular properties of $8.5 million resulting from the sale of the Florence
AL MSA and AL-1B RSA.
Interest expense, net increased to $13.9 million from $9.4 million due primarily
to the Company's issuance of $170.0 million of Senior Notes at 10-3/4% in
November 1996 for which interest has been accrued for the first quarter of 1997.
Other income for the current and prior quarter consists of revenue earned
directly from covenants not to compete of $812 for 1997 and $250 for 1996.
The Company has not recorded a provision for income taxes because it does not
anticipate having taxable income for the year.
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, sale of Parent's equity interests and its subsequent contribution to
the Company, borrowings, vendor credit facilities and, more recently, operating
cash flow. As of March 31, 1997, the Company had approximately $76.2 million of
cash and cash equivalents and $65.8 million of working capital.
During the first quarter 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, $6.0 million
from the operations of the Company and $5.0 million from the return of escrow
for the acquisition of the Kentucky Cluster.
The principal uses of cash were $6.3 million for cellular equipment, $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 on the opening cash balance of $67.3 million) and $6.3 million for the
acquisition of the WI-4 RSA.
As previously mentioned, the cellular telephone industry requires significant
capital expenditures. Certain of the new markets acquired in 1996 will require
substantial additions as the Company seeks to better develop subscriber coverage
and in general enhance the market's performance as has been the Company's
operating strategy.
8
<PAGE>
The Company continues to expand its marketing efforts which include, but are not
limited to, the increase in funds for advertising, cellular telephone inventory
purchases and other expenditures relating to subscriber growth.
As of March 31, 1997, the Company had an agreement to acquire, subject to FCC
approval, three counties in the WI-5 RSA. The Company has sufficient cash on
hand to fund the acquisition.
The Company continually reviews plans for future growth through acquisitions
which may require additional financing. Although the Company has historically
been able to obtain such financing, there is no guarantee that such financing
will be available.
9
<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
10
<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: April 29, 1997
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Mar-31-1997
<CASH> 76,243
<SECURITIES> 0
<RECEIVABLES> 16,747
<ALLOWANCES> 1,626
<INVENTORY> 1,616
<CURRENT-ASSETS> 96,373
<PP&E> 108,884
<DEPRECIATION> 17,325
<TOTAL-ASSETS> 726,889
<CURRENT-LIABILITIES> 30,546
<BONDS> 405,508
0
0
<COMMON> 0
<OTHER-SE> 200,835
<TOTAL-LIABILITY-AND-EQUITY> 726,889
<SALES> 1,125
<TOTAL-REVENUES> 35,546
<CGS> 2,452
<TOTAL-COSTS> 29,481
<OTHER-EXPENSES> (9,263)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,878
<INCOME-PRETAX> 1,450
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,450
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,450
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
