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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, 1998
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.)
711 Westchester Avenue
White Plains, New York 10604
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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)
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 May 10, 1998
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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, 1998
and December 31, 1997.................................................. 2
Condensed Consolidated Statements of Operations--Three Months Ended
March 31, 1998 and 1997................................................ 3
Condensed Consolidated Statements of Cash Flows--Three Months Ended
March 31, 1998 and 1997................................................ 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
<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,
1998 1997
---------------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 59,579 $ 59,523
Accounts receivable (less allowance of $1,594 in 1998 and $1,648 in 1997) 22,400 18,979
Inventory 1,533 2,215
Due from affiliate 3,992 1,236
Other current assets 1,464 1,789
---------------------------
Total current assets 88,968 83,742
Fixed assets--at cost:
Cellular facilities, equipment and other 147,049 133,952
Less accumulated depreciation (34,098) (29,267)
---------------------------
Net fixed assets 112,951 104,685
Investment in cellular operations 37,007 37,017
Cellular licenses (less accumulated amortization of $26,779 in 1998
and $23,119 in 1997) 560,706 493,315
Deferred financing costs (less accumulated amortization of $5,414 in 1998
and $4,807 in 1997) 12,909 12,281
Cash committed for the acquisition of cellular operations - 13,000
Other assets 257 256
---------------------------
Total assets $812,798 $744,296
===========================
Liabilities and stockholder's equity Current liabilities:
Accounts payable and accrued expenses $ 43,174 $ 35,936
Other current liabilities 1,313 2,125
---------------------------
Total current liabilities 44,487 38,061
Long-term debt 588,200 522,700
Deferred taxes 3,797 3,797
Other long-term liabilities 1,050 1,018
Stockholder's equity:
Common Stock, $0.01 par value per share:
100 shares issued and outstanding
Additional paid-in capital 218,767 218,767
Accumulated deficit (43,503) (40,047)
---------------------------
Total stockholder's equity 175,264 178,720
---------------------------
Total liabilities and stockholder's equity $812,798 $744,296
===========================
</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
1998 1997
---------------------------------------
<S> <C> <C>
Revenues
Cellular service $ 47,678 $ 32,674
Equipment sales 1,314 1,125
Other 1,682 1,747
---------------------------------------
50,674 35,546
Costs and expenses
Cost of cellular service 12,864 9,271
Cost of equipment sold 2,595 2,452
Selling, general and administrative 14,352 11,037
Depreciation and amortization 8,491 6,721
---------------------------------------
38,302 29,481
---------------------------------------
Operating income 12,372 6,065
Other income (expense)
Gain on sale of investment in cellular operations -- 8,451
Interest expense, net (16,640) (13,878)
Other income 812 812
---------------------------------------
(15,828) (4,615)
---------------------------------------
Net income (loss) $ (3,456) $ 1,450
=======================================
</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
1998 1997
---------------------------------
<S> <C> <C>
Net cash provided by operating activities $ 13,149 $ 6,035
---------------------------------
Investing activities
Purchase of cellular equipment (11,376) (6,394)
Purchase of cellular licenses - (1,007)
Proceeds from sale of investment in cellular operations - 24,396
Acquisition of cellular operations (481) (11,374)
Refund of escrow - 5,000
Investment in cellular operations - (2,523)
---------------------------------
Net cash (used in) provided by investing activities (11,857) 8,098
---------------------------------
Financing activities
Repayment of due to affiliate - (4,929)
Payments for deferred financing costs (1,236) (292)
---------------------------------
Net cash used in financing activities (1,236) (5,221)
---------------------------------
Increase (decrease) in cash and cash equivalents 56 8,912
Cash and cash equivalents at beginning of period 59,523 67,331
---------------------------------
Cash and cash equivalents at end of period $ 59,579 $ 76,243
=================================
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 96 $ -
Income taxes 78 1,307
Supplemental schedule of noncash investing activities
Capital contribution of cellular operations - 19,125
Utilization of cash committed for the acquisition of cellular operations 13,000 91,400
Debt issued in connection with acquisition of cellular license 60,000 -
</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 1997 Annual
Report on Form 10-K.
2. Sale of the Company
On March 6, 1998 Company's parent and American Cellular Corporation ("ACC")
entered into an Agreement and Plan of Merger ("Merger Agreement") pursuant to
which ACC will merge into Parent, with ACC to be the surviving corporation. At
the effective time each issued and outstanding share of Parent's Class A and
Class B common stock and Parent's outstanding Series A Convertible Preferred
stock will be redeemed at $14.00 per share payable in cash.
In connection with the Merger Agreement, Parent's Principal Shareholders entered
into a voting agreement with ACC. Pursuant to the agreement, Parent's Principal
Shareholders, the beneficial owners of approximately 39% of the outstanding
common stock and preferred stock of Parent (or 57% of the fully diluted voting
power of Parent), agreed to vote their shares in favor of the adoption of the
Merger Agreement. The transaction is subject to, among other things, regulatory
approvals.
5
<PAGE>
PriCellular Wireless Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
3. Acquisition of Cellular Operations
On January 15 1998, Kyle Cellular, a wholly owned subsidiary of the Company,
acquired the TN-4 RSA with approximately 264,000 Pops from Bachtel Liquidity,
L.P., an affiliate of Bachow & Associates, Inc. for approximately $73.0 million
in cash. The RSA, adjacent to three MSAs including Knoxville TN, is located
south of the Company's Kentucky Cluster and features such tourist attractions as
the towns of Gatlinburg and Pigeon Forge, Dollywood and the entrance to the
Great Smoky Mountains National Park. Of the total purchase price, $13.0 million
was funded through cash committed for the acquisition at December 31, 1997 with
the balance provided by a $60.0 million Senior Secured Reducing Revolver due in
the year 2005.
The above acquisition is accounted for on the purchase method of accounting and
is included in the results of operations from the date of acquisition.
Pro forma consolidated results of operations for the period ended March 31,
1997, assuming the acquisition was consummated as of January 1, 1997, is as
follows:
March 31, 1997
-----------------
Revenue $ 39,045
=================
Net income $ 1,441
=================
6
<PAGE>
PriCellular Wireless Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
4. Long-Term Debt
In January 1998, the Company, through its wholly owned subsidiary Kyle Cellular,
entered into a $60.0 million Senior Secured Reducing Revolver (the "Borrowing")
with J.P. Morgan Securities Inc. The Borrowing matures eight years from the
closing date with repayment commencing in the year 2001 and the final payment in
the year 2005 with payments ranging from 10.0% to 25.0% of the then outstanding
balance. Interest is currently charged at the LIBOR rate plus a premium ranging
from 1.500% to 2.2500% depending on the ratio of debt to cash flow as defined.
The Borrowing requires the attainment of certain financial ratios in order to
maintain the permitted level of indebtedness. Violation of such ratios requires
the permanent prepayment of an amount to cure the deficiency. The Borrowing is
secured by the assets of Kyle Cellular.
Pursuant to the agreement the Company has entered into an interest rate swap
which effectively converts a portion of the interest on the outstanding
indebtedness from a variable rate basis to a fixed rate basis. The notional
amount required to be hedged is 50% of the aggregate outstanding principal
amount. For the period commencing January 21, 1998 and ending July 21, 1998 the
Company has "locked in " an effective annual rate of 7.64% on the total
outstanding indebtedness of $60.0 million.
7
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
The current three month period ending March 31, 1998 reflects the continuing
financial growth of the Company's operations. Net subscriber additions
approximated 25,000 for the current quarter of which approximately 14,400 were
from internal growth, which is comparable to last year's first quarter. The
Company ended the current period with approximately 275,000 subscribers
resulting in penetration of 5.4% compared to approximately 179,000 subscribers
and a penetration rate of 3.8% at March 31, 1997. Churn for the Company
continued its improvement ending the current quarter at a rate of 1.4% compared
to 1.6% for last year's three month period.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
amounted to $21.7 million for the first quarter of 1998 compared to $13.6
million for the same period in 1997 or an increase of 60.0%. Management believes
that EBITDA is an effective measure of operating performance because it is
industry practice to use a multiple of EBITDA as one method of evaluating
cellular properties. EBITDA does not represent cash flow from operations as
defined by GAAP, and is not necessarily indicative of cash available to fund all
cash flow needs and should not be considered as an alternative to net income.
The Company in fact expects to incur net accounting losses for the foreseeable
future due to interest and non-cash charges such as depreciation and
amortization.
Historical Results of Operations
Three months ended March 31, 1998 compared with three months ended March 31,
1997.
Revenues for the quarter ended March 31, 1998 increased to $50.7 million
(consisting of cellular service revenues of $47.7 million, equipment sales
revenues of $1.3 million and other revenues of $1.7 million) from $35.5 million
(consisting of cellular service revenues of $32.7 million, equipment sales
revenues of $1.1 million and other revenues of $1.7 million).The significant
increase in the subscriber base which generates additional monthly revenue and
increased airtime revenue is the primary reason for the increase, In addition
the Company's commitment to improving coverage in the markets through capital
additions has resulted in increased roaming revenue.
8
<PAGE>
Total operating expenses for the quarter ended March 31, 1998 increased to $38.3
million (consisting of cost of cellular service of $12.9 million, cost of
equipment sold of $2.5 million selling, general and administrative expenses of
$14.4 million and depreciation and amortization of $8.5 million) from $29.5 of
operating expenses for the quarter ended March 31, 1997 (consisting of cost of
cellular service of $9.3 million, cost of equipment sold of $2.5 million,
selling, general and administrative expenses of $11.0 million and depreciation
and amortization of $6.7 million).
9
<PAGE>
The primary factor contributing to the increase in expenses is the increase in
the volume of revenue due to the growth of the business. On a percentage basis
the cost of cellular service represents 27% of cellular revenue for the current
period compared to 28% for the prior period. Operating expenses consisting of
the cost of cellular service, the cost of equipment and selling, general and
administrative expenses increased by $7.1 million, but as a percentage of total
revenue decreased from 64% for the quarter ending March 31, 1997 to 59% for the
current quarter
The gain on sale of investment in cellular operations resulted from the sale in
January 1997 of the Florence AL MSA and AL-1B RSA.
Interest expense, net increased to $16.6 million from $13.9 million due
primarily to the Company's issuance of $60.0 million of a Senior Secured
Reducing Revolver at an effective rate of approximately 7.7% per annum in
January 1998, a reduction in the amount of interest earned resulting from the
lower cash balances for the current three months and higher interest expense for
the discounted indebtedness outstanding as the balance approaches the face value
of the Note.
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, 1998, the Company had approximately $59.6 million of
cash and cash equivalents and $44.1 million of working capital.
During the first three months of 1998, the Company's principal source of cash
was $13.1 from operations. The principal use of cash was $11.4 million for the
acquisition of cellular equipment. The acquisition of the TN-4 RSA for
approximately $73.0 million was financed through the issuance of $60.0 million
of debt and the utilization of $13.0 million of cash previously reflected as
cash committed for the acquisition of cellular operations on the balance sheet
of the Company at the end of 1997 and not included in the opening cash balance
of $61.4 million.
The cellular telephone industry requires significant capital expenditures when
acquiring new markets or upgrading existing markets. The Company continues to
make a commitment to enhance its market's performance, particularly those
acquired during 1996 and 1997, 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.
10
<PAGE>
During the second quarter of 1998, the Company will pay approximately $22.0
million in interest and approximately $44.0 million for the remainder of the
year on of their fully accreted Notes.
11
<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
12
<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: May 15, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 59,579
<SECURITIES> 0
<RECEIVABLES> 22,400
<ALLOWANCES> 1,594
<INVENTORY> 1,533
<CURRENT-ASSETS> 86,579
<PP&E> 147,049
<DEPRECIATION> 34,098
<TOTAL-ASSETS> 810,409
<CURRENT-LIABILITIES> 44,487
<BONDS> 588,200
0
0
<COMMON> 0
<OTHER-SE> 172,875
<TOTAL-LIABILITY-AND-EQUITY> 810,409
<SALES> 1,314
<TOTAL-REVENUES> 50,674
<CGS> 2,595
<TOTAL-COSTS> 40,691
<OTHER-EXPENSES> 812
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,640
<INCOME-PRETAX> (5,845)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,845)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,845)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
