SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 29, 1994
VANGUARD CELLULAR SYSTEMS, INC.
(Exact Name of Registrant as Specified in its Charter)
North Carolina 0-16560 56-1549590
(State or other Jurisdiction (Commission File (IRS Employer
of Incorporation) Number) Identification
No.)
2002 Pisgah Church Road, Suite 300, Greensboro, NC 27455
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (910) 282-3690
Item 5. Other Events.
On August 5, 1994, the Registrant entered into a Stock Purchase
Agreement with Crowley Cellular Telecommunications Limited Partnership
("Crowley LP") and Crowley Cellular Telecommunications Binghamton, Inc.
("Crowley Inc.") to acquire all of the outstanding stock of Crowley Inc. for
a purchase price of $48,539,250, subject to certain closing adjustments.
Crowley LP is the sole shareholder of Crowley Inc. Crowley Inc. is the
Federal Communications Commission ("FCC") license holder for the
nonwireline cellular telephone system in the Elmira, New York metropolitan
statistical area ("Elmira MSA") and is the general partner and 97% owner
of the partnership that is the FCC license holder for the nonwireline
cellular telephone system in the Binghamton, New York metropolitan
statistical area ("Binghamton MSA").
The purchase price is payable, at Registrant's option, in cash or
Class A Common Stock of the Registrant, or any combination thereof, provided
that the amount of Class A Common Stock delivered cannot equal or exceed 5% of
the Registrant's outstanding stock after giving effect to the issuance
thereof. Any stock issued by Registrant in payment of part or all of the
purchase price must be subject to a then effective registration statement
under the Securities Act of 1933 for resale to the public. Historical
financial statements are included herewith on pages 3 through 12 and pro
forma financial information with respect to this pending acquisition are
included herewith on pages 13 through 18 and the Stock Purchase Agreement
is incorporated by reference as an exhibit hereto.
On September 26, 1994, the Registrant entered into an Asset Purchase
Agreement with Sunshine Cellular, a general partnership ("Sunshine"), to
acquire all of the assets of Sunshine for a purchase price of $50,350,000,
subject to certain closing adjustments. Sunshine is the FCC license holder
for the nonwireline cellular telephone system in the Pennsylvania 8-Union
rural service area ("PA-8 RSA").
The purchase price consists of $15,000,000 in cash with the remainder
payable, at Registrant's option, in cash or Class A Common Stock of the
Registrant, or any combination thereof. Any stock issued by Registrant in
payment of part or all of the purchase price must be subject to a then
effective registration statement under the Securities Act of 1933 for resale
to the public. It is impracticable to provide at this time historical
financial statements and pro forma financial information with
1
respect to the pending acquisition of Sunshine. The Asset Purchase Agreement
is filed as an exhibit hereto.
In addition to the foregoing, the Registrant entered into an
agreement on July 5, 1994 to acquire the holder of the FCC licenses for the
West Virginia 1- Mason rural service area ("WV-1 RSA") and the Maine 4 -
Washington rural service area ("ME-4 RSA") for an aggregate purchase price of
approximately $6.7 million in cash and $3.3 million in Class A Common Stock,
subject to certain closing adjustments. This transaction does not involve
businesses which are significant under Regulation S-X. Accordingly, financial
statements and pro forma financial information are not included herein with
respect thereto nor is the acquisition agreement filed as an exhibit.
The closing of each of the foregoing transactions is subject to
customary conditions and regulatory approvals. The acquisition of the Elmira
and Binghamton MSAs and the WV-1 and ME-4 RSAs are expected to occur prior to
the end of 1994. The closing of the acquisition of the PA-8 RSA is expected to
occur in the first quarter of 1995.
The terms of each of the foregoing transactions were arrived at
through private negotiation and were based primarily on the "pops" for the
markets to be acquired. Each of the markets to be acquired are operational
and the Registrant intends to continue to use the assets of the acquired
markets in those respective markets.
The Registrant expects to fund any cash portion of the purchase prices
for the foregoing pending acquisitions through its loan agreement entered into
in 1993 with various leaders led by the Bank of New York and Toronto Dominion
Bank (the "1993 Loan Agreement"). Any such funding would require approval of
its lenders. In addition, depending upon the availability of funds under the
1993 Loan Agreement at closing of each acquisition, the Registrant may need
alternative sources of financing to fund part or all of the acquisition with
cash. As of June 30, 1994, the Registrant had $103.5 available under the 1993
Loan Agreement; however, additional borrowings in excess of $20.0 million for
acquisition would require lender approval.
2
CROWLEY CELLULAR TELECOMMUNICATIONS BINGHAMTON, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, June 30
A S S E T S 1993 1993 1994
(Unaudited)
CURRENT ASSETS:
Cash $ 142,311 $ 364,596 $517,019
Accounts receivable, net of allowance
of $10,700 at December 31, 1993,
$12,100 at June 30, 1993, and
$11,700 at June 30, 1994 983,374 1,119,715 1,076,555
Inventory 111,424 126,402 178,235
Prepaid expenses 70,924 69,303 84,695
Due from affiliates - - 176,788
Total current assets 1,308,033 1,680,016 2,033,292
PROPERTY AND EQUIPMENT:
Leasehold improvements 1,081,447 997,608 1,081,447
Buildings 343,399 276,249 343,399
Towers 482,462 356,601 483,396
Switching equipment 1,007,045 933,402 940,061
Network equipment 2,656,197 2,438,227 2,622,304
Microwave equipment 206,807 206,807 206,807
Furniture and fixtures 856,945 838,172 872,294
Vehicles 66,433 66,433 81,501
6,700,735 6,113,499 6,631,209
Less- Accumulated depreciation and
amortization 3,041,513 2,678,370 3,358,065
Property and equipment, net 3,659,222 3,435,129 3,273,144
OTHER ASSETS, net of accumulated
amortization of $4,302,739 at
December 31, 1993, $3,825,668 at
June 30, 1993, and $4,748,923 at
June 30, 1994:
Cellular franchise costs 8,988,543 9,179,694 8,592,595
Organization, start-up and financing
costs 512,889 554,858 466,653
Software license costs 8,000 12,000 4,000
Reorganization costs - 11,807 -
Other assets, net 9,509,432 9,758,359 9,063,248
$ 14,476,687 $14,873,504 $14,369,684
3
December 31, June 30
LIABILITIES AND SHAREHOLDER'S EQUITY 1993 1993 1994
(Unaudited)
CURRENT LIABILITIES:
Current portion of bank notes payable $ 575,362 $ - $1,234,058
Accounts payable 153,219 222,745 55,451
Accrued expenses 485,468 334,939 480,591
Accrued interest payable 67,174 70,500 60,000
Current portion of deferred revenue 666,667 666,667 333,334
Due to affiliates 333,605 215,474 -
Total current liabilities 2,281,495 1,510,325 2,163,434
LONG-TERM LIABILITIES:
Bank notes payable 6,328,984 6,904,346 6,170,288
Subordinated notes payable 2,535,920 2,435,324 2,638,946
Deferred revenue - 333,334 -
Total long-term liabilities 8,864,904 9,673,004 8,809,234
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY 71,111 101,215 76,570
SHAREHOLDER'S EQUITY:
Common stock, no par value, 3,000
shares authorized, 100 shares issued
and outstanding 1,000 1,000 1,000
Paid-in capital 15,288,543 15,288,543 15,288,543
Retained deficit-
Balance, beginning of period (11,404,732) (11,404,732) (12,030,366)
Net income (loss) for the period (625,634) (295,851) 61,269
Balance, end of period (12,030,366) (11,700,583) (11,969,097)
Total shareholder's equity 3,259,177 3,588,960 3,320,446
$14,476,687 $14,873,504 $14,369,684
The accompanying notes are an integral part of these balance sheets.
4
CROWLEY CELLULAR TELECOMMUNICATIONS BINGHAMTON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended
June 30
Year Ended
Dec.31, 1993 1993 1994
(Unaudited)
REVENUES:
Cellular services $6,099,029 $2,801,664 $3,660,144
Equipment sales and other 523,287 203,206 232,665
Total revenues 6,622,316 3,004,870 3,892,809
OPERATING EXPENSES:
System operations 2,358,657 1,045,538 1,429,411
Cost of equipment sales 944,621 332,528 439,042
Selling 755,078 340,981 314,007
General and administrative 1,579,455 777,358 841,725
Depreciation and amortization 1,641,686 801,472 775,064
Total operating expenses 7,279,497 3,297,877 3,799,249
Income (loss) from operations (657,181) (293,007) 93,560
OTHER (INCOME) EXPENSE:
Interest 578,209 258,404 273,499
Other (601,429) (252,944) (246,667)
Other (income) expense, net (23,220) 5,460 26,832
Income (loss) before minority
interest (633,961) (298,467) 66,728
MINORITY INTEREST IN INCOME (LOSS) OF
CONSOLIDATED SUBSIDIARY (8,327) (2,616) 5,459
NET INCOME (LOSS) FOR THE PERIOD $(625,634) $(295,851) $61,269
The accompanying notes are an integral part of these statements.
5
CROWLEY CELLULAR TELECOMMUNICATIONS BINGHAMTON, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30
Year Ended
Dec. 31, 1993 1993 1994
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) for the period $(625,634) $(295,851) $61,269
Adjustments to reconcile net income
(loss) for the period to net cash
provided by (used in) operating
activities-
Minority interest in income (loss) of
consolidated subsidiary (8,327) (2,616) 5,459
Depreciation and amortization 1,641,686 801,472 775,064
Loss on sale of property and equipment - - 60,547
Changes in operating assets and
liabilities-
Accounts receivable, net (186,345) (322,686) (93,181)
Inventory 18,468 3,490 (66,811)
Prepaid expenses 20,506 22,127 (13,771)
Accounts payable (84,513) (14,987) (97,768)
Accrued expenses (504,545) (655,074) (4,877)
Accrued interest payable (26,459) (23,133) (7,174)
Net cash provided by (used in)
operating activities 244,837 (487,258) 618,757
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt borrowings 445,672 345,076 603,026
Decrease in deferred revenue (666,667) (333,333) (333,333)
Increase (decrease) in due to (from)
affiliates, net 604,137 486,006 (510,393)
Net cash provided by (used in)
financing activities 383,142 497,749 (240,700)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (747,590) (160,429) (49,328)
Proceeds from sale of property and
equipment 211 213 45,979
Increase in other assets (23,720) (1,110) -
Purchase of minority interest in
consolidated subsidiary (230,000) - -
Net cash used in investing (1,001,099) (161,326) (3,349)
activities
NET INCREASE (DECREASE) IN CASH FOR THE
PERIOD (373,120) (150,835) 374,708
CASH, beginning of the period 515,431 515,431 142,311
CASH, end of the period $142,311 $364,596 $517,019
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $463,327 $225,139 $177,278
The accompanying notes are an integral part of these statements.
6
CROWLEY CELLULAR TELECOMMUNICATIONS BINGHAMTON, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
(Six Months Ended June 30, 1993 and 1994, are Unaudited)
1. DESCRIPTION OF BUSINESS AND SUMMARY
OF SIGNIFICANT ACCOUNTING AND
REPORTING POLICIES:
Crowley Cellular Telecommunications Binghamton, Inc. (the
Company--a wholly owned subsidiary of Crowley Cellular
Telecommunications, L.P. (CCTLP)) was formed on August 10,
1988, to conduct cellular operations in Elmira, New York,
under a franchise issued by the Federal Communications
Commission (FCC). The Company also maintains a majority
investment (96.9651% at December 31, 1993, 95.965% at June 30,
1993, and 96.9651% at June 30, 1994) in Binghamton CellTelCo.
(BCTC), which conducts cellular operations in Binghamton,
New York, under a franchise issued by the FCC. The franchises
are geographically limited to specific market boundaries
defined by the U.S. Census Bureau as Standard Metropolitan
Statistical Areas, or SMSA's.
Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and its majority-owned subsidiary. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
On July 27, 1993, the Company acquired an additional 1.0001%
ownership interest in its majority-owned subsidiary for
$230,000.
Inventory
Inventory is stated at the lower of cost, determined under the
first-in, first-out method, or market. All inventory is
finished goods.
Property and Equipment
Property and equipment are stated at cost. Property and
equipment are being depreciated or amortized using an
accelerated method. The estimated useful lives are as
follows:
7
Asset Description Asset Life
Leasehold improvements 31.5 years
Buildings 31.5 years
Towers 7 years
Switching equipment 7 years
Network equipment 7 years
Microwave equipment 7 years
Furniture and fixtures 5 to 7 years
Vehicles 5 years
Other Assets
Other assets include cellular franchise costs, which represent
amounts paid to acquire the FCC authorizations, and
organization, start-up, financing, software license and
reorganization costs. These assets are amortized on a
straight-line basis over the following lives:
Asset Description Asset Life
Cellular franchise costs 15 years
Organization and start-up 5 years
costs
Financing costs 9 years
Software license costs 5 years
Reorganization costs 5 years
Income Taxes
In February, 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," which requires a
change from the deferred method to the asset and liability
method of accounting for income taxes. Under the asset and
liability method, deferred income taxes are recognized for the
tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts
and the tax bases of existing assets and liabilities. The
Company adopted SFAS No. 109 effective January 1, 1993.
Partnership losses of BCTC have been included in the taxable
income of the Company to the extent of allocations in
accordance with the terms of the partnership agreement. Due
to net losses incurred, no income taxes are due and,
accordingly, no provision for income taxes has been reflected
in the accompanying statements of operations. The Company has
aggregate tax net operating losses (which approximate book net
operating losses) of approximately $11,300,000, $10,700,000
and $11,700,000 as of December 31, 1993, and June 30, 1993 and
1994, respectively, which may be utilized to offset future
taxable income of the Company. The Company has not recognized
any benefit to be derived from future recognition of net
operating losses.
8
Revenues
Cellular service revenue is recognized when earned. Recurring
monthly subscriber revenues are billed in advance. The
unearned portion of the subscriber revenue is deferred and
included in accrued expenses in the accompanying consolidated
balance sheets. Sales of mobile phone equipment and related
services are recorded at the point the goods and services are
delivered.
Interim Financial Data
In management's opinion, the unaudited interim consolidated
financial statements for the six months ended June 30, 1993
and 1994, are presented on a basis consistent with the audited
consolidated financial statements, and all adjustments,
consisting only of normal recurring adjustments, which are
necessary to present fairly the operating results have been
reflected. The results of operations for interim periods are
not necessarily indicative of operations for the full fiscal
year.
2. BANK NOTES PAYABLE:
The Company has approximately $6,900,000 outstanding at
December 31, 1993, under a Third Amended and Restated Loan
Agreement (Agreement) dated January 7, 1992. The Agreement is
between the shareholder and its wholly owned subsidiaries,
including the Company, and various banks. Interest is payable
quarterly at adjusted prime (6% at December 31, 1993, 6.5% at
June 30, 1993, and 7.25% at June 30, 1994) or LIBOR plus 1%
(5% and 4.5625% at December 31, 1993, 5.6875% at June 30,
1993, and 5% and 4.5625% at June 30, 1994).
Under the Agreement, up to $35,000,000 is available to the
Company and up to $35,000,000 is available to the
shareholder's entire subsidiary group, subject to the
maintenance of certain covenants and overall borrowing
limitations for the shareholder's entire subsidiary group. At
December 31, 1993, available borrowings totaled $35,000,000
for the shareholder's entire subsidiary group. The
shareholder's subsidiaries are required to pay commitment fees
equal to 1/2% per annum on the excess of available borrowings
over amounts outstanding and 1/8% per annum on the excess of
the original commitment over available borrowings. There are
no compensating balances required.
The Agreement calls for the shareholder's subsidiaries to
maintain certain quarterly financial ratios, which include
debt to the population of the markets served by the
subsidiaries, along with other financial ratios. In addition,
the Agreement places certain restrictions on, among other
things, the use of funds, additional indebtedness, payment of
dividends by the shareholder's subsidiaries and the sale of
assets or the stock of the shareholder's subsidiaries. As of
December 31, 1993, and June 30, 1994, the shareholder's
subsidiaries were in compliance with all requirements.
Amounts outstanding under the Agreement are secured by the
joint and several guarantee of each subsidiary of the
shareholder and by all of the subsidiaries' assets. In
addition, the shareholder has pledged the stock of each
subsidiary as security and each limited partner of the
shareholder and each shareholder of the shareholder's general
partner has also pledged his partnership interest and stock,
respectively, as additional security.
9
The amounts outstanding under the Agreement were converted to
term loans on June 30, 1994, which mature over a period of six
years. Under the provisions of the term loans, bank notes
payable as of December 31, 1993, will mature as follows:
1994 $ 575,362
1995 1,150,724
1996 1,150,724
1997 1,150,724
1998 1,150,724
1999 and
thereafter 1,726,088
$6,904,346
Certain provisions of the Agreement require the shareholder's
subsidiaries to make prepayments should certain levels of cash
flow, as defined, be achieved. No prepayments were required
under these provisions during 1993.
3. SUBORDINATED NOTES PAYABLE:
Subordinated notes payable consist of notes payable to limited
partners of the shareholder, bearing interest at 8%. Notes
payable to limited partners of the shareholder are subordinate
to all other debt of the Company. The outstanding amounts are
secured by the stock of the Company. In addition, each
limited partner of the shareholder and each shareholder of the
shareholder's general partner has pledged his partnership
interest and stock, respectively, as additional security. The
amounts outstanding under these notes mature on June 30, 1995;
however, under the terms of the Agreement described in Note 2,
the creditors have agreed not to demand payment until
September 30, 1999, 90 days following an acceleration of the
bank notes payable, or 365 days following an event of default
under the agreements between these subordinated lenders and
the Company, whichever occurs first.
4. RELATED-PARTY TRANSACTIONS:
Crowley Cellular Telecommunications, Inc. (CCTI), the general
partner of the shareholder, performs certain administrative
services on behalf of the Company and its subsidiary.
MLC Industries, Inc. (MLC), whose shareholders are limited
partners of CCTLP, manages the operations and performs certain
administrative services on behalf of the Company. Certain
costs allocated for these services, totaling approximately
$510,000, $259,000 and $272,000 during the year ended
December 31, 1993, and the six months ended June 30, 1993 and
1994, respectively, are included in general and administrative
expense in the accompanying consolidated statements of
operations.
Management and director's fees of approximately $23,000,
$11,400 and $11,400 were paid to a partner of CCTLP during the
year ended December 31, 1993, and the six months ended
June 30, 1993 and 1994, respectively.
10
5. LEASES:
The Company leases office equipment and rents office and tower
facilities under operating lease agreements. These leases
expire at various times through 2017. At December 31, 1993,
future minimum annual lease payments under these operating
leases are as follows:
1994 $ 207,000
1995 208,000
1996 201,000
1997 196,000
1998 164,000
1999 and
thereafter 800,000
$1,776,000
Rent expense for 1993 was $186,000. Rent expense for the six
months ended June 30, 1993 and 1994, was $85,000 and $102,000,
respectively.
6. OTHER INCOME:
In 1992, the Company received $2,000,000 for an agreement not
to compete entered into in connection with the shareholder's
sale of certain of its wholly owned subsidiaries. This amount
was deferred and is being amortized into income over the
three-year term of the agreement. Accordingly, $666,667,
$333,333 and $333,333 of other income is reflected in the
accompanying consolidated statements of operations for the
year ended December 31, 1993, and the six months ended
June 30, 1993 and 1994, respectively.
7. EVENTS (UNAUDITED) SUBSEQUENT TO
DATE OF AUDITORS' REPORT:
In July, 1994, CCTLP contributed capital of $1,340,000 to the
Company. The Company used the capital contribution to retire
subordinated notes payable of $1,340,000.
In August, 1994, the Company entered into an agreement with an
unrelated third party to sell all of its outstanding common
stock for approximately $48,500,000, subject to certain closing
adjustments. The closing of this transaction is subject to customary
conditions and regulatory approvals.
11
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of
Crowley Cellular Telecommunications
Binghamton, Inc.:
We have audited the accompanying consolidated balance sheet of
CROWLEY CELLULAR TELECOMMUNICATIONS BINGHAMTON, INC. (a
Delaware corporation) AND SUBSIDIARY as of December 31, 1993,
and the related consolidated statements of operations and cash
flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management,
as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Crowley Cellular Telecommunications Binghamton,
Inc. and Subsidiary as of December 31, 1993, and their
operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
As explained in Note 1 to the consolidated financial
statements, effective January 1, 1993, the Company adopted the
requirements of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes."
ARTHUR ANDERSEN LLP
Chicago, Illinois,
March 8, 1994
12
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated
financial information of Vanguard Cellular Systems, Inc. and
Subsidiaries (the Registrant) gives effect to the pending
acquisition of a 100% ownership interest in Crowley Cellular
Telecommunications Binghamton, Inc. (CCTB) (the "Crowley
Transaction"). CCTB owns and operates the cellular system
serving the Elmira, New York MSA and also owns a 97% interest
in Binghamton CellTelCo, an operating cellular partnership
serving the Binghamton, New York MSA. The purchase price for
this acquisition is approximately $48.5 million. The following
financial information assumes that the acquisition is financed with the
issuance of the Registrant's Class A Common Stock, subject to
a limitation specified in the purchase agreement that the
amount of Class A Common Stock issued cannot equal or exceed
5% of the Registrant's outstanding stock after giving effect
to the issuance thereof. The Registrant has the option to
fund all or a portion of the purchases with cash which it would
intend to borrow under its credit facility. The unaudited
pro forma consolidated statements of operations give effect to the Crowley
Transaction as if it had occurred on January 1, 1993, and the
unaudited pro forma balance sheet gives effect to the
Crowley Transaction as if it had occurred on June 30, 1994.
The unaudited pro forma consolidated financial information does not
reflect the Registrant's exchange of the Hagerstown, MD MSA
for the PA-10 East RSA or the acquisition of the Altoona, PA
MSA prior to the consummation of these transactions in April
1994. The pending acquisitions of the ME-4 RSA and WV-1 East
RSA are also excluded.
The unaudited pro forma consolidated financial
information has been prepared by the Registrant based upon the
historical financial statements of the Registrant and CCTB.
The unaudited pro forma consolidated financial information
gives effect to the acquisition under the purchase method of
accounting and to certain assumptions and adjustments
described more fully in the accompanying notes. This
unaudited pro forma consolidated financial information may not be
indicative of the results that actually would have occurred if
the transactions had been completed on the dates indicated or
of the results which may be obtained in the future. The
unaudited pro forma consolidated financial information should
be read in conjunction with the financial statements and notes
thereto for the Registrant included in its Form 10-K for the
year ended December 31, 1993 and the Form 10-Q for the period
ended June 30, 1994 and financial statements and notes thereto
of CCTB included elsewhere in this Form 8-K.
13
Vanguard Cellular Systems, Inc. and Subsidiaries
Pro Forma Consolidated Statements of Operations
For the year ended December 31, 1993
(Unaudited)
(Amounts in thousands, except per share data)
Historical
Vanguard
Cellular Crowley Cellular
Systems, Inc. Telecommunications Pro Forma Pro Forma
and Subsidiaries Binghamton, Inc. (1) Adjustments Consolidated
REVENUES:
Service Fees $ 98,960 $ 4,906 $ 0 $ 103,866
Cellular telephone equipment revenues 9,929 523 0 10,452
Other 175 0 0 175
109,064 5,429 0 114,493
COSTS AND EXPENSES:
Cost of service 14,461 1,166 0 15,627
Cost of cellular telephone equipment 13,410 945 0 14,355
Marketing and selling 21,693 755 0 22,448
General and administrative 34,218 1,579 0 35,797
Depreciation and amortization 25,160 1,642 1,208 (2) 28,010
108,942 6,087 1,208 116,237
INCOME (LOSS) FROM OPERATIONS 122 (658) (1,208) (1,744)
NET GAINS (LOSSES) ON DISPOSITIONS (657) 0 0 (657)
INTEREST EXPENSE (15,389) (578) (758)(3) (16,147)
578 (4)
OTHER, net 795 602 0 1,397
LOSS BEFORE MINORITY INTEREST (15,129) (634) (1,388) (17,151)
MINORITY INTEREST (154) 8 0 (146)
NET LOSS BEFORE EXTRAORDINARY ITEM $ (15,283) $ (626) $ (1,388) $ (17,297)
NET LOSS PER SHARE BEFORE EXTRAORDINARY ITEM $ (0.40) $ (0.43)(5)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (6) 37,888 39,878
The accompanying notes to pro forma consolidated financial information are an
integral part of this statement.
14
Vanguard Cellular Systems, Inc. and Subsidiaries
Pro Forma Consolidated Statements of Operations
For the six months ended June 30,1994
(Unaudited)
(Amounts in thousands, except per share data)
Historical
Vanguard
Cellular Crowley Cellular
Systems, Inc. Telecommunications Pro Forma Pro Forma
and Subsidiaries Binghamton, Inc. (1) Adjustments Consolidated
REVENUES:
Service Fees $ 63,975 $ 2,926 $ 0 $ 66,901
Cellular telephone equipment revenues 8,395 233 0 8,628
Other 1,476 0 0 1,476
73,846 3,159 0 77,005
COSTS AND EXPENSES:
Cost of service 9,978 695 0 10,673
Cost of cellular telephone equipment 12,539 439 0 12,978
Marketing and selling 14,966 314 0 15,280
General and administrative 20,172 842 0 21,014
Depreciation and amortization 11,319 775 604 (2) 12,698
68,974 3,065 604 72,643
INCOME (LOSS) FROM OPERATIONS 4,872 94 (604) 4,362
NET GAINS ON DISPOSITIONS 7 0 0 7
INTEREST EXPENSE (9,121) (274) (429)(3) (9,550)
274 (4)
OTHER, net (14) 247 0 233
LOSS BEFORE MINORITY INTEREST (4,256) 67 (759) (4,948)
MINORITY INTEREST (42) (6) 0 (48)
NET LOSS $ (4,298) $ 61 $ (759) $ (4,996)
NET LOSS PER SHARE $ (0.11) $ (0.12)(5)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (6) 38,424 40,415
The accompanying notes to pro forma consolidated financial information are an
integral part of this statement.
15
Vanguard Cellular Systems, Inc. and Subsidiaries
Pro Forma Consolidated Balance Sheet - June 30, 1994
(Unaudited)
(Amounts in thousands)
Historical
Vanguard
Cellular Crowley Cellular
Systems, Inc. Telecommunications Pro Forma Pro Forma
and Subsidiaries Binghamton, Inc. (1) Adjustments Consolidated
Assets
CURRENT ASSETS:
Cash $ 3,120 $ 517 $ 0 $ 3,637
Accounts receivable, net 19,223 976 0 20,199
Cellular telephone inventories 3,827 178 0 4,005
Prepaid expenses 685 84 0 769
Other 0 177 (177)(7) 0
Total current assets 26,855 1,932 (177) 28,610
INVESTMENTS 200,093 7,579 31,301 (8) 238,973
PROPERTY AND EQUIPMENT, net 91,328 4,287 0 95,615
OTHER ASSETS, net 10,290 471 4,152 (8) 14,913
Total assets $ 328,566 $ 14,269 $ 35,276 378,111
Liabilities and Shareholders' Equity
CURRENT LIABILITIES:
Current portion of long-term debt $ 0 $ 1,234 $ (1,234)(9) $ 0
Accounts payable and accrued expenses 33,100 495 100 (8) 33,695
Customer deposits and unearned revenues 534 333 0 867
Total current liabilities 33,634 2,062 (1,134) 34,562
LONG-TERM DEBT, net of current portion 286,655 8,809 (6,580)(9) 288,884
MINORITY INTERESTS 2,469 77 0 2,546
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock (38,559 actual and 40,558
pro forma shares outstanding) 386 1 (1)(8) 406
20 (10)
Additional capital in excess of par value 186,383 15,289 (15,289)(8) 232,674
46,291 (10)
Net unrealized holding losses (12,391) 0 0 (12,391)
Accumulated deficit (168,570) (11,969) 11,969 (8) (168,570)
Total shareholders' equity 5,808 3,321 42,990 52,119
Total liabilities and shareholders' equity $ 328,566 $ 14,269 $ 35,276 378,111
The accompanying notes to pro forma consolidated financial information are
an integral part of this statement.
16
VANGUARD CELLULAR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL
INFORMATION
For purposes of determining the pro forma effects on the
consolidated statement of operations for the year
ended December 31, 1993 and the six months ended June 30,
1994, the pro forma adjustments and eliminations have been
made as if the Crowley Transaction had occurred on January 1,
1993. For the purposes of determining the pro forma effects
on the condensed consolidated balance sheet as of June 30,
1994, the pro forma adjustments and eliminations have been
made as if the Crowley Transaction had occurred on June 30,
1994. The following pro forma adjustments have been made:
(1) These amounts reflect the historical data of CCTB as of
or for the periods indicated, reclassified to conform
with the presentation of the Registrant's financial
statements.
(2) This adjustment reflects additional amortization of
deferred cellular license acquisition costs and the
acquired customer base arising from the acquisition of
CCTB. The deferred cellular license acquisition costs
are being amortized over 40 years in accordance with the
Registrant's policy. The cost of the acquired customer
base is being amortized over the expected service period
for these customers which is estimated to be
approximately 4 years.
(3) This adjustment reflects interest expense attributable to
the $14.2 million of borrowings that would have been
necessary to consummate the acquisition on January 1,
1993. Borrowings would have been necessary because of
the limitation on the issuance of stock described in Note
5. The adjustment assumes the borrowings would be funded
from the Facility B Loan of the Registrant's credit
agreement and would bear interest at the Eurodollar Rate
plus 2.5%. For the year ended December 31, 1993 and for
the six months ended June 30, 1994, the average
Eurodollar rate was 3.32% and 4.02%, respectively. This
additional interest expense is offset by a reduction in
the commitment fee equal to .5% of the borrowings. If
the assumed rate varied by 1/8% in each period,
consolidated interest expense for the year ended
December 31, 1993 and for the six months ended June 30,
1994, would have varied by approximately $289,000 and
$177,000, respectively.
(4) This adjustment eliminates interest expense incurred by
CCTB during the year ended December 31, 1993 and the six
months ended June 30, 1994 of $578,000 and $274,000,
respectively. This interest expense relates to long-term
debt which will be retired prior to the Crowley
Transaction.
17
(5) The pro forma net loss per share is computed based on the
weighted average shares outstanding adjusted for the
additional shares issued to fund the Crowley Transaction.
The number of shares issued is based on the purchase
price of the transaction divided by the average closing
prices of the Registrant's Class A Common Stock on the
five trading days ending on the trading day immediately
preceding the assumed closing date of January 1, 1993.
However, the shares to be issued are limited to 5% of the
total outstanding shares after consummation of the
transaction. Accordingly, at January 1, 1993, 1,990,000
shares of Class A Common Stock are assumed to be issued
with the remaining $14.2 million to be funded with
borrowings from the Registrant's facility.
(6) Reflects 3 for 2 stock split effected in the form of
a 50% stock dividend paid on August 24, 1994.
(7) This adjustment reflects the settlement of "due from
affiliate" of CCTB which will be settled prior to the
consummation of the Crowley Transaction.
(8) These adjustments reflect the consummation of the Crowley
Transaction, the allocation of the purchase price and the
consolidation of CCTB as if the acquisition had occurred
on June 30, 1994.
(9) This adjustment reflects additional borrowings of
$2.2 million under the Registrant's credit facility
incurred to partially fund the Crowley Transaction.
Additionally, this adjustment also reflects the
retirement of $10.0 million of CCTB long-term debt
(including current portion) which will occur prior to the
consummation of the Crowley Transaction.
(10) This adjustment reflects the issuance of the Registrant's
Class A Common Stock to partially fund the Crowley
Transaction. The number of shares issued is based on the
purchase price of the transaction divided by the average
closing prices of the Registrant's Class A Common Stock
on the five trading days ending on the trading day
immediately preceding the assumed closing date of
June 30, 1994. However, the shares to be issued are
limited to 5% of the total outstanding shares after
consummation of the transaction. Accordingly, at
June 30, 1994, 2,029,000 shares of Class A Common Stock
are assumed to be issued with the remaining $2.2 million
to be funded with borrowings from the Registrant's credit
facility.
18
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) and (b) No financial statements or pro forma financial
information with respect to acquired businesses
are included herewith. Such information with
respect to the pending acquisition of Crowley,
Inc. is included in Item 5 hereof.
(c) The Exhibits furnished in connection with this report are as
follows:
2(a) Stock Purchase Agreement by and among Crowley Cellular
Telecommunications Limited Partnership, Crowley Cellular
Telecommunications Binghamton, Inc. and Vanguard Cellular
Systems, Inc., dated as of August 5, 1994 and filed as
Exhibit 2(a) to the Registrant's Form 10-Q for the quarter
ended June 30, 1994, is incorporated by reference herein.
2(b) Asset Purchase Agreement dated September 26, 1994 by and
between Vanguard Cellular Systems, Inc. and Sunshine Cellular
("Sunshine Agreement")
The following schedules to the Sunshine Agreement, filed as
Exhibit 2(b) hereto, have been omitted. The registrant
hereby undertakes to furnish supplementally a copy of any
such omitted schedule to the Commission upon request.
Seller's Disclosure Schedule
Annex 1 - Escrow Agreement
Annex 2 - Incentive Compensation Payment
Annex 3 - Financial Statements
Annex 4 - Omitted pursuant to Sunshine Agreement
Annex 5 - Omitted pursuant to Sunshine Agreement
Annex 6 - Assignment of Lease
Annex 7 - General Assignment and Instrument of
Conveyance
Annex 8 - Assignment of Contracts and Subscriber
Agreements and Assumption of Obligations
Annex 9 - Assignment of Federal Communications
Commission Licenses, Permits and
Authorizations
Annex 10 - Assignment of Intangible Assets, Books,
Records, Goodwill and Other Intangible
Assets
19
Annex 11 - Noncompetition Agreements
(23) Consent of Arthur Andersen LLP
20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VANGUARD CELLULAR SYSTEMS, INC.
By:
Stephen L. Holcombe
Senior Vice President and
Chief Financial Officer
Date: September , 1994
21
INDEX TO EXHIBITS
Exhibit
No. Exhibit Page
*2(a) Stock Purchase Agreement by and among Crowley
Cellular Telecommunications Limited Partnership,
Crowley Cellular Telecommunications Binghamton,
Inc. and Vanguard Cellular Systems, Inc., dated as
of August 5, 1994 and filed as Exhibit 2(a) to the
Registrant's Form 10-Q for the quarter ended June
30, 1994, is incorporated by reference herein.
2(b) Asset Purchase Agreement dated September 26, 1994
by and between Vanguard Cellular Systems, Inc. and
Sunshine Cellular ("Sunshine Agreement")
(23) Consent of Arthur Andersen LLP
*Incorporated by reference to the statement or reported
indicated.