1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ----------------------------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 January 24, 1997 ---------------------------------------------------- Date of Report (Date of earliest event reported) 360 COMMUNICATIONS COMPANY ------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 1 - 14108 47-0649117 ------------------ ------------------ -------------------------------- (State of Incorporation) (Commission File No.) (IRS Employer Identification No.) 8725 W. Higgins Road, Chicago, Illinois 60631 --------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (773) 399-2500 --------------------------------------------------------- (Registrant's telephone number, including area code) 2 Item 5. Other Events. On November 1, 1996, 360 Communications Company and Subsidiaries (the "Company") completed its previously announced acquisition (the "ICN Acquisition") of Independent Cellular Network, Inc. and affiliated companies which own and operate cellular licenses and related systems and assets in Kentucky, Ohio, Pennsylvania and West Virginia. On November 7, 1996, the Company filed with the Securities and Exchange Commission its Current Report on Form 8-K dated November 1, 1996, which included certain historical financial statements and pro forma financial information with respect to the ICN Acquisition. Included herewith under Item 7 are historical financial statements and pro forma financial information with respect to the ICN Acquisition which supplement such previously filed financial statements and pro forma information. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Pro Forma Financial Information. 360 Communications Company and Subsidiaries --Pro Forma Condensed Combined Statement of Operations for the Nine Months Ended September 30, 1996 --Pro Forma Condensed Combined Balance Sheet as of September 30, 1996 --Notes to Pro Forma Condensed Combined Financial Statements (b) Financial Statements of Business Acquired. Independent Cellular Network, Inc. and Affiliates --Combined Balance Sheets as of September 30, 1996 and December 31, 1995 --Combined Statements of Operations for the Nine Months Ended September 30, 1996 and 1995 --Combined Statements of Cash Flows for the Nine Months Ended September 30, 1996 and 1995 --Notes to Unaudited Combined Financial Statements 360 COMMUNICATIONS COMPANY AND SUBSIDIARIES Pro Forma Condensed Combined Financial Statements Introduction On November 1, 1996, 360 Communications Company and Subsidiaries (the "Company") completed its previously announced acquisition (the "ICN Acquisition") of Independent Cellular Network, Inc. and affiliated companies (collectively, the "Acquired Companies") which own and operate cellular licenses and related systems and assets in Kentucky, Ohio, Pennsylvania and West Virginia. The Company acquired the Acquired Companies from Independent Cellular Network Partners and certain of its affiliates (collectively, "ICNP") for approximately $514 million, comprised of 6,500,000 shares of the Company's Common Stock, $0.01 par value, $122 million in aggregate principal amount of the Company's subordinated non-negotiable promissory notes and the Company's assumption of $240 million of Independent Cellular Network Partners' senior debt. The remaining portion of the purchase price was paid in cash. The ICN Acquisition will be accounted for as a purchase. The following unaudited pro forma condensed combined financial statements have been adjusted to reflect the ICN Acquisition. The unaudited pro forma condensed combined financial statements have been prepared from the historical consolidated financial statements of the Company. The ICN Acquisition column in the following unaudited pro forma condensed combined financial statements reflects the historical combined financial statements of the Acquired Companies, the combined entities which represent the operations acquired from ICNP. The unaudited pro forma condensed combined financial statements assume that the ICN Acquisition occurred as of January 1, 1996 for the unaudited pro forma condensed combined statement of operations and as of September 30, 1996 for the unaudited pro forma condensed combined balance sheet. In the opinion of management, all adjustments necessary to present fairly the unaudited pro forma condensed combined financial statements have been made. The unaudited pro forma condensed combined financial statements should be read in conjunction with the Company's historical consolidated financial statements including the notes thereto, set forth in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995; the Company's historical consolidated financial statements including the notes thereto, set forth in the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1996; and Independent Cellular Network, Inc. and Affiliates historical combined financial statements and notes thereto included in the Company's Current Report on Form 8-K dated November 1, 1996. The unaudited pro forma condensed combined financial statements are not necessarily indicative of the financial position or results of operations had the ICN Acquisition occurred on the indicated dates nor do they purport to indicate the results of future operations of the Company. 360 COMMUNICATIONS COMPANY AND SUBSIDIARIES PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS For the Nine Months Ended September 30, 1996 Unaudited (Thousands of Dollars, except per share amounts) 360 360 Communications Pro Forma Communications Company as ICN Acquisition Company Reported Acquisition Adjustments Pro Forma ---------------- ---------------- ---------------- ---------------- Operating Revenues Cellular Service Revenues $ 766,133 $ 50,201 $ (1,800)(a) $ 814,534 Equipment Sales 29,411 2,982 32,393 ---------------- ---------------- ------------- ---------------- Total Operating Revenues 795,544 53,183 (1,800) 846,927 ---------------- ---------------- ------------- ---------------- Operating Expenses Cost of Service 68,492 5,957 74,449 Cost of Equipment Sales 71,010 6,673 77,683 Other Operations Expense 39,824 2,174 41,998 Sales, Marketing and Advertising Expenses 143,146 5,004 148,150 General, Administrative and Other Expenses 190,287 9,123 (2,849)(b) 196,561 Depreciation and Amortization 104,987 21,385 (11,404)(c) 5,637 (d) (745)(e) 119,860 ---------------- ---------------- ---------------- ---------------- Total Operating Expenses 617,746 50,316 (9,361) 658,701 Operating Income 177,798 2,867 7,561 188,226 Interest Expense, net (78,854) (21,948) 1,851 (f) (98,951) Minority Interests in Net Income of Consolidated Entities (38,168) (1,377) (39,545) Equity in Net Income of Unconsolidated Entities 40,359 352 40,711 Other Income (Expense), net 423 2,256 (2,256)(g) 423 ---------------- ---------------- ---------------- ---------------- Income (Loss) Before Income Taxes 101,558 (17,850) 7,156 90,864 Income Tax Expense (Benefit) 47,407 (1,830)(h) 45,577 ---------------- ---------------- ---------------- ---------------- Net Income (Loss) $ 54,151 $ (17,850) $ 8,986 $ 45,287 ================ ================ ================ ================ Net Income per Share $ 0.37 ================ Weighted Average Shares Outstanding 123,560 ================ The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements. 360 COMMUNICATIONS COMPANY AND SUBSIDIARIES PRO FORMA CONDENSED COMBINED BALANCE SHEET September 30, 1996 Unaudited (Thousands of Dollars) 360 360 Communications Pro Forma Communications Company as ICN Acquisition Company Reported Acquisition Adjustments Pro Forma ---------------- ---------------- ----------------- ---------------- Assets Total Current Assets $ 181,761 $ 67,121 $ (52,711)(i)$ 196,171 Property, Plant and Equipment, net 969,030 43,865 (2,534)(j) 1,010,361 Investments in Unconsolidated Entities 344,630 1,781 346,411 Intangibles, net 711,093 136,366 300,657 (k) 1,148,116 Other Assets 18,946 961 (961)(i) 37,017 (l) 55,963 ---------------- ---------------- ----------------- ---------------- Total Assets $ 2,225,460 $ 250,094 $ 281,468 $ 2,757,022 ================ ================ ================= ================ Liabilities and Shareowners' and Partners' Equity Total Current Liabilities $ 258,079 $ 23,449 $ (12,351)(i)$ 269,177 Long-Term Debt 1,362,720 325,466 (325,466)(m) 363,373 (m) 1,726,093 Deferred Credits and Other Liabilities 117,391 117,391 ---------------- ---------------- ----------------- ---------------- Total Liabilities 1,738,190 348,915 25,556 2,112,661 Minority Interests in Consolidated Entities 179,115 7,061 (283)(n) 185,893 Shareowners' and Partners' Equity (Deficit) Common Stock 1,169 100 (100)(o) 65 (o) 1,234 Preferred Stock 14,900 (14,900)(o) Additional Paid-In Capital 623,287 150,248 (o) 773,535 Accumulated Deficit (316,301) (69,647) 69,647 (o) (316,301) Partners' Deficit (51,235) 51,235 (o) ---------------- ---------------- ----------------- ---------------- Total Shareowners' and Partners' Equity (Deficit) 308,155 (105,882) 256,195 458,468 ---------------- ---------------- ----------------- ---------------- Total Liabilities and Shareowners' and Partners' Equity (Deficit) $ 2,225,460 $ 250,094 $ 281,468 $ 2,757,022 ================ ================ ================= ================ The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements. NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS PRO FORMA STATEMENTS OF OPERATIONS (a) Cellular Service Revenues are adjusted to reflect the reduced rates the Company charges its customers for roaming in markets within the Company's service area. (b) Certain expenses associated with general and administrative services are duplicative in nature and are eliminated since the Company will not incur these costs subsequent to the Acquisition. (c) This entry adjusts to 40 years the amortization period for certain acquired identifiable intangible assets to conform with the Company's current accounting policies for amortization of such assets. (d) This adjustment reflects amortization of the excess of the purchase price over the fair value of net assets acquired. (e) Depreciation expense for the Acquired Companies' property, plant and equipment has been adjusted to reflect the Company's current accounting policies for depreciable lives. This adjustment also accounts for the effect on depreciation expense of property, plant and equipment that will be replaced as described in (j). (f) This entry reflects the net effect on interest expense resulting from the debt transactions described in (m). An annual variable interest rate of 6.3% and an annual fixed rate of 9.5% was used for additional credit facility borrowings and subordinated debt, respectively. A 1/8% difference in the annual variable interest rate would have the effect of changing interest expense by $226,000 for the nine months ended September 30, 1996. (g) Interest income associated with the nonretained assets of the Acquired Companies is eliminated. (h) The provision for income taxes is adjusted to reflect the tax effects of pro forma adjustments (a) through (g). In addition, pro forma adjustments are recorded to give effect to the tax provision associated with the historical operating results of the Acquired Companies. PRO FORMA BALANCE SHEET (i) These entries adjust assets and liabilities to reflect net balances acquired. (j) To achieve cellular system compatibility and standard customer functionality it will be necessary for the Company to replace the cell site equipment and switches of the Acquired Companies. This adjustment represents the write down of property, plant and equipment that will be replaced to realizable value. (k) This entry adjusts intangibles for the excess of the estimated purchase price over net assets acquired. The aggregate purchase price is approximately $514 million. Presented below is a preliminary allocation of the purchase price as if the ICN Acquisition occurred on September 30, 1996 (in thousands of dollars). Tangible Assets Acquired $ 94,539 Intangible Assets Acquired 136,366 Liabilities Assumed (11,098) Ownership Percentage Adjustment - Minority Interests (6,778) ---------------- Net Assets Acquired 213,029 Estimated Purchase Price 513,686 --------------- Intangibles $ 300,657 =============== (l) This entry reflects the recording of deferred income tax assets acquired by the Company in the ICN Acquisition. The deferred income tax assets were primarily generated by the operating losses of the Acquired Companies and represent future tax benefits to the extent that realization of such benefits are more likely than not. The balance recorded includes a valuation allowance in the amount of $5,010,000 established for the portion of deferred income tax assets not expected to be realized. (m) Under the terms of the transaction, the Company issued $122 million in aggregate principal amount of subordinated non-negotiable promissory notes to ICNP. These notes initially bear interest at 9.5%, which may be reduced to 9.0% upon the occurrence of certain specified events, payable semiannually. Fifty percent of the interest payments will be capitalized and become part of the outstanding principal balance. In addition, the Company assumed $240 million of Independent Cellular Network Partners' senior debt. On the acquisition date, the Company refinanced the senior debt and funded the remaining purchase price by borrowing under its existing revolving bank credit facility. Prior to the ICN Acquisition, the Company's revolving bank credit facility was amended and restated to permit, among other things, the ICN Acquisition and increase its borrowing capacity from $800 million to $1.0 billion. This entry eliminates the long-term debt of the Acquired Companies and replaces it with the subordinated debt and additional credit facility borrowings. (n) This entry reflects the minority partners pro rata share of the write down of certain property, plant and equipment as described in (j). (o) Reflects the issuance of 6,500,000 shares of the Company's Common Stock, $0.01 par value, ("Company Common Stock") issued in connection with the ICN Acquisition and eliminates the capital accounts of the Acquired Companies. EARNINGS PER SHARE (p) Net Income per Share for the nine months ended September 30, 1996 was computed using weighted average shares outstanding, including common stock equivalents, and assumes the 6,500,000 shares of Company Common Stock issued in connection with the ICN Acquisition had been outstanding since the beginning of the period. Independent Cellular Network, Inc. and Affiliates Combined Balance Sheets (Thousands of Dollars) September 30, December 31, 1996 1995 ---------- ------------ (Unaudited) ASSETS ------ CURRENT ASSETS Cash and cash equivalents $ 7,458 $ 2,370 Accounts receivable, less allowance of $321 and $683 12,692 9,796 Due from affiliates 45,398 29,903 Cellular telephone inventory 1,382 2,665 Other 191 365 ---------- ------------ Total current assets 67,121 45,099 ---------- ------------ Property and equipment 88,557 86,973 Less: Accumulated depreciation (44,692) (38,079) ---------- ------------ Property and equipment, net 43,865 48,894 ---------- ------------ Licenses, net of accumulated amortization of $49,349 and $39,140 131,376 141,586 Non compete agreements, net of accumulated amortization of $20,010 and $15,991 4,990 9,009 Deferred costs, net of accumulated amortization of $257 and $154 961 985 Investment in unconsolidated cellular partnerships 1,781 1,834 ---------- ------------ Total other assets 139,108 153,414 ---------- ------------ Total assets $ 250,094 $ 247,407 ========== ============ LIABILITIES AND SHAREHOLDERS' AND --------------------------------- PARTNERS' EQUITY (DEFICIT) -------------------------- CURRENT LIABILITIES Accounts payable $ 4,543 $ 7,554 Accrued expenses 17,207 9,803 Due to affiliates 1,194 882 Customer deposits 505 384 ---------- ------------ Total current liabilities 23,449 18,623 ---------- ------------ LONG TERM DEBT 325,466 311,131 ---------- ------------ MINORITY INTEREST 7,061 5,684 ---------- ------------ SHAREHOLDERS' AND PARTNERS' EQUITY (DEFICIT) Common stock, no par value; 2,000 shares author- ized; 1,000 shares issued and outstanding 100 100 Preferred stock, no par value; 2,000 shares authorized; 1,000 shares issued and outstanding 14,900 14,900 Accumulated deficit (69,647) (69,147) Partners' equity (deficit) (51,235) (33,884) ---------- ------------ Total shareholders' and partners' equity (deficit) (105,882) (88,031) ---------- ------------ Total liabilities and shareholders' and partners' equity (deficit) $ 250,094 $ 247,407 ========== ============= The accompanying Notes to Combined Financial Statements are an integral part of these balance sheets. Independent Cellular Network, Inc. and Affiliates Combined Statements of Operations (Thousands of Dollars) (Unaudited) Nine Months Ended September 30, -------------------------------- 1996 1995 ---------- ---------- OPERATING REVENUES Cellular service revenues $ 50,201 $ 43,558 Equipment sales 2,982 2,578 ---------- ----------- Total operating revenues 53,183 46,136 ---------- ---------- OPERATING EXPENSES Cost of service 5,957 6,631 Cost of equipment sales 6,673 5,554 Other operations expenses 2,174 2,091 Selling, general, administrative and other expenses 14,127 12,981 Depreciation and amortization 21,385 24,544 ---------- ---------- Total operating expenses 50,316 51,801 ---------- ---------- Operating Income (Loss) 2,867 (5,665) Interest income 2,256 277 Interest expense (21,948) (20,674) Equity in net income of uncon- solidated cellular partnerships 352 703 Minority interest in net income of consolidated entities (1,377) (837) ---------- ---------- Loss before income taxes (17,850) (26,196) Income tax expense - - ---------- ---------- NET LOSS $ (17,850) $ (26,196) ========== ========== The accompanying Notes to Combined Financial Statements are an integral part of these statements. Independent Cellular Network, Inc. and Affiliates Combined Statements of Cash Flows (Thousands of Dollars) (Unaudited) Nine Months Ended September 30, ------------------------------- 1996 1995 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (17,850) $ (26,196) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 21,385 24,544 Interest capitalized as long term debt 7,249 13,891 Minority interest, net 1,377 837 Equity in net income of unconsolidated cellular partnerships, net (423) (703) Changes in assets and liabilities: Accounts receivable and due from affiliates (18,391) (13,020) Cellular telephone inventory 1,283 (676) Other current assets 174 (5) Accounts payable and due to affiliates (2,223) 3,917 Accrued expenses 14,491 102 Customer deposits 121 56 ---------- ---------- Net cash provided by operating activities 7,193 2,757 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property and equipment, net (2,026) (3,720) Other (79) 8 Proceeds from exchange of assets - 2,376 ---------- ---------- Net cash used by investing activities (2,105) (1,336) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from debt - (1,405) Payments of debt - - ---------- ---------- Net cash used by financing activities - 1,405) ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,088 (16) CASH AND CASH EQUIVALENTS, beginning of period 2,370 1,878 ---------- ---------- CASH AND CASH EQUIVALENTS, end of period $ 7,458 $ 1,894 ========== ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for interest $ 518 $ (365) ========== ========== Prior year accrued interest capitalized as long-term debt $ 7,087 $ 9,912 ========== ========== The accompanying Notes to Combined Financial Statements are an integral part of these statements. Independent Cellular Network, Inc. and Affiliates Notes to Unaudited Combined Financial Statements Note 1. Basis of Combination and Presentation Independent Cellular Network, Inc., Ohio Cellular RSA L.P. and Cellular Plus L.P. ("the Companies"), affiliated through common ownership, provide wireless voice telecommunications services. The Companies operate as general and limited partners and majority owners of cellular systems in various metropolitan and rural service areas in Kentucky, Ohio, Pennsylvania and West Virginia. The accompanying unaudited combined financial statements include the accounts of the Companies and their wholly-owned and majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The unaudited combined financial statements have been prepared in conformity with generally accepted accounting principles and are presented in accordance with the rules and regulations of the Securities and Exchange Commission applicable to interim financial information. In the Companies' opinion, the unaudited combined financial statements include all adjustments necessary to present fairly the financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. These financial statements should be read in conjunction with the combined financial statements, including the notes thereto, for the fiscal year ended December 31, 1995. Note 2. Sale of Assets The Companies have entered into an Exchange and Merger Agreement dated May 31, 1996 with 360 Communications Company for the sale of all the assets and rights related to the Companies cellular telephone systems and related business in all their collective markets. The transaction, valued at approximately $514 million, closed on November 1, 1996. SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 360 Communications Company /s/ Gary L. Burge By:____________________________________ Gary L. Burge Senior Vice President - Finance Date: January 24,1997