Business Context and Reporting Period
This Form 8-K, dated January 13, 1994, is filed by Century Telephone Enterprises, Inc. ("Century") to disclose a definitive merger agreement entered into on October 8, 1993, with Celutel, Inc. ("Celutel"). Century proposes to acquire all capital stock of Celutel, a telecommunications company providing cellular service in five metropolitan statistical areas in Mississippi and Texas. The filing includes unaudited consolidated financial statements for Celutel as of October 31, 1993, and for the periods ended October 31, 1993, and 1992.
Key Financial Metrics (Celutel, Inc.)
The following metrics reflect Celutel's financial position as of October 31, 1993, and results for the six months ended October 31, 1993:
- Revenue: Total operating revenue was $15.0 million for the six months ended October 31, 1993, compared to $9.4 million in the prior year period.
- Profitability: Celutel reported a net loss of $358,642 for the six months ended October 31, 1993, compared to a net loss of $2.38 million in the prior year period. Loss applicable to common shareholders was $4.41 million.
- Cash Flow: Net cash provided by operating activities was $1.16 million for the six months ended October 31, 1993, reversing a usage of $643,668 in the prior year. Net cash used by investing activities was $2.09 million.
- Liquidity: Cash and cash equivalents totaled $1.19 million as of October 31, 1993. Total current assets were $6.34 million against total current liabilities of $3.88 million.
- Debt: Total notes payable were $41.26 million. The principal balance outstanding on the primary bank loan was $38.55 million at an average interest rate of 6.33%.
- Equity: Shareholders' deficit totaled $45.05 million, driven by an accumulated deficit of $45.75 million.
Material Changes and Merger Details
The primary material event is the proposed acquisition of Celutel by Century. Key terms include:
- Consideration: The aggregate merger consideration is expected to consist of approximately 1.9 million shares of Century common stock and approximately $51 million in cash. The exact share count depends on Century's stock price (floor $27, ceiling $33) and Celutel's debt/working capital at closing.
- Pro Forma Impact: If the acquisition had occurred as of January 1, 1992, Century's excess cost of net assets acquired would have increased by approximately $127 million. Fully diluted earnings per share for the nine months ended September 30, 1993, would have decreased by approximately $0.11.
- Debt Assumption: Century expects to assume approximately $40 million of Celutel's debt.
- Financing: Century expects to fund the cash portion of the consideration through the issuance of long-term debt, terms of which are not yet determined.
Guidance, Risks, and Contingencies
Conditions to Closing: The merger is subject to Celutel stockholder approval (scheduled for February 10, 1994), the absence of material adverse changes, and fulfillment of other closing conditions.
Contingencies:
- Litigation: A shareholder initiated an action in May 1992 in the U.S. District Court for the District of New Jersey regarding restrictive legends on share certificates. Century believes it has no liability and intends to defend vigorously; no provision for liability has been made.
- Tax Assets: Celutel has established a full valuation allowance against its net deferred tax assets ($4.93 million for Celutel and subsidiaries), reducing their carrying value to zero due to uncertainty regarding future utilization.
Unusual Items: The filing notes that Celutel's results of operations for the interim periods are not necessarily indicative of full-year results. The transaction will be accounted for as a purchase.
Investor Verification Checklist
- Verify the outcome of the Celutel stockholder meeting scheduled for February 10, 1994.
- Confirm the final merger consideration calculation based on Century's stock price and Celutel's working capital/debt at closing.
- Monitor the terms and pricing of the long-term debt Century intends to issue to fund the cash portion of the deal.
- Review the status of the shareholder litigation regarding restrictive legends on Celutel shares.
- Assess the impact of the $127 million increase in excess cost of net assets on Century's future depreciation and amortization expenses.