-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V4MJLi7xppg7DInrshNFod/e16Gi8usQ/3WyMiTHmE9Be/hDJsYwvi+eYdk3wWFt pvNyXfqLPdU1AliXJCzvxQ== 0000870762-97-000004.txt : 19971114 0000870762-97-000004.hdr.sgml : 19971114 ACCESSION NUMBER: 0000870762-97-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CELLULAR COMMUNICATIONS INTERNATIONAL INC CENTRAL INDEX KEY: 0000870762 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 133221852 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19363 FILM NUMBER: 97713061 BUSINESS ADDRESS: STREET 1: 110 E 59TH ST STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2129068480 MAIL ADDRESS: STREET 1: 110 EAST 59TH STREET STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL CELLULAR INC DATE OF NAME CHANGE: 19600201 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-19363 ---------------------------------------------------- CELLULAR COMMUNICATIONS INTERNATIONAL, INC. - ----------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3221852 - -------------------------------- --------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 110 E. 59th Street, New York, New York 10022 - ----------------------------------------------------------------------- (Address of Principal executive offices) (Zip Code) (212) 906-8480 - ----------------------------------------------------------------------- (Registrant's telephone number, including area code) 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 period 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 ---------- ---------- The number of shares outstanding of the issuer's common stock as of September 30, 1997 was 10,877,619. Cellular Communications International, Inc. and Subsidiaries Index PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements Condensed Consolidated Balance Sheets- September 30, 1997 and December 31, 1996. . . . . . . . 2 Condensed Consolidated Statements of Operations- Three and nine months ended September 30, 1997 and 1996. . . . . . . . . . . . . . . . . . . . . . . . 3 Condensed Consolidated Statement of Shareholders' (Deficiency) - Nine months ended September 30, 1997 . . 4 Condensed Consolidated Statements of Cash Flows- Nine months ended September 30, 1997 and 1996 . . . . . 5 Notes to Condensed Consolidated Financial Statements. . 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition. . . . . . . . . . . 10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . 14 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Cellular Communications International, Inc. and Subsidiaries Condensed Consolidated Balance Sheets
SEPTEMBER 30, DECEMBER 31, 1997 1996 -------------------------------- (unaudited) (see note) ASSETS Current assets: Cash and cash equivalents $ 59,971,000 $ 46,759,000 Marketable securities 23,083,000 34,404,000 Other 103,000 1,045,000 ------------- ------------- Total current assets 83,157,000 82,208,000 Investment in Omnitel 50,217,000 58,363,000 Equipment, net of accumulated depreciation of $39,000 (1997) and $50,000 (1996) 2,000 19,000 Deferred financing costs, net of accumulated amortization of $2,485,000 (1997) and $1,525,000 (1996) 4,757,000 5,717,000 ------------- ------------- Total assets $ 138,133,000 $ 146,307,000 ============= ============= LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) Current liabilities: Accounts payable $ - $ 156,000 Accrued expenses 436,000 630,000 Taxes payable 1,442,000 1,444,000 Due to NTL Incorporated 175,000 586,000 ------------- ------------- Total current liabilities 2,053,000 2,816,000 Long-term debt, less unamortized discount of $4,061,000 (1997) and $4,881,000 (1996) 190,690,000 172,052,000 Commitments and contingent liabilities Shareholders' (deficiency): Series preferred stock-$.01 par value; authorized 2,500,000 shares, outstanding none - - Common stock-$.01 par value; authorized 25,000,000 shares; issued and outstanding 10,878,000 (1997) and 10,708,000 (1996) shares 109,000 107,000 Additional paid-in capital 29,656,000 28,737,000 (Deficit) (84,375,000) (57,405,000) ------------- ------------- (54,610,000) (28,561,000) ------------- ------------- Total liabilities and shareholders' (deficiency) $ 138,133,000 $ 146,307,000 ============= =============
Note: The balance sheet at December 31, 1996 has been derived from the audited financial statements at that date. See accompanying notes. 2 Cellular Communications International, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ---------------------------- ----------------------------- 1997 1996 1997 1996 ---------------------------- ----------------------------- Equity in net income (loss) of Omnitel $ 984,000 $ (12,888,000) $ (7,628,000) $ (33,673,000) Costs and expenses: General and administrative expenses 626,000 820,000 2,473,000 2,382,000 Depreciation expense 4,000 6,000 14,000 20,000 Amortization of investments in joint ventures 173,000 173,000 518,000 518,000 ------------ ------------- ------------- ------------- 803,000 999,000 3,005,000 2,920,000 ------------ ------------- ------------- ------------- Operating income (loss) 181,000 (13,887,000) (10,633,000) (36,593,000) Other income (expense): Interest income and other, net 1,123,000 1,298,000 3,307,000 4,007,000 Interest expense (6,763,000) (5,949,000) (19,644,000) (17,191,000) ------------ ------------- ------------- ------------- (Loss) before income taxes (5,459,000) (18,538,000) (26,970,000) (49,777,000) Income tax benefit - 1,200,000 - 1,200,000 ------------ ------------- ------------- ------------- Net (loss) $ (5,459,000) $ (17,338,000) $ (26,970,000) $ (48,577,000) ============ ============= ============= ============= Net (loss) per common share $(.50) $(1.63) $(2.51) $(4.64) ============ ============= ============= ============= Weighted average number of common shares used in computation of net (loss) per share 10,814,000 10,639,000 10,750,000 10,465,000 ============ ============= ============= =============
See accompanying notes. 3 Cellular Communications International, Inc. and Subsidiaries Condensed Consolidated Statement of Shareholders' (Deficiency) (Unaudited)
COMMON STOCK ADDITIONAL -------------------- PAID-IN SHARES AMOUNT CAPITAL (DEFICIT) ------------------------------------------------------ Balance at December 31, 1996 10,708,000 $ 107,000 $ 28,737,000 $ (57,405,000) Exercise of stock options 170,000 2,000 919,000 Net (loss) for the nine months ended September 30, 1997 (26,970,000) ---------- --------- ------------ ------------- Balance at September 30, 1997 10,878,000 $ 109,000 $ 29,656,000 $ (84,375,000) ========== ========= ============ =============
See accompanying notes. 4 Cellular Communications International, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30 ---------------------------------- 1997 1996 ---------------------------------- OPERATING ACTIVITIES Net (loss) $ (26,970,000) $ (48,577,000) Adjustments to reconcile net (loss) to net cash (used in) operating activities: Equity in net loss of Omnitel 7,628,000 33,673,000 Depreciation and amortization expense 532,000 538,000 Loss on disposal of equipment 3,000 2,000 Accretion of original issue discount 17,862,000 15,631,000 Accretion of interest on marketable securities (1,446,000) (1,606,000) Interest on cash held in escrow - (980,000) Amortization of deferred financing costs charged to interest expense 960,000 839,000 Amortization of debt discount 820,000 714,000 Changes in operating assets and liabilities: Other current assets 942,000 (1,832,000) Accounts payable (156,000) (159,000) Accrued expenses (194,000) (352,000) Taxes payable (2,000) (1,622,000) Due to Cellular Communications, Inc. - (81,000) Due to NTL Incorporated (411,000) 115,000 ------------- -------------- Net cash (used in) operating activities (432,000) (3,697,000) ------------- -------------- INVESTING ACTIVITIES Purchase of marketable securities (97,560,000) (114,865,000) Proceeds from sale of marketable securities 110,327,000 75,361,000 ------------- -------------- Net cash provided by (used in) investing activities 12,767,000 (39,504,000) ------------- -------------- FINANCING ACTIVITIES Redemption of Senior Discount Notes (44,000) - Payment of financing costs - (54,000) Exercise of stock options 921,000 987,000 ------------- -------------- Net cash provided by financing activities 877,000 933,000 ------------- -------------- Increase (decrease) in cash and cash equivalents 13,212,000 (42,268,000) Cash and cash equivalents at beginning of period 46,759,000 62,965,000 ------------- -------------- Cash and cash equivalents at end of period $ 59,971,000 $ 20,697,000 ============= ============== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Income taxes paid $ - $ 2,100,000 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES Cash held in escrow used for capital contributions to Omnitel $ - $ 44,178,000
See accompanying notes. 5 Cellular Communications International, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements NOTE A - BASIS OF PREPARATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. Net (loss) per share is computed based on the weighted average number of common shares outstanding during the periods presented. Common stock equivalents are excluded because they are antidilutive. In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". SFAS No. 128 establishes new standards for computing and presenting earnings per share and is effective for financial statements issued for periods ending after December 15, 1997. The Company will adopt SFAS No. 128 effective with its 1997 year end. The adoption of SFAS No. 128 would not have changed the net loss per common share for the three and nine months ended September 30, 1997 and 1996. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. The Company will adopt SFAS No. 130 for its fiscal year ending December 31, 1998. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. SFAS No. 131 is effective for financial statements for periods beginning after December 15, 1997. The Company will adopt SFAS No. 131 for its fiscal year ending December 31, 1998. 6 Cellular Communications International, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) NOTE B - INVESTMENT IN OMNITEL The investment in Omnitel consists of the following: SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------------------------ (unaudited) Capital contributions $ 96,805,000 $ 96,805,000 Capitalized costs including interest 9,725,000 9,725,000 Equity in accumulated net loss (54,535,000) (46,907,000) ------------- ------------- 51,995,000 59,623,000 Accumulated amortization (1,778,000) (1,260,000) ------------- ------------- $ 50,217,000 $ 58,363,000 ============= ============= In March 1994, the Omnitel-Pronto Italia ("OPI") consortium in which Omnitel holds a 70% interest was selected as the second GSM cellular telephone licensee in Italy. The Company, through its 14.667% ownership interest in Omnitel, holds an indirect 10.267% interest in OPI. The following financial information of Omnitel and OPI is prepared in accordance with U.S. generally accepted accounting principles and is reflected in U.S. dollars; the balance sheet information has been translated at the exchange rate on the balance sheet date and the statement of operations information has been translated at the average exchange rate for the period. The following summarizes the assets, liabilities and stockholders' equity of Omnitel: SEPTEMBER 30, DECEMBER 31, 1997 1996 -------------- ------------- (unaudited) ASSETS Current assets $ 7,394,000 $ 9,542,000 Investment in OPI 250,932,000 341,842,000 -------------- ------------- $ 258,326,000 $ 351,384,000 ============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities $ 715,000 $ 1,341,000 Other liabilities 52,000 59,000 Stockholders' equity 257,559,000 349,984,000 -------------- ------------- $ 258,326,000 $ 351,384,000 ============== ============= 7 Cellular Communications International, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) NOTE B - INVESTMENT IN OMNITEL (CONTINUED) The following summarizes the unaudited results of operations of Omnitel: NINE MONTHS ENDED SEPTEMBER 30 ------------------------------ 1997 1996 ------------------------------- Revenues $ - $ - Costs and expenses (991,000) (2,335,000) Equity in net loss of OPI (51,447,000) (225,964,000) ------------- -------------- Operating loss (52,438,000) (228,299,000) Interest income, net 425,000 342,000 ------------- -------------- Net loss $ (52,013,000) $ (227,957,000) ============= ============== The following summarizes the assets, liabilities and stockholders' equity of OPI: SEPTEMBER 30, DECEMBER 31, 1997 1996 --------------------------------- (unaudited) ASSETS Current assets $ 294,005,000 $ 299,576,000 Property, plant and equipment, net 733,580,000 697,069,000 Intangible assets, net 489,059,000 566,804,000 Deferred tax asset 131,845,000 129,644,000 Other 7,818,000 14,925,000 --------------- --------------- $ 1,656,307,000 $ 1,708,018,000 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities $ 483,823,000 $ 559,905,000 Long-term debt 799,143,000 647,806,000 Other liabilities 14,867,000 11,961,000 Stockholders' equity 358,474,000 488,346,000 --------------- --------------- $ 1,656,307,000 $ 1,708,018,000 =============== =============== 8 Cellular Communications International, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) NOTE B - INVESTMENT IN OMNITEL (CONTINUED) The following summarizes the unaudited results of operations of OPI: NINE MONTHS ENDED SEPTEMBER 30 --------------------------------- 1997 1996 --------------------------------- Revenues $ 703,027,000 $ 317,935,000 Costs and expenses 606,157,000 498,710,000 Depreciation and amortization 126,086,000 94,072,000 ------------- -------------- 732,243,000 592,782,000 ------------- -------------- Operating loss (29,216,000) (274,847,000) Interest (expense), net (61,988,000) (43,764,000) Income tax benefit 17,661,000 - ------------- -------------- Net loss $ (73,543,000) $ (318,611,000) ============= ============== Based on an evaluation of the business plan of OPI, expectation of future market conditions and operating performance, management of OPI determined that a portion of the valuation allowance on net deferred income tax assets was not required. NOTE C - LONG-TERM DEBT Pursuant to the Senior Discount Notes Indenture, any net proceeds from an asset sale that are not applied within 12 months after such asset sale to an investment in a related business will be deemed excess proceeds. When the aggregate amount of excess proceeds exceeds $5,000,000, the Company is required to make an offer to purchase the maximum principal amount of Notes that may be purchased using the excess proceeds, at an offer price in cash equal to 100% of the accreted value of the Notes. As a result of the Company's waiver and release of its claim to participate in an entity that owns one of the two GSM cellular licenses for Delhi, India in December 1995 in exchange for cash of approximately $40,000,000, the Company had approximately $38,900,000 of excess proceeds in December 1996. The Company made an offer to purchase Notes at the accreted value of $635.65 per $1,000 Note. In January 1997, upon the expiration of the offer, $70,000 principal amount of Notes were tendered and the Company paid approximately $44,000. 9 Cellular Communications International, Inc. and Subsidiaries ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. RESULTS OF OPERATIONS Three Months Ended September 30, 1997 and 1996 - ---------------------------------------------- Equity in net income (loss) of Omnitel for the third quarter was income of $984,000 in 1997 and loss of $12,888,000 in 1996. The change is due to the change in Omnitel's share of OPI's net income (loss) to income of $6,593,000 from a loss of $85,423,000. OPI's net income (loss) changed to income of $9,392,000 from a loss of $119,756,000 as a result of a 113% increase in operating revenues with only a 16% increase in operating expenses (percentage changes are calculated based on the results of operations in Italian lire). OPI reported that it had approximately 1,730,000 and 560,000 subscribers as of September 30, 1997 and 1996, respectively. General and administrative expenses decreased to $626,000 from $820,000 primarily because CCII reduced its efforts to obtain new cellular licenses. Interest income and other, net decreased to $1,123,000 from $1,298,000 primarily because of a decrease in funds available for investment. Interest expense increased to $6,763,000 from $5,949,000 due to an increase in the accretion of original issue discount on the Senior Discount Notes. Nine Months Ended September 30, 1997 and 1996 - --------------------------------------------- Equity in net loss of Omnitel decreased to $7,628,000 from $33,673,000 because of the decrease in the net loss of Omnitel. The decrease is due to a decrease in Omnitel's share of OPI's net loss to $51,447,000 from $225,964,000. OPI's net loss decreased to $73,543,000 from $318,611,000 as a result of a 142% increase in operating revenues with only a 35% increase in operating expenses (percentage changes are calculated based on the results of operations in Italian lire), plus OPI recorded an income tax benefit of $17,661,000 in 1997. General and administrative expenses increased to $2,473,000 from $2,382,000 primarily due to costs incurred in connection with possible joint ventures that the Company decided not to participate in. Interest income and other, net decreased to $3,307,000 from $4,007,000 primarily because of a decrease in funds available for investment. Interest expense increased to $19,644,000 from $17,191,000 due to an increase in the accretion of original issue discount on the Senior Discount Notes. The income tax benefit in 1996 of $1,200,000 is the result of net operating loss carrybacks to 1995. 10 Cellular Communications International, Inc. and Subsidiaries (continued) LIQUIDITY AND CAPITAL RESOURCES The Company's capital requirements are primarily based upon the agreements and requirements of the joint ventures in which it is now or may become a participant. The Company also requires capital to pay for corporate overhead expenses, personnel costs and taxes, as well as capital to explore other opportunities that may arise. The Company has no material commitments for capital expenditures, except as described below. The Company expects that cash, cash equivalents and marketable securities on hand are sufficient to meet all obligations of the Company at least through the next twelve months. Italian lire have been translated solely for the convenience of the reader at an exchange rate of 1,690.10 lire = $1.00, the Noon Buying Rate on October 31, 1997. As a result of the award of Italy's second GSM cellular license to OPI, OPI requires capital to construct its cellular system and to fund its operations. OPI has a syndicated bank loan facility for 1,800 billion lire ($1.1 billion). On August 29, 1997, OPI signed an Amended and Restated Facility Agreement which, among other things, provides for an increase in the facility of 1,000 billion lire ($592 million) from 1,800 billion lire to 2,800 billion lire ($1.7 billion). In addition, OPI has received capital contributions of 1,450 billion lire ($858 million) from its partners (1,015 billion lire ($601 million) from Omnitel and 435 billion lire ($257 million) from Pronto Italia). Omnitel funded its share of OPI capital contributions plus its own capital needs through capital contributions from its shareholders of 1,040 billion lire ($615 million). The Company's total cumulative contribution to Omnitel was approximately 152.5 billion lire ($96.8 million at the exchange rates in effect at the time of each contribution). On October 2, 1997, the Board of Directors of Omnitel approved to make available to OPI a subordinated credit facility of 70 billion lire ($41 million) as soon as OPI indebtedness amounts to 2,200 billion lire ($1.3 billion) and in any case not later than March 31, 1998. OPI has provided an approximate 219 billion lire ($130 million) performance bond that requires payments to the Italian government if OPI fails to meet certain operational targets. There can be no assurance that OPI will be able to achieve all of its performance bond goals. The Company's maximum liability under the performance bond is approximately 22.5 billion lire ($13 million), reflecting its proportionate interest in OPI. The information in the preceding paragraphs include projections; in reviewing such information it should be kept in mind that actual results may differ materially from those in such projections. These projections were based on various factors and were derived utilizing numerous assumptions. Important assumptions and factors that could cause actual results to differ materially from those in these projections include OPI's ability to continue to design network routes, install facilities, obtain and maintain any required governmental licenses or approvals and finance construction and development, all in a timely manner, at reasonable costs and on satisfactory terms and conditions, as well as assumptions about customer acceptance, churn rates, overall market penetration and competition from providers of alternative services. Other factors and assumptions not identified 11 Cellular Communications International, Inc. and Subsidiaries (continued) above were also involved in the derivation of these projections, and the failure of such other assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. The Company assumes no obligation to update these projections to reflect actual funding requirements, capital expenditures and results, changes in assumptions or changes in other factors affecting such projections. The Company has not been successful in obtaining any new cellular licenses since there is more competition for licenses and the costs of obtaining them has increased. This has occurred because more companies recognize the potential value of cellular licenses and governments increasingly realize they can extract some part of this value from license applicants. There can be no assurance that the Company will be successful in obtaining new cellular licenses or in developing other opportunities in the future. In August 1995, the Company issued $281,571,000 aggregate principal amount of 13-1/4% Senior Discount Notes due 2000 (the "Notes") and 281,571 warrants to purchase 317,049 shares of common stock. The Notes were issued at a price to the public of 52.783% or $148,622,000. The original issue discount accretes at a rate of 13-1/4%, compounded semiannually, to an aggregate principal amount of $281,571,000 by August 15, 2000. The Notes are senior unsecured obligations of the Company and rank senior in right of payment to all future subordinated indebtedness of the Company. The indenture governing the Notes contains restrictions relating to, among other things: (i) the incurrence of additional indebtedness, (ii) the issuance of preferred stock, (iii) dividends and other payments and (iv) mergers, consolidations and sales of assets. The indenture required that $51,800,000 of the proceeds be placed in an escrow account until it was needed to finance the Company's additional capital contribution obligations to Omnitel. The Company utilized the entire escrow account balance plus interest to make its required capital contributions to Omnitel in 1995 and 1996. To the extent that the Company obtains financing in U.S. dollars and the Company's future commitments to Omnitel are in Italian lire, it will encounter currency exchange rate risks. Omnitel's revenues will be received in Italian lire and currently there are no foreign exchange controls in Italy. There can be no assurance that foreign exchange restrictions will not be introduced in the future. The Company is primarily a holding company with limited business operations of its own. The Company's assets consist primarily of cash, cash equivalents and marketable securities and its ownership interest in Omnitel. The Company does not hold, nor is it likely that the Company will hold, a majority interest in any operating systems. The Company's minority voting position in Omnitel currently precludes it from controlling Omnitel or OPI, even though the Company is involved in the management of Omnitel and intends to participate in the future only in operating companies in which it can be involved in management. Thus, the Company may be unable to cause the implementation of strategies that it favors and, in the event of a disagreement between the Company and one or more of its partners, the strategies adopted and actions taken by an affiliate company may in some cases be contrary to the Company's preferred strategies and actions. In addition, the Company may be unable to access the cash flow of affiliated companies since (i) it 12 Cellular Communications International, Inc. and Subsidiaries (continued) does not have the requisite control to cause such entities to pay dividends, (ii) substantially all of such entities are expected to be parties to credit or other borrowing agreements that severely restrict or prohibit the payment of dividends, and such entities are likely to continue to be subject to such restrictions and prohibitions for the foreseeable future and (iii) some countries tax payment and repatriation of dividends. As a result, the Company does not expect to receive significant cash through dividends or other distributions from an affiliate in the foreseeable future. Because the Company does not currently have any cash flow and does not expect any cash flow for the foreseeable future, its ability to repay the Notes at maturity will be dependent on developing one or more sources of cash at or prior to maturity. The Company may (i) seek to refinance all or a portion of the Notes at maturity through sales of additional debt or equity securities of the Company, (ii) if possible and subject to the appropriate consents and approvals and certain other limitations set forth in the OPI Agreement and the Omnitel Agreement, seek to sell all or a portion of its interest in Omnitel, (iii) negotiate with its partners to permit any cash produced by OPI to be distributed to equity holders rather than invested in the business and/or (iv) seek to invest in companies that will make substantial cash distributions on or before the maturity of the Notes. There can be no assurance that (i) there will be a market for the debt or equity securities of the Company in the future, (ii) the Company will be permitted to sell particular assets or be able to sell assets in a timely manner or on commercially acceptable terms or in an amount that (giving effect to the substantial corporate income taxes which could be due in the event of such a sale) will be sufficient to repay the Notes when due, (iii) the Company will be able to persuade its partners that cash generated by the operations of its affiliated entities should be distributed to equity holders (in fact, the Company expects that Omnitel and OPI will utilize all of their respective cash flow for debt repayment or internal development opportunities for the foreseeable future) or (iv) the Company will be able to locate and invest in companies that will be mature enough to make substantial cash distributions to investors prior to the maturity of the Notes. Cash used in operating activities was $432,000 and $3,697,000 in 1997 and 1996, respectively. The decrease in cash used in operating activities is primarily due to a decrease in income taxes paid to none in 1997 from $2,100,000 in 1996. Cash provided by investing activities was $12,767,000 in 1997 as a result of proceeds from sales of marketable securities, net of purchases. Redemption of Senior Discount Notes of $44,000 in 1997 is the result of the Company's offer to repurchase up to $38,900,000 accreted value of Notes using the excess proceeds from the waiver and release of the Company's claim to participate in an entity that owns one of the two GSM cellular licenses for Delhi, India in December 1995 in exchange for cash of approximately $40,000,000. 13 Cellular Communications International, Inc. and Subsidiaries PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27. Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the quarter ended September 30, 1997. 14 SIGNATURES 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. CELLULAR COMMUNICATIONS INTERNATIONAL, INC. Date: November 10, 1997 By: /s/ J. Barclay Knapp ------------------------- J. Barclay Knapp Executive Vice President Date: November 10, 1997 By: /s/ Gregg Gorelick -------------------------- Gregg Gorelick Vice President-Controller (Principal Accounting Officer) 15 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 59,971,000 23,083,000 0 0 0 103,000 41,000 (39,000) 138,133,000 2,053,000 190,690,000 0 0 109,000 (54,719,000) 138,133,000 0 0 0 7,628,000 2,473,000 0 19,644,000 (26,970,000) 0 (26,970,000) 0 0 0 (26,970,000) (2.51) 0
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