-----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, EsJog7UEngSm4QwTlPWdklX+o6p2kbV+HNUnE9AM+BdEq3wkAS6vDv2WL1nROfBa cqjqBwSCo9uDtrTmSCJn9A== 0000870762-98-000026.txt : 19980518 0000870762-98-000026.hdr.sgml : 19980518 ACCESSION NUMBER: 0000870762-98-000026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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: 98621969 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 FORM 10Q - MARCH 31, 1998 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 March 31, 1998 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 Identification No.) incorporation or organization) 110 East 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 March 31, 1998 was 10,997,868 (16,496,802 as adjusted for the three-for-two stock split on April 14, 1998). Cellular Communications International, Inc. and Subsidiaries Index PART I. FINANCIAL INFORMATION Page - ------------------------------ ---- Item 1. Financial Statements Condensed Consolidated Balance Sheets - March 31, 1998 and December 31, 1997 .............................. 2 Condensed Consolidated Statements of Operations - Three months ended March 31, 1998 and 1997 ........................ 3 Condensed Consolidated Statement of Shareholders' (Deficiency) - Three months ended March 31, 1998 .................. 4 Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 1998 and 1997 ........................ 5 Notes to Condensed Consolidated Financial Statements .............. 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition ................................ 12 PART II. OTHER INFORMATION - -------------------------- Item 6. Exhibits and Reports on Form 8-K .................................. 17 SIGNATURES.................................................................. 18 - ---------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Cellular Communications International, Inc. and Subsidiaries Condensed Consolidated Balance Sheets
MARCH 31, DECEMBER 31, 1998 1997 ------------------------------- (unaudited) (see note) ASSETS Current assets: Cash and cash equivalents $ 116,775,000 $ 59,256,000 Marketable securities 5,004,000 24,871,000 Other 197,000 21,000 ------------------------------- Total current assets 121,976,000 84,148,000 Investment in Omnitel 55,388,000 52,151,000 Equipment, net of accumulated depreciation of $41,000 (1998) and $40,000 (1997) - 1,000 Deferred financing costs, net of accumulated amortization of $599,000 (1998) and $2,828,000 (1997) 8,808,000 4,414,000 ------------------------------- Total assets $ 186,172,000 $ 140,714,000 =============================== LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) Current liabilities: Accounts payable $ 226,000 $ 126,000 Accrued expenses 1,486,000 509,000 Taxes payable 1,453,000 1,452,000 Due to NTL Incorporated 344,000 69,000 ------------------------------- Total current liabilities 3,509,000 2,156,000 Long-term debt 280,403,000 197,327,000 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 16,497,000 (1998) and 16,359,000 (1997) shares 165,000 164,000 Additional paid-in capital 30,668,000 29,821,000 (Deficit) (128,573,000) (88,754,000) ------------------------------- (97,740,000) (58,769,000) ------------------------------- Total liabilities and shareholders' (deficiency) $ 186,172,000 $ 140,714,000 ===============================
Note: The balance sheet at December 31, 1997 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 MARCH 31 --------------------------------- 1998 1997 --------------------------------- Equity in net income (loss) of Omnitel $ 3,410,000 $ (7,137,000) Costs and expenses: General and administrative expenses 563,000 1,094,000 Depreciation expense 1,000 5,000 Amortization of investment in joint venture 173,000 172,000 --------------------------------- 737,000 1,271,000 --------------------------------- Operating income (loss) 2,673,000 (8,408,000) Other income (expense): Interest income and other, net 1,207,000 1,010,000 Interest expense (7,193,000) (6,336,000) Foreign currency transaction gains 1,560,000 - --------------------------------- (Loss) before extraordinary item (1,753,000) (13,734,000) Loss from early extinguishment of debt (38,066,000) - --------------------------------- Net (loss) $ (39,819,000) $ (13,734,000) ================================= Basic and diluted net (loss) per common share: (Loss) before extraordinary item $ (.11) $ (.85) Extraordinary item (2.32) - --------------------------------- Net (loss) $ (2.43) $ (.85) =================================
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, 1997 16,359,000 $ 164,000 $ 29,821,000 $ (88,754,000) Exercise of stock options 136,000 1,000 806,000 Exercise of warrants 2,000 - 41,000 Net (loss) for the three months ended March 31, 1998 (39,819,000) ------------------------------------------------------------------ Balance at March 31, 1998 16,497,000 $ 165,000 $ 30,668,000 $ (128,573,000) ==================================================================
See accompanying notes. 4 Cellular Communications International, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited)
THREE MONTHS ENDED MARCH 31 ----------------------------------- 1998 1997 ----------------------------------- OPERATING ACTIVITIES Net (loss) $ (39,819,000) $ (13,734,000) Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: Equity in net income (loss) of Omnitel (3,410,000) 7,137,000 Depreciation and amortization expense 174,000 177,000 Loss from early extinguishment of debt 38,066,000 - Foreign currency transaction gains (1,560,000) - Accretion of original issue discount 6,403,000 5,763,000 Accretion of interest on marketable securities (103,000) (577,000) Amortization of deferred financing costs charged to interest expense 359,000 309,000 Amortization of debt discount 259,000 264,000 Changes in operating assets and liabilities: Other current assets (176,000) (210,000) Accounts payable (120,000) (40,000) Accrued expenses 216,000 82,000 Taxes payable 1,000 5,000 Due to NTL Incorporated 275,000 142,000 ----------------------------------- Net cash provided by (used in) operating activities 565,000 (682,000) ----------------------------------- INVESTING ACTIVITIES Purchase of marketable securities (5,000,000) (63,038,000) Proceeds from sale of marketable securities 24,970,000 45,341,000 ----------------------------------- Net cash provided by (used in) investing activities 19,970,000 (17,697,000) ----------------------------------- FINANCING ACTIVITIES Proceeds from borrowings, net of financing costs 238,179,000 - Purchase of Senior Discount Notes (202,043,000) (45,000) Exercise of stock options and warrants 848,000 30,000 ----------------------------------- Net cash provided by (used in) financing activities 36,984,000 (15,000) ----------------------------------- Increase (decrease) in cash and cash equivalents 57,519,000 (18,394,000) Cash and cash equivalents at beginning of period 59,256,000 46,759,000 ----------------------------------- Cash and cash equivalents at end of period $ 116,775,000 $ 28,365,000 ===================================
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 months ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. 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, 1997. Net (loss) per share is computed based on the weighted average number of common shares outstanding of 16,420,000 and 16,067,000 for the three months ended March 31, 1998 and 1997, respectively. Stock options, warrants and the shares issuable upon conversation of notes are excluded as their effect would be antidilutive. In March 1998, the Company issued debt denominated in ECU's. Interest expense has been translated using the average exchange rate for the period and the debt balance has been translated using the current exchange rate at the balance sheet date. Foreign currency gains and losses arising from exchange rate fluctuations are included in the results of operations. NOTE B - INVESTMENT IN OMNITEL The investment in Omnitel consists of the following: MARCH 31, DECEMBER 31, 1998 1997 ---------------------------------- (unaudited) Capital contributions $ 96,805,000 $ 96,805,000 Capitalized costs including interest 9,725,000 9,725,000 Equity in accumulated net loss (49,018,000) (52,428,000) ---------------------------------- 57,512,000 54,102,000 Accumulated amortization (2,124,000) (1,951,000) ---------------------------------- $ 55,388,000 $ 52,151,000 ================================== 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 ("U.S. GAAP") and is reflected in U.S. dollars; the balance sheet information has been translated at the exchange rate on the balance sheet date (1,821.25 (1998) and 1,767.00 (1997) lire = $1.00) and the statement of operations information has been translated at the average exchange rate for the period (1,791.70 (1998) and 1,638.04 (1997) lire = $1.00). 6 Cellular Communications International, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) NOTE B - INVESTMENT IN OMNITEL (CONTINUED) The following summarizes the assets, liabilities and stockholders' equity of Omnitel: MARCH 31, DECEMBER 31, 1998 1997 --------------------------------- (unaudited) ASSETS Current assets $ 6,967,000 $ 7,137,000 Investment in OPI 273,161,000 257,971,000 --------------------------------- $ 280,128,000 $ 265,108,000 ================================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities $ 701,000 $ 677,000 Other liabilities 49,000 51,000 Stockholders' equity 279,378,000 264,380,000 --------------------------------- $ 280,128,000 $ 265,108,000 ================================= The following summarizes the unaudited results of operations of Omnitel: THREE MONTHS ENDED MARCH 31 --------------------------------- 1998 1997 --------------------------------- Revenues $ - $ - Costs and expenses (98,000) (220,000) Equity in net income (loss) of OPI 23,252,000 (48,584,000) --------------------------------- Operating income (loss) 23,154,000 (48,804,000) Interest income, net 97,000 143,000 --------------------------------- Net income (loss) $ 23,251,000 $ (48,661,000) ================================= 7 Cellular Communications International, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) NOTE B - INVESTMENT IN OMNITEL (CONTINUED) The following summarizes the assets, liabilities and stockholders' equity of OPI: MARCH 31, DECEMBER 31, 1998 1997 ------------------------------------ (unaudited) ASSETS Current assets $ 535,910,000 $ 522,188,000 Property, plant and equipment, net 811,824,000 782,129,000 Intangible assets, net 452,132,000 472,918,000 Deferred tax asset 19,986,000 32,088,000 Other 39,075,000 37,158,000 ------------------------------------ $ 1,858,927,000 $ 1,846,481,000 ==================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities $ 622,322,000 $ 605,919,000 Long-term debt 829,661,000 855,134,000 Other liabilities 16,714,000 16,898,000 Stockholders' equity 390,230,000 368,530,000 ------------------------------------ $ 1,858,927,000 $ 1,846,481,000 ==================================== The following summarizes the unaudited results of operations of OPI: THREE MONTHS ENDED MARCH 31 ------------------------------------ 1998 1997 ------------------------------------ Revenues $ 422,082,000 $ 175,175,000 Costs and expenses 291,676,000 203,701,000 Depreciation and amortization 51,169,000 40,376,000 ------------------------------------ 342,845,000 244,077,000 ------------------------------------ Operating income (loss) 79,237,000 (68,902,000) Interest (expense), net (15,347,000) (18,403,000) Income tax (provision) benefit (30,673,000) 17,899,000 ------------------------------------ Net income (loss) $ 33,217,000 $ (69,406,000) ==================================== 8 Cellular Communications International, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) NOTE B - INVESTMENT IN OMNITEL (CONTINUED) The following financial information of OPI is prepared in accordance with U.S. GAAP and is reflected in Italian lire. The following summarizes the assets, liabilities and stockholders' equity of OPI: MARCH 31, DECEMBER 31, 1998 1997 ----------------------------- (unaudited) (in millions of lire) ASSETS Current assets 976,026 922,707 Property, plant and equipment, net 1,478,535 1,382,022 Intangible assets, net 823,445 835,646 Deferred tax asset 36,400 56,700 Other 71,166 65,659 ----------------------------- 3,385,572 3,262,734 ============================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities 1,133,403 1,070,663 Long-term debt 1,511,021 1,511,021 Other liabilities 30,441 29,858 Stockholders' equity 710,707 651,192 ----------------------------- 3,385,572 3,262,734 ============================= The following summarizes the unaudited results of operations of OPI: THREE MONTHS ENDED MARCH 31 ----------------------------- 1998 1997 ----------------------------- (in millions of lire) Revenues 756,244 286,943 Costs and expenses 522,596 333,670 Depreciation and amortization 91,679 66,137 ----------------------------- 614,275 399,807 ----------------------------- Operating income (loss) 141,969 (112,864) Interest (expense), net (27,498) (30,145) Income tax (provision) benefit (54,956) 29,320 ----------------------------- Net income (loss) 59,515 (113,689) ============================= 9 Cellular Communications International, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) NOTE C - LONG-TERM DEBT Long-term debt consists of: MARCH 31, DECEMBER 31, 1998 1997 ----------------------------- (unaudited) 13-1/4% Senior Discount Notes ("13-1/4% Notes") $ 36,214,000 $ 201,095,000 Unamortized discount (604,000) (3,768,000) ----------------------------- 35,610,000 197,327,000 9-1/2% Senior Discount Notes ("9-1/2% Notes") 158,543,000 - 6% Convertible Subordinated Notes ("Convertible Notes") 86,250,000 - ----------------------------- $ 280,403,000 $ 197,327,000 ============================= In February 1998, the Company offered to purchase for cash all of the outstanding 13-1/4% Notes at the accreted value of $869.12 per $1,000 principal amount. In March 1998, upon the expiration of the offer, $232,469,000 principal amount at maturity (book value of $167,829,000) of 13-1/4% Notes were tendered and the Company paid approximately $202,043,000. The Company recorded an extraordinary loss from the early extinguishment of debt of $38,066,000 as a result of this transaction, including the write-off of unamortized deferred financing costs of $3,392,000. The original issue discount of the remaining 13-1/4% Notes accretes at a rate of 13-1/4%, compounded semiannually, to an aggregate principal amount of $49,032,000 by August 15, 2000. In March 1998, the Company issued ECU 235,000,000 ($252,978,000) aggregate principal amount of 9-1/2% Senior Discount Notes due 2005 and $86,250,000 aggregate principal amount of 6% Convertible Subordinated Notes due 2005. The 9-1/2% Notes were issued at a price to the public of 62.455% or ECU 146,769,000 ($159,553,000 on the date of issuance). The Company received net proceeds of ECU 142,366,000 ($154,766,000 on the date of issuance) and $83,447,000 after discounts and commissions from the issuance of the 9-1/2% Notes and the Convertible Notes, respectively. Discounts, commissions and other fees incurred of $8,145,000 were included in deferred financing costs. The Company used most of the proceeds to repurchase approximately 82% of its 13-1/4% Notes. 10 Cellular Communications International, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) NOTE C - LONG-TERM DEBT (CONTINUED) The original issue discount of the 9-1/2% Notes accretes at a rate of 9-1/2% compounded semiannually, to an aggregate principal amount of ECU 235,000,000 ($252,978,000) by April 1, 2003. Interest will thereafter accrue at 9-1/2% per annum, payable semiannually beginning on October 1, 2003. The 9-1/2% Notes are unsecured obligations of the Company and are effectively subordinated to all existing and future indebtedness and other liabilities of the Company and the Company's subsidiaries. The 9-1/2% Notes may be redeemed at the Company's option, in whole or in part, at any time on or after April 1, 2002 at a redemption price of 104.75% that declines annually to 100% in 2005, plus accrued and unpaid interest to the date of redemption. The Indenture governing the 9-1/2% Notes contains restrictions relating to, among other things: (i) incurrence of additional indebtedness and the issuance of preferred stock, (ii) dividend and other payment restrictions and (iii) mergers, consolidations and sales of assets. Interest payments on the Convertible Notes begin on October 1, 1998 and interest is payable every six months thereafter. The Convertible Notes mature on April 1, 2005. The Convertible Notes are unsecured obligations convertible into shares of common stock prior to maturity at a conversion price of $39.95 per share, subject to adjustment. There are approximately 2,159,000 shares of common stock reserved for issuance upon conversion of the Convertible Notes. The Convertible Notes are redeemable, in whole or in part, at the option of the Company at any time on or after April 4, 2001 at a redemption price of 103.429% that declines annually to 100% in 2005, in each case together with accrued and unpaid interest to the redemption date. 11 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 March 31, 1998 and 1997 - ------------------------------------------ Equity in net income (loss) of Omnitel increased to income of $3,410,000 from a loss of $7,137,000. The change is due to the change in Omnitel's share of OPI's net income (loss) to income of $23,252,000 from a loss of $48,584,000. OPI's net income (loss) changed to income of $33,217,000 from a loss of $69,406,000 as a result of a 164% increase in operating revenues with only a 54% increase in operating expenses (percentage changes are calculated based on the results of operations in Italian lire). OPI reported that it had approximately 3,100,000 and 913,000 subscribers as of March 31, 1998 and 1997, respectively. General and administrative expenses decreased to $563,000 from $1,094,000 primarily because CCII reduced its efforts to obtain new licenses. Interest income and other, net increased to $1,207,000 from $1,010,000 primarily because of an increase in funds available for investment. Interest expense increased to $7,193,000 from $6,336,000 due to the issuance of the 9-1/2% Notes and Convertible Notes in March 1998. This increase was offset by a decrease in interest expense due to the purchase of $232,469,000 principal amount at maturity of 13-1/4% Notes in March 1998. Foreign currency transaction gains of $1,560,000 in 1998 are due to the issuance of new debt denominated in ECU's in March 1998 and favorable changes in the exchange rate subsequent to the issuance. The Company recorded an extraordinary loss of $38,066,000 from the purchase of the 13-1/4% Notes. 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, interest 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 will be sufficient to meet all obligations of the Company at least through the next twelve months. Italian lire and ECU's have been translated solely for the convenience of the reader at an exchange rate of 1,753.60 lire and 1.107 ECU's per U.S. dollar, the Noon Buying Rates on May 11, 1998. 12 Cellular Communications International, Inc. and Subsidiaries As a result of the award of Italy's second GSM cellular license to OPI, OPI required capital to construct its cellular system and to fund its operations. OPI received capital contributions of 1,450 billion lire ($827 million) from its partners - 1,015 billion lire ($579 million) from Omnitel and 435 billion lire ($248 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 ($593 million). The Company's total cumulative contribution to Omnitel is approximately 152.5 billion lire ($96.8 million at the exchange rates in effect at the time of each contribution). In addition, OPI originally arranged a syndicated bank loan facility for 1,800 billion lire ($1.03 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 ($570 million) from 1,800 billion lire to 2,800 billion lire ($1.6 billion). OPI also has a number of other credit and subordinated debt facilities totaling approximately 1,000 billion lire. As of March 31, 1998, OPI had approximately 1,600 billion lire ($912 million) available under its facilities. On October 2, 1997, the Board of Directors of Omnitel approved a proposal to make available to OPI a subordinated credit facility of 70 billion lire ($40 million) as soon as OPI's indebtedness amounts to 2,200 billion lire ($1.3 billion) or in the event of default by OPI under the facility. OPI has provided an approximate 219 billion lire ($125 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. Omnitel has comitted to purchase 70% of OPI's forfeited stock warrants granted to OPI executives in connection with OPI's stock option plan. The warrants could be sold in the period between March 30, 2000 and March 31, 2001. On March 25, 1998, the Board of Directors of OPI approved a valuation of the warrants equal to lire 12.729, determined as if the purchase would take place on June 30, 1998. 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 at maturity of 13-1/4% Senior Discount Notes due 2000 and 422,356 warrants to purchase 475,573 shares of common stock.. The 13-1/4% Notes were issued at a price to the public of 52.783% or $148,622,000. In March 1998, pursuant to the Company's offer to purchase for cash all of the outstanding 13-1/4% Notes at the accreted value of $869.12 per $1,000 principal amount, $232,469,000 principal amount at maturity of 13-1/4% Notes were purchased for cash of approximately $202,043,000. The original issue discount of the remaining 13-1/4% Notes accretes at a rate of 13-1/4%, compounded semiannually, to an aggregate principal amount of $49,032,000 by August 15, 2000. 13 Cellular Communications International, Inc. and Subsidiaries In March 1998, the Company issued ECU 235,000,000 ($260,145,000) aggregate principal amount of 9-1/2% Senior Discount Notes due 2005 and $86,250,000 aggregate principal amount of 6% Convertible Subordinated Notes due 2005. The 9-1/2% Notes were issued at a price to the public of 62.455% or ECU 146,769,000 ($159,553,000 on the date of issuance). The Company received net proceeds of ECU 142,366,000 ($154,766,000 on the date of issuance) and $83,447,000, after discounts and commissions, from the issuance of the 9-1/2% Notes and the Convertible Notes, respectively. The original issue discount of the 9-1/2% Notes accretes at a rate of 9-1/2% compounded semiannually, to an aggregate principal amount of ECU 235,000,000 ($260,145,000) by April 1, 2003. Interest will thereafter accrue at 9-1/2% per annum, payable semiannually beginning on October 1, 2003. The 9-1/2% Notes are unsecured obligations of the Company and are effectively subordinated to all existing and future indebtedness and other liabilities of the Company and the Company's subsidiaries. The 9-1/2% Notes may be redeemed at the Company's option, in whole or in part, at any time on or after April 1, 2002 at a redemption price of 104.75% that declines annually to 100% in 2005, plus accrued and unpaid interest to the date of redemption. The Indenture governing the 9-1/2% Notes contains restrictions relating to, among other things: (i) incurrence of additional indebtedness and the issuance of preferred stock, (ii) dividend and other payment restrictions and (iii) mergers, consolidations and sales of assets. Interest payments on the Convertible Notes begin on October 1, 1998 and interest is payable every six months thereafter. The Convertible Notes mature on April 1, 2005. The Convertible Notes are unsecured obligations convertible into shares of common stock prior to maturity at a conversion price of $39.95 per share, subject to adjustment. There are approximately 2,159,000 shares of common stock reserved for issuance upon conversion of the Convertible Notes. The Convertible Notes are redeemable, in whole or in part, at the option of the Company at any time on or after April 4, 2001 at a redemption price of 103.429% that declines annually to 100% in 2005, in each case together with accrued and unpaid interest to the redemption date. To the extent that the Company obtains financing in U.S. dollars and ECU's and the Company's future commitments to Omnitel are in Italian lire, it will encounter currency exchange rate risks. OPI's revenues are 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. 14 Cellular Communications International, Inc. and Subsidiaries 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 affiliated 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 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 expect significant cash flow for the foreseeable future, its ability to repay the remaining 13-1/4% Notes, the 9-1/2% Notes and the Convertible 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 provided by operating activities was $565,000 in 1998 and cash used in operating activities was $682,000 in 1997. This change is primarily due to an increase in interest income and a decrease in general and administrative expenses. Cash provided by investing activities was $19,970,000 in 1998 as a result of purchases of marketable securities, net of proceeds from sales. Proceeds from borrowing, net of financing costs of $238,179,000 in 1998 is comprised of the proceeds from the issuance of the 9-1/2% Notes and the Convertible Notes of $245,803,000, net of financing costs paid of $7,624,000. 15 Cellular Communications International, Inc. and Subsidiaries YEAR 2000 Many computer systems experience problems handling dates beyond the year 1999. Therefore, some computer hardware and software will need to be modified prior to the year 2000 in order to remain functional. OPI has informed the Company that it is assessing both the internal readiness of its computer systems and the compliance of the computer systems of certain significant customers and vendors for handling the year 2000. OPI has informed the Company that it expects to implement successfully the systems and programming changes necessary to address year 2000 issues, and does not believe that the cost of such actions will have a material adverse effect on OPI. There can be no assurance, however, that there will not be a delay in, or increased costs associated with, the implementation of such changes, and OPI's inability to implement such changes could have an adverse effect on OPI. In addition, the failure of certain of OPI's significant customers and vendors to address the year 2000 issue could have a material adverse effect on OPI. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: Certain statements contained herein constitute "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995. When used herein, the words, "believe," "anticipate," "should," "intend," "plan," "will," "expects," "estimates," "projects," "positioned," "strategy," and similar expressions identify such forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from those contemplated, projected, forecasted, estimated or budgeted, whether expressed or implied, by such forward-looking statements. Such factors include the following: general economic and business conditions in Italy, industry trends, OPI's ability to continue to design and build its network, install facilities, obtain and maintain any required government 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, the impact of new business opportunities requiring significant up-front investment, and availability, terms and deployment of capital. 16 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. During the quarter ended March 31, 1998, the Company filed the following current reports on Form 8-K: (i) Report dated February 23, 1998, reporting under Item 5, Other Events, that the Company has received consents from the holders of a majority of its outstanding 13-1/4% Senior Discount Notes due 2000. (ii) Report dated February 25, 1998, reporting under Item 5, Other Events, that the Company intended to complete a concurrent offering of EURO 138,000,000 (gross proceeds) (or approximately $150 million of gross proceeds) Senior Discount Notes due 2005 and $75,000,0000 Convertible Subordinated Notes due 2005. (iii) Report dated March 9, 1998, reporting under Item 5, Other Events, that the Company was extending its previously announced offer to purchase all of its outstanding 13-1/4% Senior Discount Notes due 2000 and that it was amending the minimum tender condition of the offer to reduce the minimum percentage of Senior Notes required to be validly tendered from 90% to 80%. (iv) Report dated March 11, 1998, reporting under Item 5, Other Events, that the Company priced a concurrent offering of Senior Notes due 2005 and Convertible Subordinated Notes due 2005. (v) Report dated March 18, 1998, reporting under Item 5, Other Events, that its previously announced offer to purchase all of its outstanding 13-1/4% Senior Discount Notes due 2000 expired on March 18, 1998 at 3:00 A.M. and that the Company accepted for payment $232,469,000 (82.58%) aggregate principal amount at maturity of Senior Notes. (vi) Report dated March 19, 1998, reporting under Item 5, Other Events, that its Board had declared a 3-for-2 stock split by way of stock dividend with respect to its Common Stock. No financial statements were filed with any of these reports. 17 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: May 13, 1998 By: /s/ Stanton N. Williams ------------------------------------------ Stanton N. Williams Vice President and Chief Financial Officer Date: May 13, 1998 By: /s/ Gregg Gorelick ------------------------------------------ Gregg Gorelick Vice President-Controller (Principal Accounting Officer) 18 EX-27 2 QUARTERLY FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1998 JAN-01-1997 MAR-31-1998 116,775,000 5,004,000 0 0 0 197,000 41,000 (41,000) 186,172,000 3,509,000 280,403,000 0 0 165,000 97,905,000 186,172,000 0 0 0 (3,410,000) 563,000 0 7,193,000 (1,753,000) 0 (1,753,000) 0 (38,066,000) 0 (39,819,000) (2.43) (2.43)
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