-----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, ACNfCKTHTgDEYS4BQcwuMirw+D9YBM6QPu06FHYOVwUTB/Wzes8qYr2mbQMfBT0/ Z6IhdZDO4Gv8rlFZlBzksw== 0000940180-96-000567.txt : 19961113 0000940180-96-000567.hdr.sgml : 19961113 ACCESSION NUMBER: 0000940180-96-000567 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NONE 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: 1934 Act SEC FILE NUMBER: 033-90980 FILM NUMBER: 96658431 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 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 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 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 September 30, 1996 was 10,638,639. Cellular Communications International, Inc. and Subsidiaries INDEX
PART I. FINANCIAL INFORMATION Page - ------------------------------- ---- Item 1. Financial Statements Condensed Consolidated Balance Sheets-- September 30, 1996 and December 31, 1995............... 2 Condensed Consolidated Statements of Operations--Three and nine months ended September 30, 1996 and 1995............................ 4 Condensed Consolidated Statement of Shareholders' (Deficiency) Equity--Nine months ended September 30, 1996..................................... 5 Condensed Consolidated Statements of Cash Flows-- Nine months ended September 30, 1996 and 1995.......... 6 Notes to Condensed Consolidated Financial Statements............................................. 8 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
September 30 December 31 1996 1995 ------------ ------------ (See Note) ASSETS Current assets: Cash and cash equivalents $ 20,697,000 $ 62,965,000 Marketable securities 58,178,000 17,068,000 Other 2,311,000 61,000 ------------ ------------ Total current assets 81,186,000 80,094,000 Cash held in escrow - 43,616,000 Investment in Omnitel 54,713,000 44,726,000 Equipment, net of accumulated depreciation of $45,000 (1996) and $43,000 (1995) 24,000 51,000 Deferred financing costs, net of accumulated amortization of $1,226,000 (1996) and $387,000 (1995) 6,016,000 6,803,000 ------------ ------------ Total assets $141,939,000 $175,290,000 ============ ============
2 Cellular Communication International, Inc. and Subsidiaries Condensed Consolidated Balance Sheets -- Continued
September 30 December 31 1996 1995 ------------ ------------ (See Note) LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) EQUITY Current liabilities: Accounts payable $ 38,000 $ 202,000 Accrued expenses 520,000 872,000 Taxes payable 1,454,000 3,076,000 Due to Cellular Communications, Inc. - 81,000 Due to International CableTel Incorporated 138,000 23,000 ------------ ------------ Total current liabilities 2,150,000 4,254,000 Long-term debt, less unamortized discount of $5,136,000 (1996) and $5,850,000 (1995) 166,214,000 149,869,000 Commitments and contingent liabilities Shareholders' (deficiency) equity: Series preferred stock-$.01 par value; authorized 2,500,000 shares, outstanding none - - Common stock-$.01 par value; authorized 25,000,000 shares; issued and outstanding 10,639,000(1996) and 10,344,000(1995) shares 106,000 103,000 Additional paid-in capital 28,483,000 27,501,000 (Deficit) (55,014,000) (6,437,000) ------------ ------------ (26,425,000) 21,167,000 ------------ ------------ Total liabilities and shareholders' (deficiency) equity $141,939,000 $175,290,000 ============ ============
Note: The balance sheet at December 31, 1995 has been derived from the audited financial statements at that date. See accompanying notes. 3 Cellular Communications International, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended Nine Months Ended September 30 September 30 --------------------------- --------------------------- 1996 1995 1996 1995 ------------- ----------- ------------ ------------ Equity in net loss of Omnitel $ 12,888,000 $ 2,280,000 $ 33,673,000 $ 5,833,000 General and administrative expenses 820,000 1,562,000 2,382,000 2,999,000 Write-off of investment in joint venture - 366,000 - 366,000 Write-off of deferred costs - 105,000 - 328,000 Depreciation expense 6,000 7,000 20,000 20,000 Amortization of investments in joint ventures 173,000 153,000 518,000 357,000 ------------ ----------- ------------ ------------ Operating loss (13,887,000) (4,473,000) (36,593,000) (9,903,000) Other income (expense): Interest and other income 1,298,000 554,000 4,007,000 725,000 Interest expense (5,949,000) (1,979,000) (17,191,000) (3,299,000) Cellular Communications, Inc. fees in connection with the bank loan - (9,000) - (101,000) ------------ ----------- ------------ ------------ Loss before income taxes and extraordinary item (18,538,000) (5,907,000) (49,777,000) (12,578,000) Income tax benefit 1,200,000 - 1,200,000 - ------------ ----------- ------------ ------------ Loss before extraordinary item (17,338,000) (5,907,000) (48,577,000) (12,578,000) Loss from early extinguishment of debt - (2,268,000) - (2,268,000) ------------ ----------- ------------ ------------ Net loss $(17,338,000) $(8,175,000) $(48,577,000) $(14,846,000) ============ =========== ============ ============ Net loss per common share: Loss before extraordinary item $ (1.63) $ (.58) $ (4.64) $ (1.24) Extraordinary item - (.22) - (.22) ------------ ----------- ------------ ------------ Net loss $ (1.63) $ (.80) $ (4.64) $ (1.46) ============ =========== ============ ============ Weighted average number of common shares used in computation of net loss per share 10,639,000 10,213,000 10,465,000 10,196,000 ============ =========== ============ ============
See accompanying notes. 4 Cellular Communications International, Inc. and Subsidiaries Condensed Consolidated Statement of Shareholders' (Deficiency) Equity (Unaudited)
Common Stock Additional -------------------- Paid-in Shares Amount Capital (Deficit) ---------- --------- ----------- ------------ Balance at December 31, 1995 10,344,000 $103,000 $27,501,000 $ (6,437,000) Exercise of stock options 295,000 3,000 984,000 Costs incurred in connection with the issuance of warrants (2,000) Net loss for the nine months ended September 30, 1996 (48,577,000) ---------- --------- ----------- ------------ Balance at September 30, 1996 10,639,000 $106,000 $28,483,000 $(55,014,000) ========== ========= =========== ============
See accompanying notes. 5 Cellular Communications International, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30 ------------------------------ 1996 1995 ------------- ------------ OPERATING ACTIVITIES Net loss $ (48,577,000) $(14,846,000) Adjustments to reconcile net loss to net cash used in operating activities: Equity in net loss of Omnitel 33,673,000 5,833,000 Depreciation and amortization expense 538,000 377,000 Write-off of deferred costs and investment in joint venture - 694,000 Loss on sale of property, plant and equipment 2,000 - Loss from early extinguishment of debt - 2,268,000 Accretion of original issue discount 15,631,000 1,587,000 Interest on cash held in escrow (980,000) (282,000) Accretion of interest on marketable securities (1,606,000) - Amortization of deferred financing costs charged to interest expense 839,000 1,437,000 Amortization of debt discount 714,000 91,000 Changes in operating assets and liabilities: Other current assets (1,832,000) (438,000) Accounts payable (159,000) 507,000 Accrued expenses (352,000) 71,000 Taxes payable (1,622,000) (4,000) Interest payable - (58,000) Due to Cellular Communications, Inc. (81,000) (913,000) Due to International CableTel Incorporated 115,000 (2,000) ------------- ------------ Net cash used in operating activities (3,697,000) (3,678,000) INVESTING ACTIVITIES Purchase of equipment - (52,000) Purchase of marketable securities (114,865,000) (8,505,000) Proceeds from sale of marketable securities 75,361,000 8,995,000 Cash held in escrow - (51,800,000) Additional investments in joint ventures - (19,639,000) Deferred costs incurred - (370,000) ------------- ------------ Net cash used in investing activities (39,504,000) (71,371,000) ------------- ------------
6 Cellular Communication International, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) -- Continued
Nine Months Ended September 30 ------------------------------ 1996 1995 ------------ ------------ FINANCING ACTIVITIES Payment of financing costs (54,000) (8,260,000) Principal payments - (95,911,000) Proceeds from borrowings - 213,302,000 Exercise of stock options 987,000 483,000 ------------ ------------ Net cash provided by financing activities 933,000 109,614,000 ------------ ------------ Increase (decrease) in cash and cash equivalents (42,268,000) 34,565,000 Cash and cash equivalents at beginning of period 62,965,000 4,372,000 ------------ ------------ Cash and cash equivalents at end of period $ 20,697,000 $ 38,937,000 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for interest exclusive of $3,411,000 (1995) capitalized $ - $ 1,113,000 Income taxes paid 2,100,000 - SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES Cash held in escrow used for capital contribution to Omnitel $ 44,178,000 $ 9,116,000
See accompanying notes. 7 Cellular Communications International, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements 1. 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, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. 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, 1995. 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. 2. Accounting Change In October 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 defines a fair value based method of accounting for stock-based employee compensation plans (including stock option plans). As permitted by SFAS No. 123, the Company expects to continue to measure compensation costs for its plans as prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." 3. Investment in Omnitel The investment in Omnitel consists of the following:
September 30 December 31 1996 1995 ------------ ------------ (Unaudited) Capital contributions $ 96,805,000 $ 52,627,000 Capitalized costs including interest 9,725,000 9,725,000 Equity in accumulated net loss (50,730,000) (17,057,000) ------------ ------------ 55,800,000 45,295,000 Accumulated amortization (1,087,000) (569,000) ------------ ------------ $ 54,713,000 $ 44,726,000 ============ ============
8 Cellular Communications International, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) 3. Investment in Omnitel - continued 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 (including San Marino and Vatican City). CCII, 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 presented 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 balance sheet information of Omnitel and OPI at December 31, 1995 has been reclassified. The following summarizes the assets, liabilities and stockholders' equity of Omnitel:
September 30 December 31 1996 1995 ------------- ------------ (Unaudited) ASSETS Current assets $ 10,116,000 $ 5,912,000 Investment in OPI 315,248,000 236,635,000 ------------- ------------ $ 325,364,000 $242,547,000 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities $ 3,765,000 $ 1,258,000 Stockholders' equity 321,599,000 241,289,000 ------------- ------------ $ 325,364,000 $242,547,000 ============= ============
The following summarizes the unaudited results of operations of Omnitel:
Nine Months Ended September 30 ----------------------------- 1996 1995 ------------- ------------ Revenues $ - $ - Costs and expenses (2,335,000) (858,000) Equity in net loss of OPI (225,964,000) (39,498,000) ------------- ------------ Operating loss (228,299,000) (40,356,000) Interest income, net 342,000 586,000 ------------- ------------ Net loss $(227,957,000) $(39,770,000) ============= ============
9 Cellular Communications International, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) 3. Investment in Omnitel - continued The following summarizes the assets, liabilities and stockholders' equity of OPI:
September 30 December 31 1996 1995 -------------- -------------- (Unaudited) ASSETS Current assets $ 389,465,000 $ 104,718,000 Property, plant and equipment, net 602,509,000 388,341,000 Intangible assets, net 567,486,000 566,968,000 Other 4,234,000 2,829,000 -------------- -------------- $1,563,694,000 $1,062,856,000 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities $ 489,018,000 $ 402,264,000 Long-term debt 613,114,000 315,557,000 Other liabilities 11,208,000 6,985,000 Stockholders' equity 450,354,000 338,050,000 -------------- -------------- $1,563,694,000 $1,062,856,000 ============== ==============
The following summarizes the unaudited results of operations of OPI:
Nine Months Ended September 30 -------------------------------- 1996 1995 -------------- -------------- Revenues $ 317,935,000 $ - Costs and expenses (498,710,000) (53,840,000) Depreciation and amortization (94,072,000) (3,003,000) -------------- -------------- Operating loss (274,847,000) (56,843,000) Interest income (expense), net (43,764,000) 2,834,000 -------------- -------------- Net loss $ (318,611,000) $ (54,009,000) ============== ==============
10 Cellular Communications International, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (continued) 4. Commitments and Contingent Liabilities 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 (a business that directly or indirectly operates, acquires, develops and constructs any "wireless" telecommunications services or related services) 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 has approximately $38,900,000 that may be deemed excess proceeds in December 1996. 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 September 30, 1996 and 1995 - ---------------------------------------------- Equity in net loss of Omnitel increased to $12,888,000 from $2,280,000 because of the increase in the net loss of Omnitel. The increase is due to an increase in Omnitel's share of OPI's net loss to $85,423,000 from $15,157,000. OPI's net loss increased to $119,756,000 from $20,742,000 as a result of the increase in all costs due to the commencement of operations in December 1995. Depreciation and amortization of certain previously capitalized costs began in December 1995 upon the commencement of operations. General and administrative expenses decreased to $820,000 from $1,562,000 primarily because, as of December 1995, CCII no longer participates in an entity that owns one of the two GSM cellular licenses for Delhi, India, and CCII reduced its efforts to obtain new cellular licenses. In 1995, an investment in joint venture of $366,000 and deferred costs of $105,000 were written-off in connection with unsuccessful efforts to obtain licenses. Amortization of investments in joint ventures increased to $173,000 from $153,000 as a result of the amortization of additional costs capitalized in connection with the investment in Omnitel. Interest and other income increased to $1,298,000 from $554,000 primarily because of an increase in funds available for investment. Interest expense increased to $5,949,000 from $1,979,000 primarily due to the interest on the Senior Discount Notes. Interest expense in 1995 does not include interest of $1,754,000 which was capitalized during the three months ended September 30, 1995. The Company discontinued interest capitalization in December 1995 upon the commencement of OPI's operations. The fees to CCI in connection with the bank loan decreased to none from $9,000 as a result of the termination of the CCI guarantee in July 1995. The income tax benefit in 1996 of $1,200,000 is the result of net operating loss carrybacks to 1995. During 1995, the Company recognized an extraordinary loss of $2,268,000 due to the early extinguishment of debt. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock Based Compensation." SFAS No. 123 defines a fair value based method of accounting for stock-based employee compensation plans (including stock option plans). As permitted by SFAS No. 123, the Company expects to continue to measure compensation costs for its plans as prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." 12 Cellular Communications International, Inc. and Subsidiaries (continued) Nine Months Ended September 30, 1996 and 1995 - --------------------------------------------- Equity in net loss of Omnitel increased to $33,673,000 from $5,833,000 because of the increase in the net loss of Omnitel. The increase is due to an increase in Omnitel's share of OPI's net loss to $225,964,000 from $39,498,000. OPI's net loss increased to $318,611,000 from $54,009,000 as a result of the increase in all costs due to the commencement of operations in December 1995. Depreciation and amortization of certain previously capitalized costs began in December 1995 upon the commencement of operations. General and administrative expenses decreased to $2,382,000 from $2,999,000 primarily because, as of December 1995, CCII no longer participates in an entity that owns one of the two GSM cellular licenses for Delhi, India, and CCII reduced its efforts to obtain new cellular licenses. The 1995 amount is reduced by an expense reimbursement of $893,000 from Omnitel for amounts previously charged to general and administrative expenses. In 1995, an investment in a joint venture of $366,000 and deferred costs of $328,000 were written-off in connection with unsuccessful efforts to obtain licenses. Amortization of investments in joint ventures increased to $518,000 from $357,000 as a result of the amortization of additional costs capitalized in connection with the investment in Omnitel. Interest and other income increased to $4,007,000 from $725,000 primarily because of an increase in funds available for investment. Interest expense increased to $17,191,000 from $3,299,000 primarily due to the interest on the Senior Discount Notes. Interest expense in 1995 does not include interest of $4,291,000 which was capitalized during the nine months ended September 30, 1995. The Company discontinued interest capitalization in December 1995 upon the commencement of OPI's operations. The fees to CCI in connection with the bank loan decreased to none from $101,000 as a result of the termination of the CCI guarantee in July 1995. The income tax benefit in 1996 of $1,200,000 is the result of net operating loss carrybacks to 1995. During 1995, the Company recognized an extraordinary loss of $2,268,000 due to the early extinguishment of debt. 13 Cellular Communications International, Inc. and Subsidiaries 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 continue to explore other opportunities that it is pursuing or that may arise. The Company has no material commitments for capital expenditures, except as described below. Italian lire have been translated solely for the convenience of the reader at an exchange rate of 1523.50 lire = $1.00, the Noon Buying Rate on November 6, 1996. 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, provided that Omnitel was not in default of any obligation to fund capital contributions of OPI. As of September 1996, the Company has made all of its required capital contributions to Omnitel. Future financing may be necessary for additional capital contributions to Omnitel due to unexpected circumstances or for other opportunities that may arise. Pursuant to the 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 (a business that directly or indirectly operates, acquires, develops and constructs any "wireless" telecommunications services or related services) 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 has approximately $38,900,000 that may be deemed excess proceeds in December 1996. 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 ($1.2 billion) and has received capital contributions of 1,450 billion lire ($952 million) from its partners (1,015 billion lire ($666 million) from Omnitel and 435 billion lire ($286 million) from Pronto Italia). Omnitel funded its share of OPI capital contributions plus its own capital needs through capital contributions of 1,040 billion lire ($683 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). OPI may require additional financing in excess of the 1,800 billion lire available from the syndicated bank loan. The Company currently expects that OPI would obtain such additional financing from bank borrowings. 14 Cellular Communications International, Inc.and Subsidiaries (continued) 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 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. OPI has provided an approximate 219 billion lire ($143.7 million) performance bond that requires payments to the Italian government if OPI fails to meet certain operational targets. Although no assurance can be given, OPI plans to achieve each of its targets. The Company's maximum liability under the performance bond is approximately 22.5 billion lire ($14.8 million), reflecting its proportionate interest in OPI. To the extent that the Company obtains financing in U.S. dollars and the Company's future commitments to Omnitel, if any, 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, 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 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. 15 Cellular Communications International, Inc. and Subsidiaries (continued) 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. 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 significant value of obtaining cellular licenses and governments increasingly realize they can extract 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. Cash used in operating activities was $3,697,000 and $3,678,000 in 1996 and 1995, respectively. After adding back income taxes paid of $2,100,000 in 1996 and none in 1995, cash used in operating activities was $1,597,000 and $3,678,000 in 1996 and 1995, respectively. The decrease in cash used in operating activities before income taxes paid is because the Company no longer participates in the entity that owns one of the two GSM cellular licenses for Delhi, India and the Company reduced its efforts to obtain new cellular licenses. Cash used in investing activities was $39,504,000 in 1996 as a result of purchases of marketable securities, net of proceeds from sales. 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 No reports on Form 8-K were filed by the Company during the quarter ended September 30, 1996. 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: November 11, 1996 By:/s/ J. Barclay Knapp --------------------------- J. Barclay Knapp Executive Vice President Date: November 11, 1996 By:/s/ Gregg Gorelick -------------------------- Gregg Gorelick Vice President-Controller Principal Accounting Officer) 18 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1996 SEP-30-1996 JAN-01-1996 20,697,000 58,178,000 0 0 0 2,311,000 69,000 (45,000) 114,939,000 2,150,000 166,214,000 0 0 106,000 26,531,000 141,939,000 0 0 0 33,673,000 2,382,000 0 17,191,000 (49,777,000) (1,200,000) (48,577,000) 0 0 0 (48,577,000) (4.64) 0
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