-----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, KoPqeoP+2ULGUUc4aIJu/ZLH5f//06FiO9jrgA7/FK6+QtcBo96cU+uss3UcSm8c CvIAUutrQXRofTYAnGir8w== 0000950123-98-003724.txt : 19980414 0000950123-98-003724.hdr.sgml : 19980414 ACCESSION NUMBER: 0000950123-98-003724 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980413 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-K/A SEC ACT: SEC FILE NUMBER: 000-19363 FILM NUMBER: 98592320 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-K/A 1 CELLULAR COMMUNICATIONS INT'L, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM 10-K/A-1 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the Fiscal Year ended December 31, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From ______________ to ______________ 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) Registrant's telephone number, including area code (212) 906-8480 ----------------- ----------------- Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share -------------------------------------- (Title of Class) 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. [ X ] Yes [ ] No 2 Indicate by check mark whether disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K/A-1 or any amendment to this Form 10-K/A-1. [ ] The aggregate market value of the registrant's Common Stock held by non-affiliates at March 20, 1998, valued by reference to the closing sale price for the registrant's Common Stock on the Nasdaq Stock Market's National Market, was approximately $609,730,000. Number of shares of Common Stock outstanding as at March 20, 1998: 11,024,868 (16,537,302 as adjusted for the three-for-two stock split by way of stock dividend, to be paid on April 14, 1998). DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- Document Part of 10-K in which ------------ ----------------------- Incorporated ------------- Definitive proxy statement for the 1998 Part III Annual Meeting of the Stockholders of Cellular Communications International, Inc. 3 TABLE OF CONTENTS
PART IV Page ______ ----- ITEM 14 Exhibits, Financial Statements Schedules, and Reports on Form 8-K ................... 1 Exhibit Index ............................. 2 Signatures ................................ 4
The annual report on form 10-K of Cellular Communications International, Inc. for the fiscal year ended December 31, 1997 is being amended by this Form 10-K/A-1 for the following reasons: (i) to include in Item 14(d) the financial statements of Omnitel Sistemi Rodiocellulari Italiani S.p.A. and Omnitel Pronto Italia S.p.A. and (ii) to include as Exhibit 23.1 the consent of Coopers & Lybrand S.p.A. 4 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT - ---------------------------------------- SCHEDULES AND REPORTS ON FORM 8-K. (a) (1) Financial Statements - See list of Financial Statements on F-1.* (2) Financial Statement Schedules - See list of Financial Statement Schedules on page F-1.* (3) Exhibits - See Exhibit Index on page 2. (b) During the quarter ended December 31, 1997 there were no Current Reports on Form 8-K filed by CCII. (c) Exhibits - The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statement Schedules - See list of Financial Statement Schedules on page F-1.* See the Financial Statements of Omnitel Sistemi Radiocellulari Italiani S.p.A. and Omnitel Pronto Italia S.p.A. following. - ------------- * previously filed 1 5 EXHIBIT INDEX Exhibit No. - ----------- 3.1 Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1, 1991 Form 10-K, File No. O-19363). 3.1(a) Certificate of Designation of Series A Junior Participating Preferred Stock (Incorporated by reference to Exhibit 3.1(a), 1991 Form 10-K, File No. 0-19363). 3.1(c) Certificate of Designation of Series B Preferred Stock (Incorporated by reference to Exhibit 3.1(c), File No. 33-90980). 3.2 Amended By-Laws (Incorporated by reference to Exhibit 3.2, File No. 33-38398). 4.1 Specimen of Common Stock Certificate (Incorporated by reference to Exhibit 4.1, 1991 Form 10-K, File No. 0-19363). 4.2 Rights Agreement, dated as of December 19, 1990, between CCII and Continental Stock Transfer Trust Company as the Rights Agent (Incorporated by reference to Exhibit 4.2, File No. 33-38398). 4.3 Warrant, dated July 25, 1994, between CCII and Cellular Communications, Inc. (Incorporated by reference to Exhibit 4.3, 1994 Form 10-K, File No. 0-19363). 4.4 Indenture, dated as of August 22, 1995, between CCII and Chemical Bank as Trustee (Incorporated by reference to Exhibit 4.2, File No. 33-90980). 4.4(a) First Supplemental Indenture, dated as of February 23, 1998, to Indenture dated as of August 22, 1995.* 10.1 Description of Omnitel Joint Venture Agreement (Incorporated by reference to Exhibit 10.1, 1996 Form 10-K, File No. 0-19363).* 10.2 Compensation Plan Agreements, as amended and restated effective June 3, 1997.* 10.3 Warrant Agreement between the Company and CCII Funding, Inc. (Incorporated by reference to Exhibit 10.10, File No. 33-90980). 11 Statement re computation of per share earnings.* 23 Consent of Ernst & Young LLP.* 23.1 Consent of Coopers & Lybrand S.p.A. 27.1 Financial Data Schedule, for the year ended December 31, 1997.* - ------------------- * Previously filed. 2 6 27.2 Restated Financial Data Schedule, for the quarter ended September 30, 1997.* 27.3 Restated Financial Data Schedule, for the quarter ended June 30, 1997.* 27.4 Restated Financial Data Schedule, for the quarter ended March 31, 1997.* 27.5 Restated Financial Data Schedule, for the quarter ended December 31, 1996.* 27.6 Restated Financial Data Schedule, for the quarter ended September 30, 1996.* 27.7 Restated Financial Data Schedule, for the quarter ended June 30, 1996.* 27.8 Restated Financial Data Schedule, for the quarter ended March 31, 1996.* - ------------------- * Previously filed. 3 7 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Dated: April 9, 1997 CELLULAR COMMUNICATIONS INTERNATIONAL, INC. By: /s/ Stanton N. Williams ----------------------------------------------- Name: Stanton N. Williams Title: Vice President-Chief Financial Officer 4 8 [Letterhead of COOPERS & LYBRAND S.p.A.] REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders of Omnitel Pronto Italia S.p.A. We have audited the accompanying balance sheets of Omnitel Pronto Italia S.p.A. ("the Company") as of December 31, 1997 and 1996 and the related statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Omnitel Pronto Italia S.p.A. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with accounting principles generally accepted in the United States of America. COOPERS & LYBRAND S.p.A. Milan, Italy March 25, 1998 S-1 9 Omnitel Pronto Italia S.p.A. Statements of Income (in millions of Italian Lira except per share data)
For the year ended December 31, ------------------------------------- 1997 1996 1995 Operating revenues: National service - outgoing 735.519 241.254 1.322 - incoming 659.087 173.740 1.438 International roaming 118.619 42.970 352 Activations 56.685 36.995 -- Hardware and accessories 251.289 243.707 27.940 Other revenues 14.086 14.876 17.966 ---------- ---------- ---------- Total operating revenues 1.835.285 753.542 49.018 ---------- ---------- ---------- Operating expenses: Cost of sales and network 1.166.003 741.138 106.187 Depreciation and amortization 305.251 203.457 35.869 Advertising 140.561 107.536 20.962 General and administrative 159.723 134.990 111.040 Provision for doubtful debtors 65.000 99.197 991 Taxes other than income taxes 3.379 7.943 6.054 ---------- ---------- ---------- Total operating expenses 1.839.917 1.294.261 281.103 ---------- ---------- ---------- Operating loss (4.632) (540.719) (232.085) Interest (expenses) income, net (131.747) (95.052) 7.021 Other income, net 30.510 -- -- ---------- ---------- ---------- Loss before income tax benefit (105.869) (635.771) (225.064) Income tax benefit 13.900 196.800 -- ---------- ---------- ---------- Net loss (91.969) (438.971) (225.064) ========== ========== ========== Basic and Diluted loss per common share (88) (479) (345) ========== ========== ========== Weighted average number of common shares outstanding 1.050 917 652 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. S-2 10 Omnitel Pronto Italia S.p.A. Balance Sheets (in millions of Italian Lira except per share data)
ASSETS December 31, ----------------------------- 1997 1996 Cash and cash equivalents 157.308 24.517 Accounts receivable, net (Note 3) 520.932 255.197 Due from related parties (Note 4) 6.839 103.273 Other current assets (Note 5) 47.952 35.331 Inventories, net (Note 6) 35.676 36.438 Deferred tax asset (Note 13) 154.000 -- ------------ ------------ Total current assets 922.707 454.756 ------------ ------------ Equipment and furniture 154.115 90.096 Leasehold improvements 50.228 40.928 Network 1.499.305 1.041.890 Construction-in-progress 38.972 34.906 Less: Accumulated depreciation (360.598) (149.669) ------------ ------------ Total property, plant and equipment, net (Note 7) 1.382.022 1.058.151 ------------ ------------ Concession and accessory charges, net (Note 8) 711.070 769.881 Other intangible assets (Note 8) 124.576 90.527 Deferred tax asset (Note 13) 56.700 196.800 Other assets (Note 9) 65.659 22.656 ------------ ------------ Total non-current assets 2.340.027 2.138.015 ------------ ------------ Total assets 3.262.734 2.592.771 ============ ============
"continued" The accompanying notes are an integral part of these financial statements. S-3 11 Omnitel Pronto Italia S.p.A. Balance Sheets (in millions of Italian Lira except per share data) "continued"
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, ------------------------------ 1997 1996 Short-term debt (Note 10) 68.563 112.968 Trade payables 686.266 546.629 Due to related parties (Note 4) 34.737 49.617 Other current liabilities, accrued liabilities and deferred income (Note 11) 281.097 140.722 ------------- ------------- Total current liabilities 1.070.663 849.936 ------------- ------------- Long-term debt (Note 10) 1.511.021 983.369 Accrual for severance pay (Note 12) 26.245 18.157 Other liabilities 3.613 -- ------------- ------------- Total liabilities 2.611.542 1.851.462 ------------- ------------- Commitments and contingencies (Note 16) Common stock (No. 1,050,000,000, par value Lit. 1,000 authorized issued and outstanding) 1.050.000 1.050.000 Additional paid-in capital 400.000 400.000 Accumulated deficit (798.808) (708.691) ------------- ------------- Total stockholders' equity (Note 17) 651.192 741.309 ------------- ------------- Total liabilities and stockholders' equity 3.262.734 2.592.771 ============= =============
The accompanying notes are an integral part of these financial statements. S-4 12 Omnitel Pronto Italia S.p.A. Statements of Cash Flows (in millions of Italian Lira)
For the year ended December 31, ----------------------------------------------- 1997 1996 1995 Cash flows from operating activities: Net loss (91.969) (438.971) (225.064) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 305.251 203.457 35.869 Provision for severance pay 9.458 7.477 3.969 Provision for doubtful debtors 65.000 99.197 991 Realization of deferred tax asset (13.900) (196.800) -- Write off of property, plant and equipment 5.043 3.741 -- Write off of intangible assets 611 -- -- Changes in operating assets and liabilities: Increase in accounts receivable (330.735) (310.366) (45.019) Decrease (Increase) in amounts due from related parties 96.434 (67.158) (32.429) Increase in other current assets (12.621) (403) (23.578) Decrease (Increase) in inventories, net 762 1.424 (37.862) Increase in trade payables 139.637 51.057 119.766 Decrease in amounts due to related parties (14.880) (34.602) (5.480) Increase in other current liabilities and accrued liabilities 140.375 113.720 17.490 (Distribution) Transfer of provision for severance pay (1.370) (387) 3.063 Increase in other liabilities 3.613 -- -- Increase in other assets (8.782) (7.029) (389) ------------- ------------- ------------- Net cash provided by (used in) operating activities 291.927 (575.643) (188.673) ------------- ------------- ------------- Cash flows from investing activities: Additions to property, plant and equipment (540.726) (571.127) (585.417) Additions to intangible assets (44.838) (40.942) (81.763) Increase in trade payables -- -- 349.409 ------------- ------------- ------------- Net cash used in investing activities (585.564) (612.069) (317.771) ------------- ------------- ------------- Cash flows from financing activities: Proceeds from issuance of common stock -- 650.000 400.000 Proceeds from issuance of stock options 1.852 1.140 -- Tax on common stock subscriptions -- (6.500) (3.980) Proceeds from loans 2.085.421 983.369 100.000 Repayment of loans (1.496.569) (500.000) -- (Repayments) Proceeds from short-term loans and bank overdrafts (105.605) 82.373 30.515 Commission and other charges capitalized on syndicated loan (24.450) -- (39.231) Deposit of Special Cash Collateral (45.365) (11.144) -- Receipt of Special Cash Collateral 11.144 -- -- ------------- ------------- ------------- Net cash provided by financing activities 426.428 1.199.238 487.304 ------------- ------------- ------------- Increase in cash and cash equivalents 132.791 11.526 (19.140) Cash and cash equivalents at the beginning of the year 24.517 12.991 32.131 ------------- ------------- ------------- Cash and cash equivalents at the end of the year 157.308 24.517 12.991 ============= ============= ============= Supplemental disclosures of Cash Flows information: Cash paid for: - Interest 121.621 73.018 291 ============= ============= ============= - Income taxes -- -- -- ============= ============= =============
The accompanying notes are an integral part of these financial statements. S-5 13 Omnitel Pronto Italia S.p.A. Statements of Changes in Stockholders' Equity (in millions of Italian Lira)
Additional Common stock paid-in Accumulated Shares Amount capital deficit Total Balance as of December 31, 1994 400.0 400.000 -- (35.316) 364.684 Issuance of common stock: January 26, 1995 250.0 250.000 -- -- 250.000 September 29, 1995 75.0 75.000 75.000 -- 150.000 Tax on issuance of common stock -- -- (3.980) (3.980) Net loss for the period -- -- (225.064) (225.064) ------------ ------------ ------------ ------------ ------------ Balance as of December 31, 1995 725.0 725.000 75.000 (264.360) 535.640 Issuance of common stock: January 30, 1996 75.0 75.000 75.000 -- 150.000 March 28,1996 75.0 75.000 75.000 -- 150.000 July 5, 1996 75.0 75.000 75.000 -- 150.000 September 5, 1996 50.0 50.000 50.000 -- 100.000 September 30, 1996 50.0 50.000 50.000 -- 100.000 Tax on issuance of common stock -- -- (6.500) (6.500) Net loss for the period -- -- (438.971) (438.971) Warrants issued pursuant to stock option plans -- -- 1.140 1.140 ------------ ------------ ------------ ------------ ------------ Balance as of December 31, 1996 1,050.0 1.050.000 400.000 (708.691) 741.309 Net loss for the period -- -- (91.969) (91.969) Warrants issued pursuant to stock option plans -- -- 1.852 1.852 ------------ ------------ ------------ ------------ ------------ Balance as of December 31, 1997 1,050.0 1.050.000 400.000 (798.808) 651.192 ============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. S-6 14 Omnitel Pronto Italia S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 1. Description and ownership of the business The Company was established in 1985 as a subsidiary of the Olivetti Group. It remained substantially dormant until February 22, 1994, when it was acquired by Omnitel Sistemi Radiocellulari Italiani S.p.A. ("Omnitel S.R.I.") and Pronto Italia S.p.A. ("P.I.") and changed its name to Omnitel Pronto Italia S.p.A. (the "Company"). The Company's corporate purpose is to operate a cellular telephone system in Italy, based on the GSM standard (Global System for Mobile Communications). During 1994, the Company obtained a fifteen year license (the "License") to operate a cellular telephone network effective February 1, 1995. Between October 3, 1995 and December 6, 1995, the Company carried out an experimental service exercise and then launched operational service from December 7, 1995. Activities carried out during 1996 mainly related to the construction of the Company's cellular telephone network ("Network") and launching operational service. On March 13, 1996, in accordance with provisions of the License, national roaming access was obtained from Telecom Italia Mobile S.p.A. ("TIM"), thus granting the Company the same operational level as TIM, its competitor. On December 7, 1997, the national roaming agreement was canceled in accordance with the License. During 1997, the Company has become fully operational from a commercial standpoint. The Company is continuing the construction of the Network. As of December 31, 1997 the stockholders of the Company were as follows: Omnitel Sistemi Radiocellulari Italiani S.p.A. 70% Pronto Italia S.p.A. 30% --------- Total 100% =========
The Company currently purchases predominantly all of the hardware and software for the construction of the network from Nokia Telecommunications Italia, although alternative suppliers are readily available. In accordance with Italian law, the Company's financial statements must be approved at the annual stockholders' meeting. The financial statements for 1997 have not yet been approved. S-7 15 Omnitel Pronto Italia S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 2. Summary of significant accounting policies The following is a summary of the significant accounting policies used by the Company to prepare the financial statements: 2.1 Basis of presentation and preparation of financial statements The financial statements are prepared under the historical cost convention and in conformity with United States Generally Accepted Accounting Principles ("U.S. GAAP"), which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the accounting period. Actual results could differ from those estimates. The most significant areas which require the use of management's estimates relate to provision for doubtful debtors, the estimate of depreciation and amortization for fixed assets and intangibles, respectively, and the valuation allowance for deferred tax assets. 2.2 Cash and cash equivalents The Company considers all highly liquid monetary instruments with original maturities of three months or less to be cash equivalents. Short-term securities held under purchase and resale agreements ("Repos") are valued at cost, plus the accrued difference between the purchase and resale price matured as of the balance sheet date. The related income is classified as interest income. 2.3 Receivables and payables Receivables and payables are reflected at their stated value. Receivables are reduced to their expected realizable value by an allowance for doubtful debtors. Receivables and payables denominated in foreign currencies are stated at the year-end exchange rates. The resulting gains or losses are recorded in the statement of income. S-8 16 Omnitel Pronto Italia S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 2. Summary of significant accounting policies, continued 2.4 Equipment and leasehold improvements Equipment and leasehold improvements are stated at cost. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives (five to eight years) or lease term, if shorter. Major replacements and improvements are capitalized. Maintenance and repairs which do not improve or extend the useful lives of the respective assets are charged to operations when incurred. The assets and related accumulated depreciation or amortization accounts are adjusted for assets retirements or disposals, with the resulting gain or loss reported within operating expenses. 2.5 Assets under construction Assets under construction consist of the direct costs related to the construction of the network and include costs such as hardware, software, direct labor costs incurred in construction, as well as other costs relating to network planning and implementation. All costs not directly related to the development and construction of the Network were charged to operations when incurred. The depreciation of completed and operational sites commenced at the launch date of operations on December 7, 1995. 2.6 Intangible assets The direct and indirect costs incurred to obtain the concession as well as the interest on the related bank loan up to inception of service, were capitalized in 1995 and are amortized over the license period, starting from the month in which the commercial telephone service began. All other intangible assets are amortized on a straight-line basis over their estimated useful lives. 2.7 Inventories Inventories, consisting principally of handsets and accessories related to the Company's product distribution business, are stated at the lower of cost (first-in, first-out method) or market. S-9 17 Omnitel Pronto Italia S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 2. Summary of significant accounting policies, continued 2.8 Income taxes Deferred income tax balances reflect temporary differences between the carrying amount of assets and liabilities in the financial statements and their corresponding tax bases. They are stated at the enacted tax rates expected to be in effect when the taxes are actually paid or recovered. If it is more likely than not that some portion or all of a deferral tax asset will not be realized, a valuation allowance is recognized. 2.9 Accrual for severance pay Under Italian law, deferred compensation accrues in favor of employees which they (or in the event of their death, their heirs) are entitled to collect upon termination of employment. The amount payable related to each year's service is calculated on the basis of the remuneration for that year (approximately 1/12th of total remuneration) and is subject to annual revaluations based on increases in the Italian cost-of-living index ("ISTAT"). 2.10 Financial instruments The Company utilizes derivative financial instruments such as interest rate swaps, collars, caps and forward rate agreements to limit exposure to changing interest rates. The Company does not hold or issue such financial instruments for trading purposes. Premiums to obtain interest rate caps are deferred and applied over the period of the related commitment and are included in prepaid financial charges within other current assets. Net cash paid or received on interest rate swaps, collars, caps and forward rate agreements are reflected as an increase or decrease of the interest expense during the period. 2.11 Commissions on loan facilities Up-front costs such as commissions incurred in respect of the Facility Agreement and the Amended and Restated Facility Agreement (refer to note 10) have been capitalized and are being amortized on a straight-line basis over the period of planned utilization of the Facility, which approximates the interest method. Amortization may be increased on a pro-rata basis based upon the Company's excess cash flows, as stipulated in the Amended and Restated Facility Agreement. S-10 18 Omnitel Pronto Italia S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 2. Summary of significant accounting policies, continued 2.12 Revenue recognition Operating revenues for communications services, which exclude value added tax and other sales tax are recognized when the services are rendered. Unbilled revenues resulting from cellular services provided to customers are calculated from the billing cycle date to the end of each month. Amounts received from subscribers for prepaid traffic or "Rechargeable" cellular cards are reported as deferred revenue, until such time as the subscriber utilizes the traffic. Operating revenues for the Company's product distribution business are recognized upon delivery of products to customers. 2.13 Software costs Software costs are capitalized and amortized over five years. Software development costs are charged to operations as incurred. 2.14 Advertising costs Advertising costs are charged to the statement of income in the period in which the advertisement is released to the market. 2.15 Impairment of assets Management regularly reviews individual tangible and intangible assets by evaluating the future cash flows of the business to determine the recoverability of the assets and recognizes, on a current basis, any diminution in value. 2.16 Stock options The Company accounts for stock based compensations, granted in the form of stock warrants, in accordance with APB Opinion No. 25 "Accounting for Stock Issued to Employees." Disclosures have been made in accordance with SFAS No. 123 "Accounting for Stock-Based Compensation". 2.17 Litigation matters Periodically, the Company is involved in litigious matters. Management of the Company evaluates these matters and records a provision, when determined necessary. S-11 19 Omnitel Pronto Italia S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 2. Summary of significant accounting policies, continued 2.18 New accounting pronouncements In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" ("SFAS 128"), which is required to be adopted for all financial statements issued for periods ending after December 15, 1997. SFAS 128 redefines the principles for calculating earnings per share ("EPS") and requires presentation of Basic EPS and Diluted EPS for those entities with complex capital structures. SFAS 128 also requires that all prior period earnings per share data presented with the current year's data is restated in accordance with the new provisions. The adoption of SFAS 128 had no effect upon the current year's or the prior years' earnings per share data. 2.19 Reclassifications Certain amounts in the 1996 and 1995 financial statements have been reclassified to conform with the 1997 presentation. 3. Accounts receivable, net Accounts receivable, net consist of the following:
December 31, -------------------------- 1997 1996 Subscribers - communication services 274.526 160.382 Other communication services 343.362 155.492 Dealers - product distribution business 68.232 39.511 Less: Provision for bad debts (165.188) (100.188) ----------- ------------ 520.932 255.197 =========== ============
S-12 20 Omnitel Pronto Italia S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 4. Transactions with related parties Related party balances, including V.A.T., are as follows:
December 31, 1997 December 31, 1996 ------------------------- ------------------------- Receivables Payables Receivables Payables Omnitel S.R.I 200 -- -- -- P.I 21 -- -- -- Omnitel Gestioni S.p.A 2.004 (1.041) 1.776 (172) Olivetti Group # 4.338 (32.062) 101.374 (43.975) AirTouch International* -- (499) 6 (1.873) Bell Atlantic* 247 (491) 89 (2.600) Telia International* -- (174) -- (346) C.C.I.* 28 -- 28 -- Lehman Brothers* -- -- -- (453) Mannesmann* -- (469) -- (198) ------- ------- ------- ------- Total 6.838 (34.736) 103.273 (49.617) ======= ======= ======= =======
* - Shareholders of Omnitel S.R.I. or P.I. # - Included within the Olivetti Group is Ing.C.Olivetti S.p.A., which is a shareholder of Omnitel S.R.I. As of December 31, 1996, the Company was owed approximately Lit. 99 billion from Olivetti Group companies primarily related to V.A.T.. In 1997, the Company began to pay V.A.T. to the Ministry of Finance. The analysis of amounts charged to/by the Company by/to related parties, is as follows:
1997 1996 1995 ----------------------- ----------------------- ----------------------- Costs Income Costs Income Costs Income Omnitel S.R.I -- 200 -- -- -- -- P.I -- -- -- -- 1.700 -- Omnitel Gestioni 1.742 7.796 2.100 4.014 -- -- Olivetti Group 50.185 2.528 58.029 2.422 54.555 65 AirTouch International 2.606 6 5.913 6 12.259 13 Bell Atlantic 1.838 182 4.365 57 5.989 -- Telia International -- -- 586 -- 2.313 -- C.C.I -- -- 4 -- 486 -- Lehman Brothers -- -- 453 -- -- -- Mannesmann 2.197 10.082 265 -- 314 -- ---------- ---------- ---------- ---------- ---------- ---------- Total 58.568 20.794 71.715 6.499 77.616 78 ========== ========== ========== ========== ========== ==========
S-13 21 Omnitel Pronto Italia S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 4. Transactions with related parties, continued The amounts charged by related parties in 1997 included Lit. 32 billion for hardware, software and other costs, that have been capitalized. The other expenses were primarily for network costs, general and administrative expenses and consultancy fees. The income amounts were mainly for international roaming, traffic and hardware sales. 5. Other current assets The balances as of December 31, 1997 and 1996 are as follows:
December 31, --------------------------- 1997 1996 V.A.T. and recoverable withholding tax 12.915 14.855 Prepaid rent 21.511 15.112 Prepaid financial charges 1.834 1.175 Accrued financial income 4.777 136 Advances to suppliers 5.262 3.241 Other 1.653 812 ------------ ------------ 47.952 35.331 ============ ============
Prepaid rent primarily relates to contracts for the utilization of Telecom Italia S.p.A.'s network and to the Network. Prepaid financial charges include Lit. 697 million as of December 31, 1997 and Lit. 996 million as of December 31, 1996 relating to the deferral of premiums paid in order to obtain interest rate swaps (see note 15). 6. Inventories Inventories, net of the obsolescence reserve, consist of:
December 31, -------------------- 1997 1996 Cellular phones and accessories 36.538 37.884 Cellular phones obsolescence reserve (6.375) (5.448) Sim cards 5.513 4.002 -------- -------- 35.676 36.438 ======== ========
S-14 22 Omnitel Pronto Italia S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 7. Property, plant and equipment Property, plant and equipment consists of the following:
December 31, December 31, 1997 1996 Estimated at cost at cost useful lives Technical instruments and equipment 20.740 14.425 5-5.55 years Office furniture, equipment and other 54.770 41.751 5-8.33 years Electrical equipment 78.605 33.920 5.55 years Lease term or life Leasehold improvements 50.228 40.928 of asset, if shorter ------------- ------------- 204.343 131.024 ------------- ------------- Network: Specific plant 49.675 29.093 6.67 years Radio and transmission equipment 566.416 398.955 6.67 years Computer and electronic equipment 371.829 202.820 5.55 years Fixtures 46.040 35.031 10 years Know-how 236.567 204.656 Life of concession Improvements to Network Lease term or life properties 228.778 171.335 of asset, if shorter ------------- ------------- 1.499.305 1.041.890 ------------- ------------- Total cost 1.703.648 1.172.914 Less: Accumulated depreciation (360.598) (149.669) ------------- ------------- 1.343.050 1.023.245 Assets under construction 38.972 34.906 ------------- ------------- Net property, plant and equipment 1.382.022 1,058,151 ============= =============
S-15 23 Omnitel Pronto Italia S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 8. Intangible assets The balances for intangible assets as of December 31, 1997 and 1996 can be detailed as follows:
December 31, December 31, 1997 1996 Estimated at cost at cost useful lives Concession and accessory charges Concession fee 750.000 750.000 Bid preparation costs incurred by: Omnitel S.R.I. and P.I 27.784 27.784 Other 8.799 8.799 Interest and commission relating to the bridge loan and performance bond 46.141 46.141 ------------ ------------ Concession and accessory charges 832.724 832.724 15 years Less: accumulated amortization (121.654) (62.843) ------------ ------------ Concession and accessory charges, net 711.070 769.881 ------------ ------------ Other intangible assets Software usage rights and other 123.628 79.573 5 years Less: accumulated amortization (48.314) (23.763) ------------ ------------ Software usage rights and other, net 75.314 55.810 ------------ ------------ Commission on syndicated loan and other charges 63.681 39.231 10 years * Less: accumulated amortization (14.419) (4.514) ------------ ------------ Commission on syndicated loan and other charges, net 49.262 34.717 ------------ ------------ Total other intangible assets, net 124.576 90.527 ------------ ------------ Total intangible assets 835.646 860.408 ============ ============
* The maximum number of years is 10, however based upon excess cash flows, as defined by the Amended and Restated Facility Agreement (see note 10), the rate of amortization is increased accordingly. The Company has capitalized an additional Lit. 32 billion during 1997 related to purchases of internal I.T. systems and Lit. 8 billion for the license of software for the Network. In connection, with the Amended and Restated Facility Agreement (see note 10), the Company has capitalized an additional Lit. 24 billion mainly for commissions. On November 30, 1994, the Company made a lump-sum payment (Lit. 750,000 million) for the concession by the Ministry of Communications ("M.O.C.") for the installation and operation, on a non-exclusive basis, of the GSM service on the Italian territory. The concession was effective from February 1, 1995 and will have a duration of fifteen years. S-16 24 Omnitel Pronto Italia S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 9. Other assets The balances as of December 31, 1997 and 1996 are as follows:
December 31, --------------------- 1997 1996 Deposit paid to the M.O.C. for the Concession 3.000 3.000 Special Cash Collateral 45.365 11.144 Investment in Omnitel Gestioni S.p.A 3.200 3.200 Long-term receivables and others 14.094 5.312 -------- -------- 65.659 22.656 ======== ========
The deposit paid to the M.O.C. will remain in place throughout the duration of the concession and earned interest at 1.75% in 1997 and 3.5% in 1996. Special cash collateral consists of deposits with banks to serve as guarantees for purposes of securing the obligations of the Company in connection with the Amended and Restated Facility Agreement (see note 10). Omnitel Gestioni S.p.A. is a subsidiary that manages the mobile phone retail shops. The shares of the Company are pledged as collateral to the Lender Banks of the Amended and Restated Facility Agreement. Long-term receivables relate to "Dealer Stations", to be received within 36 months after the date of installation, and amounts owed from subscribers for sales of handsets, to be collected pro-rata during the subsequent 24 months after the date of sale. 10. Debt The amount due to banks and financial institutions as of December 31, 1997 and 1996 can be further detailed as follows:
December 31, ---------------------------- 1997 1996 Short-term debt: Bank overdrafts 7.363 24.968 Short-term bank loans -- 88.000 FEC Credit Agreement 61.200 -- ------------ ------------ Total short-term debt 68.563 112.968 ------------ ------------ Long-term debt: Facility Agreement 727.421 677.369 EIB Credit Agreement 500.000 -- EIF Subordinated Loan Agreement 100.000 -- FEC Credit Agreement 183.600 306.000 ------------ ------------ Total long-term loan 1.511.021 983.369 ------------ ------------ Total debt 1.579.584 1.096.337 ============ ============
S-17 25 Omnitel Pronto Italia S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 10. Debt, continued 10.1 Facility agreement On August 29, 1997, the Company signed an amendment (the "Amended and Restated Facility Agreement" or the "Facility") to its original syndicated loan facility of Lit. 1,800 billion dated November 30, 1995 (the "Facility Agreement"). The Amended and Restated Facility Agreement increased the available facility amount from Lit. 1,800 billion to Lit. 2,800 billion. Consequently, short-term banks loans were repaid. The facility consists of two tranches, one of Lit. 1,000 billion linked to LIBOR (London Inter-Bank Offered Rate) ("Tranche A") and the second tranche of Lit. 1,800 billion linked to RIBOR (Rome Inter-Bank Offered Rate) ("Tranche B"). The margins over the LIBOR and RIBOR rates are linked to the ratio of financial indebtedness ("F.I.") over annualized earnings before interest, tax depreciation and amortization ("E.B.I.T.D.A") for the previous 6 months. These margins were initially set at 1.00%, subsequently falling to a minimum of 0.30% as the F.I./E.B.I.T.D.A. ratio declines. The first reduction of the margins to 0.90% took place on September 16, 1997 and the second reduction to 0.40% occurred on December 16, 1997. Commitment fees, payable quarterly in arrears, were due from the Company on the unused amount of the Facility at a rate of 0.325% per annum from September 1997 to December 1997 and then at the rate which is half the margin level. Tranche A consists of a facility for a maximum amount of Lit. 840 billion, available by way of term loan advances and/or the issue of guarantees, and a maximum of Lit. 160 billion of revolving short-term advances. Tranche A is available in predetermined freely available multicurrencies, subject to appropriate currency hedging. As of December 31, 1997, a portion of this tranche has been utilized to serve as a guarantee required by the European Investment Bank for a total amount of Lit. 527,500 million. Another Lit. 45,365 million has been used for a guarantee advance which was denominated/drawn down in Japanese Yen. Tranche B, for a maximum amount of Lit. 1,510 billion, is available by way of term loan advances in Italian Lira and/or the issue of guarantees, and a maximum amount of Lit. 290 billion of revolving short term advances in Italian Lira. As of December 31, 1997, a portion of this tranche has been utilized to serve as guarantees required by Finnish Export Credit Ltd. ("FEC") for a total amount of Lit. 267,444 million and Lit. 682,056 million has been drawn down as term loan advances. S-18 26 Omnitel Pronto Italia S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 10. Debt, continued 10.1 Facility agreement, continued The Facility and the Facility Agreement have a combined duration of 10 years. The Company can utilize drawn-downs for the first 4 years (1995 - 1999). After a grace period of 1 year, semiannual repayment installments will start in November, for a period of 4.5 years and ending in November 2005. In accordance with the Facility, utilization is limited to Lit. 2,400 billion for the period ending December 31, 1997 and then increasing to Lit. 2,800 billion in June 1998. The Facility includes several financial (i.e. ratios such as EBIT/Interest expense, Net Financial Indebtedness/12 month EBITDA, 12 month EBITDA/12 month total debt service, 12 month operating cashflow/12 month fixed charges and current payments on EIF facility) and operating covenants such as dividend distribution restrictions (based upon excess cash flows), minimum territory coverage percentages (70% by December 31, 1997). There are also provisions for the use of several pledged Special Cash Collateral accounts under the terms of the Facility (See note 9). As a requirement of the above Facility, the Company entered into an insurance security agreement, whereby the Company pledged all of its present and future rights arising from a number of insurance policies. This pledge is in favor of the financial institutions providing the Facility. 10.2 EIB Credit Agreement As provided by the Facility, OPI entered into a term advance facility agreement on October 8, 1997 with the European Investment Bank ("EIB") for a total of Lit. 796 billion. As of October 16, 1997, Lit. 500 Billion had been drawn down and was guaranteed by Tranche A. Interest matures at LIBOR less 0.17% for advances up to the first Lit. 500 billion and at the EIB Rate (as determined by the Board of Directors of EIB) for advances on the remaining Lit. 296 billion. This facility is repayable in 10 predetermined semiannual amounts, commencing on September 15, 2000. The Company received Lit. 45,365 million as Special Cash Collateral from certain underlying banks in connection with the guarantee given by the Company for Tranche A. S-19 27 Omnitel Pronto Italia S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 10. Debt, continued 10.3 EIF Subordinated loan Under the provisions of the Facility, the Company also finalized in October 1997 an interest current subordinated loan agreement for Lit. 100 billion with the European Investment Fund ("EIF"). OPI has an obligation to pay an initial commission of 1.375% a year and thereafter declining to 0.875% as the F.I./E.B.I.T.D.A. ratio declines. As of December 31, 1997, the commission was 0.875%. The Company pays interest at the rate of RIBOR, plus 0.125%. This facility is repayable in 10 predetermined semiannual amounts, commencing June 30, 2001. 10.4 Stockholders' Subordinated Loan The Board of Directors of Omnitel S.R.I. and P.I. approved to make available to OPI a subordinated credit facility of Lit. 100 billion, when the Company's indebtedness amounts to Lit. 2,200 billion or in any event of default of OPI under the Facility. 10.5 Nokia/Finnish Export Credit Ltd. A commercial contract between the Company and Nokia included a financing agreement for Lit. 306 billion signed on December 31, 1995 with FEC, a wholly owned subsidiary of the Finnish Government. Interest is payable at LIBOR plus 0.255% during the "draw down" period (1996) and at a fixed rate of 9% thereafter. The facility is repayable in equal semi-annual installments over 5 years, commencing from the completion date of October 1996. As of December 31, 1997, the total amount owed to FEC was Lit. 244,800 million. As required by the agreement, Lit. 61,200 million of the loan will be repaid during 1998. This facility is guaranteed by Tranche B of the Facility for Lit. 267,444 million (109.25% of the credit line). 10.6 Other At December 31, 1997 the Company had unused short-term credit facilities with several financial institutions totaling Lit. 328 billion. The Company's weighted average interest rates for all debts instruments that were outstanding during 1997, 1996 and 1995 were 10.42%, 13.37% and 11.23% per annum, respectively. S-20 28 Omnitel Pronto Italia S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 11. Other current liabilities, accrued liabilities and deferred income These liabilities are as follows:
December 31, -------------------------- 1997 1996 Tax withheld at source and annual tax on stockholders' equity 5.371 4.556 Other tax payable 70.329 59.135 Bank interest and commission fees accrued 16.709 14.888 Payable to social security institutions 9.857 10.973 Accrued payroll 25.314 15.224 Deposits from GSM subscribers 33.000 25.600 Unutilized traffic on prepaid cards 72.665 -- Deferred monthly fees and other 18.088 6.428 Deferred credit notes 19.276 -- Other 10.488 3.918 ------------ ------------ 281.097 140.722 ============ ============
Other tax payables includes Lit. 17,702 million relating to the government concession tax collected monthly from each customer, Lit. 14,229 million relating to V.A.T. and Lit. 38,356 million relating to the annual concession charge computed on GSM service gross revenues (see note 16.1). Deposits from GSM subscribers represents the required amount to be deposited when a subscriber opens a new GSM account and does not pay with a direct charge to the subscriber's credit card. This amount serves as collateral for payment of the subscriber's account if necessary and is reimbursed to when the subscriber's account is terminated or transferred to a direct credit card charge. The amount representing unutilized traffic on prepaid cards represents deferred revenue for amounts received from subscribers associated with the new prepaid "Rechargeable" cellular cards. 12. Accrual for severance pay Under Italian law, deferred compensation accrues in favor of employees which they (or, in the event of their death, their heirs) are entitled to collect upon termination of employment. The amount payable related to each year's service is calculated on the basis of the remuneration for that year and will be subject to annual revaluations based on ISTAT. S-21 29 Omnitel Pronto Italia S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 12. Accrual for severance pay, continued The balances as of year end consist of:
December 31, --------------------------- 1997 1996 Employee severance pay 25.725 17.860 Agents leaving indemnities 520 297 ------------ ------------ 26.245 18.157 ============ ============
13. Income taxes Effective December 24, 1997, the Italian parliament enacted a new tax decree ("IRAP"). IRAP became effective January 1, 1998 and had no effect upon the current year's income tax calculation. The effect was that the local tax of 16.2% ("ILOR"), as well as other taxes (i.e. tax on equity), were abolished and replaced by IRAP at a rate of 4.25%. The national tax of 37% ("IRPEG") remained unchanged, resulting in the new tax rate of approximately 41.25%. The enacted tax rate for the Company for the years 1997 and 1996 was 53.2%, comprising "ILOR" tax at 16.2% and "IRPEG" tax at 37%. The largest impact of this new legislation is that it will change the nature upon which certain items are taxed or non-tax deductible. The calculation of taxable income for IRPEG purposes remains the same. However in order to calculate income for IRAP purposes, certain adjustments are necessary for items that are now non-tax deductible (generally all employee costs, interest and certain accruals). The deferred tax assets and liabilities as of December 31, 1997 have been adjusted due to the enactment of IRAP. This revaluation resulted in a reduction of deferred tax assets of approximately Lit. 50 billion. Based on the statutory results and the estimate of investment incentive deductions as of December 31, 1997, the Company has net operating loss carryforwards of Lit. 1,427 billion (1996: Lit. 1,366 billion) which expire in the years 1999 through 2002. Approximately Lit. 797 billion are the result of investment incentives granted in the form of deductions from taxable income. A tax benefit has been recorded in 1997 and 1996, as management has determined that it is more likely than not, that a portion of these assets will be realized. No provision for current period income taxes is necessary as the Company is in a net loss position for tax purposes. S-22 30 Omnitel Pronto Italia S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 13. Income taxes, continued Deferred tax balances as at December 31, 1997 and 1996 can be summarized as follows:
December 31, ------------------------ 1997 1996 Deferred tax assets Start-up costs 51.653 86.866 Advertising costs 22.483 29.051 Allowance for doubtful debtors 63.803 53.856 Other 13.716 16.828 Net operating loss carryforwards 527.903 506.866 ---------- ---------- Total gross deferred tax assets 679.558 693.467 ---------- ---------- Deferred tax liabilities Difference in rates of amortization of the government concession (14.224) (21.943) ---------- ---------- Net deferred tax assets 665.334 671.524 ---------- ---------- Less: Valuation allowance (454.634) (474.724) ---------- ---------- Net carrying value amount 210.700 196.800 ========== ==========
14. Statement of income The following table has been included to provide additional detail of the individual components within Cost of sales and network, which are as follows:
December 31, ------------------------------- 1997 1996 1995 Roaming costs 41.361 25.462 84 Interconnection fees 289.033 120.060 996 Hardware and accessories 271.595 266.482 62.617 Costs of Network 298.241 132.533 1.727 Commercial costs 180.526 140.272 32.665 Commissions 61.521 43.401 6.036 Other 23.726 12.928 2.062 --------- --------- --------- 1.166.003 741.138 106.187 ========= ========= =========
S-23 31 Omnitel Pronto Italia S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 15. Financial instruments The Company has entered into interest rate swaps, caps and collars and forward rate agreements to manage the impact of interest rate fluctuations. At December 31, 1997 and 1996 the Company was party to interest rate swap agreements for hedging purposes, to periodically exchange variable rate payments for fixed rate payments over the life of the agreements. At the same dates, the Company was also party to a cap agreement, whereby the Company is protected in the event that interest rates rise over the relevant strike level, and collar agreements, under which the Company buys a cap in order to protect itself in the event interest rates increase and writes a floor, in order to reduce the cost of buying a cap. During 1997, the Company entered into forward rate agreements. These contracts are used for hedging purposes, to lower the impact of interest rate fluctuations. The Company recognizes gains and losses associated with the contracts in relationship to the maturity dates of the underlying debt. At December 31, 1997 and 1996 the Company had outstanding interest rate swap agreements which converted variable rate debt to fixed rate debt with a weighted average interest rate of 11.69%. The total notional principal amounts are Lit. 150,000 million and the agreements will terminate on May 31, 2000. The Company had a cap agreement outstanding with total notional principal amounting to Lit. 50,000 million and a strike rate of 12.50% as of December 31, 1997 and 1996. This agreement terminates on May 31, 2000. The Company had two collar agreements outstanding, with total notional principal amounting to Lit. 100,000 million and an average strike cap rate of 9.105% as of December 31, 1997 and 1996. These agreements have a beginning strike floor rate of 8.25% declining quarterly to 7.5% starting from April 1997 and will terminate on July 15, 1998. The floor strike rate for the quarter from October 15, 1997 to January 15, 1998 was 7.5%. The three month market rate was 5.94% as of December 31, 1997. At December 31, 1997, the Company had 11 forward rate agreements ("FRA") outstanding which have already settled, with total notional principal amounts totaling 1,467,000 million. The fixed rates vary from 5.97% to 6.57%, with maturity dates ranging from January 16, 1998 to March 30, 1998. As the relevant maturity dates of the FRAs are in some instances sequentially linked, the actual effect of these FRAs has been to hedge a floating average amount equal to Lit. 1,167,000 million. S-24 32 Omnitel Pronto Italia S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 16. Commitments and contingencies 16.1 Commitments deriving from the concession In connection with the License, the Company is obligated to pay to the M.O.C. an annual concession charge, for the term of the License, corresponding to 3.5% of the GSM service gross revenues, net of all service charges paid to the other public telephone network license holder. The concession charge cannot be lower than a minimum annual amount, established for the remaining two years, as follows: 1998 51.000 1999 77.100 ------- Total minimum payments 128.100 =======
The Company must guarantee a minimum coverage of 70% of the Italian territory and 90% of the population within 5 years from the date of the License. Failure to meet these requirements could result in cancellation of the License. In addition, the Company has to fulfill some obligations as prescribed by the License and the Performance Bond (see note 16.2). 16.2 Guarantees provided on behalf of the Company As of December 31, 1997 and 1996, the Company has Lit. 1,201 billion and Lit. 669,105 million, respectively, for guarantees issued to financial and ministerial institutions as below:
December 31, ----------------------- 1997 1996 FEC guarantees - Tranche B 267.444 334.305 EIB guarantees - Tranche A 527.500 -- Performance bond 219.400 219.400 Other guarantees 186.863 115.400 ---------- ---------- 1.201.207 669.105 ========== ==========
As collateral for the loan from FEC, the Company obtained letters of credit from banks, subsequently canceled after issue of the guarantee provided by the Facility- Tranche B. As described in note 10, Tranche A gave guarantees to EIB for the corresponding facility of Lit. 500 billion. S-25 33 Omnitel Pronto Italia S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 16. Commitments and contingencies, continued 16.2 Guarantees provided on behalf of the Company, continued A performance bond of Lit. 219,400 million was provided by Banca Commerciale Italiana to the M.O.C., as a guarantee for the fulfillment of the obligations prescribed by the Concession. OPI is required to cover 98% of the Italian territory with its cellular network by May 1998, invest Lit. 1,552 billion by May 1998, employ 2,686 people by May 1998, pay royalties to the M.O.C. in amounts not less than Lit. 25.4 billion for 1997; Lit. 51 billion for 1998; and Lit. 77.1 billion for 1999, subject in each year to reduction only due to any proportionate reduction of the royalty percentage to less than 3.5% and maintain the declared stockholding majority of OPI until February 1, 2000, the performance bond's date of maturity. Failure to achieve the objectives specified in the performance bond could result in charges to the Company. Other guarantees mainly include Lit. 106.6 billion of bank guarantees and a Lit. 64.5 billion guarantee by an insurance company to the V.A.T. office in order to obtain V.A.T. repayments. 16.3 Nokia commitments The Company signed an agreement with Nokia in 1994 for the supply of basic telecommunication equipment for a minimum expected purchase value of Lit. 360 billion. The Company fulfilled its purchase obligation related to this commitment. In the course of 1997, two additional memorandums were signed, stating a minimum commitment of Lit. 426 billion for the purchase of further telecommunications equipment. At December 31, 1997, the remaining purchase commitment outstanding for these memorandums amounted to Lit. 383 billion. 16.4 Rent and leasing commitments The Company rents buildings utilized for operations and the Network and leases vehicles assigned to certain employees, with future minimum rentals as follows:
Year ending: Operating leases 1998 51.688 1999 50.555 2000 47.908 2001 36.381 2002 26.267 Thereafter 39.707 ------- Total minimum lease payments 252.506 =======
S-26 34 Omnitel Pronto Italia S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 16. Commitments and contingencies, continued 16.5 Dealers commitments to the Company The Company received bank guarantees on behalf of dealers. These guarantees amounted to Lit. 44.3 billion and Lit. 25.7 billion at December 31, 1997 and 1996, respectively. 17. Stockholders' equity A stockholders' meeting held on January 30, 1995 authorized the Board of Directors to increase the company's share capital up to a maximum of Lit. 1,050 billion by means of the issue of a maximum of 400 million shares at a value of Lit. 2,000 per share, consisting of Lit. 1,000 par value plus Lit. 1,000 share premium. This increase was approved by the Board of Directors at a meeting on March 24, 1995. The issue of these shares was at the discretion of the Board of Directors and was valid until December 31, 1996. The first tranche of these shares was issued in 1995 for a total amount of 75 million common shares. During 1996 the Company issued 325 million of common stock shares with a par value of Lit. 1,000 each and Lit. 1,000 additional paid-in capital. This increased the Company's issued common stock to Lit. 1,050,000 million and its additional paid-in capital to Lit. 400,000 million. The proceeds from the issues of 1996, net of taxation, amounted to Lit. 643,500 million. Under Italian tax legislation the Company was liable to an annual tax of 0.75% on the value of the stockholders' equity in 1996. This amount was charged to the income statement. No amount was due in 1997. See note 10 for application in 1998 and thereafter. 18. Stock option program In December 1996, the Company launched a stock option program to grant warrants in favor of certain executives of the Company. These warrants, which each carry the right to purchase one common stock unit, will be exercisable on June 30, 2001. The price payable on exercise of the warrant is a total of Lit. 5,500 per warrant of which Lit. 4,500 is additional paid-in capital. Early exercise of warrants is not permitted. S-27 35 Omnitel Pronto Italia S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 18. Stock option program, continued The detail plan activity and information relating to 1997 and 1996 are as follows:
1997 1996 --------------------------- --------------------------- Weighted- Weighted- average average Number grant Number grant of date of date Warrants price* Warrants price* ------------ ------------ ------------ ------------ Balance - January 1 3.324.000 343 -- -- Granted during the year 882.591 2.097 3.324.000 343 Canceled or forfeited during the year (196.000) 343 -- -- ------------ ------------ ------------ ------------ Balance - December 31 4.010.591 729 3.324.000 343 ============ ============ ============ ============
* - In Lira The Company has utilized the "Minimum Value" method for valuing the equity instruments issued to employees. The following assumptions were utilized when determining the Minimum Values at the grant dates:
1997 1996 --------------- -------------- Risk free rate 5.024% - 7.350% 6.84% - 7.57% =============== ============== Expected life (years) 3.5 - 4 4.56 =============== ==============
Assuming the provisions of SFAS 123 would have been adopted, the impact on the Company's net loss and earnings per share would have been immaterial. 19. Litigation matters National roaming agreement Access under the national roaming agreement is currently being disputed by TIM in connection with OPI's territorial coverage percentage at the date of launching operations on December 7, 1995. The M.O.C. confirmed that OPI achieved the necessary coverage percentage. However, the Italian State Council has overturned this decision and informed the M.O.C. that they should have used additional information when calculating OPI's coverage percentage. OPI is disputing this decision and has counterclaimend seeking damages for TIM's delay in permitting national roaming. S-28 36 Omnitel Pronto Italia S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 19. Litigation matters, continued Compensative measures TIM has recently filed an action attempting to recover Lit. 60 billion that they were required to pay to OPI by the European Commission. 20. Disclosures about fair values of financial instruments The following methods and assumptions were used to estimate the fair values of each class of financial instrument for which it is practicable to estimate that value. Cash and cash equivalents, Accounts receivable, Trade payables, Amounts due to and from related parties The carrying amounts approximate the fair value due to the short-term maturity of these instruments. This includes the short-term bank loans. Interest rate swap agreements The fair value of interest rate swap agreements is the estimated amount that the Company would pay or receive to terminate the agreements at the balance sheet date, taking into account current interest rates. The estimated fair values of the Company's financial instruments are as follows:
December 31, December 31, December 31, 1997 1996 1995 ---------------------- -------------------- ------------------ Carrying Fair Carrying Fair Carrying Fair value value value value value value Debt 1.579.584 1.579.584 1.096.337 1.096.337 530.595 530.595 Interest rate swaps -- (23.636) -- (24.858) -- (8.784) Collars -- (1.173) -- (2.030) -- --
S-29 37 Omnitel Pronto Italia S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 21. Reconciliation to Generally Accepted Accounting Principles in Italy ("Italian GAAP") In order to comply with GAAP, certain adjustments are reflected in the financial statements which are not recorded in the Italian statutory financial statements. As of December 31, 1997, 1996 and 1995 these adjustments, which principally related to the application of SFAS 109 and to a different treatment of costs sustained when the Company was in the "development stage", are summarized as follows:
December 31, -------------------------------- 1997 1996 1995 NET LOSS Net loss for the year, as reported (91.969) (438.971) (225.064) Tax on common stock subscriptions capitalized as an intangible asset under Italian GAAP (2.892) (2.892) (1.592) Net change in start-up costs capitalized under Italian GAAP (38.061) 3.938 130.863 Net change of advertising costs capitalized under Italian GAAP (101) 38.786 15.821 Concession and accessory charges amortization 6.768 6.926 (48.176) Deferred income taxes: SFAS 109 application (13.900) (196.800) -- -------- -------- -------- Net adjustments (48.186) (150.042) 96.916 -------- -------- -------- Net loss under Italian GAAP (140.155) (589.013) (128.148) ======== ======== ========
The reconciliation of stockholders' equity as of December 31, 1997, 1996 and 1995 is as follows:
December 31, ---------------------------------- 1997 1996 1995 STOCKHOLDERS' EQUITY Stockholders' equity, as reported 651.192 741.309 535.640 Tax on common stock subscriptions capitalized as an intangible asset under Italian GAAP 6.289 9.180 5.573 Net book value of start-up costs capitalized under Italian GAAP 125.220 163.281 159.343 Net book value of advertising costs capitalized under Italian GAAP 54.505 54.607 15.821 Concession and accessory charges amortization (34.482) (41.250) (48.176) Deferred income taxes: SFAS 109 application (210.700) (196.800) -- -------- -------- -------- Net adjustments (59.168) (10.982) 132.561 -------- -------- -------- Stockholders' equity under Italian GAAP 592.024 730.327 668.201 ======== ======== ========
S-30 38 [LETTERHEAD OF COOPERS & LYBRAND] REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders of Omnitel Sistemi Radiocellulari Italiani S.p.A. We have audited the accompanying balance sheets of Omnitel Sistemi Radiocellulari Italiani S.p.A. ("the Company") as of December 31, 1997 and 1996 and the related statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Omnitel Sistemi Radiocellulari Italiani S.p.A. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997 in conformity with accounting principles generally accepted in the United States of America. COOPERS & LYBRAND S.p.A. Milan, Italy March 25, 1998 S-31 39 Omnitel Sistemi Radiocellulari Italiani S.p.A. Statements of Income (in millions of Italian Lira except per share data)
For the years ended December 31, -------------------------------- 1997 1996 1995 Income -- -- 75 Operating expenses: - third parties (1.567) (1.210) (1.455) - related parties (200) -- (24) Equity loss in Omnitel Pronto Italia S.p.A (63.132) (311.032) (160.331) -------- -------- -------- Operating loss (64.899) (312.242) (161.735) -------- -------- -------- Other expenses, net (48) -- -- Interest income, net 831 838 1.400 -------- -------- -------- Net loss (64.116) (311.404) (160.335) ======== ======== ======== Basic and Diluted loss per common share (85) (471) (337) ======== ======== ======== Weighted average number of common shares outstanding 758 661 475 ======== ======== ========
The accompanying notes are an integral part of these financial statements. S-32 40 Omnitel Sistemi Radiocellulari Italiani S.p.A. Balance Sheets (in millions of Italian Lira)
ASSETS December 31, ----------------- 1997 1996 Cash and cash equivalents (Note 3) 11.769 13.519 Receivables from related parties (Note 8) -- 90 Other current assets 842 876 ------- ------- Total current assets 12.611 14.485 ------- ------- Investment in Omnitel Pronto Italia S.p.A. (Note 4) 455.834 518.916 ------- ------- Total non-current assets 455.834 518.916 ------- ------- Total assets 468.445 533.401 ======= =======
"continued" The accompanying notes are an integral part of these financial statements. S-33 41 Omnitel Sistemi Radiocellulari Italiani S.p.A. Balance Sheets (in millions of Italian Lira except per share data) "continued"
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, -------------------- 1997 1996 Accounts payable 151 141 Due to related parties (Note 8) 200 214 Other current liabilities (Note 5) 845 1.681 -------- -------- Total current liabilities 1.196 2.036 -------- -------- Deposit payable (Note 6) 90 90 -------- -------- Total liabilities 1.286 2.126 -------- -------- Commitments and contingencies (Note 9) Common stock (No. 757,500,000, par value Lit 1,000 authorized issued and outstanding) 757.500 757.500 Additional paid-in capital 282.500 282.500 Accumulated deficit (572.841) (508.725) -------- -------- Total stockholders' equity 467.159 531.275 -------- -------- Total liabilities and stockholders' equity 468.445 533.401 ======== ========
The accompanying notes are an integral part of these financial statements. S-34 42 Omnitel Sistemi Radiocellulari Italiani S.p.A. Statements of Cash Flows (in millions of Italian Lira)
For the years ended December 31, -------------------------------- 1997 1996 1995 Cash flows from operating activities: Net loss (64.116) (311.404) (160.335) Adjustment to reconcile net loss to net cash (used in) provided by operating activities: Equity loss in Omnitel Pronto Italia S.p.A 63.132 311.032 160.331 Changes in operating assets and liabilities: Decrease in receivables from related parties 90 8 21.313 Decrease (Increase) in other current assets 34 (239) (194) Increase (Decrease) in accounts payable 10 87 (906) (Decrease) Increase in other current liabilities (836) (222) 477 (Decrease) Increase in due to related parties (14) 178 (9.239) -------- -------- -------- Net cash (used in) provided by operating activities (1.700) (560) 11.447 -------- -------- -------- Cash flows from investing activities: Increase in investment in Omnitel Pronto Italia S.p.A (50) (455.000) (280.000) Increase in deposit payable -- 90 -- -------- -------- -------- Net cash used in investing activities (50) (454.910) (280.000) -------- -------- -------- Cash flows from financing activities: Proceeds from issuance of common stock -- 465.000 275.000 Tax on issuance of common stock -- (4.643) (2.747) -------- -------- -------- Net cash provided by financing activities -- 460.357 272.253 -------- -------- -------- (Decrease) Increase in cash and cash equivalents (1.750) 4.887 3.700 Cash and cash equivalents at the beginning of the year 13.519 8.632 4.932 -------- -------- -------- Cash and cash equivalents at the end of the year 11.769 13.519 8.632 ======== ======== ======== Supplemental disclosures of Cash Flows information: Cash paid for interest -- -- 2 ======== ======== ======== Income taxes -- -- -- ======== ======== ========
The accompanying notes are an integral part of these financial statements. S-35 43 Omnitel Sistemi Radiocellulari Italiani S.p.A. Statements of Changes in Stockholders' Equity (in millions of Italian Lira)
Additional Common paid-in Accumulated stock capital deficit Total Balance as of December 31, 1994 300.000 -- (29.596) 270.404 Issuance of common stock: January 26, 1995 175.000 -- -- 175.000 September 29, 1995 50.000 50.000 -- 100.000 Tax on issuance of common stock -- -- (2.747) (2.747) Net loss for the year -- -- (160.335) (160.335) -------- -------- -------- -------- Balance as of December 31, 1995 525.000 50.000 (192.678) 382.322 Issuance of common stock: January 30, 1996 52.500 52.500 -- 105.000 March 28, 1996 52.500 52.500 -- 105.000 July 5, 1996 52.500 52.500 -- 105.000 September 5, 1996 40.000 40.000 -- 80.000 September 30, 1996 35.000 35.000 -- 70.000 Tax on issuance of common stock -- -- (4.643) (4.643) Net loss for the year -- -- (311.404) (311.404) -------- -------- -------- -------- Balance as of December 31, 1996 757.500 282.500 (508.725) 531.275 Net loss for the year -- -- (64.116) (64.116) -------- -------- -------- -------- Balance as of December 31, 1997 757.500 282.500 (572.841) 467.159 ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements. S-36 44 Omnitel Sistemi Radiocellulari Italiani S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 1. Description and ownership of the business Omnitel Sistemi Radiocellulari Italiani S.p.A. (the "Company" or "Omnitel S.R.I.") was established on June 19, 1990 with the objective of operating cellular telephone networks. The Company owns a 70% interest in Omnitel Pronto Italia S.p.A. ("OPI"). The remaining 30% interest is held by Pronto Italia S.p.A. ("P.I."). OPI was awarded a fifteen year license to operate a cellular telephone system based on the GSM (Global System for Mobile Communications) standard in Italy, effective from February 1, 1995. OPI began generating revenues from operations at the end of 1995, following the launch of operational service on December 7, 1995. In 1997, OPI has become fully operational from a commercial standpoint and is continuing the construction of its cellular telephone network. Although the Company owns 70% of the shares of OPI, both the statutes of OPI and the stockholders' agreement between Omnitel S.R.I. and P.I. stipulate significant restrictions on the Company's ability to control OPI. Among the restrictions are the requirements that members of the Board of Directors, designated by other stockholders, must approve any changes in OPI's corporate purpose, management, auditors, issuance or redemption of stock, payment of dividends, and annual budget. In addition, transactions not included in the annual budget and exceeding certain immaterial amounts regarding the purchase of assets, the assumption of debt, the subjection of OPI's assets to liens or pledges, the extension of guarantees to third parties and the acceptance of any terms and conditions necessary to obtain or renew a license, require approval by members of the Board of Directors designated by other stockholders. Consequently, OPI is accounted for on an equity basis. OPI must comply with certain service standards, territorial coverage requirements, and other conditions contained in its Italian cellular cencession. The failure to meet these requirements could result loss of the concession. In 1997, Ing. C. Olivetti S.p.A. transferred all its shares of Omnitel S.R.I. to the newly incorporated Olivetti Mobile Telephony Services B.V. ("O.M.T.S."). On December 12, 1997, Ing. C. Olivetti S.p.A. sold to Mannesmann 25% of the shares of O.M.T.S., which resulted in O.M.T.S. changing its name to OliMan Holding B.V.. As of December 31, 1997, the Company's stockholders are OliMan Holding B.V., Bell Atlantic International Inc., Cellular Communication International Inc., Telia International AB and Lehman Brothers Holding Inc.. S-37 45 Omnitel Sistemi Radiocellulari Italiani S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 1. Description and ownership of the business, continued In accordance with Italian law, the Company financial statements must be approved at the annual stockholders' meeting. The financial statements for 1997 have not yet been approved. 2. Summary of significant accounting policies The following is a summary of the most significant accounting policies used by the Company to prepare the financial statements. 2.1 Basis of presentation and preparation of financial statements The preparation of financial statements in conformity with United States Generally Accepted Accounting Principles ("US GAAP") requires management to make estimates and assumptions that effect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. In order to conform with US GAAP, certain adjustments need to be recorded in the financial statements, which may or may not be recorded in the Italian books of account. These adjustments relate primarily to the equity basis of accounting for the investment in OPI (see Note 10). 2.2 Cash and cash equivalents The Company considers all highly liquid monetary instruments with original maturities of three months or less to be cash equivalents. Short-term securities held under purchase and resale agreements ("Repos") are valued at cost plus the accrued difference between the purchase and resale price matured as of the balance sheet date. The related income is classified as interest income. 2.3 Receivables and payables Receivables and payables are reflected at their stated value. Receivables are reduced to their expected realizable value by an allowance for doubtful accounts. S-38 46 Omnitel Sistemi Radiocellulari Italiani S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 2.3 Receivables and payables, continued Receivables and payables denominated in foreign currencies are stated using the year-end exchange rates. The resulting gains or losses are recorded in the statement of income. 2.4 Income taxes The Company is subject to income taxes in the Republic of Italy. Deferred income tax balances reflect the impact of temporary differences between the carrying amount of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. 2.5 Purchase of OPI forfeited stock warrants The Company purchases 70% of OPI's stock warrants that are forfeited by employees of OPI. The price paid for the warrant is equal to the original grant date price plus accrued interest. The amount paid is charged directly to the equity investment in OPI. 2.6 New accounting pronouncements In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), which is required to be adopted for all financial statements issued for periods ending after December 15, 1997. SFAS 128 redefines the principles for calculating earnings per share ("EPS") and requires presentation of Basic EPS and Diluted EPS for those entities with complex capital structures. SFAS 128 also requires that all prior period earnings per share data presented with the current year's data is restated in accordance with the new provisions. The adoption of SFAS 128 had no effect upon the current year's or the prior years' earnings per share data. S-39 47 Omnitel Sistemi Radiocellulari Italiani S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 3. Cash and cash equivalents Cash and cash equivalents consist of:
December 31, ---------------------- 1997 1996 Cash and bank balances 168 423 Italian Government bonds 11.601 13.096 ---------- ---------- Total 11.769 13.519 ========== ==========
The Italian government bonds are subject to purchase and resale agreements, which provide that the Company resell them at pre-determined prices. 4. Investments The movements in the investment in OPI during 1997 and 1996 were as follows:
1997 1996 ---------- ---------- Balance as of January 1 518.916 374.948 Increase in common stock of OPI and additional paid-in capital -- 455.000 Stock option subscription 50 -- Equity loss in OPI for the year (63.132) (311.032) ---------- ---------- Balance as of December 31 455.834 518.916 ========== ==========
As of December 31, 1997 and 1996 the Company held 735,000,000 shares of OPI representing 70% of the outstanding common stock. S-40 48 Omnitel Sistemi Radiocellulari Italiani S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 4. Investments, continued The following is a summary of the financial information of OPI for the twelve months ended December 31, 1997, 1996 and 1995:
December 31, ------------------------------------ 1997 1996 1995 Total operating revenues 1.835.285 753.542 49.018 Operating expenses (1.534.666) (1.090.804) (245.234) Depreciation and amortization (305.251) (203.457) (35.869) Interest (expenses) income, net (131.747) (95.052) 7.021 Other income, net 30.510 -- -- Income tax benefit 13.900 196.800 -- ---------- ---------- ---------- Net loss (91.969) (438.971) (225.064) ========== ========== ========== Omnitel S.R.I. - 70% share of OPI's net loss (64.378) (307.280) (157.545) 70% share of forfeited OPI stock warrants (50) -- -- 70% share of OPI stock option warrants granted 1.296 798 -- 70% share of tax on OPI common stock subscription -- (4.550) (2.786) ---------- ---------- ---------- Equity loss in OPI for the year (63.132) (311.032) (160.331) ========== ========== ==========
The following is a summary of financial information of OPI as of December 31, 1997 and 1996:
December 31, -------------------- 1997 1996 Current assets 922.707 454.756 Non current assets 2.340.027 2.138.015 --------- --------- Total assets 3.262.734 2.592.771 ========= =========
S-41 49 Omnitel Sistemi Radiocellulari Italiani S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 4. Investments, continued
December 31, -------------------- 1997 1996 Current liabilities 1.070.663 849.936 Non current liabilities 1.540.879 1.001.526 --------- --------- Total liabilities 2.611.542 1.851.462 ========= ========= Net assets 651.192 741.309 ========= ========= Omnitel S.R.I. 70% share of OPI's equity 455.834 518.916 ========= =========
5. Other current liabilities Other current liabilities consist of:
December 31, ------------------ 1997 1996 Tax on issuance of common stock -- 1.500 Tax on stockholders' equity 832 138 Other 13 43 ------- ------- 845 1.681 ======= =======
6. Deposit payable On September 18, 1996, the Company signed an agreement with a former employee of OPI and member of the Board of Directors of Omnitel S.R.I., giving him an option to buy from Omnitel S.R.I. 262,500 shares of OPI at a price of Lit. 5,500 per share. The cost of the option was Lit. 90 million and will be exercisable in July 2000. S-42 50 Omnitel Sistemi Radiocellulari Italiani S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 7. Income taxes No provision for current income taxes has been made as the Company is in a tax loss position. Significant components of the Company's deferred tax accounts are as follows:
December 31, ----------------------- 1997 1996 Deferred tax assets 234.287 268.386 Valuation allowance (234.287) (268.386) --------- --------- Net deferred tax assets -- -- ========= =========
The deferred tax assets of Lit. 234,287 million and Lit. 268,386 million relate principally to temporary differences arising from the adjustment of the investment in OPI to the equity method for financial reporting purposes, but not for fiscal purposes. A full valuation allowance has been provided at December 31, 1997 and 1996 as it is not more likely than not that a portion of these assets will be realized. 8. Related party transactions The Company does not have its own personnel, thus personnel of OPI are utilized. For the year ended December 31, 1997, costs charged by OPI to the Company amounted to Lit. 200 million. S-43 51 Omnitel Sistemi Radiocellulari Italiani S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 8. Related party transactions, continued Amounts due from (to) related parties are as follows:
December 31, --------------------- 1997 1996 Amounts due from related parties: Cellular Communication International Inc. -- 30 Telia International -- 30 Bell Atlantic International Inc. -- 30 -------- -------- -- 90 ======== ======== Amounts due to related parties: OPI (200) -- Ing. C. Olivetti S.p.A -- (203) Other -- (11) -------- -------- (200) (214) ======== ========
9. Commitments and contingencies As required by the terms of OPI's cellular concession, Banca Commerciale Italiana has issued a guarantee to the Ministry of Communications on behalf of OPI for Lit. 219.4 billion. The Company has provided a counter guarantee to Banca Commerciale Italiana in the amount of Lit. 153.6 billion. On October 2, 1997 the Board of Directors approved to make available to OPI a subordinated credit facility of Lit. 70 billion, when OPI's indebtedness amounts to Lit. 2,200 billion or in any event of default of OPI under the facility. The Company has committed to purchase 70% of OPI's forfeited stock warrants granted to OPI executives in connection with OPI's stock option plan. S-44 52 Omnitel Sistemi Radiocellulari Italiani S.p.A. Notes to the financial statements (in millions of Italian Lira unless otherwise stated) 10. Reconciliation to Generally Accepted Accounting Principles in Italy ("Italian GAAP") In order to conform with US GAAP, certain adjustments are reflected in the financial statements, which are not recorded in the Italian statutory financial statements. As of December 31, 1997, 1996 and 1995 these adjusments, which principally related to equity basis accounting for the investment in OPI, are summarized as follows:
December 31, ---------------------------------------- 1997 1996 1995 NET LOSS Net loss for the year, as reported (64.116) (311.404) (160.335) Tax on common stock subscriptions capitalized as an intangible asset under Italian GAAP (2.072) (2.072) (1.143) Loss on investment in OPI 63.132 311.032 160.331 ---------- ---------- ---------- Net adjustments 61.060 308.960 159.188 ---------- ---------- ---------- Net loss under Italian GAAP (3.056) (2.444) (1.147) ========== ========== ========== STOCKHOLDERS' EQUITY Stockholders' equity, as reported 467.159 531.275 382.322 Tax on common stock subscriptions capitalized as an intangible asset under Italian GAAP 4.478 6.551 3.980 Loss on investment in OPI 559.328 496.196 185.164 ---------- ---------- ---------- Net adjustments 563.806 502.747 189.144 ---------- ---------- ---------- Stockholders' equity under Italian GAAP 1.030.965 1.034.022 571.466 ========== ========== ==========
S-45 EX-23.1 2 CONSENT OF COOPERS & LYBRAND S.P.A. 1 [LETTERHEAD OF COOPERS & LYBRAND] CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the (i) Registration Statements (Form S-8 No. 33-41258. No. 33-78846, No. 33-89366 and No. 333-44761) pertaining to the 1991 Employee Stock Option Plan of Cellular Commuincations International, Inc. (ii) Registration Statements (Form S-8 No. 33-55442 and No. 33-89368) pertaining to Non-Employee Director Stock Option Plan of Cellular Communications International, Inc. and (iii) Registration Statements (Form S-8 No. 33-55440, No. 33-78840 and No. 33-89370) pertaining to Non-Qualified Stock Option Agreements of Cellular Communications International, Inc. and (iv) Registration Statements (Form S-3 No. 33-90980 and No. 33-97392) pertaining to the registration of 13 1/4% Senior Discount Notes and Warrants to purchase Common Stock and the related Prospectus of our report dated March 25, 1998 on our audit of the financial statements of Omnitel Sistemi Radiocellulari Italiani S.p.A. as of December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997 and our report dated March 25, 1998 on our audit of the financial statements of Omnitel Pronto Italia S.p.A. as of December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997, which reports are included in this Form 10-K/A-1. COOPERS & LYBRAND S.p.A. Milan, Italy April 10, 1998 -----END PRIVACY-ENHANCED MESSAGE-----