-----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, UXqzuZUGILXyr5eYuKGx161QyDLT0pS+3PcTso8Khod2RTfwfffRcodK0uJecf2P WfP6djWZ6sPDAmYfvuqW7g== 0000881817-98-000004.txt : 19980518 0000881817-98-000004.hdr.sgml : 19980518 ACCESSION NUMBER: 0000881817-98-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CELLULAR COMMUNICATIONS OF PUERTO RICO INC CENTRAL INDEX KEY: 0000881817 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 133517074 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19869 FILM NUMBER: 98621912 BUSINESS ADDRESS: STREET 1: 110 EAST 59TH STREET STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 212-906-84 MAIL ADDRESS: STREET 1: 110 EAST 59TH STREET STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 10-Q 1 FORM 10Q - MARCH 31, 1998 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 333-26055-01 ------------------------------------------------------------ CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3517074 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 110 East 59th Street, New York, New York 10022 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (212) 906-8481 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ The number of shares outstanding of the issuer's common stock as of March 31, 1998 was 1,000. Cellular Communications of Puerto Rico, Inc. Index PART I. FINANCIAL INFORMATION Page - ------------------------------ ---- Item 1. Financial Statements Condensed Consolidated Balance Sheets - March 31, 1998 and December 31, 1997 ............................ 2 Condensed Consolidated Statements of Operations - Three months ended March 31, 1998 and 1997 ...................... 3 Condensed Consolidated Statement of Shareholder's Equity - Three months ended March 31, 1998 ...................... 4 Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 1998 and 1997 ...................... 5 Notes to Condensed Consolidated Financial Statements ............ 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition .............................. 9 PART II OTHER INFORMATION - --------------------------- Item 6. Exhibits and Reports on Form 8-K ................................ 13 SIGNATURES ................................................................ 14 - ---------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Cellular Communications of Puerto Rico, Inc. Condensed Consolidated Balance Sheets
MARCH 31, DECEMBER 31, 1998 1997 ------------------------------ (Unaudited) (See Note) ASSETS Current assets: Cash and cash equivalents $ 10,230,000 $ 9,445,000 Marketable securities - 235,000 Accounts receivable - trade, less allowance for doubtful accounts of $1,701,000 (1998) and $2,106,000 (1997) 19,032,000 19,043,000 Due from CoreComm Incorporated 1,223,000 935,000 Equipment inventory 6,501,000 2,882,000 Prepaid expenses and other current assets 4,592,000 5,923,000 ------------------------------ Total current assets 41,578,000 38,463,000 Property, plant and equipment, net 128,856,000 128,451,000 Unamortized license acquisition costs 173,567,000 157,467,000 Deferred financing costs, less accumulated amortization of $755,000 (1998) and $584,000 (1997) 6,035,000 6,206,000 Other assets, less accumulated amortization of $1,263,000 (1998) and $1,088,000 (1997) 1,663,000 1,537,000 ------------------------------ $ 351,699,000 $ 332,124,000 ============================== LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Accounts payable $ 9,185,000 $ 6,815,000 Accrued expenses 9,862,000 11,012,000 Due to NTL Incorporated 116,000 71,000 Due to CoreComm Incorporated 28,456,000 17,056,000 Interest payable 3,510,000 8,333,000 Deferred revenue 5,868,000 3,952,000 ------------------------------ Total current liabilities 56,997,000 47,239,000 Long-term debt 208,900,000 200,000,000 Obligation under capital lease 9,384,000 9,456,000 Commitments and contingent liabilities Shareholder's equity: Common stock - $.01 par value; authorized 1,000 shares; issued 1,000 shares - - Additional paid-in capital 137,570,000 137,570,000 (Deficit) (61,152,000) (62,141,000) ------------------------------ 76,418,000 75,429,000 ------------------------------ $ 351,699,000 $ 332,124,000 ==============================
Note: The balance sheet at December 31, 1997 has been derived from the audited financial statements at that date. See accompanying notes. 2 Cellular Communications of Puerto Rico, Inc. Condensed Consolidated Statements of Operations (Unaudited) THREE MONTHS ENDED MARCH 31 ----------------------------- 1998 1997 ----------------------------- REVENUES: Service revenue $ 34,459,000 $ 33,352,000 Equipment revenue 4,954,000 3,919,000 ----------------------------- 39,413,000 37,271,000 COSTS AND EXPENSES: Cost of equipment sold 4,575,000 4,779,000 Operating expenses 4,115,000 3,890,000 Selling, general and administrative expenses 16,133,000 17,899,000 Depreciation of rental equipment 241,000 177,000 Depreciation expense 5,946,000 3,806,000 Amortization expense 1,690,000 1,557,000 ----------------------------- 32,700,000 32,108,000 ----------------------------- Operating income 6,713,000 5,163,000 OTHER INCOME (EXPENSE): Interest income and other, net 32,000 65,000 Interest expense (5,365,000) (3,984,000) ----------------------------- Income before income taxes and extraordinary item 1,380,000 1,244,000 Income tax provision (391,000) (1,176,000) ----------------------------- Income before extraordinary item 989,000 68,000 Loss from early extinguishment of debt, net of income tax benefit of $316,000 - (3,751,000) ----------------------------- Net income (loss) $ 989,000 $ (3,683,000) ============================= See accompanying notes. 3 Cellular Communications of Puerto Rico, Inc. Condensed Consolidated Statement of Shareholder's Equity (Unaudited)
COMMON STOCK ADDITIONAL ------------------- PAID-IN SHARES AMOUNT CAPITAL (DEFICIT) ----------------------------------------------------- Balance, December 31, 1997 1,000 $ - $ 137,570,000 $ (62,141,000) Net income for the three months ended March 31, 1998 989,000 ----------------------------------------------------- Balance, March 31, 1998 1,000 $ - $ 137,570,000 $ (61,152,000) =====================================================
See accompanying notes. 4 Cellular Communications of Puerto Rico, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)
THREE MONTHS ENDED MARCH 31 -------------------------------- 1998 1997 -------------------------------- Net cash provided by operating activities $ 5,562,000 $ 8,130,000 INVESTING ACTIVITIES Cost of cellular license interest (8,686,000) (146,000) Purchase of property, plant and equipment (7,661,000) (7,210,000) Proceeds from maturities of marketable securities 235,000 2,257,000 -------------------------------- Net cash (used in) investing activities (16,112,000) (5,099,000) -------------------------------- FINANCING ACTIVITIES Principal payments of capital lease obligation (65,000) - Due to CoreComm Incorporated 11,400,000 - Repayment of bank loan - (115,000,000) Proceeds from issuance of Notes, net of financing costs - 193,968,000 Distribution to CoreComm Incorporated - (80,000,000) Purchase of treasury stock - (688,000) Proceeds from exercise of stock options - 287,000 -------------------------------- Net cash provided by (used in) financing activities 11,335,000 (1,433,000) -------------------------------- Increase in cash and cash equivalents 785,000 1,598,000 Cash and cash equivalents at beginning of period 9,445,000 2,307,000 -------------------------------- Cash and cash equivalents at end of period $ 10,230,000 $ 3,905,000 ================================ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest exclusive of amounts capitalized $ 10,188,000 $ 2,329,000 Income taxes paid 200,000 550,000 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES: Liabilities incurred to acquire property, plant and equipment $ 1,938,000 $ 1,012,000 Long-term debt issued to acquire cellular license interest 8,900,000 -
See accompanying notes. 5 Cellular Communications of Puerto Rico, Inc. Notes to Condensed Consolidated Financial Statements (unaudited) NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. For further information, refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1997. NOTE B - UNAMORTIZED LICENSE ACQUISITION COSTS Unamortized license acquisition costs consist of: MARCH 31, DECEMBER 31, 1998 1997 ------------------------------ (Unaudited) Deferred cellular license costs $ 5,935,000 $ 5,935,000 Excess of purchase price paid over the fair market value of tangible assets acquired 207,052,000 189,466,000 ------------------------------ 212,987,000 195,401,000 Accumulated amortization 39,420,000 37,934,000 ------------------------------ $ 173,567,000 $ 157,467,000 ============================== In January 1998, a wholly-owned subsidiary of the Company purchased the FCC license to own and operate the non-wireline cellular system in Puerto Rico RSA-4 (Aibonito) and all of the assets of the system in exchange for $8,400,000 in cash and a promissory note in the amount of $8,900,000. Costs of $286,000 were incurred in connection with this acquisition. 6 Cellular Communications of Puerto Rico, Inc. Notes to Condensed Consolidated Financial Statements (unaudited) (continued) NOTE C - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of: MARCH 31, DECEMBER 31, 1998 1997 ------------------------------- (Unaudited) Land $ 1,951,000 $ 1,951,000 Office building 9,922,000 9,922,000 Operating equipment 132,933,000 127,534,000 Office furniture and other equipment 26,676,000 24,546,000 Rental equipment 2,070,000 1,745,000 Construction in progress 11,149,000 12,533,000 ------------------------------- 184,701,000 178,231,000 Accumulated depreciation 55,845,000 49,780,000 ------------------------------- $ 128,856,000 $ 128,451,000 =============================== NOTE D - ACCRUED EXPENSES Accrued expenses consists of: MARCH 31, DECEMBER 31, 1998 1997 ------------------------------- (Unaudited) Accrued compensation $ 952,000 $ 765,000 Accrued equipment purchases 325,000 1,427,000 Accrued franchise, property and income taxes 3,217,000 2,836,000 Commissions payable 1,038,000 1,143,000 Subscriber deposits 1,520,000 1,544,000 Other 2,810,000 3,297,000 ------------------------------- $ 9,862,000 $ 11,012,000 =============================== 7 Cellular Communications of Puerto Rico, Inc. Notes to Condensed Consolidated Financial Statements (unaudited) (continued) NOTE E - LONG-TERM DEBT Long-term debt consists of: MARCH 31, DECEMBER 31, 1998 1997 ------------------------------- (Unaudited) Senior Subordinated Notes $ 200,000,000 $ 200,000,000 Subsidiary Note Payable 8,900,000 - ------------------------------- $ 208,900,000 $ 200,000,000 =============================== In connection with the acquisition of Puerto Rico RSA-4, a wholly-owned subsidiary of the Company issued a promissory note in January 1998. The promissory note bears interest at 7.95% per annum payable semiannually beginning in July 1998 and the principal is payable in January 2003. NOTE F - COMMITMENTS AND CONTINGENT LIABILITIES As of March 31, 1998, the Company was committed to purchase approximately $2,900,000 for cellular network and other equipment and for construction services. In addition, as of March 31, 1998, the Company had commitments to purchase telephones, pagers and accessories of approximately $420,000. In 1992, the Company entered into an agreement which in effect provides for a twenty year license to use its service mark which is also licensed to many of the non-wireline cellular systems in the United States. The Company is required to pay licensing and advertising fees, and to maintain certain service quality standards. The total fees paid for 1998 were $289,000, which were determined by the size of the Company's markets. 8 Cellular Communications of Puerto Rico, Inc. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. RESULTS OF OPERATIONS Three Months Ended March 31, 1998 and 1997 - ------------------------------------------ Service revenue increased to $34,459,000 from $33,352,000. Lower average revenue of new prepaid subscribers, a migration of subscribers to less expensive rate plans, and a decrease in minutes of use of existing subscribers resulted in average monthly revenue per cellular subscriber for the first quarter decreasing to $56 in 1998 from $68 in 1997. Ending subscribers were 211,900 and 166,600 as of March 31, 1998 and 1997, respectively. Prepaid subscribers included in ending subscribers were 59,000 and 300 as of March 31, 1998 and 1997, respectively. Ending pagers in use were 51,600 and 35,100 as of March 31, 1998 and 1997, respectively. The income (loss) from equipment, before depreciation of rental equipment, increased to income of $379,000 from a loss of $860,000 primarily because the Company is not selling telephones below their cost to prepaid subscribers. Reductions in the cost of cellular telephones also contributed to this change. Operating expenses increased to $4,115,000 from $3,890,000 primarily due to increased usage of the network and additional costs associated with the expanded network (including paging operations). Selling, general and administrative expenses decreased to $16,133,000 from $17,899,000 as a result of a decrease in selling and marketing costs, bad debt expense and subscriber billing expense. The decreases in selling and marketing costs, bad debt expense and subscriber billing expense were 14%, 49% and 13%, respectively of the $1,766,000 decrease. Depreciation of rental equipment increased to $241,000 from $177,000 due to an increase in rental telephone depreciation and an increase in the number of rental pagers. Depreciation expense increased to $5,946,000 from $3,806,000 primarily because of an increase in property, plant and equipment. Amortization expense increased to $1,690,000 from $1,557,000 primarily due to an increase in license acquisition costs. Interest income and other, net, decreased to $32,000 from $65,000 primarily due to a decrease in interest income on short term investments. Interest expense increased to $5,365,000 from $3,984,000 as a result of the issuance of the Senior Subordinated Notes on January 28, 1997, the office building capital lease obligation beginning in April 1997 and the issuance of the subsidiary note payable in January 1998. 9 Cellular Communications of Puerto Rico, Inc. The provision for income taxes decreased to $391,000 from $1,176,000 primarily as a result of a decrease in Puerto Rico or U.S. Virgin Islands taxable income of certain of the Company's consolidated subsidiaries. In connection with the termination of the bank loan, the Company recorded an extraordinary loss of $4,067,000 in the first quarter of 1997 ($3,751,000 net of income tax benefit) from the write-off of unamortized deferred financing costs. LIQUIDITY AND CAPITAL RESOURCES The Company requires capital to expand its cellular and paging network, for debt service and potentially, for the acquisition and development of additional wireless licenses or communications businesses. The Company is currently adding cell sites and increasing capacity throughout its Puerto Rico and U.S. Virgin Islands markets. The Company expects to use approximately $18,800,000 in 1998 for contemplated additions to the cellular network, the paging network and for other non-cell site related capital expenditures. The Company's commitments at March 31, 1998 of $2,900,000 for cellular network and other equipment and for construction services are included in the total anticipated expenditures. The Company expects to be able to meet these requirements with cash and cash equivalents on hand and cash from operations. The Company has received loans from its parent company, CoreComm Incorporated ("CoreComm") of $28,456,000 as of March 31, 1998, which are non-interest bearing and are due on June 30, 1998. In January 1998, a wholly-owned subsidiary of the Company purchased the FCC license to own and operate the non-wireline cellular system in Puerto Rico RSA-4 (Aibonito) and all of the assets of the system in exchange for $8,400,000 in cash and a promissory note in the amount of $8,900,000. The promissory note bears interest at 7.95% per annum payable semiannually beginning in July 1998 and the principal is payable in January 2003. Costs of $286,000 were incurred in connection with this acquisition. In January 1997, a wholly-owned subsidiary of the Company, CCPR Services, Inc. ("Services") issued $200,000,000 principal amount 10% Senior Subordinated Notes due 2007 (the "Notes") and received proceeds of $193,233,000 after discounts, commissions and other related costs. The Notes are unconditionally guaranteed by the Company. Approximately $116,000,000 of the proceeds were used to repay the $115,000,000 principal outstanding plus accrued interest and fees under the bank loan. In addition, the Company distributed $80,000,000 to CoreComm in connection with the corporate restructuring. 10 Cellular Communications of Puerto Rico, Inc. The Notes are due on February 1, 2007. Interest on the Notes is payable semiannually as of August 1, 1997. The Notes are redeemable, in whole or in part, at the option of Services at any time on or after February 1, 2002, at a redemption price of 105% that declines annually to 100% in 2005, in each case together with accrued and unpaid interest to the redemption date. The Indenture contains certain convenants with respect to Services, the Company and certain subsidiaries that limit their ability to, among other things: (i) incur additional indebtedness, (ii) pay dividends or make other distributions or restricted payments (except for dividend payments to the Company and an aggregate of up to $100,000,000 to be used for dividends or restricted payments to CoreComm), (iii) create liens, (iv) sell assets, (v) enter into mergers or consolidations or (vi) sell or issue stock of subsidiaries. Cash provided by operating activities was $5,562,000 and $8,130,000 for the three months ended March 31, 1998 and 1997, respectively. The decrease is primarily due to the $7,859,000 increase in cash paid for interest, exclusive of amounts capitalized. Purchases of property, plant and equipment of $7,661,000 in 1998 were primarily for additional cell sites and increased capacity in the Company's cellular and paging networks. Write-offs of accounts receivable, net of recoveries as a percentage of service revenue was 4.7% for the three months ended March 31, 1998 compared to 6.7% for the year ended December 31, 1997. This percentage decreased because the Company and its subsidiaries have increased prepaid subscribers and improved credit procedures. The Company may also require additional capital for acquisitions of minority interests in its Aguadilla market, or for the acquisition of certain other RSAs or in other telecommunications related industries, if opportunities for such acquisitions arise. The Company has from time to time engaged in discussions with third parties regarding such acquisitions. YEAR 2000 Many computer systems experience problems handling dates beyond the year 1999. Therefore, some computer hardware and software will need to be modified prior to the year 2000 in order to remain functional. The Company is assessing both the internal readiness of its computer systems and the compliance of the computer systems of certain significant customers and vendors for handling the year 2000. The Company expects to implement successfully the systems and programming changes necessary to address year 2000 issues, and does not believe that the cost of such actions will have a material adverse effect on the Company. There can be no assurance, however, that there will not be a delay in, or increased costs associated with, the implementation of such changes, and the Company's inability to implement such changes could have an adverse effect on the Company. In addition, the failure of certain of the Company's significant customers and vendors to address the year 2000 issue could have a material adverse effect on the Company. 11 Cellular Communications of Puerto Rico, Inc. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: Certain statements contained herein constitute "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995. When used herein, the words, "believe," "anticipate," "should," "intend," "plan," "will," "expects," "estimates," "projects," "positioned," "strategy," and similar expressions identify such forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from those contemplated, projected, forecasted, estimated or budgeted, whether expressed or implied, by such forward-looking statements. Such factors include the following: general economic and business conditions in Puerto Rico and the U.S. Virgin Islands, industry trends, the Company's ability to continue to design and build its network, install facilities, obtain and maintain any required government licenses or approvals and finance construction and development, all in a timely manner, at reasonable costs and on satisfactory terms and conditions, as well as assumptions about customer acceptance, churn rates, overall market penetration and competition from providers of alternative services, the impact of new business opportunities requiring significant up-front investment, and availability, terms and deployment of capital. 12 Cellular Communications of Puerto Rico, Inc. 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 March 31, 1998. 13 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 OF PUERTO RICO, INC. Date: May 11, 1998 By: /s/ J. Barclay Knapp -------------------- J. Barclay Knapp President Date: May 11, 1998 By: /s/ Gregg Gorelick ------------------ Gregg Gorelick Vice President-Controller (Principal Accounting Officer) 14 EX-27 2 QUARTERLY FINANCIAL DATA SCHEDULE - MARCH 31, 1998
5 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 10,230,000 0 20,733,000 (1,701,000) 6,501,000 5,815,000 184,701,000 (55,845,000) 351,699,000 56,997,000 200,000,000 0 0 0 76,418,000 351,699,000 4,954,000 39,413,000 4,575,000 8,690,000 16,133,000 0 5,365,000 1,380,000 391,000 989,000 0 0 0 989,000 0 0
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