-----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, J30Cu9gBxgSO6rZjrEWkmG8jmUdwLVp0/COifyJaCXXYJFRWkt+x7yiaXNrH2jR7 zVK0pywIvXe2pKBAb0wZkg== 0000940180-96-000545.txt : 19961107 0000940180-96-000545.hdr.sgml : 19961107 ACCESSION NUMBER: 0000940180-96-000545 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961106 SROS: NONE 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: 1934 Act SEC FILE NUMBER: 033-44420 FILM NUMBER: 96655023 BUSINESS ADDRESS: STREET 1: 110 EAST 59TH STREET STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 212-906-8440 MAIL ADDRESS: STREET 1: 110 EAST 59TH STREET STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-19869 ---------------------------------------------- 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 incorporation or organization) Identification No.) 110 East 59th Street, New York, NY 10022 - --------------------------------------- --------------------------------- (Address of principal executive offices) (Zip Code) (212) 355-3466 --------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ------ The number of shares outstanding of the issuer's common stock as of September 30, 1996 was 13,239,022. CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES INDEX Page PART I. FINANCIAL INFORMATION - ------------------------------- Item 1. Financial Statements Condensed consolidated balance sheets-- September 30, 1996 and December 31, 1995 2 Condensed consolidated statements of operations-- Three and nine months ended September 30, 1996 and 1995 4 Condensed consolidated statement of shareholders' equity--Nine months ended September 30, 1996 5 Condensed consolidated statements of cash flows-- Nine months ended September 30, 1996 and 1995 6 Notes to condensed consolidated financial statements 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 10 PART II. OTHER INFORMATION - -------------------------- Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15 - ---------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1996 1995 -------------- ------------- (Unaudited) (See Note) ASSETS CURRENT ASSETS Cash and cash equivalents $ 6,317,000 $ 8,050,000 Marketable securities 1,744,000 - Accounts receivable-trade, less allowance for doubtful accounts of $3,753,000 (1996) and $3,233,000 (1995) 19,715,000 17,929,000 Equipment inventory 3,426,000 6,388,000 PCS auction deposit 37,000,000 - Prepaid expenses and other current assets 3,788,000 2,600,000 ------------ ------------ TOTAL CURRENT ASSETS 71,990,000 34,967,000 PROPERTY, PLANT & EQUIPMENT, net 88,334,000 75,769,000 UNAMORTIZED LICENSE ACQUISITION COSTS 158,428,000 139,952,000 DEFERRED FINANCING COSTS, less accumulated amortization of $912,000 (1996) and $455,000 (1995) 4,271,000 4,706,000 OTHER ASSETS, less accumulated amortization of $1,720,000 (1996) and $1,471,000 (1995) 1,528,000 1,603,000 ------------ ------------ $324,551,000 $256,997,000 ============ ============
Note: The balance sheet at December 31, 1995 has been derived from the audited financial statements at that date. 2 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS--Continued
September 30, December 31, 1996 1995 -------------- ------------- (Unaudited) (See Note) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 8,033,000 $ 5,874,000 Accrued expenses 10,490,000 10,895,000 Due to International CableTel Incorporated 101,000 - Due to Cellular Communications, Inc. - 310,000 Interest payable 2,075,000 615,000 Deferred revenue 2,911,000 2,854,000 Current portion of long term debt - 1,975,000 ------------ ------------ TOTAL CURRENT LIABILITIES 23,610,000 22,523,000 LONG TERM DEBT 137,000,000 90,000,000 COMMITMENTS AND CONTINGENT LIABILITIES MINORITY INTERESTS - 322,000 SHAREHOLDERS' EQUITY Series preferred stock-$.01 par value; authorized 2,500,000 shares; issued and outstanding none - - Common stock-$.01 par value; authorized 30,000,000 shares; issued 13,432,000 (1996) and 12,803,000 (1995) shares 134,000 128,000 Additional paid-in capital 226,160,000 210,646,000 (Deficit) (57,163,000) (60,477,000) ------------ ------------ 169,131,000 150,297,000 Treasury stock-at cost, 193,000 (1996) and 207,000 (1995) shares (5,190,000) (6,145,000) ------------ ------------ 163,941,000 144,152,000 ------------ ------------ $324,551,000 $256,997,000 ============ ============
See notes to condensed consolidated financial statements. 3 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended September 30 September 30 --------------------------------------- --------------------------- 1996 1995 1996 1995 ------------------- ------------------ ------------- ------------ Revenues: Service revenue $31,056,000 $24,489,000 $88,121,000 $66,249,000 Equipment revenue 3,858,000 3,483,000 9,983,000 10,710,000 ----------- ----------- ----------- ----------- 34,914,000 27,972,000 98,104,000 76,959,000 Costs and expenses: Cost of equipment sold 4,550,000 5,234,000 13,388,000 15,920,000 Operating expenses 3,921,000 2,543,000 11,945,000 7,055,000 Selling, general and administrative expenses 16,273,000 12,694,000 46,474,000 36,408,000 Depreciation of rental equipment 134,000 41,000 374,000 177,000 Depreciation expense 3,253,000 2,565,000 9,204,000 6,865,000 Amortization expense 1,550,000 1,472,000 4,632,000 4,346,000 ----------- ----------- ----------- ----------- 29,681,000 24,549,000 86,017,000 70,771,000 ----------- ----------- ----------- ----------- OPERATING INCOME 5,233,000 3,423,000 12,087,000 6,188,000 Other income (expense): Interest income and other, net 136,000 (30,000) 305,000 314,000 Interest expense (2,151,000) (2,059,000) (5,646,000) (6,696,000) ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAX PROVISION AND MINORITY INTERESTS 3,218,000 1,334,000 6,746,000 (194,000) Income tax provision (945,000) (2,558,000) (3,432,000) (4,882,000) ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE MINORITY INTERESTS 2,273,000 (1,224,000) 3,314,000 (5,076,000) Minority interests - (346,000) - (346,000) ----------- ----------- ----------- ----------- NET INCOME (LOSS) $ 2,273,000 $(1,570,000) $ 3,314,000 $(5,422,000) =========== =========== =========== =========== Net income (loss) per common share $.16 $(.13) $.23 $(.51) =========== =========== =========== =========== Weighted average number of common shares used in computation of net income (loss) per share including common stock equivalents 14,153,000 11,720,000 14,116,000 10,556,000 =========== =========== =========== ===========
See notes to condensed consolidated financial statements. 4 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
Common Stock Additional Treasury Stock ---------------------------- Paid-in ----------------------- Shares Amount Capital Deficit Shares Amount ------------- ------------ -------------- ------------- --------- ------------ Balance, December 31, 1995 12,803,000 $ 128,000 $210,646,000 $(60,477,000) (207,000) $(6,145,000) Shares issued for interests in cellular license 820,000 8,000 21,528,000 Exercise of stock options 16,000 129,000 Common stock repurchased, at cost (193,000) (5,190,000) Retirement of treasury stock (207,000) (2,000) (6,143,000) 207,000 6,145,000 Net income for the nine months ended September 30, 1996 3,314,000 ---------- ----------- ------------ ------------- --------- ------------ Balance, September 30, 1996 13,432,000 $ 134,000 $226,160,000 $(57,163,000) (193,000) $(5,190,000) ========== =========== ============ ============ ======== ===========
See notes to condensed consolidated financial statements. 5 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30 -------------------------------- 1996 1995 --------------- --------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 18,456,000 $(11,233,000) ------------ ------------ INVESTING ACTIVITIES Purchase of property, plant and equipment (20,159,000) (22,974,000) Payment of the PCS auction deposit (37,000,000) - Purchase of marketable securities (4,230,000) (2,058,000) Proceeds from maturities of marketable securities 2,486,000 11,057,000 Purchase of cellular license interests (56,000) - ------------ ------------ NET CASH (USED IN) INVESTING ACTIVITIES (58,959,000) (13,975,000) ------------ ------------ FINANCING ACTIVITIES Distributions to minority interest holders (1,172,000) - Principal payments (1,975,000) (37,000,000) Additional deferred financing costs (22,000) - Repayment of amount due to Cellular Communications of Ohio, Inc. - (47,942,000) Proceeds from borrowings, net of financing costs 47,000,000 111,946,000 Proceeds from exercise of stock options 129,000 385,000 Payments to acquire treasury stock (5,190,000) (5,023,000) ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 38,770,000 22,366,000 ------------ ------------ (DECREASE) IN CASH AND CASH EQUIVALENTS (1,733,000) (2,842,000) Cash and cash equivalents at beginning of period 8,050,000 6,311,000 ------------ ------------ Cash and cash equivalents at end of period $ 6,317,000 $ 3,469,000 ============ ============ Supplemental disclosure of cash flow information: Cash paid during the period for interest exclusive of amounts capitalized $ 4,186,000 $ 18,323,000 Income taxes paid 6,882,000 620,000 Supplemental schedule of noncash investing activities: Common stock issued to acquire cellular license interests $ 21,536,000 Liabilities incurred to acquire property, plant and equipment 5,012,000 $ 4,815,000 Supplemental schedule of noncash financing activities: Conversion of Senior Subordinated Notes $ 38,579,000 Liabilities incurred to acquire treasury stock 917,000
See notes to condensed consolidated financial statements. 6 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES 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 and nine months ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1995. Net income (loss) per share is computed based upon the weighted average number of common shares outstanding during the periods, including common stock equivalents in the net income per share computations. Common stock equivalents are excluded from the calculation of net loss per share as their effect would be antidilutive. NOTE B--ACCOUNTING CHANGE In October 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based Compensation." Although all entities are encouraged to adopt this method of accounting for all employee stock compensation plans, SFAS No. 123 allows an entity to continue to measure compensation costs for its plans as prescribed by APB Opinion No. 25 "Accounting for Stock Issued to Employees." At this time, management expects to continue its accounting in accordance with APB Opinion No. 25. NOTE C--UNAMORTIZED LICENSE ACQUISITION COSTS
September 30, December 31, 1996 1995 -------------- ------------ (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 183,565,000 161,123,000 ------------ ------------ 189,500,000 167,058,000 Accumulated amortization 31,072,000 27,106,000 ------------ ------------ $158,428,000 $139,952,000 ============ ============
7 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-Continued NOTE C--UNAMORTIZED LICENSE ACQUISITION COSTS-Continued In February 1996, the Company acquired the remaining minority interests aggregating approximately 6% in the San Juan Cellular Telephone Company in exchange for approximately 820,000 shares of the Company's common stock. The stock was valued at $21,536,000, the fair market value on the date of acquisition. In addition, the San Juan Cellular Telephone Company made a special cash distribution of $1,172,000 to the minority interest holders. The aggregate purchase price of $21,536,000 plus expenses of $56,000 and the deficiency in net assets acquired of $850,000 have been classified as license acquisition costs. NOTE D--PROPERTY, PLANT AND EQUIPMENT
September 30, December 31, 1996 1995 -------------- ------------ (Unaudited) Land $ 2,027,000 $ 1,962,000 Operating equipment 88,446,000 73,152,000 Office furniture and other equipment 15,181,000 12,092,000 Rental equipment 1,126,000 739,000 Construction in progress 16,599,000 13,535,000 ------------ ------------ 123,379,000 101,480,000 Allowance for depreciation 35,045,000 25,711,000 ------------ ------------ $ 88,334,000 $ 75,769,000 ============ ============ NOTE E--ACCRUED EXPENSES September 30, December 31, 1996 1995 ------------ ------------ (Unaudited) Accrued compensation $ 1,062,000 $ 1,056,000 Accrued franchise, property and income taxes 2,275,000 5,354,000 Commissions payable 686,000 349,000 Accrued equipment purchases 1,957,000 280,000 Subscriber deposits 1,718,000 1,952,000 Other 2,792,000 1,904,000 ------------ ------------ $ 10,490,000 $ 10,895,000 ============ ============
8 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-Continued NOTE F--LONG TERM DEBT
September 30, December 31, 1996 1995 ------------ ----------- (Unaudited) Bank loan $137,000,000 $90,000,000 Subsidiary note payable - 225,000 Subsidiary note payable - 1,750,000 ------------ ----------- 137,000,000 91,975,000 Less current portion - 1,975,000 ------------ ----------- $137,000,000 $90,000,000 ============ ===========
NOTE G--TREASURY STOCK In April 1996, the Company announced that its Board of Directors authorized the repurchase of up to an additional 750,000 shares of the Company's common stock through open market purchases from time to time as market conditions warrant. This repurchase plan is in addition to a previously announced repurchase plan for up to 250,000 shares. As of September 30, 1996, the Company repurchased 400,000 shares for an aggregate of $11,335,000, of which 207,000 shares that cost an aggregate of $6,145,000 were retired. Through November 5, 1996, the Company repurchased 55,000 shares for an aggregate of $1,189,000. NOTE H--COMMITMENTS AND CONTINGENT LIABILITIES As of September 30, 1996, the Company was committed to purchase approximately $10,300,000 for cellular network and other equipment and for construction services. In August 1996, the Company borrowed $37,000,000 under its revolving credit facility which was used for a deposit with the Federal Communications Commission ("FCC") in order to participate in a Personal Communications Service ("PCS") license auction. The Company withdrew from the auction prior to its conclusion and the FCC returned the deposit in November 1996. The Company owns 51% of the outstanding shares of Star Associates, Inc. ("Star"), which owns the FCC license for the non-wireline cellular system in Puerto Rico Rural Service Area 2. In October 1996, the Company entered into an agreement with the 49% shareholder of Star to purchase their entire interest for cash of $5,750,000. 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 1996 were $202,000 which were determined by the size of the Company's markets. 9 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. Three Months Ended September 30, 1996 and 1995 - ---------------------------------------------- Service revenues increased to $31,056,000 from $24,489,000 as a result of subscriber growth that increased the Company's current revenue stream. Average monthly revenue per subscriber for the third quarter decreased to $72 in 1996 from $80 in 1995. Ending subscribers were 149,800 and 107,300 as of September 30, 1996 and 1995, respectively. The loss from equipment, before depreciation of rental equipment, decreased to $692,000 from $1,751,000 primarily because of reductions in the cost of cellular telephones offset by an increase in the loss from pager sales. The Company sells cellular telephones and pagers below cost in response to competition and to generate subscriber growth. Operating expenses increased to $3,921,000 from $2,543,000 primarily due to increased usage of the network and additional costs associated with the expanded network (including paging operations), which account for 73% and 27% of the increase, respectively. Selling, general and administrative expenses increased to $16,273,000 from $12,694,000 as a result of increased selling and marketing to increase the customer base and additional personnel to service the expanding customer base. Increases in bad debt expense, customer retention expense, property taxes and subscriber billing expense also contributed to this increase. The increases in selling and marketing costs, personnel costs, bad debt expense, customer retention expense, property taxes and subscriber billing expense were 49%, 4%, 3%, 12%, 8% and 10%, respectively, of the total $3,579,000 increase. Depreciation of rental equipment increased to $134,000 from $41,000 due to an increase in the number of rental pagers, offset by a decrease in rental telephone depreciation due to rental telephones becoming fully depreciated. Depreciation expense increased to $3,253,000 from $2,565,000 because of an increase in property, plant and equipment. Amortization expense increased to $1,550,000 from $1,472,000 primarily due to increases in license acquisition costs. Interest income and other, net, increased to income of $136,000 from expense of $30,000 due to an increase in interest income on short term investments and a decrease in losses on disposals of equipment. Interest expense increased to $2,151,000 from $2,059,000 primarily because of an increase in the principal balance on the Company's debt. Paging operations commenced in the second quarter of 1995. As of September 30, 1996, there were 25,500 pagers in use. 10 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES (Continued) Nine Months Ended September 30, 1996 and 1995 - ---------------------------------------------- Service revenues increased to $88,121,000 from $66,249,000 as a result of subscriber growth that increased the Company's current revenue stream. Average monthly revenue per subscriber for the nine months ended September 30 decreased to $74 in 1996 from $84 in 1995. Ending subscribers were 149,800 and 107,300 as of September 30, 1996 and 1995, respectively. The loss from equipment, before depreciation of rental equipment, decreased to $3,405,000 from $5,210,000 primarily because of reductions in the cost of cellular telephones offset by an increase in the loss from pager sales. The Company sells cellular telephones and pagers below cost in response to competition and to generate subscriber growth. Operating expenses increased to $11,945,000 from $7,055,000 primarily due to increased usage of the network and additional costs associated with the expanded network (including paging operations), which account for 82% and 18% of the increase, respectively. Selling, general and administrative expenses increased to $46,474,000 from $36,408,000 as a result of increased selling and marketing to increase the customer base and additional personnel to service the expanding customer base. Increases in bad debt expense, customer retention expense, property taxes and subscriber billing expense also contributed to this increase. The increases in selling and marketing costs, personnel costs, bad debt expense, customer retention expense, property taxes and subscriber billing expense were 30%, 7%, 16%, 12%, 7% and 11%, respectively, of the total $10,066,000 increase. Depreciation of rental equipment increased to $374,000 from $177,000 due to an increase in the number of rental pagers, offset by a decrease in rental telephone depreciation due to rental telephones becoming fully depreciated. Depreciation expense increased to $9,204,000 from $6,865,000 because of an increase in property, plant and equipment. Amortization expense increased to $4,632,000 from $4,346,000 primarily due to increases in license acquisition costs. Interest income and other, net, decreased to $305,000 from $314,000 due to an increase in losses on disposals of equipment. Interest expense decreased to $5,646,000 from $6,696,000 primarily because of reductions in the principal balance and interest rates on the Company's debt. In October 1995, the FASB issued SFAS No. 123, "Accounting For Stock-Based Compensation." Although all entities are encouraged to adopt this method of accounting for all employee stock compensation plans, SFAS No. 123 allows an entity to continue to measure compensation costs for its plans as prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees." At this time, management expects to continue its accounting in accordance with APB Option No. 25. 11 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES (Continued) LIQUIDITY AND CAPITAL RESOURCES The Company requires capital to expand its cellular and paging networks and for debt service. 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 $13,500,000 in the fourth quarter of 1996 and $25,200,000 in 1997 for contemplated additions to the cellular system, the paging network and for other non-cell site related capital expenditures. Debt service during the remainder of 1996 for the outstanding debt as of September 30, 1996 at the rates in effect on September 30, 1996 is expected to be approximately $2,462,000. The Company's commitments at September 30, 1996 of $10,300,000 for cellular network and other equipment and for construction services are included in the total anticipated expenditures. The Company will be able to meet these requirements with cash on hand, cash from operations or borrowings under its revolving credit facility. The preceding forward-looking statements are based on the Company's current expectations which are subject to a number of risks and uncertainties that could materially reduce demand for the Company's cellular and/or paging service, thereby reducing the need for capacity expansion and reducing the operating cash flows from such service. The primary risks and uncertainties include, but are not limited to: a change in economic conditions in the Company's markets which adversely effects the level of demand for cellular and/or paging services, greater than anticipated competition resulting in price reductions or higher customer acquisitions costs, and earlier than expected competition from new wireless services. In addition, increased cellular fraud could reduce operating cash flow while increasing the need for capacity expansion. In May 1996, the Company announced that it was evaluating strategic alternatives to enhance shareholder value. After discussions with certain parties, the Company has determined that at this time the optimum strategy for increasing shareholder value is to manage the cellular business in Puerto Rico for growth while considering acquisition and development opportunities in the communications business both within and outside of Puerto Rico. Although the Company is investigating the pursuit of certain new business opportunities, the Company does not rule out the possibility that there may be further discussions leading to a possible transaction concerning the Company. In April 1996, the Company announced that its Board of Directors authorized the repurchase of up to an additional 750,000 shares of the Company's common stock through open market purchases from time to time as market conditions warrant. This repurchase plan is in addition to a previously announced repurchase plan for up to 250,000 shares. Through November 5, 1996, the Company has repurchased 455,000 shares for an aggregate of $12,524,000. In April 1995, the Company and one of its subsidiaries entered into a $200,000,000 revolving credit facility with various banks. To date, the Company has borrowed $137,000,000. The line of credit is available until March 31, 1999, on which date it converts into a term loan with principal payments based on an amortization schedule until September 30, 2003. The terms include the payment of interest each quarter at a floating rate, which is, at the borrower's option, either (a) the higher of the bank's base rate or the Federal Funds Rate plus 1/2%, (b) the London Interbank Offering Rate or (c) the 936 Rate, plus, based on the ratio of the Company's debt to cash flow and the floating rate in effect, either .25% to 1.875% or 1.25% to 2.875%. The effective rate on the Company's borrowings as of September 30, 1996 was 6.81%. The terms also include an unused commitment fee of 1/2% per annum which is payable quarterly. 12 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES (Continued) Subject to the restrictions described below, the line of credit is available for funding capital expenditures, stock repurchases up to $60,000,000, acquisitions of or investments in communications related businesses in Puerto Rico, the southeastern United States and other approved countries, and for working capital and other general corporate purposes. In connection with the loan agreement, the Company has pledged to the banks the stock of the Company's subsidiaries and has given the banks a security interest in the Company and its subsidiaries' assets and a guaranty by the Company and its subsidiaries of the obligations of the borrowers under the loan agreement. The loan agreement also includes, among other things, restrictions on (i) dividends, (ii) acquisitions and investments, (iii) sales and dispositions of assets, (iv) additional indebtedness and (v) liens, and requires the maintenance of certain ratios of indebtedness to cash flow, fixed charges to cash flow and debt service to cash flow. Cash provided by operating activities was $18,456,000 in 1996 and cash used in operating activities was $11,233,000 in 1995. Cash used in operating activities in 1995 includes $12,978,000 of accrued interest expense that was paid in connection with the repayment of the amount due to Cellular Communications of Ohio, Inc. The increase in cash flow from operating activities is also a result of the increase in net income and from changes in operating assets and liabilities. Purchases of property, plant and equipment of $20,159,000 were primarily for additional cell sites and increased capacity in the Company's cellular and paging systems. In August 1996, the Company borrowed $37,000,000 under its revolving credit facility which was used for a deposit with the FCC in order to participate in a PCS license auction. The Company withdrew from the auction prior to its conclusion and the FCC returned the deposit in November 1996. The San Juan Cellular Telephone Company made a special cash distribution of $1,172,000 to its minority interest holders in 1996. The Company repaid $1,975,000 in notes payable on their due dates in 1996. The allowance for doubtful accounts was $3,753,000 and $3,233,000 as of September 30, 1996 and December 31, 1995, respectively. Write-offs net of recoveries as a percentage of service revenue was 5.5% for the nine months ended September 30, 1996 compared to 4.8% for the year ended December 31, 1995. This percentage increased because the Company has attracted and continues to attract new segments of the market. The Company continues to attempt to reduce this percentage by improving credit procedures and instituting innovative forms of payment such as prepaid billing. The Company owns 51% of the outstanding shares of Star, which owns the FCC license for the non-wireline cellular system in Adjuntas, Puerto Rico (RSA-2). In October 1996, the Company entered into an agreement with the 49% shareholder of Star to purchase their entire interest for cash of $5,750,000. The Company may also require additional capital for acquisitions of minority interests in its Aguadilla market, or for the acquisition of certain RSAs, PCS licenses, 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. 13 CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES (Continued) PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Included Within 27. Financial Data Schedule (b) Reports on Form 8-K: No reports on Form 8-K were filed by the Company during the quarter ended September 30, 1996. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. Date: November 5, 1996 ___________________________ J. Barclay Knapp President Date: November 5, 1996 ___________________________ Gregg Gorelick Vice President-Controller (Chief Accounting Officer) 15 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1996 SEP-30-1996 JAN-01-1996 6,317,000 1,744,000 23,468,000 (3,753,000) 3,426,000 40,788,000 123,379,000 (35,045,000) 324,551,000 23,610,000 137,000,000 0 0 134,000 163,807,000 324,551,000 9,983,000 98,104,000 13,388,000 25,333,000 46,474,000 0 5,646,000 6,746,000 3,432,000 3,314,000 0 0 0 3,314,000 .23 0
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