-----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, I4og9Qvlx5s6jS4CR06+E70jGTYMIUzKUOdPgj37ck5SKW+KsMGHeSCYZzr8L+tl uNy12LH2owKAeku6omWtSQ== 0000940180-97-001032.txt : 19971115 0000940180-97-001032.hdr.sgml : 19971115 ACCESSION NUMBER: 0000940180-97-001032 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 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: 97717317 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 10-Q 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 September 30, 1997 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 incorporation (I.R.S. Employer or organization) Identification No.) 110 E. 59/th/ 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 September 30, 1997 was 1,000. Cellular Communications of Puerto Rico, Inc. and Subsidiaries Index PART I. FINANCIAL INFORMATION Page - ------------------------------ ---- Item 1. Financial Statements Condensed Consolidated Balance Sheets- September 30, 1997 and December 31, 1996................. 2 Condensed Consolidated Statements of Operations- Three and nine months ended September 30, 1997 and 1996.. 3 Condensed Consolidated Statement of Shareholder's Equity - Nine months ended September 30, 1997............ 4 Condensed Consolidated Statements of Cash Flows- Nine months ended September 30, 1997 and 1996............ 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. and Subsidiaries Condensed Consolidated Balance Sheets
SEPTEMBER 30, DECEMBER 31, 1997 1996 ----------------------------------------------- ASSETS (Unaudited) (See Note) Current assets: Cash and cash equivalents $ - $ 2,307,000 Marketable securities - 5,917,000 Accounts receivable--trade, less allowance for doubtful accounts of $2,758,000 (1997) and $3,767,000 (1996) 20,477,000 20,034,000 Due from CoreComm Incorporated 946,000 - Equipment inventory 5,103,000 2,912,000 Prepaid expenses and other current assets 7,348,000 3,022,000 --------------------------------------------- Total current assets 33,874,000 34,192,000 Property, plant and equipment, net 128,462,000 97,945,000 Unamortized license acquisition costs 158,842,000 162,822,000 Deferred financing costs, less accumulated amortization of $414,000 (1997) and $1,065,000 (1996) 6,376,000 4,118,000 Other assets, less accumulated amortization of $1,462,000 (1997) and $723,000 (1996) 1,726,000 1,645,000 --------------------------------------------- $329,280,000 $300,722,000 ============================================= LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities: Cash overdraft $ 781,000 $ - Accounts payable 8,706,000 7,364,000 Accrued expenses 14,088,000 10,889,000 Due to NTL Incorporated 118,000 102,000 Due to CoreComm Incorporated 13,056,000 - Interest payable 3,333,000 1,678,000 Deferred revenue 3,099,000 3,081,000 --------------------------------------------- Total current liabilities 43,181,000 23,114,000 Long-term debt 200,000,000 115,000,000 Obligation under capital lease 9,526,000 - Commitments and contingent liabilities Shareholder's equity: Series preferred stock--$.01 par value; authorized none (1997) and 2,500,000 (1996) shares; issued and outstanding none - - Common stock--$.01 par value; authorized 1,000 (1997) and 30,000,000 (1996) shares; issued 1,000 (1997) and 13,432,000 (1996) shares - 134,000 Additional paid-in capital 137,570,000 226,160,000 (Deficit) (60,997,000) (55,363,000) --------------------------------------------- 76,573,000 170,931,000 Treasury stock--at cost, none (1997) and 343,000 (1996) shares - (8,323,000) --------------------------------------------- 76,573,000 162,608,000 --------------------------------------------- $329,280,000 $300,722,000 =============================================
Note: The balance sheet at December 31, 1996 has been derived from the audited financial statements at that date. See accompanying notes. 2 Cellular Communications of Puerto Rico, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ------------------------------------ ------------------------------------ 1997 1996 1997 1996 ------------------------------------ ------------------------------------ REVENUES: Service revenue $31,541,000 $31,056,000 $ 99,587,000 $88,121,000 Equipment revenue 4,672,000 3,858,000 12,335,000 9,983,000 ------------------------------------ ------------------------------------ 36,213,000 34,914,000 111,922,000 98,104,000 COSTS AND EXPENSES: Cost of equipment sold 5,258,000 4,550,000 14,331,000 13,388,000 Operating expenses 4,555,000 3,921,000 12,783,000 11,945,000 Selling, general and administrative expenses 17,712,000 16,273,000 53,693,000 46,474,000 Depreciation of rental equipment 233,000 134,000 608,000 374,000 Depreciation expense 4,831,000 3,253,000 12,823,000 9,204,000 Amortization expense 1,610,000 1,550,000 4,821,000 4,632,000 ------------------------------------ ------------------------------------ 34,199,000 29,681,000 99,059,000 86,017,000 ------------------------------------ ------------------------------------ Operating income 2,014,000 5,233,000 12,863,000 12,087,000 OTHER INCOME (EXPENSE): Interest income and other, net (17,000) 136,000 (31,000) 305,000 Interest expense (5,200,000) (2,151,000) (14,261,000) (5,646,000) ------------------------------------ ------------------------------------ Income (loss) before income taxes and extraordinary item (3,203,000) 3,218,000 (1,429,000) 6,746,000 Income tax provision (114,000) (945,000) (1,266,000) (3,432,000) ------------------------------------ ------------------------------------ Income (loss) before extraordinary item (3,317,000) 2,273,000 (2,695,000) 3,314,000 Loss from early extinguishment of debt, net of income tax benefit of $1,128,000 387,000 - (2,939,000) - ------------------------------------ ------------------------------------ Net income (loss) $(2,930,000) $ 2,273,000 $ (5,634,000) $ 3,314,000 ==================================== ====================================
See accompanying notes. 3 Cellular Communications of Puerto Rico, Inc. and Subsidiaries Condensed Consolidated Statement of Shareholder's Equity (Unaudited)
COMMON STOCK ADDITIONAL TREASURY STOCK ------------------------- PAID-IN ------------------------- SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT --------------------------------------------------------------------------------- Balance, December 31, 1996 13,432,000 $ 134,000 $226,160,000 $(55,363,000) (343,000) $(8,323,000) Exercise of stock options 20,000 1,000 286,000 Common stock repurchased, at cost (35,000) (688,000) Corporate restructuring (13,451,000) (135,000) (8,876,000) 378,000 9,011,000 Distribution to CoreComm Incorporated (80,000,000) Net (loss) for the nine months ended September 30, 1997 (5,634,000) -------------------------------------------------------------------------------- Balance, September 30, 1997 1,000 $ - $137,570,000 $(60,997,000) - $ - ================================================================================
See accompanying notes. 4 Cellular Communications of Puerto Rico, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30 ------------------------------------- 1997 1996 ------------------------------------- Net cash provided by operating activities $ 13,544,000 $ 18,456,000 ------------------------------------- INVESTING ACTIVITIES Payment of the PCS auction deposit - (37,000,000) Additional cost of cellular license interest (146,000) (56,000) Purchase of property, plant and equipment (33,621,000) (20,159,000) Purchase of marketable securities - (4,230,000) Proceeds from maturities of marketable securities 5,917,000 2,486,000 ------------------------------------- Net cash (used in) investing activities (27,850,000) (58,959,000) ------------------------------------- FINANCING ACTIVITIES Repayment of debt (115,000,000) (1,975,000) Proceeds from issuance of Notes, net of financing costs 193,694,000 - Proceeds from borrowings - 47,000,000 Due to CoreComm Incorporated 13,056,000 - Distribution to CoreComm Incorporated (80,000,000) - Purchase of treasury stock (688,000) (5,190,000) Distributions to minority interest holders - (1,172,000) Principal payments of capital lease obligation (131,000) - Additional deferred financing costs - (22,000) Proceeds from exercise of stock options 287,000 129,000 ------------------------------------- Net cash provided by financing activities 11,218,000 38,770,000 ------------------------------------- Decrease in cash and cash equivalents (3,088,000) (1,733,000) Cash and cash equivalents at beginning of period 2,307,000 8,050,000 ------------------------------------- Cash and cash equivalents at end of period $ (781,000) $ 6,317,000 ===================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest exclusive of amounts capitalized $ 12,606,000 $ 4,186,000 Income taxes paid 4,339,000 6,882,000 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 2,365,000 5,012,000 Capital lease obligation incurred to acquire office building 9,922,000 -
See accompanying notes. 5 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, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. For further information, refer to the financial statements and footnotes thereto included in the Company's Registration Statement on Form S-4, Registration No. 333-26055. In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". SFAS No. 130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. The Company will adopt SFAS No. 130 for its fiscal year ending December 31, 1998. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. SFAS No. 131 is effective for financial statements for periods beginning after December 15, 1997. The Company will adopt SFAS No. 131 for its fiscal year ending December 31, 1998. NOTE B - UNAMORTIZED LICENSE ACQUISITION COSTS Unamortized license acquisition costs consist of:
SEPTEMBER 30, DECEMBER 31, 1997 1996 ---------------------------------- (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 189,466,000 189,320,000 ----------------------------------- 195,401,000 195,255,000 Accumulated amortization 36,559,000 32,433,000 ----------------------------------- $158,842,000 $162,822,000 ===================================
6 Cellular Communications of Puerto Rico, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (unaudited) (continued) NOTE C - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of:
SEPTEMBER 30, DECEMBER 31, 1997 1996 -------------------------------------- (Unaudited) Land $ 1,951,000 $ 2,027,000 Office building 9,922,000 - Operating equipment 120,287,000 97,513,000 Office furniture and other equipment 25,105,000 16,521,000 Rental equipment 1,984,000 1,174,000 Construction in progress 19,304,000 18,674,000 -------------------------------------- 178,553,000 135,909,000 Accumulated depreciation 50,091,000 37,964,000 -------------------------------------- $128,462,000 $ 97,945,000 ======================================
In 1997, the Company entered into a lease for office space through 2012 which is classified as a capital lease for financial reporting purposes. Accordingly, an asset of $9,922,000 has been recorded. As of September 30, 1997, the total minimum lease payments were $18,510,000, the estimated amount representing interest was $8,719,000 and the present value of net minimum lease payments was $9,791,000. This amount includes $265,000 current portion and $9,526,000 long- term obligation under capital lease. NOTE D - ACCRUED EXPENSES Accrued expenses consists of:
SEPTEMBER 30, DECEMBER 31, 1997 1996 ---------------------------------- (Unaudited) Accrued compensation $ 1,162,000 $ 1,005,000 Accrued equipment purchases 1,572,000 502,000 Accrued franchise, property and income taxes 3,242,000 4,246,000 Commissions payable 1,262,000 1,272,000 Subscriber deposits 1,546,000 1,572,000 Other 5,304,000 2,292,000 --------------------------------------- $14,088,000 $10,889,000 =======================================
7 Cellular Communications of Puerto Rico, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (unaudited) (continued) NOTE E - DUE TO CORECOMM INCORPORATED The Company is a wholly-owned subsidiary of CoreComm Incorporated. Due to CoreComm Incorporated represents cash that was loaned to a wholly-owned subsidiary of the Company, CCPR Services, Inc. ("Services") in 1997. This loan is non-interest bearing and is due on demand. NOTE F - LONG-TERM DEBT In January 1997, Services issued $200,000,000 principal amount 10% Senior Subordinated Notes due 2007 (the "Notes") and received proceeds of $193,694,000 after discounts, commissions and other related costs. The Notes are unconditionally guaranteed by the Company. The Company and Services used approximately $116,000,000 of the proceeds to repay the $115,000,000 principal outstanding plus accrued interest and fees under the bank loan. In connection with the repayment of the bank loan, the Company recorded an extraordinary loss of $4,067,000 ($2,939,000 net of income tax benefit) from the write-off of unamortized deferred financing cost. The Notes are due on February 1, 2007. Interest on the Notes is payable semiannually commencing on 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 covenants 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, (iii) create liens, (iv) sell assets, (v) enter into mergers or consolidations or (vi) sell or issue stock of subsidiaries. NOTE G - COMMITMENTS AND CONTINGENT LIABILITIES As of September 30, 1997, the Company was committed to purchase cellular network and other equipment and construction services of approximately $4,300,000. In addition, as of September 30, 1997, the Company had commitments to purchase cellular telephones, pagers and accessories of approximately $930,000. 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 1997 were $216,000, which were determined by the size of the Company's markets. In August 1997, two-wholly subsidiaries of the Company entered into an agreement to purchase 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 promissory notes in the aggregate amount of $8,900,000. The promissory notes will bear interest at 7.95% per annum payable semiannually and the principal will be payable on the fifth anniversary of the closing. The closing is subject to regulatory approval. 8 Cellular Communications of Puerto Rico, Inc. and Subsidiaries ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. RESULTS OF OPERATIONS On January 31, 1997, the Company effected a corporate restructuring whereby shareholders of the Company become shareholders of CoreComm Incorporated ("CoreComm") on a one-for-one basis upon the completion of a merger of the Company with and into a subsidiary of CoreComm. As a result of this restructuring, CoreComm replaced the Company as the publicly traded entity and the Company became a wholly-owned subsidiary of CoreComm. Three Months Ended September 30, 1997 and 1996 - ---------------------------------------------- Service revenue increased to $31,541,000 from $31,056,000. As a result of the lower average revenue of new subscribers, a migration of subscribers to less expensive rate plans, and a decrease in minutes of use of existing subscribers, average monthly revenue per cellular subscriber for the third quarter decreased to $59 in 1997 from $72 in 1996. Ending subscribers were 181,900 and 149,800 as of September 30, 1997 and 1996, respectively. Ending pagers in use were 45,500 and 25,500 as of September 30, 1997 and 1996, respectively. The loss from equipment, before depreciation of rental equipment, decreased to $586,000 from $692,000 primarily because of new revenue sources in 1997. The Company sells cellular telephones and pagers below cost in response to competition and to generate subscriber growth. Operating expenses increased to $4,555,000 from $3,921,000 primarily due to additional costs associated with the expanded network (including paging operations), offset by a reduction in interconnection charges. Selling, general and administrative expenses increased to $17,712,000 from $16,273,000 as a result of increased selling and marketing to increase the customer base and additional personnel to service the expanding customer base. Increases in property taxes and subscriber billing expense also contributed to this increase. The increases in selling and marketing costs, personnel costs, property taxes and subscriber billing expense were 22%, 34%, 21% and 20%, respectively, of the total $1,439,000 increase. Depreciation of rental equipment increased to $233,000 from $134,000 due to an increase in the number of rental pagers. Depreciation expense increased to $4,831,000 from $3,253,000 primarily because of an increase in property, plant and equipment. Amortization expense increased to $1,610,000 from $1,550,000 primarily due to increases in license acquisition costs. 9 Cellular Communications of Puerto Rico, Inc. and Subsidiaries Interest income and other, net, decreased to $(17,000) from $136,000 primarily due to a decrease in interest income on short term investments. Interest expense increased to $5,200,000 from $2,151,000 as a result of the increase in long-term debt at a higher effective interest rate. The provision for income taxes, net of income tax benefit of $387,000 from the loss from the early extinguishment of debt , decreased to a benefit of $273,000 from a provision of $945,000 as a result of a decrease in Puerto Rico taxable income of certain of the Company's consolidated subsidiaries and due to a benefit from the tax sharing agreement with CoreComm. Nine Months Ended September 30, 1997 and 1996 - ---------------------------------------------- Service revenue increased to $99,587,000 from $88,121,000 as a result of subscriber growth. As a result of the lower average revenue of new subscribers, a migration of subscribers to less expensive rate plans, and a decrease in minutes of use of existing subscribers, average monthly revenue per cellular subscriber for the nine months ended September 30 decreased to $65 in 1997 from $74 in 1996. Ending subscribers were 181,900 and 149,800 as of September 30, 1997 and 1996, respectively. Ending pagers in use were 45,500 and 25,500 as of September 30, 1997 and 1996, respectively. The loss from equipment, before depreciation of rental equipment, decreased to $1,996,000 from $3,405,000 primarily because of reductions in the cost of cellular telephones. The Company sells cellular telephones and pagers below cost in response to competition and to generate subscriber growth. Operating expenses increased to $12,783,000 from $11,945,000 primarily due to additional costs associated with the expanded network (including paging operations), offset by a reduction in interconnection charges. Operating expenses as a percentage of service revenue decreased to 12.8% in 1997 from 13.6% in 1996. Selling, general and administrative expenses increased to $53,693,000 from $46,474,000 as a result of increased selling and marketing to increase the customer base and additional personnel to service the expanding customer base. Increases in property taxes and subscriber billing expense also contributed to this increase. The increases in selling and marketing costs, personnel costs, property taxes and subscriber billing expense were 49%, 18%, 12% and 11%, respectively, of the total $7,219,000 increase. Depreciation of rental equipment increased to $608,000 from $374,000 due to an increase in the number of rental pagers. Depreciation expense increased to $12,823,000 from $9,204,000 primarily because of an increase in property, plant and equipment. 10 Cellular Communications of Puerto Rico, Inc. and Subsidiaries Amortization expense increased to $4,821,000 from $4,632,000 primarily due to increases in license acquisition costs. Interest income and other, net, decreased to $(31,000) from $305,000 primarily due to a decrease in interest income on short term investments. Interest expense increased to $14,261,000 from $5,646,000 as a result of the increase in long-term debt at a higher effective interest rate. The provision for income taxes, net of income tax benefit of $1,128,000 from the loss from early extinguishment of debt, decreased to $138,000 from $3,432,000 primarily as a result of a decrease in Puerto Rico taxable income of certain of the Company's consolidated subsidiaries and due to a benefit from the tax sharing agreement with CoreComm. In connection with the repayment of the bank loan, the Company recorded an extraordinary loss of $4,067,000 ($2,939,000 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 $6,200,000 in the in the fourth quarter of 1997 and $26,500,000 in 1998 for contemplated additions to the cellular system, the paging network and for other non-cell site related capital expenditures. The Company's commitments at September 30, 1997 of $4,300,000 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 from operations and cash from CoreComm (subject to the limitation contained in the Indenture to the Notes). In August 1997, two wholly-owned subsidiaries of the Company entered into an agreement to purchase 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 promissory notes in the aggregate amount of $8,900,000. The promissory notes will bear interest at 7.95% per annum payable semiannually and the principal will be payable on the fifth anniversary of the closing. The closing is subject to regulatory approval. In April 1995, the Company and Services entered into a $200,000,000 revolving credit facility with various banks. The line of credit was available until March 31, 1999, on which date it would have converted into a term loan with principal payments based on an amortization schedule until September 30, 2003. 11 Cellular Communications of Puerto Rico, Inc. and Subsidiaries In January 1997, Services issued $200,000,000 principal amount 10% Senior Subordinated Notes due 2007 (the "Notes") and received proceeds of $193,694,000 after discounts, commissions and other related costs. The Notes are unconditionally guaranteed by the Company. The Company and Services used approximately $116,000,000 of the proceeds 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. The Notes are due on February 1, 2007. Interest on the Notes is payable semiannually commencing on 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 covenants with respect to the Company, Services 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, (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 $13,544,000 and $18,456,000 for the nine months ended September 30, 1997 and 1996, respectively. The decrease is primarily due to the increase in cash paid for interest to $12,606,000 from $4,186,000. Purchases of property, plant and equipment of $33,621,000 in 1997 were primarily for additional cell sites and increased capacity in the Company's cellular and paging systems. The allowance for doubtful accounts was $2,758,000 as of September 30, 1997 and $3,767,000 as of December 31, 1996. Write-offs net of recoveries as a percentage of service revenue was 6.5% for the nine months ended September 30, 1997 compared to 5.8% for the year ended December 31, 1996. This percentage increased because the Company and its subsidiaries have attracted and continue to attract new segments of the market. The Company and its subsidiaries continue to attempt to reduce this percentage by improving credit procedures and instituting innovative forms of payment such as prepaid billing. 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. 12 Cellular Communications of Puerto Rico, Inc. and Subsidiaries PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27. Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the quarter ended September 30, 1997. 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: November 11, 1997 By: /s/ J. Barclay Knapp ------------------------- J. Barclay Knapp President Date: November 11, 1997 By: /s/ Gregg Gorelick -------------------------- Gregg Gorelick Vice President-Controller (Principal Accounting Officer) 14 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1997 SEP-30-1997 JAN-01-1997 0 0 23,235,000 (2,758,000) 5,103,000 7,348,000 178,553,000 (50,091,000) 329,280,000 43,181,000 200,000,000 0 0 0 76,573,000 329,280,000 12,335,000 111,922,000 14,331,000 27,114,000 53,693,000 0 14,261,000 (1,429,000) (1,266,000) (2,695,000) 0 (2,939,000) 0 (5,634,000) 0 0
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