<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-28362
ClearComm, L.P.
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(Exact name of registrant as specified in its charter)
Delaware 66-0514434
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
221 Ponce de Leon Avenue Suite 1407 00917-1814
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San Juan, Puerto Rico (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (787) 756-0840
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 and
(2) has been subject to such filing requirements for the past 90
days.
Yes X No
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ClearComm, L.P.
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Assets, Liabilities and Partners' Capital as
of September 30, 2000 (unaudited) and December 31, 1999 ....................... 3
Consolidated Statements of Revenues and Expenses for the three-month
and nine-month period ended September 30, 2000 and 1999 (unaudited) ........... 4
Consolidated Statements of Cash Flows for the nine month period Ended
September 30, 2000 and 1999 (unaudited)........................................ 5
Consolidated Statements of Changes in Partners' Capital Accounts for
the nine-month period ended September 30, 2000 (unaudited) .................... 6
Notes to Interim Consolidated Financial Statements............................ 7
Item 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations ..................................................... 9
Item 3
Quantitative Disclosure About Market Risk...................................... 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings.............................................................. 13
Item 6. Exhibits and Reports on Form 8-K............................................... 13
Signatures.............................................................................. 14
Exhibit Index........................................................................... 15
</TABLE>
<PAGE>
PART I Financial Information
Item 1. Financial Statements
ClearComm, L.P.
CONSOLIDATED STATEMENTS OF ASSETS, LIABILITIES
AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,216,437 $ 6,546,305
Accounts receivable, net of allowance
for doubtful accounts of $10,109,000 and $625,000 20,134,037 3,244,067
Subscription receivable from limited partners - 981,000
Inventories 15,237,335 9,201,823
Prepaid expenses 642,177 425,684
------------- -------------
Total current assets 45,229,986 20,398,879
Licenses, including capitalized interest of
$12,174,000, net 65,497,156 67,543,320
Property and equipment, net 88,859,727 89,200,611
------------- -------------
Total assets $ 199,586,869 $ 177,142,810
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued liabilities $ 88,465,120 $ 102,735,841
Lines of credit 33,500,000 -
Note payable to Lucent Technologies 24,232,822 -
Accounts payable to related parties 8,371,309 2,815,302
Accrued interest 1,212,746 2,381,545
Deferred Income 1,842,922 443,000
------------- -------------
Total current liabilities 157,624,919 108,375,688
------------- -------------
Long term liabilities:
Notes payable to FCC and TLD 61,791,969 57,984,462
------------- -------------
Partners' Capital (Deficit):
Limited partners' contributed capital 2,903.1 units,
issued and outstanding 73,039,616 73,039,616
General partner's contributed capital 100,000 100,000
Undistributed losses-
Accumulated during development stage (48,704,525) (48,704,525)
Operations (44,265,110) (13,652,431)
------------- -------------
Total partners' capital (deficit) (18,980,482) 10,782,660
------------- -------------
Total liabilities and partners' capital (deficit) $ 199,586,869 $ 177,142,810
============= =============
</TABLE>
The accompanying notes are integral part of these consolidated statements.
3
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ClearComm, L.P.
CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
2000 1999 2000 1999
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Service revenues $ 19,310,007 $ 387,171 $ 48,002,768 $ 387,171
Handset and accessories
sales 5,069,821 11,322,453
Interest income 99,970 287,836 358,269 652,072
Less: Provision for doubtful accounts (6,009,374) - (9,484,344) -
-------------- ------------ ------------- -------------
Net revenues 18,470,424 675,007 50,199,146 1,039,243
-------------- ------------ ------------- -------------
Operating cost and expenses:
Cost of handset and
accessories 5,627,373 597,937 11,908,495 597,937
Interconnection expense 784,320 3,156,597
Sales and dealers
commissions 2,366,790 5,244,518
Salaries and benefits 3,140,493 1,201,441 8,196,183 1,590,776
Advertising expense 1,852,354 5,772,985
Legal and professional
services 3,526,331 265,272 6,695,725 721,647
Depreciation and
amortization 4,450,945 15,224,653
Interest expense 2,913,638 6,739,921
Rent expense 652,141 1,733,256
Other operating expenses 6,605,473 4,378,098 12,381,745 5,844,119
Management fee to general
partner - 3,485 641,754 91,500
Consulting and legal services
rendered by related
parties, including management fee to TLD 1,651,252 205,825 3,115,993 735,991
-------------- ------------ ------------- -------------
Total expenses 33,571,110 6,652,058 80,811,825 9,581,770
-------------- ------------ ------------- -------------
Net loss $ (15,100,686) $ (5,977,051) $ (30,612,679) $ (8,542,527)
============== ============ ============= =============
Net loss attributable to general
partner $ (3,775,172) $ (1,494,263) $ (7,653,170) $ (2,135,632)
============== ============ ============= =============
Net loss attributable to limited
partners $ (11,325,515) $ (4,482,788) $ (22,959,509) $ 6,406,895)
============== ============ ============= =============
</TABLE>
The accompanying notes are integral part of these consolidated financial
statements.
4
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ClearComm, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Month Period Ended
September 30, September 30,
------------ ------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net loss $(30,612,679) $ (8,542,527)
------------ ------------
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 15,224,653 18,495
Provision for doubtful accounts 9,484,344 -
Changes in operating assets and liabilities:
Increase in accounts receivable and subscription
receivable from limited partners (15,908,970) 1,309,108
Increase in prepaid expenses (216,493) (346,963)
Increase in inventories (6,035,512) (9,649,691)
Increase in accounts payable and accrued liabilities,
accounts payable to related parties and accrued interest 3,654,178 10,553,015
Increase in deferred income 1,399,922 -
------------ ------------
Total adjustments 7,602,122 1,883,964
------------ ------------
Net cash used in operating activities (23,010,557) (6,658,563)
------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment (7,819,311) (2,593,049)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of note payable to TLD - 19,960,000
Proceeds from the lines of credit 33,500,000 -
------------ ------------
Net cash provided by financing activities 33,500,000 19,960,000
------------ ------------
Net increase in cash and cash equivalents 2,670,132 10,708,388
Cash and cash equivalents at:
Beginning of period 6,546,305 4,246,412
------------ ------------
End of period $ 9,216,437 $ 14,954,800
============ ============
Supplemental cash flow disclosure:
Capitalization of interest not paid $ - $ 297,300
============ ============
</TABLE>
The accompanying notes are integral part of these consolidated financial
statements.
5
<PAGE>
ClearComm, L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL ACCOUNTS
(Unaudited)
-----------
FOR THE NINE MONTH PERIOD ENDED September 30, 2000
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Limited Partners General
Units Amount Partner Total
------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Capital account balance (deficit) at
December 31, 1999 2,903.1 $ 26,271,899 $(15,489,239) $ 10,782,660
Nine-month period ended September 30, 2000
Share of undistributed losses (22,959,509) (7,653,170) (30,612,679)
------- ------------ ------------ ------------
Capital account balance (deficit) at
September 30, 2000 2,903.1 $ 3,312,390 $(23,142,409) $(19,830,019)
======= ============ ============ ============
</TABLE>
The accompanying notes are integral part of these consolidated financial
statements.
6
<PAGE>
CLEARCOMM, L.P.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND INTRODUCTION
The unaudited interim consolidated financial statements presented
herein have been prepared in accordance with generally accepted accounting
principles for interim financial statements and with the instructions to Form
10-Q and Regulation S-X pertaining to interim financial statements. Accordingly,
they do not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. The unaudited interim
consolidated financial statements reflect all adjustments, consisting of normal
recurring adjustments and accruals which, in the opinion of management, are
considered necessary for a fair presentation of the Partnership's financial
position at September 30, 2000 and 1999 and results of operations and cash flows
for nine month period ended September 30, 2000 and 1999. The unaudited interim
consolidated financial statements should be read in conjunction with the summary
of significant accounting policies and notes to consolidated financial
statements included in the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1999. Results of operations for interim periods are not
necessarily indicative of the results that may be expected for the full year.
The Partnership was formed in January 1995 and is managed by its
General Partner, SuperTel Communications Corp. The Partnership was organized to
acquire, own, consult and operate personal communication services PCS licenses
in the Block C band and to take advantage of the benefits that the FCC has set
aside for Entrepreneurs. The Partnership owns the Puerto Rico Licenses, which
consist of two 15 MHz PCS licenses covering Puerto Rico, and the California
Licenses, which consist of five 15 MHz PCS licenses covering the California
cities of Eureka, Redding, Modesto, Merced and Visalia.
The Partnership commenced commercial operations of its PCS network in
Puerto Rico on September 26, 1999, when it began offering wireless services to
the public. Prior to that date, its income had consisted of interest earnings
only. Since the Partnership has only recently commenced commercial operations,
the comparisons presented below may not be indicative of future operations.
The Partnership established its Puerto Rico network by forming a wholly
owned subsidiary, NewComm Wireless Services, Inc. (NewComm) on January 29, 1999.
On February 4, 1999, the Partnership and NewComm entered into an agreement with
Telefonica Larga Distancia de Puerto Rico, Inc. (TLD), whereby the Partnership
contributed its two Puerto Rico Licenses to NewComm and TLD provided NewComm a
$19,960,000 loan to develop the Puerto Rico Licenses. TLD's loan is pursuant to
a secured convertible promissory note (the "Note") which is convertible into
49.9% of NewComm's common stock. The Note bears interest at the floating rate of
the 90 days London Interbank Offer Rate (LIBOR) plus 1 - 1/2%. The Note however,
cannot be converted until the FCC authorizes TLD to hold more than a 25% equity
interest in NewComm. TLD also received an option (the "Option") to buy an
additional 0.02%, which would bring its ownership to 50.1%, subject to a
third-party valuation and FCC approval. The Option cannot be exercised prior to
January 22, 2002, unless the ownership restrictions on the Puerto Rico licenses
are eliminated by the FCC. NewComm, however, has the option to buy out TLD in
the last year before the restrictions on the Puerto Rico licenses lapse.
The Partnership has encountered difficulties in developing its
California licenses, which cover approximately 1.7 million POPS. These
difficulties are due in part to the bankruptcy proceedings of the San Francisco
Metropolitan Trading Area PCS C Block licenses. The California licenses, not
including Visalia, are part of the San Francisco cluster. Since PCS C Block
licenses in this area have been subject to bankruptcy proceedings since the
summer of 1998 without any progress being made towards their development, it has
been difficult for the Partnership to develop its California licenses. The
Partnership continues evaluating different business arrangements for the
development of these licenses.
7
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On August 28, 2000, the Partnership entered into a Purchase and Sale
Agreement with Leap Wireless International ("Leap Wireless"), pursuant to which
the Partnership will sell the Visalia license to Leap Wireless in exchange for
shares of Leap Wireless stock valued at $9,500,000. The closing of this sale
cannot occur until the FCC approves the transfer of this license. Under the
terms of Purchase and Sale Agreement, the Partnership will receive 147,502
shares of Leap Wireless stock, with the Leap Wireless stock valued at a price of
$64.45 per share. The Partnership also has the option to request a $9,500,000
cash payment in lieu of receipt of Leap Wireless stock, if at the closing the
average price of Leap Wireless shares over the five-day period immediately prior
to closing is less than $61.23 per share.
2. OTHER COMPREHENSIVE INCOME (LOSS)
For the three-month period and nine-month period ended September 30, 2000 and
1999, net loss equals other comprehensive loss.
3. NET LOSS PER LIMITED PARTNERSHIP UNIT
Net loss per limited partnership unit is computed by dividing net loss
for the period by the weighted-average number of limited partnership units
outstanding during the period.
4. LINES OF CREDIT
During February 2000, NewComm obtained additional financing from TLD in
the form of a line of credit of $30 million. As of September 30, 2000,
$28,500,000 were outstanding under this credit facility. The line of credit will
be due upon commencement of a $60 million bridge loan, which is scheduled to
commence in November 2000.
During August 2000, NewComm obtained additional financing from a third party
financial institution in the form of a line of credit of $5 million. The line
matures and is renewed every 30 days and bears interest at 9.13%. As of
September 30, 2000, $5.0 million were outstanding under this line of credit.
5. NEW ACCOUNTING PRONOUNCEMENTS
In December, 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial
Statements" ("SAB No. 101"). SAB No. 101 sets forth certain of the SEC staff's
views on applying generally accepted accounting principles to revenue
recognition in financial statements. The Partnership will adopt SAB No. 101
during the last quarter of calendar 2000. Management does not expect that the
adoption of SAB No. 101 will have a material effect on the Partnership's results
of operations or financial position.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities"("SFAS 133"). SFAS 133 establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. In June 2000, the
FASB issued Statement of Financial Accounting Standards No. 138 ("SFAS 138")
which amends SFAS 133 for certain derivative instruments and certain hedging
activities. SFAS 133, as amended, is effective for fiscal years beginning after
June 15, 2000. The Partnership will adopt SFAS 133 beginning January 1, 2001.
Management does not expect that the adoption of SAB No. 101 will have a material
effect on the Partnership's results of operations or financial position.
6. SEGMENT INFORMATION
The Partnership adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" during 1999. The Partnership manages its
8
<PAGE>
segments based on geographic location. As the Partnership currently offers its
services to customers mainly located in Puerto Rico, there is only one segment
for purposes of SFAS No. 131. Please note that the California Licenses are not
operational.
7. FINANCING REQUIREMENTS
The Partnership commenced operations in September 1999 and is likely to
incur operating losses until such time as its subscriber base generates revenue
in excess of the Partnership's expenses. Development of a significant subscriber
base is likely to take time, during which the Partnership must finance its
operations by means other than its revenues.
As part of the agreement with TLD, NewComm entered into contracts with
Lucent Technologies, Inc. ("Lucent") which requires them and other parties to
build a network that uses Code Division Multiple Access ("CDMA") protocol. It is
expected that the total cost will approximate $125 million. During the quarter
ended September 30, 2000, NewComm's management and Lucent agreed on formally
extending the payment of up to $61.0 million of the total amount due under the
contract under a formal financing agreement. The financing agreement extends
payments for a ten-month period at an annual rate of 9.0%. As of September 30,
2000, $24,232,822 are outstanding under this financing agreement.
On November 3, 2000, NewComm received an additional capital
contribution of $10,000,000. This capital contribution was in the form of
$5,000,000 of equity from Syncom Venture Funds and $5,000,0000 of convertible
debt from TLD. This capital contribution is a requirement to the $60 million
bridge loan facility offered by ABN-AMRO and BBVA (the Bridge Loan facility),
which is scheduled to be executed in the month of November 2000. The Bridge Loan
facility will provide for an interim financing of approximately $60 million and
a permanent financing of approximately $150 million. (Refer to Item 2. MD & A
section for additional explanation on management plans).
Management believes that the Partnership will comply with all the
requirements for obtaining the permanent financing and believes that cash and
cash equivalents on hand, anticipated growth in revenues, vendor financing and
the permanent financing will be adequate to fund its operations through the end
of 2000.
Each of the Partnership's C-Block licenses is subject to an FCC
requirement that the Partnership construct network facilities that offer
coverage to at least one-third of the population in the market covered by such
license within five years following the grant of the applicable license and to
at least two-third of the population within ten years following the grant.
Although the Partnership's buildup plan calls for to exceed these minimum
requirements, failure to comply with these requirements could result in the
revocation of the related licenses or the imposition of fines on the Partnership
by the FCC. Therefore, delays in constructing its PCS network for licenses
granted for markets outside Puerto Rico could have a material adverse effect on
the Partnership's financial conditions and results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-looking Statements
This Form 10-Q and future filings by the Partnership on Form 10-Q and
Form 8-K and future oral and written statements by the Partnership may include
certain forward-looking statements, including (without limitation) statements
with respect to anticipated future operating and financial performance, growth
opportunities and growth rates, acquisition and divestitive opportunities, and
other similar forecasts and statements of expectation. Words such as "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates," and
"should," and variations of these words and similar expressions, are intended to
identify these forward-looking statements. Forward-looking statements by the
Partnership are based on estimates, projections, beliefs and assumptions of
management and are not guarantees of future performance. The Partnership
disclaims any obligation to update or revise any
9
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forward-looking statement based on the occurrence of future events, the receipt
of new information, or otherwise.
Actual future performance, outcomes and results may differ materially
from those expressed in forward-looking statements made by the Partnership as a
result of a number of important factors. Examples of these factors include,
without limitation, failure to develop the Partnership's PCS licenses in
California due to an inability to obtain satisfactory financing or partners;
rapid technological developments and changes in the telecommunications industry;
ongoing deregulation (and the resulting likelihood of significantly increased
price and product/service competition) in the telecommunications industry as a
result of the Telecommunications Act of 1996 and other similar federal and state
legislation and the federal and state rules and regulations enacted pursuant to
that legislation; regulatory limitations on the Partnership's ability to compete
in the telecommunications services industry; and continuing consolidation in the
telecommunications services industry. In addition to these factors, actual
future performance, outcomes and results may differ materially because of other,
more general, factors including, without limitation, general industry and market
conditions and growth rates, domestic and international economic conditions,
governmental and public policy changes and the continued availability of
financing in the amounts, at the terms and on the conditions necessary to
support the Partnership's future business.
Introduction
The information contained in this Part I, Item 2 updates, and should be
read in conjunction with, information set forth in Part II, Items 7 and 8, in
the Company's Annual Report on Form 10-K for the year ended December 31, 1999,
in addition to the interim consolidated financial statements and accompanying
notes presented in Part 1, Item 1 of this Form 10-Q.
The Partnership was formed in January 1995 and is managed by its
General Partner, SuperTel Communications Corp. The Partnership was organized to
acquire, own, consult and operate personal communication services PCS licenses
in the Block C band and to take advantage of the benefits that the FCC has set
aside for Entrepreneurs. The Partnership owns the Puerto Rico Licenses, which
consist of two 15 MHz PCS licenses covering Puerto Rico, and the California
Licenses, which consist of five 15 MHz PCS licenses covering the California
cities of Eureka, Redding, Modesto, Merced and Visalia.
The Partnership commenced commercial operations of its PCS network in
Puerto Rico on September 26, 1999, when it began offering wireless services to
the public. Prior to that date, its income had consisted of interest earnings
only. Since the Partnership has only recently commenced commercial operations,
the comparisons presented below may not be indicative of future operations.
The Partnership established its Puerto Rico network by forming a wholly
owned subsidiary, NewComm Wireless Services, Inc. ("NewComm") on January 29,
1999. On February 4, 1999, the Partnership and NewComm entered into an agreement
with TLD, whereby the Partnership contributed its two Puerto Rico Licenses to
NewComm and TLD provided NewComm with a $19,960,000 loan to develop the Puerto
Rico Licenses. TLD's loan is pursuant to a secured convertible promissory note
(the "Note") which is convertible into 49.9% of NewComm's equity. The Note,
however, cannot be converted until the FCC authorizes TLD to hold more than a
25% equity interest in NewComm. TLD also received an option (the "Option") to
buy an additional 0.02%, which would bring its ownership to 50.1%, subject to a
third party valuation and FCC approval. The Option cannot be exercised prior to
January 22, 2002, unless the ownership restrictions on the Puerto Rico licenses
are eliminated by the FCC. NewComm, however, has the option to buyout TLD in the
last year before the restrictions on the Puerto Rico licenses lapse.
On August 28, 2000, the Partnership entered into a Purchase and Sale
Agreement with Leap Wireless International ("Leap Wireless"), pursuant to which
the Partnership will sell the Visalia license to Leap Wireless in exchange for
shares of Leap Wireless stock valued at $9,500,000. The closing of this sale
cannot occur until the FCC approves the transfer of this license. Under the
terms of Purchase and Sale Agreement, the Partnership will receive 147,502
shares of Leap Wireless
10
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stock, with the Leap Wireless stock valued at a price of $64.45 per share. The
Partnership also has the option to request a $9,500,000 cash payment in lieu of
receipt of Leap Wireless stock, if at the closing the average price of Leap
Wireless shares over the five-day period immediately prior to closing is less
than $61.23 per share.
With respect to its California Licenses, not including Visalia, which
cover approximately 1.3 million POPS in California, the Partnership anticipates
establishing a PCS Network in California. Although no assurances can be made,
the Partnership anticipates that it will negotiate acceptable agreements
regarding these licenses so that it will be able to offer wireless services in
the regions covered by these licenses.
Results of Operations
Overview. The Partnership's results for the three months ended
September 30, 2000 reflect a growth trend in the subscriber base. The
Partnership reported a net loss of $15,100,686 during the three months ended
September 30, 2000, as compared to a net loss of $7,398,716 during the three
months ended June 30, 2000. The increase in net loss is mostly related to an
increase in the allowance for doubtful accounts of $2.5 million, the increase in
legal and professional services of $2.4 million and the increase in other
operating expenses of $2.5 million. The Partnership's subscriber base surpassed
100,000 customers as of September 30, 2000, with a weighted average revenue per
customer between of $83.50.
Three Month Period Ended September 30, 2000 Compared With Three Month
Period Ended September 30, 1999
Revenues
The Partnership's net revenues for the quarter ended September 30,
2000, which amounted to $18,470,424, net of provision for doubtful accounts of
$6,009,374, included $19,310,007 in airtime and $5,069,821 in handset and
accessories sales generated from NewComm's wireless operations, which started in
September 1999. In the third quarter of 2000,the Partnership had interest
earnings of $99,970 compared to $287,836 in the same period for the year 1999.
The decrease in interest income during the third quarter of year 2000 is
attributable to the use of previously invested cash to fund NewComm wireless
operations.
Expenses
Expenses for the quarter ended September 30, 2000 totaled $33,571,110
compared to $6,652,058 for the same period in 1999. The increase in expenses
during the quarter ended September 30, 2000, is attributable to the costs
associated with NewComm's operations, which started in September 1999. The
Partnership's expenses in the third quarter of 2000 included $5,627,373 in costs
of handset and accessories, $3,140,493 for salaries and benefits, $3,526,331 for
legal and professional services, $4,450,945 in depreciation and amortization,
$2,913,638 for interest expense due on notes payable and lines of credit,
$12,261,078 in advertising, sales and dealers commissions, interconnection,
management fee to general partner, rent and other expenses, and $1,651,252
for consulting and legal services charged by related parties such as TLD.
Expenses for the quarter ended September 30, 1999 were mainly comprised
of salaries and benefits of $1,201,441, and other operating expenses of
$4,378,098.
Nine Month Period Ended September 30, 2000 Compared with Nine Month
Period Ended September 30, 1999
Revenues
The Partnership's net revenues for the nine months ended September 30,
2000, which amounted to $50,199,146, net of provision for doubtful accounts of
$9,484,344, included $48,002,768 in airtime and $11,322,453 in handset and
accessories sales generated from NewComm's wireless operations. The
Partnership's source of revenues
11
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for the nine months ended September 30, 1999 were interest income and airtime
and handset revenues for only 4 days because the Partnership commenced
operations on September 26, 2000. Interest income for this period was $358,269
compared to $652,072 for the same period of 1999. The decrease in interest
income during year 2000 is attributable to the use of previously invested cash
to fund NewComm wireless operations.
Expenses
Expenses for the nine months ended September 30, 2000 totaled
$80,811,825 compared to $9,581,770 for the same period in 1999. The increase in
expenses during 2000 is attributable to the costs associated with NewComm's
operations, which started in September 1999. The Partnership's expenses in the
first nine months of 2000 included $11,908,495 in costs of handset and
accessories, $8,196,183 for salaries and benefits, $6,695,725 for legal and
professional expenses, $6,739,921 for interest expense due on notes payable and
lines of credit, $15,224,653 in depreciation and amortization, $28,930,864 in
advertising, sales and dealers commissions, interconnection, management fee to
general partner, rent and other expenses, and $3,115,993 for consulting and
legal services charged by related parties such as TLD.
Expenses for the nine months ended September 30, 1999 were mainly
comprised of salaries and benefits of $1,590,776, legal and professional fees of
$721,647 and other expenses of $5,844,119.
Liquidity and Capital Resources
As of September 30, 2000, the Partnership had cash and cash equivalents
amounting to $9,216,437, which are mostly related to the loan and lines of
credit proceeds NewComm received from TLD and a financial institution, net of
cash used in operating activities of $23,010,557 and investing activities of
$7,819,311 for the nine months period ended September 30, 2000.
During the nine months ended September 30, 2000, $23,010,557 million of
cash was used by operations. While the Company had a net loss of $30,612,679 for
the nine months ended September 30, 2000, $15,224,653 million of the loss
represented non-cash depreciation and amortization expenses.
Accounts receivable increase of $15,908,970 is directly related to the
rapid increase in NewComm's customer base. Inventories as of September 30, 2000
resulted in an overall increase of $6,035,512. The overall increase is mainly
related to the build out of the PCS network, which requires NewComm to keep an
adequate quantity of inventory to supply the demand of its increasing customer
base.
In connection with the build out of the Partnership's Puerto Rico
Network, NewComm has incurred a liability with Lucent Technologies, Inc. (the
entity that is building out the network) for the PCS network under construction.
As of September 30, 2000, the Partnership owed $80,941,670 under this contract.
The total expected amount to be disbursed under the build out contract is
approximately $125 million. During the quarter ended September 30, 2000,
NewComm's management and Lucent agreed on formally extending the payment of up
to $61.0 million of the total amount due under the contract under a formal
financing agreement. The financing agreement extends payments for a ten-month
period at an annual rate of 9.0%. As of September 30, 2000, $24,232,822 are
outstanding under this financing agreement.
In addition, the Partnership owes the FCC an undiscounted amount of
$51,339,555. As of September 30, 2000, the notes payable to the FCC amount to
$39,608,099, net of the applicable discount.
The Partnership has a secured promissory note payable to TLD which
bears interest at the floating rate of 90 days LIBOR plus 1.5% and is due in
March 2004. In addition, in February 2000 the joint venture agreement with TLD
was amended to provide NewComm a revolving line of credit of approximately $30
million for working capital from TLD. During August 2000, NewComm obtained
additional financing from a third party financial institution in the form of a
line of credit of $5 million. The line matures and is renewed every 30 days and
bears interest at 9.13%. As of September 30, 2000, $5.0 million were outstanding
under this line of credit.
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The Partnership expects that the total cost to implement NewComm's
business plan to be approximately $200 million. This consists of approximately
$125 million in costs associated with building out the Puerto Rico Network, and
approximately $75 million to fund NewComm's operations until it becomes
profitable. NewComm has obtained short term financing up to $30 million at a
rate of 1.5% over 90 day LIBOR and $5 million at 9.13%. In addition, the
Partnership will be obtaining long term financing of approximately $150 million
provided that the Partnership and TLD contribute additional capital or
convertible debt to NewComm. The Partnership believes that the additional
capital contribution or convertible debt, along with the proposed long term
financing, will fully fund NewComm's operations.
The Partnership anticipates that earnings and cash distributions
derived from its Puerto Rico Network once it is fully operational, and, if
necessary, additional capital calls from its Investors or accessing the public
capital markets, should provide it with the liquidity to meet its obligations.
The Partnership also expects that once it is able to develop its California
Licenses, it will have additional sources of revenues and profits.
ITEM 3. QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
The Partnership's exposure to market risk through derivative financial
instruments and other financial instruments is not material because the
Partnership does not use derivative financial instruments and does not have
foreign currency exchange risks. The Partnership invests cash balances in excess
of operating requirements in a short-term money market account. As of September
30, 2000, the Partnership had cash equivalents and short-term investments of
approximately $9,216,437 consisting of cash and highly liquid, short-term
investments in a money market account.
The Partnership's cash and cash equivalents will increase or decrease
by an immaterial amount if market interest rates increase or decrease, and
therefore, its exposure to interest rate changes has been immaterial. The
Partnership's loans payable to the FCC have a fixed interest rate of 6.5% and
therefore are not exposed to interest rate risks. The TLD Note relating to
indebtedness of NewComm bears interest at the floating rate of the 90 days LIBOR
plus 1.5% (6.95% at September 30, 2000) and is due in March 2004. The Line of
Credit payable to TLD also bears interest at the rate of 1.5% over the 90 days
LIBOR rate, due upon commencement of a $60 million bridge loan scheduled to be
executed in November 2000. The amount owed to Lucent in connection with its
build out of the Puerto Rico Network consists of a deferred price and therefore
is not subject to interest rate risk.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Partnership is subject to certain legal proceedings and an FCC
proceeding, which were described in the Partnership's Form 10-K for the year
ended December 31, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
27.0 Financial Data Schedule
(b) The Partnership did not file a Form 8-K in the quarter ended September
30, 2000.
ITEMS 2, 3, 4 and 5 are not applicable have been omitted.
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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.
ClearComm, L.P.
By: SuperTel Communications Corp.
Date: November 14, 2000 By: /s/ Javier O. Lamoso
----------------------
Name: Javier O. Lamoso
Title: President
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