<PAGE>
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. 19869-99
-------------------------------------------------------------
CORECOMM INCORPORATED
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3927257
- -------------------------------------------- --------------------------------
(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) 906-8485
- --------------------------------------------------------------------------------
(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 13,073,856.
<PAGE>
CoreComm Incorporated 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 Shareholders'
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....................... 10
PART II. OTHER INFORMATION
- ----------------------------
Item 6. Exhibits and Reports on Form 8-K........................... 14
SIGNATURES.......................................................... 15
- ----------
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CoreComm Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
-----------------------------------------
ASSETS (Unaudited) (See Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 42,766,000 $ 2,307,000
Marketable securities 25,390,000 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
Equipment inventory 5,103,000 2,912,000
Prepaid expenses and other current assets 7,885,000 3,022,000
-----------------------------------------
Total current assets 101,621,000 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) 1,738,000 1,645,000
-----------------------------------------
$397,039,000 $300,722,000
=========================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,706,000 $ 7,364,000
Accrued expenses 14,607,000 10,889,000
Due to NTL Incorporated 118,000 102,000
Interest payable 3,333,000 1,678,000
Deferred revenue 3,099,000 3,081,000
-----------------------------------------
Total current liabilities 29,863,000 23,114,000
Long-term debt 200,000,000 115,000,000
Obligation under capital lease 9,526,000 -
Commitments and contingent liabilities
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
13,452,000 (1997) and 13,432,000 (1996) shares 135,000 134,000
Additional paid-in capital 226,446,000 226,160,000
(Deficit) (59,920,000) (55,363,000)
-----------------------------------------
166,661,000 170,931,000
Treasury stock--at cost, 378,000 (1997)
and 343,000 (1996) shares (9,011,000) (8,323,000)
-----------------------------------------
157,650,000 162,608,000
-----------------------------------------
$397,039,000 $300,722,000
=========================================
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date.
See accompanying notes.
2
<PAGE>
CoreComm Incorporated and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------------------- ------------------------------------
1997 1996 1997 1996
------------------------------------- ------------------------------------
<S> <C> <C> <C> <C>
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 18,035,000 16,273,000 54,513,000 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
------------------------------------- ------------------------------------
34,522,000 29,681,000 99,879,000 86,017,000
------------------------------------- ------------------------------------
Operating income 1,691,000 5,233,000 12,043,000 12,087,000
OTHER INCOME (EXPENSE):
Interest income and other, net 876,000 136,000 2,861,000 305,000
Interest expense (5,200,000) (2,151,000) (14,261,000) (5,646,000)
------------------------------------- ------------------------------------
Income (loss) before income taxes and
extraordinary item (2,633,000) 3,218,000 643,000 6,746,000
Income tax (provision) benefit 104,000 (945,000) (1,241,000) (3,432,000)
------------------------------------- ------------------------------------
Income (loss) before extraordinary item (2,529,000) 2,273,000 (598,000) 3,314,000
Loss from early extinguishment of debt, net
of income tax benefit of $108,000 (117,000) - (3,959,000) -
------------------------------------- ------------------------------------
Net income (loss) $(2,646,000) $ 2,273,000 $ (4,557,000) $ 3,314,000
===================================== ====================================
Net income (loss) per common share:
Income (loss) before extraordinary item $(.19) $.16 $(.05) $.23
Extraordinary item (.01) - (.30) -
------------------------------------- ------------------------------------
Net income (loss) $(.20) $.16 $(.35) $.23
===================================== ====================================
Weighted average number of common shares used
in computation of net income (loss) per
share 13,074,000 14,153,000 13,073,000 14,116,000
===================================== ====================================
</TABLE>
See accompanying notes.
3
<PAGE>
CoreComm Incorporated and Subsidiaries
Condensed Consolidated Statement of Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
---------------------- PAID-IN -------------------------
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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)
Net (loss) for the nine months
ended September 30, 1997 (4,557,000)
---------------------------------------------------------------------------
Balance, September 30, 1997 13,452,000 $135,000 $226,446,000 $(59,920,000) (378,000) $(9,011,000)
===========================================================================
</TABLE>
See accompanying notes.
4
<PAGE>
CoreComm Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-------------------------------------------
1997 1996
-------------------------------------------
<S> <C> <C>
Net cash provided by operating activities $ 15,537,000 $ 18,456,000
-------------------------------------------
INVESTING ACTIVITIES
Payment of the PCS auction deposit - (37,000,000)
Additional costs of cellular license interest (146,000) (56,000)
Purchase of property, plant and equipment (33,621,000) (20,159,000)
Purchase of marketable securities (74,393,000) (4,230,000)
Proceeds from maturities of marketable securities 54,920,000 2,486,000
-------------------------------------------
Net cash (used in) investing activities (53,240,000) (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
Purchase of treasury stock (688,000) (5,190,000)
Distribution 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 78,162,000 38,770,000
-------------------------------------------
Increase (decrease) in cash and cash equivalents 40,459,000 (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 $ 42,766,000 $ 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 4,353,000 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 -
</TABLE>
See accompanying notes.
5
<PAGE>
CoreComm Incorporated 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
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1996.
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 calculations of net loss per share as their effect would
be antidilutive.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share". SFAS No. 128 establishes new standards for computing and presenting
earnings per share and is effective for financial statements issued for periods
ending after December 15, 1997. The Company will adopt SFAS No. 128 effective
with its 1997 year end. The adoption of SFAS No. 128 would not have changed the
net loss per share for the three and nine months ended September 30, 1997.
In June 1997, the FASB issued 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.
6
<PAGE>
CoreComm Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE B - UNAMORTIZED LICENSE ACQUISITION COSTS
Unamortized license acquisition costs consist of:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
---------------------------------------
(Unaudited)
<S> <C> <C>
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
======================================
</TABLE>
NOTE C - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------------------------------------
(Unaudited)
<S> <C> <C>
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
======================================
</TABLE>
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.
7
<PAGE>
CoreComm Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NOTE D - ACCRUED EXPENSES
Accrued expenses consists of:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------------------------------
(Unaudited)
<S> <C> <C>
Accrued compensation $ 1,162,000 $ 1,005,000
Accrued equipment purchases 1,572,000 502,000
Accrued franchise, property and income taxes 3,738,000 4,246,000
Commissions payable 1,262,000 1,272,000
Subscriber deposits 1,546,000 1,572,000
Other 5,327,000 2,292,000
----------------------------------------
$14,607,000 $10,889,000
========================================
</TABLE>
NOTE E - LONG-TERM DEBT
In January 1997, a wholly-owned indirect subsidiary of the Company, CCPR
Services, Inc. ("Services") issued $200,000,000 principal amount 10% Senior
Subordinated Notes due 2007 (the "Notes") and received proceeds of $193,694,000
after discounts, commissions and other related costs. The Notes are
unconditionally guaranteed by Cellular Communications of Puerto Rico, Inc.
("CCPR"), a wholly-owned subsidiary of the Company. CCPR 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 ($3,959,000 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, CCPR 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 F - TREASURY STOCK
In April 1996, the Board of Directors authorized the repurchase of up to an
additional 750,000 shares of the Company's common stock through open market
purchases 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, 1997, the Company has repurchased 585,000 shares for an aggregate
of $15,156,000, of which 207,000 shares that cost an aggregate of $6,145,000
were retired.
8
<PAGE>
CoreComm Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
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-owned indirect 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.
9
<PAGE>
CoreComm Incorporated and Subsidiaries
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.
RESULTS OF OPERATIONS
Prior to January 31, 1997, CoreComm Incorporated ("CoreComm" or the "Company")
was known as Cellular Communications of Puerto Rico, Inc. ("CCPR"). On January
31, 1997, CCPR effected a corporate restructuring whereby shareholders of CCPR
become shareholders of CoreComm on a one-for-one basis upon the completion of a
merger of CCPR with and into a subsidiary of CoreComm. As a result of this
restructuring, CoreComm replaced CCPR as the publicly traded entity and CCPR
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 $18,035,000 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 18%, 28%, 17% and 16%,
respectively, of the total $1,762,000 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.
10
<PAGE>
CoreComm Incorporated and Subsidiaries
Amortization expense increased to $1,610,000 from $1,550,000 primarily due to
increases in license acquisition costs.
Interest income and other, net, increased to $876,000 from $136,000 primarily
due to an increase 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 Company recorded, in the third quarter, an income tax benefit of $104,000 in
1997 and an income tax provision of $945,000 in 1996. The change is primarily
due to a decrease in Puerto Rico taxable income of certain of the Company's
consolidated subsidiaries.
The loss from early extinguishment of debt of $117,000 in the third quarter of
1997 is due to an adjustment to the estimated Puerto Rico income tax benefit
from the loss.
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 $54,513,000 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 44%, 16%, 10% and 10%,
respectively, of the total $8,039,000 increase.
11
<PAGE>
CoreComm Incorporated and Subsidiaries
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.
Amortization expense increased to $4,821,000 from $4,632,000 primarily due to
increases in license acquisition costs.
Interest income and other, net, increased to $2,861,000 from $305,000 primarily
due to an increase 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 $108,000 from the
loss from the early extinguishment of debt, decreased to $1,133,000 from
$3,432,000 primarily as a result of a decrease in Puerto Rico taxable income of
certain of the Company's consolidated subsidiaries.
In connection with the repayment of the bank loan, the Company recorded an
extraordinary loss of $4,067,000 ($3,959,000 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, cash equivalents and marketable
securities on hand and cash from operations.
In August 1997, two wholly-owned indirect 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.
12
<PAGE>
CoreComm Incorporated and Subsidiaries
In April 1995, CCPR 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.
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 CCPR. CCPR 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.
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 convenants with respect to Services, CCPR 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.
In April 1996, the Board of Directors authorized the repurchase of up to an
additional 750,000 shares of the Company's common stock through open market
purchases 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, 1997, the Company has repurchased 585,000 shares for an aggregate
of $15,156,000, of which 207,000 shares that cost an aggregate of $6,145,000
were retired.
Cash provided by operating activities was $15,537,000 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 of $8,420,000. 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 both inside and outside of Puerto
Rico and the U.S. Virgin Islands.
13
<PAGE>
CoreComm Incorporated 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.
14
<PAGE>
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.
CORECOMM INCORPORATED
Date: November , 1997 By: /s/ J. Barclay Knapp
-------------------------
J. Barclay Knapp
President
Date: November , 1997 By: /s/ Gregg Gorelick
--------------------------
Gregg Gorelick
Vice President-Controller
(Principal Accounting Officer)
15
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<PERIOD-START> JAN-01-1997
<CASH> 42,766,000
<SECURITIES> 25,390,000
<RECEIVABLES> 23,235,000
<ALLOWANCES> (2,758,000)
<INVENTORY> 5,103,000
<CURRENT-ASSETS> 7,885,000
<PP&E> 178,553,000
<DEPRECIATION> (50,091,000)
<TOTAL-ASSETS> 397,039,000
<CURRENT-LIABILITIES> 29,863,000
<BONDS> 200,000,000
0
0
<COMMON> 135,000
<OTHER-SE> 157,515,000
<TOTAL-LIABILITY-AND-EQUITY> 397,039,000
<SALES> 12,335,000
<TOTAL-REVENUES> 111,922,000
<CGS> 14,331,000
<TOTAL-COSTS> 27,114,000
<OTHER-EXPENSES> 54,513,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,261,000
<INCOME-PRETAX> 643,000
<INCOME-TAX> 1,241,000
<INCOME-CONTINUING> (598,000)
<DISCONTINUED> 0
<EXTRAORDINARY> (3,959,000)
<CHANGES> 0
<NET-INCOME> (4,557,000)
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