UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 333-26055
-------------------------------------------------------------
CCPR SERVICES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3120943
- ---------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
110 East 59th Street, New York, New York 10022
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 906-8481
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of the issuer's common stock as of March 31,
1998 was 1,400.
<PAGE>
CCPR Services, Inc.
Index
PART I. FINANCIAL INFORMATION Page
- ------------------------------ ----
Item 1. Financial Statements
Condensed Balance Sheets -
March 31, 1998 and December 31, 1997 ................................ 2
Condensed Statements of Operations -
Three months ended March 31, 1998 and 1997 .......................... 3
Condensed Statement of Shareholders'
(Deficiency) - Three months ended March 31, 1998 .................... 4
Condensed Statements of Cash Flows -
Three months ended March 31, 1998 and 1997 .......................... 5
Notes to Condensed 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
CCPR Services, Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------------------------
(Unaudited) (See Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,479,000 $ 9,181,000
Marketable securities - 235,000
Accounts receivable - trade, less allowance
for doubtful accounts of $1,535,000 (1998)
and $1,839,000 (1997) 17,846,000 17,847,000
Due from affiliates 8,731,000 12,313,000
Equipment inventory 4,966,000 2,497,000
Prepaid expenses and other current assets 2,155,000 3,108,000
------------------------------
Total current assets 43,177,000 45,181,000
Property, plant and equipment, net 120,353,000 119,702,000
Investment in San Juan Cellular Telephone Company 98,311,000 98,822,000
Unamortized license acquisition costs 8,074,000 8,233,000
Deferred financing costs, less accumulated
amortization of $755,000 (1998) and $584,000 (1997) 6,035,000 6,206,000
Other assets, less accumulated amortization of
$1,204,000 (1998) and $1,046,000 (1997) 1,083,000 938,000
------------------------------
$ 277,033,000 $ 279,082,000
==============================
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY)
Current liabilities:
Accounts payable $ 8,443,000 $ 6,335,000
Accrued expenses 12,042,000 18,343,000
Due to affiliates 45,127,000 44,897,000
Deferred revenue 4,975,000 3,094,000
------------------------------
Total current liabilities 70,587,000 72,669,000
Long-term debt 200,000,000 200,000,000
Obligation under capital lease 9,384,000 9,456,000
Commitments and contingent liabilities
Shareholders' (deficiency):
Common stock - $1 par value; authorized 1,500
shares; issued and outstanding 1,400 shares 1,000 1,000
Additional paid-in capital 19,513,000 19,513,000
(Deficit) (22,452,000) (22,557,000)
------------------------------
(2,938,000) (3,043,000)
------------------------------
$ 277,033,000 $ 279,082,000
==============================
</TABLE>
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date.
See accompanying notes.
2
<PAGE>
CCPR Services, Inc.
Condensed Statements of Operations
(Unaudited)
THREE MONTHS ENDED
MARCH 31
----------------------------
1998 1997
----------------------------
REVENUES:
Administrative and capital usage fees
charged to San Juan Cellular Telephone
Company $ 10,037,000 $ 7,604,000
Service revenue 5,087,000 4,737,000
Equipment revenue 709,000 507,000
Equity in net income of San Juan
Cellular Telephone Company 126,000 135,000
----------------------------
15,959,000 12,983,000
COSTS AND EXPENSES:
Cost of equipment sold 635,000 624,000
Operating expenses 825,000 792,000
Selling, general and administrative expenses 2,747,000 2,644,000
Depreciation of rental equipment 83,000 42,000
Depreciation expense 5,536,000 3,492,000
Amortization expense 984,000 797,000
----------------------------
10,810,000 8,391,000
----------------------------
Operating income 5,149,000 4,592,000
OTHER INCOME (EXPENSE):
Intercompany interest income 115,000 127,000
Interest income and other, net 28,000 36,000
Interest expense (5,187,000) (3,983,000)
----------------------------
Income before income taxes and extraordinary
item 105,000 772,000
Income tax provision - (182,000)
----------------------------
Income before extraordinary item 105,000 590,000
Loss from early extinguishment of debt, net
of income tax benefit of $316,000 - (3,752,000)
----------------------------
Net income (loss) $ 105,000 $ (3,162,000)
============================
See accompanying notes.
3
<PAGE>
CCPR Services, Inc.
Condensed Statement of Shareholders' (Deficiency)
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN
SHARES AMOUNT CAPITAL (DEFICIT)
--------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1997 1,400 $ 1,000 $ 19,513,000 $ (22,557,000)
Net income for the three months ended
March 31, 1998 105,000
--------------------------------------------------
Balance, March 31, 1998 1,400 $ 1,000 $ 19,513,000 $ (22,452,000)
==================================================
</TABLE>
See accompanying notes.
4
<PAGE>
CCPR Services, Inc.
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------------------
1998 1997
------------------------------
<S> <C> <C>
Net cash provided by operating activities $ 7,474,000 $ 6,655,000
------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of marketable securities 235,000 2,257,000
Purchase of San Juan Cellular Telephone Company
interest - (80,000,000)
Acquisition of property, plant and equipment (7,419,000) (6,803,000)
Proceeds from sale of property, plant and equipment 73,000 90,000
------------------------------
Net cash (used in) investing activities (7,111,000) (84,456,000)
------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of notes, net of financing costs - 193,968,000
Repayment of bank loan - (115,000,000)
Principal payments of capital lease obligation (65,000) -
------------------------------
Net cash provided by (used in) financing activities (65,000) 78,968,000
------------------------------
Increase in cash and cash equivalents 298,000 1,167,000
Cash and cash equivalents at beginning of period 9,181,000 1,921,000
------------------------------
Cash and cash equivalents at end of period $ 9,479,000 $ 3,088,000
==============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest exclusive
of amounts capitalized $ 10,124,000 $ 2,327,000
Income taxes paid 3,000 -
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Liabilities incurred to acquire property, plant and
equipment $ 1,938,000 $ 1,000,000
</TABLE>
See accompanying notes.
5
<PAGE>
CCPR Services, Inc.
Notes to Condensed Financial Statements (unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three months ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1997.
CCPR Services, Inc. (the "Company") is a wholly-owned subsidiary of Cellular
Communications of Puerto Rico, Inc. ("CCPR"). Effective December 31, 1997,
certain subsidiaries of CCPR merged with and into the Company. This transaction
was accounted for at historical cost in a manner consistent with a transfer of
entities under common control which is similar to that used in a "pooling of
interests." Accordingly, the Company's financial statements have been restated
to include the results of the merged entities. All material intercompany
accounts have been eliminated.
NOTE B - INVESTMENT IN SAN JUAN CELLULAR TELEPHONE COMPANY
The investment in the San Juan Cellular Telephone Company consists of the
following:
MARCH 31, DECEMBER 31,
1998 1997
------------------------------
(Unaudited)
Purchase of San Juan Cellular
Telephone Company interests $ 101,592,000 $ 101,592,000
Equity in accumulated net income 231,000 105,000
------------------------------
101,823,000 101,697,000
Accumulated amortization (3,512,000) (2,875,000)
------------------------------
$ 98,311,000 $ 98,822,000
==============================
6
<PAGE>
CCPR Services, Inc.
Notes to Condensed Financial Statements (unaudited) (continued)
NOTE B - INVESTMENT IN SAN JUAN CELLULAR TELEPHONE COMPANY (CONTINUED)
The following summarizes the assets, liabilities and partners' capital of the
San Juan Cellular Telephone Company:
MARCH 31, DECEMBER 31,
1998 1997
---------------------------
(Unaudited)
ASSETS
Current assets $ 9,537,000 $ 8,715,000
Unamortized license acquisition costs 17,476,000 -
Deferred costs, net 140,000 163,000
---------------------------
$ 27,153,000 $ 8,878,000
===========================
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities $ 8,909,000 $ -
Note payable 8,900,000 -
Partners' capital 9,344,000 8,878,000
---------------------------
$ 27,153,000 $ 8,878,000
===========================
The following summarizes the unaudited results of operations of the San Juan
Cellular Telephone Company:
THREE MONTHS ENDED MARCH 31
----------------------------
1998 1997
----------------------------
Revenues $ 27,949,000 $ 27,540,000
Cost and expenses 27,241,000 26,639,000
----------------------------
Operating income 708,000 901,000
Interest income 2,000 -
Interest expense (177,000) -
----------------------------
Income before income taxes 533,000 901,000
Income taxes (67,000) (405,000)
----------------------------
Net income $ 466,000 $ 496,000
============================
7
<PAGE>
CCPR Services, Inc.
Notes to Condensed Financial Statements (unaudited) (continued)
NOTE C - UNAMORTIZED LICENSE ACQUISITION COSTS
Unamortized license acquisition costs consist of:
MARCH 31, DECEMBER 31,
1998 1997
----------------------------
(Unaudited)
Deferred cellular license costs $ 3,252,000 $ 3,252,000
Excess of purchase price paid over the fair
market value of tangible assets acquired 10,482,000 10,482,000
----------------------------
13,734,000 13,734,000
Accumulated amortization (5,660,000) (5,501,000)
----------------------------
$ 8,074,000 $ 8,233,000
============================
NOTE D - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
MARCH 31, DECEMBER 31,
1998 1997
--------------------------------
(Unaudited)
Land $ 1,928,000 $ 1,928,000
Office building 9,922,000 9,922,000
Operating equipment 123,395,000 118,048,000
Office furniture and other equipment 25,254,000 23,207,000
Rental equipment 773,000 623,000
Construction in progress 10,684,000 12,070,000
--------------------------------
171,956,000 165,798,000
Accumulated depreciation (51,603,000) (46,096,000)
--------------------------------
$ 120,353,000 $ 119,702,000
================================
NOTE E - ACCRUED EXPENSES
Accrued expenses consist of:
MARCH 31, DECEMBER 31,
1998 1997
----------------------------
(Unaudited)
Accrued franchise, property and income taxes $ 2,855,000 $ 2,722,000
Interest payable 3,333,000 8,333,000
Other 5,854,000 7,288,000
----------------------------
$ 12,042,000 $ 18,343,000
============================
8
<PAGE>
CCPR Services, Inc.
Notes to Condensed Financial Statements (unaudited) (continued)
NOTE F - COMMITMENTS AND CONTINGENT LIABILITIES
As of March 31, 1998, the Company was committed to purchase approximately
$3,000,000 for cellular network and other equipment and for construction
services. In addition, as of March 31, 1998, the Company had commitments to
purchase cellular telephones and accessories of approximately $420,000.
In 1992, the Company entered into an agreement which in effect provides for a
twenty year license to use its service mark which is also licensed to many of
the non-wireline cellular systems in the United States. The Company is required
to pay licensing and advertising fees, and to maintain certain service quality
standards. The total fees paid for 1998 were $278,000, which were determined by
the size of the Company's markets.
9
<PAGE>
CCPR Services, Inc.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
Effective December 31, 1997, certain subsidiaries of Cellular Communications of
Puerto Rico, Inc. ("CCPR") merged with and into CCPR Services, Inc. (the
"Company"). The Company is a wholly-owned subsidiary of CCPR, and CCPR is a
wholly-owned subsidiary of CoreComm. As a result of these mergers, the Company
owns and operates a portion of CCPR's Puerto Rico cellular system. The Company
manages and operates the remainder in accordance with an Administration and
Management Agreement between the Company and the San Juan Cellular Telephone
Company ("SJCTC")(a general partnership). The Company owns 27.146% of the
partnership interests in SJCTC, and CCPR directly or through subsidiaries owns
the remaining 72.854% of the interests.
These mergers have been accounted for in a manner similar to a pooling of
interests since all of the companies were wholly-owned by CCPR. Accordingly, all
prior periods presented have been restated to include the combined results of
operations of the Company and the merged companies. The Company charges SJCTC an
administrative fee based on its revenues and a capital usage fee which is the
recovery of a portion of the Company's capital costs.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 and 1997
- ------------------------------------------
Administrative and capital usage fees charged to SJCTC increased to $10,037,000
from $7,604,000 primarily because of increases in capital costs in the SJCTC
license area.
Service revenue increased to $5,087,000 from $4,737,000 as a result of
subscriber growth.
The income (loss) from equipment, before depreciation of rental equipment,
increased to income of $74,000 from a loss of $117,000 primarily because the
Company is not selling telephones below their cost to prepaid subscribers.
Reductions in the cost of cellular telephones also contributed to this change.
Equity in net income of SJCTC decreased to $126,000 from $135,000 as a result of
the increase in capital usage fees charged to SJCTC.
Operating expenses increased to $825,000 from $792,000 primarily due to
increased usage of the network and additional costs associated with the expanded
network.
Selling, general and administrative expenses increased to $2,747,000 from
$2,644,000 as a result of increased selling and marketing to increase the
customer base and additional personnel to service the expanding customer base.
10
<PAGE>
CCPR Services, Inc.
Depreciation of rental equipment increased to $83,000 from $42,000 due to an
increase in the number of rental telephones.
Depreciation expense increased to $5,536,000 from $3,492,000 primarily because
of an increase in property, plant and equipment.
Amortization expense increased to $984,000 from $797,000 primarily due to
increases in investment in SJCTC.
Interest expense increased to $5,187,000 from $3,983,000 as a result of the
issuance of the Senior Subordinated Notes on January 28, 1997 and the office
building capital lease obligation beginning in April 1997.
The provision for income taxes decreased to zero from $182,000 due to the
decrease in Puerto Rico taxable income.
In connection with the repayment of the bank loan, the Company recorded an
extraordinary loss of $4,068,000 ($3,752,000 net of income tax benefit) in 1997
from the write-off of unamortized deferred financing costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital to expand its Puerto Rico cellular system and for
debt service. The Company is currently adding cell sites and increasing capacity
throughout Puerto Rico. The Company expects to use approximately $18,800,000 in
1998 for contemplated additions to the Puerto Rico cellular network and for
other non-cell site related capital expenditures. The Company's commitments at
March 31, 1998 of $3,000,000 for cellular network and other equipment and for
construction services are included in the total anticipated expenditures. The
Company expects to be able to meet these requirements with cash and cash
equivalents on hand, cash from operations and cash from CCPR.
CCPR has received loans from CoreComm of $28,446,000 as of March 31, 1998, which
are non-interest bearing and are due on June 30, 1998. CCPR used the funds to
make loans to the Company.
In January 1997, the Company issued $200,000,000 principal amount 10% Senior
Subordinated Notes due 2007 (the "Notes") and received proceeds of $193,233,000
after discounts, commissions and other related costs. The Notes are
unconditionally guaranteed by CCPR. The Company 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 made a cash
payment to CCPR of $80,000,000 in exchange for a 21% interest in SJCTC.
11
<PAGE>
CCPR Services, Inc.
The Notes are due on February 1, 2007. Interest on the Notes is payable
semiannually as of August 1, 1997. The Notes are redeemable, in whole or in
part, at the option of the Company 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 the Company, CCPR and certain
subsidiaries of CCPR that limit their ability to, among other things: (i) incur
additional indebtedness, (ii) pay dividends or make other distributions or
restricted payments (except for dividend payments to CCPR and an aggregate of up
to $100,000,000 to be used for dividends or restricted payments to CoreComm),
(iii) create liens, (iv) sell assets, (v) enter into mergers or consolidations
or (vi) sell or issue stock of subsidiaries.
Cash provided by operating activities was $7,474,000 and $6,655,000 for the
three months ended March 31, 1998 and 1997, respectively. The change is
primarily due to increased depreciation and amortization and changes in
operating assets and liabilities. Purchases of property, plant and equipment of
$7,419,000 in 1998 were primarily for additional cell sites and increased
capacity in the Puerto Rico cellular network.
Write-offs of accounts receivable, net of recoveries as a percentage of service
revenues was 4.9% for the three months ended March 31, 1998 compared to 7.1% for
the year ended December 31, 1997. This percentage decreased because the Company
has increased prepaid subscribers and improved credit procedures.
YEAR 2000
Many computer systems experience problems handling dates beyond the year 1999.
Therefore, some computer hardware and software will need to be modified prior to
the year 2000 in order to remain functional. The Company is assessing both the
internal readiness of its computer systems and the compliance of the computer
systems of certain significant customers and vendors for handling the year 2000.
The Company expects to implement successfully the systems and programming
changes necessary to address year 2000 issues, and does not believe that the
cost of such actions will have a material adverse effect on the Company. There
can be no assurance, however, that there will not be a delay in, or increased
costs associated with, the implementation of such changes, and the Company's
inability to implement such changes could have an adverse effect on the Company.
In addition, the failure of certain of the Company's significant customers and
vendors to address the year 2000 issue could have a material adverse effect on
the Company.
12
<PAGE>
CCPR Services, Inc.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements contained herein constitute "forward-looking statements" as
that term is defined under the Private Securities Litigation Reform Act of 1995.
When used herein, the words, "believe," "anticipate," "should," "intend,"
"plan," "will," "expects," "estimates," "projects," "positioned," "strategy,"
and similar expressions identify such forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from those
contemplated, projected, forecasted, estimated or budgeted, whether expressed or
implied, by such forward-looking statements. Such factors include the following:
general economic and business conditions in Puerto Rico, industry trends, the
Company's ability to continue to design and build its network, install
facilities, obtain and maintain any required government licenses or approvals
and finance construction and development, all in a timely manner, at reasonable
costs and on satisfactory terms and conditions, as well as assumptions about
customer acceptance, churn rates, overall market penetration and competition
from providers of alternative services, the impact of new business opportunities
requiring significant up-front investment, and availability, terms and
deployment of capital.
13
<PAGE>
CCPR Services, Inc.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
quarter ended March 31, 1998.
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.
CCPR SERVICES, INC.
Date: May 13, 1998 By: /s/ Stanton N. Williams
------------------------------------------
Stanton N. Williams
Vice President and Chief Financial Officer
Date: May 13, 1998 By: /s/ Gregg Gorelick
------------------------------------------
Gregg Gorelick
Vice President-Controller
(Principal Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,479,000
<SECURITIES> 0
<RECEIVABLES> 19,381,000
<ALLOWANCES> (1,535,000)
<INVENTORY> 4,966,000
<CURRENT-ASSETS> 10,886,000
<PP&E> 171,956,000
<DEPRECIATION> (51,603,000)
<TOTAL-ASSETS> 277,033,000
<CURRENT-LIABILITIES> 70,587,000
<BONDS> 200,000,000
0
0
<COMMON> 1,000
<OTHER-SE> (2,939,000)
<TOTAL-LIABILITY-AND-EQUITY> 277,033,000
<SALES> 709,000
<TOTAL-REVENUES> 15,959,000
<CGS> 635,000
<TOTAL-COSTS> 1,460,000
<OTHER-EXPENSES> 2,747,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,187,000
<INCOME-PRETAX> 105,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 105,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 105,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
