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 June 30, 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 June 30,
1998 was 1,400.
<PAGE>
CCPR Services, Inc.
Index
PART I. FINANCIAL INFORMATION Page
- ------------------------------ ----
Item 1. Financial Statements
Condensed Balance Sheets
June 30, 1998 and December 31, 1997.............................. 2
Condensed Statements of Operations
Three and six months ended June 30, 1998 and 1997................ 3
Condensed Statement of Shareholder's (Deficiency)
Six months ended June 30, 1998................................... 4
Condensed Statements of Cash Flows
Six months ended June 30, 1998 and 1997.......................... 5
Notes to Condensed Financial Statements.......................... 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition............................... 11
PART II. OTHER INFORMATION
- --------------------------
Item 6. Exhibits and Reports on Form 8-K................................. 17
SIGNATURES................................................................ 18
- ----------
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CCPR Services, Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------------------------------
(Unaudited) (see note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,338,000 $ 9,181,000
Marketable securities - 235,000
Accounts receivable - trade, less allowance for doubtful
accounts of $1,655,000 (1998) and $1,839,000 (1997) 16,496,000 17,847,000
Due from affiliates 6,056,000 12,313,000
Equipment inventory 3,656,000 2,497,000
Prepaid expenses 6,114,000 3,108,000
-----------------------------------
Total current assets 50,660,000 45,181,000
Property, plant and equipment, net 119,248,000 119,702,000
Investment in San Juan Cellular Telephone Company 97,895,000 98,822,000
Unamortized license acquisition costs 7,948,000 8,233,000
Deferred financing costs, net of accumulated
amortization of $926,000 (1998) and $584,000 (1997) 5,864,000 6,206,000
Other assets, net of accumulated amortization
of $522,000 (1998) and $1,046,000 (1997) 1,090,000 938,000
-----------------------------------
Total assets $ 282,705,000 $ 279,082,000
===================================
LIABILITIES AND SHAREHOLDER'S (DEFICIENCY)
Current liabilities:
Accounts payable $ 7,845,000 $ 6,335,000
Accrued expenses 17,063,000 18,343,000
Due to affiliates 45,884,000 44,897,000
Deferred revenue 4,004,000 3,094,000
-----------------------------------
Total current liabilities 74,796,000 72,669,000
Long-term debt 200,000,000 200,000,000
Obligation under capital lease 9,310,000 9,456,000
Commitments and contingent liabilities
Shareholder's (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) (20,915,000) (22,557,000)
-----------------------------------
(1,401,000) (3,043,000)
-----------------------------------
Total liabilities and shareholder's (deficiency) $ 282,705,000 $ 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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------------------- --------------------------------
1998 1997 1998 1997
-------------------------------- --------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Administrative and capital usage fees charged
to San Juan Cellular Telephone Company $ 11,283,000 $ 8,980,000 $ 21,320,000 $ 16,584,000
Service revenue 5,546,000 4,622,000 10,633,000 9,359,000
Equipment revenue 801,000 447,000 1,510,000 954,000
Equity in net income of San Juan Cellular
Telephone Company 218,000 74,000 344,000 209,000
-------------------------------- --------------------------------
17,848,000 14,123,000 33,807,000 27,106,000
COST AND EXPENSES:
Cost of equipment sold 688,000 496,000 1,323,000 1,120,000
Operating expenses 860,000 825,000 1,685,000 1,617,000
Selling, general and administrative expenses 2,674,000 2,663,000 5,421,000 5,307,000
Depreciation of rental equipment 102,000 51,000 185,000 93,000
Depreciation expense 5,925,000 3,857,000 11,461,000 7,349,000
Amortization expense 942,000 1,061,000 1,926,000 1,858,000
-------------------------------- --------------------------------
11,191,000 8,953,000 22,001,000 17,344,000
-------------------------------- --------------------------------
Operating income 6,657,000 5,170,000 11,806,000 9,762,000
OTHER INCOME (EXPENSE):
Intercompany interest income 87,000 131,000 202,000 258,000
Interest income and other, net 10,000 (71,000) 38,000 (35,000)
Interest expense (5,217,000) (5,075,000) (10,404,000) (9,058,000)
-------------------------------- --------------------------------
Income before income taxes and
extraordinary item 1,537,000 155,000 1,642,000 927,000
Income tax provision - (155,000) - (337,000)
-------------------------------- --------------------------------
Income before extraordinary item 1,537,000 - 1,642,000 590,000
Loss from early extinguishment of debt,
net of income tax benefit of $742,000 - 426,000 - (3,326,000)
-------------------------------- --------------------------------
Net income (loss) $ 1,537,000 $ 426,000 $ 1,642,000 $ (2,736,000)
================================ ================================
</TABLE>
See accompanying notes.
3
<PAGE>
CCPR Services, Inc.
Condensed Statement of Shareholder's (Deficiency) (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
---------------------- PAID-IN
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 1,400 $ 1,000 $ 19,513,000 $ (22,557,000) $ (3,043,000)
Net income for the six months
ended June 30, 1998 1,642,000 1,642,000
-----------------------------------------------------------------------------
Balance, June 30, 1998 1,400 $ 1,000 $ 19,513,000 $ (20,915,000) $ (1,401,000)
=============================================================================
</TABLE>
See accompanying notes.
4
<PAGE>
CCPR Services, Inc.
Condensed Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
----------------------------------
1998 1997
----------------------------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 21,608,000 $ 11,344,000
INVESTING ACTIVITIES
Proceeds from maturities of marketable securities 235,000 5,707,000
Purchase of San Juan Cellular Telephone Company interest - (80,000,000)
Acquisition of property, plant and equipment (12,553,000) (15,646,000)
----------------------------------
Net cash (used in) investing activities (12,318,000) (89,939,000)
FINANCING ACTIVITIES
Proceeds from issuance of notes, net of financing costs - 193,695,000
Repayment of bank loan - (115,000,000)
Principal payments of capital lease obligation (133,000) (68,000)
----------------------------------
Net cash provided by (used in) financing activities (133,000) 78,627,000
----------------------------------
Increase in cash and cash equivalents 9,157,000 32,000
Cash and cash equivalents at beginning of period 9,181,000 1,921,000
----------------------------------
Cash and cash equivalents at end of period $ 18,338,000 $ 1,953,000
==================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest exclusive of amounts
capitalized $ 10,404,000 $ 2,403,000
Income taxes paid 4,000 67,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Capital lease obligation incurred to acquire office building $ - $ 9,922,000
Liabilities incurred to acquire property, plant and equipment 1,643,000 6,263,000
</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 and six months ended June 30, 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 ("SJCTC") consists of
the following:
JUNE 30, DECEMBER 31,
1998 1997
--------------------------------
(Unaudited)
Purchase of San Juan Cellular Telephone
Company interests $ 101,592,000 $ 101,592,000
Equity in accumulated net income 449,000 105,000
--------------------------------
102,041,000 101,697,000
Accumulated amortization (4,146,000) (2,875,000)
--------------------------------
$ 97,895,000 $ 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:
JUNE 30, DECEMBER 31,
1998 1997
--------------------------------
(Unaudited)
ASSETS
Current assets $ 10,650,000 $ 8,715,000
Unamortized license acquisition costs 17,366,000 -
Deferred costs, net 118,000 163,000
--------------------------------
$ 28,134,000 $ 8,878,000
================================
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities $ 9,087,000 $ -
Note payable 8,900,000 -
Partners' capital 10,147,000 8,878,000
--------------------------------
$ 28,134,000 $ 8,878,000
================================
The following summarizes the unaudited results of operations of the San Juan
Cellular Telephone Company:
SIX MONTHS ENDED JUNE 30
--------------------------------
1998 1997
--------------------------------
Revenues $ 58,372,000 $ 56,310,000
Cost and expenses 56,751,000 55,542,000
--------------------------------
Operating income 1,621,000 768,000
Interest income 2,000 -
Interest expense (354,000) -
--------------------------------
Net income $ 1,269,000 $ 768,000
================================
7
<PAGE>
CCPR Services, Inc.
Notes to Condensed Financial Statements (Unaudited) (continued)
NOTE C - UNAMORTIZED LICENSE ACQUISITION COSTS
Unamortized license acquisition costs consist of:
JUNE 30, 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 (5,786,000) (5,501,000)
------------------------------
$ 7,948,000 $ 8,233,000
==============================
NOTE D - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
JUNE 30, DECEMBER 31,
1998 1997
------------------------------
(Unaudited)
Land $ 1,928,000 $ 1,928,000
Office building 9,922,000 9,922,000
Operating equipment 126,710,000 118,048,000
Office furniture and other equipment 28,779,000 23,207,000
Rental equipment 1,118,000 623,000
Construction in progress 8,338,000 12,070,000
------------------------------
176,795,000 165,798,000
Accumulated depreciation (57,547,000) (46,096,000)
------------------------------
$ 119,248,000 $ 119,702,000
==============================
NOTE E - ACCRUED EXPENSES
Accrued expenses consist of:
JUNE 30, DECEMBER 31
1998 1997
------------------------------
(Unaudited)
Accrued franchise, property and income taxes $ 2,915,000 $ 2,722,000
Interest payable 8,333,000 8,333,000
Other 5,815,000 7,288,000
------------------------------
$ 17,063,000 $ 18,343,000
==============================
8
<PAGE>
CCPR Services, Inc.
Notes to Condensed Financial Statements (Unaudited) (continued)
NOTE F - COMMITMENTS AND CONTINGENT LIABILITIES
As of June 30, 1998, the Company was committed to purchase approximately
$2,600,000 for cellular network and other equipment and for construction
services. In addition, as of June 30, 1998, the Company had commitments to
purchase cellular telephones, pagers and accessories of approximately $700,000.
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.
NOTE G - NEW BANK LOAN
In August 1998, the Company entered into a $170,000,000 credit agreement with
various banks. The Company has borrowed $155,000,000 which, along with cash on
hand of $7,000,000, was used to repay amounts due to CCPR of $30,000,000, to
purchase a 23.5% interest in SJCTC from CCPR for cash of $120,000,000, to pay
fees incurred in connection with the new bank loan of approximately $3,000,000
and to make a term loan to SJCTC of $8,900,000 in order for SJCTC to repay its
note payable to a third party, which repayment was a condition of the bank loan.
CCPR used $30,000,000 to repay most of its loan payable to its parent company,
CoreComm Incorporated ("CoreComm"), and CCPR made a cash distribution of
$120,000,000 to CoreComm. CoreComm is planning to make a capital contribution to
its wholly-owned subsidiary, CoreComm Limited, of $150,000,000 in cash or
in-kind and spinning out 100% of CoreComm Limited and its subsidiaries to
CoreComm's shareholders.
The Company has $15,000,000 available under the bank loan until September 2001.
The terms include the payment of interest at least quarterly at a floating rate,
which is, at the Company's option, either (a) the greater of the bank's prime
rate or the Federal Funds Rate plus 0.5% or (b) LIBOR, plus, based on the ratio
of CCPR and subsidiaries' debt to cash flow and the floating rate in effect,
either 0% to 1.25% or 1.25% to 2.5%. The effective rate on the Company's
borrowings as of August 12, 1998 was 8%. The terms also include an unused
commitment fee of 0.5% per annum which is payable quarterly. Principal payments
commence on September 30, 2001 based on two amortization schedules. One schedule
is for the first $95,000,000 borrowed which includes quarterly payments until
June 2006. The other schedule is for the remainder of the amount borrowed which
includes quarterly payments until June 2005.
In connection with the bank loan, CCPR has pledged to the banks the stock of its
subsidiaries and CCPR and its subsidiaries have given the banks a security
interest in their assets. CCPR and its other subsidiaries have guaranteed the
payment in full when due of the principal, interest and
9
<PAGE>
CCPR Services, Inc.
Notes to Condensed Financial Statements (Unaudited) (continued)
NOTE G - NEW BANK LOAN (CONTINUED)
fees owing under the bank loan. The bank loan also includes, among other things,
restrictions on CCPR and its subsidiaries (i) dividend payments, (ii)
acquisitions, (iii) investments, (iv) sales and dispositions of assets, (v)
additional indebtedness and (vi) liens. The bank loan requires that CCPR and
subsidiaries maintain certain ratios of indebtedness to cash flow, fixed charges
to cash flow and debt service to cash flow.
The Company incurred costs of approximately $3,000,000 in connection with the
bank loan which will be included in deferred financing costs.
10
<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 Incorporated ("CoreComm"). 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. 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 owned 27.146% of the
partnership interests in SJCTC, and CCPR directly or through subsidiaries owned
the remaining 72.854% of the interests. In August 1998, the Company acquired an
additional 23.5% interest in SJCTC from CCPR for cash of $120,000,000.
The Company collects revenues and incurs costs on behalf of SJCTC. These
revenues and costs are allocated by the Company to SJCTC based on methods
described in the Administration and Management Agreement. The Company also
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 June 30, 1998 and 1997
- -----------------------------------------
Administrative and capital usage fees charged to SJCTC increased to $11,283,000
from $8,980,000 primarily because of increases in capital costs in the SJCTC
license area.
Service revenue increased to $5,546,000 from $4,622,000 as a result of
subscriber growth. Lower average revenue and minutes of use of new prepaid
subscribers and the selection by existing subscribers of alternate rate plans
resulted in a decrease in average monthly revenue per cellular subscriber.
The income (loss) from equipment, before depreciation of rental equipment,
increased to income of $113,000 from a loss of $49,000 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.
11
<PAGE>
CCPR Services, Inc.
Equity in net income of SJCTC increased to $218,000 from $74,000 as a result of
the increase in net income of SJCTC.
Operating expenses increased to $860,000 from $825,000 primarily due to a
decrease in the percentage of total Puerto Rico cellular system operating
expenses charged to SJCTC, although total Puerto Rico cellular system operating
expenses declined in the second quarter of 1998 compared to the second quarter
of 1997.
Selling, general and administrative expenses increased to $2,674,000 from
$2,663,000 primarily due to a decrease in the percentage of total Puerto Rico
cellular system selling, general and administrative expenses charged to SJCTC,
although total Puerto Rico cellular system selling, general and administrative
expenses declined in the second quarter of 1998 compared to the second quarter
of 1997.
Depreciation of rental equipment increased to $102,000 from $51,000 due to an
increase in the number of rental telephones.
Depreciation expense increased to $5,925,000 from $3,857,000 primarily because
of an increase in property, plant and equipment.
Amortization expense decreased to $942,000 from $1,061,000 primarily due to
certain deferred costs becoming fully amortized.
Interest expense increased to $5,217,000 from $5,075,000 primarily as a result
of the office building capital lease obligation beginning in April 1997.
The provision for income taxes decreased to zero from $155,000 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 ($3,326,000 net of income tax benefit) in 1997
from the write-off of unamortized deferred financing costs.
Six Months Ended June 30, 1998 and 1997
- ---------------------------------------
Administrative and capital usage fees charged to SJCTC increased to $21,320,000
from $16,584,000 primarily because of increases in capital costs in the SJCTC
license area.
Service revenue increased to $10,633,000 from $9,359,000 as a result of
subscriber growth. Lower average revenue and minutes of use of new prepaid
subscribers and the selection by exisiting subscribers of alternate rate plans
resulted in a decrease in average monthly revenue per cellular subscriber.
12
<PAGE>
CCPR Services, Inc.
The income (loss) from equipment, before depreciation of rental equipment,
increased to income of $187,000 from a loss of $166,000 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 increased to $344,000 from $209,000 as a result of
the increase in net income of SJCTC.
Operating expenses increased to $1,685,000 from $1,617,000 primarily due to a
decrease in the percentage of total Puerto Rico cellular system operating
expenses charged to SJCTC, although total Puerto Rico cellular system operating
expenses declined in the second quarter of 1998 compared to the second quarter
of 1997.
Selling, general and administrative expenses increased to $5,421,000 from
$5,307,000 primarily due to a decrease in the percentage of total Puerto Rico
cellular system selling, general and administrative expenses charged to SJCTC,
although total Puerto Rico cellular system selling, general and administrative
expenses declined in the second quarter of 1998 compared to the second quarter
of 1997.
Depreciation of rental equipment increased to $185,000 from $93,000 due to an
increase in the number of rental telephones.
Depreciation expense increased to $11,461,000 from $7,349,000 primarily because
of an increase in property, plant and equipment.
Amortization expense increased to $1,926,000 from $1,858,000 primarily due to
increases in the investment in SJCTC.
Interest expense increased to $10,404,000 from $9,058,000 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 $337,000 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 ($3,326,000 net of income tax benefit) in 1997
from the write-off of unamortized deferred financing costs.
13
<PAGE>
CCPR Services, Inc.
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 $16,700,000 in
the remainder of 1998 for contemplated additions to the Puerto Rico cellular
network and for other non-cell site related capital expenditures. The Company's
commitments at June 30, 1998 of $2,600,000 for cellular network and other
equipment and for construction services are included in the total anticipated
expenditures.
In August 1998, the Company entered into a $170,000,000 credit agreement with
various banks. The Company has borrowed $155,000,000 which, along with cash on
hand of $7,000,000, was used to repay amounts due to CCPR of $30,000,000, to
purchase a 23.5% interest in SJCTC from CCPR for cash of $120,000,000, to pay
fees incurred in connection with the new bank loan of approximately $3,000,000
and to make a term loan to SJCTC of $8,900,000 in order for SJCTC to repay its
note payable to a third party, which repayment was a condition of the bank loan.
CCPR used $30,000,000 to repay most of its loan payable to its parent company,
CoreComm, and CCPR made a cash distribution of $120,000,000 to CoreComm.
CoreComm is planning to make a capital contribution to its wholly-owned
subsidiary, CoreComm Limited, of $150,000,000 in cash or in-kind and spinning
out 100% of CoreComm Limited and its subsidiaries to CoreComm's shareholders.
The Company has $15,000,000 available under the bank loan until September 2001.
The terms include the payment of interest at least quarterly at a floating rate,
which is, at the Company's option, either (a) the greater of the bank's prime
rate or the Federal Funds Rate plus 0.5% or (b) LIBOR, plus, based on the ratio
of CCPR and subsidiaries' debt to cash flow and the floating rate in effect,
either 0% to 1.25% or 1.25% to 2.5%. The effective rate on the Company's
borrowings as of August 12, 1998 was 8%. The terms also include an unused
commitment fee of 0.5% per annum which is payable quarterly. Principal payments
commence on September 30, 2001 based on two amortization schedules. One schedule
is for the first $95,000,000 borrowed which includes quarterly payments until
June 2006. The other schedule is for the remainder of the amount borrowed which
includes quarterly payments until June 2005.
In connection with the bank loan, CCPR has pledged to the banks the stock of its
subsidiaries and CCPR and its subsidiaries have given the banks a security
interest in their assets. CCPR and its other subsidiaries have guaranteed the
payment in full when due of the principal, interest and fees owing under the
bank loan. The bank loan also includes, among other things, restrictions on CCPR
and its subsidiaries (i) dividend payments, (ii) acquisitions, (iii)
investments, (iv) sales and dispositions of assets, (v) additional indebtedness
and (vi) liens. The bank loan requires that CCPR and subsidiaries maintain
certain ratios of indebtedness to cash flow, fixed charges to cash flow and debt
service to cash flow.
14
<PAGE>
CCPR Services, Inc.
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. Approximately $116,000,000 of the proceeds
were used 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 1997 in exchange for a 21% interest in SJCTC.
The Notes are due on February 1, 2007. Interest on the Notes is payable
semiannually on February 1 and August 1. 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 covenants 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, (iii) create liens, (iv) sell assets, (v)
enter into mergers or consolidations or (vi) sell or issue stock of
subsidiaries.
The Company is highly leveraged as a result of the new bank loan and the use of
the proceeds to repay CCPR and to acquire the additional SJCTC interest. Such
leverage could limit the Company's ability to obtain additional financing for
working capital, capital expenditures, acquisitions or general corporate
purposes, increases its vulnerability to adverse changes in general economic
conditions or increases in interest rates, and requires that a substantial
portion of cash flow from operations be dedicated to debt service requirements.
The leveraged nature of the Company and the Company's continued compliance with
the restrictions in its debt agreements could limit its ability to respond to
market conditions, meet extraordinary capital needs or restrict other business
activities such as acquisitions. The Company expects to be able to meet its
capital requirements at least through the next twelve months with cash and cash
equivalents on hand, cash from operations and borrowings under the new bank
loan.
Cash provided by operating activities was $21,608,000 and $11,344,000 for the
six months ended June 30, 1998 and 1997, respectively. The change is primarily
due to changes in operating assets and liabilities. Purchases of property, plant
and equipment of $12,553,000 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 4.2% for the six months ended June 30, 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
15
<PAGE>
CCPR Services, Inc.
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.
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.
16
<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 June 30, 1998.
17
<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: August 12, 1998 By: /s/ Stanton N. Williams
--------------------------
Stanton N. Williams
Vice President and Chief Financial Officer
Date: August 12, 1998 By: /s/ Gregg Gorelick
--------------------------
Gregg Gorelick
Vice President-Controller
(Principal Accounting Officer)
18
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 18,338,000
<SECURITIES> 0
<RECEIVABLES> 18,151,000
<ALLOWANCES> (1,655,000)
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<CURRENT-ASSETS> 12,170,000
<PP&E> 176,795,000
<DEPRECIATION> (57,547,000)
<TOTAL-ASSETS> 282,705,000
<CURRENT-LIABILITIES> 74,796,000
<BONDS> 200,000,000
0
0
<COMMON> 1,000
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<TOTAL-LIABILITY-AND-EQUITY> 282,705,000
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