<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-19363
-------------------------------------------------------------
CELLULAR COMMUNICATIONS INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3221852
- -------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 East 59th Street, New York, New York 10022
- ----------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(212) 906-8480
- --------------------------------------------------------------------------------
(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, 1996 was 10,638,639.
<PAGE>
Cellular Communications International, Inc. and Subsidiaries
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
- ------------------------------- ----
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets--
September 30, 1996 and December 31, 1995............... 2
Condensed Consolidated Statements of
Operations--Three and nine months ended
September 30, 1996 and 1995............................ 4
Condensed Consolidated Statement of Shareholders'
(Deficiency) Equity--Nine months ended
September 30, 1996..................................... 5
Condensed Consolidated Statements of Cash Flows--
Nine months ended September 30, 1996 and 1995.......... 6
Notes to Condensed Consolidated Financial
Statements............................................. 8
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition..................... 12
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K....................... 17
SIGNATURES 18
- ----------
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Cellular Communications International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
------------ ------------
(See Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 20,697,000 $ 62,965,000
Marketable securities 58,178,000 17,068,000
Other 2,311,000 61,000
------------ ------------
Total current assets 81,186,000 80,094,000
Cash held in escrow - 43,616,000
Investment in Omnitel 54,713,000 44,726,000
Equipment, net of accumulated depreciation
of $45,000 (1996) and $43,000 (1995) 24,000 51,000
Deferred financing costs, net of
accumulated amortization of $1,226,000 (1996)
and $387,000 (1995) 6,016,000 6,803,000
------------ ------------
Total assets $141,939,000 $175,290,000
============ ============
</TABLE>
2
<PAGE>
Cellular Communication International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets -- Continued
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
------------ ------------
(See Note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) EQUITY
Current liabilities:
Accounts payable $ 38,000 $ 202,000
Accrued expenses 520,000 872,000
Taxes payable 1,454,000 3,076,000
Due to Cellular Communications, Inc. - 81,000
Due to International CableTel Incorporated 138,000 23,000
------------ ------------
Total current liabilities 2,150,000 4,254,000
Long-term debt, less unamortized discount
of $5,136,000 (1996) and $5,850,000 (1995) 166,214,000 149,869,000
Commitments and contingent liabilities
Shareholders' (deficiency) equity:
Series preferred stock-$.01 par value;
authorized 2,500,000 shares,
outstanding none - -
Common stock-$.01 par value; authorized
25,000,000 shares; issued and outstanding
10,639,000(1996) and 10,344,000(1995) shares 106,000 103,000
Additional paid-in capital 28,483,000 27,501,000
(Deficit) (55,014,000) (6,437,000)
------------ ------------
(26,425,000) 21,167,000
------------ ------------
Total liabilities and shareholders'
(deficiency) equity $141,939,000 $175,290,000
============ ============
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date.
See accompanying notes.
3
<PAGE>
Cellular Communications International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- ---------------------------
1996 1995 1996 1995
------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Equity in net loss of Omnitel $ 12,888,000 $ 2,280,000 $ 33,673,000 $ 5,833,000
General and administrative expenses 820,000 1,562,000 2,382,000 2,999,000
Write-off of investment in
joint venture - 366,000 - 366,000
Write-off of deferred costs - 105,000 - 328,000
Depreciation expense 6,000 7,000 20,000 20,000
Amortization of investments in
joint ventures 173,000 153,000 518,000 357,000
------------ ----------- ------------ ------------
Operating loss (13,887,000) (4,473,000) (36,593,000) (9,903,000)
Other income (expense):
Interest and other income 1,298,000 554,000 4,007,000 725,000
Interest expense (5,949,000) (1,979,000) (17,191,000) (3,299,000)
Cellular Communications, Inc. fees
in connection with the bank loan - (9,000) - (101,000)
------------ ----------- ------------ ------------
Loss before income taxes and
extraordinary item (18,538,000) (5,907,000) (49,777,000) (12,578,000)
Income tax benefit 1,200,000 - 1,200,000 -
------------ ----------- ------------ ------------
Loss before extraordinary item (17,338,000) (5,907,000) (48,577,000) (12,578,000)
Loss from early extinguishment
of debt - (2,268,000) - (2,268,000)
------------ ----------- ------------ ------------
Net loss $(17,338,000) $(8,175,000) $(48,577,000) $(14,846,000)
============ =========== ============ ============
Net loss per common share:
Loss before extraordinary item $ (1.63) $ (.58) $ (4.64) $ (1.24)
Extraordinary item - (.22) - (.22)
------------ ----------- ------------ ------------
Net loss $ (1.63) $ (.80) $ (4.64) $ (1.46)
============ =========== ============ ============
Weighted average number of common
shares used in computation of net
loss per share 10,639,000 10,213,000 10,465,000 10,196,000
============ =========== ============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
Cellular Communications International, Inc. and Subsidiaries
Condensed Consolidated Statement of Shareholders' (Deficiency) Equity
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
-------------------- Paid-in
Shares Amount Capital (Deficit)
---------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 10,344,000 $103,000 $27,501,000 $ (6,437,000)
Exercise of stock options 295,000 3,000 984,000
Costs incurred in connection
with the issuance of warrants (2,000)
Net loss for the nine months
ended September 30, 1996 (48,577,000)
---------- --------- ----------- ------------
Balance at September 30, 1996 10,639,000 $106,000 $28,483,000 $(55,014,000)
========== ========= =========== ============
</TABLE>
See accompanying notes.
5
<PAGE>
Cellular Communications International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
1996 1995
------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (48,577,000) $(14,846,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Equity in net loss of Omnitel 33,673,000 5,833,000
Depreciation and amortization expense 538,000 377,000
Write-off of deferred costs and
investment in joint venture - 694,000
Loss on sale of property, plant and equipment 2,000 -
Loss from early extinguishment of debt - 2,268,000
Accretion of original issue discount 15,631,000 1,587,000
Interest on cash held in escrow (980,000) (282,000)
Accretion of interest on marketable
securities (1,606,000) -
Amortization of deferred financing costs
charged to interest expense 839,000 1,437,000
Amortization of debt discount 714,000 91,000
Changes in operating assets and liabilities:
Other current assets (1,832,000) (438,000)
Accounts payable (159,000) 507,000
Accrued expenses (352,000) 71,000
Taxes payable (1,622,000) (4,000)
Interest payable - (58,000)
Due to Cellular Communications, Inc. (81,000) (913,000)
Due to International CableTel Incorporated 115,000 (2,000)
------------- ------------
Net cash used in operating activities (3,697,000) (3,678,000)
INVESTING ACTIVITIES
Purchase of equipment - (52,000)
Purchase of marketable securities (114,865,000) (8,505,000)
Proceeds from sale of marketable securities 75,361,000 8,995,000
Cash held in escrow - (51,800,000)
Additional investments in joint ventures - (19,639,000)
Deferred costs incurred - (370,000)
------------- ------------
Net cash used in investing activities (39,504,000) (71,371,000)
------------- ------------
</TABLE>
6
<PAGE>
Cellular Communication International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited) -- Continued
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
FINANCING ACTIVITIES
Payment of financing costs (54,000) (8,260,000)
Principal payments - (95,911,000)
Proceeds from borrowings - 213,302,000
Exercise of stock options 987,000 483,000
------------ ------------
Net cash provided by financing activities 933,000 109,614,000
------------ ------------
Increase (decrease) in cash and cash
equivalents (42,268,000) 34,565,000
Cash and cash equivalents at beginning
of period 62,965,000 4,372,000
------------ ------------
Cash and cash equivalents at end of period $ 20,697,000 $ 38,937,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest
exclusive of $3,411,000 (1995) capitalized $ - $ 1,113,000
Income taxes paid 2,100,000 -
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
Cash held in escrow used for capital
contribution to Omnitel $ 44,178,000 $ 9,116,000
</TABLE>
See accompanying notes.
7
<PAGE>
Cellular Communications International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
1. Basis of Preparation
The accompanying unaudited 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, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996. For further information, refer to the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form 10-
K for the year ended December 31, 1995.
Net loss per share is computed based on the weighted average number of common
shares outstanding during the periods presented. Common stock equivalents are
excluded because they are antidilutive.
2. Accounting Change
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 defines a fair value based method of
accounting for stock-based employee compensation plans (including stock option
plans). As permitted by SFAS No. 123, the Company expects to continue to
measure compensation costs for its plans as prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees."
3. Investment in Omnitel
The investment in Omnitel consists of the following:
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Capital contributions $ 96,805,000 $ 52,627,000
Capitalized costs including interest 9,725,000 9,725,000
Equity in accumulated net loss (50,730,000) (17,057,000)
------------ ------------
55,800,000 45,295,000
Accumulated amortization (1,087,000) (569,000)
------------ ------------
$ 54,713,000 $ 44,726,000
============ ============
</TABLE>
8
<PAGE>
Cellular Communications International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(continued)
3. Investment in Omnitel - continued
In March 1994, the Omnitel-Pronto Italia ("OPI") consortium in which Omnitel
holds a 70% interest was selected as the second GSM cellular telephone licensee
in Italy (including San Marino and Vatican City). CCII, through its 14.667%
ownership interest in Omnitel, holds an indirect 10.267% interest in OPI.
The following financial information of Omnitel and OPI is presented in
accordance with U.S. generally accepted accounting principles and is reflected
in U.S. dollars; the balance sheet information has been translated at the
exchange rate on the balance sheet date and the statement of operations
information has been translated at the average exchange rate for the period.
The balance sheet information of Omnitel and OPI at December 31, 1995 has been
reclassified.
The following summarizes the assets, liabilities and stockholders' equity of
Omnitel:
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets $ 10,116,000 $ 5,912,000
Investment in OPI 315,248,000 236,635,000
------------- ------------
$ 325,364,000 $242,547,000
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 3,765,000 $ 1,258,000
Stockholders' equity 321,599,000 241,289,000
------------- ------------
$ 325,364,000 $242,547,000
============= ============
</TABLE>
The following summarizes the unaudited results of operations of Omnitel:
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-----------------------------
1996 1995
------------- ------------
<S> <C> <C>
Revenues $ - $ -
Costs and expenses (2,335,000) (858,000)
Equity in net loss of OPI (225,964,000) (39,498,000)
------------- ------------
Operating loss (228,299,000) (40,356,000)
Interest income, net 342,000 586,000
------------- ------------
Net loss $(227,957,000) $(39,770,000)
============= ============
</TABLE>
9
<PAGE>
Cellular Communications International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(continued)
3. Investment in Omnitel - continued
The following summarizes the assets, liabilities and stockholders' equity of
OPI:
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
-------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets $ 389,465,000 $ 104,718,000
Property, plant and equipment, net 602,509,000 388,341,000
Intangible assets, net 567,486,000 566,968,000
Other 4,234,000 2,829,000
-------------- --------------
$1,563,694,000 $1,062,856,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 489,018,000 $ 402,264,000
Long-term debt 613,114,000 315,557,000
Other liabilities 11,208,000 6,985,000
Stockholders' equity 450,354,000 338,050,000
-------------- --------------
$1,563,694,000 $1,062,856,000
============== ==============
</TABLE>
The following summarizes the unaudited results of operations of OPI:
<TABLE>
<CAPTION>
Nine Months Ended
September 30
--------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Revenues $ 317,935,000 $ -
Costs and expenses (498,710,000) (53,840,000)
Depreciation and amortization (94,072,000) (3,003,000)
-------------- --------------
Operating loss (274,847,000) (56,843,000)
Interest income (expense), net (43,764,000) 2,834,000
-------------- --------------
Net loss $ (318,611,000) $ (54,009,000)
============== ==============
</TABLE>
10
<PAGE>
Cellular Communications International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(continued)
4. Commitments and Contingent Liabilities
Pursuant to the Senior Discount Notes Indenture, any net proceeds from an asset
sale that are not applied within 12 months after such asset sale to an
investment in a related business (a business that directly or indirectly
operates, acquires, develops and constructs any "wireless" telecommunications
services or related services) will be deemed excess proceeds. When the
aggregate amount of excess proceeds exceeds $5,000,000, the Company is required
to make an offer to purchase the maximum principal amount of Notes that may be
purchased using the excess proceeds, at an offer price in cash equal to 100% of
the accreted value of the Notes. As a result of the Company's waiver and release
of its claim to participate in an entity that owns one of the two GSM cellular
licenses for Delhi, India in December 1995 in exchange for cash of approximately
$40,000,000, the Company has approximately $38,900,000 that may be deemed excess
proceeds in December 1996.
11
<PAGE>
Cellular Communications International, Inc. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 and 1995
- ----------------------------------------------
Equity in net loss of Omnitel increased to $12,888,000 from $2,280,000 because
of the increase in the net loss of Omnitel. The increase is due to an increase
in Omnitel's share of OPI's net loss to $85,423,000 from $15,157,000. OPI's net
loss increased to $119,756,000 from $20,742,000 as a result of the increase in
all costs due to the commencement of operations in December 1995. Depreciation
and amortization of certain previously capitalized costs began in December 1995
upon the commencement of operations.
General and administrative expenses decreased to $820,000 from $1,562,000
primarily because, as of December 1995, CCII no longer participates in an entity
that owns one of the two GSM cellular licenses for Delhi, India, and CCII
reduced its efforts to obtain new cellular licenses.
In 1995, an investment in joint venture of $366,000 and deferred costs of
$105,000 were written-off in connection with unsuccessful efforts to obtain
licenses.
Amortization of investments in joint ventures increased to $173,000 from
$153,000 as a result of the amortization of additional costs capitalized in
connection with the investment in Omnitel.
Interest and other income increased to $1,298,000 from $554,000 primarily
because of an increase in funds available for investment.
Interest expense increased to $5,949,000 from $1,979,000 primarily due to the
interest on the Senior Discount Notes. Interest expense in 1995 does not
include interest of $1,754,000 which was capitalized during the three months
ended September 30, 1995. The Company discontinued interest capitalization in
December 1995 upon the commencement of OPI's operations.
The fees to CCI in connection with the bank loan decreased to none from $9,000
as a result of the termination of the CCI guarantee in July 1995.
The income tax benefit in 1996 of $1,200,000 is the result of net operating loss
carrybacks to 1995.
During 1995, the Company recognized an extraordinary loss of $2,268,000 due to
the early extinguishment of debt.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock Based
Compensation." SFAS No. 123 defines a fair value based method of accounting for
stock-based employee compensation plans (including stock option plans). As
permitted by SFAS No. 123, the Company expects to continue to measure
compensation costs for its plans as prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees."
12
<PAGE>
Cellular Communications International, Inc. and Subsidiaries
(continued)
Nine Months Ended September 30, 1996 and 1995
- ---------------------------------------------
Equity in net loss of Omnitel increased to $33,673,000 from $5,833,000 because
of the increase in the net loss of Omnitel. The increase is due to an increase
in Omnitel's share of OPI's net loss to $225,964,000 from $39,498,000. OPI's
net loss increased to $318,611,000 from $54,009,000 as a result of the increase
in all costs due to the commencement of operations in December 1995.
Depreciation and amortization of certain previously capitalized costs began in
December 1995 upon the commencement of operations.
General and administrative expenses decreased to $2,382,000 from $2,999,000
primarily because, as of December 1995, CCII no longer participates in an entity
that owns one of the two GSM cellular licenses for Delhi, India, and CCII
reduced its efforts to obtain new cellular licenses. The 1995 amount is reduced
by an expense reimbursement of $893,000 from Omnitel for amounts previously
charged to general and administrative expenses.
In 1995, an investment in a joint venture of $366,000 and deferred costs of
$328,000 were written-off in connection with unsuccessful efforts to obtain
licenses.
Amortization of investments in joint ventures increased to $518,000 from
$357,000 as a result of the amortization of additional costs capitalized in
connection with the investment in Omnitel.
Interest and other income increased to $4,007,000 from $725,000 primarily
because of an increase in funds available for investment.
Interest expense increased to $17,191,000 from $3,299,000 primarily due to the
interest on the Senior Discount Notes. Interest expense in 1995 does not include
interest of $4,291,000 which was capitalized during the nine months ended
September 30, 1995. The Company discontinued interest capitalization in
December 1995 upon the commencement of OPI's operations.
The fees to CCI in connection with the bank loan decreased to none from $101,000
as a result of the termination of the CCI guarantee in July 1995.
The income tax benefit in 1996 of $1,200,000 is the result of net operating loss
carrybacks to 1995.
During 1995, the Company recognized an extraordinary loss of $2,268,000 due to
the early extinguishment of debt.
13
<PAGE>
Cellular Communications International, Inc. and Subsidiaries
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements are primarily based upon the agreements and
requirements of the joint ventures in which it is now or may become a
participant. The Company also requires capital to pay for corporate overhead
expenses, personnel costs and taxes, as well as capital to continue to explore
other opportunities that it is pursuing or that may arise. The Company has no
material commitments for capital expenditures, except as described below.
Italian lire have been translated solely for the convenience of the reader at an
exchange rate of 1523.50 lire = $1.00, the Noon Buying Rate on November 6, 1996.
In August 1995, the Company issued $281,571,000 aggregate principal amount of
13-1/4% Senior Discount Notes due 2000 (the "Notes") and 281,571 warrants to
purchase 317,049 shares of common stock. The Notes were issued at a price to the
public of 52.783% or $148,622,000. The original issue discount accretes at a
rate of 13-1/4%, compounded semiannually, to an aggregate principal amount of
$281,571,000 by August 15, 2000. The Notes are senior unsecured obligations of
the Company and rank senior in right of payment to all future subordinated
indebtedness of the Company. The indenture governing the Notes contains
restrictions relating to, among other things: (i) the incurrence of additional
indebtedness, (ii) the issuance of preferred stock, (iii) dividends and other
payments and (iv) mergers, consolidations and sales of assets.
The indenture required that $51,800,000 of the proceeds be placed in an escrow
account until it was needed to finance the Company's additional capital
contribution obligations to Omnitel, provided that Omnitel was not in default of
any obligation to fund capital contributions of OPI. As of September 1996, the
Company has made all of its required capital contributions to Omnitel. Future
financing may be necessary for additional capital contributions to Omnitel due
to unexpected circumstances or for other opportunities that may arise.
Pursuant to the Notes Indenture, any net proceeds from an asset sale that are
not applied within 12 months after such asset sale to an investment in a related
business (a business that directly or indirectly operates, acquires, develops
and constructs any "wireless" telecommunications services or related services)
will be deemed excess proceeds. When the aggregate amount of excess proceeds
exceeds $5,000,000, the Company is required to make an offer to purchase the
maximum principal amount of Notes that may be purchased using the excess
proceeds, at an offer price in cash equal to 100% of the accreted value of the
Notes. As a result of the Company's waiver and release of its claim to
participate in an entity that owns one of the two GSM cellular licenses for
Delhi, India in December 1995 in exchange for cash of approximately $40,000,000,
the Company has approximately $38,900,000 that may be deemed excess proceeds in
December 1996.
As a result of the award of Italy's second GSM cellular license to OPI, OPI
requires capital to construct its cellular system and to fund its operations.
OPI has a syndicated bank loan facility for 1,800 billion lire ($1.2 billion)
and has received capital contributions of 1,450 billion lire ($952 million) from
its partners (1,015 billion lire ($666 million) from Omnitel and 435 billion
lire ($286 million) from Pronto Italia). Omnitel funded its share of OPI
capital contributions plus its own capital needs through capital contributions
of 1,040 billion lire ($683 million). The Company's total cumulative
contribution to Omnitel was approximately 152.5 billion lire ($96.8 million at
the exchange rates in effect at the time of each contribution). OPI may require
additional financing in excess of the 1,800 billion lire available from the
syndicated bank loan. The Company currently expects that OPI would obtain such
additional financing from bank borrowings.
14
<PAGE>
Cellular Communications International, Inc.and Subsidiaries
(continued)
The information in the preceding paragraphs include projections; in reviewing
such information it should be kept in mind that actual results may differ
materially from those in such projections. These projections were based on
various factors and were derived utilizing numerous assumptions. Important
assumptions and factors that could cause actual results to differ materially
from those in these projections include OPI's ability to continue to design
network routes, install facilities, obtain and maintain any required
governmental 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. Other factors and assumptions not identified above were also involved
in the derivation of these projections, and the failure of such other
assumptions to be realized as well as other factors may also cause actual
results to differ materially from those projected. The Company assumes no
obligation to update these projections to reflect actual funding requirements,
capital expenditures and results, changes in assumptions or changes in other
factors affecting such projections.
OPI has provided an approximate 219 billion lire ($143.7 million) performance
bond that requires payments to the Italian government if OPI fails to meet
certain operational targets. Although no assurance can be given, OPI plans to
achieve each of its targets. The Company's maximum liability under the
performance bond is approximately 22.5 billion lire ($14.8 million), reflecting
its proportionate interest in OPI.
To the extent that the Company obtains financing in U.S. dollars and the
Company's future commitments to Omnitel, if any, are in Italian lire, it will
encounter currency exchange rate risks. Omnitel's revenues will be received in
Italian lire and currently there are no foreign exchange controls in Italy.
There can be no assurance that foreign exchange restrictions will not be
introduced in the future.
The Company is primarily a holding company with limited business operations of
its own. The Company's assets consist primarily of cash, marketable securities
and its ownership interest in Omnitel. The Company does not hold, nor is it
likely that the Company will hold, a majority interest in any operating systems.
The Company's minority voting position in Omnitel currently precludes it from
controlling Omnitel or OPI, even though the Company is involved in the
management of Omnitel and intends to participate in the future only in operating
companies in which it can be involved in management. Thus, the Company may be
unable to cause the implementation of strategies that it favors and, in the
event of a disagreement between the Company and one or more of its partners, the
strategies adopted and actions taken by an affiliate company may in some cases
be contrary to the Company's preferred strategies and actions. In addition, the
Company may be unable to access the cash flow of affiliated companies since (i)
it does not have the requisite control to cause such entities to pay dividends,
(ii) substantially all of such entities are expected to be parties to credit or
other borrowing agreements that severely restrict or prohibit the payment of
dividends, and such entities are likely to continue to be subject to such
restrictions and prohibitions for the foreseeable future and (iii) some
countries tax payment and repatriation of dividends. As a result, the Company
does not expect to receive significant cash through dividends or other
distributions from an affiliate in the foreseeable future.
15
<PAGE>
Cellular Communications International, Inc. and Subsidiaries
(continued)
Because the Company does not currently have any cash flow and does not expect
any cash flow for the foreseeable future, its ability to repay the Notes at
maturity will be dependent on developing one or more sources of cash at or prior
to maturity. The Company may (i) seek to refinance all or a portion of the Notes
at maturity through sales of additional debt or equity securities of the
Company, (ii) if possible and subject to the appropriate consents and approvals
and certain other limitations set forth in the OPI Agreement and the Omnitel
Agreement, seek to sell all or a portion of its interest in Omnitel, (iii)
negotiate with its partners to permit any cash produced by OPI to be distributed
to equity holders rather than invested in the business and/or (iv) seek to
invest in companies that will make substantial cash distributions on or before
the maturity of the Notes. There can be no assurance that (i) there will be a
market for the debt or equity securities of the Company in the future, (ii) the
Company will be permitted to sell particular assets or be able to sell assets in
a timely manner or on commercially acceptable terms or in an amount that (giving
effect to the substantial corporate income taxes which could be due in the event
of such a sale) will be sufficient to repay the Notes when due, (iii) the
Company will be able to persuade its partners that cash generated by the
operations of its affiliated entities should be distributed to equity holders
(in fact, the Company expects that Omnitel and OPI will utilize all of their
respective cash flow for debt repayment or internal development opportunities
for the foreseeable future) or (iv) the Company will be able to locate and
invest in companies that will be mature enough to make substantial cash
distributions to investors prior to the maturity of the Notes.
The Company has not been successful in obtaining any new cellular licenses since
there is more competition for licenses and the costs of obtaining them has
increased. This has occurred because more companies recognize the significant
value of obtaining cellular licenses and governments increasingly realize they
can extract value from license applicants. There can be no assurance that the
Company will be successful in obtaining new cellular licenses or in developing
other opportunities in the future.
Cash used in operating activities was $3,697,000 and $3,678,000 in 1996 and
1995, respectively. After adding back income taxes paid of $2,100,000 in 1996
and none in 1995, cash used in operating activities was $1,597,000 and
$3,678,000 in 1996 and 1995, respectively. The decrease in cash used in
operating activities before income taxes paid is because the Company no longer
participates in the entity that owns one of the two GSM cellular licenses for
Delhi, India and the Company reduced its efforts to obtain new cellular
licenses. Cash used in investing activities was $39,504,000 in 1996 as a result
of purchases of marketable securities, net of proceeds from sales.
16
<PAGE>
Cellular Communications International, Inc. and Subsidiaries
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended September 30, 1996.
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.
CELLULAR COMMUNICATIONS
INTERNATIONAL, INC.
Date: November 11, 1996 By:/s/ J. Barclay Knapp
---------------------------
J. Barclay Knapp
Executive Vice President
Date: November 11, 1996 By:/s/ Gregg Gorelick
--------------------------
Gregg Gorelick
Vice President-Controller
Principal Accounting Officer)
18
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<PAGE>
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<PERIOD-START> JAN-01-1996
<CASH> 20,697,000
<SECURITIES> 58,178,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,311,000
<PP&E> 69,000
<DEPRECIATION> (45,000)
<TOTAL-ASSETS> 114,939,000
<CURRENT-LIABILITIES> 2,150,000
<BONDS> 166,214,000
0
0
<COMMON> 106,000
<OTHER-SE> 26,531,000
<TOTAL-LIABILITY-AND-EQUITY> 141,939,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 33,673,000
<OTHER-EXPENSES> 2,382,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,191,000
<INCOME-PRETAX> (49,777,000)
<INCOME-TAX> (1,200,000)
<INCOME-CONTINUING> (48,577,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (48,577,000)
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