UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 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 E. 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, 1997 was 10,877,619.
<PAGE>
Cellular Communications International, Inc. and Subsidiaries
Index
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-
September 30, 1997 and December 31, 1996. . . . . . . . 2
Condensed Consolidated Statements of Operations-
Three and nine months ended September 30, 1997
and 1996. . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statement of Shareholders'
(Deficiency) - Nine months ended September 30, 1997 . . 4
Condensed Consolidated Statements of Cash Flows-
Nine months ended September 30, 1997 and 1996 . . . . . 5
Notes to Condensed Consolidated Financial Statements. . 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition. . . . . . . . . . . 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Cellular Communications International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------------------------------
(unaudited) (see note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 59,971,000 $ 46,759,000
Marketable securities 23,083,000 34,404,000
Other 103,000 1,045,000
------------- -------------
Total current assets 83,157,000 82,208,000
Investment in Omnitel 50,217,000 58,363,000
Equipment, net of accumulated depreciation of
$39,000 (1997) and $50,000 (1996) 2,000 19,000
Deferred financing costs, net of accumulated amortization
of $2,485,000 (1997) and $1,525,000 (1996) 4,757,000 5,717,000
------------- -------------
Total assets $ 138,133,000 $ 146,307,000
============= =============
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY)
Current liabilities:
Accounts payable $ - $ 156,000
Accrued expenses 436,000 630,000
Taxes payable 1,442,000 1,444,000
Due to NTL Incorporated 175,000 586,000
------------- -------------
Total current liabilities 2,053,000 2,816,000
Long-term debt, less unamortized discount of $4,061,000
(1997) and $4,881,000 (1996) 190,690,000 172,052,000
Commitments and contingent liabilities
Shareholders' (deficiency):
Series preferred stock-$.01 par value; authorized 2,500,000 shares,
outstanding none - -
Common stock-$.01 par value; authorized 25,000,000 shares; issued
and outstanding 10,878,000 (1997) and 10,708,000 (1996) shares 109,000 107,000
Additional paid-in capital 29,656,000 28,737,000
(Deficit) (84,375,000) (57,405,000)
------------- -------------
(54,610,000) (28,561,000)
------------- -------------
Total liabilities and shareholders' (deficiency) $ 138,133,000 $ 146,307,000
============= =============
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date.
See accompanying notes.
2
<PAGE>
Cellular Communications International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------------- -----------------------------
1997 1996 1997 1996
---------------------------- -----------------------------
<S> <C> <C> <C> <C>
Equity in net income (loss) of Omnitel $ 984,000 $ (12,888,000) $ (7,628,000) $ (33,673,000)
Costs and expenses:
General and administrative expenses 626,000 820,000 2,473,000 2,382,000
Depreciation expense 4,000 6,000 14,000 20,000
Amortization of investments in joint ventures 173,000 173,000 518,000 518,000
------------ ------------- ------------- -------------
803,000 999,000 3,005,000 2,920,000
------------ ------------- ------------- -------------
Operating income (loss) 181,000 (13,887,000) (10,633,000) (36,593,000)
Other income (expense):
Interest income and other, net 1,123,000 1,298,000 3,307,000 4,007,000
Interest expense (6,763,000) (5,949,000) (19,644,000) (17,191,000)
------------ ------------- ------------- -------------
(Loss) before income taxes (5,459,000) (18,538,000) (26,970,000) (49,777,000)
Income tax benefit - 1,200,000 - 1,200,000
------------ ------------- ------------- -------------
Net (loss) $ (5,459,000) $ (17,338,000) $ (26,970,000) $ (48,577,000)
============ ============= ============= =============
Net (loss) per common share $(.50) $(1.63) $(2.51) $(4.64)
============ ============= ============= =============
Weighted average number of common shares
used in computation of net (loss) per share 10,814,000 10,639,000 10,750,000 10,465,000
============ ============= ============= =============
</TABLE>
See accompanying notes.
3
<PAGE>
Cellular Communications International, Inc. and Subsidiaries
Condensed Consolidated Statement of Shareholders' (Deficiency)
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN
SHARES AMOUNT CAPITAL (DEFICIT)
------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 10,708,000 $ 107,000 $ 28,737,000 $ (57,405,000)
Exercise of stock options 170,000 2,000 919,000
Net (loss) for the nine months ended
September 30, 1997 (26,970,000)
---------- --------- ------------ -------------
Balance at September 30, 1997 10,878,000 $ 109,000 $ 29,656,000 $ (84,375,000)
========== ========= ============ =============
</TABLE>
See accompanying notes.
4
<PAGE>
Cellular Communications International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
----------------------------------
1997 1996
----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) $ (26,970,000) $ (48,577,000)
Adjustments to reconcile net (loss) to net
cash (used in) operating activities:
Equity in net loss of Omnitel 7,628,000 33,673,000
Depreciation and amortization expense 532,000 538,000
Loss on disposal of equipment 3,000 2,000
Accretion of original issue discount 17,862,000 15,631,000
Accretion of interest on marketable securities (1,446,000) (1,606,000)
Interest on cash held in escrow - (980,000)
Amortization of deferred financing costs charged
to interest expense 960,000 839,000
Amortization of debt discount 820,000 714,000
Changes in operating assets and liabilities:
Other current assets 942,000 (1,832,000)
Accounts payable (156,000) (159,000)
Accrued expenses (194,000) (352,000)
Taxes payable (2,000) (1,622,000)
Due to Cellular Communications, Inc. - (81,000)
Due to NTL Incorporated (411,000) 115,000
------------- --------------
Net cash (used in) operating activities (432,000) (3,697,000)
------------- --------------
INVESTING ACTIVITIES
Purchase of marketable securities (97,560,000) (114,865,000)
Proceeds from sale of marketable securities 110,327,000 75,361,000
------------- --------------
Net cash provided by (used in) investing activities 12,767,000 (39,504,000)
------------- --------------
FINANCING ACTIVITIES
Redemption of Senior Discount Notes (44,000) -
Payment of financing costs - (54,000)
Exercise of stock options 921,000 987,000
------------- --------------
Net cash provided by financing activities 877,000 933,000
------------- --------------
Increase (decrease) in cash and cash equivalents 13,212,000 (42,268,000)
Cash and cash equivalents at beginning of period 46,759,000 62,965,000
------------- --------------
Cash and cash equivalents at end of period $ 59,971,000 $ 20,697,000
============= ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid $ - $ 2,100,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
Cash held in escrow used for capital contributions
to Omnitel $ - $ 44,178,000
</TABLE>
See accompanying notes.
5
<PAGE>
Cellular Communications International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
NOTE A - 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,
1997 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1997. For further information, refer
to the consolidated financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December
31, 1996.
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.
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share". SFAS No. 128 establishes new standards for
computing and presenting earnings per share and is effective for
financial statements issued for periods ending after December 15, 1997.
The Company will adopt SFAS No. 128 effective with its 1997 year end.
The adoption of SFAS No. 128 would not have changed the net loss per
common share for the three and nine months ended September 30, 1997 and
1996.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the
same prominence as other financial statements. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997. The
Company will adopt SFAS No. 130 for its fiscal year ending December 31,
1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". SFAS No. 131 establishes
standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. SFAS No. 131 is
effective for financial statements for periods beginning after December
15, 1997. The Company will adopt SFAS No. 131 for its fiscal year
ending December 31, 1998.
6
<PAGE>
Cellular Communications International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
NOTE B - INVESTMENT IN OMNITEL
The investment in Omnitel consists of the following:
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------------------------
(unaudited)
Capital contributions $ 96,805,000 $ 96,805,000
Capitalized costs including
interest 9,725,000 9,725,000
Equity in accumulated net loss (54,535,000) (46,907,000)
------------- -------------
51,995,000 59,623,000
Accumulated amortization (1,778,000) (1,260,000)
------------- -------------
$ 50,217,000 $ 58,363,000
============= =============
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. The Company, 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 prepared 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 following summarizes the assets, liabilities and stockholders'
equity of Omnitel:
SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------- -------------
(unaudited)
ASSETS
Current assets $ 7,394,000 $ 9,542,000
Investment in OPI 250,932,000 341,842,000
-------------- -------------
$ 258,326,000 $ 351,384,000
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 715,000 $ 1,341,000
Other liabilities 52,000 59,000
Stockholders' equity 257,559,000 349,984,000
-------------- -------------
$ 258,326,000 $ 351,384,000
============== =============
7
<PAGE>
Cellular Communications International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
NOTE B - INVESTMENT IN OMNITEL (CONTINUED)
The following summarizes the unaudited results of operations of Omnitel:
NINE MONTHS ENDED
SEPTEMBER 30
------------------------------
1997 1996
-------------------------------
Revenues $ - $ -
Costs and expenses (991,000) (2,335,000)
Equity in net loss of OPI (51,447,000) (225,964,000)
------------- --------------
Operating loss (52,438,000) (228,299,000)
Interest income, net 425,000 342,000
------------- --------------
Net loss $ (52,013,000) $ (227,957,000)
============= ==============
The following summarizes the assets, liabilities and stockholders'
equity of OPI:
SEPTEMBER 30, DECEMBER 31,
1997 1996
---------------------------------
(unaudited)
ASSETS
Current assets $ 294,005,000 $ 299,576,000
Property, plant and equipment, net 733,580,000 697,069,000
Intangible assets, net 489,059,000 566,804,000
Deferred tax asset 131,845,000 129,644,000
Other 7,818,000 14,925,000
--------------- ---------------
$ 1,656,307,000 $ 1,708,018,000
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 483,823,000 $ 559,905,000
Long-term debt 799,143,000 647,806,000
Other liabilities 14,867,000 11,961,000
Stockholders' equity 358,474,000 488,346,000
--------------- ---------------
$ 1,656,307,000 $ 1,708,018,000
=============== ===============
8
<PAGE>
Cellular Communications International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (continued)
NOTE B - INVESTMENT IN OMNITEL (CONTINUED)
The following summarizes the unaudited results of operations of OPI:
NINE MONTHS ENDED
SEPTEMBER 30
---------------------------------
1997 1996
---------------------------------
Revenues $ 703,027,000 $ 317,935,000
Costs and expenses 606,157,000 498,710,000
Depreciation and amortization 126,086,000 94,072,000
------------- --------------
732,243,000 592,782,000
------------- --------------
Operating loss (29,216,000) (274,847,000)
Interest (expense), net (61,988,000) (43,764,000)
Income tax benefit 17,661,000 -
------------- --------------
Net loss $ (73,543,000) $ (318,611,000)
============= ==============
Based on an evaluation of the business plan of OPI, expectation of
future market conditions and operating performance, management of OPI
determined that a portion of the valuation allowance on net deferred
income tax assets was not required.
NOTE C - LONG-TERM DEBT
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 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 had approximately
$38,900,000 of excess proceeds in December 1996. The Company made an
offer to purchase Notes at the accreted value of $635.65 per $1,000
Note. In January 1997, upon the expiration of the offer, $70,000
principal amount of Notes were tendered and the Company paid
approximately $44,000.
9
<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, 1997 and 1996
- ----------------------------------------------
Equity in net income (loss) of Omnitel for the third quarter was income
of $984,000 in 1997 and loss of $12,888,000 in 1996. The change is due
to the change in Omnitel's share of OPI's net income (loss) to income
of $6,593,000 from a loss of $85,423,000. OPI's net income (loss)
changed to income of $9,392,000 from a loss of $119,756,000 as a
result of a 113% increase in operating revenues with only a 16%
increase in operating expenses (percentage changes are calculated based
on the results of operations in Italian lire). OPI reported that it had
approximately 1,730,000 and 560,000 subscribers as of September 30,
1997 and 1996, respectively.
General and administrative expenses decreased to $626,000 from $820,000
primarily because CCII reduced its efforts to obtain new cellular
licenses.
Interest income and other, net decreased to $1,123,000 from $1,298,000
primarily because of a decrease in funds available for investment.
Interest expense increased to $6,763,000 from $5,949,000 due to an
increase in the accretion of original issue discount on the Senior
Discount Notes.
Nine Months Ended September 30, 1997 and 1996
- ---------------------------------------------
Equity in net loss of Omnitel decreased to $7,628,000 from $33,673,000
because of the decrease in the net loss of Omnitel. The decrease is
due to a decrease in Omnitel's share of OPI's net loss to
$51,447,000 from $225,964,000. OPI's net loss decreased to $73,543,000
from $318,611,000 as a result of a 142% increase in operating revenues
with only a 35% increase in operating expenses (percentage changes are
calculated based on the results of operations in Italian lire), plus
OPI recorded an income tax benefit of $17,661,000 in 1997.
General and administrative expenses increased to $2,473,000 from
$2,382,000 primarily due to costs incurred in connection with possible
joint ventures that the Company decided not to participate in.
Interest income and other, net decreased to $3,307,000 from $4,007,000
primarily because of a decrease in funds available for investment.
Interest expense increased to $19,644,000 from $17,191,000 due to an
increase in the accretion of original issue discount on the Senior
Discount Notes.
The income tax benefit in 1996 of $1,200,000 is the result of net
operating loss carrybacks to 1995.
10
<PAGE>
Cellular Communications International, Inc. and Subsidiaries (continued)
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 explore other opportunities that may arise. The Company
has no material commitments for capital expenditures, except as
described below. The Company expects that cash, cash equivalents and
marketable securities on hand are sufficient to meet all obligations of
the Company at least through the next twelve months. Italian lire
have been translated solely for the convenience of the reader at an
exchange rate of 1,690.10 lire = $1.00, the Noon Buying Rate on October
31, 1997.
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 ($1.1 billion). On August 29, 1997, OPI signed an Amended and
Restated Facility Agreement which, among other things, provides for an
increase in the facility of 1,000 billion lire ($592 million) from
1,800 billion lire to 2,800 billion lire ($1.7 billion). In addition,
OPI has received capital contributions of 1,450 billion lire ($858
million) from its partners (1,015 billion lire ($601 million) from
Omnitel and 435 billion lire ($257 million) from Pronto Italia).
Omnitel funded its share of OPI capital contributions plus its own
capital needs through capital contributions from its shareholders of
1,040 billion lire ($615 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).
On October 2, 1997, the Board of Directors of Omnitel approved to make
available to OPI a subordinated credit facility of 70 billion lire ($41
million) as soon as OPI indebtedness amounts to 2,200 billion lire
($1.3 billion) and in any case not later than March 31, 1998.
OPI has provided an approximate 219 billion lire ($130 million)
performance bond that requires payments to the Italian government if
OPI fails to meet certain operational targets. There can be no
assurance that OPI will be able to achieve all of its performance bond
goals. The Company's maximum liability under the performance bond is
approximately 22.5 billion lire ($13 million), reflecting its
proportionate interest in OPI.
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
11
<PAGE>
Cellular Communications International, Inc. and Subsidiaries (continued)
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.
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 potential value of cellular licenses and governments
increasingly realize they can extract some part of this 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.
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. The Company utilized the
entire escrow account balance plus interest to make its required
capital contributions to Omnitel in 1995 and 1996.
To the extent that the Company obtains financing in U.S. dollars and
the Company's future commitments to Omnitel 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,
cash equivalents and 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
12
<PAGE>
Cellular Communications International, Inc. and Subsidiaries (continued)
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.
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.
Cash used in operating activities was $432,000 and $3,697,000 in 1997
and 1996, respectively. The decrease in cash used in operating
activities is primarily due to a decrease in income taxes paid to none
in 1997 from $2,100,000 in 1996. Cash provided by investing activities
was $12,767,000 in 1997 as a result of proceeds from sales of
marketable securities, net of purchases. Redemption of Senior Discount
Notes of $44,000 in 1997 is the result of the Company's offer to
repurchase up to $38,900,000 accreted value of Notes using the excess
proceeds from the waiver and release of the Company's 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.
13
<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, 1997.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CELLULAR COMMUNICATIONS
INTERNATIONAL, INC.
Date: November 10, 1997 By: /s/ J. Barclay Knapp
-------------------------
J. Barclay Knapp
Executive Vice President
Date: November 10, 1997 By: /s/ Gregg Gorelick
--------------------------
Gregg Gorelick
Vice President-Controller
(Principal Accounting Officer)
15
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 59,971,000
<SECURITIES> 23,083,000
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<CURRENT-ASSETS> 103,000
<PP&E> 41,000
<DEPRECIATION> (39,000)
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<CURRENT-LIABILITIES> 2,053,000
<BONDS> 190,690,000
0
0
<COMMON> 109,000
<OTHER-SE> (54,719,000)
<TOTAL-LIABILITY-AND-EQUITY> 138,133,000
<SALES> 0
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<TOTAL-COSTS> 7,628,000
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<INTEREST-EXPENSE> 19,644,000
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