<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 March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT of 1934
Commission File No. 1-10789
-----------------------------------------------------
CELLULAR COMMUNICATIONS, INC.
- - ------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3587667
- - ---------------------------------- --------------------------
(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) 906-8440
- - ------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the issuer's common stock as of March
31, 1996 was 27,217,371 (consisting of 17,151,730 shares of Series A and
10,065,641 shares of Series C). In addition, 13,196,498 shares of Redeemable
Participating Convertible Preferred Stock were outstanding as of March 31, 1996.
<PAGE>
CELLULAR COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
- - ------- --------------------- ----
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets --
March 31, 1996 and December 31, 1995 2
Condensed Consolidated Statements of Income --
Three months ended March 31, 1996 and 1995 5
Condensed Consolidated Statement of Shareholders'
Equity -- Three months ended March 31, 1996 6
Condensed Consolidated Statements of Cash Flows --
Three months ended March 31, 1996 and 1995 8
Notes to Condensed Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 14
PART II. OTHER INFORMATION
- - --------------------------
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
- - ----------
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CELLULAR COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------- -------------
(Unaudited) (See Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $101,264,000 $118,888,000
Marketable securities 60,084,000 22,765,000
Due from distributed companies 611,000 652,000
Due from Joint Venture 225,000 -
Deferred income taxes 22,389,000 23,664,000
Taxes receivable 18,206,000 -
Other current assets 495,000 1,156,000
------------ ------------
TOTAL CURRENT ASSETS 203,274,000 167,125,000
INVESTMENT IN JOINT VENTURE 458,463,000 449,674,000
OFFICE FURNITURE AND EQUIPMENT, net of
accumulated depreciation of $394,000
(1996) and $307,000 (1995) 1,912,000 1,930,000
DEFERRED FINANCING COSTS, net
of accumulated amortization of
$2,504,000 (1996) and $2,201,000 (1995) 6,911,000 7,213,000
OTHER ASSETS 23,245,000 24,928,000
------------ ------------
$693,805,000 $650,870,000
============ ============
</TABLE>
2
<PAGE>
CELLULAR COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS--Continued
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------- -------------
(Unaudited) (See Note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 92,000 $ 140,000
Accrued expenses 5,931,000 2,627,000
Due to Joint Venture - 6,000
Taxes payable 2,484,000 3,032,000
Interest payable 2,944,000 223,000
Other current liabilities 522,000 569,000
------------ ------------
TOTAL CURRENT LIABILITIES 11,973,000 6,597,000
LONG-TERM DEBT 358,681,000 355,574,000
COMMITMENTS AND CONTINGENT LIABILITIES
DEFERRED INCOME TAXES 33,595,000 32,429,000
SHAREHOLDERS' EQUITY (see page 4) 289,556,000 256,270,000
------------ ------------
$693,805,000 $650,870,000
============ ============
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from
the audited financial statements at that date.
See notes to condensed consolidated financial statements.
3
<PAGE>
CELLULAR COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS--Continued
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------- -------------
(Unaudited) (See Note)
<S> <C> <C>
SHAREHOLDERS' EQUITY
Redeemable Participating Convertible
Preferred Stock-$.01 par value;
liquidation preference $20; authorized
100,000,000 shares, issued and
outstanding 13,196,000 (1996)
and 14,343,000 (1995) shares $ 132,000 $ 143,000
Series Preference Stock-authorized
5,000,000 shares:
Class A - $.01 par value; liquidation
preference $20; issued and outstanding
2,206,000 shares 22,000 22,000
Series B-$1.00 par value; liquidation
preference $5,000; issued and
outstanding 2,000 shares 2,000 2,000
Series C Nonredeemable
Common Stock-$.01 par value; authorized
100,000,000 shares, issued and outstanding
10,066,000 shares 100,000 100,000
Series A Redeemable Common Stock-$.01 par
value; authorized 100,000,000 shares,
issued 17,152,000 (1996) and
15,990,000 (1995) shares 172,000 160,000
Additional paid-in capital 316,656,000 254,966,000
Retained earnings 18,954,000 46,126,000
------------ ------------
336,038,000 301,519,000
Accumulated unrealized gains on
available-for-sale securities, net
of tax 1,874,000 2,618,000
Treasury stock-at cost, 1,005,000 (1996)
and 995,000 (1995) shares (48,356,000) (47,867,000)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY $289,556,000 $256,270,000
============ ============
</TABLE>
4
<PAGE>
CELLULAR COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1996 1995
--------------- -------------
<S> <C> <C>
Revenue:
Equity in net income of joint venture $ 29,789,000 $18,901,000
Costs and expenses:
General and administrative expenses 63,445,000 3,784,000
Depreciation and amortization expense 390,000 579,000
------------ -----------
63,835,000 4,363,000
------------ -----------
OPERATING INCOME (LOSS) (34,046,000) 14,538,000
Other income (expense):
Interest and other income, net 1,970,000 4,451,000
Interest expense (6,295,000) (6,997,000)
Nonrecurring charges (3,100,000) -
------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES (41,471,000) 11,992,000
Benefit (provision) for income taxes 14,299,000 (4,653,000)
------------ -----------
NET INCOME (LOSS) $(27,172,000) $ 7,339,000
============ ===========
</TABLE>
NET INCOME (LOSS) PER COMMON SHARE $ (.65) $ .16
============ ===========
Weighted average number of common shares
used in computation of net income (loss)
per share including common stock
equivalents 41,774,000 44,712,000
============ ===========
See notes to condensed consolidated financial statements.
5
<PAGE>
CELLULAR COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Convertible Preferred Stock
----------------------------------------------------------------------- Nonredeemable
Class A Series B Common Stock
Redeemable Participating Preference Preference $.01 Par Value
--------------------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount Shares Par
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 14,343,000 $143,000 2,206,000 $22,000 2,000 $2,000 10,066,000 $100,000
Excercise of stock options
Conversion of redeemable
preferred stock (1,147,000) (11,000)
Conversion of Series B
preference stock
MRO expenses
MRO related to stock options
Common stock repurchased,
at cost
Adjustment to unrealized gains
on available-for-sale securities,
net of tax
Net (loss) for the three months
ended March 31, 1996
--------------------------------------------------------------------------------------------------
Balance, March 31, 1996 13,196,000 $132,000 2,206,000 $22,000 2,000 $2,000 10,066,000 $100,000
==================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
CELLULAR COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)-continued
<TABLE>
--------------------------------------------------------------------------------------------------
Series A Redeemable Accumulated
Common Stock Unrealized
$.01 Par Value Additional Gains on Treasury Stock
-------------------- Paid-In Retained Available-For-Sale -------------------------
Shares Par Capital Earnings Securities Shares Amount
-------------------- ------------ ----------- ------------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 15,990,000 $160,000 $254,966,000 $46,126,000 $2,618,000 995,000 ($47,867,000)
Excercise of stock options 1,000 -- 47,000
Conversion of redeemable
preferred stock 1,147,000 11,000
Conversion of Series B
preference stock 14,000 1,000 47,000
MRO expenses (118,000)
MRO related to stock options 61,714,000
Common stock repurchased,
at cost 10,000 (489,000)
Adjustment to unrealized gains
on available-for-sale
securities, net of tax (744,000)
Net (loss) for the three months
ended March 31, 1996 (27,172,000)
---------------------------------------------------------------------------------------------------
Balance, March 31, 1996 17,152,000 $172,000 $316,656,000 $18,954,000 $1,874,000 1,005,000 ($48,356,000)
===================================================================================================
</TABLE>
7
<PAGE>
CELLULAR COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (87,252,000) $ 3,781,000
INVESTING ACTIVITIES
Purchase of office furniture and
equipment (103,000) (451,000)
Purchase of marketable securities (69,393,000) (23,144,000)
Proceeds from sale of marketable
securities 32,122,000 15,780,000
Additions to other assets - (81,000)
Return of the PCS auction deposit - 18,000,000
-------------- --------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (37,374,000) 10,104,000
FINANCING ACTIVITIES
Proceeds from issuance of common stock 47,000 54,000
Payment of financing costs (101,000) -
MRO expenses (126,000) -
Payments to acquire treasury stock (489,000) -
Proceeds from sale of MRO related
stock options 107,671,000 -
-------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 107,002,000 54,000
-------------- --------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (17,624,000) 13,939,000
Cash and cash equivalents at beginning
of period 118,888,000 133,050,000
-------------- --------------
Cash and cash equivalents at end of period $ 101,264,000 $ 146,989,000
============== ==============
Supplemental disclosures of cash flow
information:
Cash paid during the period for interest $ 468,000 $ 4,462,000
Income taxes paid 1,265,000 1,011,000
Supplemental schedule of noncash financing
activities:
Reduction in other liabilities due to
conversion of Series B Preference Stock $ 47,000 $ -
</TABLE>
See notes to condensed consolidated financial statements.
8
<PAGE>
CELLULAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three months
ended March 31, 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 footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1995.
Net income (loss) per share is computed based on the weighted average
number of common shares outstanding during the periods, including the Redeemable
Participating Convertible Preferred Stock, Class A Preference Stock, Series B
Preference Stock, and, in the net income per share computation, common stock
equivalents. The shares issuable upon the conversion of the Zero Coupon
Convertible Subordinated Notes are excluded because they are antidilutive.
NOTE B--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 will continue to
measure compensation costs for its plans as prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees."
NOTE C--MERGER AND JOINT VENTURE AGREEMENT
Cellular Communications, Inc. ("CCI" or the "Company") and AirTouch
Communications, Inc. ("AirTouch") entered into an Agreement and Plan of Merger
dated as of April 5, 1996 (the "1996 Merger Agreement"), pursuant to which
AirTouch will acquire the approximately 60% of the capital stock of CCI which it
does not already own for $55 per share in cash and/or convertible preferred
securities of AirTouch. The transaction is subject to, among other things,
regulatory approvals and the approval of the stockholders of the Company. The
description of the transaction is qualified in its entirety by the terms of the
1996 Merger Agreement, which is included as an exhibit to this Form 10-Q.
Following the announcement of the signing of the 1996 Merger Agreement, various
class action complaints were filed against CCI, its Directors and AirTouch
alleging breaches of fiduciary duties and other matters in connection with the
Agreement. The Company believes these complaints are without merit and intends
to vigorously defend itself against these claims.
9
<PAGE>
CELLULAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)-- Continued
NOTE C--MERGER AND JOINT VENTURE AGREEMENT - Continued
In 1991, pursuant to the Amended and Restated Agreement and Plan of
Merger and Joint Venture Organization, dated as of December 14, 1990 between CCI
and AirTouch (the "Merger Agreement"), CCI and AirTouch formed a joint venture
equally owned by CCI and AirTouch comprised of the Company's cellular telephone
interests in Ohio and AirTouch's cellular telephone interests in Michigan and
Ohio (the "Joint Venture"). In addition, the Company distributed to its
shareholders its wholly-owned subsidiaries OCOM Corporation and Cellular
Communications International, Inc. ("CCII") in 1991 and Cellular Communications
of Puerto Rico, Inc. ("CCPR") in 1992. In 1993, OCOM Corporation became a
subsidiary of International CableTel Incorporated.
The Merger Agreement includes, among other matters, (i) the right of
AirTouch to increase its ownership of CCI's capital stock up to 27.5% on a fully
diluted basis from August 1991 through October 1995, (ii) a redemption by CCI in
October 1995 of up to 10.04 million shares of CCI's redeemable stock subject to
certain antidilution adjustments for $60 per share (the mandatory redemption
obligation ("MRO")), and (iii) at specified times from August 1996 through
January 1998, AirTouch has the right to acquire CCI by causing the redemption of
all stock not then owned by AirTouch at a price based upon the appraised private
market value of the Joint Venture and, to the extent agreed upon by CCI and
AirTouch, of certain other CCI assets. AirTouch is not required to cause this
redemption. The appraised value will be subject to reduction for certain
adjustments described in detail in the Merger Agreement. As of May 1, 1996,
these adjustments aggregate $1.16 per share on a fully diluted basis. The
adjustments as of May 1, 1996 are not necessarily predictive of the adjustments
that may be calculated in future periods.
In the event that AirTouch does not exercise its right to cause the
redemption, CCI is obligated to promptly commence a process to sell CCI. Under
certain circumstances, if CCI is sold within two years thereafter at a price
less than the appraised value of the Joint Venture, AirTouch will be obligated
to pay shareholders of CCI a substantial portion of such difference.
In January 1996, in accordance with the terms of the MRO, the Company
cancelled options to purchase 2,394,000 shares of common stock for cash of
$107,671,000 ($60 per share less the exercise price), and AirTouch purchased
from CCI for $107,671,000 an option to purchase 2,394,000 shares of Series C
Common Stock at an exercise price of $15.03 per share. CCI recorded
compensation expense of $61,714,000 from the option cancellation.
10
<PAGE>
CELLULAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)-- Continued
NOTE D--INVESTMENT IN JOINT VENTURE
<TABLE>
<CAPTION>
March 31,
1996
------------
(Unaudited)
<S> <C>
Investment in Joint Venture at
beginning of period $449,674,000
Distributions (21,000,000)
Equity in net income 29,509,000
Amortization of the excess of
CCI's 50% share of the Joint
Venture's net assets over
CCI's historical basis in the
net assets contributed to the
Joint Venture over a period of
approximately 36 years 280,000
------------
$458,463,000
============
</TABLE>
The following summarizes the assets, liabilities and partners' capital
of the Joint Venture:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets $ 156,767,000 $ 162,576,000
Property, plant and equipment, net 476,715,000 463,877,000
License acquisition costs, net 410,034,000 413,149,000
Other 30,055,000 32,609,000
-------------- --------------
$1,073,571,000 $1,072,211,000
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities, including
$17,514,000 (1996) and $28,748,000
(1995) of distributions payable $ 97,979,000 $ 125,034,000
Minority interests and other
liabilities 5,554,000 5,391,000
Partners' capital 970,038,000 941,786,000
-------------- --------------
$1,073,571,000 $1,072,211,000
============== ==============
</TABLE>
11
<PAGE>
CELLULAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)-- Continued
NOTE D--INVESTMENT IN JOINT VENTURE - Continued
The following summarizes the unaudited results of operations of the Joint
Venture:
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1996 1995
--------------- -------------
<S> <C> <C>
Revenues:
Service revenue $190,317,000 $140,908,000
Telephone equipment revenue 21,729,000 21,892,000
------------ ------------
212,046,000 162,800,000
Costs and expenses:
Cost of telephone equipment sold 17,818,000 19,598,000
Operating expenses 39,928,000 29,899,000
Selling, general and administrative 72,044,000 55,505,000
Depreciation of rental telephones 1,896,000 4,186,000
Depreciation and amortization 21,305,000 16,548,000
------------ ------------
152,991,000 125,736,000
------------ ------------
OPERATING INCOME 59,055,000 37,064,000
Interest and other, net 1,289,000 1,072,000
------------ ------------
INCOME BEFORE PROVISION FOR
INCOME TAXES 60,344,000 38,136,000
Provision for state and local
income taxes (1,326,000) (894,000)
------------ ------------
NET INCOME $ 59,018,000 $ 37,242,000
============ ============
</TABLE>
12
<PAGE>
CELLULAR COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)-- Continued
<TABLE>
<CAPTION>
NOTE E--DUE FROM DISTRIBUTED COMPANIES
March 31, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
Cellular Communications of
Puerto Rico, Inc. $ 263,000 $ 310,000
Cellular Communications
International, Inc. 65,000 81,000
International CableTel Incorporated 283,000 261,000
------------ ------------
$ 611,000 $ 652,000
============ ============
NOTE F--LONG TERM DEBT
March 31, December 31,
1996 1995
------------ ------------
(Unaudited)
Zero Coupon Convertible
Subordinated Notes $170,681,000 $167,574,000
Subsidiary bank loan 188,000,000 188,000,000
------------ ------------
$358,681,000 $355,574,000
============ ============
</TABLE>
NOTE G--COMMITMENTS AND CONTINGENT LIABILITIES
The Company would be required to make capital contributions to the Joint
Venture, if necessary. The Company does not expect the Joint Venture to require
capital contributions.
The Company is a party to certain litigation in the ordinary course of
business which, in the opinion of management, will not have a material adverse
effect on the financial condition of the Company.
13
<PAGE>
CELLULAR COMMUNICATIONS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 and 1995
- - ------------------------------------------
Results of the Joint Venture
Service revenue increased to $190,317,000 from $140,908,000 as a
result of subscriber growth. Net subscriber activations in the first quarter of
1996 increased to 67,000 from 64,000 in the first quarter of 1995. Ending
subscribers were 1,094,000 and 793,000 at March 31, 1996 and 1995, respectively.
The income from telephone equipment (before depreciation of rental
telephones) increased to $3,911,000 from $2,294,000 because of a decrease in the
loss on sales of telephones.
Operating expenses increased to $39,928,000 from $29,899,000 primarily
because of increases in subscriber roaming, fraudulent usage and system usage.
Primarily due to higher selling costs, selling, general and
administrative expenses increased to $72,044,000 from $55,505,000. An increase
in payroll expense also contributed to the overall increase.
Depreciation of rental telephones decreased to $1,896,000 from
$4,186,000 due to a decrease in the number of rental telephones.
Depreciation and amortization increased to $21,305,000 from
$16,548,000 primarily due to the depreciation of additional cellular network
equipment.
Interest and other income, net increased to $1,289,000 from $1,072,000
primarily because of an increase in interest income.
Results of Cellular Communications, Inc. and Subsidiaries
Equity in net income of Joint Venture increased to $29,789,000 from
$18,901,000 because of the increase in the net income of the Joint Venture.
General and administrative expenses increased to $63,445,000 from
$3,784,000. Included in the 1996 amount is $61,714,000 of compensation expense
from the MRO related to stock options. Included in the 1995 amount is
$2,700,000 of non-cash expense related to the changes made to the stock option
agreements pursuant to the Merger Agreement.
14
<PAGE>
CELLULAR COMMUNICATIONS, INC. AND SUBSIDIARIES
Continued
Interest and other income, net decreased to $1,970,000 from $4,451,000
due to reductions in interest income from the repayment of the CCPR note
receivable and the termination of the CCII guarantee fees.
Interest expense decreased to $6,295,000 from $6,997,000 due to a
reduction in the principal balance and a decrease in the effective interest rate
on the subsidiary bank loan.
Nonrecurring charges in 1996 of $3,100,000 were incurred in connection
with the 1996 Merger Agreement.
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 will continue to measure
compensation costs for its plans as prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees."
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital primarily for debt service and to make
contributions to the Joint Venture or its other investments, if necessary. The
Company had no material commitments for capital expenditures as of March 31,
1996. The Company is expected to meet its requirements with cash and securities
on hand and from Joint Venture distributions.
Cash used in operating activities was $87,252,000 in 1996 and cash
provided by operating activities was $3,781,000 in 1995. The Company paid
$107,671,000 in 1996 to cancel options to purchase 2,394,000 shares of common
stock in accordance with the terms of the MRO. Distributions received from the
Joint Venture were $21,000,000 and $8,024,000 in 1996 and 1995, respectively.
Cash used in investing activities was $37,374,000 in 1996. Cash of
$37,271,000 was used for the purchase of marketable securities, net of sales.
Cash provided by financing activities was $107,002,000 in 1996, of
which $107,671,000 was the proceeds from the sale of the MRO related stock
options to AirTouch. The Company paid $489,000 to acquire 10,000 shares of
treasury stock.
In December 1995, a subsidiary of the Company, Cellular Communications
of Ohio, Inc. ("CCI Ohio") entered into a new Credit Agreement with a group of
banks and borrowed $188,000,000. The new loan agreement is a line of credit of
up to $500,000,000 until March 31, 1999, at which date the commitment is
reduced in equal quarterly installments which aggregate $75,000,000 in 1999,
$75,000,000 in 2000, $100,000,000 in 2001, $100,000,000 in 2002 and
$150,000,000 in 2003. Principal payments commence when the outstanding balance
exceeds the remaining commitment after reductions, which could be as early as
March 31, 1999. Based upon
15
<PAGE>
CELLULAR COMMUNICATIONS, INC. AND SUBSIDIARIES
Continued
the amount borrowed as of March 31, 1996, principal payments will commence on
September 30, 2002. Interest is payable quarterly at a floating rate based
upon, at CCI Ohio's election, either (a) the higher of the prime rate of
interest or the Federal Funds Rate plus 1/2%, or (b) the London Interbank
Offering Rate plus .625%, .75%, 1% or 1.25%, depending upon the ratio of debt to
cash flow, as defined. The effective rate on borrowings at March 31, 1996 was
6.255%. The terms also include an unused commitment fee of 1/4% or 3/8%
depending upon the ratio of debt to cash flow, as defined, which is payable
quarterly.
The line of credit is available for acquisitions of cellular license
interests, Joint Venture capital calls, general corporate purposes of CCI Ohio
and subsidiaries, loans to CCI and acquisitions by CCI Ohio of domestic wireless
communications businesses. The loan agreement required the following as
conditions of the initial funding: (i) CCI Ohio's pledge to the banks of a
security interest in the stock of CCI Ohio's subsidiaries, (ii) CCI's guarantee
of CCI Ohio's obligations under the loan agreement, (iii) CCI Ohio's
subsidiaries' guarantee of CCI Ohio's obligations under the loan agreement, and
(iv) repayment of CCI Ohio's prior bank loan. It also includes, among other
matters, restrictions on CCI, CCI Ohio and Joint Venture debt, restrictions on
dividends, restrictions on liens and requires the maintenance of ratios (as
defined) of indebtedness to cash flow, cash flow to interest expense and cash
flow to debt service.
In January 1992, CCI issued $217,000,000 principal amount at maturity,
Zero Coupon Convertible Subordinated Notes due July 27, 1999. The issue price
represents a yield to maturity of 7.5% per annum (computed on a semi-annual bond
equivalent basis). The notes are convertible at the holder's option into Series
A Common Stock at a conversion rate of 14.5 shares per $1,000 principal amount.
The notes are redeemable by CCI beginning January 27, 1997 at the issue price
plus accrued original issue discount through the date of redemption.
In 1995, the Company's Board of Directors authorized the repurchase of
up to 3,500,000 shares of Series A Common Stock through open market purchases as
market conditions warrant. The Company, to date, repurchased 1,005,000 shares
of Series A Common Stock through open market purchases for an aggregate of
$48,356,000.
16
<PAGE>
CELLULAR COMMUNICATIONS, INC. AND SUBSIDIARIES
Continued
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Included Within:
------------------------
2. Agreement and Plan of Merger dated as of April 5, 1996 among
AirTouch Communications, Inc., AirTouch Cellular and Cellular
Communications, Inc. (Incorporated by reference to Exhibit 2,
April 6, 1996 Form 8-K, File No. 1-10789).
27 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended March 31, 1996, the Company filed a
current report on Form 8-K dated January 4, 1996 reporting
under Item 5, Other Events, the transactions in connection with
the MRO related to stock options. There were no financial
statements filed with this report.
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, Inc.
Date: May 7, 1996 By: /s/ J. Barclay Knapp
-----------------------------
J. Barclay Knapp
Executive Vice President
Date: May 7, 1996 By: /s/ Gregg Gorelick
-----------------------------
Gregg Gorelick
Vice President-Controller
(Principal Accounting Officer)
18
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-30-1996
<CASH> 101,264,000
<SECURITIES> 60,084,000
<RECEIVABLES> 836,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 495,000
<PP&E> 2,306,000
<DEPRECIATION> 394,000
<TOTAL-ASSETS> 693,805,000
<CURRENT-LIABILITIES> 11,973,000
<BONDS> 358,681,000
0
156,000
<COMMON> 272,000
<OTHER-SE> 289,128,000
<TOTAL-LIABILITY-AND-EQUITY> 693,805,000
<SALES> 0
<TOTAL-REVENUES> 29,789,000
<CGS> 0
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<OTHER-EXPENSES> 63,445,000
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<INTEREST-EXPENSE> 6,295,000
<INCOME-PRETAX> (41,471,000)
<INCOME-TAX> (14,299,000)
<INCOME-CONTINUING> (27,172,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (27,172,000)
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