<PAGE>
<PAGE>
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 February 28, 1997
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
Commission file number 0-19603
CENTENNIAL CELLULAR CORP.
(Exact name of registrant as specified in its charter)
Delaware 06-1242753
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 Locust Avenue
New Canaan, CT 06840
(Address of principal executive offices, including zip code)
(203) 972-2000
(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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class A Common - 16,492,884 outstanding shares as of April 5, 1997
Class B Common - 10,544,113 outstanding shares as of April 7, 1997
<PAGE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
February 28, May 31,
1997 1996
------------ -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 15,954 $ 67,297
Accounts receivable, less allowance for doubtful
accounts of $1,583 and $1,471, respectively 24,002 20,210
Prepaid expenses and other current assets 6,417 2,158
--------- ---------
TOTAL CURRENT ASSETS 46,373 89,665
PROPERTY, PLANT AND EQUIPMENT - net 151,697 91,417
EQUITY INVESTMENTS IN CELLULAR SYSTEMS - net 95,289 100,204
DEBT ISSUANCE COSTS, less accumulated amortization of
$3,088 and $2,081, respectively 7,334 7,738
CELLULAR TELEPHONE LICENSES, less accumulated
amortization of $201,151 and $164,786, respectively 296,969 300,206
PERSONAL COMMUNICATIONS SERVICES LICENSE, less accumulated 62,413 60,007
amortization $346 and $0, respectively
GOODWILL, less accumulated amortization of $22,285
and $19,343, respectively 130,965 133,907
OTHER ASSETS - net 2,232 2,668
--------- ---------
TOTAL $ 793,272 $ 785,812
========= =========
</TABLE>
See notes to consolidated financial statements
1
<PAGE>
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
February 28, May 31,
1997 1996
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,102 $ 4,325
Accrued interest payable 10,635 2,299
Other accrued expenses 28,444 14,547
Payable to affiliate 924 956
Customers' deposits and prepayments 7,016 4,961
------------ ------------
TOTAL CURRENT LIABILITIES 54,121 27,088
LONG-TERM DEBT 369,000 350,000
DEFERRED LIABILITY 2,200 2,200
DEFERRED INCOME TAXES 47,824 56,588
PREFERRED STOCK:
Convertible redeemable preferred stock
(at aggregate liquidation value which approximates
the fair market value), par value $.01 per share,
102,187 shares authorized; issued and outstanding
102,187 shares (redemption value of $1,823.00 per share) 186,287 182,813
Second series convertible redeemable preferred stock
(at aggregate liquidation value which approximates the
fair market value), par value $.01 per share, 3,978 shares 7,252 7,117
authorized; issued and outstanding 3,978 shares
(redemption value of $1,823.00 per share)
Senior preferred stock, par value $.01 per share, dividend
rate 14%, 250,000 shares authorized, none issued - -
Additional preferred stock, par value $.01 per share, authorized
10,000,000 shares, 3,978 shares issued as second series
convertible redeemable preferred stock - -
COMMON STOCKHOLDERS' EQUITY:
Common stock par value $.01 per share:
Class A, 1 vote per share, 100,000,000 shares authorized, 165 165
issued and outstanding 16,492,884 and 16,461,858 shares,
respectively
Class B, 15 votes per share, 50,000,000 shares authorized,
issued and outstanding 10,544,113 shares 105 105
Additional paid-in capital 371,829 383,533
Accumulated deficit (240,710) (218,996)
------------ ------------
131,389 164,807
Less: Cost of 83,940 Class A common shares in treasury (1,801) (1,801)
Shareholder note receivable (3,000) (3,000)
------------ ------------
TOTAL COMMON STOCKHOLDERS' EQUITY 126,588 160,006
------------ ------------
TOTAL $ 793,272 $ 785,812
============ ============
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ -------------------------
February 28, February 29, February 28, February 29,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE:
Service revenue $ 38,286 $ 26,489 $ 103,391 $ 77,323
Equipment sales 676 623 2,075 1,923
Interest income 212 826 1,432 3,327
------------ ----------- ----------- ------------
39,174 27,938 106,898 82,573
------------ ----------- ----------- ------------
COSTS AND EXPENSES:
Cost of services 5,913 4,074 15,606 11,312
Cost of equipment sold 4,734 3,161 11,403 8,460
Selling, general and administrative 15,398 9,241 37,080 25,324
Depreciation and amortization 21,175 18,033 58,966 53,574
------------ ----------- ----------- ------------
47,220 34,509 123,055 98,670
------------ ----------- ----------- ------------
OPERATING LOSS (8,046) (6,571) (16,157) (16,097)
------------ ----------- ----------- ------------
INCOME FROM EQUITY INVESTMENTS 2,789 2,190 10,873 7,656
GAIN ON SALE OF ASSETS 2,058 15 2,106 4,218
INTEREST EXPENSE 8,839 8,242 23,598 24,793
------------ ----------- ----------- ------------
LOSS BEFORE INCOME TAX BENEFIT
AND MINORITY INTEREST (12,038) (12,608) (26,776) (29,016)
INCOME TAX BENEFIT (2,758) (3,721) (5,532) (9,273)
------------ ----------- ----------- ------------
LOSS BEFORE MINORITY INTEREST (9,280) (8,887) (21,244) (19,743)
MINORITY INTEREST IN (INCOME) LOSS OF SUBSIDIARIES (206) 80 (470) 169
------------ ----------- ----------- ------------
NET LOSS $ (9,486) $ (8,807) $ (21,714)$ (19,574)
============ =========== =========== ============
DIVIDEND REQUIREMENT ON PREFERRED STOCK $ 4,113 $ 3,397 $ 11,836 $ 10,085
============ =========== =========== ============
LOSS APPLICABLE TO COMMON SHARES $ (13,599) $ (12,204) $ (33,550)$ (29,659)
============ =========== =========== ============
LOSS PER COMMON SHARE $ (.50) $ (.45) $ (1.25) $ (1.11)
============ =========== =========== ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON SHARE EQUIVALENTS
OUTSTANDING DURING THE PERIOD 26,936,000 26,839,000 26,935,000 26,794,000
============ =========== =========== ============
</TABLE>
See notes to consolidated financial statements
3
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<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock
--------------------------------------------
Class A Class B Additional Shareholder
-------------------- ------------------- Paid-In Treasury Note (Accumulated
Shares Dollars Shares Dollars Capital Stock Receivable Deficit) Total
------ ------- ------ ------- ------- ----- ---------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 1, 1995 15,741,752 $157 10,544,113 $105 $395,735 $(1,801) $(3,000) $(202,365) $188,831
Common Stock
issued in conjunction with
incentive plans 493,441 5 - - 448 - - - 453
Common stock
issued in conjuction with
acquisitions 226,665 3 - - - - - - 3
Vesting of stock options - - - - 940 - - - 940
Net loss - - - - - - - (16,631) (16,631)
Accretion in liquidation value
of preferred stock - - - - (13,590) - - - (13,590)
---------- ----- ---------- ----- --------- ------- ------- --------- --------
Balance at May 31, 1996 16,461,858 165 10,544,113 105 383,533 (1,801) (3,000) (218,996) 160,006
Common Stock issued in
connection with incentive
plans 31,026 - - - 132 - - - 132
Dividends payable on preferred
stock - - - - (8,226) - - - (8,226)
Net loss - - - - - - - (21,714) (21,714)
Accretion in liquidation value
of preferred stock - - - - (3,610) - - - (3,610)
---------- ----- ---------- ----- --------- --------- -------- ---------- --------
Balance at February 28, 1997 16,492,884 $ 165 10,544,113 $ 105 $ 371,829 $ (1,801) $(3,000) $(240,710) $126,588
========== ===== ========== ===== ========= ========= ======== ========== ========
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------
February 28, February 29,
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Cash received from subscribers and others $ 124,387 $ 92,747
Cash paid to suppliers, employees and
governmental agencies (87,907) (55,996)
Interest paid (14,546) (16,063)
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 21,934 20,688
------------- -------------
INVESTING ACTIVITIES:
Proceeds from equipment sales 2,947 -
Capital expenditures (59,482) (26,893)
Acquisition of other assets (69) (3,122)
Acquisition, disposition and exchange of cellular telephone systems (34,908) 314
Acquistion of personal communications service license (2,752) (44,656)
Capital returned from equity investments 6,863 4,818
Capital contributed to equity investments (292) (433)
------------- -------------
NET CASH (USED IN) INVESTING ACTIVITIES (87,693) (69,972)
------------- -------------
FINANCING ACTIVITIES:
Proceeds from long-term debt 40,000 -
Repayment of long-term debt (21,000) -
Debt issuance costs paid (603) (303)
Dividends paid (4,113) -
Issuance of Class A and B common stock and treasury stock purchases 132 460
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 14,416 157
------------- -------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (51,343) (49,127)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 67,297 121,628
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 15,954 $ 72,501
============= =============
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------
February 28, February 29,
1997 1996
------------ ------------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net loss $ (21,714) $ (19,574)
-------------- -----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 58,966 53,574
Minority interest in income (loss) of subsidiaries 470 (169)
Deferred income taxes (8,173) (10,000)
Equity in undistributed earnings of investee companies (10,873) (7,656)
Gain on sale of assets (2,106) (4,176)
Other 828 870
Change in assets and liabilities net of effects of acquired,
exchanged and disposed cellular telephone systems:
Accounts receivable - (increase) (2,127) (2,573)
Prepaid expenses and other current assets -
(increase) (4,196) (599)
Accounts payable and accrued expenses -
increase 8,825 9,369
Customer deposits and prepayments -
increase 2,034 1,622
-------------- -----------
Total adjustments 43,648 40,262
-------------- -----------
Net cash provided by operating activities $ 21,934 $ 20,688
============== ===========
</TABLE>
See notes to consolidated financial statements
6
<PAGE>
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share data)
NOTE 1. INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying interim unaudited consolidated
financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the consolidated financial
position of Centennial Cellular Corp. and Subsidiaries (the "Company") as of
February 28, 1997 and the results of its consolidated operations and cash flows
for the nine months ended February 28, 1997 and February 29, 1996. It is
suggested that the statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's May 31, 1996
Annual Report on Form 10-K.
NOTE 2. CREDIT FACILITY
On September 12 ,1996, the Company entered into a $50,000 credit facility with
Citibank, N.A. The facility terminates on March 20, 1998. Approximately $34,000
of the facility was used to fund the Benton Harbor, Michigan cellular telephone
system acquisition (see "Acquisitions, Dispositions and Exchanges"). The
remainder will be used for working capital and general corporate purposes. The
interest rate payable on borrowings under the new credit facility are based on,
at the election of the Company, (a) "Base Rate" plus a margin of 2% or (b)
"Eurodollar Rate" plus a margin of 3%. The facility is secured by the stock of
certain of the Company's subsidiaries not otherwise subject to restrictions
under its Senior Note Indentures. The credit facility restricts the incurrence
of certain additional debt of the Company, limits the Company's ability to pay
dividends and requires that certain operating tests be met. At February 28, 1997
the Company was in compliance with the covenants of this credit facility.
NOTE 3. REGISTRATION STATEMENTS
The Company filed a shelf registration statement with the Securities and
Exchange Commission (SEC) for up to 8,000,000 shares of its Class A Common Stock
that may be offered from time to time in connection with acquisitions. As of
April 7, 1997, 4,239,231 shares remain available for future acquisitions.
On April 5, 1995, the Company filed a shelf registration statement with the SEC
for the issuance of $500,000 of the Company's debt securities. The debt
securities may be issued from time to time in series on terms to be specified in
one or more prospectus supplements at the time of the offering. If so specified
with respect to any particular series, the debt securities may be convertible
into shares of the Company's Class A Common Stock. As of April 7, 1997, $400,000
remain available for issuance.
NOTE 4. PRO-FORMA INFORMATION
The summary pro-forma information includes the accounts and operations of the
Company and, completed acquisitions (purchased/exchanged from June 1, 1995 and
completed by February 28, 1997), in each case as if such acquisitions/exchanges
had been consummated as of the beginning of the respective period for the
combined statements of operations.
7
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------------
February 28, February 29,
1997 1996
-------------- ------------
<S> <C> <C>
Revenues $108,168 $ 85,486
Net Loss (20,674) (22,313)
Loss per common share (1.21) (1.20)
</TABLE>
Pro-forma loss per common share for the nine months ended February 28, 1997 and
February 29, 1996 is calculated on a fully diluted basis using the pro-forma
average number of common shares outstanding during the period, including common
stock equivalents.
NOTE 5. REVENUE RECOGNITION
Cellular telephone service income includes service revenues and charges for
installation and connections, net of land line charges of $20,678 and $13,743,
for the nine months ended February 28, 1997 and February 29, 1996, respectively.
NOTE 6. LOSS PER COMMON SHARE
Loss per common share is calculated on a fully diluted basis and includes 0 and
375,000 shares of common stock equivalents for the nine month periods ended
February 28, 1997 and February 29, 1996, respectively. Loss per common share
includes a charge for the accretion in liquidation value of preferred stock and
the dividend payable on preferred stock.
NOTE 7. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the nine months ended February 29, 1996, the Company reclassified $2,774
of property, plant and equipment, $2,801 of goodwill, $160 of other assets, $476
of accounts receivable and $672 of accounts payable to cellular telephone
license as a result of the exchange of cellular markets described at Note 8.
NOTE 8. ACQUISITIONS, EXCHANGES, DISPOSITIONS
On June 30, 1995, the Company acquired the non-wireline cellular telephone
systems serving (a) Newtown, LaPorte, Starke, Pulaski, Jasper and White,
Indiana, (b) Kosciusko, Noble, Steuben and Lagrange, Indiana, (c) Williams,
Defiance, Henry and Paulding, Ohio and (d) Copiah, Simpson, Lawrence, Jefferson
Davis, Walthall and Marion, Mississippi, representing an aggregate of
approximately 608,100 Net Pops. The above-described systems were acquired by the
Company in exchange for the Company's non-wireline cellular telephone systems
serving the Roanoke, Virginia MSA, the Lynchburg, Virginia MSA, North Carolina
RSA #3 and Iowa RSA #5, representing an aggregate of approximately 644,000 Net
Pops. Simultaneously with the consummation of the transaction described above,
the Company sold its 72.2% interest in the non-wireline cellular telephone
system serving the Charlottesville, Virginia MSA, representing an aggregate of
approximately 94,700 Net Pops, for a cash purchase price of approximately
$9,914. The Company recognized a gain of approximately $4,176 as a result of the
sale.
The Company was the successful bidder for one of two Metropolitan Trading Area
(MTA) licenses (granted June 23, 1995) to provide broadband personal
communications services in the Commonwealth of Puerto Rico and the U.S. Virgin
Islands. The licensed area represents approximately 3,623,000 Net Pops. The
amount of the final bid submitted and paid by the Company was $54,672.
8
<PAGE>
<PAGE>
On October 31, 1995, the Company acquired (i) a 94.3% interest in the
non-wireline cellular telephone system serving the Lafayette, Louisiana MSA,
representing approximately 205,700 Net Pops, in exchange for the Company's
non-wireline cellular telephone system serving the Jonesboro, Arkansas RSA
(comprising approximately 205,000 Net Pops), the license rights and assets
located in and covering the Desoto and Red River Parishes of Louisiana 3 RSA
(comprising approximately 34,700 Net Pops), the license rights and assets
located in and covering a section of Morehouse Parish of Louisiana 2 RSA
(comprising approximately 24,100 Net Pops) and a cash payment by the Company of
approximately $5,580, subject to adjustment, and (ii) an additional 14.3%
minority interest in the Elkhart, Indiana RSA, a market in which the Company now
has a 91.4% interest and an additional 12.7% equity investment interest in the
Lake Charles, Louisiana MSA, a market in which the Company now has a 25.1%
interest, for a cash payment of approximately $2,951.
On September 12, 1996, the Company acquired, for approximately $34,000 in cash,
100% of the ownership interests in the partnership owning the non-wireline
cellular telephone system serving the Benton Harbor, Michigan MSA. The Benton
Harbor market represents approximately 161,400 Net Pops. Approximately $33,132
of the purchase price was allocated to cellular telephone license.
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company is controlled by Century through the ownership of the Company's
Class B Common Stock representing 73.6% of the voting power and 31.8% of the
equity of the Company. The Company and Century entered into a Services
Agreement, effective December 1, 1996 (the "Services Agreement"), pursuant to
which Century through its personnel will provide design, construction,
management, operational, technical and maintenance for the wireless telephone,
paging and related systems owned and operated by the Company (the "Controlled
Systems"). Such services also include providing all the services necessary for
the monitoring, to the extent possible, of the activities of the limited
partnerships in which the Company has investment interests in such manner as to
protect the interests of the Company. Such services have historically been
provided to the Company by Century. As consideration for the services rendered
and to be rendered under the Services Agreement, the Company will pay Century
the annual sum of $1,000 and will reimburse Century for all costs incurred by
Century or its affiliates (excluding the Company and its subsidiaries) that are
directly attributable to the design, construction, management, operation and
maintenance of the Controlled Systems or to the performance by Century of its
other duties under the Services Agreement.
On December 21, 1994, the Company announced that its Board of Directors
authorized the repurchase in the open market and in privately negotiated
transactions from time to time, of up to 1,000,000, shares of Class A Common
Stock, depending on prevailing market conditions. To date, no such purchases
have been made by the Company.
The Company also plans to exercise its right to acquire the minority interests
held by Century Federal, a subsidiary of Century, in the Cass and Jackson,
Michigan systems for the prices paid by Century Federal for such minority
interests in the acquisitions of these systems ($2,000 and $1,000,
respectively). Upon completion of these transactions, the Company will own 100%
of these systems.
The Company has determined to pursue a strategy to sell or otherwise dispose of
its equity investments in cellular telephone systems representing approximately
1,100,000 net pops. The Company has not yet made a final determination as to the
estimated sale proceeds or the timing of such disposition and believes that the
fair market value exceeds the net book value of the recorded assets.
9
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<PAGE>
The Company, during fiscal 1997, made and withdrew its application to
participate in the FCC auction of PCS frequency blocks D and E and was refunded
its $11,000 deposit.
NOTE 10. NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Boards issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation", which will be adopted by the Company in fiscal 1997 as required
by the statement. The Company has elected to continue to measure such
compensation expense using the method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees", as permitted by SFAS
No. 123. When adopted, SFAS No. 123 will not have any effect on the Company's
financial position or results of operations, but will require the Company to
provide expanded disclosure regarding its stock-based employee compensation
plans.
NOTE 11. SEGMENT INFORMATION
The Company's consolidated financial statements include two distinct business
segments. The cellular telephone segment owns, operates and invests in cellular
telephone systems and a specialized mobile radio and paging business. The
Company's Puerto Rico telecommunications segment is in the construction and
start up stage. Once completely operational, the Company will provide PCS
telephone service and alternative telephone access to Puerto Rico and the U.S.
Virgin Islands.
10
<PAGE>
<PAGE>
Information about the Company's operations in its two business segments for the
nine months ended February 28, 1997 and February 29, 1996 is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------
February 28, February 29,
1997 1996
--------- ---------
<S> <C> <C>
Gross revenues:
Cellular telephone $ 105,405 $ 82,573
Puerto Rico telecommunications 1,493 -
--------- ---------
$ 106,898 $ 82,573
========= =========
Operating (loss):
Cellular telephone $ (9,137) $ (16,028)
Puerto Rico telecommunications (7,020) (69)
--------- ---------
$ (16,157) $ (16,097)
========= =========
Net loss:
Cellular telephone $ (13,405) $ (14,820)
Puerto Rico telecommunications (8,309) (4,754)
--------- ---------
$ (21,714) $ (19,574)
========= =========
Assets, at end of period:
Cellular telephone $ 675,834 $ 711,893
Puerto Rico telecommunications 117,438 67,364
--------- ---------
$ 793,272 $ 779,257
========= =========
Depreciation and amortization:
Cellular telephone $ 57,634 $ 53,531
Puerto Rico telecommunications 1,332 43
--------- ---------
$ 58,966 $ 53,574
========= =========
Capital expenditures:
Cellular telephone $ 33,167 $ 16,876
Puerto Rico telecommunications 26,315 10,017
--------- ---------
$ 59,482 $ 26,893
========= =========
</TABLE>
11
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS (Dollars in thousands, except subscriber, pop and share
data)
The Company is in a highly competitive business, competing with other providers
of wireless telephone service and providers of telephone services using
different and competing technologies. Since August 1988, it has acquired
twenty-eight wireless telephone markets that it owns and manages. In addition,
on June 23, 1995, the Company acquired one of two Metropolitan Trading Areas
(MTA) licenses to provide broadband personal communications services ("PCS") in
the Commonwealth of Puerto Rico and the U.S. Virgin Islands. It also intends to
construct and operate a competitive telephone access business in the Puerto Rico
market place. Certain of the Company's operations are in a development stage,
and the Company's Puerto Rican telecommunications network is in the start-up and
construction stage. On December 12, 1996 the Company began providing PCS
telephone services in Puerto Rico. There is on-going construction to complete
the buildout of the system. The Puerto Rico PCS telephone services operations
accounted for $1,493 in revenue and had 6,900 subscribers as of February 28,
1997.
The Company must continue to adapt its business to technological and economic
changes. It is dependent on its ability to increase its number of subscribers,
net of cancellations, and to achieve acceptable revenue per subscriber levels in
increasingly competitive markets. The Company expects net losses to continue
until such time as the wireless telephone operations, the Puerto Rico
telecommunications network and related investments associated with the
acquisition, construction and development of its wireless telephone systems and
Puerto Rico telecommunications network plant generate sufficient earnings to
offset the costs of such activities. There can be no assurance that
profitability will be achieved in the foreseeable future.
The Company is highly leveraged. The Company requires substantial capital to
operate, construct, expand and acquire wireless telephone systems, to build out
its recently acquired Puerto Rico telecommunications network, and to pay debt
service and preferred stock dividends. Historically, the Company has been
dependent upon borrowings, the issuance of its equity securities and operating
cash flow to provide funds for such purposes. There can be no assurance that it
will continue to have access to such sources of funds.
-12-
<PAGE>
<PAGE>
Nine Months ended February 28, 1997 and February 29, 1996
Revenue for the nine months ended February 28, 1997 was $106,898, an increase of
$24,325 or 29% over revenue of $82,573 for the nine months ended February 29,
1996, reflecting growth in subscriptions to and increased usage of wireless
telephone service. The acquisition of one wireless telephone market accounted
for approximately $2,949 or 12% of the increase in revenue. The Puerto Rico PCS
business contributed $1,493 or 6% of the increase in revenue.
Revenue from the sale of wireless telephones to subscribers for the nine months
ended February 28, 1997 increased by $152 to $2,075 or 8% as compared to the
nine months ended February 29, 1996. The increase in such revenue was due to a
larger number of telephone units sold during the current nine month period
offset, in part, by a reduction in the retail prices of wireless telephones.
Continued growth in revenue is dependent upon increased levels of wireless
subscriptions, maintenance of the current subscriber base, and the average
revenue per subscriber. Wireless subscribers at February 28, 1997 were
approximately 183,400, an increase of 44% from the 127,500 subscribers at
February 29, 1996. Increases from new activations of 89,700 and 7,500
subscribers from acquisitions were offset by subscriber cancellations of 41,300.
The cancellations experienced by the Company are primarily the result of
competitive factors. The Puerto Rico PCS business had approximately 6,900
subscribers at February 28, 1997 and, as a result, accounted for 12% of the net
increase in subscriptions.
Consolidated revenue per subscriber per month, based upon an average number of
subscribers, was $73 for the nine months ended February 28, 1997 and February
29, 1996.
The average monthly revenue per subscriber was approximately $72 in the domestic
markets, as compared to approximately $124 in the Company's Puerto Rico
operations. The Company expects that per subscriber revenues will be impacted by
competition and the expansion of its local service calling areas.
Cost of services during the nine months ended February 28, 1997 was $15,606, an
increase of $4,294 or 38% from the nine months ended February 29, 1996. The
increase was due to the variable costs associated with a larger revenue and
subscription base, to increased wireless coverage areas resulting from both the
continued expansion of the Company's network and acquisitions completed during
the fiscal year ended May 31, 1996 and the nine months ended February 28, 1997
and the commencement of PCS telephone service in Puerto Rico. Included in cost
of services during the nine months ended February 28, 1997 were $1,927 of
pre-operating costs associated with the start-up of the Company's Puerto Rico
telecommunications network.
Cost of equipment sold during the nine months ended February 28, 1997 was
$11,403, an increase of $2,943 or 35% as compared to the nine months ended
February 29, 1996. The
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primary reason was an increase in the number of telephone units sold, offset by
a decrease in the average unit cost of telephones sold.
Selling, general and administrative expenses rose to $37,080 for the nine months
ended February 28, 1997, an increase of $11,756 or 46% above the expenses of
$25,324 for the nine months ended February 29, 1996. The Company's managerial,
customer service and sales staff increased to accommodate the larger
subscription and revenue base, anticipated growth of its wireless telephone
business as well as the commencement of PCS telephone services in Puerto Rico.
Included in selling, general and administrative expenses during the nine months
ended February 28, 1997 were $5,086 of pre-operating costs associated with the
start-up of the Company's Puerto Rico telecommunications network.
The Company anticipates continued increases in the cost of services and selling,
general and administrative expenses as the growth of its existing wireless
telephone business continues. In addition, the Company expects that the
development of its recently acquired markets as well as its participation in the
Puerto Rico telecommunications network will contribute to an increased level of
expenses.
Depreciation and amortization for the nine months ended February 28, 1997 was
$58,966, an increase of $5,392 or 10% over the nine months ended February 29,
1996. The increase results from acquisitions and capital expenditures made
during fiscal 1997 and 1996 in connection with the development and network
expansion of the Company's wireless telephone systems and Puerto Rico
telecommunications network. Depreciation and amortization related to the Puerto
Rico PCS business was $1,289 or 24% of the increase.
The operating loss for the nine months ended February 28, 1997 was $16,157, an
increase of $60 or 0.4% from the loss of $16,097 for the nine months ended
February 29, 1996.
During the nine months ended February 29, 1996, the Company sold its 72.2%
interest in the non-wireline wireless telephone system serving the
Charlottesville, VA MSA for a cash purchase price of approximately $9,914. The
Company recognized a gain of $4,176 as a result of the sale (see "Acquisitions,
Exchanges, and Dispositions").
Interest expense was $23,598 for the nine months ended February 28, 1997, a
decrease of $1,195 or 5% from the nine months ended February 29, 1996. The
decline in interest expense is the result of the capitalization of $2,752 of
interest charges related to the acquisition cost of the Company's Puerto Rico
PCS license during the pre-operational stage of this business. Gross interest
costs for the nine months ended February 28, 1997 and February 29, 1996 were
$26,350 and $24,793, respectively. The increase reflects additional borrowings
for acquisitions, working capital and debt service. The average debt outstanding
during the nine months ended February 28, 1997 was $369,000, an increase of
$19,000 as compared to the average debt level of $350,000 during the nine months
ended February 29, 1996. The Company's weighted average interest rate decreased
to 9.4% for the nine months ended February 28, 1997 from 9.5% for the nine
months ended February 29, 1996.
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After income attributable to minority interests in subsidiaries for the nine
months ended February 28, 1997, a pretax loss of $27,246 was incurred, as
compared to a pretax loss of $28,847 for the nine months ended February 29,
1996. The income tax benefit of $5,532 for the nine months ended February 28,
1997 represents a reduction of the deferred tax liability by the tax effect of
the current period losses of the Company, offset by current state and local
taxes for the period. The tax benefits are non-cash in nature.
The net loss of $21,714 for the nine months ended February 28, 1997 represents
an increase of $2,140 or 11% from the net loss of $19,574 for the nine months
ended February 29, 1996.
Three Months Ended February 28, 1997 and February 29, 1996
Revenue for the three months ended February 28, 1997 was $39,174, an increase of
$11,236 or 40% over the three months ended February 29, 1996, reflecting growth
in subscriptions and increased usage of wireless telephone service. In addition,
the acquisition of one wireless telephone market accounted for approximately
$2,137 of the increase in revenue. The Puerto Rico PCS business contributed
$1,493 or 13% of the increase in revenue.
Revenue from the sale of wireless telephones to subscribers for the three months
ended February 28, 1997 increased by $53 to $676 or 9% as compared to the three
months ended February 29, 1996. The increase in such revenue was due to a larger
number of telephone units sold during the current three month period offset by a
reduction in the retail pricing of telephones.
Consolidated revenue per subscriber per month, based upon an average number of
subscribers for the three months ended February 28, 1997 was $72 as compared to
$69 for three month period ended February 29, 1996.
The average monthly revenue per subscriber was approximately $71 in the domestic
markets as compared to approximately $124 in the Company's Puerto Rico
operations. The Company expects that per subscriber revenues will be impacted by
competition and the expansion of its local service calling areas.
Cost of services during the three months ended February 28, 1997 was $5,913, an
increase of $1,839 or 45% compared to the three months ended February 29, 1996.
The reason for the increase was due, in part, to the variable costs associated
with a larger revenue and subscription base, increased wireless coverage areas
resulting from both the continued expansion of the Company's network and
acquisitions completed during the fiscal year ended May 31, 1996 and the nine
months ended February 28, 1997, and the commencement of PCS telephone service in
Puerto Rico. Included in cost of services during the three months ended February
28, 1997 were $846 of pre-operating costs associated with the start-up of the
Company's Puerto Rico telecommunications network.
Cost of equipment sold during the three months ended February 28, 1997 was
$4,734, an increase of $1,573 or 50% as compared to the three months ended
February 29, 1996. The
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primary reason for the increase was an increase in the number of units sold,
offset by a decrease in the average unit cost of telephones sold.
Selling, general and administrative expenses rose to $15,398 for the three
months ended February 28, 1997, an increase of $6,157 or 67% above the $9,241
during the three months ended February 29, 1996. The Company's managerial,
customer service and sales staff increased to accommodate the current and
anticipated growth of its wireless telephone business. Secondarily, variable
costs rose in association with a larger revenue base and acquisitions made
during fiscal 1996 and the nine months ended February 28, 1997 and the
commencement of PCS telephone services in Puerto Rico. Included in selling,
general and administrative expense during the three months ended February 28,
1997 were $3,147 of pre-operating costs associated with the start up of the
Company's Puerto Rico telecommunications network.
Depreciation and amortization for the three months ended February 28, 1997 was
$21,175, an increase of $3,142 or 17% over the three months ended February 29,
1996, resulting from completed acquisitions as well as capital expenditures made
during fiscal 1996 and the first nine months of fiscal 1997 in connection with
the development of the Company's wireless telephone systems. The PCS business in
Puerto Rico accounted for 41% of the increase.
The operating loss for the three months ended February 28, 1997 was $8,046, an
increase of $1,475 or 22% above the three months ended February 29, 1996.
Interest expense was $8,839 for the three months ended February 28, 1997, an
increase of $597 or 7% from the comparable period in the prior year. The
increase in interest expense is the result of interest charged on additional
borrowings for acquisitions, capital expenditures, working capital and debt
service. The average debt outstanding during the three months ended February 28,
1997 was $376,444, an increase of $26,444 as compared to average debt
outstanding of $350,000 during the three months ended February 29, 1996. The
Company's weighted average interest rate decreased to 9.2% for the three months
ended February 28, 1997 from 9.5% for the three months ended February 29, 1996.
After income attributable to minority interests in subsidiaries for the three
months ended February 28, 1997, a pretax loss of $12,244 was incurred, as
compared to a pretax loss of $12,528 for the three months ended February 29,
1996. The income tax benefit of $2,758 for the three months ended February 28,
1997 represents an adjustment of the deferred tax liability by the tax effect of
the current period losses of the Company, offset by current state and local
taxes for the period. The tax benefits are non-cash in nature.
The net loss for the three months ended February 28, 1997 of $9,486 represents
an increase of $679 or 8% from the net loss of $8,807 for the three months ended
February 29, 1996.
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LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended February 28, 1997, earnings were less than fixed
charges by $29,528. Fixed charges consist of interest expense, including
amortization of debt issue costs and capitalized interest, preferred stock
dividends, and the portion of rents deemed representative of the interest
portion of leases. The amount by which earnings were less than fixed charges
reflects non-cash charges of $58,966 relating to depreciation and amortization.
As of February 28, 1997, the Company had $151,697 of property, plant and
equipment (net) placed in service. During the nine months ended February 28,
1997, the Company made capital expenditures of $59,482, primarily to continue
the construction of recently acquired wireless telephone systems and its Puerto
Rico telecommunications network, the expansion of the coverage areas of existing
properties and the upgrade of its cell site and call switching equipment. During
the nine months ended February 28, 1997, the buildout of the Company's Puerto
Rico telecommunications network required capital expenditures of $26,315 or 44%
of the Company's total capital expenditures. The Company's future commitments
for such property and equipment include the addition of cell sites to expand
coverage, as well as enhancements to the existing infrastructure of its wireless
systems. During the twelve month period ending May 31, 1997, the Company
anticipates wireless capital expenditures in its domestic cellular markets of
approximately $40,000. The Company currently estimates that the remaining cost
to build out the infrastructure of its PCS network will be approximately $45,000
to be expended through fiscal 1998. The Company is exploring various sources of
external financing including, but not limited to, bank financing, joint
ventures, partnerships and placement of debt or equity securities of the
Company.
In this regard, on September 12, 1996, the Company entered into a $50,000 credit
facility with Citibank N.A. (the "Credit Facility"). The facility terminates on
March 20, 1998. Subject to the completion of formal documentation, the Company
has agreed with Citibank to extend this credit facility to September 2000. The
Company expects the amendment giving effect to this extension to close during
the fourth quarter of fiscal 1997. Approximately $34,000 of the facility was
used to fund the Benton Harbor, Michigan wireless telephone system acquisition
(see "Acquisitions, Exchanges and Dispositions"). The remainder will be used for
working capital and general corporate purposes. The interest rate payable on
borrowings under the credit facility is based, at the election of the Company,
on (a) the Base Rate, as defined, plus a margin of 2% or (b) the Eurodollar Base
Rate, as defined, plus a margin of 3%. The facility is secured by the pledge of
the stock of certain of the Company's subsidiaries not otherwise restricted by
its Senior Note Indentures. These include the subsidiaries which operate the
Puerto Rico telecommunications network and the Benton Harbor system. The
facility is further guaranteed by certain subsidiaries holding investment
interests. The credit facility restricts the incurrence of certain additional
debt of the Company and limits the Company's ability to pay dividends. The
Company is in compliance with all covenants of the facility.
Additionally, a subsidiary of the Company which is engaged in the ownership and
operation of the PCS business in Puerto Rico has agreed to enter into a
four-year $130,000 revolving credit facility with Citibank, N.A. which converts
into a four year term loan. The principal use of
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proceeds will be to fund the buildout of the Company's PCS business in Puerto
Rico. The proposed facility will restrict the use of borrowings, limits the
amount of long-term indebtedness in relation to the PCS business in Puerto Rico,
requires the maintenance of certain minimum annualized cash flows (as defined)
and subscribers, and requires the maintenance of certain ratios of operating
cash flow to debt service and total outstanding debt to operating cash flow, all
of the above relating only to the PCS business in Puerto Rico. The terms of the
proposed facility will also require the PCS business in Puerto Rico to meet and
maintain certain financial and operating covenants and achieve performance
requirements including minimum subscriber levels. Failure to satisfy such
covenants would constitute a default under the facility in which event Citibank,
N.A. could accelerate all amounts outstanding thereunder, and exercise certain
other rights and remedies as a secured creditor. The proposed facility will be
non-recourse to the Company.
The Company has outstanding two classes of preferred stock which are held by
Citizens Utilities Co. (Citizens) and Century Communications Corp. (Century).
The preferred stock issues carried no cash dividend requirements through August
31, 1996 but accreted liquidation preference and redemption value at the rate of
7.5% per annum, compounded quarterly, until then. The fully accreted liquidation
preference and redemption value of the shares held by Citizens and Century at
August 31, 1996 was $186,287 and $7,252, respectively. Beginning September 1,
1996, the holders of the preferred stock are entitled to receive cash dividends
at the rate of 8.5% per annum. Assuming no change in the number of shares of
such classes outstanding, the annual dividend payments, commencing in fiscal
1997, to be made with respect to the preferred stock will be $15,834 and $616,
respectively. Both classes of preferred stock are subject to mandatory
redemption in fiscal 2007. Any unpaid dividends continue to accumulate without
additional cost to the Company. On December 19, 1996, the Company paid cash
dividends to Citizens and Century of $3,959 and $154, respectively, and during
March 1997, declared the second quarterly dividend to Citizens and Century. The
Company will determine, from time to time, the timing, amount, or distribution
(if any) of additional preferred stock dividends.
In order to meet its obligations with respect to its operating needs, capital
expenditures, debt service and preferred stock obligations, it is important that
the Company continue to improve operating cash flow. In order to do so, the
Company's revenue must increase at a faster rate than operating expenses.
Increases in revenue will be dependent upon continuing growth in the number of
subscribers and maximizing revenue per subscriber. The Company has continued the
development of its managerial, administrative and marketing functions, and is
continuing the construction of wireless systems in its existing and recently
acquired markets in order to achieve these objectives. There is no assurance
that growth in subscribers or revenue will occur. In addition, the Company's
participation in the Puerto Rico telecommunications business is expected to be
capital intensive, requiring additional network buildout costs of approximately
$45,000 during fiscal 1997 and 1998. Further, due to the start-up nature of the
Puerto Rico telecommunications network, the Company expects that it will require
additional cash investment to fund its operations over the next several years.
The Puerto Rico telecommunications network is expected to be highly competitive
with the two existing wireless telephone providers, as well as the other Puerto
Rico telecommunications license holders.
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There is no assurance that the Puerto Rico telecommunications network will
generate cash flow or reach profitability. Even if the Company's operating cash
flow increases, it is anticipated that cash generated from the Company's
wireless telephone operations and Puerto Rico telecommunications network will
not be sufficient in the next several years to cover interest, the preferred
stock dividend requirements that commenced in fiscal 1997 and required capital
expenditures.
The Company anticipates that shortfalls may be made up either through debt and
equity issuances or additional financing arrangements that may be entered into
by the Company. Although to date the Company has been able to obtain such
financing on satisfactory terms, there can be no assurance that this will
continue to be the case in the future.
The Company has filed a shelf registration statement with the Securities and
Exchange Commission (SEC) for up to 8,000,000 shares of its Class A Common Stock
that may be offered from time to time in connection with acquisitions. The
registration statement was declared effective by the SEC on July 7, 1994. As of
February 28, 1997, 4,239,231 shares remain available for future acquisitions.
The Company has filed a shelf registration statement with the SEC for the
issuance of $500,000 of the Company's debt securities which was declared
effective by the SEC on April 6, 1995. The debt securities may be issued from
time to time in series on terms to be specified in one or more prospectus
supplements at the time of the offering. If so specified with respect to any
particular series, the debt securities may be convertible into shares of the
Company's Class A Common Stock. As of February 28, 1997, $400,000 remained
available for issuance.
Although the net cash provided by operating activities for the nine months ended
February 28, 1997 was not sufficient to fund the Company's expenditures for
property, plant and equipment of $59,482, funds required were available from
cash on hand. The principal source of such cash was financing activities
completed in prior fiscal years. The Company will continue to rely on various
financing activities to fund these requirements.
ACQUISITIONS, EXCHANGES AND DISPOSITIONS
The Company's primary acquisition strategy is to acquire controlling ownership
interests in wireless systems serving markets contiguous or proximate to its
current markets. The Company's strategy of clustering its wireless operations in
contiguous and proximate geographic areas enables it to achieve operating and
cost efficiencies as well as joint advertising and marketing benefits.
Clustering also allows the Company to offer its subscribers more areas of
uninterrupted service as they travel through an area or state. In addition to
expanding its existing clusters, the Company may also seek to acquire interests
in wireless systems in other geographic areas. The Company may also pursue other
communications businesses related to its wireless telephone and other mobile
service operations, as well as other communications businesses it determines to
be desirable. The consideration for such acquisitions may consist of equity
securities of the Company, cash, debt or a combination thereof.
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On September 12, 1996, the Company acquired for approximately $34,000 in cash,
100% of the ownership interests in the partnership owning the non-wireline
cellular telephone system serving the Benton Harbor, Michigan MSA. The Benton
Harbor market represents approximately 161,400 Net Pops. ANet Pops@ means a
market's Pops multiplied by the percentage interest that Centennial owns in an
entity licensed by the FCC to construct or operate a cellular telephone system
(or to provide personal communications services) in that market and APops@ means
the population of a market based upon the final 1990 Census Report of the Bureau
of the Census, United States Department of Commerce.
On October 31, 1995, the Company acquired (i) a 94.3% interest in the
non-wireline cellular telephone system serving the Lafayette, Louisiana MSA,
representing approximately 205,700 Net Pops, in exchange for the Company's
non-wireline cellular telephone system serving the Jonesboro, Arkansas RSA
(comprising approximately 205,000 Net Pops), the license rights and assets
located in and covering the Desoto and Red River Parishes of Louisiana 3 RSA
(comprising approximately 34,700 Net Pops), the license rights and assets
located in and covering a section of Morehouse Parish of Louisiana 2 RSA
(comprising approximately 24,100 Net Pops) and a cash payment by the Company of
approximately $5,580, subject to adjustment, and (ii) an additional 14.3%
minority interest in the Elkhart, Indiana RSA, a market in which the Company now
has a 91.4% interest and an additional 12.7% equity investment interest in the
Lake Charles, Louisiana MSA, a market in which the Company now has a 25.1%
interest, for a cash payment of approximately $2,951.
On June 30, 1995, the Company acquired the non-wireline cellular telephone
systems serving (a) Newtown, LaPorte, Starke, Pulaski, Jasper and White,
Indiana, (b) Kosciusko, Noble, Steuben and Lagrange, Indiana, (c) Williams,
Defiance, Henry and Paulding, Ohio and (d) Copiah, Simpson, Lawrence, Jefferson
Davis, Walthall and Marion, Mississippi, representing an aggregate of
approximately 608,100 Net Pops. The above-described systems were acquired by the
Company in exchange for the Company's non-wireline cellular telephone systems
serving the Roanoke, Virginia MSA, the Lynchburg, Virginia MSA, North Carolina
RSA #3 and Iowa RSA #5, representing an aggregate of approximately 644,000 Net
Pops. Simultaneously with the consummation of the transaction described above,
the Company sold its 72.2% interest in the non-wireline cellular telephone
system serving the Charlottesville, Virginia MSA, representing an aggregate of
approximately 94,700 Net Pops, for a cash purchase price of approximately
$9,914, subject to adjustment. The Company recognized a gain of approximately
$4,176 as a result of the sale.
The Company was the successful bidder for one of two Metropolitan Trading Area
(MTA) licenses (granted June 23, 1995) to provide broadband personal
communications services in the Commonwealth of Puerto Rico and the U.S. Virgin
Islands. The licensed area represents approximately 3,623,000 Net Pops. The
amount of the final bid submitted and paid by the Company was $54,672.
The Company has determined to pursue a strategy to sell or otherwise dispose of
substantially all of its equity investments in cellular telephone systems
representing approximately 1,100,000 Net Pops and has retained an investment
banker to assist it in such disposition. The
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Company has not yet made a final determination as to the estimated sale proceeds
or the timing of such disposition.
COMMITMENTS AND CONTINGENCIES
On December 21, 1994, the Company announced that its Board of Directors
authorized the repurchase in the open market and in privately negotiated
transactions, from time to time, of up to 1,000,000 shares of Class A Common
Stock, depending on prevailing market conditions. The Company has made no such
purchases to date.
The Company also plans to exercise its right to acquire the minority interest
held by Century in the Cass and Jackson, Michigan systems from Century for the
prices paid by Century for such minority interests in the acquisition of such
systems ($2,000 and $1,000, respectively). Upon completion of these
transactions, the Company will own 100% of these systems.
The Company entered into similar letter agreements relating to the operation of
cellular telephone systems in Elkhart, Fort Wayne and South Bend, Indiana,
Battle Creek and Kalamazoo, Michigan, and Roanoke, Virginia. Under the terms of
these letter agreements, a management company assisted the Company in managing
the daily operations of these cellular telephone systems. In accordance with the
terms of the letter agreements, the Company terminated the management company
effective June 4, 1990. Under the particular letter agreements the terminated
management company is entitled to a 5% carried interest as defined in the
particular letter agreements, up to and through December 31, 1996 at which time
the carried interest percentage may be put to the Company. During September
1992, all of the management company's rights pursuant to the letter agreements
were acquired by Century for a purchase price of $2,200, which was reflected as
an adjustment to the purchase price.
The Company also plans to participate in the alternative access business in
Puerto Rico pursuant to FCC requirements for interstate service and pursuant to
an authorization issued to the Company in December 1994 by the Public Service
Commission of the Commonwealth of Puerto Rico for intrastate service.
The Company has withdrawn its application to participate in the auction of PCS
frequency blocks D and E and was refunded its $11,000 deposit.
The Company is controlled by Century through the ownership of the Company's
Class B Common Stock representing 73.6% of the voting power and 31.8% of the
equity of the Company. The Company and Century entered into a Services
Agreement, effective August 31, 1996 (the "Services Agreement"), pursuant to
which Century through its personnel will provide such design, construction,
management, operational, technical and maintenance services to the Company as
may be necessary, or as Century determines may be appropriate, for the wireless
telephone, paging and related systems owned and operated by the Company (the
"Controlled Systems"). Such services have historically been provided to the
Company by Century. As consideration for the services rendered and to be
rendered under the Services Agreement, the Company will pay Century the annual
sum of $1,000 plus direct out of pocket expenses. The Services Agreement has a
term of five years but Centennial may, in its discretion, terminate the
agreement at the end of each year during the five year term.
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* * * * *
Management's Discussion and Analysis of Results of Operations and Financial
Condition contains forward-looking statements that involve risks and
uncertainties. Such statements are based on management's current expectations
and are subject to a number of factors and uncertainties which could cause the
Company's performance and the other matters discussed in the forward-looking
statements to differ significantly from that discussed in the forward-looking
statements.
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ITEM 5. Other Information
BENTON HARBOR ACQUISITION
On September 12, 1996, the Company acquired for approximately $34,000 in cash,
100% of the ownership interest in the partnership owning the non-wireline
cellular telephone system serving the Benton Harbor, Michigan MSA. The Benton
Harbor market represents approximately 161,400 Net Pops.
NEW CREDIT FACILITY
On September 12 ,1996, the Company entered into a $50,000 credit facility with
Citibank, N.A. The facility terminates on March 20, 1998. Subject to the
completion of formal documentation, the Company has agreed to extend the
termination date to September 2000. Approximately $34,000 of the facility was
used to fund the Benton Harbor, Michigan cellular telephone system acquisition
(see "Benton Harbor Acquisition" above). The remainder will be used for working
capital and general corporate purposes. The interest rate payable on borrowings
under the credit facility is based at the election of the Company, on, (a) the
Base Rate as, defined, plus a margin of 2% or (b) the Eurodollar Rate, as
defined, plus a margin of 3%. The facility is secured by the stock of certain of
the Company's subsidiaries not otherwise subject to restrictions under its
Senior Note Indentures. The credit facility restricts the incurrence of certain
additional debt, limits the Company's ability to pay dividends and requires that
certain operating tests be met.
REGULATORY MATTERS
In implementing the Telecommunications Act of 1996 (the "1996 Act"), the FCC is
pursuing a "competitive trilogy" which includes interconnection, universal
service and access charges. As to the first of these matters, the 1996 Act
imposes interconnection obligations on all telecommunications carriers in order
to facilitate the entry of new telecommunications providers. This requirement
has the potential of realizing benefits for the Company's cellular, PCS and
other telecommunications businesses. In August 1996, the FCC released its First
Report and Order implementing this statutory requirement. The numerous appeals
from the FCC's decision have been consolidated in the U.S. Court of Appeals for
the Eighth Circuit. On October 15, 1996, the court stayed, pendente lite, the
effect of the proposed pricing provisions and the rule permitting a requesting
carrier to pick and choose the best terms previously obtained by other carriers.
On November 1, 1996 the stay was modified to permit certain of the pricing rules
governing reciprocal compensation arrangements to go into effect. Documents
relating to the other two parts of the "competitive trilogy" have also been
released. In the case of universal service, a Recommended Decision has been
released by the Federal State Joint Board on Universal Service. The FCC has also
released a Notice of Proposed Rulemaking, Third Report and Order, and Notice of
Inquiry in connection with access charge reform and related rate structure and
pricing issues. These proceedings are ongoing at the FCC.
On September 12, 1996, the Puerto Rico Telecommunications Act of 1996 was signed
into law by the Governor of the Commonwealth of Puerto Rico. On October 17,
1996, the Company filed with the FCC a petition seeking a declaratory ruling
that this statute, either in whole or in specified part, was preempted by the
Communications Act of 1934, as amended. Similar petitions were subsequently
filed with the FCC by two other telecommunications carriers operating in Puerto
Rico. These petitions remain pending at the FCC.
On December 11, 1996, the Telecommunication Regulatory Board of Puerto Rico (the
"Board" ) assumed jurisdiction over all intra-island telecommunications matters.
This marks a significant departure from the past when the Company's intra-island
telecommunications operations were regulated by the Puerto Rico Public Services
Commission and the intra-island telecommunications operations of the Puerto Rico
Telephone Company ("PRTC"), the incumbent local exchange carrier, were
effectively unregulated. On December 26, 1996, the Company, on behalf of its PCS
subsidiary, filed a petition with the Board seeking arbitration of the many
unresolved issues in the negotiation with PRTC for interconnection of the
Company's PCS network with PRTC's landline telephone network. On January 21,
1997, Lambda Communications, Inc., a wholly owned
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subsidiary of the Company, filed a petition with the Board seeking arbitration
of the many unresolved issues in the negotiation with PRTC for interconnection
of the Company's fiber optic network with PRTC's landline telephone network. The
two petitions were substantially consolidated by the arbitrator and after
several sessions with the arbitrator and PRTC, a subsidiary of the Company and
Lambda successfully negotiated interconnection agreements with PRTC covering
most of the unresolved issues. Those agreements have been approved by the Board.
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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.
April 9, 1997
CENTENNIAL CELLULAR CORP.
/s/ Scott N. Schneider
-----------------------------------
Scott N. Schneider
Senior Vice President and Treasurer
(Principal Financial Officer)
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ITEM 6. Exhibits and Report on Form 8-K
a) Exhibits
Exhibit 10 Services Agreement between Century Communications Corp.
and Centennial Cellular Corp.
Exhibit 11 Statement re computation of per share earnings
Exhibit 27 Financial data schedule (EDGAR filing document only)
b) Reports on Form 8-K
None.
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EXECUTION COPY
EXTENSION AND RENEWAL AGREEMENT
EXTENSION AND RENEWAL AGREEMENT, dated this 21st day of March,
1997, as of August 30, 1996, by and between Century Cellular Holding Corp., a
New York corporation ("Century Holding"), having its principal offices at 50
Locust Avenue, New Canaan, Connecticut 06840, and Centennial Cellular Corp., a
Delaware corporation formerly known as Century Cellular Corp. ("Centennial"),
having its principal offices at 50 Locust Avenue, New Canaan, Connecticut 06840.
R E C I T A L S :
A. Century Holding and Centennial have entered into that
certain Services Agreement, dated as of August 30, 1991 as Amended and Restated
as of September 27, 1991, and as further amended and extended by that certain
Agreement dated as of August 30, 1996 (as amended to date, the "Services
Agreement").
B. The original term of the Service Agreement was five years.
The amendment of August 30, 1996 provided for an extension to August 31, 1997
(the "Extended Period") and that the parties would continue to confer regarding
renewal of the term beyond August 31, 1997 on mutually acceptable terms and
conditions and that in the event of such renewal, any consideration
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to be paid to Century Holding shall include consideration for services rendered
during the Extended Period.
C. The parties have now agreed upon (a) an extension and
renewal of the term of the Services Agreement to August 30, 2001, subject to
Centennial having the right to terminate the Services Agreement as of August 30,
1997 and at the end of each of the three subsequent years in the term, and (b)
the amount of consideration to be paid to Century Holding for its services
during the extended and renewed period, which consideration each of Century
Holding and Centennail deems to be reasonable, all under the terms and
provisions set forth in this Extension and Renewal Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and in the Services Agreement, and for other good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
1. All defined terms used herein and not otherwise defined
shall have the meanings ascribed thereto in the Services Agreement, except that
Exhibit "A" is deemed deleted in its entirety as of August 31, 1996 and replaced
by Exhibit A annexed to this Extension and Renewal Agreement, which Exhibit A
shall be deemed to be modified from time-to-time to reflect any and all
Corporate Systems, Partnership Interests and Partnership Systems, acquired or
disposed of after the date hereof.
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2. The Services Agreement is hereby amended further in the
following manner:
A. By inserting therein a new section to be known as
Section 2.4, immediately succeeding Section 2.3 and reading as follows:
"2.4 Management Fee. As further compensation to Century
Holding for the services provided to Owner pursuant to this Agreement
and in addition to Owner reimbursing Century Holding for reimbursable
costs as provided for in Section 2.3, Owner shall pay to Century
Holding an annual management fee (the "Management Fee") of $1,000,000
for each of the years ending on August 30, 1997, 1998, 1999, 2000 and
2001 payable by Owner in United States Dollars in four equal
installments of $250,000 within 30 days immediately succeeding the end
of each three-month period during each such one year period except
that payment for the three-month period ended November 30, 1996 shall
be made on or before March 31, 1997. To the extent that (i) Owner
does not have sufficient cash available to make any of such payment(s)
or is prohibited from making any of such payments by the provisions of
any credit agreements with banking institutions or any other debt
instrument to which Owner may be a party or to which its assets may be
subject, and (ii) Owner does not render payment of such amounts within
such time period for either of such reasons, Owner shall deliver to
Century Holding a subordinated unsecured promissory note for such
amount, which note shall accrue interest at the rate of 12% per annum,
and shall contain such
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other terms and conditions mutually agreed by Century Holding and
Owner."
B. By deleting in its entirety Section 7.1 and substituting
in its place the following:
"7.1 Term. This Agreement shall commence as of August 30,
1991 and shall have a term of ten consecutive years ending on August
30, 2001 unless earlier terminated as provided for in this Section 7.1
or in the manner set forth in Section 7.2 (the "Term"). Owner may
terminate this Agreement as of August 30, 1997, 1998, 1999 or 2000
(each an "Early Termination Date") by giving Century Holding notice,
in the manner provided for in Section 10.10, not less than 90 nor more
than 180 days prior to such Early Termination Date that Owner desires
to terminate this Agreement on the particular Early Termination Date.
Any notice of Owner which is not timely given as above provided shall
be ineffective to terminate this Agreement as at the Early Termination
Date to which such notice relates. In the event this Agreement has not
been terminated prior to the expiration of the Term as provided for in
this Section 7.1 or as provided in Section 7.2, then prior to the
expiration of the Term the parties shall confer regarding the possible
renewal of this Agreement on mutually acceptable terms and
conditions."
3. This amendment to the Services Agreement shall be
retroactive to, and effective as of, August 30, 1996.
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4. Except as modified hereby, the Services Agreement shall
remain unchanged and in full force and effect.
IN WITNESS WHEREOF, this Agreement has been duly executed as
of the date hereinabove indicated.
CENTURY CELLULAR HOLDING CORP.
By: /s/ Scott N. Schneider
-----------------------------------
Name: Scott N. Schneider
Title: Senior Vice President
CENTENNIAL CELLULAR CORP.
By: /s/ David Z. Rosensweig
-----------------------------------
Name: David Z. Rosensweig
Title: Secretary
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EXHIBIT 11
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
EXHIBIT TO FORM 10-Q
For the Nine Months Ended February 28, 1997 and 1996
COMPUTATION OF LOSS PER COMMON SHARE
(Amounts in thousands, except per share data)
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<CAPTION>
Nine Months Ended
-----------------------------------
February 28, February 29,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
Primary fully diluted:
Net Loss $ (21,714) $ (19,574)
Dividends payable and accretion in liquidation
value of preferred stock (11,836) (10,085)
------------ --------------
Loss applicable to common shares $ (33,550) $ (29,659)
------------ --------------
Average number of common shares and common
share equivalents outstanding
Average number of common shares
outstanding during this period 26,935,000 26,419,000
Add common share equivalents - Options
to purchase common shares - net 232,000 562,000
------------ --------------
Average number of common shares and common
share equivalents outstanding 27,167,000 (A) 26,981,000 (A)
------------ --------------
Loss per common share $ (1.24)(A) $ (1.10)(A)
============ ==============
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(A) In accordance with Accounting Principles Board Opinion No. 15, the
inclusioin of common share equivalents computation of earnings per share
need not be considered if the reduction of earnings per share is less than
3% or the effect is anti-dilutive. Therefore, loss per common share
equivalents as shown on the Consolidated Statements of Operations for the
periods presented do not include certain common share equivalents as their
effect is anti-dilutive. However, the consolidated financial statements for
the nine month periods ended February 28, 1997 and February 29, 1996 do
include the effect, on a retroactive basis, of 0 and 375,000, respectively,
of option shares issued prior to the Company's initial offering.
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> FEB-28-1997
<CASH> 15,954
<SECURITIES> 0
<RECEIVABLES> 24,002
<ALLOWANCES> 1,583
<INVENTORY> 0
<CURRENT-ASSETS> 46,373
<PP&E> 151,697
<DEPRECIATION> 31,464
<TOTAL-ASSETS> 793,272
<CURRENT-LIABILITIES> 54,121
<BONDS> 350,000
<COMMON> 270
0
193,539
<OTHER-SE> 126,318
<TOTAL-LIABILITY-AND-EQUITY> 793,272
<SALES> 105,466
<TOTAL-REVENUES> 106,898
<CGS> 27,009
<TOTAL-COSTS> 123,055
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,598
<INCOME-PRETAX> (26,776)
<INCOME-TAX> (5,532)
<INCOME-CONTINUING> (21,244)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,714)
<EPS-PRIMARY> (1.25)
<EPS-DILUTED> 0
</TABLE>
