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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 November 30, 1996
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 - 16,475,968 outstanding shares as of January 7, 1997
Class B Common - 10,544,113 outstanding shares as of January 7, 1997
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
November 30, May 31,
1996 1996
----------- ------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 24,687 $ 67,297
Accounts receivable, less allowance for doubtful
accounts of $1,615 and $1,471, respectively 21,018 20,210
Prepaid expenses and other current assets 7,997 2,158
----------- -----------
TOTAL CURRENT ASSETS 53,702 89,665
PROPERTY, PLANT AND EQUIPMENT - net 127,953 91,417
EQUITY INVESTMENTS IN CELLULAR SYSTEMS - net 98,641 100,204
DEBT ISSUANCE COSTS, less accumulated amortization of
$2,711 and $2,081, respectively 7,694 7,738
CELLULAR TELEPHONE LICENSES, less accumulated
amortization of $188,698 and $164,786, respectively 309,422 300,206
PERSONAL COMMUNICATIONS SERVICES LICENSE 62,605 60,007
GOODWILL, less accumulated amortization of $21,384
and $19,343, respectively 131,866 133,907
OTHER ASSETS - net 13,465 2,668
----------- -----------
TOTAL $ 805,348 $ 785,812
=========== ===========
</TABLE>
See notes to consolidated financial statements
1
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CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
November 30, May 31,
1996 1996
----------- -------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 10,762 $ 4,325
Accrued interest payable 2,836 2,299
Other accrued expenses 17,321 14,547
Payable to affiliate 909 956
Customers' deposits and prepayments 6,286 4,961
------------ ------------
TOTAL CURRENT LIABILITIES 38,114 27,088
LONG-TERM DEBT 380,000 350,000
DEFERRED LIABILITY 2,200 2,200
DEFERRED INCOME TAXES 51,480 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 16,475,116 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 375,770 383,533
Accumulated deficit (231,224) (218,996)
------------ ------------
144,816 164,807
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 140,015 160,006
------------ ------------
TOTAL $ 805,348 $ 785,812
============ ============
</TABLE>
See notes to consolidated financial statements
2
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CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended November 30, Six Months Ended November 30,
------------------------------- -----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE:
Service revenue $ 34,248 $ 26,013 $ 65,105 $ 50,834
Equipment sales 633 607 1,399 1,300
Interest income 478 1,093 1,220 2,501
------------- ------------ ------------ -------------
35,359 27,713 67,724 54,635
------------- ------------ ------------ -------------
COSTS AND EXPENSES:
Cost of services 4,927 3,681 9,693 7,238
Cost of equipment sold 3,966 3,143 6,669 5,299
Selling, general and administrative 11,868 8,200 21,682 16,083
Depreciation and amortization 19,310 17,511 37,791 35,541
------------- ------------ ------------ -------------
40,071 32,535 75,835 64,161
------------- ------------ ------------ -------------
OPERATING LOSS (4,712) (4,822) (8,111) (9,526)
------------- ------------ ------------ -------------
INCOME FROM EQUITY INVESTMENTS 4,422 3,151 8,084 5,466
GAIN ON SALE OF ASSETS 0 27 48 4,203
INTEREST 7,718 8,249 14,759 16,551
------------- ------------ ------------ -------------
LOSS BEFORE INCOME TAX BENEFIT
AND MINORITY INTEREST (8,008) (9,893) (14,738) (16,408)
INCOME TAX BENEFIT (2,019) (2,472) (2,774) (5,552)
------------- ------------ ------------ -------------
LOSS BEFORE MINORITY INTEREST (5,989) (7,421) (11,964) (10,856)
MINORITY INTEREST IN (INCOME) LOSS OF SUBSIDIARIES (132) 72 (264) 89
------------- ------------ ------------ -------------
NET LOSS $ (6,121) $ (7,349) $ (12,228) $ (10,767)
============= ============ ============ =============
DIVIDEND REQUIREMENT ON PREFERRED STOCK $ 4,113 $ 3,397 $ 7,723 $ 6,688
============= ============ ============ =============
LOSS APPLICABLE TO COMMON SHARES $ (10,234) $ (10,746) $ (19,951) $ (17,455)
============= ============ ============ =============
LOSS PER COMMON SHARE $ (.38) $ (.40) $ (.74) $ (.65)
============= ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON SHARE EQUIVALENTS
OUTSTANDING DURING THE PERIOD 26,935,000 26,793,000 26,932,000 26,772,000
============ =========== ============ ============
</TABLE>
See notes to consolidated financial statements
3
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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 226,665 3 - - - - - - 3
Common stock
issued in conjuction with 493,441 5 - - 448 - - - 453
acquisitions
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 13,258 - - - (40) - - - (40)
Dividends payable on preferred - - - - (4,113) - - - (4,113)
Net loss - - - - - - - (12,228) (12,228)
Accretion in liquidation value
of preferred stock - - - - (3,610) - - - (3,610)
---------- ------- ---------- ------- --------- -------- ------- --------- --------
Balance at November 30, 1996 16,475,116 $ 165 10,544,113 $ 105 $ 375,770 $ (1,801) $ (3,000) $(231,224) $ 140,015
========== ======= ========== ======= ========= ========= ======== ========= ===========
</TABLE>
See notes to consolidated financial statements
4
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CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended November 30,
-----------------------------
1996 1995
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Cash received from subscribers and others $ 82,631 $ 59,835
Cash paid to suppliers, employees and
governmental agencies (54,878) (38,447)
Interest paid (16,336) (16,057)
---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 11,417 5,331
---------- -----------
INVESTING ACTIVITIES:
Capital expenditures (40,903) (21,591)
Acquisition of other assets (11,072) (1,522)
Acquisition, disposition and exchange of cellular telephone systems (34,928) 1,358
Acquistion of personal communications service license - (44,334)
Capital returned from equity investments 3,738 3,584
Capital contributed to equity investments (236) (421)
---------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES (83,401) (62,926)
---------- -----------
FINANCING ACTIVITIES:
Proceeds from long-term debt 35,000 -
Repayment of long-term debt (5,000) -
Debt issuance costs (587) (303)
Issuance of Class A and B Common Stock and treasury stock purchases (39) 36
---------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES 29,374 (267)
---------- -----------
NET (DECREASE) IN CASH (42,610) (57,862)
CASH, BEGINNING OF PERIOD 67,297 121,628
---------- -----------
CASH, END OF PERIOD $ 24,687 $ 63,766
============ ============
</TABLE>
See notes to consolidated financial statements
5
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CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(Amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended November 30,
--------------------------------
1996 1995
------------- ----------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net loss $ (12,228) $ (10,767)
------------- ----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 37,791 35,541
Minority interest in income (loss) of subsidiaries 264 (89)
Deferred income taxes (4,671) (6,000)
Equity in undistributed earnings of investee companies (8,084) (5,466)
Gain on sale of assets - (4,176)
Other (2,482) 494
Change in assets and liabilities net of effects of
acquired, exchanged and disposed cellular telephone systems:
Accounts receivable - decrease/(increase) 856 (3,311)
Prepaid expenses and other current assets -
(increase) (5,776) (3,046)
Accounts payable and accrued expenses -
increase 4,443 928
Customer deposits and prepayments -
increase 1,304 1,223
------------- ----------
Total adjustments 23,645 16,098
------------- ----------
Net cash provided by operating activities $ 11,417 $ 5,331
============= ==========
</TABLE>
See notes to consolidated financial statements
6
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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
November 30, 1996 and the results of its consolidated operations and cash flows
for the six months ended November 30, 1996 and November 30, 1995. 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 November 30, 1996
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
December 31, 1996, 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 December 31, 1996,
$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 November 30, 1996), 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
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<TABLE>
<CAPTION>
Six Months Ended November 30,
-----------------------------
1996 1995
---- ----
<S> <C> <C>
Revenues $ 68,994 $ 56,577
Net Loss (11,188) (13,995)
Loss per common share (.70) (.77)
</TABLE>
Pro-forma loss per common share for the six months ended November 30, 1996 and
1995 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 $14,414 and $8,937,
for the six months ended November 30, 1996 and 1995, respectively.
NOTE 6. LOSS PER COMMON SHARE
Loss per common share is calculated on a fully diluted basis and includes 0 and
385,631 shares of common stock equivalents for the six month periods ended
November 30, 1996 and November 30, 1995, 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 six months ended November 30, 1995, the Company reclassified $3,185
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, 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.
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
8
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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.
NOTE 9. 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. 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 Communications Corp.
("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 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 has been
reflected as an adjustment to the purchase price.
The Company has determined to pursue a strategy to sell or otherwise dispose of
its minority interests 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.
The Company has withdrawn its application to participate in the FCC auction of
PCS frequency blocks D and E. The Company is expected to receive $11,000 in
return of its deposit with the FCC related to these auctions.
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,
9
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"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.
Information about the Company's operations in its two business segments for the
six months ended November 30, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
Six Months Ended November 30,
-----------------------------
1996 1995
--------- -------
<S> <C> <C>
Gross revenues:
Cellular telephone $ 67,724 $ 54,635
Puerto Rico telecommunications - -
-------- ---------
$ 67,724 $ 54,635
======== =========
Operating (loss):
Cellular telephone $ (5,035) $ (9,497)
Puerto Rico telecommunications (3,076) (29)
-------- ---------
$ (8,111) $ (9,526)
======== =========
Net loss:
Cellular telephone $ (8,544) $ (7,680)
Puerto Rico telecommunications (3,684) (3,087)
--------- ---------
$(12,228) $ (10,767)
========= =========
Assets, at end of period:
Cellular telephone $708,161 $ 717,547
Puerto Rico telecommunications 97,187 65,252
-------- ---------
$805,348 $ 782,799
======== =========
Depreciation and amortization:
Cellular telephone $ 37,735 $ 35,515
Puerto Rico telecommunications 56 26
-------- ---------
$ 37,791 $ 35,541
======== =========
Capital expenditures:
Cellular telephone $ 25,187 $ 12,934
Puerto Rico telecommunications 15,716 8,657
-------- ---------
$ 40,903 $ 21,591
======== =========
</TABLE>
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT SUBSCRIBER, POP AND SHARE DATA)
RESULTS OF OPERATIONS
Six Months ended November 30, 1996 and November 30, 1995
Revenue for the six months ended November 30, 1996 was $67,724, an increase of
$13,089 or 24% over revenue of $54,635 for the six months ended November 30,
1995. The increase in revenue was the result of growth in subscriptions to and
increased usage of cellular telephone service. Acquisitions accounted for
approximately $812 or 6% of the increase in revenue.
Revenue from the sale of cellular telephones to subscribers for the six months
ended November 30, 1996 increased by $99 to $1,399 or 8% as compared to the six
months ended November 30, 1995. The increase in such revenue was due to a larger
number of telephone units sold during the current six month period offset, in
part, by a reduction in the retail prices of cellular telephones.
Continued growth in revenue is dependent upon increased levels of cellular
subscriptions as well as maintenance of the current subscriber base. Cellular
subscribers at November 30, 1996 were approximately 159,900 an increase of 37.7%
from the 116,100 subscribers at November 30, 1995. The increase in subscribers
is the result of 75,300 new activations and 7,500 subscribers from acquisitions.
The increases were offset by subscriber cancellations of 39,000.
The Company has experienced high levels of subscriber cancellations which have
been more than offset by new subscriptions. The cancellations experienced by the
Company are primarily the result of competitive factors. There is no assurance
that the Company will maintain its historic level of subscriber growth in the
future.
Revenue per subscriber per month based upon an average number of subscribers for
the six months ended November 30, 1996 was $73 as compared to $78 for the six
month period ended November 30, 1995. The decrease in revenue per subscriber was
primarily the result of a reduction in certain per minute charges as it expanded
its local service areas. The is no assurance that revenue per subscriber will be
maintained.
Cost of services during the six months ended November 30, 1996 was $9,693, an
increase of $2,455 or 34% from the six months ended November 30, 1995. The
reason for the increase was the variable costs associated with a larger revenue
and subscription base, as well as increased cellular coverage areas resulting
from the continued expansion of the Company's network. Included in cost of
services during the six months ended November 30, 1996 were $1,081 of
pre-operating costs associated with the start-up of the Company's Puerto Rico
telecommunications business. The Company's Puerto Rico telecommunications
business is in the start up and construction stage.
Cost of equipment sold during the six months ended November 30, 1996 was $6,669,
an increase of $1,370 or 26% as compared to the six months ended November 30,
1995. The primary reason for the increase 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 $ 21,682, an increase of
$5,599 or 35% above the $16,083 for the six months ended November 30, 1995. The
increase was the result of an increase in the Company's managerial, customer
service and sales staff to accommodate the larger subscription and revenue base
and anticipated growth of its cellular telephone business. Included in selling,
general and administrative
11
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expenses during the six months ended November 30, 1996 were $1,939 of
pre-operating costs associated with the start-up of the Company's Puerto Rico
telecommunications business.
The Company anticipates continued increases in the cost of services and selling,
general and administrative expenses as the growth of its existing cellular
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 business will contribute to an increased level of
expenses.
Depreciation and amortization for the six months ended November 30, 1996 was
$37,791, an increase of $2,250 or 6% over the six months ended November 30,
1995. The increase results from acquisitions and capital expenditures made
during fiscal 1996 and 1995 in connection with the development and network
expansion of the Company's wireless telephone systems.
As a result of the factors discussed above, the operating loss for the six
months ended November 30, 1996 was $8,111, a decrease of $1,415 or 15% from the
loss of $9,526 for the six months ended November 30, 1995.
During the six months ended November 30, 1995, the Company sold its 72.2%
interest in the non-wireline cellular telephone system serving the
Charlottesville, VA MSA for a cash purchase price of approximately $9,914,
subject to adjustment. The Company recognized a gain of $4,176 as a result of
the sale (see "Acquisitions, Exchanges, and Dispositions").
Interest expense was $14,759 for the six months ended November 30, 1996, a
decrease of $1,792 or 11% from the six months ended November 30, 1995. The
decline in interest expense is the result of the capitalization of $2,598 of
interest charges related to the acquisition cost of the Company's Puerto Rico
PCS license. Gross interest costs for the six months ended November 30, 1996 and
1995 were $17,357 and $16,551. The increase is the result of additional
borrowings for the Benton Harbor acquisition, working capital and debt service.
The average debt outstanding during the six months ended November 30, 1996 was
$365,000, an increase of $15,000 as compared to the average debt level of
$350,000 during the six months ended November 30, 1995. The Company's weighted
average interest rate increased to 9.6% for the six months ended November 30,
1996 from 9.5% for the six months ended November 30, 1995.
After income attributable to minority interests in subsidiaries for the six
months ended November 30, 1996, a pretax loss of $15,002 was incurred, as
compared to a pretax loss of $16,319 in the six months ended November 30, 1995.
The income tax benefit of $2,774 for the six months ended November 30, 1996
represents an adjustment to the deferred tax liability of the Company, offset by
current state and local taxes for the period. The tax benefits are non-cash in
nature and are attributable to the Company's acquisitions and results of
operations.
The net loss of $12,228 for the six months ended November 30, 1996 represents an
increase of $1,461 or 14% from the net loss in the six months ended November 30,
1995. The Company expects net losses to continue until such time as the cellular
telephone operations, the Puerto Rico telecommunications business and related
investments associated with the construction and development of its cellular
telephone systems and Puerto Rico telecommunications system plant generate
sufficient earnings to offset the costs described above. There can be no
assurance that the Company will generate the earnings necessary to offset the
costs described and, accordingly, there can be no assurance that profitability
will be achieved in the foreseeable future.
Three Months Ended November 30, 1996 and November 30, 1995
Revenue for the three months ended November 30, 1996, was $35,359, an increase
of $7,646 or 28% over the three months ended November 30, 1995. The increase in
revenue was the result of growth in
12
<PAGE>
<PAGE>
subscriptions to and increased usage of cellular telephone service. In addition,
the acquisition of one cellular telephone market accounted for approximately
$812 of the increase in revenue.
Revenue from the sale of cellular telephones to subscribers for the three months
ended November 30, 1996 increased by $26 to $633 or 4% as compared to the three
months ended November 30, 1995. 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.
Service revenue per subscriber per month, based upon an average number of
subscribers, was $72 for the three months ended November 30, 1996 as compared to
$80 for the three months ended November 30, 1995. The decrease in revenue per
subscriber was primarily the result of a reduction in certain of the Company's
per minute charges as its expands its local calling areas. There is no assurance
that the overall revenue per subscriber level will be maintained.
Cost of services during the three months ended November 30, 1996 was $4,927, an
increase of $1,246 or 34% as compared to the three months ended November 30,
1995. The reason for the increase was the variable costs associated with a
larger revenue and subscription base as well as increased cellular coverage
areas resulting from both the continued expansion of its network and
acquisitions completed during the fiscal year ended May 31, 1996 and the six
months ended November 30, 1996. Included in cost of services during the three
months ended November 30, 1996 were $577 of pre-operating costs associated with
the start-up of the Company's Puerto Rico telecommunications business. The
Company's Puerto Rico telecommunications business is in the start up and
construction stage.
Cost of equipment sold during the three months ended November 30, 1996 was
$3,966, an increase of $823 or 26% as compared to the three months ended
November 30, 1995. The 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 $11,868, an increase of
$3,668 or 45% above the $8,200 recorded during the three months ended November
30, 1995. The increase was the result of the Company increasing its managerial,
customer service and sales staff to accommodate the current and anticipated
growth of its cellular telephone business. Secondarily, variable costs rose in
association with a larger revenue base and acquisitions made during fiscal 1996
and the six months ended November 30, 1996. Included in selling, general and
administrative expense during the three months ended November 30, 1996 were
$1,490 of pre-operating costs associated with the start up of the Company's
Puerto Rico telecommunications business.
Depreciation and amortization for the three months ended November 30, 1996 was
$19,310, an increase of $1,799 or 10% over the three months ended November 30,
1995. The increase results from completed acquisitions as well as capital
expenditures made during fiscal 1996 and the first six months of fiscal 1997 in
connection with the development of the Company's cellular telephone systems.
As a result of the factors discussed above, the operating loss for the three
months ended November 30, 1996 was $4,712, a decrease of $110 or 2% below the
three months ended November 30, 1995.
13
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<PAGE>
Interest expense was $7,718 for the three months ended November 30, 1996, a
decrease of $531 or 6% from the comparable period in the prior year. The decline
in interest expense is the result of the capitalization of $1,299 of interest
charges related to the acquisition of the Company's Puerto Rico PCS license,
offset by the interest charged on additional borrowings for acquisitions,
capital expenditures, working capital and debt service. As a result, the average
debt outstanding during the three months ended November 30, 1996 was $380,000,
an increase of $30,000 as compared to average debt outstanding of $350,000
during the three months ended November 30, 1995. The Company's weighted average
interest rate increased to 9.7% for the three months ended November 30, 1996
from 9.5% for the three months ended November 30, 1995.
After losses attributable to minority interests in subsidiaries for the three
months ended November 30, 1996, a pretax loss of $8,140 was incurred, as
compared to a pretax loss of $9,821 for the three months ended November 30,
1995. The income tax benefit of $2,019 for the three months ended November 30,
1996 represents an adjustment to the deferred tax liability of the Company,
offset by current state and local taxes for the period. The tax benefits are
non-cash in nature and are attributable to the Company's acquisitions and
results of operations.
The net loss for the three months ended November 30, 1996 of $6,121 represents a
decrease of $1,228 or 17% from the net loss for the three months ended November
30, 1995. The Company expects net losses to continue until such time as the
cellular telephone operations, the Puerto Rico telecommunications business and
related investments associated with the construction and development of its
cellular telephone system and Puerto Rico telecommunications system plant
generate sufficient earnings to offset the costs described above. There can be
no assurance that the Company can generate the earnings necessary to offset the
costs described and, accordingly, there can be no assurance that profitability
will be achieved in the foreseeable future.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cellular telephone systems, primarily serving three geographic
areas, are considered to be in the early development phase of operations. On
June 23, 1995, the Company acquired one of two Metropolitan Trading Area (MTA)
licenses to provide broadband personal communications services (PCS) in the
Commonwealth of Puerto Rico and the U.S. Virgin Islands. The Company also
intends to construct and operate a competitive telephone access business in the
Puerto Rico marketplace. The Company requires substantial capital to operate,
construct, expand and acquire cellular telephone systems and to build out its
recently acquired Puerto Rico telecommunications business and for debt service.
Historically, the Company has been dependent upon borrowings, the issuance of
its equity securities and operating cash flow to provide funds for such
purposes.
For the six months ended November 30, 1996, earnings were less than fixed
charges by $15,002. Fixed charges consist of interest expense 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 $37,791
relating to depreciation and amortization.
As of November 30, 1996, the Company had $127,953 of property, plant and
equipment (net) placed in service. During the six months ended November 30,
1996, the Company made capital expenditures of $40,903, primarily to continue
the construction of recently acquired cellular telephone systems and its Puerto
Rico telecommunications systems, the expansion of the coverage areas of existing
properties and the upgrade of its cell site and call switching equipment. During
the six months ended November 30, 1996 the buildout of the Company's Puerto Rico
telecommunications network required capital expenditures of $15,716 or 38% of
14
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<PAGE>
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 cellular
systems. During the twelve months ended May 31, 1997, the Company anticipates
cellular capital expenditure requirements of approximately $35,000. 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 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, 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 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
business 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, limits the Company's
ability to pay dividends and requires that certain operating tests be met. The
Company is in compliance with all covenants of the facility.
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. The Company
has not made a determination regarding the timing, amount, or distribution (if
any) of additional preferred stock dividends.
In order to meet its obligations with respect to its debt 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 cellular 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 business, the
Company expects that it will require additional cash investment to fund its
operations over the next several years. The Puerto Rico telecommunications
business is expected to be highly competitive with the two existing cellular
telephone providers, as well as the other Puerto Rico telecommunications license
holders. There is no assurance that the Puerto Rico telecommunications business
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
cellular telephone operations and Puerto Rico telecommunications business will
not be sufficient in the next several years to cover interest, the preferred
stock dividend requirements that commence in fiscal 1997 and required capital
expenditures.
15
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<PAGE>
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 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 December 31, 1996, 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 December 31, 1996,
$400,000 remained available for issuance.
ACQUISITIONS, EXCHANGES AND DISPOSITIONS
The Company's primary acquisition strategy is to acquire controlling ownership
interests in cellular systems serving markets contiguous or proximate to its
current markets. The Company's strategy of clustering its cellular 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 cellular systems in other geographic areas. The Company may also pursue other
communications businesses related to its cellular 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 shares of
Class A Common Stock, cash, assumption of liabilities or a combination thereof.
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.
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
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<PAGE>
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
its minority interests 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.
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 Federal in the Cass and Jackson, Michigan systems from Century
Federal for the prices paid by Century Federal 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 requested the return of its $11,000 refundable
deposit.
The following table sets forth (in thousands), for the periods indicated, the
Company's net cash used by operating activities before interest payments ( net
cash provided ), the Company's principal uses of such cash and the cash required
from financing and investing activities.
17
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<PAGE>
<TABLE>
<CAPTION>
Six Months Ended November 30,
-------------------------------------------------------------
1996 1995
----------------------- -------------------------
Amount % Amount %
------ ---- ------ ---
<S> <C> <C> <C> <C>
Net cash provided by
operating activities $10,830 39.9% $ 5,028 23.8%
Interest paid 16,336 60.1 16,057 76.2
-------- ------- --------- ---------
Net cash provided $27,166 100.0% $ 21,085 100.0%
======== ======= ========= ---------
Principal uses of cash:
Interest paid $16,336 60.1% $ 16,057 76.2%
Property, plant and equipment
(excluding acquisitions) 40,903 150.6 21,591 102.4%
-------- ------- -------- --------
Total $ 57,239 210.7% $ 37,648 178.6%
======== ======= ======== ========
Cash (required from)
financing and investing activities $(30,073) (110.7)% $(16,563) (78.6)%
========= ======= ======== ========
</TABLE>
Although the net cash provided by operating activities for the six months ended
November 30, 1996 was not sufficient to fund the Company's expenditures for
property, plant and equipment of $40,903, funds required were available from
cash on hand. The principal source of such cash was financing activities of
prior fiscal years. The Company will continue to rely on various financing
activities to fund these requirements.
The following table sets forth the primary sources and uses of funds from
financing and investing activities for the periods indicated (in thousands):
<TABLE>
<CAPTION>
Six Months Ended November 30,
-----------------------------
1996 1995
-------- -------
<S> <C> <C>
Proceeds from long-term debt $ 35,000 $ -
Repayment of long-term debt (5,000) -
Financing costs paid (587) (303)
(Purchase) and issuance of Class A Common Shares (39) 36
Net capital returned from equity investments, held for sale 3,502 3,163
-------- -------
Cash available 32,876 2,896
Acquisition of other assets and wireless telephone systems and licenses (46,000) (44,498)
-------- -------
Cash required from operating activities or cash on hand $(13,124) $(41,602)
======== =======
</TABLE>
18
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<PAGE>
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
a) Registrant's annual meeting of shareholders was held on October 29,
1996.
b) The following persons were elected as directors at said meeting
pursuant to the following votes:
<TABLE>
<CAPTION>
Number of Votes
--------------------------------
<S> <C> <C>
Directors For Withheld
--------------------- -------------- -----------
Bernard P. Gallagher 171,387,526 103,371
Rudy J. Graf 171,387,526 103,371
Scott N. Schneider 171,387,226 103,671
David Z. Rosensweig 171,387,251 103,646
Daryl A. Ferguson 171,387,416 103,481
Peter J. Solomon 171,239,216 251,681
William M. Kraus 171,387,526 103,371
Frank Tow 171,386,416 104,481
</TABLE>
c) The following matters were voted upon at said meeting:
1. The shareholders approved a proposal to ratify the
approval and adoption by the Board of Directors of an
amendment to the Registrant's 1993 Management Equity
Incentive Plan. The following sets forth the number of
votes on this proposal.
<TABLE>
<CAPTION>
For Against Abstain
--- --------- --------
<S> <C> <C>
168,208,094 3,145,787 21,565
</TABLE>
2. The shareholders approved a proposal to ratify the
selection by the Board of Directors of Deloitte &
Touche LLP as independent accountants for the
Registrant for the fiscal year ending May 31, 1997.
The following sets forth the number of votes on this
proposal:
<TABLE>
<CAPTION>
For Against Abstain
--- --------- --------
<S> <C> <C>
171,467,990 14,127 8,780
</TABLE>
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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. 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.
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.
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.
20
<PAGE>
<PAGE>
ITEM 6. Exhibits and Report on Form 8-K
<TABLE>
<CAPTION>
<S> <C>
a) Exhibits
Exhibit 10.3 Agreement with Peter J. Solomon Company Limited
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
</TABLE>
21
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<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.
January 10, 1997
CENTENNIAL CELLULAR CORP.
/S/ Scott N. Schneider
_____________________________________
Scott N. Schneider
Senior Vice President and Treasurer
(Principal Financial Officer)
22
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
EXHIBIT TO FORM 10-Q
For the Six Months Ended November 30, 1996
Exhibit 10.3 Agreement with Peter J. Solomon Company Limited
October 15, 1996
PERSONAL AND CONFIDENTIAL
Centennial Cellular Corp.
50 Locust Avenue
New Canaan, CT 06840
Attention: Mr. Bernard P. Gallagher
Chairman and Chief Executive Officer
Ladies and Gentlemen:
The purpose of this letter is to confirm the engagement of
Peter J. Solomon Company Limited ("PJSC") by Centennial Cellular Corp. ("the
Company") on an exclusive basis to render financial advisory services to the
Company in connection with a possible transaction (a "Transaction") or series or
combination of Transactions involving the Company's Investment Interests (as
such term is defined in the Company's 1996 Form 10-K) located in the Sacramento
Valley Cluster and in San Francisco, CA; Lawrence, PA; Coconino, AZ; Del Norte,
CA and Modos, CA (collectively, the "Designated Assets"), whereby, directly or
indirectly, an ownership interest in the Designated Assets is transferred, in
whole or in part, for consideration to any person or entity (a "Buyer"),
including, without limitation, a sale or exchange of partnership interests,
capital stock or assets, a lease of assets with or without a purchase option, a
merger or consolidation, a tender or exchange offer, a leveraged buy-out, the
formation of a joint venture or partnership, or any other business combination
or similar transaction.
Section 1. Services to be Rendered. PJSC will perform such of
the following financial advisory services as the Company may reasonably request:
(a) PJSC will familiarize itself to the extent it
deems appropriate and feasible with the business, operations,
<PAGE>
<PAGE>
Centennial Cellular Corp.
October 15, 1996
Page -2-
properties, financial condition and prospects of the Designated Assets and to
the extent relevant, any prospective Buyer, it being understood that PJSC shall,
in the course of such familiarization, rely entirely upon the accuracy of
publicly available information and such other information as may be supplied by
the Company of such Buyer, without independent investigation;
(b) PJSC will advise and assist the Company in
developing a general strategy for accomplishing a Transaction;
(c) PJSC will advise and assist the Company in identifying
potential Buyers and will, on behalf of the Company, contact such potential
Buyers as the Company may designate;
(d) At the Company's request, PJSC will assist the Company in
the preparation of descriptive data concerning the Designated Assets, based upon
information provided by the Company, the reasonableness, accuracy and
completeness of which information PJSC will not be required to investigate and
about which PJSC will express no opinion;
(e) PJSC will consult with and advise the Company concerning
opportunities for any Transaction and periodically advise the Company as to the
status of dealings with any potential Buyer;
(f) PJSC will advise and assist the Company in the
course of its negotiations of a Transaction with any potential Buyer;
(g) PJSC will advise the Company in the execution of
and closing under a definitive agreement related to a
Transaction; and
(h) PJSC will render such other financial advisory services as
may from time to time be agreed upon by PJSC and the Company.
Section 2. Information Provided by the Company.
(a) The Company shall furnish to PJSC the names of all parties
with which it has had discussions or contacts prior to or after the date hereof
concerning any Transaction;
(b) Subject to any pre-existing confidentiality obligations,
the Company shall make available (and shall request that each prospective Buyer
with which the Company enters into negotiations make available) to PJSC all
information concerning
<PAGE>
<PAGE>
Centennial Cellular Corp.
October 15, 1996
Page -3-
the business, assets, liabilities, operations, prospects and financial or other
condition of the Company, the Designated Assets or such Buyer which PJSC
reasonably requests in connection with the rendering of services hereunder; and
(c) The Company recognizes and confirms that PJSC (i) will use
and rely primarily on the information provided by the Company and any
prospective Buyer and on information available from generally recognized public
sources in performing the services contemplated hereby without having assumed
any responsibility for independently verifying the same; (ii) does not assume
responsibility for the accuracy or completeness of any such information; and
(iii) will not make an appraisal of the Designated Assets or any assets of any
prospective Buyer. The Company confirms that any such information to be
furnished by the Company when delivered will be true and correct in all material
respects and will not contain any material misstatement of fact or omit to state
any fact necessary to make the statements contained therein not misleading. The
Company will promptly notify PJSC if the Company learns of any material
inaccuracy or misstatement in, or any material omission from, any such
information furnished by the Company to PJSC.
Section 3. Fees. As compensation for the services
rendered hereunder, the Company agrees to pay PJSC (via wire
transfer) the following fees in cash:
(a) $100,000, payable upon the Company's execution of
this letter agreement; plus
(b) an additional fee (the "Transaction Fee") equal to a
percentage of the Aggregate Consideration (as defined below) paid or payable in
connection with a Transaction, in accordance with the fee schedule listed below,
less the amount paid under the immediately preceding clause (a), provided
however, that in no event shall the aggregate or total Transaction Fee (after
taking into account such deduction) be less than $650,000.
<TABLE>
<CAPTION>
Aggregate Consideration Fee Percentage
----------------------- --------------
<S> <C>
Below $50 million 1.75%
$100 million 1.50%
Greater than or equal to $150 million 1.25%
</TABLE>
The applicable Transaction Fee percentage for Aggregate
Consideration amounts which fall between the amounts listed above
<PAGE>
<PAGE>
Centennial Cellular Corp.
October 15, 1996
Page -4-
shall be calculated based on a straight line interpolation of the percentages in
the fee schedule. In the event that the Company sells or otherwise disposes of
the Designated Assets in more than one Transaction, Aggregate Consideration
shall be calculated for each Transaction separately and shall not be cumulative
for the purposes of determining the Transaction Fee percentage. Such fee shall
be contingent upon the consummation of a Transaction and shall be payable at the
closing thereof, provided that compensation attributable to that part of
Aggregate Consideration which is contingent upon the realization of future
financial performance (e.g. an earn-out or similar provision) shall be paid by
the Company to PJSC promptly upon the receipt of such Aggregate Consideration by
the Company, its shareholders or other parties. Compensation attributable to
that part of Aggregate Consideration which is deferred (including without
limitation any Aggregate Consideration held in escrow) but not contingent in any
way shall be valued at the total stated amount of such consideration without
applying a discount thereto and shall be paid by the Company at the closing of a
Transaction.
For purposes hereof, the term "Aggregate Consideration" shall
mean the total amount of all cash, securities, contractual arrangements
(including the value of any long-term lease arrangements between the Company and
a Buyer or put or call agreements) and other properties paid or payable,
directly or indirectly in connection with a Transaction. Aggregate Consideration
shall also include, without duplication, the amount of any short-term debt and
long-term liabilities of the Company related to the Designated Assets (including
the principal amount of any indebtedness for borrowed money and capitalized
leases and the full amount of any off-balance sheet financings) repaid or
retired in connection with or in anticipation of a Transaction or assumed by or
transferred to a Buyer in connection with a Transaction. The value of securities
that are freely tradable in an established public market will be determined on
the basis of the last market closing price prior to the consummation of a
Transaction. The value of securities, long-term lease payments and other
consideration that are not freely tradable or have no established public market,
or if the consideration utilized consists of property other than securities, the
value of such property shall be the fair market value thereof as determined in
good faith by PJSC and the Company, provided, however, that all debt securities
shall be valued at their stated principal amount without applying a discount
thereto.
Section 4. Expenses. Whether or not any Transaction
is proposed or consummated and without in any way reducing or
affecting the provisions of Exhibit A hereto; the Company shall
reimburse PJSC for its reasonable out-of-pocket expenses incurred
<PAGE>
<PAGE>
Centennial Cellular Corp.
October 15, 1996
Page -5-
in connection with the execution and delivery of this letter agreement, the
provision of services hereunder and the consummation of any Transaction
contemplated or attempted hereby including, without limitation, the reasonable
fees and disbursements of PJSC's counsel. Out-of-pocket expenses shall include,
but not be limited to, travel and lodging, data processing and communication
charges, research and courier services. The Company shall promptly reimburse
PJSC upon the presentation of an invoice or other similar documentation.
Section 5. Indemnity. The Company agrees to the provisions of
Exhibit A affixed hereto and incorporated herein by reference, which provisions
shall survive the termination or expiration of this letter agreement.
Section 6. Term. The term of PJSC's engagement shall extend
from the date hereof until June 30, 1997 and shall continue thereafter until
three months after such time as the Company or PJSC shall have notified the
other in writing of the termination of this Agreement (the "Term"), provided,
however, that PJSC will be entitled to its full fees under Section 3 hereof in
the event that a Transaction is consummated at any time prior to the expiration
of two years after such termination, or a letter of intent or definitive
agreement with respect to a Transaction is executed at any time prior to two
years after such termination (which letter of intent or definitive agreement
subsequently results in the consummation of a Transaction at any time), (a) as
to which PJSC advised the Company hereunder prior to the termination of this
letter agreement or (b) which involves a party (i) identified to the Company by
PJSC or (ii) with whom the Company had discussions regarding a Transaction, in
each case during the Term of PJSC's engagement hereunder, and provided, further,
that the provisions of Section 3 through 7 and Exhibit A hereto shall survive
any such termination.
Section 7. Miscellaneous.
(a) PJSC acknowledges that the Company shall have no
obligation to enter into any Transaction and shall have the right to reject any
Transaction or to terminate negotiations with respect to any Transaction at any
time for any reason or for no reason.
(b) Except as contemplated by the terms hereof or as required
by applicable law, PJSC shall keep confidential and shall cause all authorized
recipients described in this Section 7(b) to keep confidential, all non-public
information provided to it by the Company, and shall not disclose such
information to any third party, other than in confidence to such of its
directors,
<PAGE>
<PAGE>
Centennial Cellular Corp.
October 15, 1996
Page -6-
officers, employees, counsel and advisors as PJSC determines to have a need to
know in order to render services hereunder provided that such parties are
informed by PJSC of the confidential nature of such information.
(c) Except as required by applicable law, any advice to be
provided by PJSC under this letter agreement shall not be disclosed publicly or
made available to third parties without the prior written approval of PJSC.
(d) The Company agrees that PJSC shall have the right after
completion of a Transaction to place advertisements in financial and other
newspapers and journals at its own expense describing its services hereunder.
(e) This letter agreement may not be amended or modified
except by a writing executed by each of the parties and shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to the conflicts of law principles thereof, and the provisions hereof,
including without limitation, the obligation to make the payments set forth in
Section 3 above shall be binding on the Company and its successors and assigns.
(f) Any lawsuits with respect to, in connection with or
arising out of this letter agreement shall be brought in a court for the
Southern District of New York and the parties hereto consent to the jurisdiction
and venue of such court for the Southern District as the sole and exclusive
forum, unless such court is unavailable, for the resolution of claims by the
parties arising under or relating to this letter agreement. The parties hereto
further agree that proper service of process on a party may be made on any agent
designated by such party located in the State of New York.
(g) To the extent permitted by applicable law, each of the
parties hereto hereby waives trial by jury, rights of setoff, and the right to
impose counterclaims in any lawsuit with respect to, in connection with or
arising out of this letter agreement, or any other claim or dispute relating to
the engagement of PJSC arising between the parties hereto. Each of the parties
hereto confirms that the foregoing waivers are informed and freely made.
(h) The relationship of PJSC to the Company hereunder shall be
that of an independent contractor and PJSC shall have no authority to bind,
represent or otherwise act as agent for the Company.
<PAGE>
<PAGE>
Centennial Cellular Corp.
October 15, 1996
Page -7-
If the foregoing correctly sets forth the understanding and
agreement between PJSC and the Company, please so indicate by signing the
enclosed copy of this letter, whereupon it shall become a binding agreement
between the parties hereto as of the date first above written.
Very truly yours,
PETER J. SOLOMON COMPANY LIMITED
By: /s/ KENNETH T. BERLINER
--------------------------
Kenneth T. Berliner
Principal
Accepted and Agreed to as of the day first written above:
CENTENNIAL CELLULAR CORP.
By: /s/ BERNARD P. GALLAGHER
---------------------------
Bernard P. Gallagher
Chairman and Chief
Executive Officer
<PAGE>
<PAGE>
EXHIBIT A
The Company shall:
(a) indemnify and hold harmless PJSC and its affiliates,
counsel and other professional advisors, and the respective directors, officers,
controlling persons, agents and employees of each of the foregoing (PJSC and all
of such other persons being collectively, "Indemnified Parties"), from and
against any losses, claims, damages, judgments, investigations, costs,
settlement costs, fines, penalties, liabilities, arbitration awards and
expenses, including its reasonable attorneys' fees and disbursements
(collectively, "Losses"), arising out of or resulting from any actions, suits,
claims, arbitrations, investigations (whether formal or informal) or
administrative or other proceedings, or threats thereof (collectively
"Actions"), brought or made against any such Indemnified Party by any person or
entity arising under or in connection with the rendering of services by PJSC
hereunder, unless it is finally judicially determined by a court of competent
jurisdiction that such Losses arose primarily out of the gross negligence or bad
faith of such Indemnified Party in performing such services; and
(b) reimburse any Indemnified Party promptly for or, at the
Indemnified Party's option, advance amounts sufficient to cover, any legal or
other expenses reasonably incurred in any Action; provided, however, that in the
event a final judicial determination is made to the effect specified in clause
(a) above such Indemnified party will promptly remit to the Company any amounts
reimbursed or advanced under this clause (b).
The Company agrees that the provisions of this Exhibit A shall
apply whether or not any Indemnified Party is a formal party to any such Action;
that the Company will not settle or resolve any such Action unless it obtains
the written consent of such Indemnified Party and an express release of such
Indemnified Party from all liability; and that such Indemnified Party is
entitled to retain separate counsel of its choice in connection with any of the
matters to which this Exhibit A relates.
The Company agrees that if any right of any Indemnified Party
set forth in the preceding paragraphs is finally judicially determined to be
unavailable (except by reason of the gross negligence or bad faith of such
Indemnified Party), or is insufficient to hold such Indemnified Party harmless
against such losses as contemplated herein, then the Company shall contribute to
such Losses (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, on the one hand, and such Indemnified Party,
on the other hand, in
<PAGE>
<PAGE>
connection with the transactions contemplated hereby, and (ii) if (and only if)
the allocation provided in clause (i) is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) but also the relative fault of the Company and such
Indemnified Party; provided, however, that in no event shall the amount, if any,
to be contributed by all Indemnified Parties exceed the amount of the fees
actually received by PJSC hereunder.
The rights of the Indemnified Parties hereunder shall be in
addition to any other rights that any Indemnified Party may have at common law,
by statute or otherwise.
<PAGE>
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
EXHIBIT TO FORM 10-Q
For the Six Months Ended November 30, 1996
COMPUTATION OF LOSS PER COMMON SHARE
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------------
November 30, November 30,
1996 1995
-------------- --------------
(Unaudited)
<S> <C> <C>
Primary fully diluted:
Net Loss $ (12,228) $ (10,767)
Accretion in liquidation value of preferred stock (7,723) (6,688)
------------- ------------
Loss applicable to common shares $ (19,951) $ (17,455)
============= ============
Average number of common shares and common
share equivalents outstanding
Average number of common shares
outstanding during this period 26,932,000 26,386,000
Add common share equivalents - Options
to purchase common shares - net 120,000 570,000
Average number of common shares and common
share equivalents outstanding 27,052,000 (A) 26,956,000(A)
============= ============
Loss per common share $ (.74)(A) $ (.65)(A)
============= ============
</TABLE>
(A) In accordance with Accounting Principles Board Opinion No. 15, the
inclusioin of common share equivalents in the 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 six month periods ended
November 30, 1996 and November 30, 1995 do include the effect, on a
retroactive basis of 0 and 385,631, respectively, of option shares
issued prior to the Company's initial offering.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> NOV-30-1996
<CASH> 24,687
<SECURITIES> 0
<RECEIVABLES> 21,018
<ALLOWANCES> 1,615
<INVENTORY> 0
<CURRENT-ASSETS> 53,702
<PP&E> 127,953
<DEPRECIATION> 31,022
<TOTAL-ASSETS> 805,348
<CURRENT-LIABILITIES> 38,114
<BONDS> 350,000
<COMMON> 270
0
193,539
<OTHER-SE> 140,015
<TOTAL-LIABILITY-AND-EQUITY> 805,348
<SALES> 66,504
<TOTAL-REVENUES> 67,724
<CGS> 16,362
<TOTAL-COSTS> 75,835
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,759
<INCOME-PRETAX> (14,738)
<INCOME-TAX> (2,774)
<INCOME-CONTINUING> (11,964)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,228)
<EPS-PRIMARY> (.74)
<EPS-DILUTED> 0
</TABLE>
