<PAGE>
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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, 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 - 15,162,125 outstanding shares as of January 5, 1998
Class B Common - 10,544,113 outstanding shares as of January 5, 1998
<PAGE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
November 30,
1997 May 31,
(Unaudited) 1997
------------ ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 16,538 $ 43,415
Accounts receivable, less allowance for doubtful
accounts of $3,166 and $2,130, respectively 32,995 29,991
Prepaid expenses and other current assets 7,806 4,836
------------ ----------
TOTAL CURRENT ASSETS 57,339 78,242
PROPERTY, PLANT AND EQUIPMENT - net 227,252 177,292
EQUITY INVESTMENTS IN WIRELESS SYSTEMS - net 91,007 94,153
DEBT ISSUANCE COSTS, less accumulated amortization of
$4,841 and $3,606, respectively 8,780 9,863
CELLULAR TELEPHONE LICENSES, less accumulated
amortization of $238,686 and $213,739, respectively 260,255 285,202
PERSONAL COMMUNICATIONS SERVICES LICENSE, less accumulated
amortization of $1,539 and $755, respectively 61,219 62,004
GOODWILL, less accumulated amortization of $25,101
and $23,185, respectively 128,149 130,065
OTHER ASSETS - net 7,612 8,029
------------ ----------
TOTAL $ 841,613 $ 844,850
------------ ----------
------------ ----------
</TABLE>
See notes to consolidated financial statements
1
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<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
November 30,
1997 May 31,
(Unaudited) 1997
--------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 17,920 $ 1,754
Accrued expenses and other current liabilities 48,882 61,056
Payable to affiliate 398 442
------------ ------------
TOTAL CURRENT LIABILITIES 67,200 63,252
LONG-TERM DEBT 475,500 429,000
DEFERRED LIABILITY 2,200 2,200
DEFERRED INCOME TAXES 36,521 43,977
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) 186,287 186,287
Second series convertible redeemable preferred
stock (at aggregate liquidation value which
approximates the fair market value), par value
$.01 per share, 3,978 shares authorized; issued
and outstanding 3,978 shares (redemption value of
$1,823.00 per share) 7,252 7,252
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, issued and outstanding 16,520,134
and 16,492,884 shares, respectively 165 165
Class B, 15 votes per share, 50,000,000 shares
authorized, issued and outstanding 10,544,113
shares 105 105
Additional paid-in capital 361,604 369,704
Accumulated deficit (268,703) (252,291)
------------ ------------
93,171 117,683
Less: Cost of 1,270,009, and 88,809,
respectively, Class A common shares
in treasury (23,518) (1,801)
Shareholder note receivable (3,000) (3,000)
------------ ------------
TOTAL COMMON STOCKHOLDERS' EQUITY 66,653 112,882
------------ ------------
TOTAL $ 841,613 $ 844,850
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements
2
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<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------------- -------------------------------
November 30, November 30, November 30, November 30,
1997 1996 1997 1996
----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
REVENUE:
Service revenue - Domestic $ 44,993 $ 34,248 $ 88,700 $ 65,105
Service revenue - Puerto Rico 12,256 - 19,629 -
Equipment sales 1,326 633 2,435 1,399
Interest income 559 478 1,223 1,220
---------- ---------- ---------- ----------
59,134 35,359 111,987 67,724
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of equipment sold - Domestic 4,462 3,966 8,375 6,669
Cost of equipment sold - Puerto Rico 102 - 262 -
Cost of services - Domestic 6,406 4,350 12,133 8,612
Cost of services - Puerto Rico 4,099 577 6,254 1,081
Selling, general and administrative - Domestic 15,020 10,378 27,200 19,743
Selling, general and administrative - Puerto Rico 6,701 1,490 12,485 1,939
Depreciation and amortization - Domestic 20,249 19,270 40,223 37,735
Depreciation and amortization - Puerto Rico 7,469 40 12,557 56
---------- ---------- ---------- ----------
64,508 40,071 119,489 75,835
---------- ---------- ---------- ----------
OPERATING LOSS (5,374) (4,712) (7,502) (8,111)
---------- ---------- ---------- ----------
INCOME FROM EQUITY INVESTMENTS 3,246 4,422 7,452 8,084
GAIN ON SALE OF ASSETS 7 0 12 48
INTEREST EXPENSE - DOMESTIC 8,582 7,329 17,120 14,152
INTEREST EXPENSE - PUERTO RICO 2,514 389 4,681 607
---------- ---------- ---------- ----------
LOSS BEFORE INCOME TAX BENEFIT
AND MINORITY INTEREST (13,217) (8,008) (21,839) (14,738)
INCOME TAX BENEFIT (3,712) (2,019) (5,683) (2,774)
---------- ---------- ---------- ----------
LOSS BEFORE MINORITY INTEREST (9,505) (5,989) (16,156) (11,964)
MINORITY INTEREST IN INCOME OF SUBSIDIARIES (121) (132) (256) (264)
---------- ---------- ---------- ----------
NET LOSS $ (9,626) $ (6,121) $ (16,412) $ (12,228)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
DIVIDEND REQUIREMENT ON PREFERRED STOCK $ 4,113 $ 4,113 $ 8,226 $ 7,723
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
LOSS APPLICABLE TO COMMON SHARES $ (13,739) $ (10,234) $ (24,638) $ (19,951)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
LOSS PER COMMON SHARE $ (.52) $ (.38) $ (.93) $ (.74)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING DURING THE PERIOD 26,340,000 26,935,000 26,601,000 26,932,000
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
</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, 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
Preferred stock dividends - - - - (15,948) - - - (15,948)
Income tax benefit - stock
options exercised - - - - 1,987 - - - 1,987
Net loss - - - - - - - (33,295) (33,295)
---------- ------ ---------- ------- --------- -------- -------- ---------- ----------
Balance at May 31, 1997 16,492,884 165 10,544,113 105 369,704 (1,801) (3,000) (252,291) 112,882
Common Stock issued in
connection with incentive
plans 27,250 - - - 126 - - - 126
Preferred stock dividends - - - - (8,226) - - - (8,226)
Treasury stock purchases
(1,181,200 shares) - - - - - (21,717) - - (21,717)
Net loss - - - - - - - (16,412) (16,412)
---------- ------ ---------- ------- --------- -------- -------- --------- ----------
Balance at November 30,
1997 (unaudited) 16,520,134 $ 165 10,544,113 $ 105 $ 361,604 $(23,518) $ (3,000) $(268,703) $ 66,653
========== ====== ========== ======= ========= ======== ======== ========= ===========
</TABLE>
See notes to consolidated financial statements
4
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<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
------------------------------
November 30, November 30,
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Cash received from subscribers and others $ 120,982 $ 82,631
Cash paid to suppliers, employees and
governmental agencies (74,698) (54,878)
Interest paid (20,281) (16,336)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 26,003 11,417
---------- ----------
INVESTING ACTIVITIES:
Capital expenditures (71,963) (40,903)
Acquisition of other assets (6,076) (11,072)
Acquisition, disposition and exchange of wireless telephone systems - (34,928)
Distributions received from equity investments 8,693 3,738
Capital contributed to equity investments (65) (236)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (69,411) (83,401)
---------- ----------
FINANCING ACTIVITIES:
Proceeds from long-term debt 51,500 35,000
Repayment of long-term debt (5,000) (5,000)
Debt issuance costs paid (152) (587)
Proceeds from issuance of Class A and B Common Stock 126 (39)
Dividends paid (8,226) -
Treasury stock purchases (21,717) -
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 16,531 29,374
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (26,877) (42,610)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 43,415 67,297
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 16,538 $ 24,687
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements
5
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<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
November 30, November 30,
1997 1996
---------- ----------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net loss $ (16,412) $ (12,228)
---------- ----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 52,780 37,791
Minority interest in income of subsidiaries 256 264
Deferred income taxes - decrease (7,456) (4,671)
Equity in undistributed earnings of investee companies (7,452) (8,084)
Other 1,223 (2,482)
Change in assets and liabilities net of effects of
acquired, wireless telephone systems:
Accounts receivable - (increase) decrease (7,183) 856
Prepaid expenses and other current assets -
(increase) (2,970) (5,776)
Accounts payable and accrued expenses -
increase 11,770 4,443
Customer deposits and prepayments -
increase 1,447 1,304
---------- ----------
Total adjustments 42,415 23,645
---------- ----------
Net cash provided by operating activities $ 26,003 $ 11,417
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements
6
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<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollar 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, 1997 and the results of its consolidated operations and cash flows
for the periods ended November 30, 1997 and 1996. The statements should be read
in conjunction with the consolidated financial statements and notes thereto
included in the Company's May 31, 1997 Annual Report on Form 10-K, which
includes a summary of significant accounting policies and other disclosures. The
consolidated balance sheet at May 31, 1997 is audited. The November 30, 1997 and
1996 financial statements do not include all disclosures required by generally
accepted accounting principles.
NOTE 2. ACCOUNT ANALYSIS
Accrued expenses and other current liabilities consists of the following:
November 30, May 31,
1997 1997
-------- --------
Accrued interest payable $ 3,875 $ 3,482
Customer deposits and prepayments 9,174 7,727
Accrued roamer service 4,701 4,247
Accrued dividend on preferred stock 4,113 4,113
Accrued fiber buildout - 6,000
Accrued miscellaneous 27,019 35,487
-------- --------
$ 48,882 $61,056
======== =======
NOTE 3. CREDIT FACILITIES
The Company entered into a $75,000 revolving credit facility with Citibank, N.A.
on September 12, 1996, which was amended on April 22, 1997 and further amended
on July 28, 1997 (the "Credit Facility"). The Credit Facility terminates on
January 31, 2001. The Credit Facility may 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 Credit Facility is secured by the pledge of the stock
of certain of the Company's subsidiaries not otherwise subject to restrictions
under its Senior Note Indentures, including the subsidiary which operates the
Benton Harbor system. The Credit Facility is further guaranteed by certain
subsidiaries holding Investment Interests (as defined). The Credit Facility
restricts the incurrence of certain additional debt by the Company and limits
the Company's ability to pay dividends. As of November 30, 1997, no amounts were
outstanding under the Credit Facility.
7
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<PAGE>
On April 25, 1997, Centennial Puerto Rico Wireless Corporation , a wholly owned
subsidiary of the Company ("CPRW"), entered into a four-year $130,000 revolving
credit facility with Citibank, N.A. as agent which converts into a four-year
term loan on April 25, 2001 (the "Puerto Rico Credit Facility"). The proceeds
from the Puerto Rico Credit Facility will be used by CPRW and its direct and
indirect subsidiaries primarily to finance the construction and operation of
Personal Communications Services ("PCS"), competitive access and
telecommunications networks in Puerto Rico and the United States Virgin Islands.
The proceeds will also be used by CPRW for working capital and general corporate
purposes and were used to pay certain cash dividends to the Company as permitted
by the Puerto Rico Credit Facility. The interest rate payable on borrowings
under the Puerto Rico Credit Facility is based on, at the election of CPRW, (a)
the "Base Rate", as defined, plus a margin of 1.50% or (b) the "Eurodollar
Rate", as defined, plus a margin of 2.50%, adjusted for the maintenance of
certain specified leverage ratios, as applicable. The Puerto Rico Credit
Facility, which is non-recourse to the Company, is secured by substantially all
of the assets of CPRW and its direct and indirect subsidiaries and requires CPRW
to meet and maintain certain financial and operating covenants, including the
maintenance of certain minimum annualized cash flows (as defined), the
maintenance of certain ratios of operating cash flow to debt service and total
outstanding debt to operating cash flow and performance requirements including
minimum subscriber levels. The Puerto Rico Credit Facility restricts the use of
borrowing, limits the incurrence of certain additional indebtedness by CPRW and
limits CPRW's ability to declare and pay dividends to the Company and management
fees to affiliates. At November 30, 1997, $125,500 was outstanding under the
Puerto Rico Credit Facility. CPRW is currently in negotiations to increase the
credit availability under the Puerto Rico Credit Facility. There is no assurance
that CPRW will be successful in this regard.
The Company and its subsidiaries were in compliance with all covenants of their
debt agreements at November 30, 1997.
NOTE 4. ACQUISITION
On September 12, 1996, the Company acquired, for approximately $35,000 in cash,
100% of the ownership interests in the partnership owning the wireless telephone
system serving the Benton Harbor, Michigan MSA. The Benton Harbor market
represents approximately 161,400 Net Pops. Approximately $33,429 of the purchase
price was allocated to cellular telephone licenses.
The summary pro-forma information includes the operations of the Company as if
the Benton Harbor acquisition had been consummated as of June 1, 1996.
Six Months Ended
November 30, 1996
------------------
(Unaudited)
Revenue $ 68,994
Net loss (11,188)
Loss per common share (.70)
Pro-forma loss per common share for the six months ended November 30, 1996 is
calculated on a fully diluted basis using the pro-forma average number of common
shares outstanding during the period.
8
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<PAGE>
NOTE 5. REVENUE RECOGNITION
Wireless telephone service income includes earned subscriber service revenue and
charges for installation and connections, net of land line charges of $18,026
and $14,414 for the six months ended November 30, 1997 and 1996, respectively.
NOTE 6. LOSS PER COMMON SHARE
Loss per common share does not include any shares of common stock equivalents
for the three month or six month periods ended November 30, 1997 and 1996,
respectively, as their effect would be anti-dilutive. 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. COMMITMENTS AND CONTINGENCIES
The Company is controlled by Century Communications Corp. ("Century"). Century
has an approximately 33% common stock interest and, through ownership of the
Company's Class B Common Stock which has disproportionate votes per share (15
votes per share), an approximate 74% voting interest in the Company as of
November 30, 1997. The Company and Century entered into a Services Agreement,
effective August 30, 1996 (the "Services Agreement"), pursuant to which Century,
through its personnel, provides design, construction, management, operational,
technical and maintenance services for the wireless telephone, paging and
related systems owned and operated by the Company. Such services also include
providing all the services necessary for the monitoring, to the extent possible,
of the activities of the 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 wireless telephone,
paging and related systems of the Company or to the performance by Century of
its other duties under the Services Agreement. For the six months ended November
30, 1997, the Company has recorded expenses of $500 under the Services
Agreement, of which $250 is recorded within payable to affiliate on the
Company's consolidated balance sheet at November 30, 1997.
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 its Class A Common
Stock, depending on prevailing market conditions. During the six months ended
November 30, 1997, the Company announced that its Board of Directors authorized
the repurchase in the open market and in privately negotiated transactions of up
to an additional 3,000,000 shares of its Class A Common Stock, depending on
prevailing market conditions. During the six months ended November 30, 1997, the
Company purchased 1,181,200 shares of its Class A Common Stock in the open
market for an aggregate purchase price of $21,717. Subsequent to November 30,
1997, the Company purchased 89,000 additional shares of its Class A Common Stock
in the open market for an aggregate purchase price of $1,806. These shares have
been accounted for as treasury shares. As of January 5, 1998, the Company is
9
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<PAGE>
authorized to repurchase 2,729,800 additional shares of its Class A Common Stock
after giving effect to the shares repurchased to date.
The Company has determined to pursue a strategy to sell or otherwise dispose of
its minority equity investments in wireless 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 at November 30, 1997.
NOTE 8. NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share", which is effective for
financial statements ending after December 15, 1997. This statement supersedes
Accounting Principles Board Opinion No. 15 and replaces the presentation of
primary Earnings Per Share ("EPS") on the face of the statement of operations.
Adoption of SFAS 128 will not result in a change of EPS previously reported by
the Company using APB 15. Disclosure of Diluted EPS is not required due to the
anti-dilutive effect of the Company's equity instruments.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 129, "Disclosure of Information about Capital
Structures," Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" in 1997.
The Company believes these Statements will not have a material impact on the
consolidated financial statements of the Company when adopted.
NOTE 9. SEGMENT INFORMATION
The Company's consolidated financial statements include two distinct business
segments. The Domestic Wireless telephone segment ("Domestic") owns, operates
and invests in wireless telephone systems in the domestic United States. The
Company's Puerto Rico Wireless telephone segment ("Puerto Rico") began providing
wireless telephone service in Puerto Rico on December 12, 1996.
10
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<PAGE>
Information about the Company's operations in its two business segments for the
six months ended November 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Six Months Ended November 30,
----------------------------------
1997 1996
--------- ---------
<S> <C> <C>
Gross revenue:
Domestic $ 91,727 $ 67,724
Puerto Rico 20,260 --
--------- ---------
$ 111,987 $ 67,724
========= =========
Operating income (loss):
Domestic $ 3,796 $ (5,035)
Puerto Rico (11,298) (3,076)
---------- ----------
$ (7,502) $ (8,111)
========== ==========
Net loss:
Domestic $ (433) $ (8,544)
Puerto Rico (15,979) (3,684)
---------- ----------
$ (16,412) $ (12,228)
========== ==========
Assets, at end of period:
Domestic $ 731,743 $ 751,818
Puerto Rico 191,850 97,187
Elimination (81,980) (43,657)
--------- ---------
$ 841,613 $ 805,348
========= =========
Depreciation and amortization:
Domestic $ 40,223 $ 37,735
Puerto Rico 12,557 56
--------- ---------
$ 52,780 $ 37,791
========= =========
Capital expenditures:
Domestic $ 18,287 $ 25,187
Puerto Rico 53,676 15,716
--------- ---------
$ 71,963 $ 40,903
========= =========
</TABLE>
The information provided below is that of Centennial Cellular Corp. (before the
consolidation of Puerto Rico), Puerto Rico, and the Company's consolidated
information.
11
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<PAGE>
NOTE 9 - CONTINUED
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET FINANCIAL DATA
NOVEMBER 30, 1997
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Centennial
Cellular
Corp. before
Consolidation
of Puerto Rico Puerto Rico Eliminations Consolidated
-------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,442 $ 5,096 $ -- $ 16,538
Accounts receivable - net 28,032 4,963 -- 32,995
Prepaid expenses and other
current assets 6,640 1,166 -- 7,806
--------- --------- --------- ---------
Total current assets 46,114 11,225 -- 57,339
Property, plant & equipment - net 116,345 110,907 -- 227,252
Investment in Puerto Rico, at cost 80,100 -- (80,100) --
Equity investments in wireless
telephone systems - net 91,007 -- -- 91,007
Debt issuance costs - net 6,269 2,511 8,780
Cellular telephone licenses - net 260,255 -- -- 260,255
Personal communications services
licenses - net -- 61,219 -- 61,219
Goodwill - net 128,149 -- -- 128,149
Other assets - net 3,504 5,988 (1,880) 7,612
--------- --------- --------- ---------
$ 731,743 $ 191,850 $ (81,980) $ 841,613
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
12
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NOTE 9. CONTINUED
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET FINANCIAL DATA
(CONTINUED)
NOVEMBER 30, 1997
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Centennial Cellular
Corp. before
Consolidation
of Puerto Rico Puerto Rico Eliminations Consolidated
-------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable $ 8,946 $ 8,974 $ -- $ 17,920
Accrued expenses and other
current liabilities 39,315 9,567 -- 48,882
Payable to affiliate 250 148 -- 398
--------- --------- --------- ---------
Total current liabilities 48,511 18,689 -- 67,200
Long-term debt 350,000 125,500 -- 475,500
Deferred liability 2,200 1,880 (1,880) 2,200
Deferred income taxes 36,521 -- -- 36,521
Convertible redeemable preferred stock 186,287 -- -- 186,287
Second series convertible
redeemable preferred stock 7,252 -- -- 7,252
Common stockholders' equity:
Common stock, par value $.01 per share:
Class A 165 -- -- 165
Class B 105 -- -- 105
Additional paid-in capital 361,604 80,100 (80,100) 361,604
Other (26,518) -- -- (26,518)
Accumulated deficit (234,384) (34,319) -- (268,703)
--------- --------- --------- ---------
Total common stockholders'
equity 100,972 45,781 (80,100) 66,653
--------- --------- --------- ---------
$ 731,743 $ 191,850 $ (81,980) $ 841,613
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
13
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NOTE 9. CONTINUED
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS FINANCIAL DATA
SIX MONTH PERIOD ENDED NOVEMBER 30, 1997
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Centennial
Cellular
Corp. before
consolidation
of Puerto Rico Puerto Rico Eliminations Consolidated
-------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 91,727 $ 20,260 $ -- $ 111,987
--------- --------- --------- ---------
Costs and expenses:
Cost of equipment sold 8,375 262 -- 8,637
Cost of services 12,133 6,254 -- 18,387
Selling, general & administrative 27,200 12,485 -- 39,685
Depreciation and amortization 40,223 12,557 -- 52,780
--------- --------- --------- ---------
87,931 31,558 - 119,489
--------- --------- --------- ---------
Operating income (loss) 3,796 (11,298) -- (7,502)
--------- --------- --------- ---------
Income from equity investments 7,452 -- -- 7,452
Gain on sale of assets 12 -- -- 12
Interest expense 17,120 4,681 -- 21,801
--------- --------- --------- ---------
Loss before income tax
benefit and minority interest (5,860) (15,979) -- (21,839)
Income tax benefit (5,683) -- -- (5,683)
--------- --------- --------- ---------
Loss before minority interest (177) (15,979) -- (16,156)
Minority interest in income
of subsidiaries (256) -- -- (256)
--------- --------- --------- ---------
Net loss $ (433) $ (15,979) $ -- $ (16,412)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
14
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information contained in this Part I, Item 2 updates, and should be read in
conjunction with, information set forth in Part II, Items 7 and 8, in the
Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1997, in
addition to the interim consolidated financial statements and accompanying notes
presented in Part I, Item 1 of this Form 10-Q.
RESULTS OF OPERATIONS (Amounts 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, the Company has
acquired cellular licenses for twenty-nine wireless telephone markets in the
United States that it owns and manages (the "Domestic Wireless Telephone
Systems"). In addition, 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 "Puerto Rico Wireless Telephone System"). Certain of the
Company's operations are in a developmental stage, and the Company's Puerto Rico
Wireless Telephone System is in the start-up and construction stage. On December
12, 1996 the Company began providing wireless telephone services in Puerto Rico.
There is on-going construction to complete the buildout of the Puerto Rico
Wireless Telephone System. The Puerto Rico Wireless Telephone System accounted
for $20,260 in revenue for the six months ended November 30, 1997 and had
approximately 50,700 subscribers as of November 30, 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 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 the Company will
continue to have access to such sources of funds.
Six Months ended November 30, 1997 and November 30, 1996
Revenue for the six months ended November 30, 1997 was $111,987, an increase of
$44,263 or 65% over revenue of $67,724 for the six months ended November 30,
1996, reflecting growth in subscriptions to and increased usage of wireless
telephone service. The Puerto Rico Wireless Telephone System accounted for
$20,260 or 46% of the increase in revenue.
15
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Revenue from the sale of wireless telephones (substantially all of which relates
to the Company's Domestic Wireless Telephone Systems) to subscribers for the six
months ended November 30, 1997 increased by $1,036 to $2,435 or 74% as compared
to the six months ended November 30, 1996. The increase in revenue was due to a
larger number of telephone units sold during the current six month period.
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 November 30, 1997 were
approximately 268,600, an increase of 68% from the 159,900 subscribers at
November 30, 1996. Increases from new activations of 160,300 were offset by
subscriber cancellations of 51,600. The cancellations experienced by the Company
are primarily the result of competitive factors. The Puerto Rico Wireless
Telephone System had approximately 50,700 subscribers at November 30, 1997 and,
as a result, accounted for 47% of the net increase in subscriptions.
Consolidated revenue per subscriber per month, based upon an average number of
subscribers for the six months ended November 30, 1997, was $79 as compared to
$76 for the six months ended November 30, 1996. The average monthly revenue per
subscriber was approximately $75 in the domestic markets, as compared to
approximately $100 in the Company=s Puerto Rico Wireless Telephone System . The
Company expects that per subscriber revenue will be impacted by competition and
the expansion of its local service calling areas.
Cost of services during the six months ended November 30, 1997 was $18,387, an
increase of $8,694 or 90% from the six months ended November 30, 1996. The
increase was due 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 the commencement of PCS
telephone service in Puerto Rico. Cost of services for the Puerto Rico Wireless
Telephone System were $6,254 and $1,081 for the six months ended November 30,
1997 and 1996, respectively.
Cost of equipment sold during the six months ended November 30, 1997 was $8,637,
an increase of $1,968 or 30% as compared to the six months ended November 30,
1996. The primary reason was an increase in the number of telephone units sold.
Cost of equipment sold for the Puerto Rico Wireless Telephone System was $262
and $0 for the six months ended November 30, 1997 and 1996, respectively.
Selling, general and administrative expenses rose to $39,685 for the six months
ended November 30, 1997, an increase of $18,003 or 83% above the expenses of
$21,682 for the six months ended November 30, 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 and the commencement of PCS telephone services in Puerto Rico. Selling,
general and administrative expenses for the Puerto Rico Wireless Telephone
System were $12,485 and $1,939 for the six months ended November 30, 1997 and
1996, respectively.
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
continued development of its markets as well as its participation in the Puerto
Rico telecommunications business will contribute to a continued increase in the
level of
16
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expenses.
Depreciation and amortization for the six months ended November 30, 1997 was
$52,780, an increase of $14,989 or 40% over the six months ended November 30,
1996. The increase results from capital expenditures made during the six months
ended November 30, 1997 and during the fiscal year ended May 31, 1997 in
connection with the development and network expansion of the Company's Domestic
Wireless Telephone Systems and Puerto Rico Wireless Telephone System.
Depreciation and amortization related to the Puerto Rico Wireless Telephone
System accounted for $12,501 or 83% of the increase.
The operating loss for the six months ended November 30, 1997 was $7,502, a
decrease of $609 or 8% from the loss of $8,111 for the six months ended November
30, 1996. The operating loss for the Puerto Rico Wireless Telephone System was
$11,298 for the six months ended November 30, 1997.
Interest expense was $21,801 for the six months ended November 30, 1997, an
increase of $7,042 or 48% from the six months ended November 30, 1996. Interest
expense for the six months ended November 30, 1996 was reduced by $2,598 of
capitalized interest charges related to the acquisition cost of the Company's
Puerto Rico PCS license during the pre-operational stage of the business. Gross
interest costs for the six months ended November 30, 1997 and 1996 were $21,801
and $17,357, respectively. The increase in gross interest costs reflects
additional borrowings for acquisitions, working capital and debt service. The
average debt outstanding during the six months ended November 30, 1997 was
$451,557, an increase of $86,557 as compared to the average debt level of
$365,000 during the six months ended November 30, 1996. The increase in average
debt outstanding is principally related to borrowings for the Puerto Rico
Wireless Telephone System. The Company's weighted average interest rate
increased to 9.7% for the six months ended November 30, 1997 from 9.5% for the
six months ended November 30, 1996.
After income attributable to minority interests in subsidiaries for the six
months ended November 30, 1997, a pretax loss of $22,095 was incurred, as
compared to a pretax loss of $15,002 for the six months ended November 30, 1996.
The income tax benefit of $5,683 for the six months ended November 30, 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 $16,412 for the six months ended November 30, 1997 represents an
increase of $4,184 or 34% from the net loss of $12,228 for the six months ended
November 30, 1996.
Three Months ended November 30, 1997 and November 30, 1996
Revenue for the three months ended November 30, 1997 was $59,134, an increase of
$23,775 or 67% over revenue of $35,359 for the three months ended November 30,
1996, reflecting growth in subscriptions to and increased usage of wireless
telephone service. The Puerto Rico Wireless Telephone System accounted for
$12,540 or 53% of the increase in revenue.
Revenue from the sale of wireless telephones to subscribers for the three months
ended November 30, 1997 increased by $693 to $1,326 or 109% as compared to the
three months ended November 30,
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<PAGE>
1996. The increase in revenue was due to a larger number of telephone units sold
during the current three-month period.
Consolidated revenue per subscriber per month, based upon an average number of
subscribers for the three months ended November 30, 1997, was $78 as compared to
$77 for the three months ended November 30, 1996. The average monthly revenue
per subscriber was approximately $74 in the Company's domestic markets, as
compared to approximately $98 in the Company's Puerto Rico operations. The
Company expects that per subscriber revenue will be impacted by competition and
the expansion of its local service calling areas.
Cost of services during the three months ended November 30, 1997 was $10,505, an
increase of $5,578 or 113% from the three months ended November 30, 1996. The
increase was due 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 the commencement of PCS
telephone service in Puerto Rico. Cost of services for the Puerto Rico Wireless
Telephone System were $4,099 and $577 for the three months ended November 30,
1997 and 1996, respectively.
Cost of equipment sold during the three months ended November 30, 1997 was
$4,564, an increase of $598 or 15% as compared to the three months ended
November 30, 1996. The primary reason was an increase in the number of telephone
units sold. Cost of equipment sold for the Puerto Rico Wireless Telephone System
were $102 and $0 for the three months ended November 30, 1997 and 1996,
respectively.
Selling, general and administrative expenses rose to $21,721 for the three
months ended November 30, 1997, an increase of $9,853 or 83% above the expenses
of $11,868 for the three months ended November 30, 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 and the commencement of PCS telephone services in Puerto Rico. Selling,
general and administrative expenses for the Puerto Rico Wireless Telephone
System were $6,701 and $1,490 for the three months ended November 30, 1997 and
1996, respectively.
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 business will contribute to a continued increase
in the level of expenses.
Depreciation and amortization for the three months ended November 30, 1997 was
$27,718, an increase of $8,408 or 44% over the three months ended November 30,
1996. The increase results from acquisitions and capital expenditures made
during the six months ended November 30, 1997 and during the fiscal year ended
May 31, 1997 in connection with the development and network expansion of the
Company's Domestic Wireless Telephone Systems and Puerto Rico Wireless Telephone
System. Depreciation and amortization related to the Puerto Rico Wireless
Telephone System accounted for $7,429 or 88% of the increase.
The operating loss for the three months ended November 30, 1997 was $5,374, an
increase of $662 or
18
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14% from the loss of $4,712 for the three months ended November 30, 1996. The
operating loss for the Puerto Rico Wireless Telephone System was $5,831 for the
three months ended November 30, 1997.
Interest expense was $11,096 for the three months ended November 30, 1997, an
increase of $3,378 or 44% from the three months ended November 30, 1996.
Interest expense for the three months ended November 30, 1996 was reduced by
$1,299 of capitalized interest charges related to the acquisition cost of the
Company's Puerto Rico PCS license during the pre-operational stage of the
business. Gross interest costs for the three months ended November 30, 1997 and
1996 were $11,096 and $9,017, respectively. The increase in gross interest costs
reflects additional borrowings for acquisitions, working capital and debt
service. The average debt outstanding during the three months ended November 30,
1997 was $461,313, an increase of $81,313 as compared to the average debt level
of $380,000 during the three months ended November 30, 1996. The increase in
average debt outstanding is principally related to borrowings for the Puerto
Rico PCS business. The Company's weighted average interest rate increased to
9.6% for the three months ended November 30, 1997 from 9.5% for the three months
ended November 30, 1996.
After income attributable to minority interests in subsidiaries for the three
months ended November 30, 1997, a pretax loss of $13,338 was incurred, as
compared to a pretax loss of $8,140 for the three months ended November 30,
1996. The income tax benefit of $3,712 for the three months ended November 30,
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 $9,626 for the three months ended November 30, 1997 represents
an increase of $3,505 or 57% from the net loss of $6,121 for the three months
ended November 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended November 30, 1997, earnings were less than fixed
charges by $21,839. Fixed charges consist of interest expense, including
amortization of debt issue costs 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 $52,780 relating to depreciation and
amortization.
During the six months ended November 30, 1997, the Company made capital
expenditures of $71,963, primarily to continue the construction of its Puerto
Rico telecommunications network and its domestic wireless telephone systems to
expand the coverage areas of existing properties and to upgrade its cell sites
and call switching equipment. Capital expenditures for the Company's Puerto Rico
Wireless Telephone System were $53,676 for the six months ended November 30,
1997, representing 75% of the Company's total capital expenditures. The Puerto
Rico Wireless Telephone System capital expenditures included $33,663 to continue
the buildout of the Company's PCS network infrastructure and $20,013 to purchase
telephone units which remain the property of the Company while in use by
subscribers. The Company's future commitments for property and equipment include
the addition of cell sites to expand coverage, as well as enhancements to the
existing infrastructure of its wireless telephone systems. During the twelve
month period ending May 31, 1998, the Company anticipates capital expenditures
in the Domestic Wireless Telephone Systems of approximately $30,000. The Company
currently estimates that the cost to continue the build-out of its Puerto Rico
network infrastructure through fiscal 1998 will
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be approximately $50,000, an increase of approximately $15,000 above prior
estimates. This increase primarily relates to an acceleration of expenditures
that would otherwise take place in future years. This acceleration is related to
the growth the company has experienced in its Puerto Rico Wireless Telephone
Systems. 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, the Company entered into a $75,000 revolving credit facility
with Citibank, N.A. on September 12, 1996, which was amended on April 22, 1997
and further amended on July 28, 1997 (the "Credit Facility"). The Credit
Facility terminates on January 31, 2001. The Credit Facility may be used for
working capital and general corporate purposes. The Credit Facility restricts
the incurrence of certain additional debt by the Company and limits the
Company's ability to pay dividends. As of November 30, 1997, no amounts were
outstanding under the Credit Facility. The Company was in compliance with the
covenants of the Credit Facility at November 30, 1997.
Additionally, on April 25, 1997, Centennial Puerto Rico Wireless Corporation, a
wholly owned subsidiary of the Company ("CPRW"), entered into a four-year
$130,000 revolving credit facility with Citibank, N.A. as agent, which converts
into a four-year term loan on April 25, 2001 (the "Puerto Rico Credit
Facility"). The proceeds from the Puerto Rico Credit Facility will be used by
CPRW and its direct and indirect subsidiaries primarily to finance the
construction and operation of PCS, competitive access and telecommunications
networks in Puerto Rico and the United States Virgin Islands. The proceeds will
also be used by CPRW for working capital and general corporate purposes and were
used to pay certain cash dividends to the Company as permitted by the Puerto
Rico Credit Facility. The Puerto Rico Credit Facility is non-recourse to the
Company and requires CPRW to meet and maintain certain financial and operating
covenants. The Puerto Rico Credit Facility restricts the use of borrowing,
limits the incurrence of certain additional indebtedness by CPRW and limits
CPRW's ability to declare and pay dividends to the Company and management fees
to affiliates. At November 30, 1997, $125,500 was outstanding under the Puerto
Rico Credit Facility. CPRW is currently in negotiations to increase the credit
availability under the Puerto Rico Credit Facility. There is no assurance that
CPRW will be successful in this regard. The Company was in compliance with the
covenants of the Puerto Rico Credit Facility at November 30, 1997.
The Company has outstanding two classes of preferred stock, which are held by
Citizens Utilities Company ("Citizens") and Century, respectively. The preferred
stock issues carried no cash dividend requirements through August 30, 1996 but
the shares 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 30, 1996 was $186,287 and $7,252, respectively. Beginning September 1,
1996, the holders of the preferred stock shall receive cash dividends at the
rate of 8.5% per annum, when and as declared by the Board of Directors of the
Company, in its discretion. Assuming no change in the number of shares of such
classes outstanding, the annual dividend that may be declared and made payable,
commencing in fiscal 1997, 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. Through November 30, 1997, the Company has paid
four quarterly cash dividends to Citizens and Century of $3,959 and $154,
respectively. The Company will determine the timing, amount, or distribution (if
any) of additional preferred stock dividends.
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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. 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. 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 dividends that may be declared and made
payable and required capital expenditures.
The Company anticipates that shortfalls in cash flow 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 (the "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 14, 1994. As of
January 5, 1998, 4,239,231 shares remain available for issuance under this shelf
registration .
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 January 5, 1998, $400,000 remained
available for issuance under this shelf registration.
Although the net cash provided by operating activities for the six months ended
November 30, 1997 was not sufficient to fund the Company's expenditures for
property, plant and equipment of $71,963, 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. Based upon current market
conditions, the Company expects that cash flows from operations and funds from
currently available credit facilities will be sufficient to enable the Company
to meet required cash commitments through the next twelve month period.
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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 shares of
the Company's Class A Common Stock, cash, assumption of liabilities or a
combination thereof.
On September 12, 1996, the Company acquired, for approximately $35,000 in cash,
100% of the ownership interests in the partnership owning the wireless telephone
system serving the Benton Harbor, Michigan MSA. The Benton Harbor market
represents approximately 161,400 Net Pops. A Net Pop is the market's Pops
multiplied by the percentage interest that Centennial owns in an entity licensed
by the FCC to construct or operate a wireless telephone system in that market
and "Pops" means the population of a market based upon the final 1990 Census
Report of the Bureau of the Census, United States Department of Commerce.
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 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 its Class A Common
Stock, depending on prevailing market conditions. Also, during the six months
ended November 30, 1997, the Company announced that its Board of Directors
authorized the repurchase in the open market and in privately negotiated
transactions of up to an additional 3,000,000 shares of its Class A Common
Stock, depending on prevailing market conditions. During the six months ended
November 30, 1997, the Company purchased 1,181,200 shares of its Class A Common
Stock in the open market for an aggregate purchase price of $21,717. Subsequent
to November 30, 1997, the Company purchased 89,000 additional shares of its
Class A Common Stock in the open market for an aggregate purchase price of
$1,806. These shares have been accounted for as treasury shares. As of January
5, 1998, the Company is authorized to repurchase 2,729,800 additional shares of
its Class A Common Stock after giving effect to the shares repurchased to date.
The Company is controlled by Century Communications Corp. ("Century"). Century
has an approximately 33% Common Stock interest and, through ownership of the
Company's Class B Common Stock which has disproportionate votes per share (15
votes per share), an approximate 74% voting interest in the Company at November
30, 1997. The Company and Century entered into a Services Agreement,
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effective August 30, 1996 (the "Services Agreement"), pursuant to which Century,
through its personnel, provides such design, construction, management,
operational, technical and maintenance services for the wireless telephone,
paging and related systems owned and operated by the Company. Such services also
include providing all the services necessary for the monitoring, to the extent
possible, of the activities of the 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 wireless telephone,
paging and related systems of the Company or to the performance by Century of
its other duties under the Services Agreement. For the six months ended November
30, 1997, the Company has recorded expenses of $500 under the Services
Agreement, of which $250 is recorded within payable to affiliate on the
Company's consolidated balance sheet at November 30, 1997.
* * * * *
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains or incorporates by reference forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Where any such forward-looking statement includes a statement of the assumptions
or bases underlying such forward-looking statement, the Company cautions that
assumed facts or bases almost always vary from actual results, and the
differences between assumed facts or bases and actual results can be material
depending upon the circumstances. Where, in any forward-looking statement, the
Company or its management expresses an expectation or belief as to future
results, there can be no assurance that the statement of expectation or belief
will result or be achieved or accomplished. The words "believe", "expect",
"estimate", "anticipate", "project" and similar expressions may identify
forward-looking statements.
Taking into account the foregoing, the following are identified as important
factors that could cause actual results to differ materially from those
expressed in any forward-looking statement made by, or on behalf of, the
Company: the Company's net losses and stockholders' equity; the capital
intensity of the wireless telephone business and the Company's debt structure;
the competitive nature of the wireless telephone industry; regulation; changes
and developments in technology ; subscriber cancellations; restrictive covenants
and consequences of default contained in the Company's financing arrangements;
control by certain of the Company's stockholders and anti-takeover provisions;
the Company's opportunities for growth through acquisitions and investments;
operating hazards and uninsured risks; refinancing and interest rate exposure
risks; potential for changes in accounting standards; and capital calls
associated with the Company's Investment Interests. A more detailed discussion
of each of the foregoing factors can be found in the Company's Annual Report on
Form 10-K for the Fiscal Year ended May 31, 1997 under the heading "CAUTIONARY
STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995" in Item 7 of such Form 10-K. Other factors may be
detailed from time to time in the Company's filings with the SEC. The Company
assumes no obligation to update its forward-looking statements or to advise of
changes in the assumptions and factors on which they are based.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
There are no material pending legal proceedings, other than routine
litigation incidental to the business, to which the Company or any of
its subsidiaries is a party to or which any of their property is
subject.
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
a) Registrant's annual meeting of shareholders was held on October 31,
1997.
b) The following persons were elected as directors at said meeting
pursuant to the following votes:
Number of Votes
------------------------------
Directors For Withheld
--------------- -------------- ---------
Bernard P. Gallagher 172,728,525 59,726
Rudy J. Graf 172,728,525 59,726
Scott N. Schneider 172,728,525 59,726
David Z. Rosensweig 172,728,525 59,726
Daryl A. Ferguson 172,727,859 60,392
Peter J. Solomon 172,727,252 60,999
William M. Kraus 172,728,525 59,726
Frank Tow 172,728,725 59,526
c) The shareholders approved a proposal at said meeting 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, 1998. The following sets forth the number of votes on this
proposal:
For Against Abstain
--- ------- -------
172,766,217 6,801 15,233
24
<PAGE>
<PAGE>
ITEM 5. Other Information
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. Also, during
the six months ended November 30, 1997, the Company announced that its
Board of Directors authorized the repurchase in the open market and in
privately negotiated transactions of up to an additional 3,000,000
shares of its Class A Common Stock, depending on prevailing market
conditions. During the six months ended November 30, 1997, the Company
purchased 1,181,200 shares of its Class A Common Stock in the open
market for an aggregate purchase price of $21,717. Subsequent to
November 30, 1997, the Company purchased 89,000 additional shares of
Class A Common Stock in the open market for an aggregate purchase price
of $1,806. These shares have been accounted for as treasury shares. As
of January 5, 1998, the Company is authorized to repurchase 2,729,800
additional shares of its Class A Common Stock after giving effect to the
shares repurchased to date.
ITEM 6. Exhibits and Report on Form 8-K
Each exhibit identified below is filed as a part of this report.
a) Exhibits
Exhibit No. Description
----------- -----------
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.
25
<PAGE>
<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 8, 1998
CENTENNIAL CELLULAR CORP.
/S/ Scott N. Schneider
----------------------------
Scott N. Schneider
Chief Financial Officer, Senior Vice
President and Treasurer
(Principal Financial Officer)
26
<PAGE>
<PAGE>
Exhibit 11
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
EXHIBIT TO FORM 10-Q
For the Six Months Ended November 30, 1997 and 1996
COMPUTATION OF LOSS PER COMMON SHARE
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------------
November 30, November 30,
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
Primary fully diluted:
Net Loss $ (16,412) $ (12,228)
Preferred stock dividends (8,226) (7,723)
------------ -------------
Loss applicable to common shares $ (24,638) $ (19,951)
============ =============
Average number of common shares and common
share equivalents outstanding
Average number of common shares
outstanding during this period 26,601,000 26,932,000
Add common share equivalents - Options
to purchase common shares - net 302,000 120,000
------------ -------------
Average number of common shares and common
share equivalents outstanding 26,903,000 (A) 27,052,000 (A)
============ =============
Loss per common share $ (.92)(A) $ (.74)(A)
============ =============
(A) In accordance with Accounting Principles Board Opinion No. 15, the
inclusion 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 and 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.
27
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<CASH> 16,538
<SECURITIES> 0
<RECEIVABLES> 32,995
<ALLOWANCES> 3,166
<INVENTORY> 0
<CURRENT-ASSETS> 57,339
<PP&E> 227,252
<DEPRECIATION> 57,156
<TOTAL-ASSETS> 841,613
<CURRENT-LIABILITIES> 67,200
<BONDS> 475,500
193,539
0
<COMMON> 270
<OTHER-SE> 66,383
<TOTAL-LIABILITY-AND-EQUITY> 841,613
<SALES> 111,987
<TOTAL-REVENUES> 111,987
<CGS> 27,024
<TOTAL-COSTS> 119,489
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,801
<INCOME-PRETAX> (21,839)
<INCOME-TAX> (5,683)
<INCOME-CONTINUING> (16,156)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,412)
<EPS-PRIMARY> (.93)
<EPS-DILUTED> 0
</TABLE>
