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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, 1998
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)
<TABLE>
<S> <C>
Delaware 06-1242753
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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 - 15,086,398 outstanding shares as of December 16, 1998
Class B Common - 10,544,113 outstanding shares as of December 16, 1998
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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,
1998 May 31,
(Unaudited) 1998
-------------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 32,516 $ 14,620
Accounts receivable, less allowance for doubtful
accounts of $2,945 and $2,693, respectively 45,115 37,178
Inventory - phones and accessories 9,287 7,304
Prepaid expenses and other current assets 3,148 548
-------------------- -----------------
TOTAL CURRENT ASSETS 90,066 59,650
PROPERTY, PLANT AND EQUIPMENT - net 272,154 263,661
EQUITY INVESTMENTS IN WIRELESS SYSTEMS - net 78,178 87,634
DEBT ISSUANCE COSTS, less accumulated amortization of
$7,198 and $6,097, respectively 7,450 8,538
CELLULAR TELEPHONE LICENSES, less accumulated
amortization of $288,089 and $263,633, respectively 213,235 235,508
PERSONAL COMMUNICATIONS SERVICES LICENSE, less accumulated
amortization of $3,109 and $2,324, respectively 59,650 60,435
GOODWILL, less accumulated amortization of $28,563
and $27,016, respectively 121,039 124,533
OTHER ASSETS - net 8,072 7,458
-------------------- -----------------
TOTAL $ 849,844 $ 847,417
==================== =================
</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,
1998 May 31,
(Unaudited) 1998
------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,153 $ 9,805
Accrued expenses and other current liabilities 71,486 64,445
Payable to affiliate 518 435
------------- --------------
TOTAL CURRENT LIABILITIES 81,157 74,685
LONG-TERM DEBT 507,000 510,000
DEFERRED LIABILITY - 2,200
DEFERRED INCOME TAXES 29,221 26,584
PREFERRED STOCK:
Convertible redeemable preferred stock
(at aggregate liquidation 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) 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, 16,717,607 and 16,716,683 shares,
respectively; and outstanding 15,085,398 and 15,084,474 shares, respectively 167 167
Class B, 15 votes per share, 50,000,000 shares authorized,
issued and outstanding 10,544,113 shares 105 105
Additional paid-in capital 349,802 358,018
Accumulated deficit (277,895) (284,238)
------------- --------------
72,179 74,052
Less: Cost of 1,632,209, Class A common shares
in treasury (30,614) (30,614)
Deferred compensation (2,638) (3,029)
------------- --------------
TOTAL COMMON STOCKHOLDERS' EQUITY 38,927 40,409
------------- --------------
TOTAL $ 849,844 $ 847,417
============= =============
</TABLE>
See notes to consolidated financial statements
2
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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,
1998 1997 1998 1997
----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
REVENUE:
Service revenue - Domestic $ 57,947 $ 44,993 $ 110,911 $ 88,700
Service revenue - Puerto Rico 27,534 12,256 50,761 19,629
Equipment sales 1,671 1,326 2,926 2,435
----------- ------------ ------------- ------------
87,152 58,575 164,598 110,764
----------- ------------ ------------- ------------
COSTS AND EXPENSES:
Cost of equipment sold - Domestic 4,322 4,462 8,203 8,375
Cost of equipment sold - Puerto Rico 607 102 1,259 262
Cost of services - Domestic 6,386 6,406 12,490 12,133
Cost of services - Puerto Rico 5,356 4,099 9,634 6,254
Selling, general and administrative - Domestic 17,072 15,020 31,877 27,200
Selling, general and administrative - Puerto Rico 10,474 6,701 19,565 12,485
Depreciation and amortization - Domestic 20,744 20,249 41,499 40,223
Depreciation and amortization - Puerto Rico 11,995 7,469 23,044 12,557
----------- ------------ ------------- ------------
76,956 64,508 147,571 119,489
----------- ------------ ------------- ------------
OPERATING INCOME (LOSS) 10,196 (5,933) 17,027 (8,725)
----------- ------------ ------------- ------------
INCOME FROM EQUITY INVESTMENTS 3,841 3,246 7,490 7,452
GAIN ON SALE OF ASSETS 55 7 9,611 12
INTEREST EXPENSE - NET - DOMESTIC 7,951 8,077 16,228 15,999
INTEREST EXPENSE - NET - PUERTO RICO 2,858 2,460 5,712 4,579
----------- ------------ ------------- ------------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE
(BENEFIT) AND MINORITY INTEREST 3,283 (13,217) 12,188 (21,839)
INCOME TAX EXPENSE (BENEFIT) 2,828 (3,712) 5,836 (5,683)
----------- ------------ ------------- ------------
INCOME (LOSS) BEFORE MINORITY INTEREST 455 (9,505) 6,352 (16,156)
MINORITY INTEREST IN LOSS (INCOME) OF SUBSIDIARIES 233 (121) (9) (256)
----------- ------------ ------------- ------------
NET INCOME (LOSS) $ 688 $ (9,626) $ 6,343 $ (16,412)
=========== ============ ============= ============
DIVIDEND ON PREFERRED STOCK $ 4,113 $ 4,113 $ 8,226 $ 8,226
=========== ============ ============= ============
LOSS APPLICABLE TO COMMON SHARES $ (3,425) $ (13,739) $ (1,883) $ (24,638)
=========== ============ ============= ============
LOSS PER COMMON SHARE - BASIC AND DILUTED $ (.13) $ (.52) $ (.07) $ (.93)
=========== ============ ============= ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING DURING THE PERIOD 25,630,000 26,340,000 25,629,000 26,601,000
=========== ============ ============= ============
</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
------------------------ --------------------- Paid-In Treasury
Shares Dollars Shares Dollars Capital Stock
------------ -------- ------------ ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 1, 1997 16,492,884 $ 165 10,544,113 $ 105 $369,704 $ (1,801)
Common stock issued in conjunction
with incentive plans 223,799 2 - - 4,765 -
Preferred stock dividends - - - - (16,451) -
Treasury stock purchases - - - - - (28,813)
Repayment of shareholder note
receivable - - - - - -
Net loss - - - - - -
------------ -------- ------------ -------- ----------- -------------
Balance at May 31, 1998 16,716,683 167 10,544,113 105 358,018 (30,614)
Common stock issued in
connection with incentive plans 924 10
Preferred stock dividends (8,226)
Amortization of deferred compensation
Net income
------------ -------- ------------ -------- ----------- -------------
Balance at November 30, 1998 - (unaudited) 16,717,607 $ 167 10,544,113 $ 105 $ 349,802 $ (30,614)
============ ======== ============ ======= =========== =============
</TABLE>
<TABLE>
<CAPTION>
Shareholder
Note Deferred Accumulated
Receivable Compensation Deficit Total
-------------- ------------ ------------------ ------------
<S> <C> <C> <C>
Balance at June 1, 1997 $ (3,000) $ - $ (252,291) $ 112,882
Common stock issued in conjunction
with incentive plans - (3,029) - 1,738
Preferred stock dividends - - - (16,451)
Treasury stock purchases - - - (28,813)
Repayment of shareholder note
receivable 3,000 - - 3,000
Net loss - - (31,947) (31,947)
---------- --------------- -------------- -----------
Balance at May 31, 1998 - (3,029) (284,238) 40,409
Common stock issued in
connection with incentive plans 10
Preferred stock dividends (8,226)
Amortization of deferred compensation 391 391
Net income 6,343 6,343
---------- --------------- ----------------- ----------
Balance at November 30, 1998-(unaudited) - $ (2,638) $ (277,895) $ 38,927
========== =============== ================= ==========
</TABLE>
See notes to consolidated financial statements
4
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CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------
November 30, November 30,
1998 1997
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Cash received from subscribers and others $ 179,736 $ 120,982
Cash paid to suppliers, employees and
governmental agencies (101,783) (74,698)
Interest paid (21,688) (20,281)
-------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 56,265 26,003
-------------- --------------
INVESTING ACTIVITIES:
Proceeds from sale of equipment 438 -
Capital expenditures (48,765) (71,963)
Acquisition of other assets (2,200) (6,076)
Acquisition, disposition and exchange of wireless telephone systems 10,500 -
Distributions received from equity investments 6,638 8,693
Capital contributed to equity investments - (65)
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (33,389) (69,411)
-------------- --------------
FINANCING ACTIVITIES:
Proceeds from long-term debt 7,000 51,500
Repayment of long-term debt (10,000) (5,000)
Debt issuance costs paid - (152)
Prepaid transaction costs (1,990) -
Proceeds from issuance of Class A Common Stock 10 126
Dividends paid - (8,226)
Treasury stock purchases - (21,717)
-------------- --------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (4,980) 16,531
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 17,896 (26,877)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 14,620 43,415
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 32,516 $ 16,538
============== ==============
</TABLE>
See notes to consolidated financial statements
5
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CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------------
November 30, November 30,
1998 1997
------------- -------------
<S> <C> <C>
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income (loss) $ 6,343 $ (16,412)
------------- -------------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 64,543 52,780
Minority interest in income of subsidiaries 9 256
Deferred income taxes - increase (decrease) 5,836 (7,456)
Equity in undistributed earnings of investee companies (7,490) (7,452)
Gain on sale of assets (9,611) -
Other 1,491 1,223
Change in assets and liabilities net of effects of
acquired wireless telephone systems:
Accounts receivable - (increase) (7,796) (7,183)
Prepaid expenses and other current assets -
(increase) (2,604) (2,970)
Accounts payable and accrued expenses -
increase 4,427 11,770
Customer deposits and prepayments -
increase 1,117 1,447
------------- -------------
Total adjustments 49,922 42,415
------------- -------------
Net cash provided by operating activities $ 56,265 $ 26,003
============= =============
</TABLE>
See notes to consolidated financial statements
6
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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, 1998 and the results of its consolidated operations and cash flows
for the periods ended November 30, 1998 and 1997. These financial statements do
not include all disclosures required by generally accepted accounting
principles. The statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's May 31, 1998
Annual Report on Form 10-K, which includes a summary of significant accounting
policies and other disclosures. The consolidated balance sheet at May 31, 1998
is audited.
RECLASSIFICATIONS
Certain prior period balances have been reclassified to conform with the current
period presentation.
NOTE 2. AGREEMENT AND PLAN OF MERGER
On November 29, 1998, the Company and CCW Acquisition Corp. ("Acquisition"), a
Delaware corporation organized at the direction of Welsh, Carson, Anderson &
Stowe VIII, L.P. ("WCAS VIII"), executed an Amendment to the Agreement and Plan
of Merger, dated as of July 2, 1998 (as amended, the "Merger Agreement"),
providing for the merger of Acquisition with and into Centennial (the "Merger").
The Company expects to close the Merger in January 1999. Centennial will
continue as the surviving corporation (the "Surviving Corporation") in the
Merger.
Subject to the effects of proration, in the Merger, outstanding shares of Class
A Common Stock ("Class A Common Stock") will be converted into the right to
receive $41.50 per share in cash or to receive common shares of the Surviving
Corporation (the "Surviving Corporation Shares") representing up to 7.1% of the
Surviving Corporation Shares outstanding immediately after the Merger.
Outstanding shares of Class B Common Stock ("Class B Common Stock") will be
converted into the right to receive $41.50 per share in cash; provided, that if
the aggregate number of Surviving Corporation Shares elected to be received by
holders of Class A Common Stock is less than 7.1% of the common shares of the
Surviving Corporation outstanding
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immediately after the Merger, then a number of shares of Class B Common Stock
equal to a portion of such shortfall will be converted into Surviving
Corporation Shares on a pro rata basis with shares of Class A Common Stock with
respect to which an election to receive Surviving Corporation Shares has not
been made. All outstanding shares of Convertible Redeemable Preferred Stock
(the "Convertible Redeemable Preferred Stock") and Second Series Convertible
Redeemable Preferred Stock (the "Second Series Convertible Redeemable Preferred
Stock" and, together with the Convertible Redeemable Preferred Stock, the
"Preferred Stock") will be converted into the right to receive $41.50 per
share in cash on an as-converted basis.
Because existing holders of common stock of the Company must receive in the
Merger an amount of Surviving Corporation Shares equal to 7.1% of the common
shares of the Surviving Corporation outstanding immediately after the effective
time of the Merger (the "Effective Time"), holders of Class A Common Stock who
do not elect to receive any shares and holders of Class B Common Stock may, due
to proration, be required to receive some Surviving Corporation Shares. In
addition, holders of Class A Common Stock who elect to receive shares may, due
to proration, receive Surviving Corporation Shares and receive cash in amounts
which vary from the amounts such holders elected.
Pursuant to the Merger Agreement, it is anticipated that each option to purchase
shares of Class A Common Stock (an "Option") granted under the Company's 1991
Employee Stock Option Plan and Non-Employee/Officer Director Option Plan, as
amended (collectively, the "Option Plans") will be exercised or canceled
pursuant to its terms or canceled in exchange for a cash amount equal to the
difference between $41.50 and the exercise price of the Option prior to the
Effective Time. Each Option that is not exercised or canceled will remain
outstanding immediately following the Effective Time and such Options will be
subject to adjustment pursuant to the terms of the Option Plans.
In connection with the execution of the Merger Agreement, Century Communications
Corp. ("Century"), the Company's principal stockholder, entered into a
Stockholder Agreement, dated as of July 2, 1998, with Acquisition (the
"Stockholder Agreement"). Pursuant to the Stockholder Agreement, Century, which
has an approximate 33% Common Stock interest and, through its beneficial
ownership of approximately 81.2% of the Company's outstanding 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, 1998, agreed
to vote its shares in favor of the Merger so long as the Merger Agreement
remains in effect. Because Century agreed to approve the Merger by written
consent in lieu of meeting, and controls, on a fully diluted basis, more than a
majority of the outstanding votes of the Company required to approve the Merger,
no further vote was necessary to approve the Merger. On December 4, 1998,
Century executed a written stockholder's consent in lieu of meeting to approve
the Merger.
Pursuant to the Merger Agreement, from the date of the Merger Agreement to the
Effective Time, the Company shall conduct its business in the ordinary course
consistent with past practice
8
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and shall use reasonable efforts to preserve intact its business organizations
and relationships with third parties and to keep available the services of its
present officers and key employees. All statements contained in this Quarterly
Report, including discussions of the Company's plans and strategies, are
subject to the Company's covenants regarding the conduct of its business
pending the Merger.
On December 8, 1998, the Company's Registration Statement on Form S-4 with
respect to the issuance of common stock of the Company, as the Surviving
Corporation in the Merger, was declared effective by the Securities and Exchange
Commission (the "SEC"). Upon consummation of the Merger, such common stock of
the Surviving Corporation will be received by (i) current holders of Class A
Common Stock who make an effective election to receive such shares, (ii) by
current holders of Class A Common Stock with respect to which an election to
receive Surviving Corporation Shares has not been made who are required to
receive such shares due to proration or (iii) by current holders of Class B
Common Stock who are required to receive such shares due to proration. A holder
of Class A Common Stock electing to receive Surviving Corporation Shares must
make an election by 5:00 p.m., New York City time, on January 6, 1999.
The consummation of the Merger is subject to certain conditions, including,
without limitation, the funding of committed financing, which financing is no
longer subject to any material adverse change in relevant capital markets.
Whether or not the Merger is consummated, all costs and expenses incurred in
connection with the Merger, the Merger Agreement and the transactions
contemplated by the Merger Agreement shall be paid by the party incurring such
expenses. However, in the event the Company or Acquisition shall have terminated
the Merger Agreement as a result of either the Company entering into a
definitive written agreement with respect to any merger, consolidation or other
business combination, tender or exchange offer, recapitalization transaction,
asset or stock purchase or other similar transaction with a third party (an
"Acquisition Transaction") or the Board of Directors of the Company having
withdrawn, modified or amended in any manner adverse to Acquisition or the
stockholders of Acquisition its approval or recommendation of the Merger
Agreement or approved, recommended or endorsed any proposal for an Acquisition
Transaction, then the Company shall simultaneously reimburse Acquisition for
documented fees and expenses (subject to a maximum of $25,000) and pay
Acquisition a termination fee of $40,000.
In connection with the Merger, Acquisition has received a commitment from third
parties for financing for Acquisition and certain existing and future
subsidiaries of the Company in the aggregate amount of approximately $1,050,000
in the form of a senior secured credit facility. Additionally, an affiliate of
WCAS VIII has agreed to purchase approximately $180,000 aggregate amount of
unsecured subordinated notes of the Surviving Corporation. Finally, WCAS VIII
and other equity investors have agreed to purchase approximately $400,000 of
common stock of the Surviving Corporation. It is anticipated that this funding
will be used to
9
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pay the merger consideration described above, repay or repurchase certain
indebtedness of the Company and pay related fees and expenses. Additionally,
pursuant to the Merger Agreement, the Company has agreed that, upon the request
of Acquisition, it will commence offers to repurchase its two outstanding
issuances of public debt (the "Debt Offers"). Pursuant to the Merger Agreement
and at the request of Acquisition, the Company commenced the Debt Offers and
consent solicitations with respect to these two public debt issuances on
September 8, 1998. The Company has extended the expiration date for the Debt
Offers to January 6, 1999. Through December 16, 1998, over 99% of the Company's
public debt was tendered and consents were delivered to the Company. As a
condition to the closing of the Merger, the Company must complete the Debt
Offers for its two public debt issuances of $350,000 in the aggregate, prior to
the closing date of the Merger. The final cost to the Company of the redemption,
including accrued interest, is approximately $398,000. The Company's obligation
to accept for purchase, and to pay for, the public debt validly tendered is
subject to certain conditions, including the consummation of the Merger, which,
in turn, is subject to certain other conditions.
Acquisition notified the Company that on December 14, 1998, as part of the
financing necessary to effect the Merger, a corporation formed in connection
with the Merger, which will be a subsidiary of the Surviving Corporation
following the Merger, issued $370,000 of senior subordinated debt securities to
qualified institutional buyers under a private placement offering pursuant to
Rule 144A and Regulation S of the Securities Act of 1933, as amended. There can
be no assurance that Acquisition will receive the other funding referred to
above and, in the event that Acquisition must seek alternative financing to
consummate the Merger, there can be no assurance that it will be able to secure
alternative financing on terms no less favorable than the terms of the above
commitments. Additionally, there can be no assurance that the Debt Offers will
be consummated.
The accompanying consolidated financial statements have been prepared on a
historical basis and do not include any adjustments relating to the Merger
Agreement.
NOTE 3. LONG-TERM DEBT
The Company and its subsidiaries had the following debt outstanding at November
30, 1998 and May 31,1998:
<TABLE>
<CAPTION>
November 30, May 31,
1998 1998
------------ ---------
<S> <C> <C>
Centennial 8-7/8% Senior Notes due 2001....... $250,000 $250,000
Centennial 10-1/8% Senior Notes due 2005...... 100,000 100,000
Centennial Domestic Credit Facility........... - 10,000
Puerto Rico Credit Facility................... 157,000 150,000
-------- -------
$507,000 $510,000
======== ========
</TABLE>
10
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<PAGE>
Centennial Puerto Rico Wireless Corporation, a wholly owned subsidiary of the
Company ("CPRW"), has a four year, $180,000 revolving credit facility, as
amended (the "Puerto Rico Credit Facility"). As of November 30, 1998, the Puerto
Rico Credit Facility had $157,000 outstanding. The Commitment available under
the Puerto Rico Credit Facility terminates on February 28, 2001. Quarterly
repayment of amounts outstanding at the termination date are to be made over a
five-year period beginning May 31, 2001, as specified in the Puerto Rico Credit
Facility, as amended. The interest rate payable by CPRW on borrowings under the
Puerto Rico Credit Facility is based, at the election of CPRW, on (a) the Base
Rate, as defined, plus a margin of 1.50% or (b) the Eurodollar Base Rate, as
defined, plus a margin of 2.50%, adjusted for the maintenance of certain
specified ratios, as applicable.
As of November 30, 1998, no amounts were outstanding under the Company's $75,000
domestic revolving credit facility (the "Domestic Credit Facility"). The
commitment available under the Domestic Credit Facility terminates on January
31, 2001 at which point all amounts outstanding are due and payable. The
interest rate payable on the Domestic 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 aggregate annual principal payments for the next five years and thereafter
under the Company's and CPRW's debt at November 30, 1998 are summarized as
follows:
<TABLE>
<S> <C>
November 30, 1999 $ -
November 30, 2000 -
November 30, 2001 268,840
November 30, 2002 40,820
November 30, 2003 43,960
November 30, 2004 and thereafter 153,380
--------
$507,000
========
</TABLE>
The Company and CPRW were in compliance with all covenants of their debt
agreements at November 30, 1998.
NOTE 4. DISPOSITIONS
On June 8, 1998, the Company disposed of its investment interest in the
Coconino, Arizona RSA, representing approximately 43,500 Net Pops, for $13,500
in cash. The Company recorded a pre-tax gain of $9,556 in relation to the sale
of this investment interest during the three months ended August 31, 1998.
11
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NOTE 5. REVENUE RECOGNITION
Wireless telephone service income includes earned subscriber service revenue and
charges for installation and connections, net of associated roaming costs of
$23,556 and $18,026 for the six months ended November 30, 1998 and 1997,
respectively.
NOTE 6. INCOME (LOSS) PER COMMON SHARE
The Company applies the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128"). Under SFAS 128, Basic
earnings per share ("EPS") is calculated by dividing income (loss) applicable to
common shares by weighted average common shares outstanding. Diluted EPS
reflects the potential dilution that could occur if potential common stock
instruments of the Company were exercised, converted or issued.
NOTE 7. COMMITMENTS AND CONTINGENCIES
The Company is controlled by 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, 1998. 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 minority equity 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
pays Century the annual sum of $1,000 and reimburses 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, 1998,
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, 1998. Century has entered into an agreement with
Acquisition pursuant to which it has agreed to terminate the Services Agreement
as of the effective date of the Merger.
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 pursuant to previous authorizations by the Company's Board of
Directors. These shares were accounted for as treasury shares. During the six
months ended November 30, 1998, the Company has not purchased any additional
shares of its Class A Common Stock in the open market.
12
<PAGE>
<PAGE>
In September 1998, the Commonwealth of Puerto Rico sustained damage as a result
of the effects of Hurricane Georges. The Company has evaluated the extent of
damage to its Puerto Rico network infrastructure and the impact the Hurricane
has had on the Company's Puerto Rico service revenue during the second quarter
ended November 30, 1998. After consideration of expected insurance recoveries,
the Company believes it will not incur significant losses as a result of the
effects of the damage caused by Hurricane Georges. During the three months ended
November 30, 1998, the Company recorded approximately $1,600 of insurance
recoveries related to subscriber refunds within revenue.
NOTE 8. NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about Pensions and other
Postretirement Benefits" and Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" in 1998.
Additionally, during 1998, the AICPA's Accounting Standards Executive Committee
issued Statement of Position (SOP) 98-5 "Reporting on the Cost of Start-up
Activities". 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 telephone segment includes the accounts of Centennial
Puerto Rico Wireless Corporation ("Wireless" or the "Puerto Rico Wireless
Telephone System"). Wireless is wholly owned by the Company. Wireless began
providing wireless telephone service in Puerto Rico on December 12, 1996 and
participates in the alternative access business in Puerto Rico pursuant to the
FCC's requirements for interstate service and pursuant to an authorization
issued to Wireless in December 1994 by the Public Service Commission of the
Commonwealth of Puerto Rico for intrastate service. Wireless began providing
competitive access service in September 1997.
13
<PAGE>
<PAGE>
Information about the Company's operations in its two business segments for the
six months ended November 30, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Six Months Ended November 30,
----------------------------
1998 1997
--------- ---------
<S> <C> <C>
Gross revenue:
Domestic $ 112,836 $ 90,607
Puerto Rico 51,762 20,157
--------- ---------
$ 164,598 $ 110,764
========= =========
Operating income (loss):
Domestic $ 18,767 $ 2,675
Puerto Rico (1,740) (11,400)
--------- ---------
$ 17,027 $ (8,725)
========= =========
Net income (loss):
Domestic $ 13,740 $ (433)
Puerto Rico (7,397) (15,979)
--------- ---------
$ 6,343 $ (16,412)
========= =========
Assets, at end of period:
Domestic $ 722,409 $ 731,743
Puerto Rico 221,735 191,850
Elimination (94,300) (81,980)
--------- ---------
$ 849,844 $ 841,613
========= =========
Depreciation and amortization:
Domestic $ 41,499 $ 40,223
Puerto Rico 23,044 12,557
--------- ---------
$ 64,543 $ 52,780
========= =========
Capital expenditures:
Domestic $ 18,150 $ 18,287
Puerto Rico 30,615 53,676
--------- ---------
$ 48,765 $ 71,963
========= =========
</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.
14
<PAGE>
<PAGE>
NOTE 9- CONTINUED
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET FINANCIAL DATA
November 30, 1998
(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 $ 29,626 $ 2,890 $ - $ 32,516
Accounts receivable - net 31,483 13,632 - 45,115
Inventory - phones and accessories 8,453 834 - 9,287
Prepaid expenses and other
current assets 2,400 748 - 3,148
----------- ---------- --------------- --------
Total current assets 71,962 18,104 - 90,066
Property, plant & equipment - net 136,350 135,804 - 272,154
Investment in Puerto Rico, at cost 90,100 - (90,100) -
Equity investments in wireless
telephone systems - net 78,178 - - 78,178
Debt issuance costs - net 4,949 2,501 - 7,450
Cellular telephone licenses - net 213,235 - - 213,235
Personal communications services
licenses - net - 59,650 - 59,650
Goodwill - net 121,039 - - 121,039
Other assets - net 6,596 5,676 (4,200) 8,072
----------- ---------- --------------- ---------
$ 722,409 $ 221,735 $ (94,300) $ 849,844
=========== ========== =============== =========
</TABLE>
15
<PAGE>
<PAGE>
NOTE 9. CONTINUED
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET FINANCIAL DATA
(CONTINUED)
November 30, 1998
(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 $ 2,598 $ 6,555 $ - $ 9,153
Accrued expenses and other
current liabilities 51,379 20,107 - 71,486
Payable to affiliate 250 268 - 518
---------- ---------- ----------- ---------
Total current liabilities 54,227 26,930 - 81,157
Long-term debt 350,000 157,000 - 507,000
Deferred liability - 4,200 (4,200) -
Deferred income taxes 29,221 - - 29,221
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 167 - - 167
Class B 105 - - 105
Additional paid-in capital 349,802 90,100 (90,100) 349,802
Other (33,252) - - (33,252)
Accumulated deficit (221,400) (56,495) - (277,895)
----------- ---------- ----------- ---------
Total common stockholders'
equity 95,422 33,605 (90,100) 38,927
----------- ---------- ----------- ---------
$ 722,409 $ 221,735 $ (94,300) $ 849,844
=========== ========== =========== =========
</TABLE>
16
<PAGE>
<PAGE>
NOTE 9. CONTINUED
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS FINANCIAL DATA
SIX MONTH PERIOD ENDED NOVEMBER 30, 1998
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Centennial
Cellular
Corp. before
consolidation
of Puerto Rico Puerto Rico Eliminations Consolidated
-------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 112,836 $ 51,762 $ - $ 164,598
---------- --------- ------------ ---------
Costs and expenses:
Cost of equipment sold 8,203 1,259 - 9,462
Cost of services 12,490 9,634 - 22,124
Selling, general & administrative 31,877 19,565 - 51,442
Depreciation and amortization 41,499 23,044 - 64,543
---------- --------- ------------ ---------
94,069 53,502 - 147,571
---------- --------- ------------ ---------
Operating income (loss) 18,767 (1,740) - 17,027
---------- --------- ------------ ---------
Income from equity investments 7,490 - - 7,490
Gain on sale of assets 9,556 55 - 9,611
Interest expense 16,228 5,712 - 21,940
---------- --------- ------------ ---------
Income (loss) before income tax
expense and minority interest 19,585 (7,397) - 12,188
Income tax expense 5,836 - - 5,836
---------- --------- ------------ ---------
Income (loss) before minority interest 13,749 (7,397) - 6,352
Minority interest in income
of subsidiaries (9) - - (9)
---------- --------- ----------- ---------
Net income (loss) $ 13,740 $ (7,397) $ - $ 6,343
========== ========= =========== =========
17
</TABLE>
<PAGE>
<PAGE>
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, 1998, 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 and share data)
On November 29, 1998, the Company and Acquisition executed an Amendment to the
Merger Agreement providing for the Merger. The Company expects to close the
Merger in January 1999. Centennial will continue as the Surviving Corporation in
the Merger.
Subject to the effects of proration, in the Merger, outstanding shares of Class
A Common Stock will be converted into the right to receive $41.50 per share in
cash or to receive common shares of the Surviving Corporation representing up to
7.1% of the Surviving Corporation Shares outstanding immediately after the
Merger. Outstanding shares of Class B Common Stock will be converted into the
right to receive $41.50 per share in cash; provided, that if the aggregate
number of Surviving Corporation Shares elected to be received by holders of
Class A Common Stock is less than 7.1% of the common shares of the Surviving
Corporation outstanding immediately after the Merger, then a number of shares of
Class B Common Stock equal to a portion of such shortfall will be converted into
Surviving Corporation Shares on a pro rata basis with shares of Class A Common
Stock with respect to which an election to receive Surviving Corporation Shares
has not been made. All outstanding shares of Preferred Stock will be converted
into the right to receive $41.50 per share in cash on an as-converted basis.
Because existing holders of common stock of the Company must receive in the
Merger an amount of Surviving Corporation Shares equal to 7.1% of the common
shares of the Surviving Corporation outstanding immediately after the Effective
Time, holders of Class A Common Stock who do not elect to receive any shares and
holders of Class B Common Stock may, due to proration, be required to receive
some Surviving Corporation Shares. In addition, holders of Class A Common Stock
who elect to receive shares may, due to proration, receive Surviving Corporation
Shares and receive cash in amounts which vary from the amounts such holders
elected.
Pursuant to the Merger Agreement, it is anticipated that each Option granted
under the Company's Option Plans will be exercised or canceled pursuant to its
terms or in exchange for a cash amount equal to the difference between $41.50
and the exercise price of the Option prior to the Effective Time. Each Option
that is not exercised or canceled will remain outstanding immediately following
the Effective Time and such Options will be subject to adjustment pursuant to
the terms of the Option Plans.
18
<PAGE>
<PAGE>
In connection with the execution of the Merger Agreement, Century, the Company's
principal stockholder, entered into the Stockholder Agreement, dated as of July
2, 1998, with Acquisition. Pursuant to the Stockholder Agreement, Century, which
has an approximate 33% Common Stock interest and, through its beneficial
ownership of approximately 81.2% of the Company's outstanding 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, 1998, agreed
to vote its shares in favor of the Merger so long as the Merger Agreement
remains in effect. Because Century agreed to approve the Merger by written
consent in lieu of meeting, and controls, on a fully diluted basis, more than a
majority of the outstanding votes of the Company required to approve the Merger,
no further vote was necessary to approve the Merger. On December 4, 1998,
Century executed a written stockholder's consent in lieu of meeting to approve
the Merger.
Pursuant to the Merger Agreement, from the date of the Merger Agreement to the
Effective Time, the Company shall conduct its business in the ordinary course
consistent with past practice and shall use reasonable efforts to preserve
intact its business organizations and relationships with third parties and to
keep available the services of its present officers and key employees. All
statements contained in this Quarterly Report, including discussions of the
Company's plans and strategies, are subject to the Company's covenants regarding
the conduct of its business pending the Merger.
On December 8, 1998, the Company's Registration Statement on Form S-4 with
respect to the issuance of common stock of the Company, as the Surviving
Corporation in the Merger, was declared effective by the SEC. Upon consummation
of the Merger, such common stock of the Surviving Corporation will be received
by (i) current holders of Class A Common Stock who make an effective election to
receive such shares, (ii) by current holders of Class A Common Stock with
respect to which an election to receive Surviving Corporation Shares has not
been made who are required to receive such shares due to proration or (iii) by
current holders of Class B Common Stock who are required to receive such shares
due to proration. A holder of Class A Common Stock electing to receive Surviving
Corporation Shares must make an election by 5:00 p.m., New York City time, on
January 6, 1999.
The consummation of the Merger is subject to certain conditions, including,
without limitation, the funding of committed financing, which financing is no
longer subject to any material adverse change in relevant capital markets.
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, 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.
19
<PAGE>
<PAGE>
Virgin Islands ("Wireless" or the "Puerto Rico Wireless Telephone System"). The
Company also participates in the alternative access business in Puerto Rico.
Wireless is wholly owned by the Company. 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 $51,762 in
revenue for the six months ended November 30, 1998 and had approximately 98,700
subscribers as of November 30, 1998.
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 its 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.
In connection with the Merger, Acquisition has received a commitment from third
parties for financing for Acquisition and certain existing and future
subsidiaries of the Company in the aggregate amount of approximately $1,050,000
in the form of a senior secured credit facility. Additionally, an affiliate of
WCAS VIII has agreed to purchase approximately $180,000 aggregate amount of
unsecured subordinated notes of the Surviving Corporation. Finally, WCAS VIII
and other equity investors have agreed to purchase approximately $400,000 of
common stock of the Surviving Corporation. It is anticipated that this funding
will be used to pay the merger consideration described above, repay or
repurchase indebtedness of the Company and pay related fees and expenses.
Additionally, pursuant to the Merger Agreement, the Company has agreed that,
upon the request of Acquisition, it will commence the Debt Offers. Pursuant to
the Merger Agreement and at the request of Acquisition, the Company commenced
the Debt Offers and consent solicitations with respect to its two public debt
issuances on September 8, 1998. The Company has extended the expiration date for
the Debt Offers to January 6, 1999. Through December 16, 1998, over 99% of the
Company's public debt was tendered and consents were delivered to the Company.
As a condition to the closing of the Merger, the Company must complete the Debt
Offers for its two public debt issuances of $350,000 in the aggregate, prior to
the closing date of the Merger. The final cost to the Company of the redemption,
including accrued interest, is approximately
20
<PAGE>
<PAGE>
$398,000. The Company's obligation to accept for purchase, and to pay for, the
public debt validly tendered is subject to certain conditions, including the
consummation of the Merger, which, in turn, is subject to certain other
conditions.
Acquisition notified the Company that on December 14, 1998, as part of the
financing necessary to effect the Merger, a corporation formed in connection
with the Merger, which will be a subsidiary of the surviving corporation
following the Merger, issued $370,000 of debt securities to qualified
institutional buyers under a private placement offering pursuant to Rule 144A
and Regulation S of the Securities Act of 1933, as amended. There can be no
assurance that Acquisition will receive the other funding referred to above and,
in the event that Acquisition must seek alternative financing to consummate the
Merger, there can be no assurance that it will be able to secure alternative
financing on terms no less favorable than the terms of the above commitments.
Additionally, there can be no assurance that the Debt Offers will be
consummated.
Six Months ended November 30, 1998 and November 30, 1997
Revenue for the six months ended November 30, 1998 was $164,598, an increase of
$53,834 or 49% over revenue of $110,764 for the six months ended November 30,
1997, reflecting growth in subscriptions to wireless telephone service, of
$54,227 partially offset by reductions in rates charged to subscribers of
$5,503. Secondarily, the increase reflects increased roamer usage of $11,177,
partially offset by lower reciprocal roaming rates with other wireless carriers
of $6,067. The Puerto Rico Wireless Telephone System accounted for $31,605 or
59% of the total increase in revenue. This increase reflects subscriber growth
of $35,402, partially offset by subscriber rate reductions of $3,797.
Revenue from the sale of wireless telephones and accessories to subscribers for
the six months ended November 30, 1998 increased by $491 to $2,926 or 20% as
compared to the six months ended November 30, 1997. The increase in revenue was
due to a larger number of telephone units sold during the current six-month
period. The Puerto Rico Wireless Telephone System accounted for $1,001 and $528
of the equipment sales for the six months ended November 30, 1998 and 1997,
respectively.
Continued growth in revenue is dependent upon increased levels of wireless
subscriptions and maintenance of the current subscriber base and the average
revenue per subscriber. Wireless telephone subscribers at November 30, 1998 were
approximately 384,600, an increase of 43% from the 268,600 subscribers at
November 30, 1997. Increases from new activations of 207,000 were offset by
subscriber cancellations of 91,000. The cancellations experienced by the Company
are primarily the result of competitive factors. The Puerto Rico Wireless
Telephone System had approximately 98,700 and 50,700 subscribers at November 30,
1998, and 1997, respectively, and, as a result, accounted for 41% of the net
increase in subscriptions.
21
<PAGE>
<PAGE>
Consolidated revenue per subscriber per month, based upon an average number of
subscribers for the six months ended November 30, 1998, was $74 as compared to
$78 for the six months ended November 30, 1997. The average monthly revenue per
subscriber was approximately $69 in the domestic markets, as compared to
approximately $89 in the Company's Puerto Rico Wireless Telephone System. The
Company expects that per subscriber revenue will continue to be impacted by
competition, the expansion of its local service calling areas and lower
reciprocal per minute roaming rates with other wireless carriers.
Cost of services during the six months ended November 30, 1998 was $22,124, an
increase of $3,737 or 20% from the six months ended November 30, 1997. The
increase was primarily due to the continued growth of PCS telephone service in
Puerto Rico. Cost of services for the Puerto Rico Wireless Telephone System was
$9,634 and $6,254 for the six months ended November 30, 1998 and 1997,
respectively. Secondarily, the variable costs associated with a larger revenue
and subscription base and increased coverage areas resulting from the continued
expansion of the Company's network accounted for approximately $357 of the
increase.
Cost of equipment sold during the six months ended November 30, 1998 was $9,462,
an increase of $825 or 10% as compared to the six months ended November 30,
1997. Domestic costs have declined as a result of a general decline in the
wholesale prices of telephones of approximately 27%. Cost of equipment sold
(primarily accessory equipment) for the Puerto Rico Wireless Telephone System
was $1,259 and $262 for the six months ended November 30, 1998 and 1997,
respectively.
Selling, general and administrative expenses rose to $51,442 for the six months
ended November 30, 1998, an increase of $11,757 or 30% above the expenses of
$39,685 for the six months ended November 30, 1997. The Company's managerial,
customer service and sales staff increased approximately 21% to accommodate the
larger subscription and revenue base, anticipated growth of its wireless
telephone business and the continued growth of telephone services in Puerto
Rico. Selling, general and administrative expenses for the Puerto Rico Wireless
Telephone System were $19,565 and $12,485 for the six months ended November 30,
1998 and 1997, 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 expenses.
Depreciation and amortization for the six months ended November 30, 1998 was
$64,543, an increase of $11,763 or 22% over the six months ended November 30,
1997. The increase resulted from capital expenditures made during the six months
ended November 30, 1998 and during the fiscal year ended May 31, 1998 in
connection with the development and network expansion of the Company's wireless
telephone systems
22
<PAGE>
<PAGE>
and the purchase of PCS phones in Puerto Rico. Depreciation and amortization
related to the Puerto Rico Wireless Telephone System accounted for $10,487 or
89% of the increase.
As a result of the factors noted above, the operating income for the six months
ended November 30, 1998 was $17,027, an increase of $25,752 from the operating
loss of $8,725 for the six months ended November 30, 1997. The operating loss
for the Puerto Rico Wireless Telephone System was $1,740 and $11,400 for the six
months ended November 30, 1998 and 1997, respectively.
Net interest expense was $21,940 for the six months ended November 30, 1998, an
increase of $1,362 or 7% from the six months ended November 30, 1997. The
increase in interest expense reflects additional borrowings of $31,500 for
working capital, debt service and capital expenditures related to the buildout
of the Puerto Rico Wireless Telephone System's PCS network infrastructure and
the purchase of PCS telephones. The average debt outstanding during the six
months ended November 30, 1998 was $503,437, an increase of $51,880 as compared
to the average debt level of $451,557 during the six months ended November 30,
1997. 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 decreased to 9.1% for the six months ended November 30,
1998 from 9.7% for the six months ended November 30, 1997.
After income attributable to minority interests in subsidiaries for the six
months ended November 30, 1998, pretax income was $12,179 as compared to a
pretax loss of $22,095 for the six months ended November 30, 1997. The income
tax expense of $5,836 for the six months ended November 30, 1998 resulted
primarily from the pre-tax gain of $9,556 the Company recognized on the sale of
its Investment Interest in the Coconino, Arizona RSA during the six months ended
November 30, 1998.
The net income of $6,343 for the six months ended November 30, 1998 represents
an increase of $22,755 from the net loss of $16,412 for the six months ended
November 30, 1997.
Three Months ended November 30, 1998 and November 30, 1997
Revenue for the three months ended November 30, 1998 was $87,152, an increase of
$28,577 or 49% over revenue of $58,575 for the three months ended November 30,
1997, reflecting growth in subscriptions to wireless telephone service, of
$27,468, partially offset by reductions in rates charged to subscriber of
$3,291. Secondarily, the increase reflects increased roamer usage of $5,896,
partially offset by lower reciprocal roaming rates with other wireless carriers
of $1,496. The Puerto Rico Wireless Telephone System accounted for $15,734 or
55% of the total increase in revenue. This increase reflects subscriber growth
of $17,752, partially offset by subscriber rate reductions of $2,018.
23
<PAGE>
<PAGE>
Revenue from the sale of wireless telephones and accessories to subscribers for
the three months ended November 30, 1998 increased by $345 to $1,671 or 26% as
compared to the three months ended November 30, 1997. The increase in revenue
was due to a larger number of telephone units sold during the current
three-month period. The Puerto Rico Wireless Telephone System accounted for $684
and $228 of the equipment sales for the three months ended November 30, 1998 and
1997, respectively.
Consolidated revenue per subscriber per month, based upon an average number of
subscribers for the three months ended November 30, 1998, was $75 as compared to
$77 for the three months ended November 30, 1997. The average monthly revenue
per subscriber was approximately $70 in the domestic markets, as compared to
approximately $90 in the Company's Puerto Rico Wireless Telephone System. The
Company expects that per subscriber revenue will continue to be impacted by
competition, the expansion of its local service calling areas and lower
reciprocal per minute roaming rates with other wireless carriers.
Cost of services during the three months ended November 30, 1998 was $11,742, an
increase of $1,237 or 12% from the three months ended November 30, 1997. The
increase was primarily due to the continued growth of PCS telephone service in
Puerto Rico. Cost of services for the Puerto Rico Wireless Telephone System was
$5,356 and $4,099 for the three months ended November 30, 1998 and 1997,
respectively.
Cost of equipment sold during the three months ended November 30, 1998 was
$4,929, an increase of $365 or 8% as compared to the three months ended November
30, 1997. Domestic costs have declined as a result of a general decline in the
wholesale prices of telephones of approximately 21%. Cost of equipment sold
(primarily accessory equipment) for the Puerto Rico Wireless Telephone System
was $607 and $102 for the three months ended November 30, 1998 and 1997,
respectively.
Selling, general and administrative expenses rose to $27,546 for the three
months ended November 30, 1998, an increase of $5,825 or 27% above the expenses
of $21,721 for the three months ended November 30, 1997. The Company's
managerial, customer service and sales staff increased approximately 21% to
accommodate the larger subscription and revenue base, anticipated growth of its
wireless telephone business and the continued growth of telephone services in
Puerto Rico. Selling, general and administrative expenses for the Puerto Rico
Wireless Telephone System were $10,474 and $6,701 for the three months ended
November 30, 1998 and 1997, 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 expenses.
Depreciation and amortization for the three months ended November 30, 1998 was
$32,739, an increase of $5,021 or 18% over the three months ended November 30,
1997.
24
<PAGE>
<PAGE>
The increase resulted from capital expenditures made during the three months
ended November 30, 1998 and during the fiscal year ended May 31, 1998 in
connection with the development and network expansion of the Company's wireless
telephone systems and the purchase of PCS phones in Puerto Rico. Depreciation
and amortization related to the Puerto Rico Wireless Telephone System accounted
for $4,526 or 90% of the increase.
As a result of the factors noted above, the operating income for the three
months ended November 30, 1998 was $10,196, an increase of $16,129 from the
operating loss of $5,933 for the three months ended November 30, 1997. The
operating loss for the Puerto Rico Wireless Telephone System was $214 and $5,889
for the three months ended November 30, 1998 and 1997, respectively.
Net interest expense was $10,809 for the three months ended November 30, 1998,
an increase of $272 or 3% from the three months ended November 30, 1997. The
increase in interest expense reflects additional borrowings of $31,500 for
working capital, debt service and capital expenditures related to the buildout
of the Puerto Rico Wireless Telephone System's PCS network infrastructure and
the purchase of PCS telephones. The average debt outstanding during the three
months ended November 30, 1998 was $505,264, an increase of $43,951 as compared
to the average debt level of $461,313 during the three months ended November 30,
1997. 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 decreased to 9.0% for the three months ended November 30,
1998 from 9.6% for the three months ended November 30, 1997.
After income attributable to minority interests in subsidiaries for the three
months ended November 30, 1998, pretax income was $3,516 as compared to a pretax
loss of $13,338 for the three months ended November 30, 1997.
The net income of $688 for the three months ended November 30, 1998 represents
an increase of $10,314 from the net loss of $9,626 for the three months ended
November 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended November 30, 1998, earnings exceeded fixed charges by
$12,188. 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 exceeded fixed charges reflects
non-cash charges of $64,543 relating to depreciation and amortization.
During the six months ended November 30, 1998, the Company made capital
expenditures of $48,765, primarily to continue the construction of its Puerto
Rico Wireless Telephone System 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
25
<PAGE>
<PAGE>
System were $30,615 for the six months ended November 30, 1998, representing 63%
of the Company's total capital expenditures. The Puerto Rico Wireless Telephone
System capital expenditures included $14,661 to continue the buildout of the
Company's PCS network infrastructure and $15,954 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 and enhancements to the existing infrastructure of
its wireless telephone systems. During fiscal 1999, the Company anticipates
capital expenditures in the Domestic Wireless Telephone Systems of approximately
$40,000. The Company currently estimates that the cost to continue the build-out
of its Puerto Rico network infrastructure through fiscal 1999 will be
approximately $50,000. It is anticipated that the Company will seek 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.
Centennial Puerto Rico Wireless Corporation, a wholly owned subsidiary of the
Company ("CPRW"), has a four year, $180,000 revolving credit facility, as
amended (the "Puerto Rico Credit Facility"). As of November 30, 1998, the Puerto
Rico Credit Facility had $157,000 outstanding. The Commitment available under
the Puerto Rico Credit Facility terminates on February 28, 2001. Quarterly
repayments of amounts outstanding at the termination date are to be made over a
five-year period beginning May 31, 2001, as specified in the Puerto Rico Credit
Facility, as amended. The interest rate payable by CPRW on borrowings under the
Puerto Rico Credit Facility is based, at the election of CPRW, on (a) the Base
Rate, as defined, plus a margin of 1.50% or (b) the Eurodollar Base Rate, as
defined, plus a margin of 2.50%, adjusted for the maintenance of certain
specified ratios, as applicable.
As of November 30, 1998, no amounts were outstanding under the Company's $75,000
domestic revolving credit facility (the "Domestic Credit Facility" ). The
commitment available under the Domestic Credit Facility terminates on January
31, 2001 at which point all amounts outstanding are due and payable. The
interest rate payable on the Domestic 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 Company also has two outstanding public issuances of debt securities, its
$250,000 8 7/8% Senior Notes due 2001 and its $100,000 10 1/8% Senior Notes due
2005, which bear interest at the rate of 8 7/8% per annum and 10 1/8% per annum,
respectively. Pursuant to the Merger Agreement and at the request of
Acquisition, the Company commenced the Debt Offers on September 8, 1998. The
Company has extended the expiration date for the Debt Offers to January 4, 1999.
Through December 16, 1998, over 99% of the Company's public debt was tendered
and consents were delivered to the Company. As a condition to the closing of the
Merger, the Company must complete the Debt Offers prior to the closing date of
the Merger. However, there can be no assurance that the Debt Offers will be
completed.
26
<PAGE>
<PAGE>
The Domestic Credit Facility, the Puerto Rico Credit Facility and the Company's
public debt instruments require the maintenance of certain financial and
operating covenants, restrict the use of borrowing, limit the incurrence of
additional indebtedness and limit the ability to pay dividends and management
fees. The Company and CPRW were in compliance with all covenants of their debt
instruments at November 30, 1998.
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 were eligible to 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, with respect to the preferred stock is $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. During the six months ended November 30, 1998 and 1997, the Company
paid quarterly cash dividends with respect to both classes of preferred stock
totaling $0 and $8,226, respectively. The Company will determine the timing,
amount, or distribution (if any) of additional preferred stock dividends.
In order to meet its obligations with respect to its operating needs, capital
expenditures, debt service and preferred stock obligations, it is important that
the Company continue to improve operating cash flow. In order to do so, the
Company's revenue must increase at a faster rate than operating expenses.
Increases in revenue will be dependent upon continuing growth in the number of
subscribers and maximizing revenue per subscriber. The Company has continued the
development of its managerial, administrative and marketing functions, and is
continuing the construction of wireless systems in its existing and recently
acquired markets in order to achieve these objectives. There is no assurance
that growth in subscribers or revenue will occur. In addition, the Company's
participation in the Puerto Rico telecommunications business has been, and is
expected to continue to be, capital intensive. Further, due to the start-up
nature of the Puerto Rico telecommunications operations, the Company expects
that it will require additional cash investment to fund its operations over the
next several years. The Puerto Rico telecommunications operations has been, and
is expected to continue 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
operations 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 systems 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.
27
<PAGE>
<PAGE>
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. It is anticipated that the Company's future
funding needs will be met by the refinancing arrangements that are expected to
be made in connection with the Merger, although there is no assurance that this
refinancing will be obtained. Based upon current market conditions and its
current capital structure, the Company believes 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.
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
December 16, 1998, 4,239,231 shares remain available for issuance under this
shelf registration.
The Company 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 December 16, 1998, $400,000 remained available for issuance under
this shelf registration.
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
stock, cash, assumption of liabilities or a combination thereof.
On June 8, 1998, the Company disposed of its Investment Interest in the
Coconino, Arizona RSA representing approximately 43,500 Net Pops, for $13,500 in
cash. During the three months ended August 31, 1998, the Company recorded a gain
of $9,556 in relation to the sale of this Investment Interest.
28
<PAGE>
<PAGE>
COMMITMENTS AND CONTINGENCIES
During the six months ended November 30, 1997, the Company directly purchased
1,181,200 shares of its Class A Common Stock in the open market for an aggregate
purchase price of $21,717 pursuant to previous authorizations by the Company's
Board of Directors. These shares were accounted for as treasury shares. During
the six months ended November 30, 1998, the Company did not directly purchase
any additional shares of its Class A Common Stock in the open market.
The Company is controlled by Century. Century has an approximate 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, 1998. The Company and Century
entered into a Services Agreement, 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 minority equity 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 pays Century the
annual sum of $1,000 and reimburses 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, 1998, 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, 1998.
Pursuant to the Stockholder Agreement with Acquisition, Century has agreed to
terminate the Services Agreement as of the effective date of the Merger.
In September 1998, the Commonwealth of Puerto Rico sustained damage as a result
of the effects of Hurricane Georges. The Company has evaluated the extent of
damage to its Puerto Rico network infrastructure and the impact the hurricane
has had on the Company's Puerto Rico service revenue during the second quarter
ended November 30, 1998. After consideration of expected insurance recoveries,
the Company believes it will not incur significant losses as a result of the
effects of the damage caused by Hurricane Georges. During the three months ended
November 30, 1998, the Company recorded approximately $1,600 of insurance
recoveries related to subscriber refunds within revenue.
During fiscal 1998, the Company began a review of its computer systems and
related software to identify systems and software which might malfunction due to
a misidentification of the Year 2000. A committee consisting of members of
senior management from various disciplines within the Company has been formed
and is
29
<PAGE>
<PAGE>
meeting regularly to discuss the steps that must be taken to deal with any
potential Year 2000 issues. The Company is utilizing both internal and external
resources to identify, correct or reprogram, and test systems for Year 2000
readiness.
Most of the Company's customer-related computer systems and data bases,
including its billing systems, are managed by third parties under contractual
arrangements. The Company has requested those third parties to advise the
Company as to whether they anticipate difficulties in addressing Year 2000
problems and if so, the nature of such difficulties. The Company is also working
with others in the industry using the same or similar systems to determine the
appropriate steps necessary to address the anticipated difficulties.
The Company is currently undertaking an inventory of all local equipment used in
the transmission and reception of all signals to identify items that need to be
upgraded or replaced. The Company is also monitoring industry-wide efforts with
respect to signal delivery to its distribution plant and is working with others
in the industry to address potential solutions.
Management of the Company has not finally determined the cost associated with
its Year 2000 readiness efforts and the related potential impact on the
Company's results of operations. Amounts expended to date have not been
material. There can be no assurance that the systems of other companies on which
the Company relies will be converted in time or that any such failure to convert
by another company will not have an adverse effect on the Company's financial
condition or position.
After evaluating its internal compliance efforts as well as the compliance of
third parties as described above by the end of calendar year 1998, the Company
will develop during 1999 appropriate contingency plans to address situations in
which various systems of the Company, or of third parties with which the Company
does business, are not Year 2000 compliant.
The following tables sets forth (in thousands), for the periods indicated, the
Company's net cash provided by operating activities before interest payments
(net cash provided), the Company's principal uses of such cash and the cash
available for (required from) financing and investing activities.
30
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended November 30,
------------------------------
1998 1997
---- ----
Amount % Amount %
------ ----- ------ ----
<S> <C> <C> <C> <C>
Net cash provided by
operating activities.. $56,265 72.2% $26,003 56.2%
Interest paid ........ 21,688 27.8 20,281 43.8
------ ---- ------ -----
Net cash provided .... $77,953 100.0% $46,284 100.0%
======= ==== ======= =====
Principal uses of cash
Interest paid ........ $21,688 27.8% $20,281 43.8%
Property, plant&
equipment ............ 48,765 62.6 71,963 155.5
------ ---- ------ -----
Total ................ $70,453 90.4% $92,244 199.3%
======= ==== ======= =====
Cash available for
(required from)
financing and
investing activities... $7,500 9.6% $(45,960) (99.3)%
====== === ======== =====
</TABLE>
Net cash provided by operating activities for the six months ended November 30,
1998 was sufficient to fund the Company's expenditures for property, plant and
equipment of $48,765.
31
<PAGE>
<PAGE>
The following table sets forth the primary cash flows provided by (used in)
financing and investing activities for the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended November 30,
------------------------------
1998 1997
-------- --------
<S> <C> <C>
Proceeds from sale of equipment .................................... $ 438 $ --
Issuance of Class A Common Stock ................................... 10 126
Proceeds from long-term debt ....................................... 7,000 51,500
Disposition of wireless telephone systems .......................... 10,500 --
Distributions received from equity investments-net ................. 6,638 8,628
-------- --------
Cash available ..................................................... 24,586 60,254
Acquisition of other assets ........................................ (2,200) (6,076)
Repayment of long-term debt ........................................ (10,000) (5,000)
Debt issuance costs paid ........................................... -- (152)
Prepaid transaction costs .......................................... (1,990) --
Dividends paid ..................................................... -- (8,226)
Treasury stock purchases ........................................... -- (21,717)
-------- --------
Cash available for operations and capital expenditures.............. $10,396 $ 19,083
======= ========
</TABLE>
* * * * *
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
32
<PAGE>
<PAGE>
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, 1998 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
33
<PAGE>
<PAGE>
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 29,
1998.
b) The following persons were elected as directors at said meeting
pursuant to the following votes:
<TABLE>
<CAPTION>
Number of Votes
----------------------------
Directors For Withheld
- --------- ----------- --------
<S> <C> <C>
Bernard P. Gallagher 171,254,453 83,191
Rudy J. Graf 171,254,453 83,191
Scott N. Schneider 171,254,453 83,191
David Z. Rosensweig 171,254,453 83,191
Daryl A. Ferguson 171,254,453 83,191
Peter J. Solomon 171,254,453 83,191
William M. Kraus 171,254,453 83,191
Frank Tow 171,254,453 83,191
</TABLE>
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, 1999. The following sets forth the number of votes
on this proposal:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
171,338,734 1,113 797
</TABLE>
34
<PAGE>
<PAGE>
ITEM 5. Other Information
None
ITEM 6. Exhibits and Report on Form 8-K
Each exhibit identified below is filed as a part of this report.
a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
Exhibit 11 Statement re: computation of per share earnings
Exhibit 27 Financial data schedule (EDGAR filing document
only)
</TABLE>
b) Reports on Form 8-K
Form 8-K dated October 12, 1998 relating to the press release of
the Company dated October 12, 1998 and the press release of the
Company dated October 13, 1998.
35
<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 5, 1999
CENTENNIAL CELLULAR CORP.
/s/ Scott N. Schneider
--------------------------------------
Scott N. Schneider
Chief Financial Officer, Senior
Vice President and Treasurer
(Principal Financial Officer)
36
<PAGE>
<PAGE>
Exhibit 11
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
EXHIBIT TO FORM 10-Q
For the Six Months Ended November 30, 1998 and 1997
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------------------
November 30, November 30,
1998 1997
-------------- -------------
(Unaudited)
<S> <C> <C>
Net Income (Loss) $ 6,343 $ (16,412)
Preferred stock dividends (8,226) (8,226)
-------------- -------------
Income (loss) applicable to common shares $ (1,883) $ (24,638)
============== =============
Average number of common shares and common
share equivalents outstanding
Average number of common shares
outstanding during this period 25,629,000 26,601,000
Add common share equivalents - Options
to purchase common shares - net 637,000 302,000
-------------- -------------
Average number of common shares and common
share equivalents outstanding 26,266,000 (A) 26,903,000 (A)
============== =============
Earnings (loss) per common share $ (.07)(A) $ (.92)(A)
============== =============
</TABLE>
(A) In accordance with SFAS 128, 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 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.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1998
<CASH> 32,516
<SECURITIES> 0
<RECEIVABLES> 45,115
<ALLOWANCES> 2,945
<INVENTORY> 9,287
<CURRENT-ASSETS> 90,066
<PP&E> 272,154
<DEPRECIATION> 101,008
<TOTAL-ASSETS> 849,844
<CURRENT-LIABILITIES> 81,157
<BONDS> 507,000
<COMMON> 272
193,539
0
<OTHER-SE> 38,655
<TOTAL-LIABILITY-AND-EQUITY> 849,844
<SALES> 164,598
<TOTAL-REVENUES> 164,598
<CGS> 31,586
<TOTAL-COSTS> 147,571
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,940
<INCOME-PRETAX> 12,188
<INCOME-TAX> 5,836
<INCOME-CONTINUING> 6,343
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,343
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
