<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X]
Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 for the quarterly period ended August 31, 2000
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 Communications 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.)
1305 Campus Parkway
Neptune, NJ 07753
(Address of principal executive offices, including zip code)
(732) 919-1000
(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.
Common stock - 94,556,627 outstanding shares as of October 10, 2000
<PAGE>
Part I - Financial Information
Item 1. - Financial Statements
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
August 31,
2000 May 31,
(Unaudited) 2000
----------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 19,133 $ 12,879
Restricted investments - 19,888
Accounts receivable, less allowance for doubtful
accounts of $8,372 and $6,539, respectively 118,550 69,692
Inventory - phones and accessories, less allowance for
obsolescence of $1,072 and $1,052, respectively 29,768 10,835
Prepaid expenses and other current assets 10,201 6,452
----------------- -----------------
TOTAL CURRENT ASSETS 177,652 119,746
PROPERTY, PLANT AND EQUIPMENT - net 447,425 398,345
EQUITY INVESTMENTS IN WIRELESS SYSTEMS - net 53,210 72,894
DEBT ISSUANCE COSTS, less accumulated amortization of
$12,020 and $10,112, respectively 54,201 56,109
DOMESTIC CELLULAR LICENSES, less accumulated
amortization of $306,709 and $304,922, respectively 274,873 241,855
CARIBBEAN WIRELESS LICENSES, less accumulated
amortization of $5,854 and $5,462, respectively 121,904 122,297
GOODWILL, less accumulated amortization of $35,852
and $34,462, respectively 140,002 137,545
OTHER ASSETS - net 30,716 23,942
----------------- -----------------
TOTAL $ 1,299,983 $ 1,172,733
================= =================
</TABLE>
See notes to condensed consolidated financial statements
1
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
August 31,
2000 May 31,
(Unaudited) 2000
----------------- ---------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt $ 12,609 $ 11,725
Short-term debt 518 6,688
Accounts payable 55,455 32,238
Accrued expenses and other current liabilities 137,965 106,943
Payable to affiliates 125 125
----------------- ---------------
TOTAL CURRENT LIABILITIES 206,672 157,719
LONG-TERM DEBT 1,620,854 1,566,048
MINORITY INTEREST IN SUBSIDIARIES 24,453 25,296
COMMON STOCKHOLDERS' EQUITY (DEFICIT):
Common stock par value $.01 per share:
1 vote per share, 150,000,000 shares authorized;
issued, 94,616,830 and 94,413,714 shares, respectively;
and outstanding 94,546,327 and 94,343,211 shares, respectively 946 944
Common stock issuable - 2,355
Additional paid-in capital 429,478 426,675
Accumulated deficit (981,059) (1,004,910)
----------------- ---------------
(550,635) (574,936)
Less: Cost of 70,503 common shares in treasury (1,077) (1,077)
Deferred compensation (284) (317)
----------------- ---------------
TOTAL COMMON STOCKHOLDERS' EQUITY (DEFICIT) (551,996) (576,330)
----------------- ---------------
TOTAL $ 1,299,983 $ 1,172,733
================= ===============
</TABLE>
See notes to condensed consolidated financial statements
2
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
------------------
August 31, August 31,
2000 1999
------------------ ----------------
<S> <C> <C>
REVENUE:
Service revenue $ 138,813 $ 112,955
Equipment sales 6,431 4,317
------------------ ----------------
145,244 117,272
------------------ ----------------
COSTS AND EXPENSES:
Cost of equipment sold 9,706 7,599
Cost of services 20,772 15,705
Sales and marketing 21,820 17,774
General and administrative 24,580 18,268
Depreciation and amortization 22,546 18,984
(Gain) loss on disposition of assets (32,135) 2
------------------- -----------------
67,289 78,332
------------------- -----------------
OPERATING INCOME 77,955 38,940
------------------- -----------------
INCOME FROM EQUITY INVESTMENTS 5,315 3,484
INTEREST EXPENSE - NET (41,584) (35,934)
------------------- -----------------
INCOME BEFORE INCOME TAX EXPENSE AND MINORITY INTEREST 41,686 6,490
INCOME TAX EXPENSE (18,678) (856)
-------------------- ------------------
INCOME BEFORE MINORITY INTEREST 23,008 5,634
MINORITY INTEREST IN LOSS OF SUBSIDIARIES 843 45
-------------------- ------------------
NET INCOME $ 23,851 $ 5,679
==================== ==================
EARNINGS PER COMMON SHARE:
BASIC AND DILUTED $ 0.25 $ 0.06
==================== ==================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING DURING THE PERIOD:
BASIC 94,495 93,639
==================== ==================
DILUTED 96,668 97,002
==================== ==================
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Common Additional
Common Stock Stock Paid-In Treasury Deferred Accumulated
---------------------- Compen-
Shares Dollars Issuable Capital Stock sation Deficit Total
------------ -------- -------- ----------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 1, 1999 93,673,386 $ 937 $ - $418,749 $ (1,077) $ - $ (1,021,587) $ (602,978)
Common stock issued in conjunction
with acquisitions 420,000 4 - 5,226 - - - 5,230
Common stock issued in
connection with incentive plans 295,680 3 - 1,390 - - - 1,393
Deferred compensation 24,648 - - 438 - (438) - -
Amortization of deferred compensation - - - - - 121 - 121
Income tax benefit from stock
options exercised - - - 872 - - - 872
Common stock issuable - - 2,355 - - - - 2,355
Net income - - - - - - 16,677 16,677
------------ -------- -------- ---------- ------------ ---------- ------------- -----------
Balance at May 31, 2000 94,413,714 944 2,355 426,675 (1,077) (317) (1,004,910) (576,330)
Common stock issued in conjunction
with acquisitions 120,000 1 (2,355) 2,354 - - - -
Common stock issued in
connection with incentive plans 83,116 1 - 449 - - - 450
Amortization of deferred compensation - - - - - 33 - 33
Net income - - - - - - 23,851 23,851
------------ -------- -------- ---------- ------------ ----------- ------------- -----------
Balance at August 31, 2000 (unaudited) 94,616,830 $ 946 $ - $ 429,478 $ (1,077) $ (284) $ (981,059) $ (551,996)
============ ======== ======== ========== ============ =========== ============= ===========
</TABLE>
See noted to condensed consolidated financial statements
4
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION> Three Months Ended
--------------------------------
August 31, August 31,
2000 1999
-------------- --------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 23,851 $ 5,679
-------------- --------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 22,546 18,984
Minority interest in loss of subsidiaries (843) (45)
Deferred income taxes - (320)
Equity in undistributed earnings of investee companies (5,315) (3,484)
(Gain) loss on disposition of assets (32,135) 2
Other 1,940 1,748
Change in assets and liabilities net of effects of
acquisitions and dispositions:
Accounts receivable - decrease (increase) 164 (3,075)
Prepaid expenses and other current assets -
(increase) (24,156) (1,431)
Accounts payable, accrued expenses and
other current liabilities- increase (decrease) 52,703 (24,474)
Customer deposits and prepayments -
Increase 767 132
-------------- --------------
Total adjustments 15,671 (11,963)
-------------- --------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 39,522 (6,284)
-------------- --------------
INVESTING ACTIVITIES:
Proceeds from disposition of assets - 3
Capital expenditures (63,287) (32,385)
Proceeds from maturity of restricted securities 19,888 19,998
Acquisitions, net of cash acquired (45,992) (1,968)
Distributions received from equity investments 7,338 2,835
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (82,053) (11,517)
-------------- --------------
FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt 67,500 16,170
Repayment of debt (19,076) (1,125)
Debt issuance costs paid - (173)
Proceeds from the exercise of stock options 361 -
-------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 48,785 14,872
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,254 (2,929)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 12,879 51,141
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 19,133 $ 48,212
============== ==============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest $ 40,754 $ 59,307
============== ==============
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands except share data)
Note 1. Interim Financial Statements
In the opinion of management, the accompanying interim unaudited condensed
consolidated financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the consolidated
financial position of Centennial Communications Corp. and Subsidiaries (the
"Company") as of August 31, 2000 and the results of its consolidated operations
and cash flows for the periods ended August 31, 2000 and 1999. 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, 2000 Annual Report on Form 10-K, which includes a summary of significant
accounting policies and other disclosures. The consolidated balance sheet at May
31, 2000 is audited.
Reclassifications
In fiscal 2001, the Company changed the format of its statements of cash flows
from the direct method to the indirect method for purposes of reporting cash
flows from operating activities. This and certain other prior period information
have been reclassified to conform with the current period presentation.
Stock Split
On January 21, 2000, all outstanding shares of common stock were split
three-for-one. In connection with the stock split, the Company increased its
authorized shares of common stock to 150,000,000 shares. All common share and
per share amounts have been restated to reflect the stock split.
6
<PAGE>
Note 2. Debt
Short-term debt consists of the following:
<TABLE>
<CAPTION>
August 31, May 31,
2000 2000
---------- -----------
<S> <C> <C>
13% Notes due July 2000..... $ - $ 6,544
Other....................... 518 144
---------- -----------
$ 518 $ 6,688
========== ===========
</TABLE>
Short-term debt was assumed as part of the acquisitions of All America Cables
and Radio, Inc. ("AACR") and Infochannel Limited.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
August 31, May 31,
2000 2000
-------------- -----------
<S> <C> <C>
8 7/8% Senior Notes due 2001................ $ 1,388 $ 1,388
10 1/8% Senior Notes due 2005............... 219 219
Term Loans.................................. 991,625 993,000
Revolving Credit Facility................... 87,500 30,000
Mezzanine Debt.............................. 170,493 169,931
10 3/4% Senior Subordinated Notes due 2008.. 370,000 370,000
Notes Payable............................... 12,238 13,235
-------------- ------------
Total Long-Term Debt........................ $ 1,633,463 $1,577,773
Current Portion of Long-Term Debt........... (12,609) (11,725)
-------------- ------------
Net Long-Term Debt.......................... $ 1,620,854 $1,566,048
============== ============
</TABLE>
On February 29, 2000, the Company amended and restated its existing senior term
loan and revolving credit facilities and increased the commitment thereunder by
$200,000 to an aggregate of $1,250,000. The amended and restated credit
facilities are referred to as the New Credit Facility. The New Credit Facility
consists of four term loans in an aggregate principal amount of $1,000,000 and a
revolving credit facility in an aggregate principal amount of $250,000, of which
$991,625 and $87,500, respectively, were outstanding as of August 31, 2000. The
borrowers under the New Credit Facility are Centennial Cellular Operating Co.
LLC for a $325,000 term loan and Centennial Puerto Rico Operations Corp. for
three separate term loans aggregating $675,000. The revolving credit facility
portion of the New Credit Facility is available to both of the borrowers.
Notes Payable were assumed as part of the acquisition of AACR and have
maturities from January 2001 to April 2002.
7
<PAGE>
The aggregate annual principal payments for the next five years and thereafter
under the Company's debt at August 31, 2000 are summarized as follows:
August 31, 2001 $ 12,609
August 31, 2002 45,767
August 31, 2003 67,375
August 31, 2004 89,875
August 31, 2005 112,594
August 31, 2006 and thereafter 1,305,243
--------------
$ 1,633,463
==============
The Company was in compliance with all covenants of its debt agreements at
August 31, 2000.
Interest expense, as reflected in the financial statements, has been partially
offset by interest income. The gross interest expense for the three months ended
August 31, 2000 and 1999 were $42,066 and $37,560, respectively.
Note 3. Acquisitions/Dispositions
In August 2000, GTE Mobilnet of California Limited Partnership redeemed the
Company's approximate 2.9% equity investment interest in the San Francisco Bay
Area cluster for approximately $48,000 of current assets. The Company recorded a
pre-tax gain of $32,135 which is included in (gain) loss on disposition of
assets in the consolidated statement of operations.
In July 2000, the Company purchased a 60% interest in Infochannel Limited, a
Jamaican Internet Service Provider for cash of approximately $8,000. The excess
of the purchase price over the fair value of the net assets acquired has been
recorded as goodwill.
In July 2000, the Company acquired the remaining 74.9% of the non-wireline
(A-Side) cellular license and wireless telephone system serving Lake Charles,
Louisiana MSA No. 197 that it did not own. The purchase price was approximately
$42,300 in cash, subject to adjustment.
In May 2000, the Company acquired a 51% interest in Paradise Wireless (Jamaica)
Limited, a Jamaican company which holds a 20 MHz CDMA license covering the
island of Jamaica. The purchase price was $25,500 in cash. The excess of the
purchase price over the fair value of the net assets acquired has been recorded
as goodwill.
In April 2000, the Company acquired a wireless telephone system in the Kokomo,
Indiana MSA for cash of approximately $25,600, subject to adjustment.
In April 2000, the Company acquired a 70% interest in AACR in the Dominican
Republic. AACR is an international long distance provider that also holds a 30
MHz PCS license, a LMDS license and a certificate to provide a broad range of
8
<PAGE>
telecommunications services in the Dominican Republic. The purchase price was
approximately $19,800 in cash, subject to adjustment. The excess of the purchase
price over the fair value of the net assets acquired has been recorded as
goodwill.
In November 1999, the Company acquired the wireless telephone system in Allegan,
Michigan (Michigan-8) for cash of approximately $31,000 and 300,000 shares of
the Company's common stock (valued at $3,700 on the closing date), subject to
adjustment.
In August 1999, the Company acquired Integrated Systems, Inc. and Spiderlink
Puerto Rico Internet Services for cash of approximately $2,000 and 240,000
shares of the Company's common stock (valued at $3,885 on the closing dates).
120,000 of the shares were issued in December 1999 and the remaining 120,000
shares were issued in the first quarter of fiscal 2001. The excess of the
purchase price over the fair value of the net assets acquired has been recorded
as goodwill.
The following summary pro forma information includes the operations of the
Company as if the above acquisitions had been consummated as of June 1, 1999:
Three Months Ended
--------------------
August 31, August 31,
2000 1999
------------ ------------
Revenues $ 147,695 $ 128,872
Net income $ 24,008 $ 5,922
Earnings per common share-
Basic $ 0.25 $ 0.06
========= =========
Diluted $ 0.25 $ 0.06
========= =========
Note 4. New Accounting Pronouncements
In December, 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101"Revenue Recognition in Financial Statements" ("SAB
No. 101"). SAB No. 101 provides additional guidance on revenue recognition as
well as criteria for when revenue is generally realized and earned. The Company
plans to adopt SAB No. 101 effective in the fourth quarter of fiscal 2001. The
Company has not determined the impact of the adoption on its results of
operations and financial position, but the Company expects that this change will
not affect cash flows.
In July 1999, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 137 "Deferral of the Effective
Date of SFAS No. 133", which defers the effective date of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" to all fiscal
quarters of fiscal years beginning after June 15, 2000. In June 2000, the FASB
issued SFAS No. 138, an amendment to SFAS No. 133. The Company is currently
evaluating the financial impact of adoption of SFAS No. 133, as amended by SFAS
9
<PAGE>
No. 138. The adoption is not expected to have a material effect on the Company's
results of operations, financial position and cash flows.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation - an interpretation of Accounting
Principles Board ("APB") Opinion No. 25" ("FIN No. 44"). The interpretation
provides guidance on certain issues relating to stock compensation involving
employees that arose in applying APB Opinion No. 25. Among other things, this
Interpretation clarifies (a) the definition of an employee for purposes of
applying APB No. 25, (b) the criteria for determining whether a plan qualifies
as a noncompensatory plan, (c) the accounting for an exchange of stock
compensation awards in a business combination. The Company adopted the
provisions of FIN No. 44 effective July 1, 2000. The adoption did not have a
material effect on the Company's results of operations, financial position and
cash flows.
Note 5. Subsequent Events
In September 2000, the Company completed the acquisition of the cable television
assets of Pegasus Communications for $170,000 in cash. Pegasus' cable systems
serve Aguadilla, Mayaguez, San German and surrounding communities in the western
part of Puerto Rico.
In September 2000, the Company sold its 25% equity investment interest in the
Modoc, California Partnership and its 14.29% equity investment interest in the
Pennsylvania RSA No. 6 (II) Partnership in Lawrence, Pennsylvania for cash of
approximately $6,900.
Note 6. Segment Information
The Company adopted SFAS No. 131 "Disclosures about Segments of an Enterprise
and Related Information" during fiscal 1999. The Company's consolidated
financial statements include three distinct business segments: Domestic,
Caribbean Wireless and Caribbean Wireline. The Company determines its segments
based on the types of services offered as well as geographic location. Domestic
represents the Company's markets in the United States that it owns and manages.
Caribbean Wireless represents the Company's PCS operations in Puerto Rico as
well as the recently acquired wireless licenses in the Dominican Republic and
Jamaica. Caribbean Wireline represents the Company's participation in the
alternative access business and its offering of Internet related services in
Puerto Rico and its offering of long distance services in the Dominican
Republic. The Company changed its business segments for the year ended May 31,
2000, to reflect the way management now evaluates its businesses given the
growth of the Company. Accordingly, all prior period segment results have been
restated to reflect the new segments. The Company measures the operating
performance of each segment based on EBITDA. EBITDA is defined as earnings
before income from minority cellular investment interests, allocations to
minority interests in consolidated subsidiaries, interest expense, interest
income, income taxes, depreciation and amortization, (gain) loss on disposition
of assets, recapitalization costs and other non-recurring charges.
10
<PAGE>
Information about the Company's operations in its three business segments for
the three months ended August 31, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Caribbean Caribbean
Domestic Wireless Wireline Eliminations Consolidated
------------ ------------- ------------- --------------- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Three months ended
August 31, 2000
------------------
Total revenues $ 86,731 $ 45,451 $ 14,659 $ (1,597) (a) $ 145,244
EBITDA 45,878 18,950 3,538 - 68,366
Total assets 1,423,112 397,039 122,138 (642,306) (b) 1,299,983
Capital expenditures 13,106 36,146 14,035 - 63,287
Three months ended
August 31, 1999
------------------
Total revenues $ 72,519 $ 36,883 $ 9,693 $ (1,823) (a) $ 117,272
EBITDA 38,750 15,863 3,313 - 57,926
Total assets 830,275 269,193 63,053 (178,072) (b) 984,449
Capital expenditures 10,685 11,542 10,158 - 32,385
</TABLE>
(a) Elimination of intercompany revenue, primarily from Caribbean Wireline to
Caribbean Wireless
(b) Elimination of intercompany investments
Reconciliation of Income before Income Taxes and Minority Interest
<TABLE>
<CAPTION>
Three months ended August 31,
--------------------------------
2000 1999
------------- --------------
<S> <C> <C>
EBITDA for reportable segments $ 68,366 $ 57,926
Interest expense (net) (41,584) (35,934)
Depreciation and amortization 22,546 18,984
Income from equity investments 5,315 3,484
(Gain) loss on disposition of assets (32,135) 2
------------- --------------
Income before income taxes and minority interest $ 41,686 $ 6,490
============= ==============
</TABLE>
11
<PAGE>
Note 7. Consolidating Financial Data
Centennial Cellular Operating Co. LLC ("CCOC") and Centennial Puerto Rico
Operations Corp. ("CPROC") are wholly-owned subsidiaries of the Company.
CCOC is a joint and several co-issuer on the $370,000 senior subordinated
notes issued by the Company, and CPROC has guaranteed the notes. Separate
financial statements and other disclosures concerning CCOC and CPROC are
not presented because they are not material to investors.
CONSOLIDATING BALANCE SHEET FINANCIAL DATA
As of August 31, 2000
(Amounts in thousands)
<TABLE>
<CAPTION>
Centennial Centennial
Centennial Cellular Centennial Communications
Puerto Rico Operating Co. Communications Corp. and
Operations Corp. LLC Non-Guarantors Corp. Eliminations Subsidiaries
--------------- ------------- -------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,430 $ - $ 13,703 $ - $ - $ 19,133
Restricted investments - - - - - -
Accounts receivable - net 21,409 - 97,141 - - 118,550
Inventory - phones and accessories - net 1,760 - 28,008 - - 29,768
Prepaid expenses and other current assets 6,743 - 3,458 - - 10,201
-------------- ------------- ------------ ------------ ----------- -------------
Total current assets 35,342 - 142,310 - - 177,652
Property, plant & equipment - net 207,298 - 240,127 - - 447,425
Equity investments in wireless systems - net - - 53,210 - - 53,210
Debt issuance costs - net 23,235 - 30,966 - - 54,201
Domestic cellular licenses - net - - 274,873 - - 274,873
Caribbean wireless licenses - net - - 121,904 - - 121,904
Goodwill - net - - 140,002 - - 140,002
Intercompany 29,939 1,165,500 1,006,551 588,170 (2,790,160) -
Investment in subsidiaries - (478,057) 477,569 (953,057) 953,545 -
Other assets - net 6,402 - 24,314 - - 30,716
-------------- ------------ ------------ ------------- ------------ ------------
Total $ 302,216 $ 687,443 $ 2,511,826 $ (364,887) $(1,836,615) $ 1,299,983
============== ============ ============ ============= ============ ============
</TABLE>
12
<PAGE>
Note 7 - Continued
CONSOLIDATING BALANCE SHEET FINANCIAL DATA
(CONTINUED)
As of August 31, 2000
(Amounts in thousands)
<TABLE>
<CAPTION>
Centennial Centennial
Centennial Cellular Centennial Communications
Puerto Rico Operating Co. Communications Corp. and
Operations Corp. LLC Non-Guarantors Corp. Eliminations Subsidiaries
-------------- -------------- ---------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt $ 5,500 $ - $ 7,109 $ - $ - $ 12,609
Short-term debt - - 518 - - 518
Accounts payable 12,328 43,127 - - 55,455
Accrued expenses and other
current liabilities 41,301 - 95,932 732 - 137,965
Payable to affiliates - - 125 - - 125
-------------- -------------- ---------------- -------------- ------------- --------------
Total current liabilities 59,129 - 146,811 732 - 206,672
Long-term debt 723,625 720,000 5,129 172,100 - 1,620,854
Minority interest in subsidiaries - - 24,453 - - 24,453
Intercompany 4,393 920,500 1,851,143 14,277 (2,790,313) -
Stockholders' equity (deficit):
Common stock - - - 946 - 946
Common stock issuable - - - - - -
Preferred stock 465,000 - - - (465,000) -
Additional paid-in capital (888,286) - 1,381,026 429,478 (492,740) 429,478
Accumulated deficit (61,645) (953,057) (896,736) (981,059) 1,911,438 (981,059)
-------------- -------------- ---------------- -------------- ------------- --------------
(484,931) (953,057) 484,290 (550,635) 953,698 (550,635)
Less: treasury shares - - - (1,077) - (1,077)
Deferred compensation - - - (284) - (284)
-------------- -------------- ---------------- -------------- ------------- --------------
Total stockholders' equity (deficit) (484,931) (953,057) 484,290 (551,996) 953,698 (551,996)
-------------- -------------- ---------------- -------------- ------------- --------------
Total $ 302,216 $ 687,443 $ 2,511,826 $ (364,887) $(1,836,615) $ 1,299,983
============== ============== ================ ============== ============= ==============
</TABLE>
13
<PAGE>
Note 7 - Continued
CONSOLIDATING STATEMENT OF OPERATIONS FINANCIAL DATA
FOR THE THREE MONTHS ENDED AUGUST 31, 2000
(Amounts in thousands)
<TABLE>
<CAPTION>
Centennial
Centennial Centennial Centennial Communications
Puerto Rico Cellular Communications Corp. and
Operations Operating Co. Non-Guarantors Corp. Eliminations Subsidiaries
Corp. LLC
------------- ------------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 52,541 $ - $ 93,216 $ - $ (513) $ 145,244
------------- ------------- -------------- -------------- ----------- --------------
Costs and expenses:
Cost of equipment sold 2,706 - 7,000 - - 9,706
Cost of services 7,384 - 13,509 - (121) 20,772
Sales and marketing 9,259 - 12,561 - - 21,820
General and administrative 9,737 - 15,235 - (392) 24,580
Depreciation and amortization 10,823 - 11,723 - - 22,546
(Gain) Loss on disposition of assets - - (32,135) - - (32,135)
------------- ------------- -------------- -------------- ----------- --------------
39,909 - 27,893 - (513) 67,289
------------- ------------- -------------- -------------- ----------- --------------
Operating income 12,632 - 65,323 - - 77,955
------------- ------------- -------------- -------------- ----------- --------------
Income from equity investments - - 5,315 - - 5,315
Income from investments in subsidiaries - 29,145 (5,324) 29,145 (52,966) -
Interest expense - net (17,956) (17,972) (362) (5,294) - (41,584)
Intercompany interest allocation - 17,972 (17,972) - - -
------------- ------------- -------------- -------------- ----------- --------------
(Loss) income before income tax expense
and minority interest (5,324) 29,145 46,980 23,851 (52,966) 41,686
Income tax expense - - (18,678) - - (18,678)
------------- ------------- -------------- -------------- ----------- --------------
(Loss) income before minority interest (5,324) 29,145 28,302 23,851 (52,966) 23,008
Minority interest in loss
of subsidiaries - - 843 - - 843
------------- ------------- -------------- -------------- ----------- --------------
Net (loss) income $ (5,324) $ 29,145 $ 29,145 $ 23,851 $ (52,966) $ 23,851
============= ============= ============== ============== =========== ==============
</TABLE>
14
<PAGE>
Note 7 - Continued
CONSOLIDATING STATEMENT OF CASH FLOWS FINANCIAL DATA
For the Three Months Ended August 31, 2000
(Amounts in thousands)
<TABLE>
<CAPTION> Centennial Centennial Centennial
Puerto Rico Cellular Centennial Communications
Operations Operating Co. Non- Communications Elimin- Corp. and
Corp. LLC Guarantors Corp. ations Subsidiaries
---------- ------------ ------------ ------------- ---------- --------------
OPERATING ACTIVITIES:
<S> <C> <C> <C> <C> <C> <C>
Net (loss) income $ (5,324) $ 29,145 $ 29,145 $ 23,851 $(52,966) $ 23,851
----------- ----------- ------------ ------------- ---------- --------------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 10,823 - 11,723 - - 22,546
Minority interest in loss of subsidiaries - - (843) - - (843)
Equity in undistributed earnings of investee companies - - (5,315) - - (5,315)
Equity in undistributed earnings of subsidiaries - (29,145) 5,324 (29,145) 52,966 -
(Gain) Loss on disposition of assets - - (32,135) - - (32,135)
Noncash expenses 2,015 - (2,577) 562 -
Other 853 - 1,087 - - 1,940
Change in assets and liabilities net of
effects of acquisitions and dispositions:
Accounts receivable - decrease (increase) 2,772 - (2,608) - - 164
Prepaid expenses and other current
assets - (increase) (5,639) - (18,517) - - (24,156)
Accounts payable, accrued expenses and
other current liabilities- increase 11,203 - 41,500 - - 52,703
Customer deposits and prepayments -
(decrease) increase (1) - 768 - - 767
----------- ------------ ----------- ------------- ---------- --------------
Total adjustments 22,026 (29,145) (1,593) (28,583) 52,966 15,671
----------- ------------ ----------- ------------- ---------- --------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 16,702 - 27,552 (4,732) - 39,522
----------- ------------ ----------- ------------- ---------- --------------
INVESTING ACTIVITIES:
Proceeds from disposition of assets - - - - - -
Capital expenditures (20,775) - (42,512) - - (63,287)
Proceeds from maturity of restricted securities - - 19,888 - - 19,888
Acquisitions, net of cash acquired (1,200) - (44,792) - - (45,992)
Distributions received from equity investments - - 7,338 - - 7,338
----------- ------------ ----------- ------------- ---------- --------------
NET CASH USED IN INVESTING ACTIVITIES (21,975) - (60,078) - - (82,053)
----------- ------------ ----------- ------------- ---------- --------------
FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt 42,500 25,000 - - - 67,500
Repayment of debt (1,375) (10,000) (7,701) - - (19,076)
Debt issuance costs paid - - - - - -
Proceeds from the exercise of stock options - - - 361 - 361
Cash received from (paid to)affiliates (35,400) (15,000) 50,400 - - -
Cash advances from subsidiaries (to parent) 63 - (4,434) 4,371 - -
----------- ------------ ----------- ------------- ---------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,788 - 38,265 4,732 - 48,785
----------- ------------ ----------- ------------- ---------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 515 - 5,739 - - 6,254
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,915 - 7,964 - - 12,879
----------- ------------ ----------- ------------- ---------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,430 $ - $ 13,703 $ - $ - $ 19,133
=========== ============ =========== ============= ========== ==============
</TABLE>
15
<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, 2000, in
addition to the interim consolidated financial statements and accompanying notes
presented in Part 1, Item 1 of this Form 10-Q.
Results of Operations (Amounts in thousands, except subscriber, pop and share
data)
We are a leading independent provider of mobile wireless communications
domestically and of mobile wireless communications and competitive local
exchange services in the Caribbean. Domestically, we own and operate cellular
systems in three clusters located in Michigan/Indiana/Ohio,
Texas/Louisiana/Mississippi and Arizona/California, incorporating an aggregate
of approximately 6.3 million Net Pops as of August 31, 2000. These clusters of
small city and rural markets are adjacent to major metropolitan markets and
benefit from the rapidly growing levels of traffic generated by subscribers
roaming into our coverage areas. In addition, we own minority interests,
incorporating an aggregate of approximately 950,000 Net Pops, in other cellular
operations controlled and managed by other operators. Our Caribbean operations
are centered in Puerto Rico (approximately 3.9 million Net Pops), where we
provide wireless PCS and wireline services including switched voice, Internet
and private line services over our own fiber optic and microwave network. During
fiscal 2000, we acquired controlling interests in All America Cables and Radio,
Inc. ("AACR") in the Dominican Republic and Paradise Wireless (Jamaica) Limited
in Jamaica, which collectively expanded our Net Pops by 7.5 million. We
increased our total subscribers by 37% from August 31, 1999 to August 31, 2000.
We are in a highly competitive business, competing with other providers of
wireless telephone service and providers of telephone services using different
technologies. Since August 1988, we have acquired thirty-one wireless telephone
markets in the United States that we own and manage ("Domestic"). In addition,
we acquired one of two Metropolitan Trading Areas ("MTA") licenses to provide
broadband PCS in the Commonwealth of Puerto Rico and the U.S. Virgin Islands as
well as controlling interests in companies owning wireless licenses in the
Dominican Republic and Jamaica (collectively, "Caribbean Wireless"). We also
participate in the alternative access business in Puerto Rico, provide Internet
related services in Puerto Rico and Jamaica and provide long distance service in
the Dominican Republic (collectively, "Caribbean Wireline").
16
<PAGE>
Overview
We had 664,000 wireless subscribers at August 31, 2000, as compared to 486,300
at August 31, 1999, an increase of 37%. We reported net income of $23,851 for
the three months ended August 31, 2000 as compared to net income $5,679 for the
three months ended August 31, 1999. Included in net income for the three months
ended August 31, 2000 was a pre-tax gain of $32,135 ($18,959 after-tax) we
recognized on the redemption of our interest in the GTE Mobilnet partnership
serving the San Francisco Bay area. Earnings per common share, basic and
diluted, for the three months ended August 31, 2000 were $0.25 per share, as
compared to earnings per common share of $0.06 for the three months ended August
31, 1999. Excluding the effect of the redemption of the GTE Mobilnet partnership
interest, earnings per share would have been $0.05. The table below summarizes
results of operations for each period:
<TABLE>
<CAPTION>
Three Months Ended
8/31/00 8/31/99 % Change
--------- --------- ----------
<S> <C> <C> <C>
EBITDA (1) $ 68,366 $ 57,926 18%
Operating income $ 77,955 $ 38,940 100%
Net income $ 23,851 $ 5,679 320%
Earnings per common share-
Basic and Diluted $ 0.25 $ 0.06 317%
</TABLE>
(1) Earnings before income from minority cellular investment interests,
allocations to minority interests in consolidated subsidiaries, interest
expense, interest income, income taxes, depreciation and amortization, (gain)
loss on disposition of assets, recapitalization costs and other non-recurring
charges ("EBITDA") is presented because it is a financial indicator used in the
telecommunications industry. Our calculation of EBITDA may or may not be
consistent with the calculation of EBITDA by other companies and should not be
viewed as an alternative to generally accepted accounting principles (GAAP)
measurements such as operating income, net income or cash flows from operations.
17
<PAGE>
Domestic Operations
Revenue
Three Months Ended
8/31/00 8/31/99 % Change
--------- --------- ---------
Service revenue $ 83,174 $ 69,409 20%
Equipment sales 3,557 3,110 14%
--------- ---------
Total revenue $ 86,731 $ 72,519 20%
========= =========
Total Domestic service revenue, excluding roaming revenue, increased $8,435 to
$49,826, a 20% increase from the three months ended August 31, 1999. This
increase was primarily due to an increase in revenue from new subscribers of
$15,524, partially offset by a decrease in retail revenue per subscriber of
$7,089. The decrease in retail revenue per subscriber was primarily due to the
rollout of digital plans that include a larger amount of plan minutes as
compared to analog rate plans. Revenue from domestic roaming usage increased to
$33,348 or 19% over roamer revenues of $28,018 for the three months ended August
31, 1999. This increase was primarily due to an increase in roaming revenue,
generated by increased usage of $12,962, partially offset by a reduction in
roaming rates per minute of $7,632.
The increase in equipment sales of wireless telephones and accessories to
subscribers was due to a larger number of telephone and accessory units sold
during the current period.
Our Domestic operations had approximately 466,800 and 341,200 subscribers at
August 31, 2000 and August 31, 1999, respectively. Increases from new
activations of 192,500 were offset by subscriber cancellations of 93,700.
Included in the number of subscribers as of August 31, 2000 are approximately
26,800 subscribers acquired in the Lake Charles, Kokomo and Allegan
acquisitions. The cancellations experienced by the Domestic operations were
primarily the result of competitive factors and non-payment.
Domestic revenue per subscriber per month, based upon an average number of
subscribers, was $63 for the three months ended August 31, 2000, as compared to
$73 for the three months ended August 31, 1999. The decrease in retail revenue
per subscriber was primarily due to the rollout of digital plans that include a
larger amount of plan minutes as compared to analog rate plans.
18
<PAGE>
Costs and expenses
<TABLE>
<CAPTION>
Three Months Ended
8/31/00 8/31/99 % Change
---------- --------- ---------
<S> <C> <C> <C>
Cost of equipment sold $ 6,795 $ 5,555 22%
Cost of services $ 9,573 $ 7,219 33%
Sales and marketing $ 11,368 $ 10,280 11%
General and administrative $ 13,117 $ 10,715 22%
EBITDA $ 45,878 $ 38,750 18%
(Gain) loss on disposition of assets (32,135) 2 N/A
Depreciation and amortization 10,521 7,973 32%
---------- ---------
Operating income $ 67,492 $ 30,775 119%
========== =========
</TABLE>
Cost of equipment sold increased during the three months ended August 31, 2000,
primarily due to an increase in the number of telephone units sold and the
higher costs associated with digital phones.
Cost of services increased during the three months ended August 31, 2000,
primarily due to the variable costs associated with a larger revenue and
subscription base and increased wireless coverage areas resulting from the
continued expansion of the Domestic network.
Sales and marketing expenses increased during the three months ended August 31,
2000, primarily due to a larger number of retail locations and expanded sales
force. Cost to acquire per activation was $295 for the three months ended August
31, 2000, as compared to $291 for the three months ended August 31, 1999.
General and administrative expenses increased during the three months ended
August 31, 2000, primarily due to increased costs to support the expanding
subscriber base.
EBITDA for the Domestic operations for the three months ended August 31, 2000
was $45,878, an increase of $7,128 or 18% over the three months ended August 31,
1999.
The gain on disposition of assets for the three months ended August 31, 2000
represents the pre-tax gain we recognized on the redemption of our interest in
the GTE Mobilnet partnership serving the San Francisco Bay area.
Depreciation and amortization for the three months ended August 31, 2000 was
$10,521, an increase of $2,548 or 32% from the three months ended August 31,
1999. This increase was the result of depreciation related to capital
expenditures made during fiscal 2001 and 2000 in connection with the continued
expansion of our Domestic operations as well as depreciation and amortization
related to the Lake Charles, Kokomo and Allegan acquisitions.
Operating income for the three months ended August 31, 2000 was $67,492, an
increase of $36,717 from the operating income of $30,775 for the three months
ended August 31, 1999.
19
<PAGE>
Caribbean Wireless Operations
Revenue
Three Months Ended
8/31/00 8/31/99 % Change
--------- --------- ---------
Service revenue $ 42,739 $ 35,726 20%
Equipment sales 2,712 1,157 134%
--------- ---------
Total revenue $ 45,451 $ 36,883 23%
========= =========
Total Caribbean Wireless service revenue increased $7,013 or 20% to $42,739.
This increase was primarily due to an increase in revenues from new subscribers
of $13,326, partially offset by a decrease in retail revenue per subscriber,
which accounted for a decrease of $6,313.
The increase in equipment sales of wireless telephones and accessories to
subscribers was primarily due to an increase in the number of telephone units
sold.
Our Caribbean Wireless operations had approximately 197,200 subscribers at
August 31, 2000, an increase of 36% from the 145,100 subscribers at August 31,
1999. Increases from new activations of 120,900 were offset by subscriber
cancellations of 68,800. The cancellations experienced by our Caribbean Wireless
operations were primarily the result of competitive factors and non-payment.
Caribbean Wireless revenue per subscriber per month, based upon an average
number of subscribers, was $80 for the three months ended August 31, 2000, as
compared to $88 for the three months ended August 31, 1999.
20
<PAGE>
Costs and expenses
Three Months Ended
8/31/00 8/31/99 % Change
--------- --------- ---------
Cost of equipment sold $ 2,706 $ 1,983 36%
Cost of services $ 6,325 $ 5,573 13%
Sales and marketing $ 8,635 $ 6,161 40%
General and administrative $ 8,835 $ 7,303 21%
EBITDA $ 18,950 $ 15,863 19%
Depreciation and amortization 9,261 10,006 (7%)
--------- ---------
Operating income $ 9,689 $ 5,857 65%
========= =========
Cost of services increased during the three months ended August 31, 2000,
primarily due to the variable costs associated with a larger revenue and
subscription base and increased wireless coverage areas resulting from the
continued expansion of our wireless network in the Caribbean.
Sales and marketing expenses increased during the three months ended August 31,
2000, primarily due to the increase in gross subscriber additions as well as
marketing expenses related to the Dominican Republic.
General and administrative expenses increased during the three months ended
August 31, 2000, primarily due to increased costs to support the expanding
subscriber base.
EBITDA for the Caribbean Wireless operations for the three months ended August
31, 2000 was $18,950, an increase of $3,087 or 19% over the three months ended
August 31, 1999.
Depreciation and amortization for the three months ended August 31, 2000 was
$9,261, a decrease of $745 or 7% from the three months ended August 31, 1999.
This decrease resulted from PCS phones becoming fully depreciated. This was
partially offset by depreciation related to capital expenditures made during
fiscal 2001 and 2000 in connection with the development and network expansion of
our Caribbean wireless telephone systems and the purchase of additional PCS
phones.
Operating income for the three months ended August 31, 2000 was $9,689, an
increase of $3,832 from operating income of $5,857 for the three months ended
August 31, 1999.
21
<PAGE>
Caribbean Wireline Operations
Revenue
Three Months Ended
8/31/00 8/31/99 % Change
---------- -------- ---------
Service revenue $ 14,497 $ 9,643 50%
Equipment sales 162 50 224%
---------- --------
Total revenue $ 14,659 $ 9,693 51%
========== ========
Total Caribbean Wireline revenue increased $4,966 or 51% to $14,659 for the
three months ended August 31, 2000. Termination revenue decreased $2,624, or
64%, to $1,494 for the three months ended August 31, 2000, reflecting a 75%
increase in terminating minutes of use, offset by a decrease in rate per
terminating minute. The decrease in rate per terminating minute reflects a new
rate with the Puerto Rico Telephone Company ("PRTC") effective as of April 7,
2000.
Business switched and private line revenue increased 74% to $5,592 for the three
months ended August 31, 2000. This increase reflects a 54% increase in business
access lines to 17,077 lines as of the end of the first quarter as well as a 90%
increase in dedicated access line equivalents to 37,487 at August 31, 2000.
Revenue from the AACR and Infochannel acquisitions totaled $4,876 for the three
months ended August 31, 2000.
Costs and expenses
Three Months Ended
8/31/00 8/31/99 % Change
--------- --------- ---------
Cost of equipment sold $ 205 $ 61 236%
Cost of services $ 6,359 $ 3,940 61%
Sales and marketing $ 1,817 $ 1,333 36%
General and administrative $ 2,740 $ 1,046 162%
EBITDA $ 3,538 $ 3,313 7%
Depreciation and amortization 2,764 1,005 175%
--------- ---------
Operating income $ 774 $ 2,308 (66%)
========= =========
Cost of services increased during the three months ended August 31, 2000,
primarily due to increased costs to support the expanding Wireline business and
expenses related to AACR.
Sales and marketing expenses increased during the year primarily due to
increased advertising as well as the hiring of additional sales force to support
the growing business.
General and administrative expenses increased during the three months ended
August 31, 2000, primarily due to increased expenses related to the acquisition
of AACR as well as increased costs to support the expanding customer base.
22
<PAGE>
EBITDA for the Caribbean Wireline operations for the three months ended August
31, 2000 was $3,538, an increase of $225 or 7% over the three months ended
August 31, 1999.
Depreciation and amortization for the three months ended August 31, 2000 was
$2,764, an increase of $1,759 or 175% over the three months ended August 31,
1999. This increase was due to increased depreciation associated with the
expansion of our network in addition to increased depreciation and amortization
related to the AACR and Integrated Systems acquisitions.
Operating income for the three months ended August 31, 2000 was $774, a decrease
of $1,534 from the operating income of $2,308 for the three months ended August
31, 1999.
Consolidated
Other non-operating income and expenses
Net interest expense was $41,584 for the three months ended August 31, 2000, an
increase of $5,650 or 16% from the three months ended August 31, 1999. Gross
interest expense for the three months ended August 31, 2000 was $42,066 as
compared to $37,560 for the three months ended August 31, 1999. The increases in
interest expense reflect an increase in total debt of $154,579 from August 31,
1999.
The increase in total debt from August 31, 1999 was the result of borrowings for
acquisitions, assumed debt for completed acquisitions of $19,923, additional
borrowings for capital expenditures related to the expansion of the Caribbean
Wireless operation's PCS network infrastructure, the expansion of the Caribbean
Wireline network and the purchase of PCS telephones. Total cash paid for
acquisitions, net of cash acquired, during the twelve months ended August 31,
2000 was approximately $144,300. The average debt outstanding during the three
months ended August 31, 2000 was $1,606,308, an increase of $136,865 as compared
to the average debt level of $1,469,443 during the three months ended August 31,
1999. Our weighted average interest rate increased to 10.5% for the three months
ended August 31, 2000 from 10.2% for the three months ended August 31, 1999.
After loss attributable to minority interests in subsidiaries for the three
months ended August 31, 2000, pre-tax income was $42,529, as compared to pre-tax
income of $6,535 for the three months ended August 31, 1999. The income tax
expense was $18,678 for the three months ended August 31, 2000, as compared to
income tax expense of $856 for the three months ended August 31, 1999. The
increase in income tax expense is primarily the result of taxes related to the
gain we recognized on the redemption of our interest in the GTE Mobilnet
partnership serving the San Francisco Bay area.
These factors resulted in net income of $23,851 for the three months ended
August 31, 2000, which represents an increase of $18,172 from the net income of
$5,679 for the three months ended August 31, 1999.
23
<PAGE>
Liquidity and Capital Resources
On February 29, 2000, we amended and restated our existing senior term loan and
revolving credit facilities and increased the commitment thereunder by $200,000
to an aggregate of $1,250,000. The amended and restated credit facilities are
referred to as the New Credit Facility. The New Credit Facility consists of four
term loans in an aggregate principal amount of $1,000,000 and a revolving credit
facility in an aggregate principal amount of $250,000. The borrowers under the
New Credit Facility are Centennial Cellular Operating Co. LLC for a $325,000
term loan and Centennial Puerto Rico Operations Corp. for three separate term
loans aggregating $675,000. The revolving credit facility portion of the New
Credit Facility is now equally available to both of the borrowers. The amount
available under the revolving credit facility as of August 31, 2000 was
$162,500.
For the three months ended August 31, 2000, earnings exceeded fixed charges by
$43,709. Fixed charges consist of interest expense, including amortization of
debt issuance 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 $22,546 relating to depreciation and amortization.
As of August 31, 2000, we had $447,425 of property, plant and equipment (net)
placed in service. During the three months ended August 31, 2000, we made
capital expenditures of $63,287 to continue the construction of our new network
in the Dominican Republic and to expand the coverage areas and upgrade our cell
sites and call switching equipment of existing Domestic and Caribbean
properties. Capital expenditures for the Caribbean operations were $50,181 for
the three months ended August 31, 2000, representing 79% of our total capital
expenditures. The Caribbean operations capital expenditures included $14,755 to
add capacity and services and to continue the expansion of our PCS network
infrastructure, $6,140 to purchase telephone units which remain our property
while in use by subscribers and $29,280 related to the initial buildout of our
PCS network in the Dominican Republic. Our future commitments for property and
equipment include the addition of cell sites to expand coverage and enhancements
to the existing infrastructure of our wireless telephone systems. During fiscal
year 2001, we anticipate capital expenditures in our Domestic systems of
approximately $40,000. We currently estimate that the cost to continue the
expansion of our Puerto Rico network infrastructure and purchase telephone units
during fiscal 2001 will be approximately $92,000. We estimate the initial cost
of the buildout of our wireless operations in the Dominican Republic and Jamaica
over the next three fiscal years will be approximately $225,000. Additionally,
we expect additional capital expenditures to obtain undersea fiber optic
transmission capacity in the Caribbean and to upgrade the Pegasus Communications
cable systems which we acquired in September 2000 will be approximately $23,000
during fiscal 2001.
We expect to finance our capital expenditures primarily from cash flow generated
from operations, proceeds from asset sales and borrowings under our existing
revolving credit facility. We may also seek various other sources of external
financing, including, but not limited to, bank financing, joint ventures,
partnerships and placement of debt or equity securities. In September 2000, we
sold our 25% equity investment interest in the Modoc, California Partnership and
our 14.29% equity investment interest in the Pennsylvania RSA No. 6 (II)
Partnership in Lawrence, Pennsylvania for cash of approximately $6,900. We
expect to consummate the sale of our Southwest properties to Western Wireless
Corporation for $202,500 by the end of calendar year 2000.
24
<PAGE>
In order to meet our obligations with respect to our operating needs, capital
expenditures, and debt service obligations, it is important that we continue to
improve operating cash flow. Increases in revenue will be dependent upon
continued growth in the number of subscribers and maximizing revenue per
subscriber. We have continued the development of our managerial, administrative
and marketing functions, and are continuing the construction of wireless systems
in our 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, our participation in the Caribbean telecommunications
business has been, and is expected to continue to be, capital intensive.
Further, due to the start-up nature of our Dominican Republic and Jamaica
operations, we expect that it will require additional cash investment to fund
our operations over the next several years.
The following tables sets forth, for the periods indicated, our net cash
provided by operating activities before interest payments (net cash provided),
our principal uses of such cash and the cash available for (required from)
financing and investing activities:
<TABLE>
<CAPTION>
Three Months Ended August 31,
-----------------------------
2000 1999
------ ------
% of net % of net
cash cash
Amount provided Amount provided
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $ 39,522 49% $ (6,284) (12)%
Interest paid 40,754 51% 59,307 112%
---------- ------ ---------- ------
Net cash provided $ 80,276 100% $ 53,023 100%
========== ====== ========== ======
Principal uses of cash
Interest paid $ 40,754 51% $ 59,307 112%
Property, plant & equipment 63,287 79% 32,385 61%
---------- ------ ---------- ------
Total $104,041 130% $ 91,692 173%
========== ====== ========== ======
Cash required from other financing and
investing activities $(23,765) (30%) $(38,669) (73)%
========== ====== ========== ======
</TABLE>
Net cash provided by operating activities for the three months ended August
31, 2000 was not sufficient to fund our expenditures for property, plant and
equipment of $63,287.
25
<PAGE>
The following table sets forth the primary cash flows provided by other
financing and investing activities for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended August 31,
-------------------------------
2000 1999
-------- --------
<S> <C> <C>
Proceeds from disposition of assets $ - $ 3
Proceeds from the exercise of stock options 361 -
Proceeds from issuance of long-term debt 67,500 16,170
Proceeds from maturity of restricted
securities 19,888 19,998
Distributions received from equity investments-net 7,338 2,835
--------- ---------
Cash provided by other financing and
investing activities 95,087 39,006
--------- ---------
Repayment of debt (19,076) (1,125)
Debt issuance costs paid - (173)
Acquisitions, net of cash acquired (45,992) (1,968)
--------- ---------
Cash available for operations and capital
expenditures $ 30,019 $ 35,740
========= =========
</TABLE>
Based upon current market conditions and our current capital structure, we
believe that cash flows from operations and funds from currently available
credit facilities will be sufficient to enable us to meet required cash
commitments through the next twelve month period.
26
<PAGE>
Acquisitions, Exchanges and Dispositions
Our primary acquisition strategy is to acquire controlling ownership interests
in communications systems serving markets which are proximate to or share a
community of interest with our current markets. Our strategy of clustering our
operations in proximate geographic areas enables us to achieve operating and
cost efficiencies as well as joint marketing benefits. Clustering also allows us
to offer our subscribers more areas of uninterrupted service as they travel. In
addition to expanding our existing clusters, we also may seek to acquire
interests in wireless systems in other geographic areas. We also may pursue
other communications businesses we determine to be desirable. The consideration
for such acquisitions may consist of shares of stock, cash, assumption of
liabilities or a combination thereof.
In August 2000, GTE Mobilnet of California Limited Partnership redeemed the
Company's approximate 2.9% equity investment interest in the San Francisco Bay
Area cluster for approximately $48,000 of current assets. The Company recorded a
pre-tax gain of $32,135, which is included in (gain) loss on disposition of
assets in the consolidated statement of operations.
In July 2000, we entered into a definitive agreement to sell our Southwest
cluster to Western Wireless Corporation for approximately $202,500 in cash. Our
Southwest cluster consists of rural service areas in and around Yuma, Arizona
(Arizona RSA-4) and El Centro, California (California RSA-7). The Southwest
cluster also includes paging and specialized mobile radio operations. The
transaction is subject to customary closing conditions, including regulatory
approvals, and is expected to close by the end of calendar year 2000.
In July 2000, we acquired a 60% interest in Infochannel Limited, a leading
Internet Service Provider on the island of Jamaica for $8,000 in cash.
In July 2000, we purchased the remaining 74.9% of the non-wireline (A-Side)
cellular license and wireless telephone system serving Lake Charles, Louisiana
MSA No. 197 that we did not own. The Lake Charles market represents
approximately 180,000 Net Pops. The purchase price was approximately $42,300 in
cash, subject to adjustment.
In May 2000, we acquired a 51% interest in Paradise Wireless (Jamaica) Limited,
a Jamaican company which holds a 20 MHz CDMA license covering the island of
Jamaica. Jamaica has a population of approximately 2.6 million. The purchase
price was $25,500 in cash.
In April 2000, we acquired a wireless telephone system serving the Kokomo,
Indiana Metropolitan Statistical Area #271. The Kokomo market represents
approximately 101,000 Net Pops. The purchase price was approximately $25,600 in
cash, subject to adjustment.
In April 2000, we acquired of a 70% interest in AACR in the Dominican Republic
for approximately $19,800 in cash, subject to adjustment. AACR is an
international long distance provider that also holds a 30 MHz PCS license, a
Local Multipoint Distribution System license and a certificate to provide a
broad range of telecommunications services in the Dominican Republic. The PCS
license covers approximately 8.9 million Pops in the Dominican Republic.
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<PAGE>
In March 2000, we acquired an international gateway switch in Miami, Florida.
With the purchase of this switch, we expect to deliver our growing outbound
traffic from our Caribbean service areas much closer to its destination. We
believe that there is a significant community of interest between the Puerto
Rican, Dominican and Jamaican population on the East Coast of the United States
and our Caribbean customers. This switch allows us to more cost effectively
serve our customers in the Caribbean. In addition, we hope to attract southbound
minutes for termination in Puerto Rico, the Dominican Republic, Jamaica and
around the region.
In November 1999, we acquired the wireless telephone system in Allegan, Michigan
(Michigan-8) for cash of approximately $31 million and 300,000 shares of our
common stock (valued at $3,700 on the closing date), subject to adjustment.
Allegan has a population of approximately 103,000 and is contiguous to our
existing service areas in Michigan.
In August 1999, we acquired Integrated Systems, Inc. and Spiderlink Puerto Rico
Internet Services for cash of approximately $2,000 and 240,000 shares of our
common stock (valued at $3,885 on the closing dates). These companies provide
network design and integration, systems consulting software design development
and complete Internet solutions for businesses in Puerto Rico, such as
e-commerce, corporate e-mail, web site development and local area networks to
Internet gateways.
Stock Split
On January 21, 2000, we effected a three-for-one stock split of all outstanding
shares of our common stock. In connection with the stock split, we increased our
authorized shares of common stock to 150,000,000 shares.
Name Change
On February 29, 2000, we changed our name from Centennial Cellular Corp. to
Centennial Communications Corp. to better reflect the integrated communications
services we offer.
New Accounting Standards
In December, 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB
No. 101"). SAB No. 101 provides additional guidance on revenue recognition as
well as criteria for when revenue is generally realized and earned. We plan to
adopt SAB No. 101 effective in the fourth quarter of fiscal 2001. We have not
determined the impact of the adoption on our results of operations and financial
position, but we expect that this change will not affect cash flows.
In July 1999, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 137 "Deferral of the Effective
Date of SFAS No. 133", which defers the effective date of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" to all fiscal
quarters of fiscal years beginning after June 15, 2000. In June 2000, the FASB
issued SFAS No. 138, an amendment to SFAS No. 133. We are currently evaluating
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<PAGE>
the financial impact of adoption of SFAS No. 133, as amended by SFAS No. 138.
The adoption is not expected to have a material effect on our results of
operations, financial position and cash flows.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation - an interpretation of Accounting
Principles Board ("APB") Opinion No. 25" ("FIN No. 44"). The interpretation
provides guidance on certain issues relating to stock compensation involving
employees that arose in applying APB Opinion No. 25. Among other things, this
Interpretation clarifies (a) the definition of an employee for purposes of
applying APB No. 25, (b) the criteria for determining whether a plan qualifies
as a noncompensatory plan, (c) the accounting for an exchange of stock
compensation awards in a business combination. We adopted the provisions of FIN
No. 44 effective July 1, 2000. The adoption did not have a material effect on
our results of operations, financial position and cash flows.
Commitments and Contingencies
We have filed a shelf registration statement with the SEC for up to 72,000,000
shares of our 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 October 12, 2000, 37,613,079 shares remain available for
future acquisitions.
On July 7, 2000, the Securities and Exchange Commission declared our universal
shelf registration statement effective which registered an aggregate of $750,000
of securities (debt, common stock, preferred stock and warrants) as well as 20
million shares of our common stock out of approximately 87 million shares owned
by our controlling stockholders (Welsh, Carson, Anderson & Stowe and an
affiliate of the Blackstone Group).
Subsequent Events
In September 2000, we completed the acquisition of the cable television assets
of Pegasus Communications for $170,000 in cash. The newly-acquired cable systems
have over 57,000 subscribers and serve Aguadilla, Mayaguez, San German and
surrounding communities in the western part of Puerto Rico, and pass over
approximately 170,000 homes with their 123 route miles of fiber optic and 1,268
miles of coaxial cable.
In September 2000, we sold our 25% equity investment interest in the Modoc,
California Partnership and our 14.29% equity investment interest in the
Pennsylvania RSA No. 6 (II) Partnership in Lawrence, Pennsylvania for cash of
approximately $6,900.
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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. Some of the statements made in this report are not historical or current
facts, but deal with potential future circumstances and developments. Where, in
any forward-looking statement, the Company or its management expresses an
expectation or belief as to future results or actions, there can be no assurance
that the statement of expectation or belief will result or be achieved or
accomplished. Forward-looking statements can be identified by the use of words
"believe", "expect", "estimate", "anticipate", "project", "intend", "may",
"will", "estimate" and similar expressions, or by discussion of strategy that
involve risks and uncertainties. We warn you that these forward-looking
statements are only predictions and estimates, which are inherently subject to
risks and uncertainties.
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:
o general economic, business, political and social conditions in the areas
in which we operate;
o our substantial debt obligations;
o local operating hazards and risks in the areas in which we operate;
o the ability to attract and retain qualified personnel;
o the capital intensity of the telecommunications industry;
o the competitive nature of the telecommunications industry, including
potential overbuilding by personal communications service providers;
o price declines in roaming rates;
o opportunities for growth through acquisitions and investments and our
ability to manage this growth;
o governmental regulation;
o changes and developments in technology;
o subscriber cancellations;
o restrictive covenants and consequences of default contained in our
financing arrangements;
o our ability to manage and monitor billing;
o safety concerns associated with using wireless telephones while
operating an automobile;
o possible health effects of radio frequency transmission;
o control by certain of our stockholders and anti-takeover provisions; and
o other factors referenced in our filings with the Securities and Exchange
Commission.
Given these uncertainties, readers are cautioned not to place undue
reliance on these forward-looking statements. We undertake no obligation to
update or revise these forward-looking statements to reflect events,
developments or circumstances after the date hereof.
30
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risks due to fluctuations in interest rates. A
majority of the Company's long-term debt has variable interest rates. The
Company utilizes interest rate swap and collar agreements to hedge variable
interest rate risk on a portion of its variable interest rate debt as part of
its interest rate risk management program.
The table below presents principal (or notional) amounts and related average
interest rate by year of maturity for the Company's long-term debt and interest
rate swap and collar agreements. Weighted average variable rates are based on
implied forward rates in the yield curve as of August 31, 2000 (based on
information provided by one of the Company's lending institutions):
<TABLE>
<CAPTION>
Amounts in thousands:
Year ended
August 31, August 31, August 31, August 31, August 31, Fair
2001 2002 2003 2004 2005 There-after Total value
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt:
Fixed rate $ 7,109 $ 6,517 - - $ 219 $540,493 $ 554,338 $ 546,198
Average interest rate 8.24% 8.30% - - 10.13% 10.51% 10.46% -
Variable rate $ 5,500 $ 39,250 $ 67,375 $ 89,875 $112,375 $764,750 $1,079,125 $1,079,125
Average interest rate (1) 6.92% 6.96% 6.95% 6.98% 7.03% 7.11% 7.08% -
Interest rate swaps (pay
fixed, receive variable):
Notional amount $350,000 $150,000 - - - - - $ 9,191
Average pay rate 5.40% 5.38% - - - - - -
Average receive rate 6.92% 6.96% - - - - - -
Interest rate collar:
Notional amount $100,000 $100,000 $100,000 - - - - $ 983
Cap 7.00% 7.00% 7.00% - - - - -
Floor 4.45% 4.45% 4.45% - - - - -
(1) Represents the average interest rate before applicable margin
</TABLE>
31
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PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
To our knowledge, there are no material legal proceedings to which we or
our subsidiaries are a party or to which any of our property is subject.
ITEM 2. Changes in Securities and Use of Proceeds
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
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
Exhibit No. Description
------------- --------------
Exhibit 10.1 Asset Purchase Agreement, dated as of May 15, 2000,
among Centennial Puerto Rico Cable TV Corp., Pegasus
Communications Corporation, Pegasus Cable Television of
San German, Inc. and MCT Cablevision, Limited
Partnership.
Exhibit 27 Financial data schedule (EDGAR filing document only).
b) Reports on Form 8-K
None
32
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
October 13, 2000
CENTENNIAL COMMUNICATIONS CORP.
/S/
---------------------
Peter W. Chehayl
Chief Financial Officer,
Sr. Vice President and Treasurer
(Chief Financial Officer)
/S/
---------------------
Thomas E. Bucks
Sr. Vice President-Controller
(Chief Accounting Officer)
33
