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, 1999
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
Commission file number 0-19603
Centennial Cellular Corp.
(Exact name of registrant as specified in its charter)
Delaware 06-1242753
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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.
Class A Common - 31,376,934 outstanding shares as of January 11, 2000
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
November 30,
1999 May 31,
(Unaudited) 1999
------------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,700 $ 51,141
Restricted investments 39,370 39,480
Accounts receivable, less allowance for doubtful
accounts of $8,734 and $3,763, respectively 58,281 46,326
Inventory - phones and accessories, less allowance for
obsolescence of $1,002 and $1,315, respectively 8,924 7,631
Prepaid expenses and other current assets 1,778 737
------------------- ------------
TOTAL CURRENT ASSETS 121,053 145,315
PROPERTY, PLANT AND EQUIPMENT - net 330,860 300,120
RESTRICTED INVESTMENTS, long-term - 19,038
EQUITY INVESTMENTS IN WIRELESS SYSTEMS - net 76,214 75,723
DEBT ISSUANCE COSTS, less accumulated amortization of
$6,432 and $2,905, respectively 55,046 58,307
CELLULAR TELEPHONE LICENSES, less accumulated
amortization of $301,581 and $298,725, respectively 228,216 202,599
PERSONAL COMMUNICATIONS SERVICES LICENSE, less accumulated
amortization of $4,677 and $3,893, respectively 58,081 58,866
GOODWILL, less accumulated amortization of $32,351
and $30,430, respectively 118,836 119,172
OTHER ASSETS - net 14,869 7,141
------------------- ------------
TOTAL $ 1,003,175 $ 986,281
=================== ============
</TABLE>
See notes to condensed consolidated financial statements
1
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
November 30,
1999 May 31,
(Unaudited) 1999
---------------- ---------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long term debt $ 4,500 $ 4,500
Accounts payable 12,025 22,968
Accrued expenses and other current liabilities 93,762 102,371
Payable to affiliates 125 125
---------------- ---------------
TOTAL CURRENT LIABILITIES 110,412 129,964
LONG-TERM DEBT 1,477,513 1,459,295
COMMON STOCKHOLDERS' EQUITY (DEFICIT):
Common stock par value $.01 per share:
Class A, 1 vote per share, 50,000,000 shares authorized,
issued, 31,343,212 and 31,224,462 shares, respectively;
and outstanding 31,319,711 and 31,200,961 shares, respectively 313 312
Common stock issuable 1,530 -
Additional paid-in capital 423,448 419,374
Accumulated deficit (1,008,859) (1,021,587)
---------------- ---------------
(583,568) (601,901)
Less: Cost of 23,501 class A common shares in treasury (1,077) (1,077)
Deferred Compensation (105) -
---------------- ---------------
TOTAL COMMON STOCKHOLDERS' EQUITY (DEFICIT) (584,750) (602,978)
---------------- ---------------
TOTAL $ 1,003,175 $ 986,281
================ ===============
</TABLE>
See notes to condensed consolidated financial statements
2
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUE:
Service revenue $ 118,575 $ 85,481 $ 231,530 $ 161,672
Equipment sales 4,955 1,671 9,272 2,926
------------- ------------- ------------- -------------
123,530 87,152 240,802 164,598
------------- ------------- ------------- -------------
COSTS AND EXPENSES:
Cost of equipment sold 7,365 4,929 14,964 9,462
Cost of services 14,711 11,742 30,416 22,124
Sales and marketing 19,224 14,687 36,998 23,890
General and administrative 22,204 12,859 40,472 27,552
Depreciation and amortization 19,655 32,739 38,639 64,543
------------- ------------- ------------- -------------
83,159 76,956 161,489 147,571
------------- ------------- ------------- -------------
OPERATING INCOME 40,371 10,196 79,313 17,027
------------- ------------- ------------- -------------
INCOME FROM EQUITY INVESTMENTS 3,856 3,841 7,340 7,490
GAIN ON DISPOSITION OF ASSETS 2 55 - 9,611
INTEREST EXPENSE - NET (36,495) (10,809) (72,429) (21,940)
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAX EXPENSE AND MINORITY INTEREST 7,734 3,283 14,224 12,188
INCOME TAX EXPENSE (700) (2,828) (1,556) (5,836)
INCOME BEFORE MINORITY INTEREST 7,034 455 12,668 6,352
MINORITY INTEREST IN LOSS (INCOME) OF SUBSIDIARIES 15 233 60 (9)
------------- ------------- ------------- -------------
NET INCOME $ 7,049 $ 688 $ 12,728 $ 6,343
============= ============= ============= =============
DIVIDEND REQUIREMENT ON PREFERRED STOCK $ - $ (4,113) $ - $ (8,226)
============= ============= ============= =============
INCOME (LOSS) APPLICABLE TO COMMON SHARES $ 7,049 $ (3,425) $ 12,728 $ (1,883)
============= ============= ============= =============
EARNINGS (LOSS) PER COMMON SHARE
BASIC $ 0.23 $ (0.06) $ 0.41 $ (0.03)
============= ============= ============= =============
DILUTED $ 0.22 $ (0.06) $ 0.39 $ (0.03)
============= ============= ============= =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING DURING THE PERIOD:
BASIC 31,250 55,802 31,231 55,800
============= ============= ============= =============
DILUTED 32,388 55,802 32,361 55,800
============= ============= ============= =============
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Additional
---------------------------------------
Class A Class B Common Paid-In Treasury Deferred Accumu-
-------------------- ----------------- Stock Compen- lated
Shares Dollars Shares Dollars Issuable Capital Stock sation Deficit Total
----------- ------- ---------- ------- ------- -------- --------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 1, 1998 50,150,049 $ 501 10,544,113 $105 $ - $357,684 $(30,614) $(3,029) $(284,238) $40,409
Common stock issued in
connection with incentive plans 1,403,823 14 - - - 4,880 - - - 4,894
Common stock issued in
connection with employee 48,880 - - - - 257 - - - 257
stock purchase plan
Deferred compensation
Employment agreement 50,003 1 - - - 749 - (750) - -
Recapitalization:
Repurchase of the class A & B
common stock (44,447,328) (444) (10,544,113) (105) - (340,336) - 2,573 (692,002)(1,030,314)
Retirement of treasury stock (4,896,627) (49) - - - - 30,614 - (30,565) -
Recapitalization costs - - - - - (16,165) - - 65,385 49,220
Capital contributions 28,915,662 289 - - - 422,211 - - - 422,500
Preferred stock dividends - - - - - (9,906) - - - (9,906)
Treasury stock purchases - - - - - - (1,077) - - (1,077)
Amortization of deferred - - - - - - - 1,206 - 1,206
compensation
Net loss - - - - - - - - (80,167) (80,167)
------------- ------ ---------- ------- ------ ------- -------- ------ --------- ---------
Balance at May 31, 1999 31,224,462 312 - - - 419,374 (1,077) - (1,021,587) (602,978)
Common stock issuable - - - - 1,530 - - - - 1,530
Common stock issued in
connection with acquisitions 100,000 1 - - - 3,699 - - - 3,700
Common stock issued in
connection with incentive plans 18,750 - - - - 259 - - - 259
Deferred compensation - - - - - 116 - (116) - -
Amortization of deferred
compensation - - - - - - - 11 - 11
Net income - - - - - - - - 12,728 12,728
------------- ------ ---------- ------- ------ ------- -------- ------ ---------- --------
Balance at November 30, 1999
(unaudited) 31,343,212 $ 313 - $ - $ 1,530 $423,448 $(1,077) $(105)$(1,008,859) $(584,750)
============= ====== ========== ======= ====== ======== ======== ====== ========== ========
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------------------
November 30, November 30,
1999 1998
----------------- ------------------
OPERATING ACTIVITIES:
<S> <C> <C>
Cash received from subscribers and others $ 244,421 $ 179,736
Cash paid to suppliers, employees and
governmental agencies (136,706) (101,783)
Interest paid (78,858) (21,688)
----------------- ------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 28,857 56,265
----------------- ------------------
INVESTING ACTIVITIES:
Proceeds from disposition of assets 22 438
Capital expenditures (76,371) (48,765)
Acquisition of other assets - (2,200)
Disposition of equity investment - 10,500
Acquisitions, net of cash acquired (32,820) -
Distributions received from equity investments 5,047 6,638
Purchase of restricted securities (19,998) -
Proceeds from maturity of restricted securities 39,996 -
----------------- ------------------
NET CASH USED IN INVESTING ACTIVITIES (84,124) (33,389)
----------------- ------------------
FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt 19,343 7,000
Repayment of long-term debt (2,250) (10,000)
Debt issuance costs paid (267) -
Proceeds from issuance of class A common stock - 10
Recapitalization costs paid - (1,990)
----------------- ------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 16,826 (4,980)
----------------- ------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (38,441) 17,896
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 51,141 14,620
----------------- ------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 12,700 $ 32,516
================= ==================
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
November 30, November 30,
1999 1998
-------------- -----------------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income $ 12,728 $ 6,343
-------------- -----------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 38,639 64,543
Minority interest in (loss) income of subsidiaries (60) 9
Deferred income taxes (624) 5,836
Equity in undistributed earnings of investee companies (7,340) (7,490)
Gain on disposition of assets - (9,611)
Other 3,539 1,491
Change in assets and liabilities net of effects of
acquisitions:
Accounts receivable - (increase) (10,535) (7,796)
Prepaid expenses and other current assets -
(increase) (2,574) (2,604)
Accounts payable, accrued expenses and
other current liabilities- (decrease) increase (5,524) 4,427
Customer deposits and prepayments -
increase 608 1,117
Total adjustments 16,129 49,922
-------------- -----------------
Net cash provided by operating activities $ 28,857 $ 56,265
============== =================
</TABLE>
See notes to condensed consolidated financial statements
6
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONDENSED 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 condensed
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, 1999 and the results of its consolidated operations and cash
flows for the periods ended November 30, 1999 and 1998. 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, 1999 Annual Report on Form 10-K, which includes a summary of significant
accounting policies and other disclosures. The consolidated balance sheet at May
31, 1999 is audited.
Reclassifications Certain prior period balances have been reclassified to
conform with the current period presentation.
Note 2. Long-Term Debt
The Company and its subsidiaries had the following debt outstanding at November
30, 1999 and May 31, 1999:
<TABLE>
<CAPTION>
November 30, May 31,
1999 1999
----------- ----------
<S> <C> <C>
Centennial 8 7/8% Senior Notes due 2001............... $ 1,388 $ 1,388
Centennial 10 1/8% Senior Notes due 2005.............. 219 219
Term Loans............................................ 895,500 897,750
Revolving Credit Facility............................. 46,100 36,000
Subordinated Notes due 2009 (Mezzanine Debt).......... 168,806 158,438
Centennial 10 3/4% Senior Subordinated Notes due 2008. 370,000 370,000
---------- ----------
Total Long Term Debt.................................. $1,482,013 $1,463,795
Current Portion of Term Loan (4,500) (4,500)
---------- ----------
Net Long Term Debt $1,477,513 $1,459,295
========== ==========
</TABLE>
7
<PAGE>
The aggregate annual principal payments for the next five years and thereafter
under the Company's debt at November 30, 1999 are summarized as follows:
November 30, 2000 $ 4,500
November 30, 2001 5,888
November 30, 2002 49,500
November 30, 2003 72,000
November 30, 2004 94,500
November 30, 2005 and thereafter 1,255,625
-------------
$ 1,482,013
=============
The Company was in compliance with all covenants of its debt agreements at
November 30, 1999.
Interest expense, as reflected on the financial statements has been partially
offset by interest income. The gross interest expense for the six months ended
November 30, 1999 and 1998 were $74,849 and $22,837, respectively.
Note 3. Acquisitions
In November 1999, the Company acquired the wireless telephone system in the
Allegan, Michigan RSA for cash of approximately $31,000 and 100,000 shares of
the Company's common stock. This acquisition was accounted for by the purchase
method and, accordingly, the assets and liabilities of the acquired entity have
been recorded at their estimated fair values at the date of acquisition. The
results of operations of the acquired business is included in the consolidated
financial statements from the date of acquisition. The purchase price allocation
for this acquisition is preliminary and may be revised at a later date.
In August 1999, the Company acquired Integrated Systems, Inc. and Spiderlink
Puerto Rico Internet Services for cash of approximately $2,000 and 80,000 shares
of the Company's common stock. 40,000 of such shares are included in common
stock issuable in the Company's Consolidated Balance Sheet. Such shares were
issued in December 1999. The remaining 40,000 shares are issuable upon the
resolution of certain contingencies. This acquisition was accounted for by the
purchase method and, accordingly, the assets and liabilities of the acquired
entities have been recorded at their estimated fair values at the date of
acquisition. The results of operations of the acquired business is included in
the consolidated financial statements from the date of acquisition. The excess
of the purchase price over the fair value of the net assets acquired has been
recorded as goodwill, which is being amortized on a straight-line basis over 10
years. The purchase price allocation for this acquisition is preliminary and may
be revised at a later date.
8
<PAGE>
The following summary pro forma information includes the operations of the
Company and these acquisitions as if such acquisitions had been consumated as of
June 1, 1998:
Six Months Ended November 30,
-----------------------------
1999 1998
---- ----
Revenues $244,104 $168,195
Net income $ 13,329 $ 6,600
Earnings (loss) per
common share:
Basic $0.43 $(0.03)
===== ======
Diluted $0.41 $(0.03)
===== ======
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 sets forth certain of the SEC staff's views on applying
generally accepted accounting principles to revenue recognition in financial
statements. SAB No. 101 is effective for the first fiscal quarter of the fiscal
year beginning after December 15, 1999. The Company plans to adopt SAB No. 101
effective June 1, 2000 and is currently assessing the impact that adoption will
have on the Company's results of operations and financial position.
The Financial Accounting Standards Board issued Statement of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" in June, 1998.
The Company will adopt SFAS No. 133 effective June 1, 2001. The Company has not
yet determined the impact of the adoption of SFAS No. 133 on future results of
operations or financial condition.
Note 5. Reciprocal Compensation
On November 2, 1999, the Puerto Rico Telephone Company ("PRTC") notified the
Company that they disputed invoices for Internet Service Providers ("ISP")
termination traffic going back to April 1, 1999. It is the Company's position
that it has rightfully invoiced PRTC for the termination of ISP traffic in
accordance with the terms of a valid tariff filed by the Company with the
Federal Communications Commission ("FCC").
In its February 1999 ruling on the topic of inter-carrier compensation for
ISP-bound calls, the FCC held that the ISP-bound traffic was interstate and
under the FCC's regulatory jurisdiction. The FCC held that there was no specific
federal rule governing inter-carrier compensation for such traffic. For that
reason, it concluded that states are free to impose a compensation requirement
in the context of interconnection disputes arising under Sections 251 and 252 of
the Communications Act of 1934, as amended. To date, the Puerto Rico
Telecommunications Board, which has jurisdiction over telecommunications
services in Puerto Rico, has not set a compensation requirement for ISP-bound
calls.
9
<PAGE>
The Company filed FCC tariff No. 2 on April 1, 1999, which establishes an
interstate charge applicable to all interstate service. FCC tariffs are presumed
valid unless challenged and held invalid by the FCC.
Note 6. Subsequent Events
On December 28, 1999, the Company announced that the Board of Directors declared
a three-for-one stock split of all outstanding shares of class A common stock.
The shares will be distributed on or about January 20, 2000 to all holders of
record on January 10, 2000. In connection with the stock split, the Company will
be increasing its authorized shares of common stock to 150,000,000 shares.
In December 1999, the Company entered into a definitive agreement to acquire the
wireless telephone system serving the Kokomo, Indiana Metropolitan Statistical
Area #271. The Kokomo market represents approximately 100,000 net pops. The
Company has agreed to a purchase price of approximately $25,000, subject to
adjustment. The obligation of the Company to consummate this transaction is
subject to certain closing conditions, including the relevant regulatory
approvals. The Company anticipates closing this acquistion in the first quarter
of calendar year 2000.
In January 2000, the Company entered into a letter of intent to purchase the
assets of cable television systems serving Aguadilla, Mayaguez, San German and
surrounding communities in Puerto Rico from Pegasus Communications Corporation
for $170,000. The transaction is subject to numerous conditions, including
regulatory approvals, completion of customary due-diligence and the negotiation
and execution of a definitive purchase agreement.
Note 7. 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 two distinct business segments: Domestic and Puerto
Rico. The Company determines its segments based on geographic location. 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 on disposition of assets and other non-recurring charges.
10
<PAGE>
Information about the Company's operations in its two business segments for the
six months ended November 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Domestic Puerto Rico Eliminations Consolidated
--------------- ------------------ -------------------- ----- -----------------
<S> <C> <C> <C> <C>
Six months ended November 30, 1999
- ----------------------------------------------------
Total revenues $146,747 $94,055 $ - $240,802
EBITDA 76,886 41,066 - 117,952
Total assets 851,605 269,865 (118,295) (a) 1,003,175
Capital expenditures 26,576 49,795 - 76,371
Six months ended November 30, 1998
- ----------------------------------------------------
Total revenues $112,836 $ 51,762 $ - $164,598
EBITDA 60,266 21,304 - 81,570
Total assets 722,409 221,735 (94,300) (a) 849,844
Capital expenditures 18,150 30,615 - 48,765
(a) Elimination of intercompany investments
</TABLE>
Reconciliation of Income before Income Tax Expense and Minority Interest
<TABLE>
<CAPTION>
Six months ended November 30,
1999 1998
-------------- -----------------
<S> <C> <C>
EBITDA for reportable segments $ 117,952 $ 81,570
Interest Expense (net) (72,429) (21,940)
Depreciation and Amortization (38,639) (64,543)
Income from Equity Investments 7,340 7,490
Gain on disposition of assets - 9,611
-------------- -----------------
Income before Income Tax Expense and Minority Interest
$ 14,224 $ 12,188
========= =========
</TABLE>
11
<PAGE>
Note 8. Consolidating Financial Data
Centennial Cellular Operating Co. LLC is a wholly-owned subsidiary of the
Company and is a joint and several co-issuer on the $370,000 senior
subordinated notes issued by the Company. Separate financial statements and
other disclosures concerning Centennial Cellular Operating Co. LLC are not
presented because they are not material to investors.
CONSOLIDATING BALANCE SHEET FINANCIAL DATA
As of November 30, 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
Centennial
Centennial Centennial Cellular
Cellular Operating Cellular Corp. and
Co. LLC Corp. Eliminations Subsidiaries
------------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,700 $ - $ - $ 12,700
Restricted investments 39,370 - - 39,370
Accounts receivable - net 58,281 - - 58,281
Inventory - phones and accessories - net 8,924 - - 8,924
Prepaid expenses and other current assets 1,778 - - 1,778
------------- ---------- ---------- ----------
Total current assets 121,053 - - 121,053
Property, plant & equipment - net 330,860 - - 330,860
Equity investments - cell systems 76,214 - - 76,214
Debt issuance costs - net 55,046 - - 55,046
Cellular telephone licenses - net 228,216 - - 228,216
Personal communications services licenses - net 58,081 - - 58,081
Goodwill - net 118,836 - - 118,836
Intercompany 83 - (83) -
Other assets - net (165,131) 180,000 - 14,869
------------- ---------- ---------- -----------
Total $ 823,258 $180,000 $ (83) $ 1,003,175
============= ========== ========== ===========
</TABLE>
12
<PAGE>
CONSOLIDATING BALANCE SHEET FINANCIAL DATA
(CONTINUED)
As of November 30, 1999
(Amounts in thousands)
Note 8 - Continued
<TABLE>
<CAPTION>
Centennial
Centennial Centennial Cellular
Cellular Operating Cellular Corp. and
Co. LLC Corp. Eliminations Subsidiaries
--------------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Current Portion of long term debt $ 4,500 $ - $ - $ 4,500
Accounts payable 12,025 - 12,025
Accrued expenses and other
current liabilities 93,762 - - 93,762
Payable to affiliates 125 - - 125
--------------------- --------------- -------------- -----------------
Total current liabilities 110,412 - - 110,412
Long-term debt 1,308,707 168,806 - 1,477,513
Intercompany - 83 (83) -
Common stockholders' equity (deficit):
Class A Common stock 297 16 - 313
Common stock issuable 1,530 - - 1,530
Additional paid-in capital 400,964 22,484 - 423,448
Accumulated deficit (997,470) (11,389) - (1,008,859)
--------------------- --------------- -------------- -----------------
(594,679) 11,111 - (583,568)
Less: treasury shares (1,077) - - (1,077)
Deferred Compensation (105) - - (105)
--------------------- --------------- -------------- -----------------
Total common stockholders' equity (deficit) (595,861) 11,111 - (584,750)
--------------------- --------------- -------------- -----------------
Total $ 823,258 $ 180,000 $ (83) $ 1,003,175
===================== =============== ============== =================
</TABLE>
13
<PAGE>
CONSOLIDATING STATEMENT OF OPERATIONS FINANCIAL DATA
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
Note 8 - Continued
Centennial
Centennial Centennial Cellular
Cellular Operating Cellular Corp. and
Co. LLC Corp. Subsidiaries
---------------------- ---------------- ---------------------
<S> <C> <C> <C>
Revenue $ 240,802 $ - $ 240,802
---------------------- ---------------- ---------------------
Costs and expenses:
Cost of equipment sold 14,964 - 14,964
Cost of services 30,416 - 30,416
Sales and Marketing 36,998 - 36,998
General & Administrative 40,472 - 40,472
Depreciation and amortization 38,639 - 38,639
---------------------- ---------------- ---------------------
161,489 - 161,489
---------------------- ---------------- ---------------------
Operating income 79,313 - 79,313
---------------------- ---------------- ---------------------
Income from equity investments 7,340 - 7,340
Gain on disposition of assets - - -
Interest expense - net (61,040) (11,389) (72,429)
---------------------- ---------------- ---------------------
Income (loss) before income tax expense and minority interest 25,613 (11,389) 14,224
Income tax expense (1,556) - (1,556)
---------------------- ---------------- ---------------------
Income (loss) before minority interest 24,057 (11,389) 12,668
Minority interest in loss
of subsidiaries 60 - 60
---------------------- ---------------- ---------------------
Net Income (Loss) $ 24,117 $ (11,389) $ 12,728
====================== ================ =====================
</TABLE>
14
<PAGE>
Note 8 - Continued
CONSOLIDATING STATEMENT OF CASH FLOWS FINANCIAL DATA
For the Six Months Ended November 30, 1999
(Amounts in thousands)
Note 8 - Continued
<TABLE>
<CAPTION>
Centennial
Centennial Centennial Cellular
Cellular Operating Cellular Corp. and
Co. LLC Corp. Eliminations Subsidiaries
----------------- ----------- ------------ -------------
OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Cash received from subscribers and others $ 244,421 $ - $ - $ 244,421
----------------- ---------- ------------ -------------
Cash paid to suppliers, employees and
governmental agencies (136,706) - - (136,706)
Interest paid (60,279) (18,579) - (78,858)
------------------ ---------- ------------ -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 47,436 (18,579) - 28,857
------------------ ---------- ------------ -------------
INVESTING ACTIVITIES:
Proceeds from disposition of assets 22 - - 22
Capital expenditures (76,371) - - (76,371)
Acquisitions, net of cash acquired (32,820) - - (32,820)
Distributions received from equity investments 5,047 - - 5,047
Purchase of restricted securities (19,998) - - (19,998)
Proceeds from maturity of restricted securities 39,996 - - 39,996
------------------ ---------- ------------ -------------
NET CASH USED IN INVESTING ACTIVITIES (84,124) - - (84,124)
------------------ ---------- ------------ -------------
FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt 10,100 9,243 - 19,343
Repayment of long-term debt (2,250) - - (2,250)
Debt issuance costs paid (267) - - (267)
Cash advances from subsidiaries (to parent) (9,336) 9,336 - -
------------------ ---------- ------------ -------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (1,753) 18,579 - 16,826
------------------ ---------- ------------ -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (38,441) - - (38,441)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 51,141 - - 51,141
------------------ ---------- ------------ -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 12,700 $ - $ - $ 12,700
================== ========== ============ =============
</TABLE>
15
<PAGE>
Note 8 - Continued
CONSOLIDATING STATEMENT OF CASH FLOWS FINANCIAL DATA
For the Six Months Ended November 30, 1999
(CONTINUED)
(Amounts in thousands)
<TABLE>
<CAPTION>
Centennial
Centennial Centennial Cellular
Cellular Operating Cellular Corp. and
Co. LLC Corp. Eliminations Subsidiaries
---------------- --------- ------------ ------------
<S> <C> <C> <C> <C>
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss) $ 24,117 $ (11,389) $ - $ 12,728
---------------- --------- ----------- ------------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 37,514 1,125 - 38,639
Minority interest in loss of subsidiaries (60) - - (60)
Deferred income taxes (624) - - (624)
Equity in undistributed earnings of investee companies (7,340) - - (7,340)
Gain on disposition of assets - - - -
Other 3,539 - - 3,539
Change in assets and liabilities net of effects of
acquisitions:
Accounts receivable - (increase) (10,535) - - (10,535)
Prepaid expenses and other current assets -
(increase) (2,574) - - (2,574)
Accounts payable, accrued expenses and
other current liabilities- increase (decrease) 2,791 (8,315) - (5,524)
Customer deposits and prepayments -
increase 608 - - 608
--------------- -------- ----------- ------------
Total adjustments 23,319 (7,190) - 16,129
--------------- -------- ----------- ------------
Net cash provided by (used in) operating activities $ 47,436 $ (18,579) $ - $ 28,857
=============== ========= =========== ============
</TABLE>
16
<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, 1999, 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 and share data)
Overview
The Company's results for the three months ended November 30, 1999 reflect
strong growth in the subscriber base in both the Company's Domestic Operations
and Puerto Rico Operations. The Company's wireless subscribers at November 30,
1999 were 525,100 as compared to 384,600 at November 30, 1998, an increase of
37%. The Company reported net income of $7,049 and $12,728 during the three and
six months ended November 30, 1999, respectively, as compared to $688 and $6,343
during the three and six months ended November 30, 1998, respectively. The
Company reported earnings per common share of $0.22 per diluted share during the
three months ended November 30, 1999, as compared to a loss per common share of
$(0.06) for the three months ended November 30, 1998. Earnings per common share
for the six months ended November 30, 1999 was $0.39 per diluted share, as
compared to a loss per common share of $(0.03) for the six months ended November
30, 1998. The table below summarizes results of operations for each period:
<TABLE>
<CAPTION>
Three Months Ended % Six Months Ended %
11/30/99 11/30/98 Change 11/30/99 11/30/98 Change
----------- ---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
EBITDA (1) $ 60,026 $ 42,935 40% $ 117,952 $ 81,570 45%
Operating income $ 40,371 $ 10,196 296% $ 79,313 $ 17,027 366%
Net income $ 7,049 $ 688 925% $ 12,728 $ 6,343 101%
Earnings per common share-
Basic $0.23 $(0.06) N/A $0.41 $(0.03) N/A
Diluted $0.22 $(0.06) N/A $0.39 $(0.03) N/A
</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 on
disposition of assets 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
<TABLE>
<CAPTION>
Revenue
Three Months Ended % Six Months Ended %
11/30/99 11/30/98 Change 11/30/99 11/30/98 Change
---------- ---------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Service revenue $ 70,483 $ 57,947 22% $ 139,892 $ 110,911 26%
Equipment sales 3,745 987 279% 6,855 1,925 256%
---------- ---------- ----------- -----------
Total revenue $ 74,228 $ 58,934 26% $ 146,747 $ 112,836 30%
========== ========== =========== ===========
</TABLE>
Total Domestic service revenue, excluding roaming usage, increased $4,504 or 12%
to $41,889 in the second quarter and increased $10,248 or 14% to $83,280 for the
six months ended November 30, 1999, as compared to the same periods in fiscal
1999. These increases were primarily due to an increase in subscribers of
$10,157 and $19,582, for the three and six months ended November 30, 1999,
respectively, partially offset by a decrease in retail revenue per subscriber of
$5,651 and $9,334, for the same periods. 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. Domestic roamer
usage increased to $28,594 or 39% over roamer revenues of $20,562 for the three
months ended November 30, 1998, and increased to $56,612 or 49% over roamer
revenues of $37,879 for the six months ended November 30, 1998. These increases
were primarily due to increases in usage of $17,908 and $30,814, for the three
and six months ended November 30, 1999, respectively, partially offset by a
decrease in the rate per minute of $9,878 and $12,081 for the same periods.
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 year and the introduction of digital phones, which sell at a
higher price than analog phones.
Domestic had approximately 363,300 and 285,900 subscribers at November 30, 1999
and 1998, respectively. Increases from new activations of 165,500 were offset by
subscriber cancellations of 88,100. The cancellations experienced by the
Domestic Operations are primarily the result of competitive factors and
non-payment.
Domestic revenue per subscriber per month, based upon an average number of
subscribers, was $70 and $71 for the three and six months ended November 30,
1999, respectively, as compared to $70 and $69 for the three months and six
months ended November 30, 1998, respectively. The Company expects that Domestic
revenue per subscriber will be impacted by competition and lower reciprocal per
minute roaming rates with other wireless carriers.
18
<PAGE>
Costs and expenses
<TABLE>
<CAPTION>
Three Months Ended % Six Months Ended %
11/30/99 11/30/98 Change 11/30/99 11/30/98 Change
---------- ---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Cost of equipment sold $ 6,743 $ 4,322 56% $ 12,298 $ 8,203 50%
Cost of services $ 7,773 $ 6,386 22% $ 14,992 $ 12,490 20%
Sales and marketing $ 11,679 $ 7,642 53% $ 21,959 $ 13,690 60%
General and administrative $ 9,897 $ 9,430 5% $ 20,612 $ 18,187 13%
EBITDA $ 38,136 $ 31,154 22% $ 76,886 $ 60,266 28%
Depreciation and amortization 8,388 20,744 (60%) 16,361 41,499 (61%)
---------- ---------- ---------- ----------
Operating income $ 29,748 $ 10,410 186% $ 60,525 $ 18,767 223%
========== ========== ========== ==========
</TABLE>
Cost of equipment sold increased during the three and six months ended November
30, 1999, primarily due to an increase in the number of telephone units sold and
higher costs associated with digital phones.
Cost of services increased during the three and six months ended November 30,
1999, 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 and six months ended
November 30, 1999, primarily due to the increase in gross subscriber additions
of 48,100 and 90,700 for the three and six months ended November 30, 1999,
respectively, from 32,300 and 61,900 in the comparable periods in fiscal 1999.
General and administrative expenses increased during the three and six months
ended November 30, 1999, primarily due to increased costs to support the
expanding subscriber base.
EBITDA for the Domestic Operations for the three and six months ended November
30, 1999 was $38,136 and $76,886, respectively, an increase of $6,982 or 22% and
$16,620 or 28% over the three and six months ended November 30, 1998,
respectively.
The Company anticipates continued increases in the cost of services, sales and
marketing and general and administrative expenses as the growth of its Domestic
Operations continues.
Depreciation and amortization for the three and six months ended November 30,
1999 was $8,388 and $16,361, respectively, a decrease of $12,356 or 60% and
$25,138 or 61% over the three and six months ended November 30, 1998,
respectively. The decrease was the result of the effect of the Company
prospectively changing the amortization period for its cellular telephone
licenses and the difference between the cost of its equity investments and the
underlying book value of such investments from ten years to forty years
effective March 1, 1999. The Company changed such amortization periods to better
reflect the period over which the economic benefits of the cellular licenses and
equity investments are expected to be realized. The effect of such changes in
amortization periods was a reduction in amortization expense of $11,427 and
$23,318 for the three and six months ended November 30, 1999, respectively. The
19
<PAGE>
effect of this change in amortization periods (net of the related tax effect)
was to increase earnings per share-basic by $0.33 and $0.67 for the three and
six months ended November 30, 1999, respectively, and to increase earnings per
share-diluted by $0.32 and $0.64 for the three and six months ended November 30,
1999, respectively. Prior to the change in amortization periods, certain
cellular licenses became fully amortized during the year ended May 31, 1999,
which also contributed to the decrease in depreciation and amortization.
Operating income for the three and six months ended November 30, 1999 was
$29,748 and $60,525, respectively, an increase of $19,338 and $41,758 from the
operating income of $10,410 and $18,767 for the three and six months ended
November 30, 1998, respectively.
Puerto Rico Operations
Revenue
<TABLE>
<CAPTION>
Three Months Ended % Six Months Ended %
11/30/99 11/30/98 Change 11/30/99 11/30/98 Change
---------- ---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Service revenue $ 48,092 $ 27,534 75% $ 91,638 $ 50,761 81%
Equipment sales 1,210 684 77% 2,417 1,001 141%
---------- ---------- ---------- ----------
Total revenue $ 49,302 $ 28,218 75% $ 94,055 $ 51,762 82%
========== ========== ========== ==========
</TABLE>
Total PCS Wireless service revenue increased $14,472, or 60% and $30,192 or 68%
for the three and six months ended November 30, 1999, respectively, to $38,432
and $74,520 for the same periods. These increases reflect PCS Wireless
subscriber growth of $16,018 and $32,617 for the three and six months ended
November 30, 1999, respectively, partially offset by lower subscriber pricing of
$1,546 and $2,425 for the same periods. Total Wireline revenue increased by
$6,086 and $10,685 to $9,660 and $17,118 for the three and six months ended
November 30, 1999, respectively.
The increase in equipment sales of wireless telephones and accessories to
subscribers was primarily due to increased phone sales to pre-paid customers
during the current year.
PCS Wireless subscribers at November 30, 1999 were approximately 161,800, an
increase of 64% from the 98,700 subscribers at November 30, 1998. Increases from
new activations of 116,300 were offset by subscriber cancellations of 53,200.
The cancellations experienced by the Puerto Rico Operations are primarily the
result of competitive factors and non-payment.
PCS Wireless revenue per subscriber per month, based upon an average number of
subscribers, was $87 and $88 for the three and six months ended November 30,
1999, respectively, as compared to $90 and $89 for the three months and six
months ended November 30, 1998, respectively. The Company expects that PCS
Wireless revenue per subscriber will be impacted by competition.
20
<PAGE>
Costs and expenses
<TABLE>
<CAPTION>
Three Months Ended % Six Months Ended %
11/30/99 11/30/98 Change 11/30/99 11/30/98 Change
---------- ---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Cost of equipment sold $ 622 $ 607 2% $ 2,666 $ 1,259 112%
Cost of services $ 6,938 $ 5,356 30% $ 15,424 $ 9,634 60%
Sales and marketing $ 7,545 $ 5,215 45% $ 15,039 $ 10,198 47%
General and administrative $ 12,307 $ 5,259 134% $ 19,860 $ 9,367 112%
EBITDA $ 21,890 $ 11,781 86% $ 41,066 $ 21,304 93%
Depreciation and amortization 11,267 11,995 (6%) 22,278 23,044 (3%)
---------- ---------- -------- ---------- ---------- --------
Operating income $ 10,623 $ (214) N/A $ 18,788 $ (1,740) N/A
========== ========== ======== ========== ========== ========
</TABLE>
Cost of equipment sold increased during the six months ended November 30, 1999,
primarily due to an increase in sales of handsets to new prepaid subscribers and
increased sales of accessories.
Cost of services increased during the three and six months ended November 30,
1999, 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 Puerto Rico Operation's network.
Sales and marketing expenses increased during the three and six months ended
November 30, 1999, primarily due to the increase in gross subscriber additions
as well as the hiring of additional sales force.
General and administrative expenses increased during the three and six months
ended November 30, 1999, primarily due to increases in reserves for Internet
Service Provider revenue ("ISP") related to a dispute with the Puerto Rico
Telephone Company ("PRTC") over amounts owed by PRTC for ISP traffic that
terminated on Centennial's network (see Reciprocal Compensation below).
EBITDA for the Puerto Rico Operations for the three and six months ended
November 30, 1999 was $21,890 and $41,066, respectively, an increase of $10,109
or 86% and $19,762 or 93% over the three and six months ended November 30, 1998,
respectively.
The Company anticipates continued increases in the cost of services, sales and
marketing and general and administrative expenses as the growth of its Puerto
Rico Operations continues. In addition, the Company expects that its
participation in the Puerto Rico wireline business will contribute to a
continued increase in the level of expenses.
Depreciation and amortization for the three and six months ended November 30,
1999 was $11,267 and $22,278, respectively, a decrease of $728 or 6% and $766 or
3% over the three and six months ended November 30, 1998, respectively. These
decreases result from PCS phones becoming fully depreciated. This was partially
offset by depreciation related to capital expenditures made during fiscal 2000
and 1999 in connection with the development and network expansion of the Puerto
Rico Operation's wireless telephone systems and the purchase of PCS phones in
Puerto Rico.
21
<PAGE>
Operating income for the three and six months ended November 30, 1999 was
$10,623 and $18,788, respectively, an increase of $10,837 and $20,528 from the
losses of $214 and $1,740 for the three and six months ended November 30, 1998.
Consolidated
Other non-operating expenses
The gain on disposition of assets during the three and six months ended November
30, 1998 is primarily the result of the Company's sale of its investment
interest in the wireless telephone system serving the Coconino, Arizona RSA.
Net interest expense was $36,495 and $72,429 for the three and six months ended
November 30, 1999, respectively, an increase of $25,686 or 238% and $50,489 or
230% from the three and six months ended November 30, 1998. Gross interest costs
for the three and six months ended November 30, 1999 were $37,289 and $74,849,
respectively as compared to $11,358 and $22,837 for the three and six months
ended November 30, 1998. The increases in interest expense reflects an increase
in total debt of $975,013 from November 30, 1998. On January 7, 1999 the Company
utilized a portion of these additional borrowings to repay existing debt,
including the early extinguishment of 99.5% of its Senior Notes due in 2001 and
2004. The increase in long-term debt is also the result of additional borrowings
related to the recapitalization of the Company, working capital needs and
capital expenditures related to the expansion of the Puerto Rico Operation's PCS
network infrastructure, the expansion of the wireline network and the purchase
of PCS telephones. The average debt outstanding during the three and six months
ended November 30, 1999 was $1,479,709 and $1,474,548, respectively, increases
of $974,445 and $971,111 as compared to the average debt level of $505,264 and
$503,437 during the three and six months ended November 30, 1998. The Company's
weighted average interest rate increased to 10.1% and 10.2% for the three and
six months ended November 30, 1999 from 9.0% and 9.1% for the three and six
months ended November 30, 1998.
After loss attributable to minority interests in subsidiaries for the three and
six months ended November 30, 1999, pretax income was $7,749 and $14,284,
respectively, as compared to pretax income of $3,516 and $12,179 for the three
and six months ended November 30, 1998. The income tax expense was $700 and
$1,556 for the three and six months ended November 30, 1999, respectively, as
compared to income tax expense of $2,828 and $5,836 for the three and six months
ended November 30, 1998.
These factors resulted in net income of $7,049 and $12,728 for the three and six
months ended November 30, 1999, which represents increases of $6,361 and $6,385
from the net income for the three and six months ended November 30, 1998.
22
<PAGE>
Reciprocal compensation
On November 2, 1999, the PRTC notified the Company that they disputed invoices
for ISP termination traffic going back to April 1, 1999. It is the Company's
position that it has rightfully invoiced PRTC for the termination of ISP traffic
in accordance with the terms of a valid tariff filed by the Company with the
Federal Communications Commission ("FCC").
In its February 1999 ruling on the topic of inter-carrier compensation for
ISP-bound calls, the FCC held that the ISP-bound traffic was interstate and
under the FCC's regulatory jurisdiction. The FCC held that there was no specific
federal rule governing inter-carrier compensation for such traffic. For that
reason, it concluded that states are free to impose a compensation requirement
in the context of interconnection disputes arising under Sections 251 and 252 of
the Communications Act of 1934, as amended. To date, the Puerto Rico
Telecommunications Board, which has jurisdiction over telecommunications
services in Puerto Rico, has not set a compensation requirement for ISP-bound
calls.
The Company filed FCC tariff No. 2 on April 1, 1999, which establishes an
interstate charge applicable to all interstate service. FCC tariffs are presumed
valid unless challenged and held invalid by the FCC.
Liquidity and Capital Resources
For the six months ended November 30, 1999, earnings exceeded fixed charges by
$10,435. 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 $38,639 relating to depreciation and amortization.
As of November 30, 1999, the Company had $330,860 of property, plant and
equipment (net) placed in service. During the six months ended November 30,
1999, the Company made capital expenditures of $76,371, to continue the
expansion of its Puerto Rico systems and its Domestic systems to expand the
coverage areas of existing properties and to upgrade its cell sites and call
switching equipment. Capital expenditures for the Puerto Rico Operations were
$49,795 for the six months ended November 30, 1999, representing 65% of the
Company's total capital expenditures. The Puerto Rico Operation's capital
expenditures included $39,509 to add capacity and services and to continue the
expansion of the Company's PCS network infrastructure and $10,286 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. Through the remainder of
fiscal year 2000, the Company anticipates capital expenditures in its Domestic
systems of approximately $8,400. The Company currently estimates that the cost
to continue the expansion of its Puerto Rico network infrastructure and purchase
telephone units through fiscal 2000 year-end will be approximately $45,200.
Amounts required to finance the Company's capital expenditures are expected to
come primarily from cash flow generated from operations with the remainder
coming from borrowings under the Company's existing revolving credit facility.
The Company may 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.
23
<PAGE>
In order to meet its obligations with respect to its operating needs, capital
expenditures, and debt service obligations, it is important that the Company
continue to improve operating cash flow. 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.
The following table 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
(required from) available for financing and investing activities:
<TABLE>
<CAPTION>
Six Months Ended November 30,
-----------------------------
1999 1998
---- ----
% of net % of net
cash cash
Amount provided Amount provided
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Net cash provided by operating activities $ 28,857 27% $ 56,265 72%
Interest paid 78,858 73% 21,688 28%
--------- ---- --------- ----
Net cash provided $ 107,715 100% $ 77,953 100%
========= ==== ========= ====
Principal uses of cash
Interest paid $ 78,858 73% $ 21,688 28%
Property, plant & equipment 76,371 71% 48,765 62%
--------- ---- --------- ----
Total $ 155,229 144% $ 70,453 90%
========= ==== ========= ====
Cash (required from) available for other
financing and investing activities $ (47,514) (44)% $ 7,500 10%
========= ==== ========= ====
</TABLE>
Net cash provided by operating activities for the six months ended November 30,
1999 was not sufficient to fund the Company's expenditures for property, plant
and equipment of $76,371.
24
<PAGE>
The following table sets forth the primary cash flows provided by (used in)
other financing and investing activities for the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended November 30,
-----------------------------
1999 1998
---- ----
<S> <C> <C>
Proceeds from disposition of assets $ 22 $ 438
Proceeds from issuance of class A common stock - 10
Proceeds from issuance of long-term debt 19,343 7,000
Proceeds from maturity of restricted securities 19,998 -
Disposition of equity investment - 10,500
Distributions received from equity investments-net 5,047 6,638
-------- --------
Cash available 44,410 24,586
-------- --------
Acquisition of other assets - (2,200)
Repayment of long-term debt (2,250) (10,000)
Debt issuance costs paid (267) -
Recapitalization costs paid - (1,990)
Acquisition, net of cash acquired (32,820) -
-------- --------
Cash available for operations and capital expenditures $ 9,073 $ 10,396
======== ========
</TABLE>
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.
Acquisitions, Exchanges and Dispositions
The Company's primary acquisition strategy is to acquire controlling ownership
interests in communication systems serving markets which are proximate to or
share a community of interest with its current markets. The Company's strategy
of clustering its operations in proximate geographic areas enables it to achieve
operating and cost efficiencies as well as joint marketing benefits. Clustering
also allows the Company to offer its subscribers more areas of uninterrupted
service as they travel. In addition to expanding its existing clusters, the
Company also may seek to acquire interests in wireless systems in other
geographic areas. The Company also may pursue 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.
In November 1999, the Company acquired the wireless telephone system serving the
Allegan, Michigan RSA. The Allegan market represents approximately 100,000 net
pops. The total purchase price was approximately $35,000 in cash and stock,
subject to adjustment.
25
<PAGE>
In December 1999, the Company entered into a definitive agreement to acquire the
wireless telephone system serving the Kokomo, Indiana Metropolitan Statistical
Area #271. The Kokomo market represents approximately 100,000 net pops. The
Company has agreed to a purchase price of approximately $25,000, subject to
adjustment. The obligation of the Company to consummate this transaction is
subject to certain closing conditions, including the relevant regulatory
approvals. The Company anticipates closing this acquisition in the first quarter
of calendar year 2000.
In January 2000, the Company entered into a letter of intent to purchase the
assets of cable television systems serving Aguadilla, Mayaguez, San German and
surrounding communities in Puerto Rico from Pegasus Communications Corporation
for $170,000. The transaction is subject to numerous conditions, including
regulatory approvals, completion of customary due-diligence and the negotiation
and execution of a definitive purchase agreement.
Commitments and Contingencies
Year 2000 Update
The Year 2000 issue is the result of many computer programs being written
abbreviating dates by using two digits rather than four digits in the year
field. As a result, unless corrected, a computer program that has date sensitive
software may recognize a date using "00" in the year field as 1900 rather than
the year 2000. This could result in system failures and errors causing
disruptions to various aspects of our business, including computer systems,
voice and data networks and building infrastructures.
The Company's internal computer systems and software were unaffected by the date
changeover.
The Company's customer-related computer systems and databases, including those
managed by third parties, operated as expected.
The Company's operations, including interconnection with various networks and
systems operated by third parties, also were unaffected by the date changeover.
While no Year 2000 related disruptions have been experienced to date, there are
some remaining Year 2000 risks. Based on currently available information,
management believes that Year 2000 related disruptions or other problems, if
any, will not have a material adverse effect on the Company's financial
condition or results of operations.
Stock Split
On December 28, 1999, the Company announced that the Board of Directors declared
a three-for-one stock split of all outstanding shares of class A common stock.
The shares will be distributed on or about January 20, 2000 to all holders of
record on January 10, 2000.
26
<PAGE>
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"). This SAB sets forth certain of the SEC staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. SAB No. 101 is effective for the first fiscal quarter of the fiscal
year beginning after December 15, 1999. The Company plans to adopt SAB No. 101
effective June 1, 2000, and is currently assessing the impact that adoption will
have on the Company's results of operations and financial position.
The Financial Accounting Standards Board issued Statement of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" in June, 1998.
The Company will adopt SFAS No. 133 effective June 1, 2001. The Company has not
yet determined the impact of the adoption of SFAS No. 133 on future results of
operations or financial condition.
* * * * *
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 (deficit); the
capital intensity of the wireless telephone business and the Company's debt
structure; the competitive nature of the wireless telephone and other
communications services industries; regulation; changes and developments in
technology; subscriber cancellations; restrictive covenants and consequences of
default contained in the Company's financing arrangements; control by certain of
the Company's stockholders and anti-takeover provisions; the Company's
opportunities for growth through acquisitions and investments; operating hazards
and uninsured risks; refinancing and interest rate exposure risks; potential for
changes in accounting standards; and capital calls associated with the Company's
Investment Interests. A more detailed discussion of each of the foregoing
factors can be found in the Company's Annual Report on Form 10-K for the Fiscal
Year ended May 31, 1999 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.
27
<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 November 30, 1999 (based on
information provided by one of the Company's lending institutions):
Amounts in thousands:
<TABLE>
<CAPTION>
Year ended November 30,
2000 2001 2002 2003 2004 There-after Total Fair value
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt:
Fixed rate - $ 1,388 - - - $539,025 $540,413 $564,463
Average interest rate - 8.88% - - - 10.51% 10.51% -
Variable rate $ 4,500 $ 4,500 $49,500 $72,000 $94,500 $716,600 $941,600 $941,600
Average interest rate (1) 6.32% 6.76% 6.90% 6.99% 7.06% 7.15% 7.11% -
Interest rate swaps (pay
fixed, receive variable):
Notional amount $350,000 $350,000 $150,000 - - - - $ 9,430
Average pay rate 5.40% 5.40% 5.38% - - - - -
Average receive rate 6.32% 6.76% 6.90% - - - - -
Interest rate collar:
Notional amount $100,000 $100,000 $100,000 $100,000 - - - $ 1,580
Cap 7.00% 7.00% 7.00% 7.00% - - - -
Floor 4.45% 4.45% 4.45% 4.45% - - - -
(1) Represents the average interest rate before applicable margin
</TABLE>
28
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Company or
any of its subsidiaries is a party or of which any of their property
is the subject.
ITEM 2. Changes in Securities and Use of Proceeds
The holders of in excess of majority of the outstanding shares of
common stock approved an amendment to the Company's Amended and
Restated Certificate of Incorporation to increase the number of
authorized shares of common stock to 150,000,000.
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
a) The Company's annual meeting of shareholders was held on October
20, 1999.
b) The following persons were elected as directors at the Company's
annual meeting pursuant to the following votes:
Number of Votes
---------------
Directors For Withheld
--------- --- --------
Anthony J. de Nicola 28,173,576 8,836
Mark T. Gallogly 28,173,576 8,836
Lawrence H. Guffey 27,824,986 357,426
Thomas E. McInerney 28,173,576 8,836
Rudolph E. Rupert 28,173,576 8,836
Michael J. Small 28,173,576 8,836
J. Stephen Vanderwoude 28,173,576 8,836
c) The shareholders approved a proposal at the annual meeting to
ratify the selection by the Board of Directors of Deloitte &
Touche LLP as independent auditors for the Company for the fiscal
year ending May 31, 2000. The following sets forth the number of
votes on this proposal:
For Against Abstain
--- ------- -------
28,181,771 278 363
29
<PAGE>
d) The shareholders approved a proposal at the annual meeting to
ratify the approval and adoption by the Board of Directors of the
Centennial Cellular Corp. and its Subsidiaries 1999 Stock Option
and Restricted Stock Purchase Plan. The following sets forth the
number of votes on this proposal:
For Against Abstain
--- ------- -------
27,609,436 182,102 1,044
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 27 Financial data schedule (EDGAR filing document only)
b) Reports on Form 8-K
Form 8-K dated November 1, 1999, relating to the Independent Auditors'
Consent of Deloitte & Touche LLP in the Prospectus dated November 1,
1999 which is part of the Company's Registration Statement No.
33-80716 on Form S-4.
30
<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 12, 2000
CENTENNIAL CELLULAR 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)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> May-31-2000
<PERIOD-END> Nov-30-1999
<CASH> 12,700
<SECURITIES> 39,370
<RECEIVABLES> 67,015
<ALLOWANCES> 8,734
<INVENTORY> 8,924
<CURRENT-ASSETS> 121,053
<PP&E> 461,810
<DEPRECIATION> 130,950
<TOTAL-ASSETS> 1,003,175
<CURRENT-LIABILITIES> 110,412
<BONDS> 1,477,513
0
0
<COMMON> 313
<OTHER-SE> (585,063)
<TOTAL-LIABILITY-AND-EQUITY> 1,003,175
<SALES> 240,802
<TOTAL-REVENUES> 240,802
<CGS> 45,380
<TOTAL-COSTS> 161,489
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72,429
<INCOME-PRETAX> 6,884
<INCOME-TAX> 1,556
<INCOME-CONTINUING> 12,728
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,728
<EPS-BASIC> 0.41
<EPS-DILUTED> 0.39
</TABLE>
