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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 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
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CENTENNIAL COMMUNICATIONS CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 06-1242753
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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1305 CAMPUS PARKWAY
NEPTUNE, NJ 07753
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (732) 919-1000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.01 per share
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ]
As of July 31, 2000, there were 94,493,661 shares of common stock
outstanding. The aggregate market value of the common stock held by
non-affiliates of the Company, based upon the last reported sale price on The
Nasdaq Stock Market on July 31, 2000 of $15.1875 per share, was $147,243,101.
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DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Company's Proxy Statement to be filed with the
Commission pursuant to Rule 14a-6 under the Securities Exchange Act of 1934 in
connection with the Company's 2000 Annual Meeting of Shareholders are
incorporated by reference in Part III, Items 10-13 of this Annual Report on
Form 10-K.
TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 17
Item 3. Legal Proceedings........................................... 17
Item 4. Submission of Matters to a Vote of Security Holders......... 17
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 20
Item 6. Selected Consolidated Financial Data........................ 21
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Item 7A. Quantitative and Qualitative Disclosure About Market Risk... 36
Item 8. Financial Statements and Supplementary Data................. 36
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 37
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 37
Item 11. Executive Compensation...................................... 37
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 37
Item 13. Certain Relationships and Related Transactions.............. 37
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K Signatures....................................... 38
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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:
general economic, business, political and social conditions in the areas in
which we operate;
our substantial debt obligations;
local operating hazards and risks in the areas in which we operate;
the ability to attract and retain qualified personnel;
the capital intensity of the telecommunications industry;
the competitive nature of the telecommunications industry, including
potential overbuilding by personal communications service providers;
price declines in roaming rates;
opportunities for growth through acquisitions and investments and our
ability to manage this growth;
governmental regulation;
changes and developments in technology;
subscriber cancellations;
restrictive covenants and consequences of default contained in our
financing arrangements;
our ability to manage and monitor billing;
safety concerns associated with using wireless telephones while operating
an automobile;
possible health effects of radio frequency transmission;
control by certain of our stockholders and anti-takeover provisions; and
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.
CERTAIN DEFINITIONS
As used in this Form 10-K, the terms 'Centennial', the 'Company', 'our' and
'we' refer to Centennial Communications Corp., a Delaware corporation, and its
subsidiaries on a consolidated basis. The term 'Pops' refers to the population
of a market, derived from the 1998 Kagan's Cellular Telephone Atlas or Kagan's
Latin American Wireless Telecommunications 1999, and the term 'Net Pops' refers
to a market's Pops multiplied by the percentage interest that we own in an
entity licensed to construct or operate a wireless telephone system in that
market.
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PART I
ITEM 1. BUSINESS
GENERAL
We are a leading independent provider of mobile wireless communications
domestically and of mobile wireless communications and competitive local
exchange services in the Caribbean. As of May 31, 2000, we had 626,800 wireless
subscribers.
Domestically, we own and operate cellular systems in eight states in three
clusters located in Michigan/Indiana/Ohio, Texas/Louisiana/Mississippi and
Arizona/California, representing an aggregate of approximately 6.3 million Net
Pops. 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 hold
minority shares representing approximately 1.2 million Net Pops in cellular
operations controlled by other operators.
Our Caribbean operations are centered in Puerto Rico (approximately 3.9
million Net Pops), where we provide wireless personal communications services
('PCS') and wireline services including switched voice, Internet and private
line services over our own fiber optic and microwave network. During the past
fiscal year, we acquired (i) a 70% controlling interest in All America Cables
and Radio, Inc. ('AACR'), an international long distance provider in the
Dominican Republic which also holds a 30 MHz PCS wireless license covering 8.9
million Pops and (ii) a 51% controlling interest in Paradise Wireless (Jamaica)
Limited, a Jamaican company which holds a 20 MHz code division multiple access
('CDMA') wireless license covering 2.6 million Pops. These Caribbean
acquisitions, together with three domestic clustering acquisitions completed
since May 31, 1999, expanded our total number of Net Pops from approximately
11.0 million at May 31, 1999, to approximately 18.9 million as of July 31, 2000.
Centennial was organized in 1988. Our principal corporate office is located
at 1305 Campus Parkway, Neptune, New Jersey 07753. Our telephone number is (732)
919-1000. We are relocating our corporate headquarters in the Fall of calendar
year 2000. Our new address will be 3349 Route 138, Wall Township, New Jersey
07719 and our new telephone number will be (732) 556-2200.
CENTENNIAL'S OPERATIONS
DOMESTIC WIRELESS OPERATIONS
We operate our domestic wireless telephone systems pursuant to 32 cellular
licenses. Domestically, we have strategically assembled a portfolio of cellular
telephone operating companies clustered in three distinct small city and rural
areas. We market our cellular service under the registered name 'Centennial
Wireless' using both analog and digital technology (time division multiple
access or 'TDMA'.) We have upgraded approximately 90% of our domestic systems to
digital technology and now offer voice and digital features (voice mail, caller
ID, call waiting, conference calling and text messaging). Digital technology
increases system capacity and offers other advantages over analog technology,
including improved overall signal quality, longer battery life, improved call
security, lower incremental costs for additional capacity and the ability to
provide data transmission services. A customer achieves the benefits of digital
radio channels only if he or she purchases cellular telephones that are capable
of transmitting and receiving digital signals. As of May 31, 2000, 45% of our
domestic customer base was digital. During the past fiscal year, we added 133
cell sites and now have 577 cell sites.
By concentrating our cellular development in clusters contiguous to
metropolitan markets, we have become an attractive roaming partner to many of
the largest regional and nationwide wireless operators. In addition, through
clustering, we believe we are able to achieve critical mass and operating
efficiencies while developing a respected brand image within our service areas.
At May 31, 2000, our domestic operations had approximately 445,300 wireless
subscribers, which equates to a penetration of 7.2% in our licensed serving
areas. On July 24, 2000, we signed a definitive agreement to sell our
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Southwest cluster, representing 311,000 Net Pops, to Western Wireless
Corporation for $202.5 million in cash. Our website at www.centennialcom.com
contains information about our domestic operations.
We attempt to acquire cellular systems adjacent to our existing markets. We
focus on underdeveloped small city and rural areas that have a significant
number of potential customers for wireless communications because we believe
these markets offer:
Potential Penetration Growth. Our domestic markets have relatively low
wireless penetration as compared to the overall U.S. penetration rate. We
believe our service areas offer significant opportunities for increases in
penetration and a greater capacity for future subscriber growth than the
major metropolitan markets.
Insulation from Potential Competition. Our service areas are generally
subject to less competition from other wireless providers, such as PCS, as
compared to larger metropolitan service areas. Currently, the population
density of these regions has inhibited the construction of extensive PCS
networks.
Above-Average Roaming Revenue. Our domestic markets are strategically
located between larger metropolitan areas and contain well-traveled
roadways. Customers of other wireless communications providers who enter
our service areas and use their wireless phones generate high levels of
roaming revenues.
Our domestic cellular interests consist primarily of three operating
clusters:
Michiana Cluster contains approximately 3.7 million Net Pops in Michigan,
Ohio and Indiana, covering portions of three major interstate highways that
connect Chicago, Detroit and Indianapolis.
East Texas/Louisiana Cluster contains approximately 2.3 million Net Pops,
covering portions of interstate highway I-10, as well as sections of Texas,
Louisiana and Mississippi adjacent to Houston, New Orleans, Shreveport and
Baton Rouge.
Southwest Cluster contains approximately 311,000 Net Pops, covering the
Yuma, Arizona and El Centro, California markets and is bordered by Los
Angeles to the northwest, San Diego to the west, Phoenix to the east and
Mexicali, Mexico to the south. On July 24, 2000, we signed a definitive
agreement to sell the Southwest cluster to Western Wireless Corporation for
$202.5 million in cash.
CARIBBEAN WIRELESS OPERATIONS
We operate our Puerto Rico wireless telephone system pursuant to a PCS
license which also covers the U.S. Virgin Islands. In addition, we now own 70%
of a 30 MHz PCS license in the Dominican Republic and 51% of a 20 MHz cellular
license in Jamaica. We expect to launch wireless service in the Dominican
Republic and U.S. Virgin Islands in the second and third quarter of fiscal year
2001, respectively, and expect to launch wireless service in Jamaica by the end
of fiscal year 2001. Puerto Rico is strategically located as a major center of
Caribbean commerce and serves as a gateway for businesses operating in Latin
America and the Caribbean. We are the largest all-digital wireless carrier in
Puerto Rico. At May 31, 2000, our Caribbean operations had 181,500 wireless
subscribers, all in Puerto Rico. Our website at www.centennialpr.com contains
information about our Caribbean operations.
Our wireless communications services share two switches and a sophisticated
482 mile fiber optic network laid in the island of Puerto Rico with our wireline
operation. The CDMA digital wireless communications services network covers most
areas of Puerto Rico using its established base of 149 wireless cell sites to
transmit and receive calls.
In Puerto Rico, we offer PCS services to our customers. PCS refers to the
two-way mobile communication licenses awarded by the FCC, which use digital
wireless technologies. Our PCS business currently covers approximately 85% of
the total population on the island of Puerto Rico and targets high volume users.
We began offering PCS in December 1996. We also offer wireless local loop
services in Puerto Rico. We began offering wireless local loop service to
business and residential customers in August 1997. Wireless local loop services
are a wireless alternative to traditional wired phone service.
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We are able to leverage our existing PCS infrastructure to provide digital fixed
wireless services at a low incremental cost wherever our PCS coverage already
exists.
In the Dominican Republic, we expect to launch wireless service with
coverage in and around the island's capital, Santo Domingo. Similarly, in
Jamaica, we expect to launch service in and around the island's capital,
Kingston. Unlike the United States, the Dominican Republic bills for wireless
services using 'calling party pays' (i.e. the customer only pays for outgoing
phone calls and not for incoming phone calls). This system is contrary to the
wireless system in the United States which charges customers both for outgoing
calls as well as for incoming calls. Outside of the United States, calling party
pays is the standard and is often cited as one reason why wireless penetration
is higher in calling party pays countries than in the United States. It is our
belief that Jamaica will in the future migrate towards a calling party pays
environment as well. To capitalize on the calling party pays billing regime, we
anticipate launching service in the Dominican Republic and Jamaica focussing on
prepaid service. We believe this will allow us to address a larger portion of
the market.
CARIBBEAN WIRELINE OPERATIONS
In Puerto Rico, we have built a fully integrated communications provider
over the past three years and are the only significant fiber-based competitive
local exchange carrier ('CLEC') on the island. At May 31, 2000, we had 16,112
switched access lines and approximately 32,000 equivalent lines of dedicated
circuits. We own our communications network in Puerto Rico. Our Puerto Rico
wireline business provides a broad range of telephone services to commercial,
Internet service provider (or ISP), carrier and government customers over our
fiber optic network. We interconnect with the Puerto Rico Telephone Company
('PRTC') to send calls to, and receive calls from, PRTC customers. Our services
include local and long distance switched telephone service, dedicated or private
lines, toll free services, and dedicated Internet-port related services. In
addition, in Puerto Rico we maintain a server that enables our customers direct
dial-up access to the Internet. We allow customers to access the Internet
through other Internet service providers in Puerto Rico. In August 1999, we
acquired all of the assets of Integrated Systems, which allows us to offer Web
page design, hosting, web casting, integration services and a variety of
e-commerce design, and related services. In addition, on May 15, 2000 we entered
into a definitive agreement to acquire the cable television assets of Pegasus
Communications Corporation ('Pegasus') for $170 million in cash. Pegasus' cable
systems serve Aguadilla, Mayaguez, San German and surrounding communities in the
western part of Puerto Rico and pass over 170,000 homes with their 123 route
miles of fiber optic and 1,268 route miles of coaxial cable. Pegasus' cable
systems have over 55,000 subscribers. The transaction is subject to customary
closing conditions and is expected to close in the second quarter of fiscal
2001.
In the Dominican Republic, with the acquisition of 70% of AACR, we now offer
international long distance capability. AACR provides long distance calling
centers for Dominican customers and also acts as the network provider for other
call center operators. AACR also accepts traffic from other carriers for
termination in the Dominican Republic. AACR's license allows it to expand its
wireline services to local loop, ISP and similar services.
FISCAL YEAR 2000 TRANSACTIONS AND DEVELOPMENTS
During fiscal year 2000, we accomplished the following significant
transactions:
Integrated Systems Acquisition. In August 1999, we acquired Integrated
Systems, Inc. and Spiderlink Puerto Rico Internet Services for cash of
approximately $2 million and 240,000 shares of our common stock (valued at
approximately $3.9 million 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.
Allegan, Michigan Acquisition. On November 23, 1999, we acquired the
wireless telephone system in Allegan, Michigan (Michigan RSA-8) for cash of
approximately $31 million and 300,000 shares of our common stock (valued at
approximately $3.7 million on the closing date).
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Allegan has a population of approximately 103,000 and is contiguous to our
existing service areas in Michigan.
Dominican Republic Acquisition. In April 2000, we acquired a 70% interest
in AACR in the Dominican Republic for approximately $19.8 million in cash,
subject to adjustment. AACR is an international long distance provider that
also owns a 30 MHz PCS license, a Local Multipoint Distribution System, or
LMDS 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.
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.
Credit Agreement Amendment. On February 29, 2000, we amended and restated
our existing senior term loan and revolving credit facilities and increased
the commitment thereunder by $200 million to an aggregate of $1.25 billion.
Miami Switch Acquisition. 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.
Kokomo, Indiana Acquisition. On April 7, 2000, we acquired the wireless
telephone system serving Kokomo, Indiana MSA # 271 for approximately $25.6
million in cash, subject to adjustment. The Kokomo market has a population
of approximately 101,000 and is contiguous with our existing service areas
in Indiana.
Jamaica Wireless License Acquisition. On May 12, 2000, we acquired 51% of
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 $25.5 million in cash.
Paradise Wireless has changed its name to Centennial Digital Jamaica
Limited.
Pegasus Cable TV Agreement. On May 15, 2000, we entered into a definitive
agreement to acquire the cable television assets of Pegasus Communications
for $170 million in cash. Pegasus' cable systems serve Aguadilla, Mayaguez,
San German and surrounding communities in the western part of Puerto Rico
and pass over 170,000 homes with their 123 route miles of fiber optic and
1,268 route miles of coaxial cable. Pegasus' cable systems have over 55,000
subscribers. The transaction is subject to customary closing conditions and
is expected to close in the second quarter of fiscal 2001.
POST FISCAL YEAR 2000 TRANSACTIONS AND DEVELOPMENTS
Since the end of our fiscal year on May 31, 2000, we have entered into the
following significant transactions:
Shelf Registration Statement. On July 7, 2000 the Securities and Exchange
Commission declared our universal shelf registration statement effective.
The registration statement covered an aggregate of $750 million 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) and certain other Centennial
stockholders.
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Lake Charles, Louisiana Acquisition. On July 14, 2000, we acquired the
remaining 74.9% of Lake Charles, Louisiana MSA # 197 that we did not
already own for approximately $42 million, subject to adjustment. The Lake
Charles market has a population of approximately 180,000 and connects our
existing Louisiana and Texas service areas.
Jamaican ISP Acquisition. On July 18, 2000, we acquired a 60% interest in
Infochannel Limited, a leading Internet service provider on the island of
Jamaica with over 6,000 subscribers.
Agreement to Sell Southwest Cluster. On July 24, 2000, we entered into a
definitive agreement to sell our Southwest cluster to Western Wireless
Corporation for $202.5 million. Our Southwest cluster consists of RSAs in
and around Yuma, Arizona (Arizona RSA-4) and El Centro, California
(California RSA-7) representing 311,000 Net Pops and over 22,000 cellular
subscribers. Our Southwest cluster also contains paging and specialized
mobile radio operations ('SMR'). We intend to invest the proceeds from this
transaction in our larger clusters in the Midwest, Southeast and the
Caribbean. The transaction is subject to customary closing conditions,
including regulatory approvals, and is expected to close by the end of the
calendar year 2000.
JANUARY 1999 RECAPITALIZATION
On January 7, 1999, Centennial merged with CCW Acquisition Corp., a new
Delaware corporation organized by Welsh, Carson, Anderson & Stowe VIII, L.P. As
a result of the merger, a new group of equity investors acquired a 92.9%
ownership interest in Centennial. The remaining 7.1% interest was owned by
public stockholders. In connection with the merger, we entered into a $1.05
billion senior term loan and revolving credit facility, issued $370 million of
senior subordinated notes and issued $180 million subordinated notes (mezzanine
debt) to an affiliate of Welsh, Carson, Anderson & Stowe VIII, L.P. The merger
was accounted for as a recapitalization in which the historical basis of our
assets and liabilities was not affected and no new goodwill related to the
merger was created.
COMPETITIVE STRENGTHS
Well Positioned to Grow in the Caribbean. The Caribbean region is
experiencing rapid economic growth. According to the Economist Intelligence
Unit's 1999-2000 Report, Puerto Rico, the Dominican Republic and Jamaica have
the first, third and fourth largest gross domestic products, respectively, in
the Caribbean region. In addition, according to the Central Bank of the
Dominican Republic, gross domestic product in the Dominican Republic grew 8.3%
in 1999, making it one of the fastest growing economies in the Caribbean We
believe that there is substantial unfulfilled demand for both wireless and
wireline telecommunications services in these markets. Current market
penetration for wireless services is approximately 21.6% in Puerto Rico and 3.6%
in the Dominican Republic, compared to approximately 31.5% for existing wireless
providers in the United States, according to estimates from Kagan World Cellular
Census and the Cellular Telecommunications Industry Association ('CTIA'). We
believe we are well positioned to address a substantial portion of the
communications market in the Caribbean. We expect that we will be the only
wireless provider serving these three islands with a common network technology.
Only Fully Integrated Competitive Communications Provider in Puerto Rico. We
offer a full range of services in Puerto Rico, including PCS, wireless local
exchange, fiber-based local exchange and private line, long distance and
Internet services. Our 482-mile fiber backbone and two switches serve both our
PCS and CLEC systems. Our 100% digital wireless system covers most of the
populated areas with 149 cell sites, which has enabled us to capture high-usage
customers, as demonstrated by our $85 average revenue per unit, or ARPU, in
Puerto Rico for the fiscal year May 31, 2000, as compared to an industry average
of $49.84 as reported by CTIA for 1999. We believe that our rapid growth
reflects significant market demand by business customers for a broad range of
product and service offerings, high bandwidth connectivity, prompt installation
and responsive customer service.
Limited Domestic PCS Competition. We generally compete with one to three
other wireless network operators in most of our domestic markets (as compared to
five or more wireless competitors in major metropolitan areas), and we expect to
continue to benefit from slow growth of PCS
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competition in the near term. We believe that building new PCS networks in our
areas is not currently economically attractive, given the relatively low
population density in these areas. We anticipate that this will enable us to
maintain favorable roaming traffic growth from large national cellular and PCS
providers such as AT&T Wireless, Verizon Wireless and SBC Communications. We
expect that these companies will continue to use roaming agreements with us.
Roaming revenues represented approximately 37% of our domestic revenues for the
fiscal year ended May 31, 2000.
Superior Coverage of Network and Distribution. Domestically, we have made
capital expenditures of approximately $83 million (excluding acquisitions of
licenses) during the last two fiscal years to add 214 cell sites and incorporate
TDMA digital transmission capabilities to our domestic operations. These
investments enable us to offer a full digital feature set, including voicemail,
caller ID, call waiting, conference calling and text messaging. To complement
our wireless infrastructure, we have developed a significant sales and
distribution network, including a strong retail presence of approximately 217
company-owned stores and kiosks. Independent agents accounted for only 19%% of
our new customer activations during the past year.
GROWTH STRATEGY
Leverage Puerto Rico Operating Experience to Become the Premier Integrated
Carrier in the Caribbean. We believe we have become a successful operator in
Puerto Rico in a very short time period. We commenced commercial operations in
Puerto Rico in December 1996, achieved positive EBITDA in September 1997, and
generated EBITDA of approximately $86 million during the fiscal year ended
May 31, 2000. We believe the Dominican Republic and Jamaica markets offer an
opportunity similar to that of Puerto Rico. We believe there is a strong demand
in the Dominican Republic and Jamaica for an integrated provider of bundled
wireless and wireline communications services. We intend to leverage our
operating experience and installed switching infrastructure in Puerto Rico to
rapidly develop wireless and local exchange services in the Dominican Republic
and Jamaica. We plan to use AACR's undersea cable capacity, microwave path and
other assets and to invest approximately $125 million over the next three years
to build a new wireless network in the Dominican Republic based on CDMA
technology. In Jamaica, we intend to build out our 20 MHz CDMA license through
vendor financing and investments of approximately $100 million over the next
three years. Furthermore, we believe that being the only operator on all three
islands will offer a clear advantage over other operators in the region due to
operating synergies.
Broaden Our Portfolio of Residential Services and Our Business Customer Base
in Puerto Rico. We intend to launch our residential wireline service bundled
with Internet access provided by our existing wireless network. Upon completion
of the Pegasus cable television system acquisition (which we expect to occur in
the second quarter of fiscal 2001), we intend to upgrade the cable system and
will bundle a cable television offering with high-speed internet access. We
intend to build our business customer base by continuing to offer a broad array
of communications services, including switched and dedicated access, high speed
Internet and Internet consulting services, ATM, frame relay, toll and toll-free
services. In our marketing efforts, we will continue to focus on attracting high
volume users. We believe that our sophisticated fiber optic and microwave
network gives us a competitive advantage, as we are the only competitive
provider with a significant network in Puerto Rico.
Continue to Grow Our Subscriber Base in Domestic Market Clusters. We believe
that our domestic clusters are in the early stages of their wireless growth
cycles and afford significant growth potential, as the penetration levels in
these regions approach those of the more mature metropolitan cellular markets.
By operating our cellular systems in discrete geographic clusters, we are able
to offer several benefits that we believe will help increase penetration,
including (1) offering subscribers a larger regional calling area with more
areas of uninterrupted service, (2) promoting attractive regional calling plans
and (3) capturing more of our subscribers' total minutes of airtime on our
network.
Become the Roaming Partner of Choice for Major Domestic Cellular and PCS
Carriers. While the advent of 'one rate' service plans with no additional charge
for roaming has substantially increased the pace of subscriber growth, it has
also focused carriers on controlling their rising roaming expense. Several major
carriers, including AT&T Wireless, are implementing technology that allows them
to choose their roaming provider in any given area on a real time basis. We will
continue to be aggressive
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in pricing our roaming rates to encourage major wireless carriers to choose us
as their roaming partner, as well as to discourage them from building out PCS
networks in our service areas. Over the fiscal year ended May 31, 2000, our
total roaming revenue has increased even as we have lowered our per-minute
roaming rates.
Pursue Selective Acquisitions. We will continue to employ our domestic
strategy of selected acquisitions of small to mid-sized Metropolitan Statistical
Area's ('MSAs') and Rural Service Areas ('RSAs'), or potentially larger MSAs
located in contiguous markets. In the Caribbean area, our strategy is similar as
we continue to look for acquisitions that complement and leverage our existing
operations, infrastructure and experience in Puerto Rico.
WIRELESS TELEPHONE MARKETS AND INTERESTS
We focus on acquiring controlling ownership interests in wireless telephone
systems serving markets contiguous or proximate to our current markets. Our
strategy of clustering our wireless telephone operations enables us to achieve
operating and cost efficiencies, as well as joint advertising and marketing
benefits. Clustering also allows us to offer our subscribers wider home calling
areas and more areas of uninterrupted service as they travel through an area or
state. In addition to expanding our existing clusters, we may seek to acquire
interests in wireless telephone systems in other geographic areas. We may pursue
other communications businesses related to our wireless telephone and other
mobile service operations, as well as 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.
The chart below sets forth certain information about our domestic wireless
telephone systems, our Caribbean wireless telephone systems and our investment
interests as of July 31, 2000. Those domestic wireless telephone systems and the
investment interests which are in MSAs are asterisked; the remainder are in
RSAs.
<TABLE>
<CAPTION>
MARKETS OWNERSHIP POPS NET POPS
------- --------- ---- --------
<S> <C> <C> <C>
DOMESTIC WIRELESS TELEPHONE SYSTEMS
MICHIANA CLUSTER
Kalamazoo, MI*......................................... 100.0% 314,000 314,000
Cass, MI............................................... 100.0% 301,000 301,000
Newaygo, MI............................................ 100.0% 248,000 248,000
Battle Creek, MI*...................................... 100.0% 200,000 200,000
Benton Harbor, MI*..................................... 100.0% 163,000 163,000
Jackson, MI*........................................... 100.0% 158,000 158,000
Roscommon, MI.......................................... 100.0% 141,000 141,000
Allegan, MI............................................ 100.0% 103,000 103,000
---------- ----------
System Subtotal.................................... 1,628,000 1,628,000
---------- ----------
South Bend, IN *....................................... 100.0% 312,000 312,000
Richmond, IN........................................... 100.0% 224,000 224,000
Newton, IN............................................. 100.0% 216,000 216,000
Elkhart-Goshen, IN*.................................... 91.7% 175,000 161,000
Williams, OH........................................... 100.0% 128,000 128,000
---------- ----------
System Subtotal.................................... 1,055,000 1,041,000
---------- ----------
Fort Wayne, IN*........................................ 100.0% 444,000 444,000
Miami, IN.............................................. 100.0% 179,000 179,000
Kosciusko, IN.......................................... 100.0% 181,000 181,000
Huntington, IN......................................... 100.0% 146,000 146,000
Kokomo, IN*............................................ 100.0% 101,000 101,000
---------- ----------
System Subtotal.................................... 1,051,000 1,051,000
---------- ----------
Cluster Subtotal................................... 3,734,000 3,720,000
---------- ----------
EAST TEXAS/LOUISIANA CLUSTER
Beauregard, LA......................................... 100.0% 391,000 391,000
Beaumont-Port Arthur, TX* 100.0% 375,000 375,000
</TABLE>
(table continued on next page)
7
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
MARKETS OWNERSHIP POPS NET POPS
------- --------- ---- --------
<S> <C> <C> <C>
Lafayette, LA*......................................... 94.5% 237,000 224,000
West Feliciana, LA..................................... 100.0% 186,000 186,000
Claiborne, MS.......................................... 100.0% 157,000 157,000
Alexandria, LA*........................................ 100.0% 143,000 143,000
Iberville, LA.......................................... 100.0% 182,000 182,000
DeSoto, LA............................................. 100.0% 149,000 149,000
Copiah, MS............................................. 100.0% 124,000 124,000
Bastrop, LA............................................ 100.0% 117,000 117,000
Caldwell, LA........................................... 100.0% 77,000 77,000
Lake Charles, LA*...................................... 100.0% 180,000 180,000
---------- ----------
Cluster Subtotal................................... 2,318,000 2,305,000
---------- ----------
SOUTHWESTERN CLUSTER
Yuma, AZ............................................... 100.0% 162,000 162,000
El Centro, CA.......................................... 100.0% 149,000 149,000
---------- ----------
Cluster Subtotal................................... 311,000 311,000
---------- ----------
Total Domestic Wireless Telephone Systems.................. 6,363,000 6,336,000
---------- ----------
---------- ----------
CARIBBEAN WIRELESS TELEPHONE SYSTEMS
Puerto Rico Wireless Telephone System.................. 100.0% 3,914,000 3,914,000
Dominican Republic Wireless Telephone System........... 70.0% 8,900,000 6,200,000
Jamaica Wireless Telephone System...................... 51.0% 2,600,000 1,326,000
---------- ----------
Total Caribbean Wireless Telephone Systems................. 15,414,000 11,440,000
---------- ----------
---------- ----------
INVESTMENT INTERESTS
SACRAMENTO VALLEY CLUSTER.................................. 23.5%
Sacramento, CA*........................................ 1,528,000 358,000
Stockton, CA*.......................................... 556,000 130,000
Modesto, CA*........................................... 438,000 103,000
Reno, NV*.............................................. 319,000 75,000
Chico, CA*............................................. 207,000 49,000
Redding, CA*........................................... 169,000 40,000
Yuba City, CA*......................................... 147,000 35,000
Tehama, CA............................................. 103,000 24,000
Storey, NV............................................. 124,000 29,000
Sierra, CA............................................. 96,000 22,000
---------- ----------
Cluster Subtotal................................... 3,687,000 865,000
---------- ----------
SAN FRANCISCO BAY AREA CLUSTER............................. 2.9%
San Francisco, CA*..................................... 3,989,000 114,000
San Jose, CA*.......................................... 1,636,000 47,000
Vallejo, CA*........................................... 508,000 15,000
Santa Rosa-Petaluma, CA*............................... 442,000 13,000
Salinas, CA*........................................... 344,000 10,000
Santa Cruz, CA*........................................ 246,000 7,000
---------- ----------
Cluster Subtotal................................... 7,165,000 206,000
---------- ----------
Lawrence, PA........................................... 14.3% 385,000 55,000
Del Norte, CA.......................................... 6.9% 216,000 15,000
Modoc, CA.............................................. 25.0% 62,000 15,000
---------- ----------
Total Investment Interests......................... 11,515,000 1,156,000
---------- ----------
---------- ----------
Total Domestic Wireless Telephone Systems, Caribbean
Wireless Telephone Systems and Investment Interests...... 33,292,000 18,932,000
---------- ----------
---------- ----------
</TABLE>
As of May 31, 2000, our domestic and Puerto Rico wireless telephone systems
had 626,800 subscribers in the markets listed above, and at the end of each of
fiscal 1999, 1998, 1997 and 1996 we had 454,100, 322,200, 203,900 and 135,000
subscribers, respectively, in such markets. At May 31 2000, our pro rata share
of subscribers relating to the Investment Interests was approximately 142,000.
8
<PAGE>
PRODUCTS AND SERVICES
Our principal source of revenue is providing network access and airtime
minutes of use to wireless telephone subscribers. Other services available to
wireless telephone subscribers are similar to those provided by conventional
landline telephone systems, including custom calling features such as voice
mail, caller ID, call forwarding, call waiting and conference calling. In Puerto
Rico, we also offer fixed wireless, enhanced services (including Internet access
and consulting), long distance, and, to businesses only, dedicated and switched
local phone services. Both domestically and in Puerto Rico, we are currently
evaluating wireless web offerings and are in the process of selecting vendors.
We expect significant demand for this new service.
We are responsible for the quality, pricing and packaging of our service for
each of the domestic wireless telephone systems and the Caribbean integrated
communications system. We offer several pricing plans and customers are able to
choose the plan that best fits their calling needs. The plans combine different
charges for monthly access, usage, custom calling features and, in some cases,
varying amounts of prepaid minutes of usage.
We offer for sale to our customers a wide variety of wireless telephones,
including mobile, transportable and fully portable wireless telephones.
Domestically, we generally have offered subsidies on wireless telephones in an
effort to attract domestic customers. In Puerto Rico, we retain ownership of
most of the telephones used by our customers, other than phones sold to prepaid
customers.
ROAMING
Domestically, we generate significant revenue from subscribers of other
wireless operators when they place or receive calls while traveling in our
markets. We have negotiated reciprocal agreements with our roaming partners in
order to complete and invoice roamer calls and include provisions that protect
each carrier against fraud. We have negotiated rates with our roaming partners
to encourage long-term contracts to discourage them from building networks in
our service areas. To date, our strategy has been successful, as roaming
revenues have increased 36% in the fiscal year ended May 31, 2000 over the prior
fiscal year, as a result of a 70% increase in minutes of use, partially offset
by a 20% decrease in roaming rates. Further reductions of roaming rates are
scheduled in existing contracts and are anticipated in the negotiation of new
contracts. Our five largest roaming partners represented approximately 77% of
our roaming revenue in fiscal 2000. We will continue to actively negotiate
roaming agreements to yield increased revenues.
MARKETING
Domestically, we market our services and products under the registered name
'Centennial Wireless.' In Puerto Rico, we market our wireless services under the
name 'Centennial de Puerto Rico,' and in the Dominican Republic we intend to
market our services and products under the name 'Centennial Dominicana'. Our
marketing objective is to increase our customer base, increase usage and reduce
subscriber cancellations. Our current marketing strategy emphasizes continued
net subscriber growth and targets customers who are likely to generate higher
monthly revenues. However, as a result of broader acceptance of wireless
telephones and the continued decline in the cost of wireless equipment,
subscribers may be drawn from an increasingly wider range of occupations and
demographics. In marketing wireless telephone service, we stress the quality of
our service, easy and rapid access to telephone services, competitive prices,
technologically advanced features, and the local presence of our customer
service representatives and technical staff. In areas where our domestic
wireless phone systems are in markets adjacent or proximate to one another, we
offer wider home calling areas, enabling subscribers to make calls in a larger
geographic area without incurring roaming fees. In the Dominican Republic and
Jamaica, we expect a higher percentage of prepaid customers and a lower revenue
per customer.
As part of our commitment to expand distribution channels domestically, we
currently operate 125 retail locations, including a kiosk program in shopping
malls and larger retail centers. In Puerto Rico, we operate 11 retail stores and
approximately 81 kiosks. Approximately 43 of the kiosks are located in Pueblo
supermarkets, which is the largest supermarket chain in Puerto Rico, pursuant to
an exclusive
9
<PAGE>
agreement with Pueblo. We use a variety of television, billboard, radio and
newspaper advertising to stimulate interest in our services, increase our
customer base, increase usage and reduce subscriber cancellations.
In our domestic operations as well as in Puerto Rico, we use both our own
internal sales force and independent agents and dealers to obtain customers for
telephone service. We expect our Dominican Republic sales efforts to use similar
methods. As of May 31, 2000, we had an internal sales force of over 1,100. These
employees are paid on a salary plus commission basis. Sales commissions are
structured to take into account the rate plan selected and the length of the
subscriber's contract and the type of wireless telephone sold. We also maintain
an ongoing training program to improve the effectiveness of our internal sales
force. Our dealers are independent contractors paid solely on a commission
basis, and include entities whose principal business is selling wireless
telephones as well as other entities whose customers may become wireless
telephone users, such as office supply stores, car stereo companies, auto parts
stores, appliance stores, department stores and electronics stores.
CUSTOMER SERVICE
We are committed to assuring consistently high quality customer service.
Each of our domestic wireless telephone systems and the Puerto Rico integrated
communications system has a local staff, including a manager, customer service
representatives and technical engineering staff. We have established local
customer support facilities in all the domestic wireless telephone systems and
the Puerto Rico integrated communication system, and customers are able to
report wireless telephone service problems to a local office 24 hours a day. We
believe that by having local offices and customer support facilities, we are
better able to service customers and monitor the technical quality of the
domestic wireless telephone systems and the Puerto Rico integrated communication
system. Domestically, during the past fiscal year, we built a new, centralized
customer service center located in Fort Wayne, Indiana. In Puerto Rico, we have
one centralized customer service center located in San Juan as well as customer
service support located in all of our retail stores.
INFORMATION SYSTEMS AND FRAUD CONTROL
We operate management information systems to handle customer care, billing,
network management and financial and administrative services. These systems
focus on the following three primary areas:
network management, including service activation, pre-pay systems, traffic
and usage monitoring, trouble management and operational systems;
customer care, including billing systems and customer support systems; and
business systems, including financial, purchasing, human resources and
other administrative systems.
We have outsourced with Alltel Information Systems, a sophisticated network
management and operations support systems provider, to facilitate network fault
detection, correction and management, performance and usage monitoring and
security. We maintain stringent controls for both voluntary and involuntary
deactivations. We try to minimize subscriber disconnects by:
preactivation screening to identify any prior fraudulent or bad debt
activity,
credit review and
call pattern profiling to identify needed activation and termination policy
adjustments.
These systems have been designed with open interfaces. This design allows us
to select and deploy the best software package for each application included in
our administrative system. We have engaged industry leaders to provide these
management information systems, including Alltel Information Systems for our
billing, customer care and activation systems and domestically, Corsair
Communications for our fraud detection system.
We are procuring a technologically advanced database, Internet bill
presentment and reporting system, which will allow us to cross-link billing,
marketing and customer care systems to collect
10
<PAGE>
customer profile and usage information. We believe this information will provide
us with the tools necessary to increase revenue through channel and product
profitability analysis and to reduce customer acquisition costs through
implementation of more effective marketing strategies.
SYSTEM CONSTRUCTION, OPERATION AND DEVELOPMENT
Wireless telephone technology is based upon the radio coverage of a given
geographic area by a number of overlapping 'cells.' Each cell contains a
transmitter-receiver at a 'base station' or 'cell site' that communicates by
radio signal with wireless telephones located in the cell and is connected to a
mobile telephone switching office (the 'switch'), which is connected to the
local landline telephone network. Since wireless telephone systems are fully
interconnected with the landline telephone network and long distance networks,
subscribers can receive and originate both local and long distance calls from
their wireless telephones. If a wireless telephone user leaves the service area
of the wireless telephone system during a call, the call is generally continued
and carried through a technical interface established with an adjacent system
through intersystem networking arrangements. Such an arrangement is referred to
as roaming.
Construction of wireless telephone systems is capital intensive, requiring a
substantial investment for land and improvements, buildings, towers, switches,
cell site equipment, microwave equipment, engineering and installation. Until
technological limitations on maximum capacity are approached, additional
wireless telephone system capacity can normally be added in increments that
closely match demand and at less than the proportionate cost of the initial
coverage and capacity. Most of our domestic systems were upgraded during the
summer of 1999 to offer digital services. We currently offer digital services
using TDMA technology to approximately 90% of our domestic Net Pops and digital
services using CDMA technology in Puerto Rico. We expect to use CDMA digital
technology in the Dominican Republic, Jamaica and the U.S. Virgin Islands.
During the past fiscal year, we added 133 cell sites in our domestic operations
and as of May 31, 2000, our domestic operations had 577 cell sites. During the
past fiscal year, we added 17 cell sites in our Puerto Rico operations and as of
May 31, 2000, our Puerto Rico operations had 149 cell sites. We expect to
continue to develop our service areas by building new cell sites in locations
that increase capacity and improve coverage.
In accordance with our strategy of developing market clusters, we have
selected wireless switching systems that are capable of serving multiple markets
with a single switch. Where we have deemed it appropriate, we have implemented
microwave links and fiber connections in the domestic wireless telephone systems
and Puerto Rico integrated communication system, which provide ongoing cost
efficiency and generally improve system reliability.
Our domestic systems are served by technologically advanced Northern Telecom
supernode switches in Fort Wayne, Indiana and Alexandria, Louisiana and an SNSE
(a small version of the supernode) in Yuma, Arizona. In addition, over the last
year, our domestic operations added a second switch in Beaumont, Texas to
support increased traffic in the East Texas/Louisiana cluster and a second
switch in Fort Wayne to support increased traffic in the Michiana cluster. As of
May 31, 2000, 45% of the domestic customer base was digital with approximately
79% of new activations during fiscal year 2000 choosing digital phones and rate
plans.
The construction of our Puerto Rico integrated communication system is
capital intensive. In addition, the plans of our CLEC business to extend our
fiber optic network and to enter into large commercial and residential buildings
and industrial parks will necessitate further capital expenditures. A second
switch was installed in Puerto Rico in 1999 and digital cell sites have been
upgraded to provide additional capacity. In Puerto Rico, we use network
equipment manufactured by Lucent Technologies.
In the Dominican Republic, we expect to make major investments to construct
a CDMA wireless network to serve major population centers and roadways and have
chosen Lucent Technologies as our network equipment vendor. In Jamaica, we are
in the process of selecting our equipment vendor. We are also a participant in
the ARCOS I and Americas II undersea cables linking Puerto Rico, the United
States mainland and Latin America. ARCOS I is expected to be operational in
calendar year 2002 and Americas II is expected to be operational in November
2000. Our participation in these undersea cables
11
<PAGE>
is expected to yield cost savings allowing us to carry our traffic to Miami
without paying premium fees to another carrier.
COMPETITION
Competition from Other Wireless Systems. The FCC grants licenses to up to
eight companies (including Centennial) to provide different types of wireless
telephone services in each of our service areas. The FCC licenses cellular
systems in accordance with 734 geographically defined market areas comprised of
306 MSAs and 428 RSAs. In each market, the frequencies allocated for cellular
telephone use are divided into two equal 25 MHz blocks, which are designated as
non-wireline (Block A) and wireline (Block B). The FCC also grants two 30 MHz
licenses to operate broadband PCS systems in each of 51 defined Major Trading
Areas (MTAs) and one 30 MHz and three 10 MHz licenses in each of 493 Basic
Trading Areas (BTAs), which are component parts of MTAs.
We currently hold cellular licenses in 32 MSAs and RSAs, one broadband PCS
license in the Puerto Rico MTA (which includes the U.S. Virgin islands), 70% of
a 30 MHz PCS license in the Dominican Republic, 51% of a 20 MHz cellular license
in Jamaica, authorization to provide wireline services in Puerto Rico and a
concession to provide a variety of telecommunications services in the Dominican
Republic. Our wireless systems compete directly with both cellular and broadband
PCS licensees in each market on the basis of, among others, quality, price, area
served, services offered and responsiveness of customer service. The
telecommunications industry is experiencing rapid technological change. With the
development of new technologies, products and services, competition for wireless
subscribers is becoming increasingly competitive.
Domestically, we compete primarily against one other cellular carrier in
each of our markets, and also compete with a number of PCS providers and
enhanced specialized mobile radio ('ESMR') service providers, such as Nextel
Communications. We expect to continue to benefit from relatively slow growth of
PCS competition in the near term because we believe that building extensive new
PCS networks in many of our areas is not currently economically attractive due
to relatively low population density in our markets. However, we expect
increased competition in our markets in the future from entities holding unused
PCS and ESMR spectrum.
Two of our competitors for wireless services in the Puerto Rico market are
Cellular Communications of Puerto Rico, Inc. ('CCPR') and PRTC. CCPR was
acquired in 1999 by SBC Communications and Telefonos de Mexico. In March 1999,
GTE Corp. (which is now Verizon) acquired a controlling interest in PRTC. These
acquisitions have made, and are likely to continue to make, these companies more
formidable competitors. Both competitors were earlier entrants into the Puerto
Rico wireless market than we were and have greater resources than we do. CCPR
and PRTC offer cellular service based on both analog and digital technology. We
offer exclusively digital service in Puerto Rico.
Over the past year, we faced increased competition in the Puerto Rico
wireless market from other broadband PCS license holders. They include TeleCorp
PCS Inc., an affiliate of AT&T which is doing business as SunCom and entered the
Puerto Rico marketplace in June 1999 as the second PCS entrant. In addition,
ClearComm and Telefonica Larga Distancia, a subsidiary of Telefonica
Internacional, formed a joint venture named MoviStar which entered the Puerto
Rico wireless market in October 1999 offering significantly lower pricing than
its competitors. MoviStar is offering unlimited free incoming calls, charging
its customers only for air time when they initiate calls. In addition, we expect
Sprint to enter the market early in calendar year 2001.
The telecommunications market in the Dominican Republic is also competitive.
We expect to compete primarily with Compania Dominicana de Telefonos C. por A.,
a subsidiary of GTE that is doing business as 'Codetel', and Tricom, S.A., a
company controlled by GFN Corporation, Ltd., one of the Dominican Republic's
largest private holding companies, and by Motorola, Inc. Recently, France
Telecom obtained wireless licenses for the Dominican Republic. Each of these
companies have greater financial resources than we do.
In Jamaica, we expect to compete primarily with the incumbent provider,
Cable and Wireless which is the only company currently offering wireless service
on the island. Cable and Wireless holds an 800
12
<PAGE>
MHz license and uses TDMA technology. In addition, Mossel, an Irish company,
recently purchased a 900 MHz GSM license and we expect them to begin offering
service in the near future.
Wireline Competition. We offer wireline local exchange and private line
service in Puerto Rico. Our main competitor for these services is PRTC, the
incumbent telephone company. There are no other competitive local exchange
carriers with significant operations at this time, but we cannot assure that
other CLEC's will not emerge in Puerto Rico. We offer long distance services to
customers in Puerto Rico. For intra-Puerto Rico services, we generally carry the
traffic from our customer to a location at or near a PRTC switching facility
that serves the customer being called. The call is then completed by PRTC for a
fee. For off-island calls, we generally carry the traffic from our customer to
another long distance carrier's location in San Juan, Puerto Rico. We obtain the
off-island long distance service from the other long distance carrier and resell
that service under our name. Long distance service is a highly competitive
market. For long distance calls originating in Puerto Rico, customers may use
PRTC, Sprint, and AT&T, among others. These carriers all have greater financial
resources than we do, and they are all well-established in the long distance
market and have well-established brand names.
In the Dominican Republic, we compete primarily against the incumbent
provider, Codetel, which has a substantial market share, and Tricom, which
provides both wireline and fixed-wireless service.
In general, many of our competitors are larger and have access to more
substantial financial resources than we do. These competitors include Regional
Bell Operating Companies, large independent telephone companies and AT&T
Wireless, among others.
Competing Technologies. Competition from entities using emerging wireless
communications technologies comparable to cellular service is developing more
slowly because we are in rural and small city areas. Competing technologies and
new technologies may provide significant competition for our domestic wireless
telephone systems. Technologies that are comparable to cellular service include:
ESMR,
satellite-based mobile voice and data services and
Third Generation, or 3G, wireless technologies.
ESMR is a two-way wireless communications service that incorporates
characteristics of cellular technology, including many low-power transmitters,
frequency re-use and connection with the network that provides traditional
telephone services. ESMR service competes with cellular service by providing
digital communication technology, lower rates, enhanced privacy and additional
features such as electronic mail and built-in paging. Nextel Communications is
the primary provider of such services today.
The FCC has issued a number of licenses for satellite-based services that
would enable subscribers to access mobile communications systems throughout the
world. Additional proposals for the provision of satellite services remain
pending with the FCC and foreign regulatory bodies must approve certain aspects
of some satellite systems. Recently, these global satellite systems have
experienced financial difficulty, and several have sought relief under
Chapter 11 of the Bankruptcy Code.
In the future, we may also experience competition from providers of 3G
wireless technologies. Analog cellular service is considered to be
first-generation mobile wireless technology and digital PCS represent
second-generation mobile wireless technology. 3G refers to the next generation
of broadband wireless services, which will combine both voice and data services
in a single offering. The FCC has not yet allocated additional spectrum for 3G
technologies, and is still studying the issue of which spectrum would be best
suited to provide these advanced services. The FCC has scheduled an auction of
700 MHz licenses for March 2001. Our competitors may attempt to obtain these
frequencies to provide 3G advanced services.
REGULATION
Federal Regulation. Pursuant to the Communications Act of 1934, as amended,
the cellular, PCS, paging, conventional mobile telephone systems and specialized
mobile radio systems ('SMR') we operate are licensed and regulated by the FCC as
Commercial Mobile Radio Service, or CMRS facilities. The FCC regulates the
licensing, construction, operation, acquisition and sale of CMRS
13
<PAGE>
systems. Currently, the FCC limits entities holding CMRS licenses to a total of
45 MHz of licensed CMRS spectrum in any given market area. Recently, the FCC
increased this spectrum cap restriction to 55 MHz for RSAs.
CMRS licenses generally are granted for a term of up to ten years, after
which they must be renewed. Licenses may be revoked and license renewal
applications denied for cause. Under present rules, there may be competition for
a license upon the expiration of its initial license term. While there can be no
assurance that any license will be renewed, the FCC's rules provide for a
significant renewal preference to cellular and PCS licensees that have used
their spectrum for its intended purpose and have complied with FCC regulations
and the federal communications statutes. If a cellular and PCS licensee is
awarded a renewal expectancy, its renewal will be granted without further
consideration of any competing applications. While our cellular licenses have
been renewed regularly by the FCC, there can be no assurance that all of our
licenses will be renewed in the future.
The FCC's rules prohibit CMRS licensees from imposing restrictions on the
resale of wireless service by parties who purchase blocks of telephone numbers
from an operational system and then resell them to the public. This prohibition
expires on November 24, 2002.
The FCC also regulates a number of other aspects of the operation and
ownership of CMRS systems. Operational regulations include the requirement to
coordinate proposed frequency usage with adjacent cellular licensees to avoid
electrical interference between adjacent systems. In addition, the height and
power of base station transmitting facilities and the type of signals they emit
must fall within specified parameters. The FCC's rules also prohibit CMRS
licensees from imposing restrictions on the resale of wireless service by
parties who purchase blocks of telephone numbers from an operational system
(such as the Company's) and then resell them to the public. This resale
restriction prohibition sunsets on November 24, 2002. In 1997, the FCC also
imposed radio frequency radiation requirements on CMRS licensees, which were
previously excluded from compliance with these requirements. After October 1,
1997, all new CMRS facilities must be in compliance when they are brought into
service. As of September 1, 2000, all existing facilities must be brought into
compliance. We believe that the majority of our existing facilities already
comply with the radio frequency radiation requirements and expect the remainder
will be brought into compliance as required.
Ownership regulations include the requirement to obtain prior FCC approval
before completing many types of acquisitions of FCC licenses. Acquisitions of
minority interests generally do not require FCC approval. Whenever FCC approval
is required, any interested party may file a petition to dismiss or deny the
application for approval of the proposed transfer or assignment.
In addition to regulation by the FCC, cellular and PCS systems are also
subject to certain Federal Aviation Administration ('FAA') regulations regarding
the siting and construction of cellular transmitter towers and antennas, as well
as local zoning requirements. Beginning in 1996, the FCC imposed a requirement
that all licensees register and obtain FCC registration numbers for all of their
antenna towers that require prior FAA clearance. All new towers must be
registered at the time of construction, and existing towers were required to be
registered by May 1998. We believe that we are in compliance with the tower
registration requirement. There can be no assurance that any FCC requirements
currently applicable to our CMRS system will not be changed in the future.
State and Local Regulation. Under the Communications Act, no state may
regulate the entry of CMRS providers, such as Centennial, or the rates charged
for CMRS service. However, they can regulate other terms and conditions of
service.
The siting and construction of CMRS facilities, including transmission
towers, antennas and equipment shelters, may be subject to state or local
zoning, land use and other local regulations. Before a system can be put into
commercial operation, the holder of a FCC CMRS license must obtain all necessary
zoning and building permit approvals for the transmitter sites and switching
locations.
Recent Federal and State Legislation. The Telecommunications Act of 1996
contains significant provisions aimed, in part, at opening local
telecommunications markets to competition. These provisions govern, among other
telecommunications matters, the removal of market-entry barriers and impose on
incumbent local exchange carriers, or ILECs, duties to negotiate, in good faith,
reasonable and nondiscriminatory interconnection agreements and access to
unbundled network elements at any technically feasible point within the
carrier's network. The 1996 Act encourages competition through
14
<PAGE>
these provisions and others governing resale, number portability, dialing
parity, access to rights-of-way and numbering administration.
The overall impact of the 1996 Act on our business is unclear and will
likely remain so for the foreseeable future. We have benefited from reduced
costs in acquiring required communications services, such as ILEC
interconnection. However, other provisions of the 1996 Act relating to
interconnection telephone number portability, equal access and resale could
subject us to increased competition.
Comprehensive telecommunications reform legislation was enacted in 1996 by
the Commonwealth of Puerto Rico. This legislation, titled the Puerto Rico
Telecommunications Act of 1996 (the 'Puerto Rico Act') is intended to open the
Puerto Rico telecommunications market to competition. Among other things, it
establishes the Puerto Rico Telecommunications Regulatory Board, which has been
given primary regulatory jurisdiction in Puerto Rico over all telecommunications
services, all service providers, and all persons with a direct or indirect
interest in said services or providers.
FCC and State Proceedings. We are likely to be affected by the following
recent federal and state regulatory proceedings:
The FCC has adopted requirements for CMRS providers to implement basic
and enhanced 911 services ('E911'). E911 capabilities will enable CMRS
systems to determine the precise location of persons making emergency calls.
The new rules require CMRS carriers to work with local public safety
officials to process the 911 calls, including those made from analog mobile
telephones that are not registered with the Company's cellular system. Since
April 1998, CMRS carriers have been required to be able to identify the cell
from which the call has been made. The new rules also require CMRS systems
to continue to improve their ability to locate wireless 911 callers within a
cell, during 2001 and 2002. These E911 rules may require us to spend
additional capital to implement the 911 requirements.
Under a 1994 federal law, the Communications Assistance to Law
Enforcement Act ('CALEA'), all telecommunications carriers, including
Centennial and other CMRS licensees, must implement certain equipment
changes necessary to assist law enforcement authorities in achieving
enhanced ability to conduct electronic surveillance of those suspected of
criminal activity. In August 1999, the FCC added certain additional
surveillance capability requirements, which carriers must meet by September
2001. However, on August 15, 2000, a federal circuit court of appeals
overturned certain of these requirements. In addition, certain issues remain
unresolved relating to when carriers may obtain reimbursement from the
federal government for upgrades related to such requirements. We will work
diligently to comply with all final, applicable CALEA requirements.
The 1996 Act imposes interconnection obligations on all
telecommunications carriers in order to facilitate the entry of new
telecommunications providers. This requirement creates benefits for our CMRS
and other telecommunications businesses. The FCC has issued comprehensive
rules regarding the introduction of competition into the local telephone
market. These rules address most aspects of the provision of competitive
local telephone services from both facilities-based and non-facilities-based
competitors, including cellular and paging operators. The rules also address
the process by which potential competitors negotiate with incumbent
telephone companies for interconnection, the facilities that must be
available for interconnection, the use of components of the incumbents'
networks, the resale of services of others, and the pricing of
interconnection and other services and facilities used for offering
competitive local telephone services. The rules also provide that ILECs must
begin paying us and other wireless providers immediately for terminating
landline-originated traffic on the wireless facilities. Although the FCC
continues to refine these rules, and although some provisions remain subject
to challenge in the courts, in January 1999, the U.S. Supreme Court largely
upheld the FCC's original rules from 1996.
Decisions relating to Universal Service, reciprocal compensation and
access charge reform have also been released by the FCC. These decisions
have been appealed. The Fifth Circuit Court of Appeals reversed and remanded
the FCC rules pertaining to Universal Service. Among other things, the Fifth
Circuit upheld the authority of the FCC to create a special fund to
subsidize telecommunications and Internet services for schools and
libraries, but held that the FCC could not
15
<PAGE>
use intra-state revenue as a source of funds to support the Schools and
Library Fund, thus creating a greater burden on interstate revenues. The
Fifth Circuit held that ILECs could not use access charges that are assessed
on long distance carriers to subsidize Universal Service obligations.
As described above, under federal and Puerto Rico law, an incumbent
local exchange carrier (which, in Puerto Rico, is the Puerto Rico Telephone
Company) must interconnect with CMRS providers like us. Under the law, these
interconnection arrangements are contained in contracts called
interconnection agreements. The companies first try to negotiate an
agreement. If they cannot negotiate all issues (which frequently occurs),
then state regulators arbitrate the dispute and establish a final agreement.
We have generally been able to negotiate many aspects of our interconnection
arrangements with PRTC, but have had to seek arbitration with respect to
other issues. Our interconnection agreements with PRTC generally have
two-year terms. Our current agreement with PRTC expires in April 2001. We
expect to negotiate certain aspects of a new agreement to take effect at
that time, and to arbitrate others before the Puerto Rico regulators.
Dominican Republic Regulation. The telecommunications regulatory
framework in the Dominican Republic consists of General Telecommunications
Law No. 153-98, enacted on May 27, 1998, resolutions promulgated pursuant to
such law and concession agreements entered into by the Dominican government
with individual service providers. None of the outstanding concession
agreements contains an exclusive arrangement with any wireless carrier, and
the Dominican government has announced a policy of encouraging growth
through competition in the telecommunications industry.
To substantially broaden the number of its citizens with access to a
telephone and to allow for the establishment and growth of other modern
telecommunications services, the Dominican government adopted a policy of
liberalization of the telecommunications sector beginning in the late
1980's. In 1994, the Dominican government enacted a series of
interconnection resolutions which require all service providers in the
Dominican Republic to interconnect with all other service providers pursuant
to contracts between them, under guidelines articulated in the resolutions.
The former Telecommunications Law No. 118 of February 1, 1966 was
derogated by the Law 153-98 of May, 1998. The new law, Law 153-98,
establishes a basic framework to regulate the installation, maintenance and
operation of telecommunications networks and the provision of
telecommunications services and equipment. The law ratifies the Universal
Service Principle, by guaranteeing the access of telecommunications services
at affordable prices in low income rural and urban areas, to be achieved
through market conditions and through the development of the
telecommunications sector. It creates a fund for the development of the
telecommunications sector that will be supported by a 2% payment by industry
participants on the billing of all telecommunications services, which will
be passed on to customers. At the same time, the law eliminates the 10% tax
previously charged on international and domestic long distance traffic to
customers.
In addition, the law created a governing body to regulate
telecommunications activities. This body is referred to as the Dominican
Institute of Telecommunications (Instituto Dominicano de las
Telecommunicaciones or Indotel). Indotel is headed by a five-member council,
the members of which serve four-year terms which includes a representative
from the telecommunications industry. Law 153-98 grants Indotel control over
all frequency bands and channels of radio transmission and communications
within the country and over its jurisdictional water. We believe that this
modern legislation, combined with technological advances and the sustained
growth of private investment, will significantly contribute to the
development of the telecommunications sector in the Dominican Republic.
Jamaican Regulation. Wireless telecommunications in Jamaica is governed by
the Telecommunications Act which was promulgated on March 1, 2000. The Act
creates a licensing regime for:
Owners and operators of telecommunications facilities, wireline and
wireless;
Providers of telecommunications services, referred to as 'specified
services'; and
Dealers in telecommunications equipment.
16
<PAGE>
The Act gives recognition to three competitors in the domestic wireless
market and preserves Cable and Wireless' exclusivity for a three year period in
the domestic wireline and international voice market until March 1, 2003. The
regulatory framework created by the Act establishes the Office of Utilities
Regulation, to regulate all aspects of the telecommunications industry. Our
wireless license has a term of 15 years and expires in March 2015.
EMPLOYEES
We had approximately 2,200 employees as of May 31, 2000. None of our
employees is represented by a labor organization. We consider our relationship
with our employees to be good.
ITEM 2. PROPERTIES
We recently entered into a build-to-suit lease agreement for our new
corporate headquarters located at 3349 Route 138, Wall Township, New Jersey
07719, encompassing approximately 31,000 square feet. We expect to move into our
new corporate headquarters in the second quarter of fiscal 2001. In addition, we
own and lease locations for customer call centers, switching offices, retail
stores, local administrative offices, microwave sites and cell sites. We
consider our owned and leased properties to be suitable and adequate for our
business operations.
ITEM 3. LEGAL PROCEEDINGS
To our knowledge, there are no material pending legal proceedings to which
we or our subsidiaries are a party or of which any of our property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of our shareholders during the
fiscal quarter ended May 31, 2000.
DIRECTORS AND EXECUTIVE OFFICERS OF CENTENNIAL
The names, ages and positions of the executive officers and directors of
Centennial are listed below along with their business experience during at least
the past five years.
Our executive officers are elected annually by the board of directors and
serve until their successors are duly elected and qualified. Each director is
elected annually and serves until its successor is duly elected and qualified.
There are no arrangements or understandings between any officer and any other
person pursuant to which the officer was selected, and there are no family
relationships between any executive officers or any directors of the Company.
Michael J. Small, 42, has been President, Chief Executive Officer and a
director of Centennial since January 1999. He joined Centennial upon the
consummation of the merger in January 1999. Prior to joining Centennial, Mr.
Small served as Executive Vice President and Chief Financial Officer of 360[d]
Communications Company (now a subsidiary of ALLTEL Corporation) since 1995.
Prior to 1995, he served as President of Lynch Corporation, a diversified
acquisition-oriented company with operations in telecommunications,
manufacturing and transportation services.
Carlos Bofill, 58, has been Chief Executive Officer -- Caribbean Operations
of Centennial since October 1999. He joined Centennial from Motorola Inc.'s
Network Management Group, where he was Vice President of Motorola and Director
for the Americas of the Iridium Operating Companies since 1998. Prior to his
appointment with Iridium, he was Director for Latin America for Motorola's
Network Management Group from 1989 to 1998. He worked in various other
capacities at Motorola, GTE and AT&T during his professional career spanning the
last 38 years.
Phillip H. Mayberry, 47, has been President -- Domestic Operations of
Centennial since January 1999 and was Senior Vice President-Operations since
December 1994. He served as Vice President, Operations of Centennial from April
1990 to December 1994. From March 1989 to April 1990, Mr. Mayberry was a Vice
President and General Manager of Metro Mobile CTS, Inc., a cellular telephone
company.
17
<PAGE>
Kari L. Jordan, 46, has been President -- Puerto Rico Operations of
Centennial since January 1999. She joined Centennial in January 1998 as Senior
Vice President of International Operations from PrimeCo Communications L.P.
where she was responsible for the operations of the North Texas Metro Trading
Area. From 1990 to January 1997, Ms. Jordan worked at US Cellular as Vice
President of Business Development. During her tenure at US Cellular, Ms. Jordan
also served as Vice President of National Operations and Regional General
Manager.
Peter W. Chehayl, 52, has been Senior Vice President, Treasurer and Chief
Financial Officer of Centennial since January 1999. He joined Centennial upon
the consummation of the merger in January 1999. Prior to joining Centennial, Mr.
Chehayl was the Vice President and Treasurer of 360[d] Communications Company
(now a subsidiary of ALLTEL Corporation) since 1996. From 1991 to 1996, he
served as Vice President-Capital Markets at Sprint Corporation.
Thomas E. Bucks, 44, has been Senior Vice President, Controller of
Centennial since March 1995. Prior to joining Centennial, Mr. Bucks was employed
by Southwestern Bell Corporation in various financial capacities, most recently
as District Manager -- Financial Analysis and Planning.
Richard W. Gasink, 51, has been Senior Vice President, Chief Financial
Officer -- Caribbean Operations of Centennial since December 1999. Before
joining Centennial, he was associated with Motorola since 1982, most recently as
Senior Group Controller, Network Management Group. Prior to joining Motorola,
Mr. Gasink was with International Components Corp. and what is now Andersen
Consulting.
Thomas R. Cogar, Jr., 43, has been Senior Vice President, Chief Technology
Officer -- Domestic Operations of Centennial since March 1999. He joined
Centennial in September 1990 as Director of Engineering and was appointed Vice
President, Engineering in August 1991. From May 1987 to September 1990, Mr.
Cogar was employed by Metro Mobile CTS, Inc. in various technical capacities.
Michael Marrero, 38, has been Senior Vice President and Chief Technology
Officer -- Caribbean Operations since March 1999. He joined Centennial in April
1995 as Director of Technical Operations and was appointed Vice
President -- Engineering (Puerto Rico) in April 1997. Prior to joining
Centennial, Mr. Marrero served as the Manager of Strategic Planning for PRTC
from May 1988 to April 1995. Prior to 1987, Mr. Marrero served in various
capacities at Bell Corp.
Thomas E. McInerney, 58, has been a director and Chairman of the board of
directors of Centennial since January 1999. He has served as a general partner
of Welsh, Carson Anderson & Stowe and other associated investment partnerships
since 1986. Mr. McInerney is a director of The Cerplex Group, Inc., The BISYS
Group, Inc., MedE America Corporation, SpectraSite Holdings, Inc. and several
private companies.
Carmen Ana Culpeper, 55, has been a director of Centennial since July 2000.
From April 1999 to present, Ms. Culpeper has served as President of C. Culpeper
& Associates, a financial advisory and management consulting firm. She was
President of the Puerto Rico Chamber of Commerce from June 1999 to June 2000 and
continues to serve on its Executive Board. She was President of the Puerto Rico
Telephone Company from April 1997 to March 1999 and from October 1996 to March
1997 she was President of Finapri, Inc., an insurance finance company. From
October 1995 to March 1997, Ms. Culpeper was an independent broker at Clark
Melvin Securities and prior to that held various positions in corporate finance
at, among others, Donaldson, Lufkin & Jenrette and Citibank. Ms. Culpeper is a
director of Santander Bancorp, the second largest bank in Puerto Rico.
Anthony J. de Nicola, 36, has been a director of Centennial since January
1999. He has served as a managing member or general partner of Welsh, Carson
Anderson & Stowe and other associated investment partnerships since 1994.
Previously he worked for William Blair & Co. for four years in the merchant
banking area. Mr. de Nicola is a director of BTI Telecom Corp., CFW
Communications, Valor Telecommunications, LLC, Alliance Data Systems, Inc. and
several private companies.
Mark T. Gallogly, 43, has been a director of Centennial since January 1999.
He is a member of the limited liability company which acts as the general
partner of Blackstone Capital Partners, L.P. and its affiliates. He is a senior
managing director of The Blackstone Group L.P. and has been with Blackstone
since 1989. Mr. Gallogly is a director of several private companies.
18
<PAGE>
Lawrence H. Guffey, 32, has been a director of Centennial since January
1999. He is a managing director of The Blackstone Group, L.P. and has been with
Blackstone since 1991. Mr. Guffey is a director of several private companies.
Rudolph E. Rupert, 34, has been a director of Centennial since January 1999.
In April 1999, he became a general partner of Welsh, Carson Anderson & Stowe and
other associated investment partnerships. He was a Vice President of Welsh
Carson from 1997 to April 1999. From 1994 to 1997, he worked at General Atlantic
Partners where he was involved in the information technology industry. From 1987
to 1992, he worked for Lazard Freres and Company. Mr. Rupert is a director of
several private companies.
John M. 'Jack' Scanlon, 58, has been a director of Centennial since May
2000. He has been Vice Chairman of Asia Global Crossing, a joint venture
established by Global Crossing, Ltd. and others to provide advanced
network-based telecommunications services to businesses and consumers throughout
Asia, since March 2000. Mr. Scanlon was Chief Executive Officer of Global
Crossing, Ltd., a provider of global Internet Protocol and data services, from
April 1998 to March 1999 and Vice Chairman of Global Crossing from March 1999 to
March 2000. In addition, he was Chief Executive Officer of Asia Global Crossing
from September 1999 to February 2000. Prior to joining Global Crossing,
Mr. Scanlon was President and General Manager of the Cellular Networks and Space
Sector of Motorola Inc. and had been affiliated with Motorola Inc. since 1990.
Mr. Scanlon is also a director of Global Crossing and several private companies.
J. Stephen Vanderwoude, 56, has been a director of Centennial since October
1999. He has been Chairman and Chief Executive Officer of Madison River
Communications LLC, an integrated communications provider, since 1996.
Previously, he was President, Chief Executive Officer and a director of
Powerhouse Technologies, Inc., and a director of V-Band Corporation. He is
currently a director of First Midwest Bancorp and One Stop Telecommunications,
Inc. He formerly was President and Chief Operating Officer and a director of
Centel Corporation, and President of the local telecommunications division of
Sprint Corporation.
19
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION AND HOLDERS
Our common stock has been traded on The Nasdaq Stock Market ('Nasdaq') under
the symbol CYCL since December 3, 1991. The following table lists the high and
low closing prices of the common stock reported on Nasdaq for the fiscal
quarters indicated. All share prices reflect three-for-one stock splits which we
effected on January 21, 2000 and January 14, 1999.
<TABLE>
<CAPTION>
1999 HIGH LOW
---- ---- ---
<S> <C> <C>
First Quarter....................................... $ 4.61 $ 3.74
Second Quarter...................................... 4.49 2.44
Third Quarter....................................... 11.79 4.39
Fourth Quarter...................................... 25.58 10.17
2000
First Quarter....................................... 16.50 11.88
Second Quarter...................................... 20.17 13.15
Third Quarter....................................... 32.25 18.31
Fourth Quarter...................................... 25.06 15.75
2001
First Quarter (through July 31, 2000)............... 18.25 13.63
</TABLE>
As of July 31, 2000, there were approximately 123 record holders of our
common stock. Such number does not include persons whose shares are held of
record by a bank, brokerage house or clearing agency, but does include such
banks, brokerage houses and clearing agencies.
DIVIDEND POLICY
We have not paid any cash dividends on our common stock and currently intend
for the foreseeable future to retain all cash inflows generated for use in our
business. We are effectively prohibited from paying cash dividends on our common
stock by the provisions of our credit facility.
20
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below for each of the
five years in the period ended May 31, 2000 was derived from the Company's
audited Consolidated Financial Statements. The following information should be
read in conjunction with Management's Discussion and Analysis of Results of
Operations and Financial Condition and the Consolidated Financial Statements and
notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues................................... $ 501,294 $ 369,151 $235,816 $149,212 $108,110
Recapitalization costs..................... -- 52,831 -- -- --
Operating income (loss).................... 155,235 15,971 (14,986) (27,868) (23,196)
Income (loss) before extraordinary item.... 16,677 (45,088) (31,947) (33,295) (16,631)
Extraordinary loss on early extinguishment
of debt.................................. -- (35,079) -- -- --
Net income (loss).......................... $ 16,677 $ (80,167) $(31,947) $(33,295) $(16,631)
---------- ---------- -------- -------- --------
---------- ---------- -------- -------- --------
Dividend requirements on Preferred Stock... $ -- $ 9,906 $ 16,451 $ 15,948 $ 13,590
---------- ---------- -------- -------- --------
---------- ---------- -------- -------- --------
Income (loss) applicable to common
shares................................... $ 16,677 $ (90,073) $(48,398) $(49,243) $(30,221)
---------- ---------- -------- -------- --------
---------- ---------- -------- -------- --------
Diluted earnings (loss) per share:
Income (loss) before extraordinary item.... $ .17 $ (0.44) $ (0.32) $ (0.31) $ (0.19)
---------- ---------- -------- -------- --------
---------- ---------- -------- -------- --------
Extraordinary loss on early extinguishment
of debt.................................. $ -- $ (0.28) $ -- $ -- $ --
---------- ---------- -------- -------- --------
---------- ---------- -------- -------- --------
Net income (loss) per common shares........ $ .17 $ (0.72) $ (0.32) $ (0.31) $ (0.19)
---------- ---------- -------- -------- --------
---------- ---------- -------- -------- --------
BALANCE SHEET DATA
Total assets............................... $1,172,733 $ 986,281 $847,417 $844,850 $785,812
Long-term debt............................. 1,566,048 1,459,295 510,000 429,000 350,000
Redeemable Preferred Stock................. -- -- 193,539 193,539 189,930
Common stockholders' equity (deficit)...... (576,330) (602,978) 40,409 112,882 160,006
</TABLE>
See Notes 11 and 12 of the fiscal 2000 consolidated financial statements
regarding recent acquisitions and the effect of such acquisitions on the
comparability of the historical financial statements of the Company. See Note 1
of the fiscal 2000 consolidated financial statements regarding a change in
accounting estimate made during fiscal 1999. Years prior to fiscal 2000 have
been restated to give effect to the three-for-one stock split effected on
January 21, 2000 in the form of a stock dividend.
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS (DOLLARS 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 6.1 million Net Pops as of May 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 1.2 million Net Pops, in other
domestic cellular operations. 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. We recently acquired controlling
interests in All America Cables and Radio, Inc. in the Dominican Republic and
Paradise Wireless (Jamaica) Limited in Jamaica, which collectively expanded our
Net Pops by 7.5 million. We built Centennial through internal growth and
acquisitions from approximately 1.7 million Net Pops in 1988 to approximately
18.8 million Net Pops as of May 31, 2000. We increased our total subscribers by
38% from May 31, 1999 to May 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 and provide Internet related
services in Puerto Rico and provide long distance service in the Dominican
Republic (collectively, 'Caribbean Wireline').
YEAR ENDED MAY 31, 2000 COMPARED TO YEAR ENDED MAY 31, 1999
OVERVIEW
We had 626,800 wireless subscribers at May 31, 2000, as compared to 454,100
at May 31, 1999, an increase of 38%. We reported net income of $16,677 for the
year ended May 31, 2000 as compared to a net loss of $80,167 for the year ended
May 31, 1999. The net loss for the year ended May 31, 1999 included $52,831 of
recapitalization costs. These recapitalization costs were primarily due to our
purchase of non-qualifying disposition of stock options exercised, restricted
shares and the outstanding options from employees related to the merger on
January 7, 1999. The net loss for the year ended May 31, 1999 also includes an
extraordinary loss on the early extinguishment of debt, net of income taxes, of
$35,079. Earnings per common share, basic and diluted, for the year ended
May 31, 2000 were $0.18 and $0.17 per share, respectively, as compared to a loss
per common share of $(0.72) for the year ended May 31, 1999, after the
extraordinary loss on early extinguishment of debt of $(0.28) per share. The
table below summarizes results of operations for each period:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------
MAY 31, MAY 31,
2000 1999 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Adjusted EBITDA(1).................................... $237,859 $183,498 30%
Operating income...................................... $155,235 $ 15,971 872%
Net income (loss)..................................... $ 16,677 $(80,167) N/A
Earnings (loss) per common share --
Basic............................................. $ 0.18 $ (0.72) N/A
Diluted........................................... $ 0.17 $ (0.72) N/A
</TABLE>
(footnote on next page)
22
<PAGE>
(footnote from previous page)
(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, recapitalization costs and other non-recurring
charges ('Adjusted EBITDA') is presented because it is a financial indicator
used in the telecommunications industry. Our calculation of Adjusted 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.
DOMESTIC OPERATIONS
Revenue
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------
MAY 31, MAY 31,
2000 1999 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Service revenue....................................... $289,492 $236,951 22%
Equipment sales....................................... 14,196 4,951 187%
-------- --------
Total revenue..................................... $303,688 $241,902 26%
-------- --------
-------- --------
</TABLE>
Total Domestic service revenue, excluding roaming revenue, increased $22,586
to $176,201, a 15% increase from the year ended May 31, 1999. This increase was
primarily due to an increase in revenue from new subscribers of $47,149,
partially offset by a decrease in retail revenue per subscriber, which accounted
for a decrease of $24,563. 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 $113,291 or 36% over roamer revenues of $83,336 for the year
ended May 31, 1999. This increase was primarily due to an increase in roaming
revenue, generated by increased usage of $58,486, partially offset by a
reduction in roaming rates per minute of $28,531.
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.
Our Domestic operations had approximately 445,300 and 320,600 subscribers at
May 31, 2000 and May 31, 1999, respectively. Increases from new activations of
192,700 were offset by subscriber cancellations of 85,200. Included in the
number of subscribers as of May 31, 2000 are approximately 17,200 subscribers
acquired in the Kokomo, IN and Allegan, MI 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 $67 for the year ended May 31, 2000, as compared to $69 for the
year ended May 31, 1999.
23
<PAGE>
Costs and expenses
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------
MAY 31, MAY 31,
2000 1999 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Cost of equipment sold................................ $ 28,791 $ 18,354 57%
Cost of services...................................... 32,711 26,651 23%
Sales and marketing................................... 46,269 29,560 57%
General and administrative............................ 44,253 39,906 11%
Adjusted EBITDA....................................... 151,664 127,431 19%
Recapitalization costs................................ -- 39,337 (100%)
Depreciation and amortization......................... 35,556 67,282 (47%)
-------- --------
Operating income...................................... $116,108 $ 20,812 458%
-------- --------
-------- --------
</TABLE>
Cost of equipment sold increased during the year ended May 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 year ended May 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 year ended May 31, 2000,
primarily due to the increase in gross subscriber activations of 192,700 for the
year ended May 31, 2000, from 133,000 for the year ended May 31, 1999.
General and administrative expenses increased during the year ended May 31,
2000, primarily due to increased costs to support the expanding subscriber base.
Adjusted EBITDA for the Domestic operations for the year ended May 31, 2000
was $151,664, an increase of $24,233 or 19% over the year ended May 31, 1999.
Depreciation and amortization for the year ended May 31, 2000 was $35,556, a
decrease of $31,726 or 47% from the year ended May 31, 1999. The decrease was
the result of the effect of our prospectively changing the amortization period
for our domestic cellular licenses and the difference between the cost of our
equity investments and the underlying book value of such investments from ten
years to forty years effective March 1, 1999. We 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 $44,493 for the year ended May 31, 2000. The effect of this change in
amortization periods (net of the related tax effect) for the year ended May 31,
2000 was to increase earnings per common share-basic and diluted by $0.36 and
$0.34, 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 year ended May 31, 2000 was $116,108, an increase
of $95,296 from the operating income of $20,812 for the year ended May 31, 1999.
CARIBBEAN WIRELESS OPERATIONS
Revenue
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------
MAY 31, MAY 31,
2000 1999 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Service revenue....................................... $154,545 $106,224 45%
Equipment sales....................................... 6,817 3,299 107%
-------- --------
Total revenue..................................... $161,362 $109,523 47%
-------- --------
-------- --------
</TABLE>
24
<PAGE>
Total Caribbean Wireless service revenue increased $48,321 or 45% to
$154,545. This increase was primarily due to an increase in revenues from new
subscribers of $60,639, partially offset by a decrease in retail revenue per
subscriber, which, in the aggregate, accounted for a decrease of $12,318.
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 181,500 subscribers at
May 31, 2000, an increase of 36% from the 133,500 subscribers at May 31, 1999.
Increases from new activations of 118,900 were offset by subscriber
cancellations of 70,900. 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 $85 for the year ended May 31, 2000, as compared to
$89 for the year ended May 31, 1999.
Costs and expenses
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------
MAY 31, MAY 31,
2000 1999 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Cost of equipment sold.................................. $ 4,478 $ 4,711 (5%)
Cost of services........................................ 20,630 16,022 29%
Sales and marketing..................................... 25,679 19,985 28%
General and administrative.............................. 34,020 21,975 55%
Adjusted EBITDA......................................... 76,555 46,830 63%
Recapitalization costs.................................. -- 8,209 (100%)
Depreciation and amortization........................... 40,956 43,988 (7%)
------- -------
Operating income (loss)................................. $35,599 $(5,367) N/A
------- -------
------- -------
</TABLE>
Cost of services increased during the year ended May 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 year ended May 31, 2000,
primarily due to the increase in gross subscriber additions.
General and administrative expenses increased during the year ended May 31,
2000, primarily due to increased costs to support the expanding subscriber base.
Adjusted EBITDA for the Caribbean Wireless operations for the year ended
May 31, 2000 was $76,555, an increase of $29,725 or 63% over the year ended
May 31, 1999.
Depreciation and amortization for the year ended May 31, 2000 was $40,956, a
decrease of $3,032 or 7% from the year ended May 31, 1999. This decrease
resulted 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 our Caribbean
wireless telephone systems and the purchase of additional PCS phones.
Operating income for the year ended May 31, 2000 was $35,599, an increase of
$40,966 from the operating loss of $5,367 for the year ended May 31, 1999.
25
<PAGE>
CARIBBEAN WIRELINE OPERATIONS
Revenue
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------
MAY 31, MAY 31,
2000 1999 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Service revenue................................. $43,441 $22,541 93%
Equipment sales................................. 437 -- N/A
------- -------
Total revenue............................... $43,878 $22,541 95%
------- -------
------- -------
</TABLE>
Total Caribbean Wireline revenue increased $21,337 or 95% to $43,878 for the
year ended May 31, 2000. Termination revenue increased $3,877, or 35%, to
$15,007 for the year ended May 31, 2000. This increase reflects an increase in
terminating minutes of use of 879,033, or 164%, partially offset by a decrease
in rate per terminating minute from $0.020 for the year ended May 31, 1999 to
$0.011 for the year ended May 31, 2000. The decrease in rate per terminating
minute reflects a new rate of approximately $0.05 per call with the Puerto Rico
Telephone Company ('PRTC') effective as of April 7, 2000.
Business switched revenue increased $6,339, or 150%, to $10,557 for the year
ended May 31, 2000. This increase reflects an increase in business access lines
of 6,812, or 73%, to 16,112 lines as of May 31, 2000. Revenue per access line
was $67 for the twelve months ended May 31, 2000, as compared to $66 for the
same period in fiscal 1999. This increase reflects increases in outbound minutes
of use of 82,704 or 235% for the year ended May 31, 2000. This increase was
partially offset by lower rates per minute, from $0.050 for the year ended May
31, 1999 to $0.044 for the year ended May 31, 2000.
Intercompany revenue increased $2,819, or 59%, to $7,634 for the year ended
May 31, 2000, as a result of increased services provided and more access lines.
Private line revenue increased $2,600, or 113%, to $4,900 for the year ended
May 31, 2000. These increases reflect an increase in circuits in service from
231 at May 31, 1999 to 514 at May 31, 2000.
New product revenue, represented by long distance, Internet dedicated and
switched access and web consulting, increased $1,281, to $1,309, for the year
ended May 31, 2000.
Revenue from the Integrated Systems acquisition totaled $2,632 for the year
ended May 31, 2000.
Costs and expenses
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------
MAY 31, MAY 31,
2000 1999 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Cost of equipment sold........................... $ 269 $ -- N/A
Cost of services................................. 13,120 8,814 49%
Sales and marketing.............................. 4,852 1,993 143%
General and administrative....................... 15,997 2,497 541%
Adjusted EBITDA.................................. 9,640 9,237 4%
Recapitalization costs........................... -- 5,285 (100%)
Depreciation and amortization.................... 6,112 3,426 78%
------- ------
Operating income................................. $ 3,528 $ 526 571%
------- ------
------- ------
</TABLE>
Cost of services increased during the year ended May 31, 2000, primarily due
to an increase in the number of employees to handle growing access/circuit
additions, as well as the buildout of the fiber optic network.
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 year ended May 31,
2000, primarily due to increases in reserves for bad debt for Internet Service
Provider revenue ('ISP') related to a dispute
26
<PAGE>
with PRTC over amounts owed by PRTC for ISP traffic that terminated on our
network (see Reciprocal compensation).
Adjusted EBITDA for the Caribbean Wireline operations for the year ended May
31, 2000 was $9,640, an increase of $403 or 4% over the year ended May 31, 1999.
Depreciation and amortization for the year ended May 31, 2000 was $6,112, an
increase of $2,686 or 78% over the year ended May 31, 1999. This increase was
due to increased depreciation associated with the expansion of our network.
Operating income for the year ended May 31, 2000 was $3,528, an increase of
$3,002 from the operating income of $526 for the year ended May 31, 1999.
CONSOLIDATED
Other non-operating income and expenses
The gain on disposition of assets during the year ended May 31, 1999 was
primarily the result of our sale of our investment interest in the wireless
telephone system serving the Coconino, Arizona RSA.
Net interest expense was $149,494 for the year ended May 31, 2000, an
increase of $61,801 or 70% from the year ended May 31, 1999. Gross interest
expense for the year ended May 31, 2000 was $153,171 as compared to $92,102 for
the year ended May 31, 1999. The increases in interest expense reflect an
increase in total debt of $120,666 from May 31, 1999.
The increase in total debt was the result of 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. The average debt outstanding during the year ended May 31,
2000 was $1,494,640, an increase of $610,849 as compared to the average debt
level of $883,791 during the year ended May 31, 1999. This increase was the
result of borrowings in connection with the 1999 recapitalization, as well as
the factors noted above. Our weighted average interest rate decreased to 10.3%
for the year ended May 31, 2000 from 10.4% for the year ended May 31, 1999.
After loss attributable to minority interests in subsidiaries for the year
ended May 31, 2000, pretax income was $22,245, as compared to a pretax loss of
$51,908 for the year ended May 31, 1999. The income tax expense was $5,568 for
the year ended May 31, 2000, as compared to an income tax benefit of $6,820 for
the year ended May 31, 1999. We had a $35,079 extraordinary loss on the early
extinguishment of debt, net of income taxes of $16,698, for the year ended
May 31, 1999.
These factors resulted in net income of $16,677 for the year ended May 31,
2000, which represents an increase of $96,844 from the net loss for the year
ended May 31, 1999.
RECIPROCAL COMPENSATION
On April 1, 1999, we filed a tariff with the Federal Communications
Commission ('FCC') establishing a rate payable to us for delivering
jurisdictionally interstate traffic to ISPs served by us from subscribers of
PRTC. We subsequently invoiced PRTC under the terms of that tariff. PRTC
disputed the invoices and on November 2, 1999, pursuant to FCC rules, indicated
that it intended to challenge the lawfulness of our tariff. On February 1, 2000,
PRTC did so.
On May 15, 2000, we entered into a settlement agreement with PRTC with
respect to compensation for termination of ISP traffic.
YEAR ENDED MAY 31, 1999 COMPARED TO YEAR ENDED MAY 31, 1998
OVERVIEW
We had 454,100 wireless subscribers at May 31, 1999, as compared to 322,200
at May 31, 1998, an increase of 41%. We reported a net loss of $80,167 for the
year ended May 31, 1999 as compared to a net loss of $31,947 for the year ended
May 31, 1998. The net loss for the year ended May 31, 1999
27
<PAGE>
includes $52,831 of recapitalization costs. These recapitalization costs were
primarily due to our purchase of non-qualifying disposition of stock options
exercised, restricted shares and the outstanding options from employees related
to the merger on January 7, 1999. The net loss for the year ended May 31, 1999
also includes an extraordinary loss on the early extinguishment of debt, net of
income taxes, of $35,079. After the extraordinary loss on early extinguishment
of debt of $(0.28) per share, loss per common share for the year ended May 31,
1999 was $(0.72) per share, as compared to a loss per common share of $(0.32)
for the year ended May 31, 1998. The table below summarizes results of
operations for each period:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------
MAY 31, MAY 31,
1999 1998 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Adjusted EBITDA............................... $183,498 $ 99,208 85%
Operating income (loss)....................... 15,971 (14,986) N/A
Net loss...................................... (80,167) (31,947) (151%)
Loss per common share --
Loss before extraordinary item............ (0.44) (0.32) (38%)
Extraordinary loss on extinguishment of
debt.................................... (0.28) -- N/A
-------- --------
Net loss applicable to common shares...... $ (0.72) $ (0.32) (125%)
-------- --------
-------- --------
</TABLE>
DOMESTIC OPERATIONS
Revenue
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------
MAY 31, MAY 31,
1999 1998 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Service revenue............................... $236,951 $177,999 33%
Equipment sales............................... 4,951 3,503 41%
-------- --------
Total revenue............................. $241,902 $181,502 33%
-------- --------
-------- --------
</TABLE>
Total Domestic service revenue, excluding roaming revenue, increased $34,466
to $153,615, a 29% increase from the year ended May 31, 1998, due to an increase
in subscribers. Domestic roamer usage increased to $83,336 or 42% over roamer
revenues of $58,850 for the year ended May 31, 1998, primarily due to an
increase in usage of $34,055, partially offset by a decrease in the rate per
minute of $9,569.
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 year ended May 31, 1999.
Our Domestic operations had approximately 320,600 and 252,700 subscribers at
May 31, 1999 and 1998, respectively. Increases from new activations of 133,000
were offset by subscriber cancellations of 65,100.
Domestic revenue per subscriber per month, based upon an average number of
subscribers, was $69 for the year ended May 31, 1999, as compared to $68 for the
year ended May 31, 1998.
28
<PAGE>
Costs and expenses
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------
MAY 31, MAY 31,
1999 1998 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Cost of equipment sold......................... $ 18,354 $15,623 17%
Cost of services............................... 26,651 24,226 10%
Sales and marketing............................ 29,560 22,561 31%
General and administrative..................... 39,906 32,422 23%
Adjusted EBITDA................................ 127,431 86,670 47%
Depreciation and amortization.................. 67,282 81,402 (17%)
Recapitalization costs......................... 39,337 -- N/A
-------- -------
Operating income............................... $ 20,812 $ 5,268 295%
-------- -------
-------- -------
</TABLE>
Cost of equipment sold increased during the year ended May 31, 1999,
primarily due to an increase in the number of telephone units sold.
Cost of services increased during the year ended May 31, 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 year ended May 31, 1999,
primarily due to the increase in gross subscriber additions.
General and administrative expenses increased during the year ended May 31,
1999, primarily due to increased costs to support the expanding subscriber base.
Adjusted EBITDA for the Domestic operations for the year ended May 31, 1999
was $127,431, an increase of $40,761 or 47% over the year ended May 31, 1998.
Depreciation and amortization for the year ended May 31, 1999 was $67,282, a
decrease of $14,120 or 17% over the year ended May 31, 1998. The decrease was
the result of the effect of our prospectively changing the amortization period
for our domestic cellular licenses and the difference between the cost of our
equity investments and the underlying book value of such investments from ten
years to forty years effective March 1, 1999. We 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 $11,989 for the year ended May 31, 1999. The effect of this change in
amortization periods for the year ended May 31, 1999 was to decrease loss per
common share by $0.10. 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.
After recapitalization costs of $39,337, operating income for the year ended
May 31, 1999 was $20,812, an increase of $15,544 from the operating income of
$5,268 for the year ended May 31, 1998.
CARIBBEAN WIRELESS OPERATIONS
Revenue
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------
MAY 31, MAY 31,
1999 1998 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Service revenue................................ $106,224 $50,267 111%
Equipment sales................................ 3,299 1,216 171%
-------- -------
Total revenue.............................. $109,523 $51,483 113%
-------- -------
-------- -------
</TABLE>
Total Caribbean Wireless service revenue increased $55,957 or 111% to
$106,224. This increase was primarily due to an increase in revenues from new
subscribers of $68,197, partially offset by a decrease in retail revenue per
subscriber, which, in the aggregate, accounted for a decrease of $12,240.
29
<PAGE>
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 133,500 subscribers at
May 31, 1999, an increase of 92% from the 69,500 subscribers at May 31, 1998.
Increases from new activations of 105,800 were offset by subscriber
cancellations of 41,800. 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 $89 for the year ended May 31, 1999, as compared to
$92 for the year ended May 31, 1998.
Costs and expenses
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------
MAY 31, MAY 31,
1999 1998 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Cost of equipment sold......................... $ 4,711 $ 1,229 283%
Cost of services............................... 16,022 12,903 24%
Sales and marketing............................ 19,985 12,509 60%
General and administrative..................... 21,975 12,801 72%
Adjusted EBITDA................................ 46,830 12,041 289%
Recapitalization costs......................... 8,209 -- N/A
Depreciation and amortization.................. 43,988 31,156 41%
------- --------
Operating loss................................. $(5,367) $(19,115) (72%)
------- --------
------- --------
</TABLE>
Cost of equipment sold increased during the year ended May 31, 1999,
primarily due to an increase in the number of telephone units sold.
Cost of services increased during the year ended May 31, 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
Caribbean Wireless operation's network.
Sales and marketing expenses increased during the year ended May 31, 1999,
primarily due to the increase in gross subscriber additions.
General and administrative expenses increased during the year ended May 31,
1999, primarily due to increased costs to support the expanding subscriber base.
Adjusted EBITDA for the Caribbean Wireless operations for the year ended
May 31, 1999 was $46,830, an increase of $34,789 or 289% over the year ended
May 31, 1998.
Depreciation and amortization for the year ended May 31, 1999 was $43,988,
an increase of $12,832 or 41% over the year ended May 31, 1998. This increase
resulted from depreciation related to capital expenditures made during fiscal
1999 and 1998 in connection with the development and network expansion of our
Caribbean wireless telephone systems and the purchase of PCS phones.
The operating loss for the year ended May 31, 1999 was $5,367, a decrease of
$13,748 from the operating loss of $19,115 for the year ended May 31, 1998.
CARIBBEAN WIRELINE OPERATIONS
Revenue
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------
MAY 31, MAY 31,
1999 1998 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Service revenue.................................. $22,541 $4,687 381%
Equipment sales.................................. -- -- N/A
------- ------
Total revenue.................................... $22,541 $4,687 381%
------- ------
------- ------
</TABLE>
30
<PAGE>
Total Caribbean Wireline revenue increased $17,854 or 381% to $22,541 for
the year ended May 31, 1999. Termination revenue increased $9,434, or 556%, to
$11,132 for the year ended May 31, 1999. This increase reflects an increase in
terminating minutes of use of 456,025, or 581%, with rate per terminating minute
remaining consistent at $0.02 per minute for both periods.
Business switched revenue increased $3,745, or 804%, to $4,211 for the year
ended May 31, 1999. These increases reflect an increase in business access lines
of 7,637, or 459%, to 9,300 lines as of May 31, 1999. Revenue per access line
was $66 for the year ended May 31, 1999, as compared to $56 for the same period
in fiscal 1998. This increase reflects increases in outbound minutes of use of
31,875 or 944% for the year ended May 31, 1999. These increases were partially
offset by lower usage rates per minute, from $0.051 for the year ended May 31,
1998 to $0.050 for the year ended May 31, 1999.
Intercompany revenue increased $2,959, or 159%, to $4,815 for the year ended
May 31, 1999, as a result of increased services provided and more access lines.
Private line revenue increased $1,610, or 241%, to $2,278 for the year ended
May 31, 1999. These increases reflect an increase in circuits in service from 59
at May 31, 1998 to 231 at May 31, 1999.
Costs and expenses
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------
MAY 31, MAY 31,
1999 1998 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Cost of equipment sold........................... $ -- $ -- N/A
Cost of services................................. 8,814 2,109 318%
Sales and marketing.............................. 1,993 804 148%
General and administrative....................... 2,497 1,277 96%
Adjusted EBITDA.................................. 9,237 497 1,759%
Recapitalization costs........................... 5,285 -- N/A
Depreciation and amortization.................... 3,426 1,636 109%
------ -------
Operating income (loss).......................... $ 526 $(1,139) N/A
------ -------
------ -------
</TABLE>
Cost of services increased during the year ended May 31, 1999, primarily due
to an increase in the number of employees to handle growing access/circuit
additions, an increase in variable costs associated with a larger customer base,
as well as the buildout of the fiber optic network.
Sales and marketing expenses increased during the year primarily due to
increased advertising as well as additional sales force to support the growing
business.
General and administrative expenses increased 96% to $2,497 during the year
ended May 31, 1999, primarily due to increased costs to support the expanding
customer base.
Adjusted EBITDA for the Caribbean Wireline operations for the year ended May
31, 1999 was $9,237, an increase of $8,740 or 1,759% over the year ended May 31,
1998.
Depreciation and amortization for the year ended May 31, 1999 was $3,426, an
increase of $1,790 or 109% over the year ended May 31, 1998.
Operating income for the year ended May 31, 1999 was $526, an increase of
$1,665 from the operating loss of $1,139 for the year ended May 31, 1998.
CONSOLIDATED
Other non-operating income and expenses
During the year ended May 31, 1999, we sold our investment interest in the
wireless telephone system serving the Coconino, Arizona RSA for a cash purchase
price of $13,500. We recognized a gain of $7,608 as a result of the sale. In
addition, we recognized a net gain of $423 upon the disposition of fixed assets
during fiscal 1999.
31
<PAGE>
Net interest expense was $87,693 for the year ended May 31, 1999, an
increase of $44,223 or 102% from the year ended May 31, 1998. Gross interest
expense for the years ended May 31, 1999 and 1998 was $92,102 and $45,155,
respectively. The increase in interest expense reflects an increase in long-term
debt of $953,795 from May 31, 1998. On January 7, 1999 we utilized a portion of
these additional borrowings to repay existing debt, including the early
extinguishment of 99.5% of our Senior Notes due in 2001 and 2004. The increase
in long-term debt is also the result of additional borrowings related to our
recapitalization, working capital needs and capital expenditures related to the
buildout of the Puerto Rico operations PCS network infrastructure and the
purchase of PCS telephones. The average debt outstanding during the year ended
May 31, 1999 was $883,791, an increase of $413,375 as compared to the average
debt level of $470,416 during the year ended May 31, 1998. Our weighted average
interest rate increased to 10.4% for the year ended May 31, 1999 from 9.6% for
the year ended May 31, 1998.
After loss attributable to minority interests in subsidiaries for the year
ended May 31, 1999, a pretax loss, before extraordinary items, of $51,908 was
incurred, as compared to a pretax loss of $45,544 for the year ended May 31,
1998. The income tax benefit was $6,820 for the year ended May 31, 1999. The tax
benefits are non-cash in nature.
The loss before extraordinary item of $45,088 for the year ended May 31,
1999 represents an increase of $13,141 from the loss before extraordinary item
of $31,947 for the year ended May 31, 1998. We had a $35,079 extraordinary loss
on the early extinguishment of debt, net of income taxes of $16,698 for the year
ended May 31, 1999. These factors resulted in a net loss of $80,167 for the year
ended May 31, 1999, which represents an increase of $48,220 or 151% from the net
loss of $31,947 for the year ended May 31, 1998.
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 May
31, 2000 was $220,000.
For the year ended May 31, 2000, earnings exceeded fixed charges by $25,448.
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 $82,624 relating to depreciation and amortization.
As of May 31, 2000, we had $398,345 of property, plant and equipment (net)
placed in service. During the year ended May 31, 2000, we made capital
expenditures of $149,112, to continue the construction of our Caribbean systems
and our Domestic systems, to expand the coverage areas of existing properties
and to upgrade our cell sites and call switching equipment. Capital expenditures
for the Caribbean operations were $103,580 for the year ended May 31, 2000,
representing 69% of our total capital expenditures. The Caribbean operations
capital expenditures included $76,407 to add capacity and services and to
continue the expansion of our PCS network infrastructure and $27,173 to purchase
telephone units which remain our property while in use by subscribers. 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 through 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 operate our newly-acquired international gateway switch
in Miami, Florida and upgrade of the Pegasus Communications
32
<PAGE>
cable systems which we expect to acquire in the second quarter of fiscal 2001
will be approximately $23,000 during fiscal 2001. We expect to finance our
capital expenditures primarily from cash flow generated from operations 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. We expect to consummate the sale of our Southwest properties to
Western Wireless Corporation for $202,500 by the end of calendar year 2000.
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>
YEARS ENDED MAY 31,
-----------------------------------------
2000 1999
------------------- -------------------
% OF % OF
NET CASH NET CASH
AMOUNT PROVIDED AMOUNT PROVIDED
------ -------- ------ --------
<S> <C> <C> <C> <C>
Net cash provided by operating activities............. $ 59,079 27% $144,178 73%
Interest paid......................................... 159,393 73 52,844 27
-------- --- -------- ---
Net cash provided..................................... $218,472 100% $197,022 100%
-------- --- -------- ---
-------- --- -------- ---
Principal uses of cash
Interest paid......................................... $159,393 73% $ 52,844 27%
Property, plant & equipment........................... 149,112 68 103,404 52
-------- --- -------- ---
Total............................................. $308,505 141% $156,248 79%
-------- --- -------- ---
-------- --- -------- ---
Cash (required from) available for other financing and
investing activities................................ $(90,033) (41)% $ 40,774 21%
-------- --- -------- ---
-------- --- -------- ---
</TABLE>
Net cash provided by operating activities for the year ended May 31, 2000
was not sufficient to fund our expenditures for property, plant and equipment of
$149,112.
The following table sets forth the primary cash flows provided by (used in)
other financing and investing activities for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-----------------------
2000 1999
---- ----
<S> <C> <C>
Proceeds from disposition of assets......................... $ 704 $ 4,702
Proceeds from issuance of common stock...................... -- 427,650
Proceeds from the exercise of stock options................. 1,389 --
Proceeds from issuance of long-term debt.................... 1,068,018 1,484,500
Proceeds from maturity of restricted securities............. 79,882 19,998
Disposition of equity investment............................ -- 13,500
Distributions received from equity investments -- net....... 16,700 10,958
---------- ----------
Cash provided by other financing and investing activities... 1,166,693 1,961,308
---------- ----------
</TABLE>
(table continued on next page)
33
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-----------------------
2000 1999
---- ----
<S> <C> <C>
Acquisition of other assets................................. -- (2,200)
Acquisition of minority partnership interests............... (323) --
Repayment of long-term debt................................. (969,525) (531,643)
Debt issuance costs paid.................................... (4,865) (61,212)
Redemption of preferred stock............................... -- (128,154)
Treasury stock purchases.................................... -- (1,077)
Acquisition of equity investment............................ -- (3,000)
Purchase of common stock in conjunction with the
recapitalization.......................................... -- (1,052,436)
Recapitalization costs paid................................. -- (45,575)
Early extinguishment of debt................................ -- (44,634)
Purchase of restricted securities........................... (39,886) (77,499)
Dividends paid.............................................. -- (18,131)
Acquisitions, net of cash acquired.......................... (100,323) --
---------- ----------
Capital available for (needed from) operations and capital
expenditures.............................................. $ 51,771 $ (4,253)
---------- ----------
---------- ----------
</TABLE>
Based upon current market conditions and its 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.
ACQUISITIONS, EXCHANGES AND DISPOSITIONS
Our primary acquisition strategy is to acquire controlling ownership
interests in communications systems serving markets which are proximate 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 May 2000, we entered into a definitive agreement to acquire 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, and pass approximately 170,000 homes with their 123
route miles of fiber optic and 1,268 route miles of coaxial cable. Pegasus'
cable system has over 55,000 subscribers. This transaction is subject to
customary closing conditions and is expected to close in the second quarter of
fiscal 2001.
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 All America Cables and
Radio, Inc. ('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.
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 belive that there is a significant community of interest between
the Puerto Rican, Dominican and Jamaican population on the East Coast of the
Untied States and our Caribbean
34
<PAGE>
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. The Company is currently
evaluating 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 in 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 provisions
of FIN No. 44 are generally effective July 1, 2000, except for certain
provisions which apply to modifications to stock awards made after December 15,
1998. We are currently evaluating the financial impact of FIN No. 44 on our
consolidated financial statements.
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 July 31, 2000, 37,613,079 shares remain
available for future acquisitions.
35
<PAGE>
SUBSEQUENT EVENTS
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) and certain other Centennial
stockholders.
On July 24, 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 consist of rural service areas in and around Yuma,
Arizona (Arizona RSA-4) and El Centro, California (California RSA-7). The
Southwest cluster also include 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.
On July 18, 2000, we acquired a 60% interest in Infochannel Limited, a
leading Internet Service Provider on the island of Jamaica.
In May 2000, we entered into a definitive agreement to purchase 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. We
completed this acquisition on July 14, 2000 at a purchase price of approximately
$42,300 in cash, subject to adjustment.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to market risks due to fluctuations in interest rates. A
majority of our long-term debt has variable interest rates. We utilize interest
rate swap and collar agreements to hedge variable interest rate risk on a
portion of our variable interest rate debt as part of our interest rate risk
management program.
The table below presents principal (or notional) amounts and related average
interest rate by year of maturity for our 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 May 31, 2000 (based on information
provided by one of our lending institutions):
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------------------------- THERE- FAIR
2001 2002 2003 2004 2005 AFTER TOTAL VALUE
---- ---- ---- ---- ---- ----- ----- -----
AMOUNTS IN THOUSANDS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt:
Fixed rate................ $ 6,225 $ 8,398 -- -- $ 219 $539,931 $ 554,773 $ 544,043
Average interest rate..... 8.00% 8.66% -- -- 10.13% 10.51% 10.37% --
Variable rate............. $ 5,500 $ 28,000 $ 61,750 $84,250 $106,750 $736,750 $1,023,000 $1,023,000
Average interest
rate(1)................. 7.25% 7.37% 7.40% 7.41% 7.43% 7.48% 7.46% --
Interest rate swaps (pay
fixed, receive variable):
Notional amount........... $350,000 $150,000 -- -- -- -- -- $ 14,310
Average pay rate.......... 5.40% 5.38% -- -- -- -- -- --
Average receive rate...... 7.25% 7.37% -- -- -- -- -- --
Interest rate collar:
Notional amount........... $100,000 $100,000 $100,000 -- -- -- -- $ 2,385
Cap....................... 7.00% 7.00% 7.00% -- -- -- -- --
Floor..................... 4.45% 4.45% 4.45% -- -- -- -- --
</TABLE>
---------
(1) Represents the average interest rate before applicable margin
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information that are
required to be included pursuant to this Item 8 are listed in Item 14 under the
caption 'Index of Financial Statements' in this Annual Report on Form 10-K,
together with the respective pages in this Annual Report on Form 10-K where such
information is located. The financial statements and supplementary financial
information specifically referenced in such list are incorporated in this Item 8
by reference.
36
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the fiscal year ended May 31, 2000, we were not involved in any
disagreement with our independent certified public accountants on accounting
principles or practices or on financial statement disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to our directors required to be included
pursuant to this Item 10 is included under the caption 'Directors and Executive
Officers of Centennial' in Part I of this Annual Report on Form 10-K and will
also be included under the caption 'Election of Directors' in our Proxy
Statement relating to the 2000 Annual Meeting of Stockholders (the 'Proxy
Statement'), to be filed with the Securities and Exchange Commission pursuant to
Rule 14a-6 under the Securities Exchange Act of 1934, as amended (the '34 Act'),
and is incorporated in this Item 10 by reference. The information with respect
to our executive officers required to be included pursuant to this Item 10 is
included under the caption 'Directors and Executive Officers of Centennial' in
Part I of this Annual Report on Form 10-K. The information required by this item
regarding compliance with Section 16(a) of the 34 Act by our directors and
executive officers and holders of ten percent of our common stock is
incorporated in this item by reference from our Proxy Statement under the
caption 'Section 16(a) Beneficial Ownership Reporting Compliance.'
ITEM 11. EXECUTIVE COMPENSATION
The information required to be included pursuant to this Item 11 will be
included under the captions 'Executive Compensation and Other Information' in
the Proxy Statement and is incorporated in this Item 11 by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information with respect to the security ownership of (1) beneficial
owners of more than 5% of our common stock, (2) our directors, (3) each of the
top five executive officers and (4) all of our directors and officers as a group
required to be included pursuant to this Item 12 will be included under the
captions 'Principal Stockholders of the Company', 'Election of Directors' and
'Executive Compensation and Other Information -- Beneficial Ownership by
Management' in the Proxy Statement and is incorporated in this Item 12 by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be included pursuant to this Item 13 will be
included under the caption 'Certain Relationships and Related Transactions' in
the Proxy Statement and is incorporated in this Item 13 by reference.
37
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on
Form 10-K:
1. INDEX OF FINANCIAL STATEMENTS
The following financial statements are included at the indicated page in
this Annual Report on Form 10-K and incorporated in this Item 14(a)1 by
reference:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-1
Consolidated Balance Sheets................................. F-2
Consolidated Statements of Operations....................... F-3
Consolidated Statements of Common Stockholders' Equity
(Deficit)................................................. F-4
Consolidated Statements of Cash Flows....................... F-5
Notes to Consolidated Financial Statements.................. F-6
</TABLE>
2. FINANCIAL STATEMENT SCHEDULE
Schedule II. Valuation and Qualifying Accounts
3. EXHIBITS
See Item 14(c) below.
(b) Reports on Form 8-K
1. Form 8-K dated March 21, 2000, relating to our announcement that we
anticipated offering $250,000,000 in aggregate principal amount of senior
subordinated notes due 2007 in a private placement transaction pursuant to
Rule 144A.
2. Form 8-K dated March 22, 2000, relating to our announcement of our
earnings for the three and nine months ended February 29, 2000.
(c) Exhibits
The following documents are filed as part of this Annual Report on Form
10-K:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
2.1 -- Agreement and Plan of Merger, dated as of July 2, 1998,
by and between CCW Acquisition Corp. and Centennial
Communications Corp. (incorporated by reference to
Exhibit 2.1 to Centennial Communications Corp.'s Current
Report on Form 8-K filed on July 16, 1998.
2.2 -- Amendment to Agreement and Plan of Merger, dated as of
November 29, 1998, by and between CCW Acquisition Corp.
and Centennial Communications Corp. (incorporated by
reference to Exhibit 2.1 to Centennial Communications
Corp.'s Current Report on Form 8-K filed on December 7,
1998).
3.1 -- Amended and Restated Certificate of Incorporation of
Centennial Communications Corp. (incorporated by reference
to Exhibit 3.1 to Centennial Communications Corp.'s
Registration Statement on Form S-3 filed on July 6, 2000).
3.2 -- Amended and Restated By-Laws of Centennial Communications
Corp. (incorporated by reference to Exhibit 3.2 to
Centennial Communications Corp.'s Current Report on
Form 8-K filed on January 22, 1999).
4.1 -- First Amended and Restated Stockholders Agreement dated
as of January 20, 1999 among CCW Acquisition Corp. and the
Purchasers named in Schedules I, II, III and IV thereto
(incorporated by reference to Exhibit 99.3 to Centennial
Communications Corp.'s Registration Statement on Form S-4
filed on July 6, 1999).
4.2 -- First Amended and Restated Registration Rights Agreement
dated as of January 20, 1999 among CCW Acquisition Corp.
and the Purchasers named in Schedules I, II, III and IV
thereto (incorporated by reference to Exhibit 99.4 to
Centennial Communications Corp.'s Registration Statement
on Form S-4 filed on July 6, 1999).
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
4.3 -- Indenture dated as of December 14, 1998 between
Centennial Cellular Operating Co. LLC and Centennial
Communications Corp. and Norwest Bank Minnesota as
successor trustee to the Chase Manhattan Bank, relating to
the 10 3/4% Senior Subordinated Notes due 2008
(incorporated by reference to Exhibit 4.4 to Centennial
Communications Corp.'s Current Report on Form 8-K filed on
January 22, 1999).
4.4 -- Assumption Agreement and Supplemental Indenture, dated as
of January 7, 1999, to the Indenture dated as of
December 14, 1998 (incorporated by reference to
Exhibit 4.5 to Centennial Communications Corp.'s Current
Report on Form 8-K filed on January 22, 1999).
4.5 -- Form of 10 3/4% Senior Subordinated Note due 2008, Series
B of the registrant (included in Exhibit 4.3).
4.6 -- Pledge and Escrow Agreement, dated as of December 14,
1998, from Centennial Cellular Operating Co. LLC and
Centennial Communications Corp., as Pledgors, to The Chase
Manhattan Bank, as Trustee (incorporated by reference to
Exhibit 4.8 to Centennial Communications Corp.'s Current
Report on Form 8-K filed on January 22, 1999).
10.1 -- Credit Agreement dated as of January 7, 1999, as amended
and restated as of February 29, 2000 among Centennial
Cellular Operating Co. LLC, as Borrower; Centennial Puerto
Rico Operations Corp., as PR Borrower; Centennial
Communications Corp., as a Guarantor; the other Guarantors
party thereto; each of the lenders named therein; the
Chase Manhattan Bank, as Co-Lead Arranger and
Co-Syndication Agent; Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, as Co-Lead Arranger
and Co-Syndication Agent; Bank of America, N.A. as
Arranger and Administrative Agent; and The Bank of Nova
Scotia, as Documentation Agent (incorporated by reference
to Exhibit 10.1 to Centennial Communications Corp.'s
Quarterly Report on Form 10-Q filed on April 13, 2000).
*10.2 -- Employment Agreement dated as of January 7, 1999 between
Centennial Communications Corp. and Michael J. Small
(incorporated by reference to Exhibit 10.3 to Centennial
Communications Corp.'s Current Report on Form 8-K filed on
January 22, 1999).
10.3 -- Agreement establishing Sacramento Valley Limited
Partnership, as amended, among PacTel Mobile Access,
Roseville Telephone Co., Citizens Utilities Company of
California and Contel Mobilcom, Inc. (incorporated by
reference to Exhibit 10.14 to Centennial Communications
Corp.'s Registration Statement on Form S-1 filed on
September 27, 1991).
10.4 -- Agreement establishing GTE Mobilnet of San Francisco
Limited Partnership, as amended (incorporated by reference
to Exhibit 10.15 to Centennial Communications Corp.'s
Registration Statement on Form S-1 filed on September 27,
1991).
10.5 -- Facilities Agreement dated as of January 2, 1995 between
Century ML Cable Venture and Century-ML Cable Corporation
(incorporated by reference to Exhibit 10.16 to Centennial
Communications Corp.'s Annual Report on Form 10-K for the
fiscal year ended May 31, 1997).
*10.6 -- Centennial Communications Corp. and its Subsidiaries 1999
Stock Option and Restricted Stock Purchase Plan
(incorporated by reference to Exhibit A to Centennial
Communications Corp's Proxy Statement on Form 14A filed on
September 27, 1999).
**10.7 -- Asset Purchase Agreement dated as of July 24, 2000, by
and between Century Yuma Cellular Corp., Hendrix Radio
Communications, Inc., El Centro Cellular Corp., Century El
Centro Cellular Corp., Centennial Southwest License
Company LLC, Centennial Communications Corp., WWC License
LLC and Western Wireless Corporation.
**12 -- Computation of Ratios.
**21 -- Subsidiaries of Centennial Communications Corp.
**23.1 -- Consent of Deloitte & Touche LLP.
**27 -- Financial Data Schedule.
</TABLE>
---------
* Constitutes a management contract or compensatory plan or arrangement.
** Filed herewith.
39
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
CENTENNIAL COMMUNICATIONS CORP.
Neptune, New Jersey
We have audited the accompanying consolidated balance sheets of Centennial
Communications Corp. (formerly Centennial Cellular Corp.) and subsidiaries (the
'Company') as of May 31, 2000 and 1999, and the related consolidated statements
of operations, common stockholders' equity (deficit), and cash flows for each of
the three years in the period ended May 31, 2000. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Centennial Communications Corp.
and subsidiaries as of May 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
May 31, 2000 in conformity with accounting principles generally accepted in the
United States of America.
/S/ DELOITTE & TOUCHE LLP
New York, New York
July 25, 2000
F-1
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31,
-------------------------
2000 1999
---- ----
(AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 12,879 $ 51,141
Restricted investments.................................. 19,888 39,480
Accounts receivable, less allowance for doubtful
accounts of $6,539 and $3,763, respectively........... 69,692 46,326
Inventory -- phones and accessories, less allowance for
obsolescence of $1,052 and $1,315, respectively....... 10,835 7,631
Prepaid expenses and other current assets............... 6,452 737
----------- -----------
Total current assets................................ 119,746 145,315
Property, plant and equipment -- net........................ 398,345 300,120
Restricted investments, long-term........................... -- 19,038
Equity investments in wireless systems -- net............... 72,894 75,723
Debt issuance costs, less accumulated amortization of
$10,112 and $2,905, respectively.......................... 56,109 58,307
Domestic cellular licenses, less accumulated amortization of
$304,922 and $298,725, respectively....................... 241,855 202,599
Caribbean wireless licenses, less accumulated amortization
of $5,462 and $3,893, respectively........................ 122,297 58,866
Goodwill, less accumulated amortization of $34,462 and
$30,430, respectively..................................... 137,545 119,172
Other assets -- net......................................... 23,942 7,141
----------- -----------
Total............................................... $ 1,172,733 $ 986,281
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt....................... $ 11,725 $ 4,500
Short-term debt......................................... 6,688 --
Accounts payable........................................ 32,238 22,968
Accrued expenses and other current liabilities.......... 106,943 102,371
Payable to affiliates................................... 125 125
----------- -----------
Total current liabilities........................... 157,719 129,964
Long-term debt.............................................. 1,566,048 1,459,295
Minority interest in subsidiaries........................... 25,296 --
Common stockholders' equity (deficit):
Common stock par value $.01 per share:
1 vote per share, 150,000,000 shares authorized;
issued, 94,413,714 and 93,673,386 shares,
respectively; and
outstanding 94,343,211 and 93,602,883 shares,
respectively...................................... 944 937
Common stock issuable................................... 2,355 --
Additional paid-in capital.............................. 426,675 418,749
Accumulated deficit..................................... (1,004,910) (1,021,587)
----------- -----------
(574,936) (601,901)
Less: Cost of 70,503 common shares in treasury.............. (1,077) (1,077)
Deferred compensation....................................... (317) --
----------- -----------
Total common stockholders' equity (deficit)......... (576,330) (602,978)
----------- -----------
Total........................................... $ 1,172,733 $ 986,281
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------
2000 1999 1998
---- ---- ----
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenue:
Service revenue......................................... $ 479,844 $360,901 $231,097
Equipment sales......................................... 21,450 8,250 4,719
--------- -------- --------
501,294 369,151 235,816
--------- -------- --------
Costs and expenses:
Cost of equipment sold.................................. 33,538 23,065 16,852
Cost of services........................................ 62,007 49,832 37,966
Sales and marketing..................................... 76,800 51,538 35,874
General and administrative.............................. 91,090 61,218 45,916
Depreciation and amortization........................... 82,624 114,696 114,194
Recapitalization costs.................................. -- 52,831 --
--------- -------- --------
346,059 353,180 250,802
--------- -------- --------
Operating income (loss)..................................... 155,235 15,971 (14,986)
--------- -------- --------
Income from equity investments.............................. 16,500 11,502 13,069
(Loss) gain on disposition of assets........................ (72) 8,031 5
Interest expense -- net..................................... (149,494) (87,693) (43,470)
--------- -------- --------
Income (loss) before income taxes, minority interest and
extraordinary item........................................ 22,169 (52,189) (45,382)
Income tax (expense) benefit................................ (5,568) 6,820 13,597
--------- -------- --------
Income (loss) before minority interest and extraordinary
item...................................................... 16,601 (45,369) (31,785)
Minority interest in loss (income) of subsidiaries.......... 76 281 (162)
--------- -------- --------
Income (loss) before extraordinary item................. 16,677 (45,088) (31,947)
Extraordinary loss on early extinguishment of debt, net of
income taxes of ($16,698)................................. -- (35,079) --
--------- -------- --------
Net income (loss)....................................... $ 16,677 $(80,167) $(31,947)
--------- -------- --------
--------- -------- --------
Dividend on preferred stock................................. $ -- $ 9,906 $ 16,451
--------- -------- --------
Income (loss) applicable to common shares................... $ 16,677 $(90,073) $(48,398)
--------- -------- --------
--------- -------- --------
Basic earnings (loss) per common share:
Income (loss) before extraordinary item................. $ 0.18 $ (0.44) $ (0.32)
--------- -------- --------
--------- -------- --------
Extraordinary loss on early extinguishment of debt...... $ -- $ (0.28) $ --
--------- -------- --------
--------- -------- --------
Net income (loss) applicable to common shares........... $ 0.18 $ (0.72) $ (0.32)
--------- -------- --------
--------- -------- --------
Diluted earnings (loss) per common share:
Income (loss) before extraordinary item................. $ 0.17 $ (0.44) $ (0.32)
--------- -------- --------
--------- -------- --------
Extraordinary loss on early extinguishment of debt...... $ -- $ (0.28) $ --
--------- -------- --------
--------- -------- --------
Net income (loss) applicable to common shares........... $ 0.17 $ (0.72) $ (0.32)
--------- -------- --------
--------- -------- --------
Weighted average number of common shares outstanding during
the year
Basic................................................... 93,994 125,384 151,276
--------- -------- --------
--------- -------- --------
Diluted................................................. 97,353 125,384 151,276
--------- -------- --------
--------- -------- --------
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------------
CLASS A CLASS B COMMON ADDITIONAL
---------------------- --------------------- STOCK PAID-IN TREASURY
SHARES DOLLARS SHARES DOLLARS ISSUABLE CAPITAL STOCK
------ ------- ------ ------- -------- ------- -----
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31,
1997.................. 49,478,652 $ 495 10,544,113 $ 105 $ -- $ 369,374 $ (1,801)
3-for-1 stock split
effective January 20,
2000.................. 98,957,304 989 -- -- -- (989) --
Common stock issued in
connection with
incentive plans....... 2,014,191 20 -- -- -- 4,747 --
Preferred stock
dividends............. -- -- -- -- -- (16,451) --
Treasury stock
purchases............. -- -- -- -- -- -- (28,813)
Repayment of
shareholder note
receivable............ -- -- -- -- -- -- --
Net loss............... -- -- -- -- -- -- --
------------ ------- ----------- ----- ------ --------- --------
Balance at May 31,
1998.................. 150,450,147 1,504 10,544,113 105 -- 356,681 (30,614)
Common stock issued in
connection with
incentive plans....... 4,211,469 42 -- -- -- 4,852 --
Common stock issued in
connection with
employee stock
purchase plan......... 146,640 1 -- -- -- 256 --
Deferred compensation
employment
agreement............. 150,009 2 -- -- -- 748 --
Recapitalization:
Repurchase of the
class A & B common
stock.............. (133,341,984) (1,333) (10,544,113) (105) -- (339,447) --
Retirement of
treasury stock..... (14,689,881) (146) -- -- -- 97 30,614
Recapitalization
costs.............. -- -- -- -- -- (16,165) --
Capital
contributions...... 86,746,986 867 -- -- -- 421,633 --
Preferred stock
dividends............. -- -- -- -- -- (9,906) --
Treasury stock
purchases............. -- -- -- -- -- -- (1,077)
Amortization of
deferred
compensation.......... -- -- -- -- -- -- --
Net loss............... -- -- -- -- -- -- --
------------ ------- ----------- ----- ------ --------- --------
Balance at May 31,
1999.................. 93,673,386 937 -- -- -- 418,749 (1,077)
Common stock issued in
connection with
acquisitions.......... 420,000 4 -- -- -- 5,226 --
Common stock issued in
connection with
incentive plans....... 295,680 3 -- -- -- 1,390 --
Deferred compensation.. 24,648 -- -- -- -- 438 --
Amortization of
deferred
compensation.......... -- -- -- -- -- -- --
Income tax benefit from
stock options
exercised............. -- -- -- -- -- 872 --
Common stock issuable
(Note 11)............. -- -- -- -- 2,355 -- --
Net income............. -- -- -- -- -- -- --
------------ ------- ----------- ----- ------ --------- --------
Balance at May 31,
2000.................. 94,413,714 $ 944 -- $ -- $2,355 $ 426,675 $ (1,077)
------------ ------- ----------- ----- ------ --------- --------
------------ ------- ----------- ----- ------ --------- --------
<CAPTION>
SHAREHOLDER
NOTE DEFERRED ACCUMULATED
RECEIVABLE COMPENSATION DEFICIT TOTAL
---------- ------------ ------- -----
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Balance at May 31,
1997.................. $(3,000) $ -- $ (252,291) $ 112,882
3-for-1 stock split
effective January 20,
2000.................. -- -- -- --
Common stock issued in
connection with
incentive plans....... -- (3,029) -- 1,738
Preferred stock
dividends............. -- -- -- (16,451)
Treasury stock
purchases............. -- -- -- (28,813)
Repayment of
shareholder note
receivable............ 3,000 -- -- 3,000
Net loss............... -- -- (31,947) (31,947)
------- ------- ----------- -----------
Balance at May 31,
1998.................. -- (3,029) (284,238) 40,409
Common stock issued in
connection with
incentive plans....... -- -- -- 4,894
Common stock issued in
connection with
employee stock
purchase plan......... -- -- -- 257
Deferred compensation
employment
agreement............. -- (750) -- --
Recapitalization:
Repurchase of the
class A & B common
stock.............. -- 2,573 (692,002) (1,030,314)
Retirement of
treasury stock..... -- -- (30,565) --
Recapitalization
costs.............. -- -- 65,385 49,220
Capital
contributions...... -- -- -- 422,500
Preferred stock
dividends............. -- -- -- (9,906)
Treasury stock
purchases............. -- -- -- (1,077)
Amortization of
deferred
compensation.......... -- 1,206 -- 1,206
Net loss............... -- -- (80,167) (80,167)
------- ------- ----------- -----------
Balance at May 31,
1999.................. -- -- (1,021,587) (602,978)
Common stock issued in
connection with
acquisitions.......... -- -- -- 5,230
Common stock issued in
connection with
incentive plans....... -- -- -- 1,393
Deferred compensation.. -- (438) -- --
Amortization of
deferred
compensation.......... -- 121 -- 121
Income tax benefit from
stock options
exercised............. -- -- -- 872
Common stock issuable
(Note 11)............. -- -- -- 2,355
Net income............. -- -- 16,677 16,677
------- ------- ----------- -----------
Balance at May 31,
2000.................. $ -- $ (317) $(1,004,910) $ (576,330)
------- ------- ----------- -----------
------- ------- ----------- -----------
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------------------
2000 1999 1998
---- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Cash received from subscribers and others................ $ 508,286 $ 401,316 $ 260,147
Cash paid to suppliers, employees and governmental
agencies................................................ (289,814) (204,294) (162,638)
Interest paid............................................ (159,393) (52,844) (42,738)
---------- ----------- ---------
Net cash provided by operating activities............. 59,079 144,178 54,771
---------- ----------- ---------
Investing activities:
Proceeds from disposition of assets...................... 704 4,702 45
Capital expenditures..................................... (149,112) (103,404) (129,300)
Acquisition of other assets.............................. -- (2,200) (6,178)
Purchase of restricted securities........................ (39,886) (77,499) --
Proceeds from maturity of restricted securities.......... 79,882 19,998 --
Disposition of equity investment......................... -- 13,500 --
Acquisitions, net of cash acquired....................... (100,323) (3,000) --
Acquisition of minority partnership interests............ (323) -- --
Distributions received from equity investments........... 19,779 10,958 10,109
Capital contributed to equity investments................ (3,079) -- (787)
---------- ----------- ---------
Net cash used in investing activities................. (192,358) (136,945) (126,111)
---------- ----------- ---------
Financing activities:
Proceeds from the issuance of long-term debt............. 1,068,018 1,484,500 216,000
Repayment of long-term debt.............................. (969,525) (531,643) (135,000)
Debt issuance costs paid................................. (4,865) (61,212) (1,167)
Premiums paid on early extinguishment of debt............ -- (44,634) --
Proceeds from issuance of class A common stock........... -- 427,650 863
Proceeds from the exercise of stock options.............. 1,389 -- --
Redemption of preferred stock............................ -- (128,154) --
Purchase of common stock in conjunction with
recapitalization........................................ -- (1,052,436) --
Dividends paid........................................... -- (18,131) (12,338)
Proceeds from shareholder note receivable................ -- -- 3,000
Treasury stock purchases................................. -- (1,077) (28,813)
Recapitalization costs paid.............................. -- (45,575) --
---------- ----------- ---------
Net cash provided by financing activities............. 95,017 29,288 42,545
---------- ----------- ---------
Net (decrease) increase in cash and cash equivalents........ (38,262) 36,521 (28,795)
Cash and cash equivalents, beginning of year................ 51,141 14,620 43,415
---------- ----------- ---------
Cash and cash equivalents, end of year...................... $ 12,879 $ 51,141 $ 14,620
---------- ----------- ---------
---------- ----------- ---------
Reconciliation of net income (loss) to net cash provided by
operating activities:
Net income (loss)........................................ $ 16,677 $ (80,167) $ (31,947)
---------- ----------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................ 82,624 114,696 114,194
Minority interest in (loss) income of subsidiaries....... (76) (281) 162
Deferred income taxes.................................... (3,849) (9,886) (17,393)
Equity in undistributed earnings of investee companies... (16,500) (11,502) (13,069)
Loss (Gain) on disposition of assets..................... 72 (8,031) (5)
Extraordinary loss on extinguishment of debt............. -- 35,079 --
Recapitalization costs................................... -- 52,831 --
Other.................................................... 7,011 5,577 3,469
Change in assets and liabilities net of effects of
acquisitions:
Accounts receivable -- (increase)..................... (16,087) (11,052) (9,225)
Prepaid expenses and other current
assets -- (increase)................................ (7,112) (858) (3,014)
Accounts payable, accrued expenses and other current
liabilities -- (decrease) increase.................. (5,375) 55,586 8,981
Customer deposits and prepayments -- increase......... 1,694 2,186 2,618
---------- ----------- ---------
Total adjustments........................................ 42,402 224,345 86,718
---------- ----------- ---------
Net cash provided by operating activities................... $ 59,079 $ 144,178 $ 54,771
---------- ----------- ---------
---------- ----------- ---------
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SUBSCRIBER, SHARE AND PER SHARE DATA)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of business -- Centennial Communications Corp. (together with
its subsidiaries and partnership interests, the 'Company') provides mobile
wireless communications domestically and mobile wireless communications and
competitive local exchange services in the Caribbean.
The Company owns, operates and invests in wireless telephone systems in the
United States pursuant to 31 cellular licenses which it owns. The Company's
Caribbean operations are centered in Puerto Rico where it provides wireless PCS
and wireline services including switched voice, Internet and private line
services over its own fiber optic and microwave network. The Company recently
acquired controlling interests in All America Cables and Radio, Inc. ('AACR') in
the Dominican Republic and Paradise Wireless (Jamaica) Limited in Jamaica. The
Company expects to operate its Dominican Republic business pursuant to a 30 MHz
personal communications services ('PCS') license, a Local Multipoint
Distribution System ('LMDS') license and certification to provide a broad range
of telecommunications services in the Dominican Republic. The Company expects to
operate its Jamaica business pursuant to a 20 MHz code division multiple access
('CDMA') license.
Principles of consolidation -- The consolidated financial statements include
the accounts of the Company and all of its subsidiaries and partnership
interests from their respective incorporation or acquisition dates. All material
intercompany transactions and balances have been eliminated.
Cash and cash equivalents -- Short-term investments classified as cash
equivalents in the consolidated financial statements consist principally of
overnight deposits and commercial paper with acquired maturities of three months
or less.
Restricted investments -- Restricted investments consist of overnight
deposits and U.S. government securities with original maturity dates of greater
than three months. All U.S. government securities are classified as
held-to-maturity under the provisions of Statement of Financial Accounting
Standards ('SFAS') No. 115 'Accounting for Certain Investments in Debt and
Equity Securities'. Accordingly, these securities are presented at cost,
adjusted for amortization of premiums and discounts (See Notes 3 and 6).
Restricted investments are classified as current, based on the date of the
interest payment for which they are pledged. At May 31, 2000, restricted
investments consist of overnight deposits.
Inventory -- Inventory consists primarily of handsets and accessories.
Inventory is stated at the lower of cost or market, determined on a specific
identification basis.
Property, plant and equipment -- Property, plant and equipment is stated at
cost. Depreciation is computed by the straight-line method over the estimated
useful lives of the assets:
<TABLE>
<S> <C>
Telephone transmission and distribution systems and related
equipment................................................. 10 years
Miscellaneous equipment and furniture and fixtures.......... 5-15 years
PCS phones.................................................. 18 months
</TABLE>
Equity investments in wireless systems -- The Company accounts for its
equity investments in wireless systems under the equity method. Under the equity
method, the Company records such investments at purchased cost at the date of
acquisition and adjusts for distributions received from the partnerships,
additional capital contributions, and the Company's share of the partnership's
results of operations. The difference between the cost of such investment and
the underlying book value of $117,789 as of May 31, 2000 is amortized over forty
years. For the year ended May 31, 1998, the Company amortized the difference
between the cost of such investment and the underlying book value over ten
years. Effective March 1, 1999, the Company prospectively changed its
amortization period for the difference between the cost of such investment and
the underlying book value from ten years to forty years to better reflect the
period over which the economic benefits of the equity investments are expected
to be realized. The effect of this change in amortization periods was a
reduction in amortization expense of $10,866 for the year ended May 31, 2000.
The effect of this change in amortization periods (net of the related tax
effect) was to increase earnings per share-basic and diluted
F-6
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MAY 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SUBSCRIBER, SHARE AND PER SHARE DATA)
by $0.09 and $0.08, respectively, for the year ended May 31, 2000. The effect of
this change for the fiscal year ended May 31, 1999 was to decrease net loss by
approximately $2,717 and decrease loss per common share-basic and diluted by
$0.02.
Domestic cellular and Caribbean wireless licenses -- Domestic cellular
licenses consist of amounts allocated under purchase accounting from the
purchase price of acquired assets. Amortization of domestic cellular licenses is
computed using the straight-line method. For the year ended May 31, 1998, the
Company amortized its domestic cellular licenses over ten years. Effective
March 1, 1999, the Company prospectively changed its amortization period for
domestic cellular licenses from ten years to forty years to better reflect the
period over which the economic benefits of the cellular licenses are expected to
be realized. The effect of this change in amortization periods was a reduction
in amortization expense of $33,627 for the year ended May 31, 2000. The effect
of this change in amortization periods (net of the related tax effect) was to
increase earnings per share-basic and diluted by $0.27 and $0.26, respectively,
for the year ended May 31, 2000. The effect of this change in the year ended
May 31, 1999 was to decrease net loss by approximately $9,272 and decrease loss
per common share-basic and diluted by $0.07. The Caribbean wireless licenses are
being amortized over a forty-year life using the straight-line method commencing
with the date of operations (See Valuation of long lived assets).
Goodwill -- The excess of purchase price over the estimated fair value of
tangible and intangible net assets acquired is being amortized using the
straight-line method over its estimated useful life, ranging from 10 to 40 years
(See Valuation of long lived assets).
Other assets -- Included in other assets at May 31, 2000 and 1999 is a
$6,000 deferred charge, net of accumulated amortization of $830 and $590,
respectively, which represents certain costs incurred by the Company in relation
to an agreement with Century-ML Cable Venture dated January 2, 1995. These costs
are being amortized over the life of the agreement (25 years). Also included in
other assets at May 31, 2000 is customer lists, totaling $13,774, net of
accumulated amortization of $864, which were purchased by the Company in
acquisitions. The customer lists are being amortized over 4 years.
Valuation of long lived assets -- Long lived assets such as property, plant
and equipment, licenses and goodwill are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount may not be
recoverable. The Company in its valuation considers current market values of
wireless properties, competition, prevailing economic conditions, government
policy including taxation and the Company's and the industry's historical and
current growth patterns. The Company also considers the recoverability of the
cost of its long lived assets based on a comparison of estimated undiscounted
operating cash flows for the systems which generated long lived assets with the
carrying value of the long lived assets.
Derivative financial instruments -- The Company uses interest rate swap and
collar agreements as part of its interest rate risk management program. Interest
rate swap agreements are used to modify variable rate obligations to fixed rate
obligations, thereby reducing the exposure to higher interest rates. Amounts
paid or received under interest rate swap agreements are accrued as interest
rates change with the offset recorded in interest expense. Interest rate collar
agreements are used to lock in a maximum rate if interest rates rise, but allow
the Company to otherwise pay lower market rates, subject to a floor.
Revenue recognition -- Wireless telephone service income includes earned
subscriber service revenues, net of associated roaming costs. Subscriber
services paid in advance are recognized as income when earned. Installation and
connection revenue is recognized in the period in which the installation and
connection services are provided. The services provided to earn these
installation and connection revenues relate to the programming of the phones and
establishing the customer account. Related costs from installations and
connections are recorded in the period the installation and connection services
are provided.
F-7
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MAY 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SUBSCRIBER, SHARE AND PER SHARE DATA)
Income taxes -- The Company accounts for income taxes in accordance with
SFAS No. 109, 'Accounting for Income Taxes' which provides that deferred income
taxes are determined by the asset and liability method. Deferred tax assets and
liabilities are recognized based on the differences between the book and tax
basis of assets and liabilities using presently enacted tax rates.
Income (loss) per common share -- Income (loss) per common share is
calculated using the average number of shares of outstanding common stock during
the period. The number of shares outstanding has been calculated based on the
requirements of SFAS No. 128, 'Earnings per Share'. The difference between basic
and diluted weighted average number of common shares outstanding during the year
ended May 31, 2000 reflects the dilutive effect of stock options outstanding
during the year. Due to the net losses incurred during the years ended May 31,
1999 and 1998, all options outstanding during those periods were anti-dilutive;
thus basic and diluted EPS shares are equal.
Foreign currency translation -- The U.S. dollar is the functional currency
of the Company's worldwide operations. All foreign currency asset and liability
amounts are remeasured into U.S. dollars at end-of-period exchange rates, except
for inventories, prepaid expenses, property, plant and equipment, intangible
assets and stockholders' equity, which are remeasured at historical rates.
Foreign currency income and expenses are remeasured at average exchange rates in
effect during the year, except for expenses related to balance sheet amounts
remeasured at historical exchange rates. Exchange gains and losses arising from
remeasurement of foreign currency denominated monetary assets and liabilities
will be included in income in the period in which they occur.
Management estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from those estimates.
Reclassifications -- Certain prior year balances have been reclassified to
conform with the current year presentation.
Stock split -- On January 21, 2000, outstanding shares of common stock were
split three-for-one. All common share and per share amounts have been restated
to reflect the split.
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
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 in certain issues relating to stock
compensation involving employees that arose in applying APB Opinion No. 25.
Among other things,
F-8
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MAY 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SUBSCRIBER, SHARE AND PER SHARE DATA)
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 provisions of FIN No. 44 are
generally effective July 1, 2000, except for certain provisions which apply to
modifications to stock awards made after December 15, 1998. The Company is
currently evaluating the financial impact of FIN No. 44 on its consolidated
financial statements.
2. THE 1999 MERGER
On January 7, 1999, CCW Acquisition Corp. ('Acquisition'), a Delaware
corporation organized at the direction of Welsh, Carson, Anderson & Stowe VIII,
L.P. ('WCAS VIII'), merged with and into the Company (the 'Merger'). The Company
continued as the surviving corporation in the Merger (the 'Surviving
Corporation'). The Merger was accounted for as a recapitalization in which the
historical basis of the Company's assets and liabilities were not affected and
no new goodwill related to the Merger was created.
Pursuant to the terms of the merger agreement, dated as of July 2, 1998 and
amended as of November 29, 1998, between the Company and Acquisition (as
amended, the 'Merger Agreement'), at the time of the Merger, (i) the Company's
outstanding class A common stock was converted into the right to receive $4.61
per share (adjusted for two three for one stock splits for holders' of record on
January 8, 1999 and December 20, 1999) in cash or to receive common shares of
the Surviving Corporation (the 'Surviving Corporation Shares') representing 7.1%
of the Surviving Corporation Shares outstanding immediately after the Merger,
(ii) the Company's outstanding class B common stock was converted into the right
to receive $41.50 per share in cash (not adjusted for two three for one stock
splits), and (iii) all outstanding convertible redeemable preferred stock and
second series convertible redeemable preferred stock was converted into the
right to receive $41.50 per share in cash (not adjusted for two three for one
stock splits) on an as-converted basis. Holders of class A common stock who
elected to receive Surviving Corporation Shares each received approximately 9.3%
of the shares with respect to which they had made an effective election.
Pursuant to the Merger Agreement, at the time of the Merger, each option to
purchase class A common stock granted under the Company's 1991 Employee Stock
Option Plan and Non-Employee/Officer Director Option Plan, as amended, was
exercised or canceled pursuant to its terms or in exchange for a cash amount
equal to the difference between $4.61 and the exercise price of the option prior
to the effective time of the Merger.
The Company recorded one-time charges of $52,831 for the fiscal year ended
May 31, 1999 as recapitalization costs. These costs are primarily due to the
purchase by the Company of non-qualifying disposition of stock options
exercised, restricted shares and the outstanding options from employees. As part
of the Merger all outstanding options purchased were recorded as additional
compensation. The Caribbean operations accounted for $13,494 of the
recapitalization costs.
F-9
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MAY 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SUBSCRIBER, SHARE AND PER SHARE DATA)
3. ACCOUNT ANALYSIS
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
MAY 31,
---------------------
2000 1999
---- ----
<S> <C> <C>
Land........................................................ $ 2,259 $ 2,055
Telephone transmission and distribution systems and related
equipment................................................. 485,422 348,925
Miscellaneous equipment and furniture and fixtures.......... 43,699 27,204
PCS phones.................................................. 30,953 34,309
--------- ---------
562,333 412,493
Less accumulated depreciation............................... (163,988) (112,373)
--------- ---------
$ 398,345 $ 300,120
--------- ---------
--------- ---------
</TABLE>
Depreciation expense was approximately $68,788, $63,830 and $46,211 for the
years ended May 31, 2000, 1999 and 1998, respectively.
Accrued expenses and other current liabilities consists of the following:
<TABLE>
<CAPTION>
MAY 31,
-------------------
2000 1999
---- ----
<S> <C> <C>
Accrued interest payable.................................... $ 21,264 $ 37,517
Customer deposits & prepayments............................. 14,758 12,531
Accrued unpaid invoices..................................... 37,943 34,086
Accrued property tax........................................ 13,338 8,558
Accrued miscellaneous....................................... 19,640 9,679
-------- --------
$106,943 $102,371
-------- --------
-------- --------
</TABLE>
4. EQUITY INVESTMENTS IN WIRELESS SYSTEMS
The following summarizes the assets, liabilities and partners' capital, and
results of operations of the six wireless partnerships in which the Company's
investments are accounted for by the equity method. All amounts have been
derived from the individual wireless partnerships' financial statements through
December 31, 1999 and adjusted for interim financial activity from the wireless
partnerships' calendar year end to the Company's fiscal year end.
<TABLE>
<CAPTION>
MAY 31,
-------------------
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Assets
Current................................................. $143,259 $117,663
Noncurrent.............................................. 523,807 529,479
-------- --------
$667,066 $647,142
-------- --------
-------- --------
Liabilities and Partners' Capital
Current liabilities..................................... $109,631 $ 97,516
Noncurrent liabilities.................................. 1,996 2,337
Partners' capital....................................... 555,439 547,289
-------- --------
$667,066 $647,142
-------- --------
-------- --------
</TABLE>
F-10
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MAY 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SUBSCRIBER, SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------------
2000 1999 1998
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Results of Operations
Revenues................................................ $678,881 $611,603 $569,756
Costs and expenses...................................... 515,054 478,463 456,881
Other expense (income).................................. 679 430 (764)
-------- -------- --------
Net income.............................................. $163,148 $132,710 $113,639
-------- -------- --------
-------- -------- --------
Centennial Communications Corp. share of partnership net
income.................................................... $ 16,500 $ 11,502 $ 13,069
-------- -------- --------
-------- -------- --------
</TABLE>
The following presents the Company's ownership percentage of the wireless
partnerships in which the Company's investments are accounted for by the equity
method as of May 31, 2000:
<TABLE>
<CAPTION>
WIRELESS PARTNERSHIP % OWNERSHIP
-------------------- -----------
<S> <C>
Lake Charles CellTel Co..................................... 25.1%
Sacramento-Valley Limited Partnership....................... 23.5%
Modoc RSA Limited Partnership............................... 25.0%
Cal-One Cellular Limited Partnership........................ 6.9%
Pennsylvania RSA-6 (I) and (II) Limited Partnership......... 14.3%
GTE Mobilnet of California Limited Partnership.............. 2.9%
</TABLE>
Under the terms of certain partnership agreements, the Company may be
committed to funding other partners' portions of capital expenditures and other
costs, if other means of financing are not available to the partnerships. The
Company does not expect such funding to be material.
In May 2000, the Company entered into a definitive agreement to purchase the
remaining 74.9% of the Lake Charles license that it did not already own. The
Company completed this transaction in July 2000. See Note 15 for further
information on this transaction.
On June 8, 1998, the Company disposed of its investment interest in the
Coconino, Arizona RSA, representing approximately 43,500 Net Pops, for $13,500
in cash. The Company recorded a pre-tax gain of approximately $7,608 in relation
to the sale of this investment interest in fiscal 1999, which is recorded in
gain on disposition of assets in the consolidated statement of operations.
5. DEBT
Short-term debt consists of the following:
<TABLE>
<CAPTION>
MAY 31,
-------------------
2000 1999
---- ----
<S> <C> <C>
13% Notes due July 2000..................................... $6,544 $ --
Other....................................................... 144 --
------ ------
$6,688 $ --
------ ------
------ ------
</TABLE>
Short-term debt was assumed as part of the acquisition of AACR.
F-11
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MAY 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SUBSCRIBER, SHARE AND PER SHARE DATA)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MAY 31,
-----------------------
2000 1999
---- ----
<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.................................................. 993,000 897,750
Revolving Credit Facility................................... 30,000 36,000
Mezzanine Debt.............................................. 169,931 158,438
10 3/4% Subordinated Debt due 2008.......................... 370,000 370,000
Notes Payable............................................... 13,235 --
---------- ----------
Total Long-Term Debt........................................ $1,577,773 $1,463,795
Current Portion of Long-Term Debt........................... (11,725) (4,500)
---------- ----------
Net Long-Term Debt.......................................... $1,566,048 $1,459,295
---------- ----------
---------- ----------
</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 $993,000 and $30,000, respectively, were outstanding as of
May 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. Borrowings under the term loans and the revolving credit
facility bear interest at a rate per annum of the LIBOR rate plus the applicable
margin. The maximum applicable margin for the term loans ranges between 3.00%
and 3.50% above LIBOR. The Company has the ability to choose between various
LIBOR rates at the interest reset dates. The weighted average LIBOR rate at
May 31, 2000 was 6.18%. Substantially all of the Company's assets and the
Company's common stock in its subsidiaries is pledged as collateral for the
debt.
In connection with the Merger, an affiliate of WCAS VIII purchased $180,000
of unsecured subordinated notes due 2009 and common shares of the Company
('Mezzanine Debt'). The issuance has been allocated $157,500 to debt and $22,500
to equity. The difference between the face value of the Mezzanine Debt and the
amount allocated to debt is being amortized over the term of the Mezzanine Debt.
The Mezzanine Debt bears cash interest at a rate of 10% or pay-in-kind interest
at a rate of 13% per annum.
In December 1998, the Company and a wholly-owned subsidiary of the Company
issued $370,000 of senior subordinated notes to qualified institutional buyers
under a private placement offering pursuant to Rule 144A and Regulation S under
the Securities Act of 1933, as amended. In July 1999, the Company registered the
$370,000 of debt securities with the SEC. Approximately $57,500 of the proceeds
from this offering were used to purchase a portfolio of government securities
that has been pledged for the benefit of holders of the senior subordinated
notes to pay the first three interest payments on the notes. The remaining
investments, which include overnight investments at May 31, 2000, are recorded
as restricted investments on the Company's consolidated balance sheet.
Notes Payable were assumed as part of the acquisition of AACR and bear fixed
interest rates ranging from 8.00% to 10.02% with maturities from January 2001 to
April 2002.
Additionally, in connection with the Merger, the Company consummated tender
offers to repurchase its two outstanding public debt issuances (the 'Debt
Offers'). At the expiration of the Debt
F-12
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MAY 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SUBSCRIBER, SHARE AND PER SHARE DATA)
Offers, the Company paid consent solicitation fees and tender offer payments to
99.4% of holders of its 8 7/8% Senior Notes due 2001 and 99.8% of its 10 1/8%
Senior Notes due 2005. The $1,388 and $219 noted above represent the outstanding
balances on these notes. The cost to the Company of the redemption, including
accrued interest, premium and expenses were $396,812. In conjunction with the
Merger, the Company wrote off the debt issuance costs related to the
extinguished debt. The Company recognized an extraordinary loss of $35,079, net
of income taxes of $16,698 for the early extinguishment of the Senior Notes. In
connection with the Debt Offers, the indentures governing these notes were
amended to eliminate substanially all of their restrictive covenants.
The aggregate annual principal payments for the next five years and
thereafter under the Company's long-term debt at May 31, 2000 are summarized as
follows:
<TABLE>
<S> <C>
May 31, 2001................................................ $ 11,725
May 31, 2002................................................ 36,398
May 31, 2003................................................ 61,750
May 31, 2004................................................ 84,250
May 31, 2005................................................ 106,969
May 31, 2006 and thereafter................................. 1,276,681
----------
$1,577,773
----------
----------
</TABLE>
Under the above debt agreements, the Company is required to maintain certain
financial and operating covenants, and is limited in its ability to, among other
things, pay dividends and incur additional indebtedness. The Company was in
compliance with all covenants of its debt agreements at May 31, 2000.
Interest expense, as reflected on the financial statements, has been
partially offset by interest income. The gross interest expense for the years
ended May 31, 2000, 1999 and 1998 was approximately $153,171, $92,102 and
$45,155, respectively.
The Company utilizes interest rate swap and collar agreements to hedge
variable interest rate risk under the term loans to a fixed rate as part of its
interest rate risk management program. The interest rate swap and collar
agreements cover a portion of the outstanding principal of the Company's term
loans. The notional amounts of the interest rate swap and collar agreements as
of May 31, 2000 were $350,000 and $100,000, respectively. The counter-parties on
the interest rate swap and collar agreements are major financial institutions.
The interest rate swap agreements expire at various times through March 2003,
while the interest rate collar agreement expires February 2004. Amounts paid
under swap agreements were immaterial and charged to interest expense. The
effect of the swap agreements on the weighted average borrowing rate was
insignificant.
6. TRANSACTIONS WITH AFFILIATED COMPANIES
The Company is controlled by WCAS VIII. WCAS VIII and its affiliates have an
approximate 60% common stock interest. The Company entered into a stockholders'
agreement with WCAS VIII and Blackstone Capital Partners ('Blackstone'), under
which an affiliate of each of WCAS VIII and Blackstone receives an annual
monitoring fee of $450 and $300, respectively. For the years ended May 31, 2000
and 1999, the Company recorded expenses of $750 and $313, respectively, under
the stockholders' agreement. At May 31, 2000 and 1999, $125 of such amounts were
recorded within payable to affiliates in the Company's consolidated balance
sheets.
Prior to the Merger, the Company was controlled by Century Communications
Corp. ('Century'). Century had an approximate 34% common stock interest and,
through ownership of the Company's class B common stock which had
disproportionate votes per share (15 votes per share), an approximate 74% voting
interest in the Company at May 31, 1998. For the years ended May 31, 1999 and
1998, the
F-13
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MAY 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SUBSCRIBER, SHARE AND PER SHARE DATA)
Company recorded expenses of $583 and $1,000, respectively, under a services
agreement pursuant to which Century, through its personnel, provided certain
services to the Company.
Leavy Rosensweig & Hyman, of which David Z. Rosensweig, a director and
Secretary of the Company prior to the Merger, was a member, served as general
counsel to Century and, prior to the Merger, the Company. The Company paid
approximately $248 and $426, for legal services to Leavy, Rosensweig & Hyman for
the fiscal years ended May 31, 1999 and 1998, respectively.
7. INCOME TAXES
The components of the Company's provision (benefit) for income taxes are
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Current:
Federal............................................ $ 3,849 $ -- $ 102
State.............................................. 4,210 3,066 3,694
Foreign............................................ 1,358 -- --
------- ------- --------
9,417 3,066 3,796
------- ------- --------
Deferred:
Federal............................................ (5,502) (7,590) (13,132)
State.............................................. 1,889 (2,296) (4,261)
Foreign............................................ (236) -- --
------- ------- --------
(3,849) (9,886) (17,393)
------- ------- --------
Total.......................................... $ 5,568 $(6,820) $(13,597)
------- ------- --------
------- ------- --------
</TABLE>
Deferred income taxes result primarily from non-deductible depreciation and
amortization resulting from book and tax basis differences of acquired
subsidiaries.
The effective income tax rate of the Company differs from the statutory rate
as a result of the following items:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
----------------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Computed tax expense (benefit) at federal statutory
rate on the earnings (loss) before income taxes and
minority interest.................................. $ 7,759 $(18,266) $(15,883)
Non-deductible amortization resulting from acquired
subsidiaries....................................... 1,411 1,309 1,341
Minority interest in loss (income) of subsidiaries... 27 98 (57)
State and local income tax provision (benefit), net
of federal income tax benefit...................... 4,105 500 (533)
Nondeductible compensation........................... -- 9,258 --
Nondeductible interest related to high yield debt
obligation......................................... 1,349 573 --
Foreign withholding tax on deemed distributions for
Puerto Rico tax purposes........................... 1,122 -- --
Other, including the establishment or release of
valuation allowance for certain net operating
losses, certain basis differences in minority
partnerships and expiring state net operating
losses............................................. (10,205) (292) 1,535
-------- -------- --------
$ 5,568 $ (6,820) $(13,597)
-------- -------- --------
-------- -------- --------
</TABLE>
F-14
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MAY 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SUBSCRIBER, SHARE AND PER SHARE DATA)
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------
2000 1999
---- ----
<S> <C> <C>
Deferred Tax Assets:
Tax loss and credit carryforwards....................... $62,102 $ 70,647
Other................................................... 2,519 4,157
Valuation allowance..................................... -- (18,570)
------- --------
64,621 56,234
------- --------
Deferred Tax Liabilities:
Amortization of intangible assets....................... $33,096 $ 31,447
Depreciation of fixed assets............................ 27,676 24,787
------- --------
60,772 56,234
------- --------
Net deferred tax assets..................................... $ 3,849 $ --
------- --------
------- --------
</TABLE>
The valuation allowance recorded at May 31, 1999 represents the portion of
recorded tax loss carryforwards for which it is more likely than not that the
benefit of such carryforwards will not be realized. Such valuation allowance
decreased to $0 at May 31, 2000 based on the expiration of certain state net
operating losses and the determination that it was more likely than not that the
benefit of remaining loss carryforwards will be realized.
The net deferred tax asset of $3,849 is included in other assets -- net in
the consolidated balance sheet.
At May 31, 2000, the Company and its subsidiaries had approximately $161,482
of net operating loss carryforwards for federal income tax purposes, expiring
through May 31, 2020, some of which are subject to limitation on their future
utilization under Section 382 of the Internal Revenue Code of 1986.
The Company has not provided for any U.S. deferred income taxes on the
undistributed earnings of its foreign subsidiaries based upon its determination
that such earnings will be indefinitely reinvested. If such earnings were not
considered indefinitely reinvested, deferred U.S. and foreign income taxes would
have been provided, after consideration of estimated foreign tax credits.
However, determination of the amount of deferred federal and foreign income
taxes is not practical.
8. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
To the Company's knowledge, there are no material pending legal proceedings
to which the Company or its subsidiaries are a party or of which any of the
Company's property is subject.
LEASE COMMITMENTS
The Company's annual lease obligations and expenses under operating leases
were approximately $11,787, $8,697 and $6,891 for each of the years ended
May 31, 2000, 1999 and 1998, respectively. As of
F-15
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MAY 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SUBSCRIBER, SHARE AND PER SHARE DATA)
May 31, 2000, the aggregate minimum rental commitments under noncancelable
leases with initial terms in excess of one year were as follows:
<TABLE>
<S> <C>
May 31, 2001............................................... $13,866
May 31, 2002............................................... 12,211
May 31, 2003............................................... 8,627
May 31, 2004............................................... 7,137
May 31, 2005............................................... 5,950
May 31, 2006 and thereafter................................ 33,080
-------
$80,871
-------
-------
</TABLE>
9. COMMON STOCK AND PREFERRED STOCK
COMMON STOCK
During the years ended May 31, 1999 and 1998, the Company purchased 70,503
and 13,890,600 shares of its class A common stock for an aggregate purchase
price of $1,077 and $28,813, respectively. These shares have been accounted for
as treasury shares. The Company currently only has one class of common stock
designated as common stock.
PREFERRED STOCK
During the years ended May 31, 1999 and 1998, the Company paid quarterly
cash dividends with respect to both classes of preferred stock totaling $9,906
and $12,338, respectively. The Company currently has no preferred stock
outstanding.
10. COMPENSATION PLANS AND ARRANGEMENTS
1999 STOCK OPTION PLAN
The Company's 1999 Stock Option and Restricted Stock Purchase Plan (the
'1999 Stock Option Plan') provides for the grant of 'incentive stock options' as
defined in Section 422A of the Internal Revenue Code of 1986, as amended (the
'Code'), as well as non-qualified stock options and the right to purchase shares
of common stock of the Company on a restricted basis to employees, officers,
directors and others providing services to the Company. Generally, the exercise
price of incentive and non-qualified stock options and the purchase price of
restricted stock may be as determined by the Board of Directors of the Company
or a committee thereof. The exercise price of incentive stock options issued
under the 1999 Stock Option Plan is required to be no less than the fair market
value of shares of common stock at the time of grant of such options. The
maximum term of each incentive stock option and non-qualified stock option
issued under the 1999 Stock Option Plan is ten years. The number of shares of
common stock of the Company authorized for issuance under the 1999 Stock Option
Plan is 9,000,000 shares.
For any participant who owns shares possessing more than 10% of the voting
rights of the outstanding common stock, the exercise price of any incentive
stock option must be at least 110% of the fair market value of the shares
subject to such option on the date of the grant and the term of the option may
not be longer than five years. Options become exercisable at such time or times
as the Board of Directors or committee granting such options determine when such
options are granted. Options granted under the 1999 Stock Option Plan are
generally not transferable by the holder. As of May 31, 2000, 24,648 shares of
common stock were issued and outstanding as restricted stock under the 1999
Stock Option Plan.
F-16
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MAY 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SUBSCRIBER, SHARE AND PER SHARE DATA)
1991 EMPLOYEE STOCK OPTION PLAN
The Company's 1991 Employee Stock Option Plan (the 'Employee Stock Option
Plan') as amended, provided for the grant of options to purchase up to
18,225,000 shares of class A common stock reserved thereunder to directors,
officers and other key employees of the Company. The Employee Stock Option Plan
permitted the issuance of 'incentive stock options', as defined in Section 422A
of the Code, as well as non-qualified stock options and stock appreciation
rights. The maximum term of each option was ten years.
For any participant who owned shares possessing more than 10% of the voting
rights of the outstanding common stock, the exercise price of any incentive
stock option must be at least 110% of the fair market value of the shares
subject to such option on the date of grant and the term of the option may not
be longer than five years. Options became exercisable at such time or times as
the Employee Stock Option Committee determined when it granted options. The
Employee Stock Option Plan permitted the exercise of options by the payment of
cash or delivery of shares of class A common stock equal in fair market value on
the date of exercise to the exercise price. Options granted under the Employee
Stock Option Plan were not transferable by the holder. During the fiscal years
ended May 31, 1999 and 1998, the number of such options awarded were
approximately 0 and 4,392,000, respectively.
Pursuant to the Merger Agreement, at the time of the Merger, each option to
purchase class A common stock granted under the Employee Stock Option Plan was
exercised or canceled pursuant to its terms or in exchange for a cash amount
equal to the difference between $4.61 (adjusted for two three for one stock
splits for holders' of record on January 8, 1999 and December 20, 1999) and the
exercise price of the option prior to the effective time of the Merger. The
Employee Stock Option Plan was terminated in connection with the Merger (See
Note 2).
DIRECTOR OPTION PLAN
The Company's Non-Employee/Officer Director Option Plan (the 'Director
Option Plan') was adopted on October 27, 1993. The Director Option Plan provided
for the grant of non-qualified options to purchase up to 450,000 shares of class
A common stock to non-employee/officer directors, who were not employees of the
Company or its subsidiaries. Options for 9,000 shares of class A common stock
were automatically granted under the Director Option Plan on the date of the
annual meeting of shareholders of the Company in each of the years 1993 through
1998. Generally, the option price of non-qualified stock options granted may be
as determined by the Director Option Committee, but must be at least equal to
100% of the fair market value of the shares on the date of the grant.
Options became exercisable at the rate of 20% per year beginning with the
first anniversary of the date of the grant. The Director Option Plan permitted
the exercise of options by payments of cash or class A common stock equal in
value to the option price. Options granted under the Director Option Plan were
not transferable by the holder other than by will or the laws of descent and
distribution. During each of the fiscal years ended May 31, 1999 and 1998, 0 and
36,000 of such options were awarded, respectively.
Pursuant to the Merger Agreement, at the time of the Merger, each option to
purchase class A common stock granted under the Director Option Plan, as
amended, was exercised or canceled pursuant to its terms or in exchange for a
cash amount equal to the difference between $4.61 (adjusted for two three for
one stock splits for holders' of record on January 8, 1999 and December 20,
1999) and the exercise price of the option prior to the effective time of the
Merger. The Director Option Plan was terminated in connection with the Merger
(See Note 2).
F-17
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MAY 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SUBSCRIBER, SHARE AND PER SHARE DATA)
A summary of the status of the Company's stock options as of May 31, 1998,
1999 and 2000 and changes during the years then ended are presented below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
NUMBER PRICE
------ -----
<S> <C> <C> <C>
1998 Outstanding at June 1, 1997.............................. 10,375,686 $ 1.20
Granted.................................................. 4,428,000 $ 2.11
Exercised................................................ (455,544) $ 1.17
Canceled................................................. (824,355) $ 1.49
----------
Options outstanding as of May 31, 1998................... 13,523,787 $ 1.48
1999 Granted.................................................. 5,478,000 $ 4.64
Exercised................................................ (4,211,469) $ 1.16
Canceled................................................. (9,348,318) $ 1.64
----------
Options outstanding as of May 31, 1999................... 5,442,000 $ 4.64
2000 Granted.................................................. 3,490,600 $14.53
Exercised................................................ (295,680) $ 4.71
Canceled................................................. (1,865,249) $ 6.27
----------
Options Outstanding at May 31, 2000...................... 6,771,671 $ 9.29
----------
----------
Options exercisable at May 31, 2000...................... 771,955 $ 4.65
---------- ------
---------- ------
</TABLE>
The following table summarizes information about options outstanding at May
31, 2000:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
AT MAY 31, CONTRACTUAL EXERCISE AT MAY 31, EXERCISE
RANGE OF EXERCISE PRICES 2000 LIFE PRICE 2000 PRICE
------------------------ ---- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C>
$4.61 - 6.00............................. 3,677,821 8.61 years $ 4.63 770,830 $ 4.63
$11.67 - 13.15........................... 1,426,950 9.08 years $12.40 -- $ --
$16.13 - 19.25........................... 1,596,700 9.68 years $16.59 1,125 $16.43
$24.38................................... 70,200 9.79 years $24.38 -- $ --
--------- ---------- ------ ------- ------
6,771,671 8.97 years $ 9.29 771,955 $ 4.65
--------- ---------- ------ ------- ------
--------- ---------- ------ ------- ------
</TABLE>
The following table summarizes information about options exercisable at
May 31, 1999 and 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
YEAR ENDED NUMBER EXERCISE
MAY 31, EXERCISABLE PRICE
------- ----------- -----
<S> <C> <C>
1999 .................................................. -- $ --
1998 .................................................. 5,085,009 $1.20
</TABLE>
1991 EMPLOYEE STOCK PURCHASE PLAN
The Company had reserved 1,800,000 shares of class A common stock for
issuance under the 1991 Employee Stock Purchase Plan (the 'Purchase Plan').
Under the Purchase Plan, eligible employees (which generally includes all
full-time employees of the Company) were able to subscribe for shares of
class A common stock at a purchase price of 85% of the average market price (as
defined) of the class A common stock on the first day or last day of the payroll
deduction period relating to an offering under the Purchase Plan. Payment of the
purchase price of the shares was to be made in installments
F-18
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MAY 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SUBSCRIBER, SHARE AND PER SHARE DATA)
through payroll deductions, with no right of prepayment. The Purchase Plan was
administered by the Compensation Committee of the Board of Directors. Rights to
purchase shares of class A common stock under the Purchase Plan could not be
transferred by the recipient and could be forfeited in the event of the
recipient's termination of employment. During the fiscal years ended May 31,
1999 and 1998, 146,640 and 317,340 shares, respectively, were purchased by
employees under the Purchase Plan. The Purchase Plan was terminated in
connection with the Merger.
EQUITY INCENTIVE PLAN
The Company's 1993 Equity Incentive Plan (the 'Equity Plan') was adopted by
the Board of Directors and approved by the stockholders on October 27, 1993 and
amended on October 29, 1996. The plan permitted the issuance of up to 3,150,000
shares of the Company's class A common stock for high levels of performance and
productivity by officers and other management employees of the Company. The plan
authorized the Compensation Committee of the Company's Board of Directors to
grant stock based awards that include but were not limited to, restricted stock,
performance shares and deferred stock. The Committee determined the recipients
and provisions of the grants under the Equity Plan, including the grant price,
term and number of shares subject to grant.
Generally, any employee will realize compensation taxable as ordinary
income, and the Company will be entitled to a corresponding tax deduction in an
amount equal to the sum of any cash received by the employee plus the fair
market value of any shares of class A common stock received by the employee.
During the fiscal years ended May 31, 1999 and 1998, the number of restricted
shares issued for awards under the Equity Plan were 0 and 1,179,000,
respectively. These restricted shares vested pursuant to the Merger Agreement
and the Equity Plan was terminated.
The estimated weighted average fair value of options granted during fiscal
2000, 1999 and 1998 were $7.97 per share, $2.30 per share, and $0.74 per share,
respectively. The Company applies APB Opinion No. 25 and related interpretations
in accounting for its plans. Accordingly, no compensation cost has been
recognized with respect to its stock option plan.
Had compensation cost for the Company's stock option plans and stock
purchase plan been determined based on the fair value of the awards on the grant
dates in accordance with the accounting provisions of SFAS No. 123 'Accounting
for Stock-Based Compensation', the Company's net income (loss) and net income
(loss) per common share for the years ended May 31, 2000, 1999 and 1998 would
have been adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Income (Loss) applicable to common shares:
As reported........................................ $16,677 $(90,073) $(48,398)
Pro forma.......................................... $10,255 $(91,228) $(49,306)
Income (Loss) per common share:
Basic: As reported................................ $ 0.18 $ (0.72) $ (0.32)
Pro forma................................... $ 0.11 $ (0.73) $ (0.33)
Diluted: As reported............................... $ 0.17 $ (0.72) $ (0.32)
Pro forma................................... $ 0.10 $ (0.73) $ (0.33)
</TABLE>
F-19
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MAY 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SUBSCRIBER, SHARE AND PER SHARE DATA)
The fair value of options granted under the Company's stock option plans during
fiscal 2000, 1999 and 1998 was estimated on the dates of grant using the
Black-Scholes options-pricing model with the following weighted average
assumptions used:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Expected volatility...................................... 64.55% 57.00% 43.63%
Risk-free interest rate.................................. 6.54% 5.64% 5.45%
Expected lives of option grants.......................... 4 years 4 years 3 years
Expected dividend yield.................................. 0.00% 0.00% 0.00%
</TABLE>
RETIREMENT PLANS
The Company sponsors 401(k) defined contribution retirement plans covering
employees of its wholly owned subsidiaries. If a participant decides to
contribute, a portion of the contribution is matched by the Company. Effective
in fiscal year 1999, the Company began providing a profit sharing component to
the retirement plans. The profit share contribution made by the Company is based
on the results of the Company, as defined under the profit share agreement.
Total expense under the plans was approximately $1,205, $1,376 and $326 for the
years ended May 31, 2000, 1999, and 1998, respectively. The profit sharing
component represented approximately $353 and $816 of the total expense for the
years ended May 31, 2000 and 1999, respectively.
11. ACQUISITIONS
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
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 are included in common stock issuable in the consolidated balance sheet.
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.
These acquisitions were 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 purchase
price allocation for these acquisitions are preliminary and may be revised at a
later date. The results of operations of the acquired businesses are included in
the consolidated financial statements from the dates of acquisition.
F-20
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MAY 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SUBSCRIBER, SHARE AND PER SHARE DATA)
12. PRO FORMA INFORMATION
The summary pro forma information includes the operations of the Company and
the completed acquisitions as if such acquisitions had been consummated as of
June 1, 1998.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Revenues................................................ $529,482 $399,186
Net income (loss)....................................... $ 16,493 $(81,124)
Income (loss) per common share
Basic............................................... $ 0.17 $ (0.72)
Diluted............................................. $ 0.17 $ (0.72)
</TABLE>
Pro forma income (loss) per common share for the year ended May 31, 2000 and
1999 is calculated using the weighted average number of common shares
outstanding during the period, as if such acquisitions had been consummated as
of June 1, 1998.
13. PENDING ACQUISITION
In May 2000, the Company entered into a definitive agreement to acquire 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. This transaction is subject to customary
closing conditions and is expected to close in the second quarter of fiscal
2001.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheets for cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses and
short-term debt approximate fair value because of the short-term maturity of
these financial instruments. The carrying amounts of restricted investments
approximate fair value. Fair value is determined by the most recently traded
price of the security at the balance sheet date. The estimated fair value of the
Company's debt and derivative financial instruments is summarized as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
-------------------------------------------------
2000 1999
----------------------- -----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Long-term debt........................ $1,577,773 $1,567,043 $1,463,795 $1,478,595
Derivative financial instruments:
Interest rate swap agreements..... -- 14,310 -- 5,369
Interest rate collar agreement.... -- 2,385 -- 938
</TABLE>
Fair value for debt was determined based on interest rates that are
currently available to the Company for the issuance of debt with similar terms
and remaining maturities. All derivative financial instruments are off-balance
sheet and therefore have no carrying value. The fair values of the interest rate
swap and collar agreements are estimated using quotes from brokers.
15. SUBSEQUENT EVENTS
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
F-21
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MAY 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SUBSCRIBER, SHARE AND PER SHARE DATA)
87 million shares owned by our controlling stockholders (Welsh, Carson, Anderson
& Stowe and an affiliate of the Blackstone Group) and certain other Centennial
stockholders.
On July 24, 2000, the Company entered into a definitive agreement to sell
its Southwest properties to Western Wireless Corporation for approximately
$202,500 in cash. The Company's Southwest properties consist of rural service
areas in and around Yuma, Arizona (Arizona RSA-4) and El Centro, California
(California RSA-7). The Southwest properties also include 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 May 2000, the Company entered into a definitive agreement to purchase 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 Lake Charles market represents approximately 180,000 Net Pops. The
Company completed this acquisition on July 14, 2000 at a purchase price of
approximately $42,300 in cash, subject to adjustment.
On July 18, 2000, the Company acquired a 60% interest in Infochannel
Limited, a leading Internet Service Provider on the island of Jamaica.
16. 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 year segment results have been
restated to reflect the new segments. The Company measures the operating
performance of each segment based on Adjusted EBITDA. Adjusted 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.
F-22
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MAY 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SUBSCRIBER, SHARE AND PER SHARE DATA)
Information about the Company's operations in its three business segments
for the years ended May 31, 2000, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
CARIBBEAN CARIBBEAN
DOMESTIC WIRELESS WIRELINE ELIMINATIONS CONSOLIDATED
-------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED MAY 31, 2000
Total revenues...................... $ 303,688 $161,362 43,878 $ (7,634)(a) $ 501,294
Adjusted EBITDA..................... 151,664 76,555 9,640 -- 237,859
Total assets........................ 1,356,931 323,260 103,662 (611,120)(b) 1,172,733
Capital expenditures................ 45,532 72,737 30,843 -- 149,112
YEAR ENDED MAY 31, 1999
Total revenues...................... $ 241,902 $109,523 22,541 $ (4,815)(a) $ 369,151
Adjusted EBITDA..................... 127,431 46,830 9,237 -- 183,498
Total assets........................ 850,645 248,164 45,597 (158,125)(b) 986,281
Capital expenditures................ 37,908 52,571 12,925 -- 103,404
YEAR ENDED MAY 31, 1998
Total revenues...................... $ 181,502 $ 51,483 4,687 $ (1,856)(a) $ 235,816
Adjusted EBITDA..................... 86,670 12,041 497 -- 99,208
Total assets........................ 718,231 222,432 26,307 (119,553)(b) 847,417
Capital expenditures................ 38,996 82,179 8,125 -- 129,300
</TABLE>
---------
(a) Elimination of intercompany revenue, primarily from Caribbean Wireline to
Caribbean Wireless
(b) Elimination of intercompany investments
RECONCILIATION OF INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST AND
EXTRAORDINARY ITEM
<TABLE>
<CAPTION>
MAY 31,
-------------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Adjusted EBITDA for reportable segments..................... $ 237,859 $183,498 $ 99,208
Interest expense (net)...................................... (149,494) (87,693) (43,470)
Depreciation and amortization............................... 82,624 114,696 114,194
Recapitalization costs...................................... -- 52,831 --
Income from equity investments.............................. 16,500 11,502 13,069
Gain (loss) on disposition of assets........................ (72) 8,031 5
--------- -------- --------
Income (loss) before income taxes, minority interest and
extraordinary item........................................ $ 22,169 $(52,189) $(45,382)
--------- -------- --------
--------- -------- --------
</TABLE>
F-23
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SUBSCRIBER AND SHARE DATA)
17. 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 MAY 31, 2000
<TABLE>
<CAPTION>
CENTENNIAL CENTENNIAL CENTENNIAL
PUERTO RICO CELLULAR COMMUNICATIONS
OPERATIONS CORP. OPERATING CO. LLC NON-GUARANTORS CORP.
---------------- ----------------- -------------- -----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents... $ 4,915 $ -- $ 7,964 $ --
Restricted investments...... -- -- 19,888 --
Accounts
receivable -- net.......... 24,374 -- 45,318 --
Inventory -- phones and
accessories -- net......... 412 -- 10,423 --
Prepaid expenses and other
current assets............. 3,863 -- 2,589 --
-------- ---------- ---------- -----------
Total current assets..... 33,564 -- 86,182 --
Property, plant & equipment --
net........................... 195,770 -- 202,575 --
Equity investments in wireless
systems -- net................ -- -- 72,894 --
Debt issuance costs -- net..... 24,091 -- 32,018 --
Domestic cellular
licenses -- net............... -- -- 241,855 --
Caribbean wireless
licenses -- net............... -- -- 122,297 --
Goodwill -- net................ -- -- 137,545 --
Investment in affiliates....... -- -- -- --
Intercompany................... -- 1,150,500 941,344 587,688
Investment in subsidiaries..... -- (507,202) 482,809 (982,202)
Other assets -- net............ 6,541 -- 17,401 --
-------- ---------- ---------- -----------
Total.................... $259,966 $ 643,298 $2,336,920 $ (394,514)
-------- ---------- ---------- -----------
-------- ---------- ---------- -----------
LIABILITIES AND
STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current portion of long term
debt....................... $ 5,500 $ -- $ 6,225 $ --
Short-term debt............. -- -- 6,688 --
Accounts payable............ 10,973 -- 21,265 --
Accrued expenses and other
current liabilities........ 29,302 -- 76,909 732
Payable to affiliates....... -- -- 125 --
-------- ---------- ---------- -----------
Total current
liabilities............ 45,775 -- 111,212 732
Long-term debt................. 682,500 705,000 7,010 171,538
Minority interest in
subsidiaries.................. -- -- 25,296 --
Intercompany................... 11,298 920,500 1,738,257 9,546
Stockholders' equity (deficit):
Common stock................ -- -- -- 944
Common stock issuable....... -- -- -- 2,355
Preferred Stock............. 465,000 -- -- --
Additional paid-in
capital.................... (888,286) -- 1,381,026 426,675
Accumulated deficit......... (56,321) (982,202) (925,881) (1,004,910)
-------- ---------- ---------- -----------
(479,607) (982,202) 455,145 (574,936)
Less: treasury shares....... -- -- -- (1,077)
Deferred compensation....... -- -- -- (317)
-------- ---------- ---------- -----------
Total stockholders'
equity (deficit)....... (479,607) (982,202) 455,145 (576,330)
-------- ---------- ---------- -----------
Total................. $259,966 $ 643,298 $2,336,920 $ (394,514)
-------- ---------- ---------- -----------
-------- ---------- ---------- -----------
<CAPTION>
CENTENNIAL
COMMUNICATIONS
CORP. AND
ELIMINATIONS SUBSIDIARIES
------------ --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents... $ -- $ 12,879
Restricted investments...... -- 19,888
Accounts
receivable -- net.......... -- 69,692
Inventory -- phones and
accessories -- net......... -- 10,835
Prepaid expenses and other
current assets............. -- 6,452
----------- -----------
Total current assets..... -- 119,746
Property, plant & equipment --
net........................... -- 398,345
Equity investments in wireless
systems -- net................ -- 72,894
Debt issuance costs -- net..... -- 56,109
Domestic cellular
licenses -- net............... -- 241,855
Caribbean wireless
licenses -- net............... -- 122,297
Goodwill -- net................ -- 137,545
Investment in affiliates....... -- --
Intercompany................... (2,679,532) --
Investment in subsidiaries..... 1,006,595 --
Other assets -- net............ -- 23,942
----------- -----------
Total.................... $(1,672,937) $ 1,172,733
----------- -----------
----------- -----------
LIABILITIES AND
STOCKHOLDERS'
EQUITY (DEFICIT)
Current portion of long term
debt....................... $ -- $ 11,725
Short-term debt............. -- 6,688
Accounts payable............ -- 32,238
Accrued expenses and other
current liabilities........ -- 106,943
Payable to affiliates....... -- 125
----------- -----------
Total current
liabilities............ -- 157,719
Long-term debt................. -- 1,566,048
Minority interest in
subsidiaries.................. -- 25,296
Intercompany................... (2,679,601) --
Stockholders' equity (deficit):
Common stock................ -- 944
Common stock issuable....... -- 2,355
Preferred Stock............. (465,000) --
Additional paid-in
capital.................... (492,740) 426,675
Accumulated deficit......... 1,964,404 (1,004,910)
----------- -----------
1,006,664 (574,936)
Less: treasury shares....... -- (1,077)
Deferred compensation....... -- (317)
----------- -----------
Total stockholders'
equity (deficit)....... 1,006,664 (576,330)
----------- -----------
Total................. $(1,672,937) $ 1,172,733
----------- -----------
----------- -----------
</TABLE>
F-24
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MAY 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SUBSCRIBER AND SHARE DATA)
CONSOLIDATING STATEMENT OF OPERATIONS FINANCIAL DATA
FOR THE YEAR ENDED MAY 31, 2000
<TABLE>
<CAPTION>
CENTENNIAL
CENTENNIAL CENTENNIAL CENTENNIAL COMMUNICATIONS
PUERTO RICO CELLULAR COMMUNICATIONS CORP. AND
OPERATIONS CORP. OPERATING CO. LLC NON-GUARANTORS CORP. ELIMINATIONS SUBSIDIARIES
---------------- ----------------- -------------- ----- ------------ ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue.................. $193,767 $ -- $ 309,611 $ -- $ (2,084) $ 501,294
-------- --------- --------- -------- -------- ---------
Costs and expenses:
Cost of equipment
sold................. 4,478 -- 29,060 -- -- 33,538
Cost of services...... 26,524 -- 35,998 -- (515) 62,007
Sales and marketing... 30,076 -- 46,724 -- -- 76,800
General &
administrative....... 47,416 -- 45,243 -- (1,569) 91,090
Depreciation and
amortization......... 45,007 -- 37,617 -- -- 82,624
-------- --------- --------- -------- -------- ---------
153,501 -- 194,642 -- (2,084) 346,059
-------- --------- --------- -------- -------- ---------
Operating income......... 40,266 -- 114,969 -- -- 155,235
-------- --------- --------- -------- -------- ---------
Income from equity
investments............. -- -- 16,500 -- -- 16,500
Income from investments
in subsidiaries......... -- 39,385 13,420 39,385 (92,190) --
Loss on disposition of
assets.................. (45) -- (27) -- -- (72)
Interest
expense -- net.......... (26,801) (102,897) 2,912 (22,708) -- (149,494)
Intercompany interest
allocation.............. -- 102,897 (102,897) -- -- --
-------- --------- --------- -------- -------- ---------
Income before income tax
expense and minority
interest................ 13,420 39,385 44,877 16,677 (92,190) 22,169
Income tax expense....... -- -- (5,568) -- -- (5,568)
-------- --------- --------- -------- -------- ---------
Income before minority
interest................ 13,420 39,385 39,309 16,677 (92,190) 16,601
Minority interest in loss
of subsidiaries......... -- -- 76 -- -- 76
-------- --------- --------- -------- -------- ---------
Net income............... $ 13,420 $ 39,385 $ 39,385 $ 16,677 $(92,190) $ 16,677
-------- --------- --------- -------- -------- ---------
-------- --------- --------- -------- -------- ---------
</TABLE>
F-25
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MAY 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SUBSCRIBER AND SHARE DATA)
CONSOLIDATING STATEMENT OF CASH FLOWS FINANCIAL DATA
FOR THE YEAR ENDED MAY 31, 2000
<TABLE>
<CAPTION>
CENTENNIAL
CENTENNIAL CENTENNIAL CENTENNIAL COMMUNICATIONS
PUERTO RICO CELLULAR COMMUNICATIONS CORP. AND
OPERATIONS CORP. OPERATING CO. LLC NON-GUARANTORS CORP. ELIMINATIONS SUBSIDIARIES
---------------- ----------------- -------------- ----- ------------ ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Operating activities:
Cash received from
subscribers and others.. $ 164,470 $ -- $ 343,816 $ -- $ -- $ 508,286
Cash received from (paid
to) affiliates.......... -- 104,632 (104,632) -- --
Cash paid to suppliers,
employees and
governmental agencies... (79,487) -- (210,327) -- -- (289,814)
Interest paid............ (26,528) (104,632) (192) (28,041) -- (159,393)
---------- --------- --------- -------- ---- ----------
Net cash provided by
(used in) operating
activities.......... 58,455 -- 28,665 (28,041) -- 59,079
---------- --------- --------- -------- ---- ----------
Investing activities:
Proceeds from disposition
of assets............... 358 -- 346 -- -- 704
Capital expenditures..... (103,019) -- (46,093) -- -- (149,112)
Purchase of restricted
securities.............. -- -- (39,886) -- -- (39,886)
Proceeds from maturity of
restricted securities... -- -- 79,882 -- -- 79,882
Acquisitions, net of cash
acquired................ (30,902) -- (69,421) -- -- (100,323)
Acquisition of minority
partnership interests... -- -- (323) -- -- (323)
Distributions received
from equity
investments............. -- -- 19,779 -- -- 19,779
Capital contributed to
equity investments...... -- (3,079) (3,079)
---------- --------- --------- -------- ---- ----------
Net cash used in
investing
activities.......... (133,563) -- (58,795) -- -- (192,358)
---------- --------- --------- -------- ---- ----------
Financing activities:
Proceeds from the
issuance of long-term
debt.................... 1,024,975 33,800 -- 9,243 -- 1,068,018
Repayment of long-term
debt.................... (497,975) (471,550) -- -- -- (969,525)
Debt issuance costs
paid.................... (2,182) (2,683) -- -- -- (4,865)
Proceeds from the
exercise of stock
options................. -- -- -- 1,389 -- 1,389
Cash received from (paid
to) affiliates.......... (454,055) 440,433 13,622 -- -- --
Cash advances from
subsidiaries (to
parent)................. 161 -- (17,570) 17,409 -- --
---------- --------- --------- -------- ---- ----------
Net cash provided by
(used in) financing
activities.......... 70,924 -- (3,948) 28,041 -- 95,017
---------- --------- --------- -------- ---- ----------
Net decrease in cash and
cash equivalents........... (4,184) -- (34,078) -- -- (38,262)
Cash and cash equivalents,
beginning of year.......... 9,099 -- 42,042 -- -- 51,141
---------- --------- --------- -------- ---- ----------
Cash and cash equivalents,
end of year................ $ 4,915 $ -- $ 7,964 $ -- $ -- $ 12,879
---------- --------- --------- -------- ---- ----------
---------- --------- --------- -------- ---- ----------
</TABLE>
F-26
<PAGE>
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MAY 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SUBSCRIBER AND SHARE DATA)
CONSOLIDATING STATEMENT OF CASH FLOWS FINANCIAL DATA
FOR THE YEAR ENDED MAY 31, 2000 -- (CONTINUED)
<TABLE>
<CAPTION>
CENTENNIAL
CENTENNIAL CENTENNIAL CENTENNIAL COMMUNICATIONS
PUERTO RICO CELLULAR COMMUNICATIONS CORP. AND
OPERATIONS CORP. OPERATING CO. LLC NON-GUARANTORS CORP. ELIMINATIONS SUBSIDIARIES
---------------- ----------------- -------------- ----- ------------ ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Reconciliation of net income
to net cash provided by
(used in) operating
activities:
Net income............... $ 13,420 $ 39,385 $ 39,385 $ 16,677 $(92,190) $ 16,677
---------- --------- --------- -------- -------- ----------
Adjustments to reconcile net
income to net cash provided
by (used in) operating
activities:
Depreciation and
amortization............ 46,576 -- 36,048 -- -- 82,624
Minority interest in loss
of subsidiaries......... -- -- (76) -- -- (76)
Deferred income taxes.... (236) -- (3,613) -- -- (3,849)
Equity in undistributed
earnings of investee
companies............... -- -- (16,500) -- -- (16,500)
Equity in undistributed
earnings of
subsidiaries............ -- (39,385) (13,420) (39,385) 92,190 --
Loss on disposition of
assets.................. 45 -- 27 -- -- 72
Noncash expenses......... 7,163 -- (9,413) 2,250 -- --
Other.................... 1,233 -- 5,778 -- -- 7,011
Change in assets and
liabilities net of
effects of acquisitions:
Accounts receivable --
(increase).......... (9,350) -- (6,737) -- -- (16,087)
Prepaid expenses and
other current
assets -- (increase).. (3,857) -- (3,255) -- -- (7,112)
Accounts payable,
accrued expenses and
other current
liabilities -- increase
(decrease).......... 3,481 -- (1,273) (7,583) -- (5,375)
Customer deposits and
prepayments --
(decrease)
increase............ (20) -- 1,714 -- -- 1,694
---------- --------- --------- -------- -------- ----------
Total adjustments........ 45,035 (39,385) (10,720) (44,718) 92,190 42,402
---------- --------- --------- -------- -------- ----------
Net cash provided by (used
in) operating activities... $ 58,455 $ -- $ 28,665 $(28,041) $ -- $ 59,079
---------- --------- --------- -------- -------- ----------
---------- --------- --------- -------- -------- ----------
</TABLE>
F-27
<PAGE>
CENTENNIAL CELLULAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MAY 31, 2000, 1999 AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SUBSCRIBER, SHARE AND PER SHARE DATA)
18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
AUGUST 31, NOVEMBER 30, FEBRUARY 28, MAY 31,
1998 1998 1999 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues........................................ $ 77,446 $ 87,152 $ 97,993 $106,560
Operating income (loss)......................... 6,831 10,196 (43,233) 42,177
Income (loss) before extraordinary item......... 5,655 688 (53,080) 1,649
Net income (loss)............................... 5,655 688 (93,606) 7,096
Income (loss) per share before extraordinary
item applicable to common shares (basic
and diluted).................................. 0.01 (0.02) (0.48) 0.02
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
AUGUST 31, NOVEMBER 30, FEBRUARY 29, MAY 31,
1999 1999 2000 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues........................................ $117,272 $123,530 $127,621 $132,871
Operating income................................ 38,942 40,371 31,663 44,259
Net income (loss)............................... 5,679 7,049 (3,243) 7,192
Income (loss) per share applicable to
common shares:
Basic....................................... 0.06 0.08 (0.03) 0.08
Diluted..................................... 0.06 0.07 (0.03) 0.07
</TABLE>
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
CENTENNIAL COMMUNICATIONS CORP.
Neptune, New Jersey
We have audited the consolidated financial statements of Centennial
Communications Corp. (formerly Centennial Cellular Corp.) and subsidiaries (the
'Company') as of May 31, 2000 and 1999, and for each of the three years in the
period ended May 31, 2000, and have issued our report thereon dated July 25,
2000; such report is included elsewhere in this Form 10-K. Our audits also
included the financial statement schedule listed in Item 14. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/S/ DELOITTE & TOUCHE LLP
New York, New York
July 25, 2000
F-29
<PAGE>
SCHEDULE II
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
OF YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR
------- -------- -------- ---------- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year ended May 31, 2000
Allowance for Doubtful Accounts.... $3,763 $24,358 $ -- $21,582 $6,539
------ ------- ------ ------- ------
------ ------- ------ ------- ------
Reserve for Inventory
Obsolescence..................... $1,315 $ 142 $ -- $ 405 $1,052
------ ------- ------ ------- ------
------ ------- ------ ------- ------
Year ended May 31, 1999
Allowance for Doubtful Accounts.... $2,693 $ 8,967 $ -- $ 7,897 $3,763
------ ------- ------ ------- ------
------ ------- ------ ------- ------
Reserve for Inventory
Obsolescence..................... $ 529 $ 2,135 $ -- $ 1,349 $1,315
------ ------- ------ ------- ------
------ ------- ------ ------- ------
Year ended May 31, 1998
Allowance for Doubtful Accounts.... $2,130 $ 7,339 $ -- $ 6,776 $2,693
------ ------- ------ ------- ------
------ ------- ------ ------- ------
Reserve for Inventory
Obsolescence..................... $ 250 $ 279 $ -- $ -- $ 529
------ ------- ------ ------- ------
------ ------- ------ ------- ------
</TABLE>
F-30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has duly caused this Annual Report
on Form 10-K for the fiscal year ended May 31, 2000 to be signed on its behalf
by the undersigned, thereunto duly authorized, on the 25th day of August, 2000.
CENTENNIAL COMMUNICATIONS CORP.
By: /s/ Michael J. Small
..................................
MICHAEL J. SMALL
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND DIRECTOR
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Annual Report on Form 10-K for the fiscal year ended May 31, 2000
has been signed below by the following persons in the capacities indicated on
the 25th day of August, 2000.
<TABLE>
<C> <S>
/s/ MICHAEL J. SMALL President, Chief Executive Officer and Director
......................................... (Principal Executive Officer)
MICHAEL J. SMALL
/s/ PETER W. CHEHAYL Senior Vice President, Treasurer and Chief Financial
......................................... Officer (Principal Financial Officer)
PETER W. CHEHAYL
/s/ THOMAS E. BUCKS Senior Vice President -- Controller (Principal
......................................... Accounting Officer)
THOMAS E. BUCKS
/s/ THOMAS E. MCINERNEY Chairman, Board of Directors
.........................................
THOMAS E. MCINERNEY
/s/ CARMEN ANA CULPEPER Director
.........................................
CARMEN ANA CULPEPER
/s/ ANTHONY J. DE NICOLA Director
.........................................
ANTHONY J. DE NICOLA
/s/ MARK T. GALLOGLY Director
.........................................
MARK T. GALLOGLY
/s/ LAWRENCE H. GUFFEY Director
.........................................
LAWRENCE H. GUFFEY
/s/ RUDOLPH E. RUPERT Director
.........................................
RUDOLPH E. RUPERT
/s/ JOHN M. SCANLON Director
.........................................
JOHN M. SCANLON
/s/ J. STEPHEN VANDERWOUDE Director
.........................................
J. STEPHEN VANDERWOUDE
</TABLE>
II-1
