<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-19869
------------------------------------------
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC.
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3517074
------------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 East 59th Street, New York, NY 10022
- ---------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
(212) 355-3466
---------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
The number of shares outstanding of the issuer's common stock as of
June 30, 1996 was 13,237,980.
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
- -------------------------------
Item 1. Financial Statements
Condensed consolidated balance sheets--
June 30, 1996 and December 31, 1995 2
Condensed consolidated statements of operations--
Three and six months ended June 30, 1996 and 1995 4
Condensed consolidated statement of shareholders'
equity--Six months ended June 30, 1996 5
Condensed consolidated statements of cash flows--
Six months ended June 30, 1996 and 1995 6
Notes to condensed consolidated financial statements 7
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 10
PART II. OTHER INFORMATION
- --------------------------
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
- ----------
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- -------------
(Unaudited) (See Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,142,000 $ 8,050,000
Accounts receivable-trade,
less allowance for doubtful
accounts of $3,710,000 (1996)
and $3,233,000 (1995) 17,967,000 17,929,000
Equipment inventory 4,776,000 6,388,000
Prepaid expenses and other
current assets 4,569,000 2,600,000
------------ ------------
TOTAL CURRENT ASSETS 30,454,000 34,967,000
PROPERTY, PLANT & EQUIPMENT, net 83,779,000 75,769,000
UNAMORTIZED LICENSE ACQUISITION
COSTS 159,765,000 139,952,000
DEFERRED FINANCING COSTS, less
accumulated amortization of
$759,000 (1996) and $455,000
(1995) 4,424,000 4,706,000
OTHER ASSETS, less accumulated
amortization of $1,620,000 (1996)
and $1,471,000 (1995) 1,368,000 1,603,000
------------ ------------
$279,790,000 $256,997,000
============ ============
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from
the audited financial statements at that date.
2
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS--Continued
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- -------------
(Unaudited) (See Note)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 6,874,000 $ 5,874,000
Accrued expenses 11,668,000 10,895,000
Due to Cellular
Communications, Inc. 345,000 310,000
Interest payable 1,401,000 615,000
Deferred revenue 2,835,000 2,854,000
Current portion of long
term debt - 1,975,000
------------ ------------
TOTAL CURRENT LIABILITIES 23,123,000 22,523,000
LONG TERM DEBT 95,000,000 90,000,000
COMMITMENTS AND CONTINGENT LIABILITIES
MINORITY INTERESTS - 322,000
SHAREHOLDERS' EQUITY
Series preferred stock-$.01 par value;
authorized 2,500,000 shares; issued
and outstanding none - -
Common stock-$.01 par value;
authorized 30,000,000 shares; issued
13,431,000 (1996) and 12,803,000
(1995) shares 134,000 128,000
Additional paid-in capital 226,159,000 210,646,000
(Deficit) (59,436,000) (60,477,000)
------------ ------------
166,857,000 150,297,000
Treasury stock-at cost, 193,000 (1996)
and 207,000 (1995) shares (5,190,000) (6,145,000)
------------ ------------
161,667,000 144,152,000
------------ ------------
$279,790,000 $256,997,000
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Service revenue $28,552,000 $22,271,000 $57,065,000 $41,760,000
Equipment revenue 3,162,000 3,912,000 6,125,000 7,227,000
----------- ----------- ----------- -----------
31,714,000 26,183,000 63,190,000 48,987,000
Costs and expenses:
Cost of equipment sold 4,158,000 5,422,000 8,838,000 10,686,000
Operating expenses 4,139,000 2,323,000 8,024,000 4,512,000
Selling, general and
administrative expenses 16,554,000 12,951,000 30,201,000 23,714,000
Depreciation of rental equipment 125,000 62,000 240,000 136,000
Depreciation expense 3,063,000 2,414,000 5,951,000 4,300,000
Amortization expense 1,555,000 1,520,000 3,082,000 2,874,000
----------- ----------- ----------- -----------
29,594,000 24,692,000 56,336,000 46,222,000
----------- ----------- ----------- -----------
OPERATING INCOME 2,120,000 1,491,000 6,854,000 2,765,000
Other income (expense):
Interest income and other, net 109,000 146,000 169,000 344,000
Interest expense (1,716,000) (2,452,000) (3,495,000) (4,637,000)
----------- ----------- ----------- -----------
INCOME(LOSS) BEFORE INCOME
TAX PROVISION 513,000 (815,000) 3,528,000 (1,528,000)
Income tax provision (761,000) (1,788,000) (2,487,000) (2,324,000)
----------- ----------- ----------- -----------
NET INCOME(LOSS) $ (248,000) $(2,603,000) $ 1,041,000 $(3,852,000)
=========== =========== =========== ===========
Net income (loss) per common share $(.02) $(.26) $.07 $(.39)
=========== =========== =========== ===========
Weighted average number of common
shares used in computation of
net income (loss) per share
including common stock equivalents 13,292,000 9,921,000 14,118,000 9,964,000
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
--------------------- Paid-in -----------------------
Shares Amount Capital Deficit Shares Amount
---------- -------- ------------ ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 12,803,000 $128,000 $210,646,000 $(60,477,000) (207,000) $(6,145,000)
Shares issued for interests
in cellular license 820,000 8,000 21,528,000
Exercise of stock options 15,000 128,000
Common stock repurchased,
at cost (193,000) (5,190,000)
Retirement of treasury stock (207,000) (2,000) (6,143,000) 207,000 6,145,000
Net income for the six months
ended June 30, 1996 1,041,000
---------- -------- ------------ ------------ --------- -----------
Balance, June 30, 1996 13,431,000 $134,000 $226,159,000 $(59,436,000) (193,000) $(5,190,000)
========== ======== ============ ============ ========= ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 10,609,000 $(10,517,000)
------------ ------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (12,230,000) (15,367,000)
Purchase of marketable securities (2,058,000)
Proceeds from maturities of marketable securities 11,057,000
Purchase of cellular license interests (56,000)
------------ ------------
NET CASH (USED IN) INVESTING ACTIVITIES (12,286,000) (6,368,000)
------------ ------------
FINANCING ACTIVITIES
Distributions to minority interest holders (1,172,000)
Principal payments (1,975,000)
Additional deferred financing costs (22,000)
Repayment of amount due to Cellular Communications
of Ohio, Inc. (47,942,000)
Proceeds from borrowings, net of financing costs 5,000,000 64,921,000
Proceeds from exercise of stock options 128,000 226,000
Payments to acquire treasury stock (5,190,000) (2,950,000)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (3,231,000) 14,255,000
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS (4,908,000) (2,630,000)
Cash and cash equivalents at beginning of period 8,050,000 6,311,000
------------ ------------
Cash and cash equivalents at end of period $ 3,142,000 $ 3,681,000
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest exclusive
of amounts capitalized $ 2,709,000 $ 14,881,000
Income taxes paid 4,667,000 411,000
Supplemental schedule of noncash investing activities:
Common stock issued to acquire cellular license interests $ 21,536,000
Liabilities incurred to acquire property, plant
and equipment 4,565,000 $ 4,779,000
Supplemental schedule of noncash financing activities:
Partial conversion of Senior Subordinated Notes $ 65,000
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months and six months ended June
30, 1996 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1995.
Net income (loss) per share is computed based upon the weighted average number
of common shares outstanding during the periods, including common stock
equivalents in the net income per share computation. Common stock equivalents
are excluded from the calculation of net loss per share as their effect would be
antidilutive.
NOTE B--ACCOUNTING CHANGE
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock Based Compensation." Although all entities are encouraged to adopt this
method of accounting for all employee stock compensation plans, SFAS No. 123
allows an entity to continue to measure compensation costs for its plans as
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees."
At this time, management expects to continue its accounting in accordance with
APB Opinion No. 25.
NOTE C--UNAMORTIZED LICENSE ACQUISITION COSTS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
Deferred cellular license costs $ 5,935,000 $ 5,935,000
Excess of purchase price paid over
the fair market value of tangible
assets acquired 183,565,000 161,123,000
------------ ------------
189,500,000 167,058,000
Accumulated amortization 29,735,000 27,106,000
------------ ------------
$159,765,000 $139,952,000
============ ============
</TABLE>
7
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-Continued
NOTE C--UNAMORTIZED LICENSE ACQUISITION COSTS-continued
In February 1996, the Company acquired the remaining minority interests
aggregating approximately 6% in the San Juan Cellular Telephone Company in
exchange for approximately 820,000 shares of the Company's common stock. The
stock was valued at $21,536,000, the fair market value on the date of
acquisition. In addition, the San Juan Cellular Telephone Company made a
special cash distribution of $1,172,000 to the minority interest holders. The
aggregate purchase price of $21,536,000 plus expenses of $56,000 and the
deficiency in net assets acquired of $850,000 have been classified as license
acquisition costs.
NOTE D--PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
Land $ 2,026,000 $ 1,962,000
Operating equipment 79,530,000 73,152,000
Office furniture and other equipment 14,298,000 12,092,000
Rental equipment 967,000 739,000
Construction in progress 18,651,000 13,535,000
----------- ------------
115,472,000 101,480,000
Allowance for depreciation 31,693,000 25,711,000
----------- ------------
$ 83,779,000 $ 75,769,000
=========== ============
NOTE E--ACCRUED EXPENSES
June 30, December 31,
1996 1995
------------- ------------
(Unaudited)
Accrued compensation $ 1,120,000 $ 1,056,000
Accrued franchise, property and
income taxes 3,480,000 5,354,000
Commissions payable 1,083,000 349,000
Accrued equipment purchases 1,952,000 280,000
Subscriber deposits 1,737,000 1,952,000
Other 2,296,000 1,904,000
----------- ------------
$11,668,000 $ 10,895,000
============ ============
</TABLE>
8
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)-Continued
NOTE F--LONG TERM DEBT
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, December 31,
1996 1995
----------- ------------
(Unaudited)
Bank loan $95,000,000 $90,000,000
Subsidiary note payable 225,000
Subsidiary note payable 1,750,000
----------- ------------
95,000,000 91,975,000
Less current portion 1,975,000
----------- ------------
$95,000,000 $90,000,000
=========== ============
</TABLE>
NOTE G--TREASURY STOCK
In April 1996, the Company announced that its Board of Directors authorized the
repurchase of up to an additional 750,000 shares of the Company's common stock
through open market purchases from time to time as market conditions warrant.
This repurchase plan is in addition to a previously announced repurchase plan
for up to 250,000 shares. To date the Company has repurchased 400,000 shares
for an aggregate of $11,335,000, of which 207,000 shares that cost an aggregate
of $6,145,000 were retired.
NOTE H--COMMITMENTS AND CONTINGENT LIABILITIES
As of June 30, 1996, the Company was committed to purchase approximately
$10,964,000 for cellular network and other equipment and for construction
services.
In 1992, the Company entered into an agreement which in effect provides for a
twenty year license to use its service mark which is also licensed to many of
the non-wireline cellular systems in the United States. The Company is required
to pay licensing and advertising fees and to maintain certain service quality
standards. The total fees paid for 1996 were $202,000 which were determined by
the size of the Company's markets.
9
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Three Months Ended June 30, 1996 and 1995
- -----------------------------------------
Service revenues increased to $28,552,000 from $22,271,000 as a result of
subscriber growth that increased the Company's current revenue stream. Average
monthly revenue per subscriber for the second quarter decreased to $71 in 1996
from $81 in 1995. Ending subscribers were 138,700 and 98,000 as of June 30,
1996 and 1995, respectively.
The loss from equipment, before depreciation of rental equipment, decreased
to $996,000 from $1,510,000 primarily because of reductions in the cost of
cellular telephones offset by an increase in the loss from pager sales. The
Company sells cellular telephones and pagers below cost in response to
competition and to generate subscriber growth.
Operating expenses increased to $4,139,000 from $2,323,000 primarily due to
increased usage of the network and additional costs associated with the expanded
network (including paging operations), which account for 90% and 10% of the
increase, respectively.
Selling, general and administrative expenses increased to $16,554,000 from
$12,951,000 as a result of increased selling and marketing to increase the
customer base and additional personnel to service the expanding customer base.
Increases in bad debt expense, customer retention expense and subscriber billing
expense also contributed to this increase. The increases in selling and
marketing costs, personnel costs, bad debt expense, customer retention expense
and subscriber billing expense were 14%, 7%, 23%, 12% and 11%, respectively, of
the total $3,603,000 increase.
Depreciation of rental equipment increased to $125,000 from $62,000 due to an
increase in the number of rental pagers, offset by a decrease in rental
telephone depreciation due to rental telephones becoming fully depreciated.
Depreciation expense increased to $3,063,000 from $2,414,000 because of an
increase in property, plant and equipment.
Amortization expense increased to $1,555,000 from $1,520,000 primarily due to
increases in license acquisition costs.
Interest income and other, net, decreased to $109,000 from $146,000 due to a
decrease in interest income on short term investments.
Interest expense decreased to $1,716,000 from $2,452,000 primarily because of
reductions in the principal balance and interest rates on the Company's debt.
Paging operations commenced in the second quarter of 1995. As of June 30,
1996, there were 21,700 pagers in use.
10
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
(Continued)
Six Months Ended June 30, 1996 and 1995
- ----------------------------------------
Service revenues increased to $57,065,000 from $41,760,000 as a result of
subscriber growth that increased the Company's current revenue stream. Average
monthly revenue per subscriber for the six months ended June 30 decreased to $75
in 1996 from $84 in 1995. Ending subscribers were 138,700 and 98,000 as of June
30, 1996 and 1995, respectively.
The loss from equipment, before depreciation of rental equipment, decreased to
$2,713,000 from $3,459,000 primarily because of reductions in the cost of
cellular telephones offset by an increase in the loss from pager sales. The
Company sells cellular telephones and pagers below cost in response to
competition and to generate subscriber growth.
Operating expenses increased to $8,024,000 from $4,512,000 primarily due to
increased usage of the network and additional costs associated with the expanded
network (including paging operations), which account for 85% and 15% of the
increase, respectively.
Selling, general and administrative expenses increased to $30,201,000 from
$23,714,000 as a result of increased selling and marketing to increase the
customer base and additional personnel to service the expanding customer base.
Increases in bad debt expense, customer retention expense and subscriber billing
expense also contributed to this increase. The increases in selling and
marketing costs, personnel costs, bad debt expense, customer retention expense
and subscriber billing expense were 19%, 8%, 23%, 12% and 12%, respectively, of
the total $6,487,000 increase.
Depreciation of rental equipment increased to $240,000 from $136,000 due to an
increase in the number of rental pagers, offset by a decrease in rental
telephone depreciation due to rental telephones becoming fully depreciated.
Depreciation expense increased to $5,951,000 from $4,300,000 because of an
increase in property, plant and equipment.
Amortization expense increased to $3,082,000 from $2,874,000 primarily due to
increases in license acquisition costs.
Interest income and other, net, decreased to $169,000 from $344,000 due to a
decrease in interest income on short term investments and an increase in losses
on disposals of equipment.
Interest expense decreased to $3,495,000 from $4,637,000 primarily because of
reductions in the principal balance and interest rates on the Company's debt.
In October 1995, the FASB issued SFAS No. 123, "Accounting For Stock-Based
Compensation." Although all entities are encouraged to adopt this method of
accounting for all employee stock compensation plans, SFAS No. 123 allows an
entity to continue to measure compensation costs for its plans as prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees." At this time,
management expects to continue its accounting in accordance with APB Opinion No.
25.
11
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
(Continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital to expand its cellular network, for its paging
business and for debt service. The Company is currently adding cell sites and
increasing capacity throughout its Puerto Rico and U.S. Virgin Islands markets.
The Company expects to use approximately $21,400,000 through 1996 for
contemplated additions to the cellular system, for its paging business and for
other non-cell site related capital expenditures. As of June 30, 1996, debt
service through 1996 for the outstanding debt at the rates in effect on June 30,
1996 was expected to be approximately $3,400,000. The Company's commitments at
June 30, 1996 of $10,964,000 for cellular network and other equipment and for
construction services are included in the total anticipated expenditures. The
Company will be able to meet these requirements with cash on hand, cash from
operations or borrowings under its revolving credit facility.
The preceding forward-looking statements are based on the Company's current
expectations which are subject to a number of risks and uncertainties that could
materially reduce demand for the Company's cellular and/or paging service,
thereby reducing the need for capacity expansion and reducing the operating cash
flows from such service. The primary risks and uncertainties include, but are
not limited to: a change in economic conditions in the Company's markets which
adversely effects the level of demand for cellular and/or paging services,
greater than anticipated competition resulting in price reductions or higher
customer acquisition costs, and earlier than expected competition from new
wireless services. In addition, increased cellular fraud could reduce operating
cash flow while increasing the need for capacity expansion.
In May 1996, the Company announced that its Board of Directors authorized the
review of strategic alternatives to enhance shareholder value including the
exploration of partnering opportunities in the region through a business
combination, an appropriate acquisition, the sale of the Company or similar
transactions. At this time, the Company is engaged in discussions with certain
entities regarding these alternatives. To date, no decision has been made to
pursue any particular alternative and there can be no assurance that any
transaction will result from these discussions. Salomon Brothers Inc has been
engaged by the Company to aid it in this matter.
In April 1996, the Company announced that its Board of Directors authorized the
repurchase of up to an additional 750,000 shares of the Company's common stock
through open market purchases from time to time as market conditions warrant.
This repurchase plan is in addition to a previously announced repurchase plan
for up to 250,000 shares. To date, the Company has repurchased 400,000 shares
for an aggregate of $11,335,000.
12
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
(Continued)
In April 1995, the Company and one of its subsidiaries entered into a
$200,000,000 revolving credit facility with various banks. To date, the Company
has borrowed $137,000,000. The line of credit is available until March 31,
1999, on which date it converts into a term loan with principal payments based
on an amortization schedule until September 30, 2003. The terms include the
payment of interest each quarter at a floating rate, which is, at the borrower's
option, either (a) the higher of the bank's base rate or the Federal Funds Rate
plus 1/2%, (b) the London Interbank Offering Rate or (c) the 936 Rate, plus,
based on the ratio of the Company's debt to cash flow and the floating rate in
effect, either .25% to 1.875% or 1.25% to 2.875%. The effective rate on the
Company's borrowings as of June 30, 1996 was 6.61%. The terms also include an
unused commitment fee of 1/2% per annum which is payable quarterly.
Subject to the restrictions described below, the line of credit is available
for funding capital expenditures, stock repurchases up to $60,000,000,
acquisitions of or investments in communications related businesses in Puerto
Rico, the southeastern United States and other approved countries, and for
working capital and other general corporate purposes. In connection with the
loan agreement, the Company has pledged to the banks the stock of the Company's
subsidiaries and has given the banks a security interest in the Company and its
subsidiaries' assets and a guaranty by the Company and its subsidiaries of the
obligations of the borrowers under the loan agreement. The loan agreement also
includes, among other things, restrictions on (i) dividends, (ii) acquisitions
and investments, (iii) sales and dispositions of assets, (iv) additional
indebtedness and (v) liens, and requires the maintenance of certain ratios of
indebtedness to cash flow, fixed charges to cash flow and debt service to cash
flow.
Cash provided by operating activities was $10,609,000 in 1996 and cash used in
operating activities was $10,517,000 in 1995. Cash used in operating activities
in 1995 includes $12,978,000 of accrued interest expense that was paid in
connection with the repayment of the amount due to Cellular Communications of
Ohio, Inc. The increase in cash flow from operating activities is also a result
of the increase in net income and from changes in operating assets and
liabilities. Purchases of property, plant and equipment of $12,230,000 were
primarily for additional cell sites and increased capacity in the Company's
cellular and paging systems. The San Juan Cellular Telephone Company made a
special cash distribution of $1,172,000 to its minority interest holders in
1996. The Company repaid $1,975,000 in notes payable on their due dates in
1996.
The allowance for doubtful accounts was $3,710,000 and $3,233,000 as of June
30, 1996 and December 31, 1995, respectively. Write-offs net of recoveries as a
percentage of service revenue was 5.4% for the six months ended June 30, 1996
compared to 4.8% for the year ended December 31, 1995. The bad debt expense
percentage may remain at the current level as the subscriber base continues to
grow.
The Company may also require additional capital for acquisitions of minority
interests in its Aguadilla or Adjuntas markets, or for the acquisition of
certain RSAs, PCS licenses, or in other telecommunications related industries,
if opportunities for such acquisitions arise. The Company has from time to time
engaged in discussions with third parties regarding such acquisitions. In August
1996, the Company borrowed $37,000,000 under its revolving credit facility for
the purpose of pursuing possible wireless opportunities.
13
<PAGE>
CELLULAR COMMUNICATIONS OF PUERTO RICO, INC. AND SUBSIDIARIES
(Continued)
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 4, 1996, the Company held its annual meeting of stockholders. The
following management proposals were adopted:
(i) The ratification of the selection of Ernst & Young LLP as the Company's
independent auditors for 1996, (ii) the re-election of Sidney R. Knafel, Ted H.
McCourtney and Del Mintz to the Board of Directors and (iii) the amendment of
the Company's Employee Stock Option Plan.
The stockholders approved the first proposal by a vote of 11,449,945 shares in
favor, 492 shares against and 50,938 shares abstaining from voting. The
stockholders approved the election of Sidney R. Knafel by a vote of 11,411,353
shares in favor and 90,022 shares withheld from voting. The stockholders
approved the election of Ted H. McCourtney by a vote of 11,415,353 shares in
favor and 86,022 shares withheld from voting. The stockholders approved the
election of Del Mintz by a vote of 11,411,353 shares in favor and 90,022 shares
withheld from voting. The stockholders approved the third proposal by a vote of
8,475,217 shares in favor, 2,449,033 shares against and 82,838 shares
abstaining from voting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Included Within:
------------------------
27. Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended June 30, 1996, the Company filed a current
report on Form 8-K dated April 23, 1996, reporting under Item 5, Other
Events, the authorization by the Board of Directors for the repurchase
of up to an additional 750,000 shares of the Company's common stock
through open market purchases.
No financial statements were filed with this Report.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CELLULAR COMMUNICATIONS OF
PUERTO RICO, INC.
Date: August 12, 1996 By: /s/ J. Barclay Knapp
---------------------------
J. Barclay Knapp
President
Date: August 12, 1996 By: /s/ Gregg Gorelick
---------------------------
Gregg Gorelick
Vice President-Controller
(Principal Accounting Officer)
15
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,142,000
<SECURITIES> 0
<RECEIVABLES> 21,677,000
<ALLOWANCES> (3,710,000)
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