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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2002
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
Commission file number 0-19603
CENTENNIAL COMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
Delaware 06-1242753
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3349 Route 138
Wall, NJ 07719
(Address of principal executive offices, including zip code)
(732) 556-2200
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock - 95,696,036 outstanding shares as of October 10, 2002
TABLE OF CONTENTS
Part I - Financial Information...................................................................................1
Item 1. Financial Statements....................................................................................1
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................21
Item 3. Quantitative and Qualitative Disclosures about Market Risk.............................................36
Item 4. Controls and Procedures................................................................................36
Part II - Other Information......................................................................................37
Item 1. Legal Proceedings......................................................................................37
Item 2. Changes in Securities and Use of Proceeds..............................................................37
Item 3. Defaults Upon Senior Securities........................................................................37
Item 4. Submission of Matters to a Vote of Security Holders....................................................37
Item 5. Other Information......................................................................................37
Item 6. Exhibits and Reports on Form 8-K.......................................................................37
ii
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
AUGUST 31,
2002 MAY 31,
(UNAUDITED) 2002
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 24,048 $ 33,871
Accounts receivable, less allowance for doubtful accounts of
$17,355 and $15,883, respectively 88,297 88,776
Inventory - phones and accessories, less allowance for obsolescence
of $2,546 and $2,775, respectively 8,986 12,138
Prepaid expenses and other current assets 37,362 20,884
----------- -----------
Total Current Assets 158,693 155,669
Property, plant and equipment, net 693,468 741,293
Equity investments in wireless systems, net 2,497 2,443
Debt issuance costs, less accumulated amortization of $28,780 and $26,858,
respectively 41,624 43,554
U.S. wireless licenses 371,766 326,711
Caribbean wireless licenses, less accumulated amortization of
$10,516 and $10,266, respectively 72,242 72,492
Goodwill 27,984 27,984
Franchise license costs 217,293 193,021
Other assets, net 41,109 44,342
----------- -----------
TOTAL ASSETS $ 1,626,676 $ 1,607,509
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt $ 71,756 $ 65,795
Accounts payable 27,030 30,504
Accrued expenses and other current liabilities 167,634 154,599
Payable to affiliates 125 125
----------- -----------
Total Current Liabilities 266,545 251,023
Long-term debt 1,676,813 1,742,722
Deferred federal income taxes 139,529 70,777
Minority interest in subsidiaries 925 976
Other liabilities 14,342 12,946
Commitments and contingencies
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock par value $0.01 per share: 150,000,000 shares authorized;
issued 95,681,931 and 95,482,191 shares, respectively; and outstanding
95,611,428 and 95,411,688 shares, respectively 957 955
Additional paid-in capital 436,774 436,273
Accumulated deficit (899,755) (899,514)
Accumulated other comprehensive loss (8,349) (7,522)
----------- -----------
(470,373) (469,808)
Less: cost of 70,503 common shares in treasury (1,077) (1,077)
Deferred compensation (28) (50)
----------- -----------
Total Stockholders' Equity (Deficit) (471,478) (470,935)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,626,676 $ 1,607,509
=========== ===========
See notes to condensed consolidated financial statements
1
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
-----------------------------------
AUGUST 31, 2002 AUGUST 31, 2001
--------- ---------
Revenue:
Service revenue $ 186,622 $ 167,949
Equipment sales 5,272 6,215
--------- ---------
191,894 174,164
--------- ---------
Costs and Expenses:
Cost of equipment sold 15,171 12,857
Cost of services 42,268 40,410
Sales and marketing 23,831 25,898
General and administrative 34,819 32,127
Depreciation and amortization 36,481 34,278
Gain on disposition of assets (2,375) --
--------- ---------
150,195 145,570
--------- ---------
Operating income 41,699 28,594
--------- ---------
Income from equity investments 54 145
Interest expense, net (38,273) (37,928)
Other (7) 73
--------- ---------
Income (loss) before income taxes and minority interest 3,473 (9,116)
Income tax expense (3,765) (3,670)
--------- ---------
Loss before minority interest (292) (12,786)
Minority interest in loss of subsidiaries 51 4,070
--------- ---------
Net loss $ (241) $ (8,716)
========= =========
Loss per share:
Basic and diluted $ (0.00) $ (0.09)
========= =========
Weighted-average number of shares outstanding:
Basic and diluted 95,479 94,923
========= =========
See notes to condensed consolidated financial statements
2
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED
------------------------------------
AUGUST 31, AUGUST 31,
2002 2001
--------- ---------
OPERATING ACTIVITIES:
Net (loss) income $ (241) $ (8,716)
--------- ---------
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 36,481 34,278
Minority interest in loss of subsidiaries (51) (4,070)
Deferred income taxes -- 2,059
Income from equity investments (54) (145)
Gain on disposition of assets (2,375) --
Other 8,978 2,060
Changes in assets and liabilities, net of effects of acquisitions and
dispositions:
Increase in accounts receivable (1,371) (9,716)
Increase in prepaid expenses and other current assets (2,032) (3,690)
Increase (decrease) in accounts payable, accrued expenses and other
current liabilities 6,123 (19,124)
Increase in deferred revenue and customer deposits 195 7,256
--------- ---------
Total adjustments 45,894 8,908
--------- ---------
Net cash provided by operating activities 45,653 192
--------- ---------
INVESTING ACTIVITIES:
Proceeds from disposition of assets, net of cash expenses 1,017 --
Capital expenditures (35,465) (83,210)
Deposits on long-term assets -- (15,000)
--------- ---------
Net cash used in investing activities (34,448) (98,210)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt 11,848 92,250
Repayment of debt (33,359) (1,624)
Proceeds from the exercise of stock options -- 295
Proceeds from issuance of common stock under employee stock purchase plan 483 1,896
--------- ---------
Net cash (used in) provided by financing activities (21,028) 92,817
--------- ---------
Net decrease in cash and cash equivalents (9,823) (5,201)
Cash and cash equivalents, beginning of period 33,871 23,345
--------- ---------
Cash and cash equivalents, end of period $ 24,048 $ 18,144
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 37,042 $ 41,963
========= =========
Income taxes paid $ 188 $ 45
========= =========
See notes to condensed consolidated financial statements
3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Amounts in thousands, except subscriber, share and per share data)
NOTE 1. INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying interim unaudited condensed
consolidated financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the consolidated
financial position of Centennial Communications Corp. and Subsidiaries (the
"Company") as of August 31, 2002 and the results of its consolidated operations
and cash flows for the periods ended August 31, 2002 and 2001. These financial
statements do not include all disclosures required by accounting principles
generally accepted in the United States of America. The statements should be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's May 31, 2002 Annual Report on Form 10-K, which
includes a summary of significant accounting policies and other disclosures. The
consolidated balance sheet at May 31, 2002 is audited.
Income Taxes:
The Company had a worldwide effective tax rate of 108.4% for the three months
ended August 31, 2002 primarily as a result of: pre-tax book losses generated in
the Dominican Republic for which the Company cannot record a tax benefit and
certain interest expense related to the Company's unsecured subordinated notes
due 2009 ("Mezzanine Debt") that is not deductible for U.S. income tax purposes.
Reclassifications:
Certain prior year information has been reclassified to conform to the current
year presentation.
NOTE 2. GOODWILL AND OTHER INTANGIBLE ASSETS
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 changes the accounting for goodwill and
intangibles with indefinite lives from an amortization method to an
impairment-only approach. Goodwill and other intangible assets with indefinite
lives will remain on the balance sheet and not be amortized. On an annual basis,
and when there is reason to suspect that their values have been diminished or
impaired, these assets must be tested for impairment, and write-downs may be
necessary. The Company adopted SFAS No. 142 on June 1, 2002.
In conjunction with the adoption of SFAS No. 142, the Company has reassessed the
useful lives of previously recognized intangible assets. A significant portion
of the Company's intangible assets are licenses, including licenses associated
with equity method investments, that provide the Company's wireless operations
with the exclusive right to utilize radio frequency spectrum to provide wireless
communication services. While wireless licenses are issued for only a fixed
time, generally ten years, the U.S. wireless and Puerto Rico PCS licenses are
subject to renewal by the Federal Communications Commission ("FCC").
Historically, renewals of licenses through the FCC have occurred routinely and
at nominal cost. Moreover, the Company has determined that there are currently
no legal, regulatory, contractual, competitive, economic or other factors that
limit the useful life of its U.S. wireless and Puerto Rico PCS licenses. The
Company's cable franchise licenses in Puerto Rico are issued for either ten or
twenty-year periods, and are subject to renewal by the Puerto Rico Telecom Board
("PRTB"). The
4
PRTB's process for granting cable license renewals is similar to the FCC process
for the Company's U.S. wireless and Puerto Rico PCS licenses. Additionally, the
Company has determined that there are currently no legal, regulatory,
contractual, competitive, economic or other factors that limit the useful life
of its Puerto Rico cable franchise licenses. As a result, the U.S. wireless and
Puerto Rico PCS licenses and the cable franchise license costs will be treated
as indefinite-lived intangible assets under the provisions of SFAS No. 142 and
will not be amortized but rather will be tested for impairment. The Company will
reevaluate the useful life determination for U.S. wireless and Puerto Rico PCS
licenses and Puerto Rico franchise license costs each reporting period to
determine whether events and circumstances continue to support an indefinite
useful life.
Previous wireless and cable business combinations have been for the purpose of
acquiring existing licenses and related infrastructure to enable the Company to
build out its existing networks. The primary assets acquired in such
combinations have been wireless and cable franchise licenses. In the allocation
of the purchase price of certain of these previous acquisitions, amounts
classified as goodwill have related predominately to the deferred tax effects of
the acquired U.S. wireless licenses and franchise license costs. Except for
these deferred tax effects, the excess of the purchase price over the other
acquired net assets was accounted for as U.S. wireless and cable franchise
licenses. The Company believes that the nature of its U.S. wireless licenses and
related goodwill and its cable franchise licenses and related goodwill are
fundamentally indistinguishable. For the periods presented, the Company
amortized both U.S. wireless licenses and the related goodwill, and Franchise
license costs and the related goodwill over the same respective periods using
the straight-line method.
In conjunction with the adoption of SFAS No. 142, the Company reclassified
approximately $67,583 of U.S. wireless goodwill to U.S. wireless licenses and
approximately $37,965 of Caribbean Broadband goodwill to franchise license
costs. Amounts for fiscal year 2002 have been reclassified to conform to the
presentation adopted on June 1, 2002. In connection with these
reclassifications, the Company recorded an additional deferred tax liability of
$69,327 as of June 1, 2002, in accordance with the provisions of SFAS No. 109,
"Accounting for Income Taxes". The offsetting increase related to recognizing
this deferred tax liability was recorded to U.S. wireless licenses and Franchise
license costs, consistent with the approach of treating U.S. wireless licenses
and Franchise license costs of $45,055 and $24,272, respectively, as the excess
in the purchase price allocations for transactions in which the predominant
assets acquired were U.S. wireless and cable franchise licenses. This
reclassification, including the related impact of deferred taxes, had no affect
on the Company's results of operations.
As a result of the adoption of SFAS No. 142, previously recognized goodwill and
other intangible assets with indefinite lives will no longer be amortized but
will be subject to impairment tests. When testing the carrying value of these
assets for impairment, the Company will determine, within each operation, the
fair value of aggregated indefinite-lived intangible assets by subtracting from
each operations' discounted cash flows the fair value of all of the other net
tangible and intangible assets of each operation. Depreciation and amortization
expense for the quarter ended August 31, 2002 would have been approximately
$6,122 higher in the absence of SFAS No. 142. The aggregate effect of ceasing
amortization decreased net loss and loss per basic and diluted share by $4,479
and $0.05, respectively.
5
The following tables present the impact of SFAS No. 142 on reported net loss and
loss per share had the standard been in effect for the first quarter of fiscal
2002:
AUGUST 31, AUGUST 31,
2002 2001
------- -------
Reported net loss $ (241) $(8,716)
Goodwill amortization -- 1,044
U.S. wireless licenses amortization -- 1,729
Caribbean wireless licenses amortization -- Puerto Rico -- 255
Franchise license costs amortization -- 1,971
------- -------
Adjusted net loss $ (241) $(3,717)
======= =======
AUGUST 31, AUGUST 31,
2002 2001
------- -------
Reported basic and diluted loss per share $ -- $ (0.09)
Goodwill amortization -- 0.01
U.S. Wireless licenses amortization -- 0.02
Caribbean Wireless licenses amortization -- Puerto Rico -- 0.00
Franchise license costs amortization -- 0.02
------- -------
Adjusted basic and diluted loss per share $ -- $ (0.04)
======= =======
Goodwill
The goodwill balance of $27,984 at August 31, 2002 and May 31, 2002 is recorded
in the Caribbean Broadband segment.
Other Intangible Assets
The major components of the Company's other acquired intangible assets follows:
OTHER INTANGIBLE ASSETS NOT SUBJECT TO AMORTIZATION
AS OF AUGUST 31, AS OF MAY 31,
2002 2002
-------- --------
U.S. wireless licenses $371,766 $326,711
Caribbean wireless licenses -- Puerto Rico 54,159 54,159
Franchise license costs 217,293 193,021
-------- --------
Total $643,218 $573,891
======== ========
6
OTHER INTANGIBLE ASSETS SUBJECT TO AMORTIZATION
AS OF AUGUST 31, 2002 AS OF MAY 31, 2002
---------------------------- ----------------------------
GROSS GROSS
CARRYING ACCUMULATED CARRYING ACCUMULATED
AMOUNT AMORTIZATION AMOUNT AMORTIZATION
------- ------- ------- -------
Caribbean wireless licenses -- Dominican
Republic $20,000 $ 1,917 $20,000 $ 1,667
Customer lists 49,611 22,160 49,611 19,396
Transmission and connecting rights 2,192 1,198 2,192 1,177
Cable ML facility 6,000 1,370 6,000 1,310
------- ------- ------- -------
Total $77,803 $26,645 $77,803 $23,550
======= ======= ======= =======
Intangible assets amortization expense was $3,095 for the quarter ended August
31, 2002. It is estimated to be $9,171 for the remainder of fiscal 2003, $11,342
in 2004, $7,167 in 2005, $4,263 in 2006 and $1,472 in 2007.
NOTE 3. DEBT
Long-term debt consists of the following:
AUGUST 31, MAY 31,
2002 2002
----------- -----------
Term Loans $ 996,369 $ 1,009,120
Revolving Credit Facility 190,000 200,000
10 3/4% Subordinated Debt due 2008 370,000 370,000
Mezzanine Debt 181,220 174,529
Lucent Credit Facility -- 43,233
Cable TV Credit Facility 10,202 9,187
10 1/8% Senior Notes due 2005 219 219
Other 559 2,229
----------- -----------
Total Long-Term Debt 1,748,569 1,808,517
Current Portion of Long-Term Debt (71,756) (65,795)
----------- -----------
Net Long-Term Debt $ 1,676,813 $ 1,742,722
=========== ===========
On September 5, 2001, the Company amended its bank credit facility (the "New
Credit Facility") to add an additional $50,000 to the Tranche-C term loan. The
New Credit Facility consists of four term loans with an original aggregate
principal amount of $1,050,000, which has been reduced to $996,369 as of August
31, 2002 due to mandatory debt amortization repayments. The borrowers under the
New Credit Facility are Centennial Cellular Operating Co. LLC for a term loan
with an original amount of $325,000, of which $300,625 was outstanding as of
August 31, 2002 and Centennial Puerto Rico Operations Corp. for three separate
term loans aggregating an original amount of $725,000, of which $695,744 was
outstanding as of August 31, 2002. The New Credit Facility also includes a
revolving credit facility with an aggregate principal amount of $250,000, of
which $190,000 was outstanding as of August 31, 2002. The revolving credit
facility portion of the New Credit Facility is available to both of the
borrowers. The
7
Company's obligations under the New Credit Facility are guaranteed by
substantially all of the Company's subsidiaries and are collateralized by liens
on substantially all of the Company's assets.
In January 2002, Centennial Puerto Rico Cable TV Corp. ("Centennial Cable"), a
wholly-owned subsidiary of the Company, entered into a $15,000 credit agreement
with Banco Popular de Puerto Rico (the "Cable TV Credit Facility") to fund the
digital conversion of its cable operations. Borrowings under the Cable TV Credit
Facility bear interest at LIBOR plus 3.50%. The Cable TV Credit Facility matures
in February 2006 with principal repayments beginning in August 2002. Under the
Cable TV Credit Facility, Centennial Cable is required to maintain certain
financial covenants and is limited in its ability to, among other things, incur
additional indebtedness. Centennial Puerto Rico Operations Corp. has guaranteed
Centennial Cable's obligation under the Cable TV Credit Facility and the
facility is collateralized by a lien on the digital boxes, the monthly rental
payments on the digital boxes and other equipment purchased with the borrowings
under the Cable TV Credit Facility. As of August 31, 2002, $10,202 was
outstanding under the Cable TV Credit Facility.
In 1999, the Company issued $180,000 of unsecured subordinated notes due 2009
and common shares of the Company ("Mezzanine Debt"). All of the Mezzanine Debt
is currently held by an affiliate of Welsh, Carson, Anderson & Stowe ("WCAS").
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.
The Company has been informed by the administrative agent under the New Credit
Facility that, as of May 31, 2002, it has used up all remaining baskets under
the New Credit Facility to pay cash interest on the Mezzanine Debt and that any
additional payments of cash interest on the Mezzanine Debt would be considered a
default under the New Credit Facility. Accordingly, the Company is effectively
prohibited from making any further payments of cash interest on the Mezzanine
Debt, absent additional distributions from the equity investments in wireless
systems that it holds. As such, the Company is recording pay-in-kind interest at
a rate of 13% per annum, which increases the principal amount of the Mezzanine
Debt. Interest amounts for future periods will be calculated on these higher
principal amounts. Any unpaid interest will be repaid upon maturity of the
Mezzanine Debt.
The aggregate annual principal payments for the next five years and thereafter
under the Company's debt at August 31, 2002, are summarized as follows:
August 31, 2003 $ 71,756
August 31, 2004 94,406
August 31, 2005 115,889
August 31, 2006 135,453
August 31, 2007 527,569
August 31, 2008 and thereafter 803,496
---------------
$ 1,748,569
===============
The Company was in compliance with all covenants of its debt agreements at
August 31, 2002.
Interest expense, as reflected in the financial statements, has been partially
offset by interest income. The gross interest expense for the three months ended
August 31, 2002 and 2001 was $38,477 and $38,218, respectively.
8
During the three months ended August 31, 2002, the Company recorded $827, net of
tax, in other comprehensive loss attributable to fair value adjustments of
interest rate swap and collar agreements. The Company also increased its
liabilities by $1,396 as a result of adjusting the carrying amounts of its
derivatives to reflect their fair values at August 31, 2002.
NOTE 4. DISPOSITIONS
In August 2002, the Company entered into an agreement to sell its 60% interest
in Infochannel Limited, a Jamaican Internet service provider for $3,000, of
which $1,000 has been received as a deposit as of August 31, 2002. The
Infochannel transaction is expected to close in the second quarter of fiscal
year 2003.
In August 2002, the Company sold its 51% interest in its Jamaica wireless
operations, Centennial Digital Jamaica, to Oceanic Digital Communications Inc.,
the 49% shareholder of Centennial Digital Jamaica. The Company recorded a
pre-tax gain of $2,370, which is included in gain on disposition of assets in
the consolidated statement of operations. The Company reduced its net
liabilities by $2,370, including consolidated long-term debt of approximately
$45,100 (largely comprised of the Lucent Credit Facility which is non-recourse
to the Company) as a result of this transaction.
NOTE 5. RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations". SFAS No. 143 addresses financial accounting and reporting for
obligations and costs associated with the retirement of tangible long-lived
assets. The Company is required to implement SFAS No. 143 on June 1, 2003, and
has not yet determined the impact that this statement will have on its results
of operations or financial position.
In October 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 replaces SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" and establishes accounting and reporting standards for long-lived assets to
be disposed of by sale. This standard applies to all long-lived assets,
including discontinued operations. SFAS No. 144 requires that those assets be
measured at the lower of carrying amount or fair value less cost to sell. SFAS
No. 144 also broadens the reporting of discontinued operations to include all
components of an entity with operations that can be distinguished from the rest
of the entity that will be eliminated from the ongoing operations of the entity
in a disposal transaction. The Company adopted SFAS No. 144 on June 1, 2002. The
adoption of this statement did not have a material effect on the Company's
results of operations, financial position and cash flows.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections".
Statement No. 145 provides for the rescission of several previously issued
accounting standards, new accounting guidance for the accounting for certain
lease modifications and various technical corrections that are not substantive
in nature to existing pronouncements. The Company adopted SFAS No. 145 on June
1, 2002. The adoption of this statement did not have a material effect on the
Company's results of operations, financial position and cash flows.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 replaces Emerging Issues Task
Force Issue No. 94-3, "Liability Recognition
9
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)". SFAS No. 146 requires
companies to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or disposal
plan. Examples of costs covered by SFAS No. 146 include lease termination costs
and certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity. SFAS
No. 146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002, with early application encouraged. The Company has not
yet determined the impact that this standard will have on its results of
operations or financial position.
NOTE 6. COMMITMENTS AND CONTINGENCIES
In August 2002, WCAS advised the Company that during the quarter ended August
31, 2002, an affiliate of WCAS (the "WCAS Affiliate") purchased in open market
transactions approximately $140,000 principal amount of the Company's 10-3/4%
senior subordinated notes (the "Notes") due 2008. On September 24, 2002, the
Company and the WCAS Affiliate entered into an indemnification agreement
pursuant to which the WCAS Affiliate agreed to indemnify the Company in respect
of taxes which may become payable by the Company as a result of these purchases.
In connection with these transactions, the Company recorded a $14,700 income tax
payable included in accrued expenses and other current liabilities, and a
corresponding amount due from the WCAS Affiliate that is included in prepaid
expenses and other current assets.
In May 2002, the Company announced that it entered into an agreement with AAT
Communications Corp. ("AAT") to sell to AAT 186 telecommunications towers
located in its U.S. wireless serving areas for a purchase price of approximately
$34,100 in cash, subject to adjustment. Under the terms of the agreement, the
Company will leaseback space on the towers from AAT. The agreement is subject to
customary closing conditions and the tower sales are expected to close on a
rolling basis during the remainder of fiscal year 2003. In September 2002, the
first closing occurred and the Company sold 17 towers to AAT for approximately
$3,393.
Note 7. SEGMENT INFORMATION
The Company's consolidated financial statements include three distinct business
segments: Caribbean Wireless, Caribbean Broadband and U.S. Wireless. The Company
determines its segments based on the types of services offered and geographic
location. Caribbean Wireless represents the Company's wireless operations in
Puerto Rico, the Dominican Republic, Jamaica and the U.S. Virgin Islands.
Caribbean Broadband represents the Company's offering of broadband services
including switched voice, dedicated (private line), video and other services in
Puerto Rico, the Dominican Republic and Jamaica. U.S. Wireless represents the
Company's wireless systems in the United States that it owns and manages. The
Company measures the operating performance of each segment based on adjusted
EBITDA. Adjusted EBITDA is defined as earnings before gain on disposition of
assets, minority interest in loss of subsidiaries, income from equity
investments, interest expense - net, income taxes and depreciation and
amortization.
10
Information about the Company's operations in its three business segments for
the three months ended August 31, 2002 and 2001 is as follows:
THREE MONTHS ENDED
AUGUST 31,
-----------------------------------
2002 2001
----------- -----------
Caribbean Wireless
Service revenue $ 62,697 $ 49,974
Equipment sales 2,546 3,120
----------- -----------
Total revenue 65,243 53,094
Adjusted EBITDA 20,964 17,991
Total assets 380,772 458,291
Capital expenditures 13,320 53,225
Caribbean Broadband
Switched revenue $ 7,812 $ 5,679
Dedicated revenue 9,059 7,773
Video revenue 12,664 11,579
Other revenue 6,183 6,890
----------- -----------
Total revenue 35,718 31,921
Adjusted EBITDA 9,783 6,644
Total assets 627,195 602,435
Capital expenditures 13,100 18,610
U.S. Wireless
Service revenue $ 65,765 $ 61,887
Roaming revenue 24,779 25,958
Equipment sales 2,597 3,094
----------- -----------
Total revenue 93,141 90,939
Adjusted EBITDA 45,058 38,237
Total assets 1,871,605 1,825,365
Capital expenditures 9,045 11,375
Eliminations
Total revenue (1) $ (2,208) $ (1,790)
Total assets (2) (1,252,896) (1,230,067)
Consolidated
Total revenue $ 191,894 $ 174,164
Adjusted EBITDA 75,805 62,872
Total assets 1,626,676 1,656,024
Capital expenditures 35,465 83,210
(1) Elimination of intercompany revenue, primarily from Caribbean Broadband
to Caribbean Wireless.
(2) Elimination of intercompany investments.
11
Reconciliation of Income (Loss) before Income Tax Expense and Minority Interest:
THREE MONTHS ENDED AUGUST 31,
-----------------------------
2002 2001
-------- --------
Adjusted EBITDA for reportable segments $ 75,805 $ 62,872
Interest expense, net (38,273) (37,928)
Depreciation and amortization (36,481) (34,278)
Income from equity investments 54 145
Gain on disposition of assets 2,375 --
Other (7) 73
-------- --------
Income (loss) before income taxes and minority interest $ 3,473 $ (9,116)
======== ========
Note 8. CONDENSED 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 Subordinated Debt issued by the
Company, and CPROC has unconditionally guaranteed the notes. Separate financial
statements and other disclosures concerning CCOC and CPROC are not presented
because they are not material to investors.
12
CONDENSED CONSOLIDATING BALANCE SHEET FINANCIAL DATA
As of August 31, 2002
(Amounts in thousands)
Centennial
Centennial Cellular Centennial Communications
Puerto Rico Operating Non- Communications Corp. and
Operations Corp. Co. LLC Guarantors Corp. Eliminations Subsidiaries
----------- ----------- ----------- ----------- ----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 8,129 $ -- $ 15,919 $ -- $ -- $ 24,048
Accounts receivable - net 46,589 -- 43,377 -- (1,669) 88,297
Inventory - phones and accessories - net 1,447 -- 7,539 -- -- 8,986
Prepaid expenses and other current assets 5,558 -- 31,804 -- -- 37,362
----------- ----------- ----------- ----------- ----------- -----------
Total current assets 61,723 -- 98,639 -- (1,669) 158,693
Property, plant & equipment - net 267,790 -- 425,678 -- -- 693,468
Equity investments in wireless systems - net -- -- 2,497 -- -- 2,497
Debt issuance costs - net 19,873 -- 21,751 -- -- 41,624
U.S. wireless licenses - net -- -- 371,766 -- -- 371,766
Caribbean wireless licenses - net -- -- 72,242 -- -- 72,242
Goodwill - net 4,186 -- 23,798 -- -- 27,984
Franchise license costs - net -- -- 217,293 -- -- 217,293
Intercompany -- 1,306,316 980,084 594,346 (2,880,746) --
Investment in subsidiaries -- (353,792) 560,985 (837,142) 629,949 --
Other assets - net 5,353 5,802 35,756 -- (5,802) 41,109
----------- ----------- ----------- ----------- ----------- -----------
Total $ 358,925 $ 958,326 $ 2,810,489 $ (242,796) $(2,258,268) $ 1,626,676
=========== =========== =========== =========== =========== ===========
13
CONDENSED CONSOLIDATING BALANCE SHEET FINANCIAL DATA
(CONTINUED)
As of August 31, 2002
(Amounts in thousands)
Centennial
Centennial Cellular Centennial Communications
Puerto Rico Operating Non- Communications Corp. and
Operations Corp. Co. LLC Guarantors Corp. Eliminations Subsidiaries
----------- ----------- ----------- ----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt $ 23,269 $ 44,688 $ 3,799 $ -- $ -- $ 71,756
Accounts payable 15,373 -- 12,724 -- (1,067) 27,030
Accrued expenses and other
current liabilities 34,886 -- 133,350 -- (602) 167,634
Payable to affiliates -- -- 125 -- -- 125
----------- ----------- ----------- ----------- ----------- -----------
Total current liabilities 73,528 44,688 149,998 -- (1,669) 266,545
Long-term debt 672,791 815,938 6,645 181,439 -- 1,676,813
Deferred federal income taxes -- -- 145,331 -- (5,802) 139,529
Minority interest -- -- 925 -- -- 925
Other liabilities -- 14,342 -- -- -- 14,342
Intercompany 16,458 920,500 1,896,710 47,243 (2,880,911) --
Stockholders' equity (deficit):
Common stock -- -- -- 957 -- 957
Preferred stock 465,000 -- -- -- (465,000) --
Additional paid-in capital (818,498) -- 1,381,565 436,774 (563,067) 436,774
Accumulated deficit (50,354) (828,793) (770,685) (899,755) 1,649,832 (899,755)
Accumulated other comprehensive loss -- (8,349) -- (8,349) 8,349 (8,349)
----------- ----------- ----------- ----------- ----------- -----------
(403,852) (837,142) 610,880 (470,373) 630,114 (470,373)
Less: treasury shares -- -- -- (1,077) -- (1,077)
Deferred compensation -- -- -- (28) -- (28)
----------- ----------- ----------- ----------- ----------- -----------
Total stockholders' equity (deficit) (403,852) (837,142) 610,880 (471,478) 630,114 (471,478)
----------- ----------- ----------- ----------- ----------- -----------
Total $ 358,925 $ 958,326 $ 2,810,489 $ (242,796) $(2,258,268) $ 1,626,676
=========== =========== =========== =========== =========== ===========
14
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FINANCIAL DATA For
the Three Months Ended August 31, 2002
(Amounts in thousands)
Centennial
Centennial Cellular Centennial Communications
Puerto Rico Operating Non- Communications Corp. and
Operations Corp. Co. LLC Guarantors Corp. Eliminations Subsidiaries
--------- --------- --------- --------- --------- ---------
Revenue $ 71,715 $ -- $ 121,427 $ -- $ (1,248) $ 191,894
--------- --------- --------- --------- --------- ---------
Costs and expenses:
Cost of equipment sold 6,185 -- 8,986 -- -- 15,171
Cost of services 12,202 -- 30,636 -- (570) 42,268
Sales and marketing 8,676 -- 15,155 -- -- 23,831
General and administrative 14,549 -- 20,948 -- (678) 34,819
Depreciation and amortization 15,919 -- 20,562 -- -- 36,481
(Gain) loss on disposition of assets -- -- (2,375) -- -- (2,375)
--------- --------- --------- --------- --------- ---------
57,531 -- 93,912 -- (1,248) 150,195
--------- --------- --------- --------- --------- ---------
Operating income 14,184 -- 27,515 -- -- 41,699
--------- --------- --------- --------- --------- ---------
Income from equity investments -- -- 54 -- -- 54
Income from investments in subsidiaries -- 6,449 4,262 6,449 (17,160) --
Interest expense - net (9,922) (20,768) (893) (6,690) -- (38,273)
Other -- -- (7) -- -- (7)
Intercompany interest allocation -- 20,768 (20,768) -- -- --
--------- --------- --------- --------- --------- ---------
Income (loss) before income tax expense
and minority interest 4,262 6,449 10,163 (241) (17,160) 3,473
Income tax benefit -- -- (3,765) -- -- (3,765)
--------- --------- --------- --------- --------- ---------
Income (loss) before minority interest 4,262 6,449 6,398 (241) (17,160) (292)
Minority interest in loss of subsidiaries -- -- 51 -- -- 51
--------- --------- --------- --------- --------- ---------
Net income (loss) $ 4,262 $ 6,449 $ 6,449 $ (241) $ (17,160) $ (241)
========= ========= ========= ========= ========= =========
15
CONDENSED CONSOLIDATING STATEMENT OF
CASH FLOWS FINANCIAL DATA
For the Three Months Ended August 31, 2002
(Amounts in thousands)
Centennial Centennial
Puerto Rico Cellular Centennial Communications
Operations Operating Non- Communications Corp. and
Corp. Co. LLC Guarantors Corp. Eliminations Subsidiaries
-------- -------- -------- -------- -------- --------
OPERATING ACTIVITIES:
Net income (loss) $ 4,262 $ 6,449 $ 6,449 $ (241) $(17,160) $ (241)
-------- -------- -------- -------- -------- --------
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Depreciation and amortization 15,919 -- 20,562 -- -- 36,481
Minority interest in loss of subsidiaries -- -- (51) -- -- (51)
Income from equity investments -- -- (54) -- -- (54)
Equity in undistributed earnings of
subsidiaries -- (6,449) (4,262) (6,449) 17,160 --
Gain on disposition of assets -- -- (2,375) -- -- (2,375)
Other 1,024 -- 1,264 6,690 -- 8,978
Noncash expenses 6,684 -- (6,684) -- -- --
Changes in assets and liabilities,net of
effects of acquisitions and dispositions:
Accounts receivable - (increase) (32) -- (1,550) -- 211 (1,371)
Prepaid expenses and other current
assets - decrease (1,359) -- (673) -- -- (2,032)
Accounts payable, accrued expenses and
other current liabilities - increase (decrease) 5,076 -- 1,258 -- (211) 6,123
Deferred revenue and customer deposits - increase
(decrease) (311) -- 506 -- -- 195
-------- -------- -------- -------- -------- --------
Total adjustments 27,001 (6,449) 7,941 241 17,160 45,894
-------- -------- -------- -------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 31,263 -- 14,390 -- -- 45,653
-------- -------- -------- -------- -------- --------
INVESTING ACTIVITIES:
Proceeds from disposition of assets,
net of cash expenses -- -- 1,017 -- -- 1,017
Capital expenditures (21,014) -- (14,451) -- -- (35,465)
-------- -------- -------- -------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (21,014) -- (13,434) -- -- (34,448)
-------- -------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt -- 10,000 1,848 -- -- 11,848
Repayment of debt (4,311) (28,125) (923) -- -- (33,359)
Proceeds from issuance of common stock
under employee stock purchase plan -- -- -- 483 -- 483
Cash (paid to) received from affiliates (11,348) 18,125 (6,777) -- -- --
Cash advances from parent (to subsidiaries) -- -- 483 (483) -- --
-------- -------- -------- -------- -------- --------
NET CASH USED IN FINANCING ACTIVITIES (15,659) -- (5,369) -- -- (21,028)
-------- -------- -------- -------- -------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,410) -- (4,413) -- -- (9,823)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 13,539 -- 20,332 -- -- 33,871
-------- -------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,129 $ -- $ 15,919 $ -- $ -- $ 24,048
======== ======== ======== ======== ======== ========
16
CONDENSED CONSOLIDATING BALANCE SHEET FINANCIAL DATA
As of May 31, 2002
(Amounts in thousands)
Centennial
Centennial Cellular Centennial Communications
Puerto Rico Operating Non- Communications Corp. and
Operations Corp. Co. LLC Guarantors Corp. Eliminations Subsidiaries
----------- ----------- ----------- ----------- ----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 13,539 $ -- $ 20,332 $ -- $ -- $ 33,871
Accounts receivable - net 46,440 -- 43,794 -- (1,458) 88,776
Inventory - phones and
accessories - net 1,636 -- 10,502 -- -- 12,138
Prepaid expenses and other
current assets 3,966 -- 16,918 -- -- 20,884
----------- ----------- ----------- ----------- ----------- -----------
Total current assets 65,581 -- 91,546 -- (1,458) 155,669
Property, plant & equipment - net 270,073 -- 471,220 -- -- 741,293
Equity investments in wireless
systems - net -- -- 2,443 -- -- 2,443
Debt issuance costs - net 20,884 -- 22,670 -- -- 43,554
U.S. wireless licenses - net -- -- 326,711 -- -- 326,711
Caribbean wireless licenses - net -- -- 72,492 -- -- 72,492
Goodwill - net 4,186 -- 23,798 -- -- 27,984
Franchise license costs - net -- -- 193,021 -- -- 193,021
Intercompany -- 1,324,446 980,084 593,824 (2,898,354) --
Investment in subsidiaries -- (360,241) 556,719 (842,768) 646,290 --
Other assets - net 5,413 5,227 38,929 -- (5,227) 44,342
----------- ----------- ----------- ----------- ----------- -----------
Total $ 366,137 $ 969,432 $ 2,779,633 $ (248,944) $(2,258,749) $ 1,607,509
=========== =========== =========== =========== =========== ===========
17
CONDENSED CONSOLIDATING BALANCE SHEET FINANCIAL DATA
(CONTINUED)
As of May 31, 2002
(Amounts in thousands)
Centennial
Centennial Cellular Centennial Communications
Puerto Rico Operating Non- Communications Corp. and
Operations Corp. Co. LLC Guarantors Corp. Eliminations Subsidiaries
----------- ----------- ----------- ----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt $ 21,631 $ 40,625 $ 3,539 $ -- $ -- $ 65,795
Accounts payable 17,478 -- 14,076 -- (1,050) 30,504
Accrued expenses and other
current liabilities 35,077 -- 119,930 -- (408) 154,599
Payable to affiliates -- -- 125 -- -- 125
----------- ----------- ----------- ----------- ----------- -----------
Total current liabilities 74,186 40,625 137,670 -- (1,458) 251,023
Long-term debt 678,740 838,125 51,109 174,748 -- 1,742,722
Deferred federal income taxes -- -- 76,004 -- (5,227) 70,777
Minority interest -- -- 976 -- -- 976
Other liabilities -- 12,946 -- -- -- 12,946
Intercompany 21,324 920,500 1,909,449 47,243 (2,898,516) --
Stockholders' equity (deficit):
Common stock -- -- -- 955 -- 955
Preferred stock 465,000 -- -- -- (465,000) --
Additional paid-in capital (818,498) -- 1,381,565 436,273 (563,067) 436,273
Accumulated deficit (54,615) (835,242) (777,140) (899,514) 1,666,997 (899,514)
Accumulated other comprehensive loss -- (7,522) -- (7,522) 7,522 (7,522)
----------- ----------- ----------- ----------- ----------- -----------
(408,113) (842,764) 604,425 (469,808) 646,452 (469,808)
Less: treasury shares -- -- -- (1,077) -- (1,077)
Deferred compensation -- -- -- (50) -- (50)
----------- ----------- ----------- ----------- ----------- -----------
Total stockholders' equity (deficit) (408,113) (842,764) 604,425 (470,935) 646,452 (470,935)
----------- ----------- ----------- ----------- ----------- -----------
Total $ 366,137 $ 969,432 $ 2,779,633 $ (248,944) $(2,258,749) $ 1,607,509
=========== =========== =========== =========== =========== ===========
18
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FINANCIAL DATA
FOR THE THREE MONTHS ENDED AUGUST 31, 2001
(Amounts in thousands)
Centennial
Centennial Cellular Centennial Communications
Puerto Rico Operating Non- Communications Corp. and
Operations Corp. Co. LLC Guarantors Corp. Eliminations Subsidiaries
--------- --------- --------- --------- --------- ---------
Revenue $ 62,828 $ -- $ 111,774 $ -- $ (438) $ 174,164
--------- --------- --------- --------- --------- ---------
Costs and expenses:
Cost of equipment sold 3,705 -- 9,258 -- (106) 12,857
Cost of services 9,675 -- 30,825 -- (90) 40,410
Sales and marketing 10,028 -- 15,870 -- -- 25,898
General and administrative 12,113 -- 20,256 -- (242) 32,127
Depreciation and amortization 11,544 -- 22,734 -- -- 34,278
--------- --------- --------- --------- --------- ---------
47,065 -- 98,943 -- (438) 145,570
--------- --------- --------- --------- --------- ---------
Operating income 15,763 -- 12,831 -- -- 28,594
--------- --------- --------- --------- --------- ---------
Income from equity investments -- -- 145 -- -- 145
(Loss) income from investments in
subsidiaries -- (3,422) 3,151 (3,422) 3,693 --
Interest expense - net (12,612) (19,956) (66) (5,294) -- (37,928)
Other -- -- 73 -- -- 73
Intercompany interest allocation -- 19,956 (19,956) -- -- --
--------- --------- --------- --------- --------- ---------
Income (loss) before income tax expense
and minority interest 3,151 (3,422) (3,822) (8,716) 3,693 (9,116)
Income tax expense -- -- (3,670) -- -- (3,670)
--------- --------- --------- --------- --------- ---------
Income (loss) before minority interest 3,151 (3,422) (7,492) (8,716) 3,693 (12,786)
Minority interest in loss of subsidiaries -- -- 4,070 -- -- 4,070
--------- --------- --------- --------- --------- ---------
Net income (loss) $ 3,151 $ (3,422) $ (3,422) $ (8,716) $ 3,693 $ (8,716)
========= ========= ========= ========= ========= =========
19
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FINANCIAL DATA
For the Three Months Ended August 31, 2001
(Amounts in thousands)
Centennial Centennial
Puerto Rico Cellular Centennial Communications
Operations Operating Non- Communications Corp. and
Corp. Co. LLC Guarantors Corp. Eliminations Subsidiaries
-------- -------- -------- -------- -------- --------
OPERATING ACTIVITIES:
Net income (loss) $ 3,151 $ (3,422) $ (3,422) $ (8,716) $ 3,693 $ (8,716)
-------- -------- -------- -------- -------- --------
Adjustments to reconcile net (loss) income
to net cash provided by (used in) operating
activities:
Depreciation and amortization 11,544 -- 22,734 -- -- 34,278
Minority interest in loss of subsidiaries -- -- (4,070) -- -- (4,070)
Deferred income taxes -- -- 2,059 -- -- 2,059
Income from equity investments -- -- (145) -- -- (145)
Equity in undistributed earnings of
subsidiaries -- 3,422 (3,151) 3,422 (3,693) --
Other 859 -- 1,201 -- -- 2,060
Noncash expenses 5,989 -- (6,552) 563 -- --
Changes in assets and liabilities, net of
effects of acquisitions and dispositions:
Accounts receivable - (increase) (3,271) -- (6,445) -- -- (9,716)
Prepaid expenses and other current
assets - (increase) (2,986) -- (704) -- -- (3,690)
Accounts payable, accrued expenses and
other current liabilities -
(decrease) increase (4,100) -- (19,755) 4,731 -- (19,124)
Deferred revenue and customer
deposits - increase 6,740 -- 516 -- -- 7,256
-------- -------- -------- -------- -------- --------
Total adjustments 14,775 3,422 (14,312) 8,716 (3,693) 8,908
-------- -------- -------- -------- -------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 17,926 -- (17,734) -- -- 192
-------- -------- -------- -------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures (27,770) -- (55,440) -- -- (83,210)
Deposits on long-term assets -- -- (15,000) -- -- (15,000)
-------- -------- -------- -------- -------- --------
NET CASH USED IN INVESTING
ACTIVITIES (27,770) -- (70,440) -- -- (98,210)
-------- -------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Proceeds from the issuance of
long-term debt 5,000 52,000 35,250 -- -- 92,250
Repayment of debt (1,375) -- (249) -- -- (1,624)
Proceeds from the exercise of stock options -- -- -- 295 -- 295
Proceeds from purchases under employee stock
purchase plan -- -- -- 1,896 1,896
Cash received from (paid to) affiliates 4,913 (52,000) 47,087 -- -- --
Cash advances from subsidiaries (to parent) -- -- 2,191 (2,191) -- --
-------- -------- -------- -------- -------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 8,538 -- 84,279 -- -- 92,817
-------- -------- -------- -------- -------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,306) -- (3,895) -- -- (5,201)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 8,900 -- 14,445 -- -- 23,345
-------- -------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,594 $ -- $ 10,550 $ -- $ -- $ 18,144
======== ======== ======== ======== ======== ========
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information contained in this Part I, Item 2 updates, and should be read in
conjunction with, information set forth in Part II, Items 7 and 8, in the
Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2002, in
addition to the interim consolidated financial statements and accompanying notes
presented in Part 1, Item 1 of this Form 10-Q.
OVERVIEW (AMOUNTS IN THOUSANDS, EXCEPT SUBSCRIBER, POP AND SHARE DATA)
We are a leading regional communications service provider. In the Caribbean, we
are a fully integrated communications service provider offering both wireless
and broadband services, and in the United States, we are a regional wireless
service provider in small city and rural areas. As of August 31, 2002, our
Caribbean operations own licenses to serve a population of approximately 12.9
million in Puerto Rico, the Dominican Republic and the U.S. Virgin Islands. We
provide wireless ("Caribbean Wireless") and several broadband services including
switched voice, dedicated (private line), video and other services ("Caribbean
Broadband") over our own fiber optic, coaxial and microwave network in the
Caribbean. In the United States, we own and operate wireless systems and provide
wireless service in six states in two clusters of small cities and rural areas
covering a population of approximately 6.0 million as of August 31, 2002:
Indiana/Michigan/Ohio and Texas/Louisiana/Mississippi ("U.S. Wireless"). These
clusters are adjacent to major metropolitan markets and have benefited from the
traffic generated by subscribers roaming into our coverage areas. Collectively,
our wireless licenses cover a total of 17.1 million Net Pops as of August 31,
2002.
CRITICAL ACCOUNTING POLICIES
The following discussion and analysis is based on our consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of our
financial statements requires management to make estimates and assumptions that
affect reported amounts and disclosures. Actual results could differ from those
estimates.
We believe that the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements:
Revenue Recognition
Wireless Revenue - - We recognize wireless service revenue in the period the
service is provided to our customers. Services billed in advance are recognized
as income when earned. Revenues from sales of handsets and accessories are
recognized in the period these products are sold to the customer. We have
multiple billing cycles, all of which span our quarter-ends. As a result of our
billing cycle cut-off times, we are required to make estimates for service
revenue earned but not yet billed at the end of each quarter. These estimates
are based primarily on the actual results of the immediately preceding
comparable billing cycle. Actual billing cycle results and related revenue may
vary, depending on subscriber usage and rate plan mix, from the results
estimated at the end of each quarter. Revenues from activation fees are
recognized over the expected customer service period, ranging from 26 to 48
months. Revenues from prepaid calling cards are recognized as the customer uses
the minutes on the cards. Revenues from other services are recognized when
earned.
Broadband Revenue - - We recognize revenues from cable television installation
fees to the extent of direct selling costs in the period the installation is
provided to the customer. Revenues from prepaid long
21
distance cards are recognized as the customer uses the minutes on the cards.
Revenues from other services are recognized when earned. Revenues from equipment
sales are recognized in the period these products are sold to the customer.
Valuation of Long-Lived Assets
Long-lived assets such as property, plant and equipment, certain license costs
and customer lists are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. In our
valuation, we consider current market values of properties similar to our own,
competition, prevailing economic conditions, government policy including
taxation and the historical and current growth patterns of both the Company and
the industry. We also consider the recoverability of the cost of our long-lived
assets based on a comparison of estimated undiscounted operating cash flows for
the businesses which generated long-lived assets with the carrying value of the
long-lived assets.
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations."
SFAS No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. SFAS No. 141 also sets
forth recognition criteria for intangible assets other than goodwill as well as
disclosure requirements for business combinations. We adopted SFAS No. 141 on
July 1, 2001.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 changes the accounting for goodwill and intangibles with
indefinite lives from an amortization method to an impairment-only approach.
Goodwill and certain intangible assets will remain on the balance sheet and not
be amortized. On an annual basis, and when there is reason to suspect that their
values have been diminished or impaired, these assets must be tested for
impairment, and write-downs may be necessary. We adopted SFAS No. 142 effective
June 1, 2002.
In conjunction with the adoption of SFAS No. 142, we have reassessed the useful
lives of previously recognized intangible assets. A significant portion of our
intangible assets are licenses, including licenses associated with equity method
investments, that provide our wireless operations with the exclusive right to
utilize radio frequency spectrum to provide wireless communication services.
While wireless licenses are issued for only a fixed time, generally ten years,
the U.S. wireless and Puerto Rico PCS licenses are subject to renewal by the
Federal Communications Commission ("FCC"). Historically, renewals of licenses
through the FCC have occurred routinely and at nominal cost. Moreover, we have
determined that there are currently no legal, regulatory, contractual,
competitive, economic or other factors that limit the useful life of our U.S.
wireless and Puerto Rico PCS licenses. Our cable franchise licenses in Puerto
Rico are issued for either ten or twenty-year periods, and are subject to
renewal by the Puerto Rico Telecom Board ("PRTB"). The PRTB's process for
granting cable license renewals is similar to the FCC process for our U.S.
wireless and Puerto Rico PCS licenses. Additionally, we have determined that
there are currently no legal, regulatory, contractual, competitive, economic or
other factors that limit the useful life of our Puerto Rico cable franchise
licenses. As a result, the U.S. wireless and Puerto Rico PCS licenses and the
cable franchise license costs will be treated as indefinite-lived intangible
assets under the provisions of SFAS No. 142 and will not be amortized but rather
will be tested for impairment. We will reevaluate the useful life determination
for U.S. wireless and Puerto Rico PCS licenses and the Puerto Rico cable
franchise licenses each reporting period to determine whether events and
circumstances continue to support an indefinite useful life.
Previous wireless and cable business combinations have been for the purpose of
acquiring existing licenses and related infrastructure to enable us to build out
our existing networks. The primary asset
22
acquired in such combinations has been wireless and cable franchise licenses. In
the allocation of the purchase price of certain of these previous acquisitions,
amounts classified as goodwill have related predominately to the deferred tax
effects of the acquired U.S. wireless and cable franchise licenses. Except for
these deferred tax effects, the excess of the purchase price over the other
acquired net assets was accounted for as U.S. wireless licenses and franchise
license costs. We believe that the nature of our U.S. wireless licenses and
related goodwill and our cable franchise license and the related goodwill are
fundamentally indistinguishable.
In conjunction with the adoption of SFAS No. 142, we reclassified approximately
$67.6 million of U.S. Wireless goodwill to U.S. wireless licenses and
approximately $38.0 million of Caribbean Broadband goodwill to Franchise license
costs. Amounts for fiscal year 2002 have been reclassified to conform to the
presentation adopted on June 1, 2002. In connection with these
reclassifications, we recorded an additional deferred tax liability of $69.3
million as of June 1, 2002, in accordance with the provisions of SFAS No. 109,
"Accounting for Income Taxes". The offsetting increase related to recognizing
this deferred tax liability was recorded to U.S. wireless licenses and Franchise
license costs, consistent with the approach of treating U.S. wireless licenses
and Franchise license costs as the excess in the purchase price allocations for
transactions in which the predominant assets acquired were U.S. wireless and
cable franchise licenses. This reclassification, including the related impact of
deferred taxes, had no affect on our results of operations.
As a result of the adoption of SFAS No. 142, previously recorded goodwill and
other intangible assets with indefinite lives will no longer be amortized but
will be subject to impairment tests. When testing the carrying value of these
assets for impairment, we will determine, within each operation, the fair value
of aggregated indefinite-lived intangible assets by subtracting from each
operations' discounted cash flows the fair value of all of the other net
tangible and intangible assets of each operation. Depreciation and amortization
expense for the quarter ended August 31, 2002 would have been $6.1 million
higher in the absence of SFAS No. 142. The aggregate effect of ceasing
amortization decreased net loss and loss per basic and diluted share by $4.5
million and $0.05, respectively.
Derivative Financial Instruments
We use financial derivatives as part of our overall risk management strategy.
These instruments are used to manage risk related to changes in interest rates.
Our portfolio of derivative financial instruments consists of interest rate swap
and collar agreements. We use interest rate swap agreements to modify variable
rate obligations to fixed rate obligations, thereby reducing our exposure to
higher interest rates. We use interest rate collar agreements to lock in a
maximum interest rate if interest rates rise, but allow us to otherwise pay
lower market rates, subject to a floor. Amounts paid or received under interest
rate swap agreements are accrued as interest rates change with the offset
recorded in interest expense.
During the three months ended August 31, 2002, we recorded $0.8 million, net of
tax, in other comprehensive loss attributable to fair value adjustments of
interest rate swap and collar agreements. We also increased our liabilities by
$1.4 million as a result of adjusting the carrying amounts of our derivatives to
reflect their fair values at August 31, 2002.
RESULTS OF OPERATIONS
We had 883,800 wireless subscribers at August 31, 2002, as compared to 803,200
at August 31, 2001, an increase of 10%. The net loss for the three months ended
August 31, 2002 was $0.2 million, as compared to the net loss of $8.7 million
for the same period last year. Basic and diluted loss per share
23
for the three months ended August 31, 2002 was $0.00 as compared to basic and
diluted loss per share of $0.09 for the same period a year ago.
On August 22, 2002, we sold our 51% interest in our Jamaica wireless operations,
Centennial Digital Jamaica, to Oceanic Digital Communications Inc., the 49%
shareholder of Centennial Digital Jamaica. We recorded a pre-tax gain of $2.4
million, which is included in gain on disposition of assets in the consolidated
statement of operations. In addition, we reduced our net liabilities by
approximately $2.4 million, including consolidated long-term debt of
approximately $45.1 million (largely comprised of the Lucent Credit Facility
which was non-recourse to the Company) as a result of this transaction.
The table below summarizes the consolidated results of operations for each
period:
Three Months Ended
-------------------------
(In thousands, except per share amounts) 08/31/02 08/31/01 % Change
-------- -------- --------
Operating income $ 41,699 $ 28,594 46%
Net loss $ (241) $ (8,716) 97%
Loss per share:
Basic and diluted $ (0.00) $ (0.09) 100%
Adjusted EBITDA (1) $ 75,805 $ 62,872 21%
(1) Earnings before gain on disposition of assets, minority interest in loss
of subsidiaries, income from equity investments, interest expense - net,
income taxes and depreciation and amortization ("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 that of 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.
Caribbean Wireless Operations
Three Months Ended
-------------------------
(In thousands) 08/31/02 08/31/01 % Change
-------- -------- --------
Revenue:
Service revenue $ 62,697 $ 49,974 25%
Equipment sales 2,546 3,120 (18)
-------- -------- --------
65,243 53,094 23
-------- -------- --------
Costs and expenses:
Cost of equipment sold 8,906 4,594 94
Cost of services 11,730 8,247 42
Sales and marketing 9,911 11,096 (11)
General and administrative 13,732 11,166 23
-------- -------- --------
44,279 35,103 26
-------- -------- --------
Adjusted EBITDA 20,964 17,991 17
Gain on disposition of assets (2,370) -- N/A
Depreciation and amortization 15,461 10,676 45
-------- -------- --------
Operating income $ 7,873 $ 7,315 8%
======== ======== ========
24
Revenue
Caribbean Wireless service revenue increased $12.7 million, or 25%, for the
three months ended August 31, 2002 to $62.7 million as compared to the three
months ended August 31, 2001. This increase was primarily due to growth in
revenue from new subscribers of $15.4 million, partially offset by an aggregate
decrease in service revenue per subscriber of $2.7 million.
The decrease in equipment sales of wireless telephones and accessories to
subscribers was primarily related to lower handset prices due to competitive
pressures.
Our Caribbean Wireless operations had approximately 349,800 subscribers at
August 31, 2002, an increase of 16% from the 300,600 subscribers at August 31,
2001. During the twelve months ended August 31, 2002, increases from new
activations of 204,800 were offset by subscriber cancellations of 155,600. These
activations and cancellations exclude Centennial Digital Jamaica. The monthly
prepaid and postpaid churn rate increased to 4.0% for three months ended August
31, 2002 from 3.7% for the same period a year ago. The cancellations experienced
by our Caribbean Wireless operations were primarily the result of churn of
prepaid customers, competitive factors and non-payment.
Caribbean Wireless revenue per subscriber per month, based upon an average
number of subscribers, was $59 for the three months ended August 31, 2002, as
compared to $63 for the same period a year ago. The decrease in revenue per
subscriber was primarily due to the addition of new subscribers in Jamaica
during the second half of fiscal 2002. The average customer used 619 minutes of
airtime per month in the first quarter of fiscal 2003 versus 479 minutes of use
per month in the same period last year.
Costs and expenses
Cost of equipment sold increased during the three months ended August 31, 2002
as compared to the same period last year due to an increase in the number of
premium phones sold and an increase in phones used for upgrades and retention
plan exchanges.
Cost of services increased during the three months ended August 31, 2002 as
compared to the three months ended August 31, 2001, primarily due to the
variable costs associated with a larger subscription base and associated
revenue.
Sales and marketing expenses decreased during the three months ended August 31,
2002 as compared to the same period last year, primarily due to lower
commissions and newly structured Dominican Republic dealer contracts.
General and administrative expenses increased during the three months ended
August 31, 2002 as compared to the same period in fiscal 2002, primarily due to
increased costs to support the expanding subscriber base.
Adjusted EBITDA for the Caribbean Wireless operations for the three months ended
August 31, 2002 was $21.0 million, an increase of $3.0 million, or 17%, as
compared to the three months ended August 31, 2001. The increase was primarily
due to an increase in the number of postpaid customers.
Depreciation and amortization for the three months ended August 31, 2002 was
$15.5 million, an increase of $4.8 million, or 45%, as compared to the three
months ended August 31, 2001. Depreciation
25
increased due to capital expenditures made during fiscal 2003 and 2002 in
connection with the development and network expansion of our Caribbean wireless
telephone systems.
The gain on disposition of assets during the three months ended August 31, 2002
is due to the sale of our Jamaican wireless operations.
Operating income for the three months ended August 31, 2002 was $7.9 million, an
increase of $0.6 million from the operating income of $7.3 million from the same
period last year.
Caribbean Broadband Operations
Three Months Ended
-------------------------
(In thousands) 08/31/02 08/31/01 % Change
-------- -------- --------
Revenue:
Switched revenue $ 7,812 $ 5,679 38%
Dedicated revenue 9,059 7,773 17
Video revenue 12,664 11,579 9
Other revenue 6,183 6,890 (10)
-------- -------- --------
35,718 31,921 12
-------- -------- --------
Costs and expenses:
Cost of equipment sold 155 164 (5)
Cost of services 15,165 14,964 1
Sales and marketing 2,259 3,309 (32)
General and administrative 8,356 6,840 22
-------- -------- --------
25,935 25,277 3
-------- -------- --------
Adjusted EBITDA 9,783 6,644 47
Gain on disposition of assets (1) -- N/A
Depreciation and amortization 11,783 12,485 (6)
-------- -------- --------
Operating loss $ (1,999) $ (5,841) (66)%
======== ======== ========
Revenue
Caribbean Broadband revenue increased $3.8 million, or 12%, for the three months
ended August 31, 2002 to $35.7 million as compared to the three months ended
August 31, 2001.
Switched revenue increased $2.1 million, or 38%, for the three months ended
August 31, 2002 as compared to the same period a year ago. The increase was
primarily due to a 46% increase in switched access lines to 36,020 as of the end
of the first quarter and a corresponding growth in minutes of use.
Dedicated revenue increased $1.3 million, or 17%, for the three months ended
August 31, 2002 to $9.1 million. The increase was primarily the result of a 15%
rise in voice grade equivalent dedicated lines to 165,208. Strong growth in some
segments of the carrier market has been offset by the generally unsettled
condition of the long distance, undersea fiber optic and ISP markets.
Video services revenues of $12.7 million for the three months ended August 31,
2002 grew 9% from the same period last year, reflecting the revenue from the
recent digital upgrade and rate increase.
Other revenue decreased $0.7 million, or 10%, to $6.2 million for the three
months ended August 31, 2002 from the same period last year. The decrease is
primarily attributable to a reduction in southbound
26
international traffic to the Dominican Republic.
Costs and expenses
Cost of services increased slightly during the three months ended August 31,
2002, as compared to the same period a year ago, primarily due to higher costs
to support the expanding Broadband business and expenses related to the video
services businesses offset by reduced costs for our Dominican Republic broadband
operations.
Sales and marketing expenses decreased during the three months ended August 31,
2002, as compared to the three months ended August 31, 2001, primarily due to a
reduction of the sales force in the Dominican Republic and an overall reduction
in advertising spending.
General and administrative expenses increased during the three months ended
August 31, 2002, as compared to the three months ended August 31, 2001,
primarily due to the additional expenses associated with the video services
acquisitions and increased costs to support the growing customer base.
Adjusted EBITDA for the Caribbean Broadband operations for the three months
ended August 31, 2002 was $9.8 million, an increase of $3.1 million, or 47%, as
compared to the same three months last year.
Depreciation and amortization for the three months ended August 31, 2002 was
$11.8 million, a decrease of $0.7 million, or 6%, from the same three months
last year. The decrease was primarily due to the cessation of amortization
relating to franchise license costs in connection with the adoption of SFAS No.
142. The effect of this adoption was partially offset by increased depreciation
expense associated with the continued expansion of the Puerto Rico broadband and
cable TV operations.
Operating loss for the three months ended August 31, 2002 was $2.0 million, a
decrease of $3.8 million as compared to the operating loss of $5.8 million for
the same period in fiscal 2002.
U.S. Wireless Operations
Three Months Ended
-------------------------
(In thousands) 08/31/02 08/31/01 % Change
-------- -------- --------
Revenue:
Service revenue $ 65,765 $ 61,887 6%
Roaming revenue 24,779 25,958 (5)
Equipment sales 2,597 3,094 (16)
-------- -------- --------
93,141 90,939 2
-------- -------- --------
Costs and expenses:
Cost of equipment sold 6,110 8,099 (25)
Cost of services 17,440 18,850 (7)
Sales and marketing 11,661 11,493 1
General and administrative 12,872 14,260 (10)
-------- -------- --------
48,083 52,702 (9)
-------- -------- --------
Adjusted EBITDA 45,058 38,237 18
Gain on disposition of assets (4) -- N/A
Depreciation and amortization 9,237 11,117 (17)
-------- -------- --------
Operating income $ 35,825 $ 27,120 32%
======== ======== ========
27
Revenue
U.S. Wireless service revenue increased $3.9 million, or 6%, to $65.8 million in
the three months ended August 31, 2002 as compared to the three months ended
August 31, 2001. The increase was primarily due to growth in revenue from new
subscribers of $4.4 million for the three months ended August 31, 2002,
partially offset by a decrease in service revenue per subscriber of $0.5 million
for the same period. Revenue from U.S. Wireless roaming decreased $1.2 million,
or 5%, from roaming revenues of $26.0 million for the three months ended August
31, 2001. The decrease was primarily due to a decrease in roaming rates per
minute of $8.3 million for the three months ended August 31, 2002, partially
offset by an increase in roaming usage of $7.1 million for the same period.
We anticipate that roaming revenue will be significantly lower in fiscal 2003
than in fiscal 2002 primarily due to declines in contractual roaming rates and,
secondarily, industry consolidation.
Our U.S. Wireless operations had approximately 534,000 and 502,600 subscribers
at August 31, 2002 and 2001, respectively. During the twelve months ended August
31, 2002, increases from new activations of 167,800 were offset by subscriber
cancellations of 136,400. The monthly prepaid and postpaid churn rate was 2.4%
for the three months ended August 31, 2002, as compared to 2.7% for the same
period last year. The cancellations experienced by the U.S. Wireless operations
were primarily due to competitive factors and non-payment.
U.S. Wireless revenue per subscriber per month, based upon an average number of
subscribers, was $58 for the three months ended August 31, 2002, as compared to
$60 for the same period a year ago. The decrease in revenue per subscriber was
primarily due to the decline in roaming revenue. Average minutes of use per
subscriber was 241 per month for the three months ended August 31, 2002 as
compared to 169 for the same period last year.
Costs and expenses
Cost of equipment sold decreased $2.0 million, or 25%, for the three months
ended August 31, 2002, as compared to the same period last year, due to a
decrease in activations.
Cost of services decreased $1.4 million, or 7%, during the three months ended
August 31, 2002, as compared to the three months ended August 31, 2001,
primarily due to a decrease in incollect cost.
Sales and marketing expenses increased slightly for the three months ended
August 31, 2002 as compared to the prior year, primarily due to an increase in
advertising costs offset by decreased commissions.
General and administrative expenses decreased $1.4 million, or 10%, during the
three months ended August 31, 2002, as compared to the three months ended August
31, 2001, primarily due to decreases in bad debt expense and subscriber billing
services.
Adjusted EBITDA for the U.S. Wireless operations was $45.1 million for the three
months ended August 31, 2002, an increase of $6.8 million, or 18%, as compared
to the same period in fiscal 2002.
Depreciation and amortization for the three months ended August 31, 2002 was
$9.2 million, a decrease of $1.9 million, or 17%, from the same period in fiscal
2002. The decrease was primarily due to the
28
cessation of amortization relating to wireless licenses in connection with the
adoption of SFAS No. 142.
Operating income for the three months ended August 31, 2002 was $35.8 million,
an increase of $8.7 million from operating income of $27.1 million for the same
period in fiscal 2002.
Consolidated
Other non-operating income and expenses
Net interest expense was $38.3 million for the three months ended August 31,
2002, an increase of $0.3 million, or 1%, from the three months ended August 31,
2001. Gross interest expense was $38.5 million for the three months ended August
31, 2002, as compared to $38.2 million for the same period a year ago. This
increase was primarily driven by the change in interest rate on our Mezzanine
Debt from 10% cash pay to 13% pay-in-kind (see Commitments and Contingencies).
This increase was somewhat offset by a lower average interest rate on our
variable rate debt. Total debt decreased $34.9 million from August 31, 2001 to
August 31, 2002.
The weighted-average debt outstanding during the three months ended August 31,
2002 was $1,804.9 million, an increase of $60.9 million as compared to the
weighted-average debt level of $1,744.0 million during the three months ended
August 31, 2001. Our weighted-average interest rate was 8.5% for the three
months ended August 31, 2002, as compared to 8.8% for the same period a year
ago.
After minority interest in loss of subsidiaries for the three months ended
August 31, 2002, pre-tax income was $3.5 million as compared to the pre-tax loss
of $5.0 million for the three months ended August 31, 2001. Income tax expense
was $3.8 million for the three months ended August 31, 2002, as compared to $3.7
million for the same period last year.
These factors resulted in a net loss of $0.2 million for the three months ended
August 31, 2002, which represents a decrease of $8.5 million from net loss of
$8.7 million for the same period a year ago.
LIQUIDITY AND CAPITAL RESOURCES
On September 5, 2001, we amended our existing senior term loan and revolving
credit facilities to add an additional $50.0 million to the Tranche-C term loan.
The amended credit facilities are referred to as The New Credit Facility. The
New Credit Facility consists of four term loans in an aggregate original
principal amount of $1,050.0 million, which has been reduced to $996.4 million
as of August 31, 2002 due to mandatory debt amortization payments. The borrowers
under the New Credit Facility are Centennial Cellular Operating Co. LLC for a
term loan with an original amount of $325.0 million, of which $300.6 million was
outstanding as of August 31, 2002, and Centennial Puerto Rico Operations Corp.
for three separate term loans aggregating an original amount of $725.0 million,
of which $695.7 million was outstanding as of August 31, 2002. The New Credit
Facility also includes a revolving credit facility with an aggregate principal
amount of $250.0 million, of which $190.0 million was outstanding as of August
31, 2002. The revolving credit facility portion of the New Credit Facility is
available to both of the borrowers. Under the provisions of our credit facility,
we are effectively prohibited from paying cash dividends on our common stock.
Our obligations under the New Credit Facility are guaranteed by substantially
all of our subsidiaries and are collateralized by liens on substantially all of
our assets.
For the three months ended August 31, 2002, earnings exceeded fixed charges by
$3.4 million. Fixed charges consist of interest expense, including amortization
of debt issuance costs, and the portion of rents
29
deemed representative of the interest portion of leases. The amount by which
earnings exceeded fixed charges reflects non-cash charges of $36.5 million
relating to depreciation and amortization.
As of August 31, 2002, we had $693.5 million of property, plant and equipment
(net) placed in service. During the three months ended August 31, 2002, we made
capital expenditures of $35.5 million to expand the coverage areas and upgrade
our cell sites as well as our call switching equipment of existing Caribbean and
U.S. wireless properties and to extend and enhance our broadband fiber network
in the Caribbean. Capital expenditures for the Caribbean operations were $26.4
million for the three months ended August 31, 2002, representing 74% of total
capital expenditures. The Caribbean operations' capital expenditures included
$13.3 million to add capacity and services and to continue the development and
expansion of our Caribbean Wireless systems and $13.1 million to continue the
expansion of our Caribbean Broadband network infrastructure. During fiscal 2003,
we anticipate capital expenditures of up to $150.0 million.
In January 2002, Centennial Puerto Rico Cable TV Corp. ("Centennial Cable"), our
wholly-owned subsidiary, entered into a $15.0 million credit agreement with
Banco Popular de Puerto Rico (the "Cable TV Credit Facility") to fund the
digital conversion of its cable operations. Borrowings under the Cable TV Credit
Facility bear interest at LIBOR plus 3.50%. The Cable TV Credit Facility matures
in February 2006 with principal repayments beginning in August 2002. Under the
Cable TV Credit Facility, Centennial Cable is required to maintain certain
financial covenants and is limited in its ability to, among other things, incur
additional indebtedness. Centennial Puerto Rico Operations Corp. has guaranteed
Centennial Cable's obligation under the Cable TV Credit Facility and the
facility is collateralized by a lien on the digital boxes, the monthly rental
payments on the digital boxes and other equipment purchased with the borrowings
under the Cable TV Credit Facility. As of August 31, 2002, $10.2 million was
outstanding under the Cable TV Credit Facility.
We expect to finance our capital expenditures primarily from cash flow generated
from operations, borrowings under our existing credit facilities and proceeds
from the sale of assets. We may also seek various other sources of external
financing including, but not limited to, additional bank financing, joint
ventures, partnerships and placement of debt or equity securities.
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, among
other things, continued growth in the number of customers and maximizing revenue
per subscriber. We have continued the construction and upgrade of wireless
systems in our markets to achieve these objectives. There is no assurance that
growth in customers or revenue will occur. In addition, our participation in the
Caribbean telecommunications business has been, and is expected to remain,
capital intensive. Further, due to the start-up nature of our Dominican Republic
operations, we anticipate that additional cash investments will be required to
fund our operations over the next several years.
The following table 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 required from other financing and
investing activities:
30
Three Months Ended August 31,
--------------------------------------------------------------
2002 2001
-------------------------- ---------------------------
% of net cash % of net cash
(In thousands) Amount provided Amount provided
--------- --- --------- ----
Net cash provided by operating activities $ 45,653 55% $ 192 -%
Interest paid 37,042 45 41,963 100
--------- --- --------- ----
Net cash provided $ 82,695 100% $ 42,155 100%
========= === ========= ====
Principal uses of cash:
Interest paid $ 37,042 45% $ 41,963 100%
Property, plant & equipment 35,465 43 83,210 197
--------- --- --------- ----
Total $ 72,507 88% $ 125,173 297%
========= === ========= ====
Cash available for (required from) other
financing and investing activities $ 10,188 12% $ (83,018) (197)%
========= === ========= ====
Net cash provided by operating activities for the three months ended August 31,
2002 was sufficient to fund our expenditures for property, plant and equipment
of $35.5 million.
The following table sets forth the primary cash flows (used in) provided by
other financing and investing activities for the periods indicated:
Three Months Ended August 31,
-------------------------
(In thousands) 2002 2001
-------- --------
Proceeds from disposition of assets, net of cash expenses $ 1,017 $ --
Proceeds from issuance of long-term debt 11,848 92,250
Proceeds from the exercise of stock options -- 295
Proceeds from issuance of common stock under employee stock
purchase plan 483 1,896
-------- --------
Cash provided by other financing and investing activities 13,348 94,441
-------- --------
Repayment of debt (33,359) (1,624)
Deposits on long-term assets -- (15,000)
-------- --------
Capital (required from) available for operations and
capital expenditures $(20,011) $ 77,817
======== ========
Based upon existing market conditions and our present 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.
Centennial, its subsidiaries, affiliates and controlling stockholders (including
Welsh, Carson, Anderson & Stowe ("WCAS") and The Blackstone Group and their
respective affiliates) may from time to time, depending upon market conditions,
seek to purchase certain of Centennial's or its subsidiaries' securities in the
open market or by other means, in each case to the extent permitted by existing
covenant restrictions.
ACQUISITIONS AND DISPOSITIONS
Our primary acquisition strategy is to obtain controlling ownership interests in
communications systems serving markets that are proximate to or share a
community of interest with our current markets. We may pursue acquisitions of
communications businesses that we believe will enhance our scope and scale. Our
strategy of clustering our operations in proximate geographic areas enables us
to achieve operating and cost efficiencies as well as joint marketing benefits,
and also allows us to offer our subscribers more
31
areas of uninterrupted service as they travel. In addition to expanding our
existing clusters, we also may seek to acquire interests in communications
businesses in other geographic areas. The consideration for such acquisitions
may consist of shares of stock, cash, assumption of liabilities, a combination
thereof or other forms of consideration.
In August 2002, we entered into an agreement to sell our 60% interest in
Infochannel Limited, a Jamaican Internet service provider, for $3.0 million, of
which $1.0 million has been received as of August 31, 2002. This transaction is
expected to close in the second quarter of fiscal year 2003.
In August 2002, we sold our 51% interest in our Jamaica wireless operations,
Centennial Digital Jamaica, to Oceanic Digital Communications Inc., the 49%
shareholder of Centennial Digital Jamaica. We recorded a pre-tax gain of $2.4
million, which is included in gain on disposition of assets in the consolidated
statement of operations. In addition, we reduced our net liabilities by
approximately $2.4 million, including consolidated long-term debt by
approximately $45.1 million (largely comprised of the Lucent Credit Facility
which was non-recourse to the Company) as a result of this transaction.
RECENT ACCOUNTING STANDARDS
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated retirement costs. We are required to implement SFAS No. 143 on June
1, 2003, and have not yet determined the impact that this statement will have on
our results of operations or financial position.
In October 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 replaces SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" and establishes accounting and reporting standards for long-lived assets to
be disposed of by sale. This standard applies to all long-lived assets,
including discontinued operations. SFAS No. 144 requires that those assets be
measured at the lower of carrying amount or fair value less cost to sell. SFAS
No. 144 also broadens the reporting of discontinued operations to include all
components of an entity with operations that can be distinguished from the rest
of the entity that will be eliminated from the ongoing operations of the entity
in a disposal transaction. We adopted SFAS No. 144 on June 1, 2002. The adoption
of this statement did not have a material effect on our results of operations,
financial position and cash flows.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections".
Statement No. 145 provides for the rescission of several previously issued
accounting standards, new accounting guidance for the accounting for certain
lease modifications and various technical corrections that are not substantive
in nature to existing pronouncements. We adopted SFAS No. 145 on June 1, 2002.
The adoption of this statement did not have a material effect on our results of
operations, financial position and cash flows.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 replaces Emerging Issues Task
Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)". SFAS No. 146 requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. Examples of costs
covered by SFAS No. 146 include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS No. 146 is to
be applied prospectively to exit or disposal activities
32
initiated after December 31, 2002, with early application encouraged. We have
not yet determined the impact that this standard will have on our results of
operations or financial position.
COMMITMENTS AND CONTINGENCIES
We have filed a shelf registration statement with the SEC for the sale of up to
72,000,000 shares of our common stock that may be offered from time to time in
connection with acquisitions. The SEC declared the registration statement
effective on July 14, 1994. As of October 10, 2002, 37,613,079 shares remain
available for future acquisitions.
On July 7, 2000, the SEC declared effective our universal shelf registration
statement, which registered our sale of up to an aggregate of $750.0 million of
securities (debt, common stock, preferred stock and warrants) as well as the
resale of up to 20 million shares of our common stock out of approximately 87
million shares owned by our controlling stockholders ("WCAS" and an affiliate of
The Blackstone Group).
In August 2002, WCAS advised us that during the quarter ended August 31, 2002,
an affiliate of WCAS (the "WCAS Affiliate") purchased in open market
transactions approximately $140.0 million principal amount of our 10-3/4%
senior subordinated notes (the "Notes") due 2008. On September 24, 2002, the
Company and the WCAS Affiliate entered into an indemnification agreement
pursuant to which the WCAS Affiliate agreed to indemnify us in respect of taxes
which may become payable by us as a result of these purchases. In connection
with these transactions, we recorded a $14.7 million income tax payable
included in accrued expenses and other current liabilities, and a corresponding
amount due from the WCAS Affiliate that is included in prepaid expenses and
other current assets.
We have been informed by the administrative agent under the New Credit Facility
that, as of May 31, 2002, we have used up all remaining baskets under the New
Credit Facility to pay cash interest on the Mezzanine Debt and that any
additional payments of cash interest on the Mezzanine Debt would be considered a
default under the New Credit Facility. Accordingly, we are effectively
prohibited from making any further payments of cash interest on the Mezzanine
Debt, absent additional distributions from the equity investments in wireless
systems that we hold. As such, we are recording pay-in-kind interest at a rate
of 13% per annum which increases the principal amount of the Mezzanine Debt.
Interest amounts for future periods are calculated on these higher principal
amounts. Any unpaid interest will be repaid upon maturity of the Mezzanine Debt.
In May 2002, we announced that we entered into an agreement with AAT
Communications Corp. ("AAT") to sell to AAT 186 telecommunications towers
located in our U.S. wireless serving areas for a purchase price of approximately
$34.1 million in cash, subject to adjustment. Under the terms of the agreement,
we will leaseback space on the towers from AAT. The agreement is subject to
customary closing conditions and the tower sales are expected to close on a
rolling basis during the remainder of fiscal year 2003. In September 2002, we
sold 17 towers to AAT for approximately $3.4 million.
In April 2002, we announced that in response to inquiries from interested
parties, we engaged Morgan Stanley to assist us in evaluating strategic
alternatives for our cable television properties in Puerto Rico, Centennial
Cable. In August 2002, we announced that we had terminated this process and
intend to continue to operate these systems.
In February 2002, Centennial Cable entered into an agreement with a subsidiary
of Motorola, Inc. (the "Motorola Agreement") pursuant to which it agreed to
purchase equipment for the digital conversion of
33
its cable operations through July 2002. We had met our purchase commitment under
this agreement as of May 31, 2002. Centennial Cable will utilize amounts
available under its Cable TV Credit Facility to fund purchases under the
Motorola Agreement.
In July 2001, we entered into an agreement with Nortel Networks pursuant to
which we agreed, subject to certain conditions, to purchase equipment and
installation services for our wireless operations through June 2003 at a cost of
approximately $40.0 million. We have committed to purchase $19.9 million under
this agreement as of August 31, 2002.
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.
Statements in this document that are not historical facts are hereby identified
as "forward looking statements". Where, in any forward-looking statement, we or
our 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. Our actual results may differ
significantly from our expectations, plans or projections. Forward-looking
statements can be identified by the use of words "believe", "expect",
"estimate", "anticipate", "project", "intend", "may", "will", and similar
expressions, or by discussion of competitive strengths or 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.
Important factors ("Risk Factors") that could cause actual results to differ
materially from those expressed in any forward-looking statement made by, or on
behalf of, us include, but are not limited to:
- our substantial debt obligations;
- the availability and cost of additional capital to fund our
operations, including the need to refinance and/or amend existing
indebtedness;
- restrictive covenants and consequences of default contained in our
financing arrangements, which limit how we conduct business;
- the competitive nature of the telecommunications industry in the areas
in which we operate, including, without limitation, the affect of
existing and new competitors, including competitors that may have
greater resources than we do, competitors that may offer less
expensive products than we do and competitors that may offer more
technologically advanced products than we do;
- market prices for wireless services may continue to decline in the
future;
- general economic, business, political and social conditions in the
areas in which we operate, including the less developed Caribbean
region;
- continued overbuilding by personal communications service providers in
our U.S. wireless markets and the effects of increased competition in
our markets, which may cause a reduction in roaming revenues,
increased subscriber cancellations, a continued reduction of prices
charged and lower average revenue per subscriber;
- our dependence on roaming agreements for a material portion of our
U.S. wireless revenues and the continued price declines in roaming
rates and potential reduction of roaming minutes of use;
- the ability to attract and retain qualified personnel;
- that our coverage areas are not as extensive as those of other
wireless operators which may limit our ability to attract and retain
customers;
- the effects of consolidation in the wireless communications industry;
34
- the effects of governmental regulation of the telecommunications
industry;
- the capital intensity of the telecommunications industry, including
our plans to make significant capital expenditures during the coming
year and future years to build out and upgrade our networks and the
availability of additional capital to fund these capital expenditures;
- declining rates for international long distance traffic;
- opportunities for growth through acquisitions and investments and
ability to manage this growth;
- changes and developments in technology, including our ability to
upgrade our networks to remain competitive and our ability to
anticipate and react to frequent and significant technological
changes;
- the ability to effectively manage subscriber cancellations;
- local operating hazards and risks in the areas in which we operate,
including without limitation, hurricanes, tornados, wind storms and
other natural disasters;
- our ability to manage and monitor billing and operational support
systems;
- potential litigation related to using wireless telephones while
operating an automobile and the potential reduction of wireless usage
due to legislation restricting usage while driving;
- potential litigation relating to possible health effects of radio
frequency transmission;
- the relative illiquidity and corresponding volatility of our common
stock;
- 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.
35
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risks due to fluctuations in interest rates. A
majority of the Company's long-term debt has variable interest rates. The
Company utilizes interest rate swap and collar agreements to hedge variable
interest rate risk on a portion of its variable interest rate debt as part of
its interest rate risk management program.
The table below presents principal (or notional) amounts and related average
interest rate by year of maturity for the Company's long-term debt and interest
rate swap and collar agreements. Weighted average variable rates are based on
implied forward rates in the yield curve as of August 31, 2002:
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------
(IN THOUSANDS) 2003 2004 2005 2006 2007
------------- ------------- ------------- ----------- ------------
Long-term debt:
Fixed rate $ 126 $ 274 $ 307 $ 71 $ -
Average interest rate 10.03% 11.78% 9.44% 7.75% -%
Variable rate $ 71,630 $ 94,132 $ 115,582 $ 135,382 $ 527,569
Average interest rate (1) 1.89% 3.02% 3.96% 4.65 % 4.97%
Interest rate swaps (pay
fixed, receive variable):
Notional amount $ 100,000 $ 50,000 -- -- --
Average pay rate 5.75% 5.21% -- -- --
Average receive rate 1.89% 3.02% -- -- --
Interest rate collar:
Notional amount $ 100,000 -- -- -- --
Cap 7.00% -- -- -- --
Floor 4.62% -- -- -- --
(IN THOUSANDS) THEREAFTER TOTAL FAIR VALUE
------------- ------------- -----------
Long-term debt:
Fixed rate $ 551,220 $ 551,998 $ 391,048
Average interest rate 10.50% 10.50% --
Variable rate $ 252,276 $ 1,196,571 $ 1,196,571
Average interest rate (1) 5.66% 4.64% --
Interest rate swaps (pay
fixed, receive variable):
Notional amount -- -- $ (10,663)
Average pay rate -- -- --
Average receive rate -- -- --
Interest rate collar:
Notional amount -- -- $ (3,679)
Cap -- -- --
Floor -- -- --
(1) Represents the average interest rate before applicable margin on
the New Credit Facility debt.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation
of the Company's disclosure controls and procedures pursuant to Exchange
Act Rule 13a-14. Based upon that evaluation, the Company's Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company's periodic SEC
filings. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
36
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In April 2002, WHTV Broadcasting Corp. and Sala Foundation
Inc., operators of a wireless cable system in Puerto Rico,
filed an action against the Company in the United States
District Court for the District of Puerto Rico. The complaint
alleges that the Company breached the terms of a November 2000
letter of intent to purchase the wireless cable system for
$30 million. The complaint seeks specific performance of the
letter of intent or not less than $15 million in damages.
While it is not possible to determine the ultimate disposition
of this matter, the Company believes that the outcome will not
have a material adverse effect on its financial condition or
results of operations. To the Company's knowledge, there are
no other 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 that is likely to have a
material adverse effect on its business or results of
operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Each exhibit identified below is filed as a part of this
report.
a) Exhibits
Exhibit No. Description
----------- -----------
99.1 Certification of Michael J. Small,
Principal Executive Officer
99.2 Certification of Thomas J.
Fitzpatrick, Principal Financial
Officer
b) Reports on Form 8-K
None
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
October 15, 2002
CENTENNIAL COMMUNICATIONS CORP.
/s/ Thomas J. Fitzpatrick
----------------------------------------
Thomas J. Fitzpatrick
Executive Vice President,
Chief Financial Officer
(Chief Financial Officer)
/s/ Thomas E. Bucks
----------------------------------------
Thomas E. Bucks
Sr. Vice President-Controller
(Chief Accounting Officer)
38
CERTIFICATION
I, Michael J. Small, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Centennial
Communications Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: October 15, 2002
------------------------
By: /s/ Michael J. Small
--------------------------
Name: Michael J. Small
Title: Chief Executive Officer
CERTIFICATION
I, Thomas Fitzpatrick, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Centennial
Communications Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: October 15, 2002
-------------------
BY: /s/ Thomas J. Fitzpatrick
--------------------------
NAME: THOMAS J. FITZPATRICK
TITLE: EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
40