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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
EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2003
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
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES [ ] NO [X]
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 April 10, 2003
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........................................... 25
Item 3. Quantitative and Qualitative Disclosures about Market Risk...... 46
Item 4. Controls and Procedures......................................... 46
Part II - Other Information............................................... 47
Item 1. Legal Proceedings............................................... 47
Item 2. Changes in Securities and Use of Proceeds....................... 47
Item 3. Defaults Upon Senior Securities................................. 47
Item 4. Submission of Matters to a Vote of Security Holders............. 47
Item 5. Other Information............................................... 47
Item 6. Exhibits and Reports on Form 8-K................................ 47
Signatures................................................................ 48
Certifications............................................................ 49
ii
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
FEBRUARY 28,
2003 MAY 31,
(UNAUDITED) 2002
----------- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 57,242 $ 33,871
Accounts receivable, less allowance for doubtful
accounts of $20,053 and $15,833, respectively 81,217 88,776
Inventory - phones and accessories, less
allowance for obsolescence of $2,133 and
$2,775, respectively 7,811 12,138
Prepaid expenses and other current assets 34,087 20,884
----------- -----------
Total Current Assets 180,357 155,669
Property, plant and equipment, net 667,467 741,293
Equity investments in wireless systems, net 1,605 2,443
Debt issuance costs, less accumulated amortization
of $32,631 and $26,858, respectively 37,757 43,554
U.S. wireless licenses, net 371,766 326,711
Caribbean wireless licenses, less accumulated
amortization of $11,016 and $10,266, respectively 71,742 72,492
Cable franchise costs, net 52,139 193,021
Goodwill, net 26,704 27,984
Other assets, net 33,677 44,342
----------- -----------
TOTAL ASSETS $ 1,443,214 $ 1,607,509
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt $ 83,566 $ 65,795
Accounts payable 31,694 30,504
Accrued expenses and other current liabilities 168,331 154,599
Payable to affiliates 125 125
----------- -----------
Total Current Liabilities 283,716 251,023
Long-term debt 1,673,333 1,742,722
Deferred federal income taxes 107,839 70,777
Minority interest in subsidiaries -- 976
Other liabilities 19,864 12,946
Commitments and contingencies
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock par value $0.01 per share:
150,000,000 shares authorized; issued
95,766,539 and 95,482,191 shares, respectively;
and outstanding 95,696,036 and 95,411,688 shares,
respectively 958 955
Additional paid-in capital 437,018 436,273
Accumulated deficit (1,072,806) (899,514)
Accumulated other comprehensive loss (5,610) (7,522)
----------- -----------
(640,440) (469,808)
Less: cost of 70,503 common shares in treasury (1,077) (1,077)
Deferred compensation (21) (50)
----------- -----------
Total Stockholders' Equity (Deficit) (641,538) (470,935)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,443,214 $ 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 NINE MONTHS ENDED
------------------ -----------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
2003 2002 2003 2002
---- ---- ---- ----
Revenue:
Service revenue $ 173,978 $ 169,983 $ 535,216 $ 506,671
Equipment sales 8,052 6,719 19,427 17,564
---------- ---------- ---------- ----------
182,030 176,702 554,643 524,235
---------- ---------- ---------- ----------
Costs and expenses:
Cost of equipment sold 21,467 17,361 52,173 43,240
Cost of services 36,794 40,638 116,925 122,700
Sales and marketing 24,026 27,944 71,482 81,015
General and administrative 31,692 34,340 104,418 99,466
Depreciation and amortization 35,855 42,306 106,982 114,681
Loss on impairment of assets 189,492 -- 189,492 --
(Gain) loss on disposition of assets (464) 480 (2,357) 469
---------- ---------- ---------- ----------
338,862 163,069 639,115 461,571
---------- ---------- ---------- ----------
Operating (loss) income (156,832) 13,633 (84,472) 62,664
---------- ---------- ---------- ----------
Income from equity investments 33 176 166 508
Interest expense, net (36,331) (35,097) (111,598) (111,127)
Other (771) -- (877) 48
---------- ---------- ---------- ----------
Loss before income taxes and minority interest (193,901) (21,288) (196,781) (47,907)
Income tax benefit (expense) 34,324 3,029 23,318 (7,754)
---------- ---------- ---------- ----------
Loss before minority interest (159,577) (18,259) (173,463) (55,661)
Minority interest in loss of subsidiaries -- 5,209 171 13,569
---------- ---------- ---------- ----------
Net loss $ (159,577) $ (13,050) $ (173,292) $ (42,092)
========== ========== ========== ==========
Loss per share:
Basic and diluted $ (1.67) $ (0.14) $ (1.81) $ (0.44)
========== ========== ========== ==========
Weighted-average number of shares outstanding:
Basic and diluted 95,696 95,364 95,566 95,156
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
2
CENTENNIAL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
NINE MONTHS ENDED
-----------------
FEBRUARY 28, FEBRUARY 28,
2003 2002
---- ----
OPERATING ACTIVITIES:
Net loss $(173,292) $ (42,092)
--------- ---------
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 106,982 114,681
Minority interest in loss of subsidiaries (171) (13,569)
Deferred income taxes (33,569) 4,240
Income from equity investments (166) (508)
(Gain) loss on disposition of assets (2,357) 469
Loss on impairment of assets 189,492 --
Changes in assets and liabilities, net of effects of
acquisitions and dispositions and other 48,752 (6,888)
--------- ---------
Total adjustments 308,963 98,425
--------- ---------
Net cash provided by operating activities 135,671 56,333
--------- ---------
INVESTING ACTIVITIES:
Proceeds from disposition of assets, net of cash expenses 18,300 220
Capital expenditures (92,605) (181,572)
Acquisitions, net of cash acquired -- (1,125)
Distributions received from equity investments 1,004 43
Deposits on long-term assets -- (15,000)
--------- ---------
Net cash used in investing activities (73,301) (197,434)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt 27,174 178,057
Repayment of debt (66,656) (54,522)
Debt issuance costs paid -- (4,452)
Proceeds from the exercise of stock options -- 1,587
Proceeds from issuance of common stock under employee
stock purchase plan 483 1,898
Capital contributed from minority interests in subsidiaries -- 4,900
--------- ---------
Net cash (used in) provided by financing activities (38,999) 127,468
--------- ---------
Net increase (decrease) in cash and cash equivalents 23,371 (13,633)
Cash and cash equivalents, beginning of period 33,871 23,345
--------- ---------
Cash and cash equivalents, end of period $ 57,242 $ 9,712
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 95,712 $ 110,284
========= =========
Income taxes paid $ 10,314 $ 3,725
========= =========
NON-CASH TRANSACTIONS:
Paid-in-kind interest $ 19,084 $ --
========= =========
Fixed assets acquired under capital leases $ 13,340 $ --
========= =========
Compensation paid in stock $ 244 $ --
========= =========
See notes to condensed consolidated financial statements.
3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollar amounts in thousands, except per share amounts)
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 February 28, 2003 and the results of its consolidated
operations and cash flows for the periods ended February 28, 2003 and 2002.
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.
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 effective June 1, 2002. The Company
recorded no impairment upon adoption of SFAS No. 142.
In conjunction with the adoption of SFAS No. 142, the Company 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 designated on the
license 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 franchises 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
franchise renewals is routine and renewals are more likely than not to be
granted. 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 franchises. As a result, the U.S.
wireless and Puerto Rico PCS licenses and the cable franchise 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
4
useful life determination for U.S. wireless and Puerto Rico PCS licenses and
Puerto Rico cable franchise 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 licenses and cable franchises. 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 cable franchise 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 licenses and cable franchises. The
Company believes that the nature of its U.S. wireless licenses and related
goodwill and its cable franchises and related goodwill are fundamentally
indistinguishable. Prior to the adoption of SFAS 142, the Company amortized both
U.S. wireless licenses and the related goodwill, and cable franchise 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 cable franchise 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 cable
franchise costs, consistent with the approach of treating U.S. wireless licenses
and cable franchise 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 licenses and cable franchises. This
reclassification, including the related impact of deferred taxes, had no effect
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. Specifically, goodwill impairment is
determined using a two-step process. The first step of the goodwill impairment
test is used to identify potential impairment by comparing the fair value of a
reporting unit with its carrying amount, including goodwill. If the fair value
of a reporting unit exceeds its carrying amount, goodwill of the reporting unit
is considered not impaired and the second step of the impairment test is
unnecessary. If the carrying amount of a reporting unit exceeds its fair value,
the second step of the goodwill impairment test is performed to measure the
amount of impairment loss, if any. The second step of the goodwill impairment
test compares implied fair value of the reporting unit's goodwill with the
carrying amount of that goodwill. An impairment loss is recognized in an amount
equal to the difference. The fair value of the reporting unit is allocated to
all of the assets and liabilities of that unit (including any unrecognized
intangible assets) as if the reporting unit has been acquired in a business
combination and the fair value of the reporting unit was the purchase price paid
to acquire the reporting unit. The impairment test for other intangible assets
not subject to amortization consists of a comparison of the fair value of the
intangible asset with its carrying value. If the carrying value of the
intangible asset exceeds its fair value, an impairment loss is recognized in an
amount equal to the excess. For intangible assets subject to amortization, to
the extent the fair value of the intangible asset, determined based upon the
estimated future discounted cash flows of the asset, less estimated future cash
outflows on a discounted basis, are less than the carrying amount, an impairment
loss is recognized. The determination of impairment of goodwill and other
intangible assets requires significant judgment and estimates, which is further
discussed under Critical Accounting Policies.
The following tables present the impact of SFAS No. 142 on reported net loss and
loss per share had the
5
standard been in effect for the first nine months of fiscal 2002:
FEBRUARY 28, FEBRUARY 28,
2003 2002
---- ----
Reported net loss $ (173,292) $ (42,092)
Goodwill amortization -- 3,007
U.S. wireless licenses amortization -- 5,199
Caribbean wireless licenses amortization -
Puerto Rico -- 1,253
Cable franchise costs amortization -- 5,695
---------- ----------
Adjusted net loss $ (173,292) $ (26,938)
========== ==========
FEBRUARY 28, FEBRUARY 28,
2003 2002
---- ----
Reported basic and diluted loss per share $ (1.81) $ (0.44)
Goodwill amortization -- 0.03
U.S. Wireless licenses amortization -- 0.06
Caribbean Wireless licenses amortization -
Puerto Rico -- 0.01
Cable franchise costs amortization -- 0.06
---------- ----------
Adjusted basic and diluted loss per share $ (1.81) $ (0.28)
========== ==========
The Company performed goodwill and intangible asset impairment analysis during
the three months ended February 28, 2003. Based on recent net subscriber losses
and the estimated resulting loss of future revenues, and in accordance with SFAS
No. 142, Centennial recorded a pre-tax impairment charge of $165,154 to the
cable franchise costs asset in the Caribbean.
The following table presents the intangible assets not subject to amortization
and shows the impairment charge recorded in accordance with SFAS No. 142 during
the three months ended February 28, 2003:
IMPAIRMENT
FOR THE NINE
MONTHS ENDED AS OF
AS OF FEBRUARY 28, FEBRUARY 28,
JUNE 1, 2002 2003 2003
------------ ---- ----
U.S. wireless licenses $ 371,766 $ -- $ 371,766
Caribbean wireless licenses -
Puerto Rico 54,159 -- 54,159
Cable franchise costs 217,293 165,154 52,139
---------- -------- ----------
Total $ 643,218 $ 165,154 $ 478,064
========== ========== ==========
6
OTHER INTANGIBLE ASSETS SUBJECT TO AMORTIZATION
The following table presents other intangible assets subject to amortization:
AS OF FEBRUARY 28, 2003 AS OF MAY 31, 2002
----------------------- ------------------
GROSS GROSS
CARRYING ACCUMULATED CARRYING ACCUMULATED
AMOUNT AMORTIZATION AMOUNT AMORTIZATION
------ ------------ ------ ------------
Caribbean wireless licenses -
Dominican Republic $ 20,000 $ 2,417 $ 20,000 $ 1,667
Customer lists 48,470 27,404 49,611 19,396
Transmission and connecting
rights 2,192 1,242 2,192 1,177
Cable facility 6,000 1,490 6,000 1,310
---------- ---------- ---------- ----------
Total $ 76,662 $ 32,553 $ 77,803 $ 23,550
========== ========== ========== ==========
Goodwill
The goodwill balance of $26,704 and $27,984 at February 28, 2003 and May 31,
2002, respectively, is recorded in the Caribbean Wireless segment.
Intangible assets amortization expense was $9,456 for the nine months ended
February 28, 2003. It is estimated to be $3,044 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. LONG-LIVED ASSETS
During the three months ended February 28, 2003, the Company performed an
impairment evaluation of its long-lived assets in its wireless and broadband
businesses. This evaluation was made because the Company determined that certain
undersea cable will be underutilized. The Company performed asset impairment
tests at the segment level, the lowest level at which there are identifiable
cash flows that are largely independent of the cash flows of other groups of
assets. The tests were performed by comparing the aggregate estimated
undiscounted future cash flows to the carrying amount of the long-lived assets.
Based on these tests, the Company determined that certain undersea cable assets
should be considered impaired. The undersea cable assets are a component of
property, plant and equipment, net in the consolidated balance sheet. As a
result of this evaluation, and in accordance with SFAS No. 144, the Company
recorded a pre-tax impairment charge of $24,337 on these assets for the quarter
ending February 28, 2003.
7
The following table presents the undersea cable assets for which the Company
recorded an impairment charge during the three months ended February 28, 2003:
DEPRECIATION
FOR THE NINE IMPAIRMENT
MONTHS ENDED FOR THE NINE
BALANCE AT FEBRUARY 28, MONTHS ENDED BALANCE AT
MAY 31, 2002 2003 FEBRUARY 28, 2003 FEBRUARY 28, 2003
------------ ---- ----------------- -----------------
Undersea cable assets $ 52,941 $ 1,734 $ 24,337 $ 26,870
-------- -------- -------- --------
NOTE 4. DEBT
Long-term debt consists of the following:
FEBRUARY 28, MAY 31,
2003 2002
---- ----
Term Loans $ 965,242 $ 1,009,120
Revolving Credit Facility 200,000 200,000
10 3/4% Subordinated Debt due 2008 370,000 370,000
Mezzanine Debt 195,458 174,529
Lucent Credit Facility -- 43,233
Capital Lease Obligations 13,077 --
Cable TV Credit Facility 12,625 9,187
10 1/8% Senior Notes due 2005 219 219
Other 278 2,229
----------- -----------
Total Long-Term Debt 1,756,899 1,808,517
Current Portion of Long-Term Debt (83,566) (65,795)
----------- -----------
Net Long-Term Debt $ 1,673,333 $ 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 $965,242 as of
February 28, 2003 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 principal amount of $325,000, of which $280,313 was
outstanding as of February 28, 2003, and Centennial Puerto Rico Operations Corp.
for three separate term loans aggregating an original principal amount of
$725,000, of which $684,929 was outstanding as of February 28, 2003. The New
Credit Facility also includes a revolving credit facility with an aggregate
principal amount of $250,000, of which $200,000 was outstanding as of February
28, 2003. The revolving credit facility portion of the New Credit Facility is
available to both of the borrowers. The 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.
The amounts outstanding under, and maturity dates of, the New Credit Facility
are as follows:
8
AMOUNT
OUTSTANDING AT
FEBRUARY 28,
NEW CREDIT FACILITY 2003 MATURITY DATE
- ------------------- ---- -------------
Revolving Credit Facility $ 200,000 November 2006
Tranche A Term Loan 280,313 November 2006
Tranche A-PR Term Loan 107,812 November 2006
Tranche B-PR Term Loan 312,438 May 2007
Trance C-PR Term Loan 264,679 November 2007
---------- -------------
In December 1998, the Company and its wholly-owned subsidiary, Centennial
Cellular Operating Co. LLC, issued $370,000 of 10-3/4% senior subordinated notes
due 2008 ("10-3/4% Notes") to qualified institutional buyers under a private
placement offering pursuant to Rule 144A and Regulation S under the Securities
Act of 1933, as amended. In July 1999, the Company registered the 10-3/4% Notes
with the SEC. The senior subordinated notes are guaranteed by Centennial Puerto
Rico Operations Corp.
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 and principal repayments began 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 obligations 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 February 28, 2003, $12,625 was outstanding under
the Cable TV Credit Facility.
In 1999, the Company issued $180,000 of unsecured subordinated notes due 2009
("Mezzanine Debt"), and common shares of the Company to an affiliate of Welsh,
Carson, Anderson & Stowe ("WCAS"), which continues to hold the Mezzanine Debt.
The issuance has been allocated $157,500 to debt and $22,500 to equity. The
difference between the face value of the Mezzanine Debt and the amount allocated
to debt is being amortized over the term of the Mezzanine Debt. The Mezzanine
Debt bears cash interest at a rate of 10% or paid-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 paid-in-kind interest
at a rate of 13% per annum, which increased the principal amount of the
Mezzanine Debt by $19,084 for the nine months ended February 28, 2003. 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
9
at February 28, 2003, are summarized as follows:
February 28, 2004 $ 83,566
February 28, 2005 106,196
February 28, 2006 128,123
February 28, 2007 310,613
February 28, 2008 554,228
February 28, 2009 and thereafter 574,153
----------
$1,756,899
==========
The Company was in compliance with all covenants of its debt agreements at
February 28, 2003.
Interest expense, as reflected in the financial statements, has been partially
offset by interest income. The gross interest expense was $36,487 and $112,351
for the three and nine months ended February 28, 2003, respectively as compared
to $35,306 and $111,932 for the same periods a year ago.
During the nine months ended February 28, 2003, the Company recorded a reduction
of $1,912, net of tax, to other comprehensive loss attributable to fair value
adjustments of interest rate swap and collar agreements. During the nine months
ended February 28, 2003, the Company also decreased its liabilities by $3,235 as
a result of adjusting the carrying amounts of its derivatives to reflect their
fair values at February 28, 2003.
NOTE 5. 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. This
transaction, which was initiated in fiscal 2002, closed in the third quarter of
fiscal year 2003. The Company recorded a pre-tax gain of $306 on this
transaction, which is included in (gain) loss on disposition of assets in the
consolidated statement of operations.
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. This transaction was
initiated in fiscal 2002. The Company recorded a pre-tax gain of $2,551, which
is included in gain on disposition of assets in the consolidated statement of
operations. The Company reduced its net liabilities by $2,551, including
consolidated long-term debt of approximately $45,100 (largely comprised of the
vendor financing facility with Lucent Technologies, which was non-recourse to
the Company) as a result of this transaction.
During the three months ended February 28, 2003, the Company sold 64
telecommunications towers in a sale-leaseback transaction to AAT Communications
Corp. ("AAT") for approximately $10,986. The gain recorded on these sales of
$6,630 has been deferred and will be recognized over the lives of the related
capitalized leases. For the nine months ended February 28, 2003, the Company has
sold a total of 105 telecommunications towers for approximately $17,511. The
deferred gain recorded on these sales was $10,506. We expect that approximately
20 to 40 telecommunications towers covered by the agreement will not be sold to
AAT under the agreement (see Note 7).
NOTE 6. RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations". SFAS
10
No. 143 addresses financial accounting and reporting for obligations and costs
associated with the retirement of tangible long-lived assets and the associated
retirement costs. 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 (See
Note 3).
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".
SFAS 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 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 adoption of this statement did
not have a material effect on the Company's results of operations, financial
position and cash flows.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure". SFAS No. 148 serves as an amendment
to SFAS No. 123, "Accounting for Stock-Based Compensation", and provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based compensation. SFAS No. 148 also amends the
disclosure requirements of SFAS No. 123 to require prominent disclosure in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. As required by SFAS No. 148, the Company will adopt the transition
elements of SFAS No. 148 and the annual financial statement reporting
requirements for the current fiscal year ending May 31, 2003. The Company will
adopt the interim periods reporting disclosure requirements of SFAS No. 148
during the interim period ending August 31, 2003. The Company has not yet
determined the impact that this standard will have on its results of operations
or financial position.
11
NOTE 7. COMMITMENTS AND CONTINGENCIES
In February 2003, the Puerto Rico Department of Education selected the bid of
the Company's Puerto Rico broadband division for the award of a $34,400 contract
to provide telecommunications and Internet services to Puerto Rico's
approximately 1,540 public schools for the school year that begins in July 2003.
The project is expected to be funded, in large part, with funds available
through the E-Rate program of the Universal Service Fund, which is managed by
the Schools and Libraries Division of the Universal Service Administrative
Company, a private non-profit organization appointed by the FCC for such
purposes. The FCC is currently reviewing previous funding requests for the
E-Rate program in Puerto Rico and has withheld funding those requests until it
completes its ongoing E-Rate program investigation. As such, the funding to
support the project has not yet been obtained and there can be no assurance that
the project will be completed. In addition, the award is being challenged by one
of the unsuccessful bidders in an administrative proceeding in Puerto Rico.
The Company has entered into multi-year roaming agreements with Cingular
Wireless and AT&T Wireless for analog, TDMA and GSM traffic. Under these
agreements, the Company is required to overlay its existing U.S. wireless
network with a GSM network over the next three years. The Company expects the
GSM overlay will require incremental expenditures, above its historical U.S.
wireless expenditure levels, of approximately $20,000 to $30,000 over the next
three years. In connection with the roaming agreement with AT&T Wireless, AT&T
Wireless granted the Company two separate options to purchase 10MHz of spectrum
covering an aggregate of approximately 4.2 million POPs in Michigan and Indiana.
The aggregate exercise price of the options is $20,000, but the options may be
exercised on a proportionate basis for less than all of the 4.2 million POPs.
The options have a two-year term.
During the nine months ended February 28, 2003, an affiliate of WCAS (the "WCAS
Affiliate") advised the Company that it purchased in open market transactions
approximately $153,000 principal amount of the 10-3/4% Notes. Together with the
previous purchases, the WCAS Affiliate holds approximately $189,000 principal
amount of the 10-3/4% Notes. 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 $15,925 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 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 telecommunications 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. During the three months ended February
28, 2003, the Company sold 64 telecommunications towers to AAT for approximately
$10,986. The gain recorded on these sales of $6,630 has been deferred and will
be recognized over the lives of the related capitalized leases. During the nine
months ended February 28, 2003, the Company has sold a total of 105
telecommunications towers for approximately $17,511. The deferred gain on these
sales was $10,506. The Company expects that approximately 20 to 40
telecommunications towers covered by the agreement will not be sold to AAT under
the agreement.
In July 2001, the Company entered into an agreement with Nortel Networks
pursuant to which the Company agreed, subject to certain conditions, to purchase
equipment and installation services for its
12
wireless operations through June 30, 2003 at a cost of approximately $40,000.
The Company has committed to purchase $30,971 under this agreement as of
February 28, 2003.
NOTE 8. 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 and the U.S. Virgin Islands. Caribbean
Wireless also includes the Company's wireless operations in Jamaica until the
disposition of those operations in August 2002. Caribbean Broadband represents
the Company's offering of broadband services including switched voice, dedicated
(private line), video and other services in Puerto Rico and the Dominican
Republic. Caribbean Broadband also includes Infochannel Limited until its
disposition in January 2003. U.S. Wireless represents the Company's wireless
systems in the United States that it owns and manages.
EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. EBITDA is presented because it is a financial indicator used in
the telecommunications industry.
Adjusted EBITDA is defined as earnings before (gain) loss on disposition of
assets, loss on impairment, minority interest in loss of subsidiaries, income
from equity investments, interest, taxes and depreciation and amortization and a
$5,000 non-cash charge that related to prior fiscal years. The Company measures
the operating performance of each segment based on Adjusted EBITDA. It is the
primary metric used by our management to measure the performance of our
business. The Company believes Adjusted EBITDA provides meaningful additional
information on our performance and on our ability to service our long-term debt
and other obligations, and to fund our operations. The Company's calculation of
Adjusted EBITDA may or may not be consistent with that of other companies and
should not be viewed as an alternative to measurements that are accounting
principles generally accepted in the United States of America, such as operating
income, net income or cash flows from operations.
The Securities and Exchange Commission ("SEC") recently adopted new rules
regarding the use of non-GAAP financial measures. The Company believes that the
use of certain non-GAAP financial measures is helpful to an understanding of the
Company's operating performance. These non-GAAP measures are not intended to
replace the relevant GAAP measures, but rather to present readers of the
Company's SEC filings and financial statements with information similar to the
information management considers in evaluating the performance of its
businesses. Historically, the Company has presented Adjusted EBITDA and EBITDA
in its SEC filings and earnings press releases. The Company is continuing to
monitor developments in the interpretation of these new rules and will make such
adjustments to its filings and the use of non-GAAP measures as is required. As
such, the Company can give no assurance that it will be able to provide these or
comparable non-GAAP measures in future filings.
13
Information about the Company's operations in its three business segments as of
and for the nine months ended February 28, 2003 and 2002 is as follows:
NINE MONTHS ENDED
FEBRUARY 28,
------------
2003 2002
---- ----
Caribbean Wireless
Service revenue $ 184,368 $ 160,135
Equipment sales 7,982 8,403
----------- -----------
Total revenue 192,350 168,538
Adjusted EBITDA 67,910 55,629
Total assets 399,559 478,273
Capital expenditures 36,473 101,534
Caribbean Broadband
Switched revenue $ 24,545 $ 18,244
Dedicated revenue 28,598 24,032
Video revenue 36,138 35,304
Other revenue 15,995 24,203
----------- -----------
Total revenue 105,276 101,783
Adjusted EBITDA 27,728 18,746
Total assets 754,404 626,691
Capital expenditures 30,370 53,845
U.S. Wireless
Service revenue $ 192,209 $ 182,022
Roaming revenue 60,764 68,603
Equipment sales 11,096 8,861
----------- -----------
Total revenue 264,069 259,486
Adjusted EBITDA 119,007 103,439
Total assets 1,903,270 1,805,366
Capital expenditures 25,762 26,193
Eliminations
Total revenue (1) $ (7,052) $ (5,572)
Total assets (2) (1,614,019) (1,257,029)
Consolidated
Total revenue $ 554,643 $ 524,235
EBITDA 21,970 191,470
Total assets 1,443,214 1,653,301
Capital expenditures 92,605 181,572
(1) Elimination of intercompany revenue, primarily from Caribbean Broadband to
Caribbean Wireless.
(2) Elimination of intercompany investments.
14
The following table presents a reconciliation from net loss to consolidated
EBITDA and Adjusted EBITDA for reportable segments:
NINE MONTHS ENDED
FEBRUARY 28,
------------
2003 2002
---- ----
Net loss $(173,292) $ (42,092)
Interest expense, net 111,598 111,127
Income tax benefit and (expense) (23,318) 7,754
Depreciation and amortization 106,982 114,681
EBITDA 21,970 191,470
Loss on impairment 189,492 --
Income from equity investments (166) (508)
Gain (loss) on disposition of assets (2,357) 469
Non-cash charge 5,000 --
Other 877 (48)
Minority interest in loss of subsidiaries (171) (13,569)
--------- ---------
Adjusted EBITDA for reportable segments $ 214,645 $ 177,814
========= =========
NOTE 9. 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 10-3/4% Notes issued by the Company, and
CPROC has unconditionally guaranteed the 10-3/4% Notes. Separate financial
statements and other disclosures concerning CCOC and CPROC are not presented
because they are not material to investors.
15
CONDENSED CONSOLIDATING BALANCE SHEET FINANCIAL DATA
AS OF FEBRUARY 28, 2003
(AMOUNTS IN THOUSANDS)
Centennial Centennial Centennial
Puerto Rico Cellular Centennial Communications
Operations Operating Non- Communications Corp. and
Corp. Co. LLC Guarantors Corp. Eliminations Subsidiaries
----- ------- ---------- ----- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 20,904 $ -- $ 36,338 $ -- $ -- $ 57,242
Accounts receivable - net 50,639 -- 30,977 -- (399) 81,217
Inventory - phones and
accessories - net 2,086 -- 5,725 -- 7,811
Prepaid expenses and other
current assets 5,544 -- 28,543 -- 34,087
----------- ----------- ----------- ----------- ----------- -----------
Total current assets 79,173 -- 101,583 -- (399) 180,357
Property, plant & equipment - net 262,126 -- 405,341 -- -- 667,467
Equity investments in wireless
systems - net -- -- 1,605 -- -- 1,605
Debt issuance costs - net 17,847 -- 19,910 -- -- 37,757
U.S. wireless licenses - net -- -- 371,766 -- -- 371,766
Caribbean wireless licenses - net -- -- 71,742 -- -- 71,742
Franchise license costs - net -- -- 52,139 -- -- 52,139
Goodwill - net 4,186 -- 22,518 -- -- 26,704
Intercompany -- 1,147,669 1,150,173 596,596 (2,894,438) --
Investment in subsidiaries -- (360,077) 733,958 (993,149) 619,268 --
Other assets - net 5,158 -- 28,519 -- -- 33,677
----------- ----------- ----------- ----------- ----------- -----------
Total $ 368,490 $ 787,592 $ 2,959,254 $ (396,553) $(2,275,569) $ 1,443,214
=========== =========== =========== =========== =========== ===========
16
CONDENSED CONSOLIDATING BALANCE SHEET FINANCIAL DATA
(CONTINUED)
AS OF FEBRUARY 28, 2003
(AMOUNTS IN THOUSANDS)
Centennial Centennial Centennial
Puerto Rico Cellular Centennial Communications
Operations Operating Non- Communications Corp. and
Corp. Co. LLC Guarantors Corp. Eliminations Subsidiaries
----- ------- ---------- ----- ------------ ------------
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt $ 26,397 $ 52,813 $ 4,356 $ -- $ 83,566
Accounts payable 18,899 -- 12,795 -- -- 31,694
Accrued expenses and other
current liabilities 31,701 137,029 -- (399) 168,331
Payable to affiliates -- -- 125 -- -- 125
----------- ----------- ----------- ----------- ----------- -----------
Total current liabilities 76,997 52,813 154,305 -- (399) 283,716
Long-term debt 658,811 797,719 21,345 195,458 1,673,333
Deferred federal income taxes -- -- 107,839 -- 107,839
Other liabilities -- 9,709 10,155 -- -- 19,864
Intercompany 28,988 920,500 1,897,361 43,924 (2,890,773) --
Stockholders' equity (deficit):
Common stock -- -- 237 958 (237) 958
Preferred stock 465,000 -- 177,120 -- (642,120) --
Additional paid-in capital (818,498) -- 1,520,320 437,018 (701,822) 437,018
Accumulated deficit (42,808) (987,539) (929,435) (1,072,806) 1,959,782 (1,072,806)
Accumulated other comprehensive loss -- (5,610) -- (5,610)
----------- ----------- ----------- ----------- ----------- -----------
(396,306) (993,149) 768,242 (634,830) 615,603 (640,440)
Less: treasury shares -- -- (1,077) (1,077)
Deferred compensation -- -- 7 (28) -- (21)
----------- ----------- ----------- ----------- ----------- -----------
Total stockholders' equity (deficit) (396,306) (993,149) 768,249 (635,935) 615,603 (641,538)
----------- ----------- ----------- ----------- ----------- -----------
Total $ 368,490 $ 787,592 $ 2,959,254 $ (396,553) $(2,275,569) $ 1,443,214
=========== =========== =========== =========== =========== ===========
17
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FINANCIAL DATA
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2003
(AMOUNTS IN THOUSANDS)
Centennial Centennial Centennial
Puerto Rico Cellular Centennial Communications
Operations Operating Non- Communications Corp. and
Corp. Co. LLC Guarantors Corp. Eliminations Subsidiaries
----- ------- ---------- ----- ------------ ------------
Revenue $ 214,773 $ -- $ 345,391 $ -- $ (5,521) $ 554,643
----------- ----------- ----------- ----------- ----------- -----------
Costs and expenses:
Cost of equipment sold 17,400 -- 34,773 -- 52,173
Cost of services 35,451 -- 83,699 -- (2,225) 116,925
Sales and marketing 26,652 -- 44,830 -- -- 71,482
General and administrative 47,621 -- 60,093 -- (3,296) 104,418
Depreciation and amortization 46,863 -- 60,119 -- 106,982
Loss on impairment of assets -- -- 189,492 -- 189,492
Loss/ (Gain) on disposition of assets 476 -- (2,833) -- (2,357)
----------- ----------- ----------- ----------- ----------- -----------
174,463 -- 470,173 -- (5,521) 639,115
----------- ----------- ----------- ----------- ----------- -----------
Operating income 40,310 -- (124,782) -- -- (84,472)
----------- ----------- ----------- ----------- ----------- -----------
Income from equity investments -- -- 166 -- 166
Income from investments in subsidiaries -- (152,296) 11,808 (152,296) 292,784 --
Interest expense - net (28,438) (61,066) (1,098) (20,996) (111,598)
Other -- -- (877) -- (877)
Intercompany interest allocation -- 61,066 (61,066) -- --
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income tax expense
and minority interest 11,872 (152,296) (175,849) (173,292) 292,784 (196,781)
Income tax benefit (64) -- 23,382 -- -- 23,318
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before minority interest 11,808 (152,296) (152,467) (173,292) 292,784 (173,463)
Minority interest in loss of subsidiaries -- -- 171 -- -- 171
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) $ 11,808 $ (152,296) $ (152,296) $ (173,292) $ 292,784 $ (173,292)
=========== =========== =========== =========== =========== ===========
18
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FINANCIAL DATA
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2003
(AMOUNTS IN THOUSANDS)
Centennial 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) $ 11,808 $ (152,296) $ (152,296) (173,292) $ 292,784 $ (173,292)
----------- ----------- ----------- ----------- ----------- -----------
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 46,863 -- 60,119 -- -- 106,982
Minority interest in loss of
subsidiaries -- -- (171) -- -- (171)
Deferred taxes -- -- (33,569) -- -- (33,569)
Income from equity investments -- -- (166) -- -- (166)
Equity in undistributed earnings
of subsidiaries -- 152,296 (11,808) 152,296 (292,784) --
Loss (gain) on disposition of assets 476 -- (2,833) -- -- (2,357)
Loss on impairment of assets -- -- 189,492 -- -- 189,492
Changes in assets and liabilities,
net of effect of acquisitions
and dispositions -- --
and other 22,020 -- 5,492 21,240 -- 48,752
----------- ----------- ----------- ----------- ----------- -----------
Total adjustments 69,359 152,296 206,556 173,536 (292,784) 308,963
----------- ----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 81,167 -- 54,260 244 -- 135,671
----------- ----------- ----------- ----------- ----------- -----------
INVESTING ACTIVITIES:
Proceeds from disposition of assets,
net of cash expenses -- -- 18,300 -- -- 18,300
Capital expenditures (47,807) -- (44,798) -- -- (92,605)
Acquisitions, net of cash acquired -- -- -- -- -- --
Distributions received from equity
investments -- -- 1,004 -- -- 1,004
----------- ----------- ----------- ----------- ----------- -----------
NET CASH USED IN INVESTING
ACTIVITIES (47,807) -- (25,494) -- -- (73,301)
----------- ----------- ----------- ----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from the issuance of
long-term debt 335 20,000 6,839 -- -- 27,174
Repayment of debt (15,498) (48,438) (2,720) -- -- (66,656)
Proceeds from issuance of common
stock under employee stock
purchase plan -- -- -- 483 -- 483
Issuance of Class A and B
common stock -- -- -- -- --
Cash (paid to) received from
affiliates (10,832) 28,438 (16,879) (727) -- --
----------- ----------- ----------- ----------- ----------- -----------
NET CASH USED IN FINANCING
ACTIVITIES (25,995) -- (12,760) (244) -- (38,999)
----------- ----------- ----------- ----------- ----------- -----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 7,365 -- 16,006 -- -- 23,371
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 13,539 -- 20,332 -- -- 33,871
----------- ----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 20,904 $ -- $ 36,338 -- $ -- $ 57,242
=========== =========== =========== =========== =========== ===========
19
CONDENSED CONSOLIDATING BALANCE SHEET FINANCIAL DATA
AS OF MAY 31, 2002
(AMOUNTS IN THOUSANDS)
Centennial Centennial Centennial
Puerto Rico Cellular Centennial Communications
Operations Operating Non- Communications Corp. and
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
Cable franchise costs - net -- -- 193,021 -- -- 193,021
Goodwill - net 4,186 -- 23,798 -- -- 27,984
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
=========== =========== =========== =========== =========== ===========
20
CONDENSED CONSOLIDATING BALANCE SHEET FINANCIAL DATA
(CONTINUED)
AS OF MAY 31, 2002
(AMOUNTS IN THOUSANDS)
Centennial Centennial Centennial
Puerto Rico Cellular Centennial Communications
Operations Operating Non- Communications Corp. and
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
=========== =========== =========== =========== =========== ===========
21
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FINANCIAL DATA
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2002
(AMOUNTS IN THOUSANDS)
Centennial Centennial Centennial
Puerto Rico Cellular Centennial Communications
Operations Operating Non- Communications Corp. and
Corp. Co. LLC Guarantors Corp. Eliminations Subsidiaries
----- ------- ---------- ----- ------------ ------------
Revenue $ 194,926 $ -- $ 331,941 $ -- $ (2,632) $ 524,235
----------- ----------- ----------- ----------- ----------- -----------
Costs and expenses:
Cost of equipment sold 9,480 -- 34,439 -- (679) 43,240
Cost of services 30,860 -- 92,604 -- (764) 122,700
Sales and marketing 30,024 -- 50,991 -- -- 81,015
General and administrative 39,005 -- 61,650 -- (1,189) 99,466
Depreciation and amortization 43,601 -- 71,080 -- -- 114,681
(Gain) loss on disposition of assets (22) -- 491 -- -- 469
----------- ----------- ----------- ----------- ----------- -----------
152,948 -- 311,255 -- (2,632) 461,571
----------- ----------- ----------- ----------- ----------- -----------
Operating income 41,978 -- 20,686 -- -- 62,664
----------- ----------- ----------- ----------- ----------- -----------
Income from equity investments -- -- 508 -- -- 508
(Loss) income from investments in
subsidiaries -- (26,211) 6,768 (26,211) 45,654 --
Interest expense - net (35,210) (59,865) (171) (15,881) -- (111,127)
Other -- -- 48 -- -- 48
Intercompany interest allocation -- 59,865 (59,865) -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income tax
expense and minority interest 6,768 (26,211) (32,026) (42,092) 45,654 (47,907)
Income tax expense -- -- (7,754) -- -- (7,754)
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before minority interest 6,768 (26,211) (39,780) (42,092) 45,654 (55,661)
Minority interest in loss of subsidiaries -- -- 13,569 -- -- 13,569
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) $ 6,768 $ (26,211) $ (26,211) $ (42,092) $ 45,654 $ (42,092)
=========== =========== =========== =========== =========== ===========
22
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FINANCIAL DATA
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2002
(AMOUNTS IN THOUSANDS)
Centennial 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) $ 6,768 $ (26,211) $ (26,211) $ (42,092) $ 45,654 $ (42,092)
----------- ----------- ----------- ----------- ----------- -----------
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 43,601 -- 71,080 -- -- 114,681
Minority interest in loss of subsidiaries -- -- (13,569) -- -- (13,569)
Deferred income taxes -- -- 4,240 -- -- 4,240
Income from equity investments -- -- (508) -- -- (508)
Equity in undistributed earnings
of subsidiaries -- 26,211 (6,768) 26,211 (45,654) --
Gain (loss) on disposition of assets (22) -- 491 -- -- 469
Changes in assets and liabilities,
net of effects of acquisitions and
dispositions -- --
and other 14,990 -- (23,565) 1,687 -- (6,888)
----------- ----------- ----------- ----------- ----------- -----------
58,569 26,211 31,401 27,898 (45,654) 98,425
----------- ----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 65,337 -- 5,190 (14,194) -- 56,333
----------- ----------- ----------- ----------- ----------- -----------
INVESTING ACTIVITIES:
Proceeds from disposition of assets,
net of cash expenses 122 -- 98 -- -- 220
Capital expenditures (76,054) -- (105,518) -- -- (181,572)
Acquisitions, net of cash acquired -- (1,125) -- -- (1,125)
Deposits on long-term assets -- -- (15,000) -- -- (15,000)
Distributions received from
equity investments -- -- 43 -- -- 43
----------- ----------- ----------- ----------- ----------- -----------
NET CASH USED IN INVESTING
ACTIVITIES (75,932) -- (121,502) -- -- (197,434)
----------- ----------- ----------- ----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from the issuance of
long-term debt 55,000 82,000 41,057 -- -- 178,057
Repayment of debt (12,502) (40,125) (507) (1,388) -- (54,522)
Debt issuance costs paid (4,000) -- (452) -- -- (4,452)
Proceeds from the exercise of
stock options -- -- -- 1,587 -- 1,587
Proceeds from issuance of common
stock under employee stock
purchase plan -- -- -- 1,898 -- 1,898
Capital contributed from minority
interest in subsidiaries -- -- 4,900 -- -- 4,900
Cash received from (paid to)
affiliates (37,101) (41,875) 66,879 12,097 -- --
----------- ----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,397 -- 111,877 14,194 -- 127,468
----------- ----------- ----------- ----------- ----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (9,198) -- (4,435) -- -- (13,633)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 8,900 -- 14,445 -- -- 23,345
----------- ----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ (298) $ -- $ 10,010 $ -- $ -- $ 9,712
=========== =========== =========== =========== =========== ===========
23
NOTE 10. SUBSEQUENT EVENTS
On March 31, 2003, the Company sold 20 telecommunications towers in a
sale-leaseback transaction to AAT for approximately $3,610. The $2,463 gain
recorded on this sale will be deferred and recognized over the lives of the
related capitalized leases (See Note 7).
24
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
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 February 28, 2003, our
Caribbean operations own licenses to serve a population of approximately 11.1
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 February 28, 2003:
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 February 28,
2003.
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
25
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.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts for estimated losses, which
result from our customers not making required payments. We base our allowance on
the likelihood of recoverability of our subscriber accounts receivable based on
past experience and by reviewing current collection trends that are expected to
continue. If economic or industry trends worsen beyond our estimates, we would
increase our allowance for doubtful accounts by recording additional expense.
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.
Considerable management judgment is required to estimate the impairment and fair
value of assets. Estimates related to asset impairment are critical accounting
policies as management must make assumptions about future revenues and cost of
sales over the life of an asset, and the effect of recognizing impairment could
be material to our financial position as well as our results of operations.
Actual revenues and costs could vary significantly from such estimates.
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 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 designated on the license 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
26
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
franchises 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 franchise renewals is routine and renewals are more
likely than not to be granted. 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 franchises. As a
result, the U.S. wireless and Puerto Rico PCS licenses and the cable franchise
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 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 us to build out
our existing networks. The primary assets acquired in such combinations have
been wireless licenses 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 cable franchise 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 licenses and cable franchises. We believe that
the nature of our U.S. wireless licenses and related goodwill and our cable
franchises and the related goodwill are fundamentally indistinguishable. Prior
to the adoption of SFAS 142, we amortized both U.S. wireless licenses and the
related goodwill, and cable franchise costs and the related goodwill, over the
same respective periods using the straight-line method.
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 cable franchise
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 cable
franchise costs, consistent with the approach of treating U.S. wireless licenses
and cable franchise costs of $45.0 million and $24.3 million, respectively, as
the excess in the purchase price allocations for transactions in which the
predominant assets acquired were U.S. wireless licenses and cable franchises.
This reclassification, including the related impact of deferred taxes, had no
effect 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.
We performed goodwill and intangible asset impairment analysis during the three
months ended February 28, 2003. Based on recent net subscriber loss and the
estimated resulting loss of future revenues and in accordance with SFAS No. 142,
Centennial recorded a pretax impairment charge of $165.2 million to the cable
franchise cost asset in the Caribbean.
During the three months ended February 28, 2003, we performed an impairment
evaluation of our long-
27
lived assets in our wireless and broadband businesses because we had determined
that certain undersea cable assets will be underutilized. We performed asset
impairment tests at the segment level, the lowest level of which there are
identifiable cash flows that are largely independent of the cash flows of other
groups of assets. The tests were performed by comparing the aggregate
undiscounted cash flows to the carrying amount of the long-lived assets.
Accordingly, we determined that certain undersea cable assets should be
considered impaired based on future revenues and the related costs of those
revenues. The undersea cable assets are a component of property, plant and
equipment, net in the consolidated balance sheet. As a result of this
evaluation, we recorded a pre-tax $24.3 million impairment charge on these
assets for the quarter ending February 28, 2003.
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 nine months ended February 28, 2003, we recorded a reduction of $1.9
million, net of tax, in other comprehensive loss attributable to fair value
adjustments of interest rate swap and collar agreements. We also decreased our
liabilities by $3.2 million as a result of adjusting the carrying amounts of our
derivatives to reflect their fair values at February 28, 2003.
RESULTS OF OPERATIONS
We had 929,700 wireless subscribers at February 28, 2003, as compared to 882,600
at February 28, 2002, an increase of 5%. The net loss for the three and nine
months ended February 28, 2003 was $159.6 million and $173.3 million,
respectively, as compared to the net loss of $13.1 million and $42.1 million for
the same periods last year. Basic and diluted loss per share for the three and
nine months ended February 28, 2003 was $1.67 and $1.81, respectively, as
compared to basic and diluted loss per share of $0.14 and $0.44 for the three
and nine months ended February 28, 2002, respectively.
We performed goodwill and intangible asset impairment analysis during the three
months ended February 28, 2003. Based on recent net subscriber losses and the
estimated resulting loss of future revenues, and in accordance with SFAS No.
142, we are reporting a pre-tax impairment charge of $165.2 million to the cable
franchise costs asset in the Caribbean.
During the three months ended February 28, 2003, we performed an impairment
evaluation of our long-lived assets in our wireless and broadband businesses
because we determined that certain undersea cable assets will be underutilized.
We performed asset impairment tests at the segment level, the lowest level at
which there are identifiable cash flows that are largely independent of the cash
flows of other groups of assets. The tests were performed by comparing the
aggregate undiscounted cash flows to the carrying amount of the long-lived
assets. Based on these tests, we determined that certain undersea cable assets
should be impaired The undersea cable assets are a component of property, plant
and equipment, net in the consolidated balance sheet. As a result of this
evaluation, we recorded a pre-tax impairment charge of $24.3 million on these
assets for the quarter ending February 28, 2003, in accordance with SFAS No.
144.
In August 2002, we sold our 51% interest in our Jamaica wireless operations,
Centennial Digital Jamaica
28
("CDJ"), to Oceanic Digital Communications Inc., the 49% shareholder of CDJ.
This transaction was initiated in fiscal 2002. We recorded a pre-tax gain of
$2.6 million, which is included in (gain) loss on disposition of assets in the
consolidated statement of operations. In addition, we reduced our net
liabilities by approximately $2.6 million, including consolidated long-term debt
of approximately $45.1 million (largely comprised of the vendor financing credit
facility with Lucent Technologies, which was non-recourse to the Company) as a
result of this transaction.
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.
This transaction, which was initiated in fiscal 2002, closed in the third
quarter of fiscal 2003. We recorded a pre-tax gain of $0.3 million, which is
included in (gain) loss on disposition of assets in the consolidated statement
of operations.
During the three months ended February 28, 2003, the Company sold 64
telecommunications towers to AAT in a sale-leaseback transaction for
approximately $11.0 million. The gain recorded on these sales of $6.6 million
has been deferred and will be recognized over the lives of the related
capitalized leases. During the nine months ended February 28, 2003, the Company
sold 105 telecommunications towers for approximately $17.5 million. The deferred
gain recorded on these sales was $10.5 million.
The table below summarizes the consolidated results of operations for each
period:
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
(In thousands, except per
share amounts) 2/28/03 2/28/02 % Change 2/28/03 2/28/02 % Change
- ------------------------- --------- --------- -------- --------- --------- --------
Operating income $(156,832) $ 13,633 NM% $ (84,472) $ 62,664 NM%
Net loss $(159,577) $ (13,050) NM% $(173,292) $ (42,092) NM%
Loss per basic and
diluted share $ (1.67) $ (0.14) NM% $ (1.81) $ (0.44) NM%
EBITDA (1) $(121,715) $ 61,324 NM% $ 21,970 $ 191,470 NM%
--------- --------- -------- --------- --------- --------
- ----------
(1) Earnings before interest, taxes, depreciation and amortization. EBITDA is
presented because it is a financial indicator used in the
telecommunications industry. Our calculation of EBITDA may or may not be
consistent with that of other companies and should not be viewed as an
alternative to measurements that are accounting principles generally
accepted in the United States of America, such as operating income, net
income or cash flows from operations.
29
The table below is a reconciliation from net loss to EBITDA:
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
(In thousands) 2/28/03 2/28/02 2/28/03 2/28/02
- -------------- -------- -------- -------- --------
Net loss (159,577) (13,050) (173,292) (42,092)
Interest expense, net 36,331 35,097 111,598 111,127
Depreciation and amortization 35,855 42,306 106,982 114,681
Income tax (benefit) expense (34,324) (3,029) (23,318) 7,754
EBITDA (121,715) 61,324 21,970 191,470
-------- -------- -------- --------
The SEC recently adopted new rules regarding the use of non-GAAP financial
measures. Our management believes that the use of certain non-GAAP
financial measures is helpful to an understanding of the Company's operating
performance. These non-GAAP measures are not intended to replace the relevant
GAAP measures, but rather to present readers of our SEC filings and financial
statements with information similar to the information management considers in
evaluating the performance of our businesses. Historically, we have presented
Adjusted EBITDA and EBITDA in our SEC filings and earnings press releases. We
are continuing to monitor developments in the interpretation of these new rules
and will make such adjustments to our filings and the use of non-GAAP measures
as is required. As such, we can give no assurance that we will be able to
provide these or comparable non-GAAP measures in future filings.
Caribbean Wireless Operations
Three Months Ended Nine Months Ended
------------------------ ------------------------
(In thousands) 2/28/03 2/28/02 % Change 2/28/03 2/28/02 % Change
- -------------- --------- --------- --------- --------- --------- ---------
Revenue:
Service revenue $ 62,227 $ 57,373 8% $ 184,368 $ 160,135 15%
Equipment sales 2,851 3,513 (19) 7,982 8,403 (5)
--------- --------- --------- --------- --------- ---------
65,078 60,886 7 192,350 168,538 14
--------- --------- --------- --------- --------- ---------
Costs and expenses:
Cost of equipment sold 8,751 8,221 6 25,694 16,807 53
Cost of services 10,579 9,418 12 31,743 26,310 21
Sales and marketing 9,814 11,707 (16) 29,623 33,240 (11)
General and administrative 11,880 13,644 (13) 37,380 36,552 2
--------- --------- --------- --------- --------- ---------
41,024 42,990 (5) 124,440 112,909 10
--------- --------- --------- --------- --------- ---------
Adjusted EBITDA 24,054 17,896 34 67,910 55,629 22
Gain on disposition of assets (179) (9) NM (2,057) (9) NM
Special non-cash charge -- -- NA 4,389 -- NA
Depreciation and amortization 13,769 17,546 (22) 43,444 41,641 4
--------- --------- --------- --------- --------- ---------
Operating income $ 10,464 $ 359 NM% $ 22,134 $ 13,997 58%
========= ========= ========= ========= ========= =========
30
Revenue
Caribbean Wireless service revenue increased $4.9 million or 8% and $24.2
million or 15% to $62.2 million and $184.4 million for the three and nine months
ended February 28, 2003, respectively, as compared to the same periods last
year. Excluding CDJ, which was sold in August 2002, service revenue increased
$5.9 million or 11% and $23.7 million or 15% for the three and nine months ended
February 28, 2003. These increases were primarily due to growth in revenue from
new subscribers of $8.4 million and $33.3 million for the three and nine months
ended February 28, 2003, respectively, partially offset by an aggregate decrease
in service revenue per subscriber of $3.5 million and $9.1 million for the same
periods. The increases in subscribers were partially offset by currency
devaluation in the Dominican Republic.
Equipment sales of wireless telephones and accessories to subscribers decreased
$0.7 million or 19% and $0.4 million or 5% for the three and nine months ended
February 28, 2003, respectively, as compared to the same periods last year.
Excluding CDJ, equipment sales increased $0.3 million or 14% and $0.5 million or
7% for the three and nine months ended February 28, 2003, respectively, from the
same periods last year. These increases in equipment sales and accessories were
due to an increase in Dominican Republic gross activations and to additional
upgrades and retention plan exchanges of handsets in our Puerto Rico operation.
Our Caribbean Wireless operations had approximately 390,800 subscribers at
February 28, 2003, an increase of 12% from the 347,500 subscribers at February
28, 2002. During the twelve months ended February 28, 2003, increases from new
activations of 218,000 were offset by subscriber cancellations of 153,000. These
activations and cancellations exclude CDJ. The 12% growth in subscribers
included additional postpaid subscribers in Puerto Rico and the Dominican
Republic.
The monthly prepaid and postpaid churn rate decreased to 3.2% and 3.5% for the
three and nine months ended February 28, 2003, respectively from 4.1% and 3.8%
for the same periods 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 total revenue per subscriber per month, based upon an average
number of subscribers, was $57 and $58 for the three and nine months ended
February 28, 2003, respectively, as compared to $61 for the same periods a year
ago. The decreases in revenue per subscriber were primarily due to a decrease in
the rate for interconnection terminating minutes in Puerto Rico and a change in
the subscriber mix. Our Dominican Republic subscribers now represent a greater
percentage of total Caribbean subscribers. The majority of the Dominican
Republic customers are prepaid with a lower total revenue per subscriber per
month. The average customer used 741 minutes of airtime per month in the third
quarter of fiscal 2003 versus 566 minutes of use per month in the same period
last year.
Costs and expenses
Cost of equipment sold increased $0.5 million or 6% and $8.9 million or 53%
during the three and nine months ended February 28, 2003, respectively, as
compared to the same periods last year. Excluding CDJ, cost of equipment sold
increased $4.0 million or 85% and $12.6 million or 98% for the three and nine
months ended February 28, 2003, respectively, due to increases in the number of
premium phones sold, an increase in phones used for upgrades and retention plan
exchanges and a higher percentage of phones sold instead of loaned.
31
Cost of services increased $1.2 million or 12% and $5.4 million or 21% during
the three and nine months ended February 28, 2003, respectively, as compared to
the three and nine months ended February 28, 2002. Excluding CDJ, cost of
services increased $2.0 million or 23% and $5.8 million or 23% during the three
and nine months ended February 28, 2003, respectively, as compared to the same
periods last year, primarily due to the variable costs associated with a larger
subscription base and associated revenue.
Sales and marketing expenses decreased $1.9 million or 16% and $3.6 million or
11% during the three and nine months ended February 28, 2003, respectively, as
compared to the same periods last year. Excluding CDJ, sales and marketing
expenses decreased $0.4 million or 4% and $1.8 million or 6% for the three and
nine months ended February 28, 2003, respectively as compared to the prior year
primarily due to newly structured dealer contracts with lower commissions to
agents.
General and administrative expenses decreased $1.8 million or 13% during the
three months ended February 28, 2003, as compared to the same period in fiscal
2002. Excluding CDJ, general and administrative expenses decreased $0.7 million
or 6% during the three months ended February 2003 as compared to the three
months ended February 28, 2002 due primarily to lower subscriber billing costs.
General and administrative expenses increased $0.8 million or 2% during the nine
months ended February 28, 2003 as compared to the same period in fiscal 2002.
Excluding CDJ, general and administrative expenses increased $2.4 million or 7%,
primarily due to higher bad debt expense primarily in the Dominican Republic due
to increased allowances for doubtful accounts in consideration of growth in the
postpaid subscriber base.
Adjusted EBITDA for the Caribbean Wireless operations for the three months ended
February 28, 2003 was $24.1 million, an increase of $6.2 million, or 34% as
compared to the three months ended February 28, 2002. Excluding CDJ, Adjusted
EBITDA for Caribbean Wireless for the three months ended February 28, 2003
increased $1.5 million or 6%, compared to the three months ended February 28,
2002. Adjusted EBITDA for the Caribbean Wireless operations for the nine months
ended February 28, 2003 was $67.9 million, an increase of $12.3 million, or 22%
as compared to the nine months ended February 28, 2002. Excluding CDJ, Adjusted
EBITDA for the nine months ended February 28, 2003 increased $4.7 million or 7%
as compared to the prior year.
The gain on disposition of assets of $2.1 million during the nine months ended
February 28, 2003 was primarily due to the sale of our interest in CDJ.
The special non-cash charge of $4.4 million during the nine months ended
February 28, 2003 relates to certain disputed billings that arose in prior
fiscal years, to and from the Puerto Rico Telephone Company.
Depreciation and amortization for the three months ended February 28, 2003 was
$13.8 million, a decrease of $3.8 million, or 22%, as compared to the three
months ended February 28, 2002. Excluding CDJ, depreciation and amortization for
the three months ended February 28, 2003 decreased $2.3 million or 14% as
compared to the same period last year. Depreciation and amortization for the
nine months ended February 28, 2003 was $43.4 million, an increase of $1.8
million, or 4%, as compared to the nine months ended February 28, 2002.
Excluding CDJ, depreciation and amortization increased $2.4 million or 6% for
the nine months ended February 28, 2003, as compared to the same period last
year. Increases in depreciation due to capital expenditures made during fiscal
2002 and 2003 were partially offset by a decrease in amortization due to the
cessation of amortization on Caribbean wireless licenses in connection with the
adoption of SFAS No. 142.
Operating income for the three months ended February 28, 2003 was $10.5 million,
an increase of $10.1 million from the operating income of $0.4 million from the
same period last year. Excluding CDJ, operating income increased $3.8 million or
57% for the three months ended February 28, 2003, as
32
compared to the same period last year. Operating income for the nine months
ended February 28, 2003 was $22.1 million, an increase of $8.1 million from the
operating income of $14.0 million from the same period last year. Excluding CDJ,
operating income increased $2.1 million or 9% for the nine months ended February
28, 2003, as compared to the nine months ended February 28, 2002.
Caribbean Broadband Operations
Three Months Ended Nine Months Ended
------------------------- -------------------------
(In thousands) 2/28/03 2/28/02 % Change 2/28/03 2/28/02 % Change
--------- --------- --------- --------- --------- ---------
Revenue:
Switched revenue $ 8,304 $ 6,441 29% $ 24,545 $ 18,244 35%
Dedicated revenue 10,228 8,142 26 28,598 24,032 19
Video services revenue 11,443 11,469 -- 36,138 35,304 2
Other revenue 4,793 8,323 (42) 15,995 24,203 (34)
--------- --------- --------- --------- --------- ---------
34,768 34,375 1 105,276 101,783 3
--------- --------- --------- --------- --------- ---------
Costs and expenses:
Cost of equipment sold 252 244 3 595 496 20
Cost of services 14,767 16,829 (12) 45,524 49,112 (7)
Sales and marketing 2,390 3,923 (39) 7,148 11,059 (35)
General and administrative 7,698 7,991 (4) 24,281 22,370 9
--------- --------- --------- --------- --------- ---------
25,107 28,987 (13) 77,548 83,037 (7)
--------- --------- --------- --------- --------- ---------
Adjusted EBITDA 9,659 5,388 79 27,728 18,746 48
Loss on impairment of assets 189,492 -- NA 189,492 -- NA
(Gain) loss on disposition of
assets (390) 505 177 (401) 498 181
Special non-cash charge -- -- NA 611 -- NA
Depreciation and amortization 12,841 13,376 (4) 35,654 39,142 (9)
--------- --------- --------- --------- --------- ---------
Operating loss $(192,283) $ (8,493) NM% $(197,628) $ (20,894) NM%
========= ========= ========= ========= ========= =========
Revenue
Caribbean Broadband revenue increased $0.4 million or 1% and $3.5 million or 3%
to $34.8 million and $105.3 million for the three and nine months ended February
28, 2003, respectively, as compared to the three and nine months ended February
28, 2002. These changes were due to a 22% increase in total access lines and
equivalents to 217,694, partially offset by a decrease in other revenue due to
the decrease in terminating international long distance minutes to the Dominican
Republic.
Switched revenue increased $1.9 million or 29% and $6.3 million or 35%, for
the three and nine months ended February 28, 2003, respectively, as compared to
the same periods a year ago. These increases were primarily due to a 31%
increase in switched access lines to 39,756 as of the end of the third quarter
and a corresponding growth in minutes of use.
Dedicated revenue increased $2.1 million or 26% and $4.6 million or 19% to
$10.2 million and $28.6 million, for the three and nine months ended February
28, 2003, respectively, as compared to the same periods last year. The increases
were primarily the result of a 20% rise in voice grade equivalent dedicated
lines to 177,938. 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 revenue of $11.4 million for the three months ended February 28,
2003 was flat from the
33
same period a year ago, reflecting the 18% loss in subscribers, offset by
additional revenues from a rate increase and increased sales of premium
services. Video services revenue of $36.1 million for the nine months ended
February 28, 2003 grew 2% from the same period last year, reflecting the revenue
from the recent digital upgrade and the associated rate increase.
Other revenue decreased $3.5 million, or 42% and $8.2 million or 34% to $4.8
million and $16.0 million for the three and nine months ended February 28, 2003,
respectively, from the same periods last year. The decreases are primarily
attributable to a reduction in terminating international long distance minutes
to the Dominican Republic and a decrease in interconnection rates in Puerto
Rico.
Costs and expenses
Cost of services decreased $2.1 million or 12% and $3.6 million or 7% during the
three and nine months ended February 28, 2003, respectively, as compared to the
same periods a year ago, primarily due to a decrease in access charges in the
Dominican Republic, resulting from the decrease in terminating international
long distance minutes.
Sales and marketing expenses decreased $1.5 million or 39% and $3.9 million or
35% during the three and nine months ended February 28, 2003, respectively, as
compared to the three and nine months ended February 28, 2002, primarily due to
a reduction of the sales force in the Dominican Republic and an overall
reduction in advertising spending.
General and administrative expenses decreased $0.3 million or 4% during the
three months ended February 28, 2003, as compared to the three months ended
February 28, 2002. General and administrative expenses increased $1.9 million or
9% during the nine months ended February 28, 2003, as compared to the prior year
due, primarily to an increase in bad debt expense.
Adjusted EBITDA for the Caribbean Broadband operations for the three months
ended February 28, 2003 was $9.7 million, an increase of $4.3 million, or 79%,
as compared to the same three months last year. Adjusted EBITDA for the
Caribbean Broadband operations for the nine months ended February 28, 2003 was
$27.7 million, an increase of $9.0 million, or 48% as compared to the same nine
months last year.
Depreciation and amortization for the three months ended February 28, 2003 was
$12.8 million, a decrease of $0.5 million, or 4%, from the same three months
last year. Depreciation and amortization for the nine months ended February 28,
2003 was $35.7 million, a decrease of $3.5 million, or 9%, from the same nine
months last year. The decreases were primarily due to the cessation of
amortization relating to cable franchise 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 television operations.
We performed goodwill and intangible asset impairment analysis during the three
months ended February 28, 2003. Based on recent net subscriber losses and the
estimated resulting loss of future revenues, and in accordance with SFAS No.
142, we are reporting a pre-tax impairment charge of $165.2 million to the cable
franchise costs asset in the Caribbean.
During the three months ended February 28, 2003, we performed an impairment
evaluation of our long-lived assets in our wireless and broadband businesses.
This evaluation was made because we determined that certain undersea cable will
be underutilized. We performed asset impairment tests at the segment level, the
lowest level at which there are identifiable cash flows that are largely
independent of the cash flows of other groups of assets. The tests were
performed by comparing the aggregate undiscounted estimated future cash flows to
the carrying amount of the long-lived assets. Based on these tests, we
determined that certain undersea cable assets should be considered impaired. The
undersea cable assets are a component of property, plant and equipment, net in
the consolidated balance sheet. As a result of this evaluation, and in
accordance with SFAS No. 144, the Company recorded a pre-tax impairment charge
of $24,337 on these assets for the quarter ending February 28, 2003.
Operating loss for the three months ended February 28, 2003 was $192.3 million,
an increase of $183.8 million as compared to the operating loss of $8.5 million
for the same period in fiscal 2002. Operating loss for the nine months ended
February 28, 2003 was $197.6 million, an increase of $176.7 million as compared
to the operating loss of $20.9 million for the same period in fiscal 2002.
34
U.S. Wireless Operations
Three Months Ended Nine Months Ended
------------------------ ------------------------
(In thousands) 2/28/03 2/28/02 % Change 2/28/03 2/28/02 % Change
--------- --------- --------- --------- --------- ---------
Revenue:
Service revenue $ 63,010 $ 60,636 4% $ 192,209 $ 182,022 6%
Roaming revenue 16,632 19,681 (15) 60,764 68,603 (11)
Equipment sales 5,071 3,090 64 11,096 8,861 25
--------- --------- --------- --------- --------- ---------
84,713 83,407 2 264,069 259,486 2
--------- --------- --------- --------- --------- ---------
Costs and expenses:
Cost of equipment sold 12,463 8,896 40 25,884 25,937 --
Cost of services 13,829 16,209 (15) 46,278 52,419 (12)
Sales and marketing 11,823 12,314 (4) 34,712 36,716 (5)
General and administrative 12,260 12,853 (5) 38,188 40,975 (7)
--------- --------- --------- --------- --------- ---------
50,375 50,272 -- 145,062 156,047 (7)
--------- --------- --------- --------- --------- ---------
Adjusted EBITDA 34,338 33,135 4 119,007 103,439 15
Loss (gain) on disposition of
assets 105 (16) (756) 102 (20) (610)
Depreciation and amortization 9,246 11,384 (19) 27,884 33,898 (18)
--------- --------- --------- --------- --------- ---------
Operating income $ 24,987 $ 21,767 15% $ 91,021 $ 69,561 31%
========= ========= ========= ========= ========= =========
Revenue
U.S. Wireless service revenue increased $2.4 million or 4% and $10.2 million or
6% to $63.0 and $192.2 million for the three and nine months ended February 28,
2003, respectively, as compared to the same periods last year. The increases
were primarily due to growth in revenue from new subscribers of $1.0 million and
$8.1 million for the three and nine months ended February 28, 2003, respectively
and increases in service revenue per subscriber of $1.3 million and $2.0 million
for the same periods, as compared to the same periods last year.
Revenue from U.S. Wireless roaming decreased $3.0 million, or 15% and $7.8
million or 11%, for the three and nine months ended February 28, 2003,
respectively, from roaming revenues of $19.7 million and $68.6 million for the
three and nine months ended February 28, 2002. The decreases were primarily due
to a decrease in roaming rate per minute of $15.0 million and $35.9 million for
the three and nine
35
months ended February 28, 2003, respectively, partially offset by an increase in
roaming usage of $11.9 million and $28.0 million, respectively, for the same
period.
We anticipate that roaming revenue will be significantly lower in fiscal 2004
than in fiscal 2003, primarily due to declines in contractual roaming rates. We
expect the trend of a decreasing roaming rate per minute, partially offset by an
increase in roaming usage, to continue.
Our U.S. Wireless operations had approximately 538,900 and 535,100 subscribers
at February 28, 2003 and 2002, respectively. During the twelve months ended
February 28, 2003, increases from new activations of 147,200 were offset by
subscriber cancellations of 143,400. The monthly prepaid and postpaid churn rate
was 2.5% and 2.4% for the three months and nine months ended February 28, 2003,
respectively, as compared to 2.2% and 2.4% for the same periods last year. The
cancellations experienced by the U.S. Wireless operations were primarily due to
competitive factors and non-payment.
Equipment sales increased $2.0 million or 64% and $2.2 million or 25% during the
three and nine months ended February 28, 2003, respectively, as compared to the
same periods last year due to changes in the mix of phones sold.
U.S. Wireless revenue per subscriber per month, based upon an average number of
subscribers, was $53 and $55 for the three and nine months ended February 28,
2003, respectively, as compared to $53 and $56 for the same periods a year ago.
Average minutes of use per subscriber were 251 per month for the three months
ended February 28, 2003, as compared to 192 for the same period last year.
Costs and expenses
Cost of equipment sold increased $3.6 million or 40% for the three months ended
February 28, 2003, as compared to the same period last year, due primarily to an
increase in concessions associated with customer retention and to the use of
higher priced phones as compared to last year.
Cost of services decreased $2.4 million or 15% and $6.1 million or 12% for the
three and nine months ended February 28, 2003, respectively, as compared to the
three and nine months ended February 28, 2002, primarily due to a decrease in
incollect cost, which was driven primarily by lower rates.
Sales and marketing expenses decreased $0.5 million or 4% and $2.0 million or 5%
for the three and nine months ended February 28, 2003, respectively, as compared
to the prior year, primarily due to a reduction in the sales force and lower
commissions relating to lower activations in the current year as compared to the
prior year.
General and administrative expenses decreased $0.6 million or 5% and $2.8
million or 7% during the three and nine months ended February 28, 2003,
respectively, as compared to the three and nine months ended February 28, 2002,
primarily due to decreases in bad debt expense, subscriber billing services and
subscription fraud.
Adjusted EBITDA for the U.S. Wireless operations was $34.3 million for the three
months ended February 28, 2003, an increase of $1.2 million, or 4%, as compared
to the same period in fiscal 2002. Adjusted EBITDA for the U.S. Wireless
operations was $119.0 million for the nine months ended February 28, 2003, an
increase of $15.6 million, or 15%, as compared to the same period in fiscal
2002.
Depreciation and amortization for the three months ended February 28, 2003 was
$9.2 million, a decrease
36
of $2.1 million, or 19%, from the same period in fiscal 2002. Depreciation and
amortization for the nine months ended February 28, 2003 was $27.9 million, a
decrease of $6.0 million, or 18%, from the same period in fiscal 2002. The
decreases were primarily due to the cessation of amortization of wireless
licenses in connection with the adoption of SFAS No. 142.
Operating income for the three months ended February 28, 2003 was $25.0 million,
an increase of $3.2 million from operating income of $21.8 million for the same
period in fiscal 2002. Operating income for the nine months ended February 28,
2003 was $91.0 million, an increase of $21.5 million from operating income of
$69.6 million for the same period in fiscal 2002.
Consolidated
Other non-operating income and expenses
Net interest expense was $36.3 million and $111.6 million for the three and nine
months ended February 28, 2003, respectively, increases of $1.2 million or 4%
and $0.5 million or 0%, from the three and nine months ended February 28, 2002.
Gross interest expense was $36.5 million and $112.4 million for the three and
nine months ended February 28, 2003, respectively, as compared to $35.3 million
and $111.9 million for the same periods a year ago. The increases resulted
primarily from a change in the interest rate on our Mezzanine Debt from 10% cash
paid to 13% paid-in-kind (see Commitments and Contingencies) partially offset by
lower debt balances. Total debt decreased $60.6 million from February 28, 2002
to February 28, 2003.
The weighted-average debt outstanding during the three months ended February 28,
2003 was $1,766.0 million, a decrease of $53.3 million as compared to the
weighted-average debt level of $1,819.3 million during the three months ended
February 28, 2002. The weighted-average debt outstanding during the nine months
ended February 28, 2003 was $1,778.0 million, a decrease of $9.2 million as
compared to the weighted-average debt level of $1,787.2 million during the nine
months ended February 28, 2002. Our weighted-average interest rate was 8.3% and
8.4% for the three and nine months ended February 28, 2003, respectively, as
compared to 7.8% and 8.4% for the same periods a year ago.
After minority interest in loss of subsidiaries for the three and nine months
ended February 28, 2003, pre-tax loss was $193.9 million and $196.6 million,
respectively,as compared to the pre-tax loss of $16.1 million and $34.3 million
for the three and nine months ended February 28, 2002.
Income tax benefit (expense) was $34.3 million and $23.3 million for the three
and nine months ended February 28, 2003, respectively, as compared to $3.0
million and $(7.8) million for the same periods last year. The Company had a
worldwide effective tax rate of 11.85% for the nine months ended February 28,
2003, primarily as a result of the write-down of a deferred tax liability in
connection with the impairment charge on the Caribbean cable franchise cost
asset, pre-tax book losses generated in the Dominican Republic for which the
Company cannot record a tax benefit and certain expense related to the Company's
Mezzanine Debt that is not deductible for U.S. income tax purposes.
The Company reported a net loss of $159.6 million and $173.3 million for the
three and nine months ended February 28, 2003, respectively, which represents a
decrease of $146.5 million and $131.2 million from net losses of $13.1 million
and $42.1 million for the same periods 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
37
"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 $965.2 million as of February 28, 2003 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 principal amount of $325.0
million, of which $280.3 million was outstanding as of February 28, 2003, and
Centennial Puerto Rico Operations Corp. for three separate term loans
aggregating an original principal amount of $725.0 million, of which $684.9
million was outstanding as of February 28, 2003. The New Credit Facility also
includes a revolving credit facility with an aggregate principal amount of
$250.0 million, of which $200.0 million was outstanding as of February 28, 2003.
The revolving credit facility portion of the New Credit Facility is available to
both of the borrowers. Under the provisions of the New 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.
The amounts outstanding under, and maturity dates of the New Credit Facility are
as follows:
AMOUNT
OUTSTANDING AT
NEW CREDIT FACILITY FEBRUARY 28, 2003 MATURITY DATE
- ------------------- ----------------- -------------
Revolving Credit Facility $ 200,000 November 2006
Tranche A Term Loan 280,313 November 2006
Tranche A-PR Term Loan 107,812 November 2006
Tranche B-PR Term Loan 312,438 May 2007
Tranche C-PR Term Loan 264,679 November 2007
For the nine months ended February 28, 2003, earnings were less than fixed
charges by $197.0 million. Fixed charges consist of interest expense, including
amortization of debt issuance costs, and the portion of rents deemed
representative of the interest portion of leases. The amount by which earnings
were less than fixed charges reflects non-cash charges of $107.0 million
relating to depreciation and amortization.
As of February 28, 2003, we had $667.5 million of property, plant and equipment,
net placed in service. During the nine months ended February 28, 2003, we made
capital expenditures of $92.6 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 $66.8
million for the nine months ended February 28, 2003, representing 72% of total
capital expenditures. The Caribbean operations' capital expenditures included
$36.5 million to add capacity and services and to continue the development and
expansion of our Caribbean Wireless systems and $30.3 million to continue the
expansion of our Caribbean Broadband network infrastructure. During fiscal 2003,
we anticipate capital expenditures of no more than $140.0 million.
In January 2002, Centennial Puerto Rico Cable TV Corp. ("Centennial Cable"), our
wholly-owned subsidiary, entered into a $15 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 and principal repayments began 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
38
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 February 28, 2003,
$12.6 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 issuance 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.
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:
Nine Months Ended February 28,
--------------------------------------------------------
2003 2002
------------------------ -------------------------
% of net cash % of net cash
(In thousands) Amount provided Amount provided
--------- --------- --------- ---------
Net cash provided by operating activities $ 135,671 59% $ 56,333 34%
Interest paid 95,712 41 110,284 66
--------- --------- --------- ---------
Net cash provided $ 231,383 100% $ 166,617 100%
========= ========= ========= =========
Principal uses of cash:
Interest paid $ 95,712 41% $ 110,284 66%
Property, plant & equipment 92,605 40 181,572 109
--------- --------- --------- ---------
Total $ 188,317 81% $ 291,856 175%
========= ========= ========= =========
Cash available for (required from) other
financing and investing activities $ 43,066 19% $(125,239) (75)%
========= ========= ========= =========
Net cash provided by operating activities for the nine months ended February 28,
2003 was sufficient to fund our expenditures for property, plant and equipment
of $92.6 million.
39
The following table sets forth the primary cash flows (used in) provided by
other financing and investing activities for the periods indicated:
Nine Months Ended February 28,
-------------------------
(In thousands) 2003 2002
--------- ---------
Proceeds from disposition of assets, net of cash expenses $ 18,300 $ 220
Proceeds from issuance of long-term debt 27,174 178,057
Proceeds from the exercise of stock options -- 1,587
Capital contributed from minority interests in subsidiaries -- 4,900
Distributions received from equity investments 1,004 43
Proceeds from issuance of common stock under employee stock purchase plan 483 1,898
--------- ---------
Cash provided by other financing and investing activities 46,961 186,705
--------- ---------
Acquisitions, net of cash acquired -- (1,125)
Repayment of debt (66,656) (54,522)
Debt issuance costs paid -- (4,452)
Deposits on long-term assets -- (15,000)
--------- ---------
Capital (required from) available for operations and
capital expenditures $ (19,695) $ 111,606
========= =========
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 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 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.
This transaction, which was initiated in fiscal 2002, closed in the third
quarter of fiscal year 2003 and we recorded a pre-tax gain of $0.3 million.
In August 2002, we sold our 51% interest in our Jamaica wireless operations,
CDJ, to Oceanic Digital Communications Inc., the 49% shareholder of CDJ. This
transaction was initiated in fiscal 2002. We recorded a pre-tax gain of
$2.6 million, which is included in gain on disposition of assets in the
consolidated statement of operations. In addition, we
40
reduced our net liabilities by approximately $2.6 million, including
consolidated long-term debt by approximately $45.1 million (largely comprised of
the vendor financing credit facility with Lucent Technologies which was
non-recourse to the Company) as a result of this transaction.
During the three months ended February 28, 2003, we sold 64 telecommunications
towers to AAT for approximately $11.0 million. The gain recorded on these sales
of $6.6 million has been deferred and will be recognized over the lives of the
related capitalized leases. For the nine months ended February 28, 2003, we have
sold a total of 105 telecommunications towers for approximately $17.5 million.
The deferred gain recorded on these sales was $10.5 million. We expect that
approximately 20 to 40 telecommunications towers covered by the agreement will
not be sold to AAT under the agreement.
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. Pursuant to
SFAS No. 144, during the three months ended February 28, 2003, we reduced by
$24.3 million the carrying value of certain of our undersea cable assets in
consideration of SFAS No. 144.
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 initiated after December
31, 2002, with early application encouraged. The adoption of this statement did
not have a material effect on our results of operations, financial position, and
cash flows.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -
41
Transition and Disclosure". SFAS No. 148 serves as an amendment to SFAS No. 123,
"Accounting for Stock-Based Compensation", and provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based compensation. SFAS No. 148 also amends the disclosure
requirements of SFAS No. 123 to require prominent disclosure in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. We
are required to adopt the transition elements of SFAS No. 148 and the annual
financial statement reporting requirements for the current fiscal year ending
May 31, 2003. We will adopt the interim periods reporting disclosure
requirements of SFAS No. 148 during the interim period ending August 31, 2003.
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 April 10, 2003, 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 (Welsh, Carson, Anderson
and Stowe and an affiliate of The Blackstone Group).
During the nine months ended February 28, 2003, an affiliate of WCAS (the "WCAS
Affiliate") purchased in open market transactions approximately $153.0 million
principal amount of our 10-3/4% Notes due 2008 (the "Notes"). Together with
previous purchases, the WCAS Affiliate holds approximately $189.0 million of
principal amount of the Notes. 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. Therefore, we recorded a $15.9 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 had 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 paid-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 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
telecommunications 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
42
fiscal year 2003. During the nine months ended February 28, 2003, we sold 105
telecommunications towers to AAT for approximately $17.5 million. The gain
recorded on these sales of $10.5 million has been deferred and will be
recognized over the lives of the related capitalized leases. We expect that
approximately 20 to 40 telecommunications towers covered by the agreement will
not be sold to AAT under the 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 $31.0 million under
this agreement as of February 28, 2003.
In February 2003, the Puerto Rico Department of Education selected the bid of
the Company's Puerto Rico broadband division for the award of a $34.4 million
contract to provide telecommunications and Internet services to Puerto Rico's
approximately 1,540 public schools for the school year that begins in July 2003.
The project is expected to be funded, in large part, with funds available
through the E-Rate program of the Universal Service Fund, which is managed by
the Schools and Libraries Division of the Universal Service Administrative
Company, a private non-profit organization appointed by the FCC for such
purposes. The FCC is currently reviewing previous funding requests for the
E-Rate program in Puerto Rico and has withheld funding those requests until it
completes its ongoing E-Rate program investigation. As such, the funding to
support the project has not yet been obtained and there can be no assurance that
the project will be completed. In addition, the award is being challenged by one
of the unsuccessful bidders in an administrative proceeding in Puerto Rico.
We have entered into multi-year roaming agreements with Cingular Wireless and
AT&T Wireless for analog, TDMA and GSM traffic. Under these agreements, we are
required to overlay our existing U.S. wireless network with a GSM network over
the next three years. We expect the GSM overlay will require incremental
expenditures, above our historical U.S. wireless expenditure levels, of
approximately $20.0 million to $30.0 million over the next three years. In
connection with the roaming agreement with AT&T Wireless, AT&T Wireless granted
us two separate options to purchase 10MHz of spectrum covering an aggregate of
approximately 4.2 million POPs in Michigan and Indiana. The aggregate exercise
price of the options is $20.0 million, but the options may be exercised on a
proportionate basis for less than all of the 4.2 million POPS. The options have
a two-year term.
SUBSEQUENT EVENTS
As previously announced, we received a Staff Determination letter from Nasdaq
stating that our common stock faces delisting from the Nasdaq National Market
because it had traded below the minimum bid price of $3.00 for 30 consecutive
trading days. On December 12, 2002, we had an oral hearing before a Nasdaq
Listing Qualification Panel to appeal the Staff Determination. During our third
quarter ended February 28, 2003, the Panel informed us that Nasdaq did not
intend to delist our common stock from the Nasdaq National Market because Nasdaq
was in the process of modifying its listing standards to lower the minimum bid
price requirement of Nasdaq Marketplace Rule 4450 from $3.00 to $1.00. In March
2003, Nasdaq officially changed its continued listing bid price requirement from
$3.00 to $1.00. We currently meet the $1.00 minimum bid price requirement.
On March 31, 2003, the Company sold 20 telecommunications towers in a
sale-leaseback transaction to AAT for approximately $3.6 million. The $2.5
million gain recorded on this sale will be deferred and recognized over the
lives of the related capitalized leases.
43
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 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 effect 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,
including the effects of world events on tourism in the Caribbean;
- - fluctuations in currency values;
- - 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;
- - 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;
44
- - 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.
45
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 February 28, 2003:
YEAR ENDED FEBRUARY,
---------------------------------------------------------------------------------
(IN THOUSANDS) 2004 2005 2006 2007 2008
------------- ------------- ------------- ------------- -------------
Long-term debt:
Fixed rate $ 685 $ 815 $ 1,178 $ 1,045 $ 1,195
Average interest rate 9.74% 9.77% 9.85% 9.95% 10.00%
Variable rate $ 82,881 $ 105,381 $ 126,945 $ 309,568 $ 553,093
Average interest rate (1) 1.38% 2.14% 3.32% 4.02% 4.56%
Interest rate swaps
(pay fixed, receive variable):
Notional amount $ 100,000 $ 50,000 -- -- --
Average pay rate 5.34% 5.33% -- -- --
Average receive rate 1.70% 3.17% -- -- --
Interest rate collar:
Notional amount $ 100,000 -- -- -- --
Cap 7.00% -- -- -- --
Floor 4.62% -- -- -- --
(IN THOUSANDS) THERE-AFTER TOTAL FAIR VALUE
------------- ------------- -------------
Long-term debt:
Fixed rate $ 575,033 $ 579,033 $ 406,519
Average interest rate 10.48% 10.48% --
Variable rate $ 553,093 $ 1,177,868 $ 1,177,868
Average interest rate (1) 4.59% 3.84% --
Interest rate swaps
(pay fixed, receive variable):
Notional amount -- -- $ (6,492)
Average pay rate -- -- --
Average receive rate -- -- --
Interest rate collar:
Notional amount -- -- $ (3,219)
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.
46
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are party to several lawsuits in which plaintiffs allege,
depending on the case, breach of contract, misrepresentation or
unfair practice claims relating to our billing practices, including
rounding up of partial minutes of use to full-minute increments,
billing send to end, and billing for unanswered and dropped calls.
The plaintiffs in these cases have not alleged any specific monetary
damages and are seeking class certification.
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.
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
47
Exhibit No. Description
- ----------- -----------
10.18 Severance Agreement and General Release dated as of February
7, 2003 between Centennial Communications Corp. and Paget
Alves
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
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.
April 14, 2003
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)
48
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: April 14, 2003
By: /s/ Michael J. Small
--------------------
Name: Michael J. Small
Title: Chief Executive Officer
49
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: April 14, 2003
By: /s/Thomas J. Fitzpatrick
------------------------
Name: Thomas Fitzpatrick
Title: Chief Financial Officer
50