EXHIBIT A -- NON-GAAP FINANCIAL MEASURES
Regulation G, "Conditions for Use of Non-GAAP Financial Measures," and other provisions of the Securities Exchange Act of 1934, as amended, define and prescribe the conditions for use of certain non-GAAP financial information. Throughout this press release, we present certain financial measures that are not calculated and presented in accordance with GAAP, including "adjusted operating income." We previously referred to this non-GAAP financial measure in our filings with the United States Securities and Exchange Commission ("SEC"), press releases and other communications with investors as "adjusted EBITDA." The change to "adjusted operating income" is a change in name only and we have not changed the way we calculate current or prior results with respect to this financial measure.
We view adjusted operating income as an operating performance measure, and as such we believe that the GAAP financial measure most directly comparable to it is net income or net loss. In calculating adjusted operating income, we exclude from net income or net loss the financial items that we believe have less significance to the day-to-day operation of our business. We have outlined below the type and scope of these exclusions and the limitations on the use of this non-GAAP financial measure as a result of these exclusions. Adjusted operating income is not an alternative to net income, operating income or cash flows from operating activities as calculated and presented in accordance with GAAP. Investors and potential investors in our securities should not rely on adjusted operating income as a substitute for any GAAP financial measure. In addition, our calculation of adjusted operating income may or may not be consistent with that of other companies. We strongly urge investors and potential investors in our securities to review the reconciliation of adjusted operating income to the comparable GAAP financial measures that are included in this press release and not to rely on any single financial measure to evaluate our business.
Adjusted operating income is used by our management as a supplemental financial measure to evaluate the performance of our business that, when viewed with our GAAP results and the accompanying reconciliations, we believe provides a more complete understanding of factors and trends affecting our business than the GAAP results alone. Management also uses this financial measure as one of several criteria to determine the achievement of performance-based cash bonuses. We also regularly communicate our adjusted operating income to the public through our earnings releases because it is the financial measure commonly used by analysts that cover our industry and our investor base to evaluate our performance. We understand that analysts and investors regularly rely on non-GAAP financial measures, such as adjusted operating income, to provide a financial measure by which to compare a company's assessment of its operating performance against that of other companies in the same industry. This non-GAAP financial measure is helpful in more clearly reflecting the sales of our products and services, as well as highlighting trends in our core businesses that may not otherwise be apparent when relying solely on GAAP financial measures, because this non-GAAP financial measure eliminates from earnings financial items that have less bearing on our performance. In addition, as our calculation of adjusted operating income is similar, but not identical, to certain financial ratios that are used in the financial covenants of our New Senior Secured Credit Facility and the indentures governing our Senior Subordinated Notes due 2008, Senior Notes due 2013 and Senior Notes due 2014, and since we do not publicly disclose the calculations of these financial ratios, adjusted operating income is the most comparable financial measure that is readily available to investors to evaluate our compliance with our financial covenants.
The term "adjusted operating income" as used in this press release refers to, for any period, net income (loss) before minority interest in income of subsidiaries, income tax (expense) benefit, other income (expense), loss on extinguishment of debt, interest expense-net, income from equity investments, loss (gain) on disposition of assets, loss on impairment of assets, depreciation and amortization, and other non-cash charges.
Set forth below are descriptions of the financial items that have been excluded from our net income (loss) to calculate adjusted operating income and the material limitations associated with using this non-GAAP financial measure as compared to the use of the most directly comparable GAAP financial measure:
-- Minority interest in income or loss of subsidiaries relates to
our minority investors' proportionate share of income in our
non-wholly owned subsidiaries, which generated non-cash
charges to our operating results. Operating results
attributable to these minority investors' investments do not
necessarily result in any direct, immediate benefit or
detriment to us and, therefore, we believe it would be helpful
for an investor to exclude such items to better reflect our
core operating performance.
-- Management does not consider income tax benefit or expense
when considering the profitability of our core operations.
Nevertheless, the amount of taxes we are required to pay
reduces the amount of funds otherwise available for use in our
business and thus may be useful for an investor to consider.
-- Other income or expense relates to foreign currency
translation losses in our operations in the Dominican Republic
because some of our revenue in the Dominican Republic is
collected and expenses are paid in local currency, the DR
peso. Although foreign currency translation gains or losses
have a cash effect on our results, because some of our costs
incurred in the Dominican Republic are paid in U.S. dollars,
by excluding them we are better able to evaluate the real
effects of changes in our core operating performance.
-- Loss on extinguishment of debt relates to our refinancing
transactions in fiscal 2004. As such, we do not believe these
costs are relevant to an understanding of our core operating
results.
-- The amount of interest expense we incur is significant and
reduces the amount of funds otherwise available to use in our
business and, therefore, is important for investors to
consider. However, management does not consider the amount of
interest expense when evaluating our core operating
performance.
-- Income from equity investments relates to our proportionate
share of income or loss from the entities in which we hold
minority interests. We do not control these entities and, as
such, do not believe the income we receive from such entities
is indicative of our core operating performance.
-- The fiscal 2004 other non-cash charges relates to the
write-off of a promissory note received in connection with the
sale of our Jamaican Internet Service provider that occurred
in fiscal 2003. While this charge reduces cash available to
us, management does not consider this write-off amount when
evaluating core operating performance. Further, the gain on
the sale of our Jamaican Internet Service provider, was
excluded from AOI at the time of the sale.
-- The fiscal 2003 other non-cash charges relates to disputed
billings that arose in prior fiscal years with the Puerto Rico
Telephone Company ("PRTC"). We recorded this charge in the
second quarter of fiscal 2003 as a result of developments in
these disputes at that time and the protracted negotiations
with the PRTC concerning the disputed billings. While these
charges reduced cash available to us, due to newly negotiated
interconnection rates with the PRTC, we believe disputed
charges will become less material in future periods.
-- Loss or gain on the disposition of assets may increase or
decrease the cash available to us and thus may be important
for an investor to consider. We are not in the business of
acquiring or disposing of assets and, therefore, the effect of
the disposition of assets may not be comparable from
year-to-year. We believe such gains or losses recorded on the
disposition of an asset do not reflect the core operating
performance of our business.
-- Loss on impairment of assets is a non-cash charge incurred as
a result of changes in the valuations of our assets. Although
it is important to recognize that some of our assets have
decreased in value, we do not believe it is indicative of our
core operating performance.
-- Depreciation and amortization are important for investors to
consider, even though they are non-cash charges, because they
represent generally the wear and tear on our property, plant
and equipment, which produce our revenue. We do not believe
these charges are indicative of our core operating
performance.
Management compensates for the above-described limitations of using a non-GAAP financial measure by using this non-GAAP financial measure only to supplement our GAAP results to provide a more complete understanding of the factors and trends affecting our business.
Reconciliation of Consolidated Net Income (Loss) to Adjusted
Operating Income
Three Months Fiscal Year
Ended Ended
May 31, May 31, May 31, May 31,
2004 2003 2004 2003
(In thousands) (Unaudited) (Unaudited)
---------------------------------- --------------- -------------------
NET INCOME (LOSS) $3,165 $58,504 $(22,792)$(111,646)
Minority interest in income of
subsidiaries 219 660 627 489
Income tax expense (benefit) 5,534 (43,444) 6,452 (69,904)
Other (income) expense (406) 168 (36) 1,045
Loss on extinguishment of debt 3,016 - 39,176 -
Interest expense, net 38,017 34,489 163,228 146,087
Income from equity investments (91) (26) (143) (192)
-------- ------- -------- ---------
Operating income (loss) 49,454 50,351 186,512 (34,121)
Other non-cash charges 1,513 (907) 1,513 4,093
Loss (gain) on disposition of
assets 1,936 906 1,500 (1,451)
Loss on impairment of assets - - - 189,492
Depreciation and amortization 35,884 32,083 140,991 139,065
-------- ------- ------- ---------
ADJUSTED OPERATING INCOME $88,787 $82,433 $330,516 $297,078
======= ======= ======== =========
Our business segments were determined in accordance with GAAP. Our management measures the operating performance of each of our business segments based on adjusted operating income. Adjusted operating income is the measure of profit or loss reviewed by the chief operating decision maker when assessing the performance of each segment and making decisions about the resources to allocate to each segment. Under current SEC rules for non-GAAP financial measures, adjusted operating income as used with respect to our business segments is not required to be reconciled to a GAAP financial measure. We have, however, also provided in the following tables a reconciliation of operating income to adjusted operating income for each of our business segments.
Set forth below are descriptions of the financial terms that have been excluded from each segment's operating income to calculate adjusted operating income.
-- Management fees relates to expense allocations from the
Company's corporate headquarters to the operating segments.
Management does not consider the amount of management fees
when evaluating the Company's core operating performance.
-- Other non-cash charges - See explanation above.
-- Loss or gain on disposition of assets - See explanation above.
-- Loss on impairment of assets - See explanation above.
-- Depreciation and amortization - See explanation above.
U.S. Wireless
Reconciliation of Operating Income to Adjusted Operating Income
Three Months Fiscal Year
Ended Ended
May 31, May 31, May 31, May 31,
2004 2003 2004 2003
(In thousands) (Unaudited) (Unaudited)
---------------------------------- --------------- -------------------
Operating income $29,596 $35,088 $113,350 $126,109
Management fees (533) - (533) -
Loss (gain) on disposition of assets 86 376 (524) 478
Depreciation and amortization 10,136 6,651 37,195 34,535
------- ------- -------- ---------
ADJUSTED OPERATING INCOME $39,285 $42,115 $149,488 $161,122
======= ======= ======== =========
Caribbean Wireless
Reconciliation of Operating Income to Adjusted Operating Income
Three Months Fiscal Year
Ended Ended
May 31, May 31, May 31, May 31,
2004 2003 2004 2003
(In thousands) (Unaudited) (Unaudited)
---------------------------------- --------------- -------------------
Operating income $15,365 $15,744 $65,998 $37,878
Management fees 362 - 362 -
Other non-cash charges - (798) - 3,591
Loss (gain) on disposition of assets 1,919 457 1,972 (1,600)
Depreciation and amortization 13,285 13,201 53,295 56,645
------- ------- -------- --------
ADJUSTED OPERATING INCOME $30,931 $28,604 $121,627 $96,514
======= ======= ======== ========
Caribbean Broadband
Reconciliation of Operating Income (Loss) to Adjusted Operating Income
Three Months Fiscal Year
Ended Ended
May 31, May 31, May 31, May 31,
2004 2003 2004 2003
(In thousands) (Unaudited) (Unaudited)
---------------------------------- ----------------- -----------------
Operating income (loss) $4,493 $(481) $7,164 $(198,108)
Management fees 171 - 171 -
Other non-cash charges 1,513 (109) 1,513 502
(Gain) loss on disposition of assets (69) 73 52 (329)
Loss on impairment of assets - - - 189,492
Depreciation and amortization 12,463 12,231 50,501 47,885
------- ------- ------- ----------
ADJUSTED OPERATING INCOME $18,571 $11,714 $59,401 $39,442
======= ======= ======= ==========
RECONCILIATION OF CONSOLIDATED NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW
The Company views free cash flow as a liquidity measure and, as such, believes that the GAAP financial measure most directly comparable to free cash flow is net cash provided by operating activities. The Company has presented free cash flow because this financial measure, in combination with other financial measures, is an integral part of its internal reporting system. Free cash flow provides an important measurement of the cash generated by our operations after capital reinvestment in our business and is an indicator of our ability to service our long-term debt and other corporate cash requirements. Free cash flow should not be construed as an alternative to net income (loss), as determined in accordance with GAAP or as an alternative to net cash provided by operating activities, as determined in accordance with GAAP. We believe free cash flow is useful to investors as a means to evaluate the cash-generating capabilities of our operations, as recurring capital expenditures are required in the communications industry to sustain our customer base and revenue growth. Further, we consider trends in free cash flow when making decisions regarding the allocation of financial resources.
FISCAL YEAR ENDED
MAY 31, 2004 MAY 31, 2003
------------------------------------
(In thousands) (Unaudited)
------------------------------- ------------------------------------
Net Cash Provided By Operating
Activities $205,160 $192,459
Capital Expenditures (132,930) (133,109)
Interest Expense, Net 163,228 146,087
Loss on Extinguishment of Debt 39,176 -
Non Cash Paid-In Kind Interest (13,997) (25,892)
Income Tax Expense (Benefit) 6,452 (69,904)
Deferred Income Taxes (2,388) 79,505
Changes in Assets and
Liabilities (68,592) (30,315)
Other Non-Operating (Income)
Loss (36) 1,045
Other non-cash charges 1,513 4,093
----------------- -----------
Free Cash Flow $197,586 $163,969
================= ===========
Centennial Communications Corp.
Financial Data and Operating Statistics
May 31, 2004
($000's, except per subscriber data)
---------------------- ----------------------
Three Months Ended Twelve Months Ended
May-04 May-03 May-04 May-03
---------------------- ----------------------
U.S. WIRELESS
-----------------------
Postpaid Wireless
Subscribers 532,500 516,600 532,500 516,600
Prepaid Wireless
Subscribers 22,500 21,900 22,500 21,900
----------- --------- ----------- ----------
Total Wireless
Subscribers (1) 555,000 538,500 555,000 538,500
Net Gain (Loss) -
Wireless Subscribers
(2) 2,900 1,700 16,500 0
Revenue per Average
Wireless Customer $56 $57 $56 $55
Service Revenue Per
Average Wireless
Customer $46 $43 $45 $40
Roaming Revenue $12,644 $16,868 $54,303 $77,632
Penetration - Total
Wireless 9.1% 8.8% 9.1% 8.8%
Postpaid Churn -
Wireless 1.8% 1.7% 1.9% 2.0%
Prepaid & Postpaid
Churn - Wireless 2.1% 2.2% 2.3% 2.3%
Monthly MOU's per
Wireless Customer (3) 482 370 445 328
Cost to Acquire $275 $268 $294 $300
Capital Expenditures $9,473 $18,449 $46,882 $44,211
CARIBBEAN
-----------------------
Postpaid Wireless
Subscribers 355,100 295,500 355,100 295,500
Prepaid Wireless
Subscribers 133,600 98,200 133,600 98,200
Home Phone Wireless
Subscribers 7,500 4,900 7,500 4,900
----------- ---------- ---------- ----------
Total Wireless
Subscribers 496,200 398,600 496,200 398,600
Net Gain (Loss) -
Wireless Subscribers
(4) 21,600 7,800 97,600 62,300
Revenue per Average
Wireless Customer $54 $59 $57 $58
Penetration - Total
Wireless 3.8% 3.1% 3.8% 3.1%
Postpaid Churn -
Wireless 2.4% 2.1% 2.4% 2.7%
Prepaid Churn -
Wireless 6.6% 7.9% 5.6% 5.9%
Prepaid & Postpaid
Churn - Wireless 3.5% 3.7% 3.2% 3.6%
Monthly MOU's per
Wireless Customer 914 826 907 728
Cable Television
Subscribers 73,400 78,200 73,400 78,200
Fiber Route Miles 1,730 1,520 1,730 1,520
Switched Access Lines 50,210 40,390 50,210 40,390
Dedicated Access Line
Equivalents 213,920 181,970 213,920 181,970
On-Net Buildings 1,160 980 1,160 980
Capital Expenditures $25,474 $22,055 $86,048 $88,898
REVENUES
-----------------------
U.S. Wireless $93,930 $91,560 $370,200 $355,629
---------- ---------- ---------- ----------
Caribbean - Wireless $78,248 $69,702 $306,212 $262,052
Caribbean - Broadband $45,410 $36,481 $164,735 $141,757
Caribbean -
Intercompany ($2,766) ($2,950) ($12,306) ($10,002)
---------- ---------- ---------- ----------
Total Caribbean $120,892 $103,233 $458,641 $393,807
---------- ---------- ---------- ----------
Consolidated $214,822 $194,793 $828,841 $749,436
=========== ========== =========== ==========
Adjusted Operating
Income (5)
-----------------------
U.S. Wireless $39,285 $42,115 $149,488 $161,122
---------- ---------- ---------- ----------
Caribbean - Wireless $30,931 $28,604 $121,627 $96,514
Caribbean - Broadband $18,571 $11,714 $59,401 $39,442
---------- ---------- ---------- ----------
Total Caribbean $49,502 $40,318 $181,028 $135,956
---------- ---------- ----------- ---------
Consolidated $88,787 $82,433 $330,516 $297,078
=========== ========== =========== ==========
NET DEBT
-----------------------
Total Debt Less Cash $1,655,800 $1,691,600 $1,655,800 $1,691,600
---------- ----------- ---------- -----------
(1) Total wireless subscribers exclude 8,000 wholesale subscribers at
May 2004 and 2,400 wholesale subscribers at May 2003.
(2) Net gain excludes wholesale subscriber gain of 4,000 and 5,600
for the three and twelve months ended May 2004, respectively. Net
gain excludes wholesale subscriber gain of 300 and 600 for the
three and twelve months ended May 2003, respectively.
(3) Monthly MOU's per wireless customer for the three and twelve
months ended May 2003 have been restated to include free night
and weekend minutes.
(4) Excludes a reduction of 30,200 subscribers in the twelve months
ended May 2003 from the divested Centennial Digital Jamaica
operations.
(5) Adjusted operating income is net income (loss) before minority
interest in income of subsidiaries, income tax (expense) benefit,
other income (expense), loss on extinguishment of debt, interest
expense-net, income from equity investments, loss (gain) on
disposition of assets, loss on impairment of assets, depreciation
and amortization, and other non-cash charges. Please refer to
Exhibit A - "Non-GAAP Financial Measures."
Centennial Communications Corp. and Subsidiaries
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
Three Months Ended Twelve Months Ended
--------------------- ----------------------
May 31, May 31, May 31, May 31,
2004 2003 2004 2003
------- ------- ------- -------
REVENUE:
Service revenue $207,391 $186,758 $797,863 $721,974
Equipment sales 7,431 8,035 30,978 27,462
------- ------- ------- -------
214,822 194,793 828,841 749,436
------- ------- ------- -------
COSTS AND EXPENSES:
Cost of services 40,297 40,915 164,589 157,840
Cost of equipment
sold 20,253 18,703 86,071 70,876
Sales and marketing 22,706 21,531 92,241 93,013
General and
administrative 44,292 30,304 156,937 134,722
Depreciation and
amortization 35,884 32,083 140,991 139,065
Loss on impairment
of assets - - - 189,492
Loss (gain) on
disposition of
assets 1,936 906 1,500 (1,451)
------- ------- ------- -------
165,368 144,442 642,329 783,557
------- ------- ------- -------
OPERATING INCOME
(LOSS) 49,454 50,351 186,512 (34,121)
------- ------- ------- -------
INCOME FROM EQUITY
INVESTMENTS 91 26 143 192
INTEREST EXPENSE -
NET (38,017) (34,489) (163,228) (146,087)
LOSS ON EXTINGUISHMENT
OF DEBT (3,016) - (39,176) -
OTHER INCOME (EXPENSE) 406 (168) 36 (1,045)
------- ------- ------- -------
INCOME (LOSS) BEFORE
INCOME TAX EXPENSE
AND MINORITY INTEREST 8,918 15,720 (15,713) (181,061)
INCOME TAX (EXPENSE)
BENEFIT (5,534) 43,444 (6,452) 69,904
------- ------- ------- -------
INCOME (LOSS) BEFORE
MINORITY INTEREST 3,384 59,164 (22,165) (111,157)
MINORITY INTEREST IN
INCOME OF
SUBSIDIARIES (219) (660) (627) (489)
------- ------- ------- -------
NET INCOME (LOSS) $3,165 $58,504 $(22,792) $(111,646)
======== ======== ======== ========
INCOME (LOSS) PER
COMMON SHARE:
BASIC AND DILUTED $0.03 $0.61 $(0.23) $(1.17)
======== ======== ======== ========
WEIGHTED-AVERAGE
SHARES OUTSTANDING
DURING THE PERIOD:
BASIC 103,120 95,696 99,937 95,577
======== ======== ======== ========
DILUTED 104,473 95,696 99,937 95,577
======== ======== ======== ========
Centennial Communications Corp. and Subsidiaries
Revised Consolidated Statements of Operations
(Amounts in thousands, except per share data)
Three Months Ended
-----------------------------------------
Feb. 29, Nov. 30, Aug. 31,
2004 2003 2003
------ ------ -------
REVENUE:
Service revenue $199,517 $195,592 $195,363
Equipment sales 8,489 7,197 7,861
------ ------ -------
208,006 202,789 203,224
------ ------ -------
COSTS AND EXPENSES:
Cost of services 40,503 40,674 43,115
Cost of equipment sold 22,051 22,093 21,674
Sales and marketing 23,172 23,538 22,825
General and
administrative 40,325 36,753 35,567
Depreciation and
amortization 34,530 34,885 35,692
Loss (gain) on
disposition of assets 249 (55) (630)
------ ------ -------
160,830 157,888 158,243
------ ------ -------
OPERATING INCOME 47,176 44,901 44,981
------ ------ -------
INCOME FROM EQUITY
INVESTMENTS 24 4 24
INTEREST EXPENSE - NET (41,879) (41,698) (41,634)
LOSS ON EXTINGUISHMENT OF
DEBT (28,625) - (7,535)
OTHER INCOME (EXPENSE) 232 256 (858)
------ ------ -------
(LOSS) INCOME BEFORE
INCOME TAX EXPENSE
AND MINORITY INTEREST (23,072) 3,463 (5,022)
INCOME TAX BENEFIT
(EXPENSE) 7,718 (9,476) 840
------ ------ -------
LOSS BEFORE MINORITY
INTEREST (15,354) (6,013) (4,182)
MINORITY INTEREST IN INCOME
OF SUBSIDIARIES (126) (149) (134)
------ ------ -------
NET LOSS $(15,480) $(6,162) $(4,316)
======== ======== ========
LOSS PER COMMON SHARE:
BASIC AND DILUTED $(0.15) $(0.06) $(0.05)
======== ======== ========
WEIGHTED-AVERAGE SHARES
OUTSTANDING DURING THE
PERIOD:
BASIC 103,046 97,839 95,754
======== ======== ========
DILUTED 103,046 97,839 95,754
======== ======== ========
Centennial Communications Corp. and Subsidiaries
Revised Statements of Operations by Segment
(Amounts in thousands, except per share data)
Three Months Ended
---------------------------------
U.S. Wireless Feb. 29, Nov. 30, Aug. 31,
2004 2003 2003
------------- --------- ---------
REVENUE:
Service revenue $85,793 $85,785 $89,189
Equipment sales 5,584 4,654 5,265
------------- --------- ---------
91,377 90,439 94,454
------------- --------- ---------
COSTS AND EXPENSES:
Cost of services 15,658 17,085 18,589
Cost of equipment sold 10,226 12,119 13,161
Sales and marketing 11,607 12,054 11,421
General and administrative 16,015 13,792 14,340
Depreciation and amortization 9,068 8,989 9,002
Gain on disposition of assets (62) (35) (513)
------------- --------- ---------
62,512 64,004 66,000
------------- --------- ---------
OPERATING INCOME $28,865 $26,435 $28,454
------------- --------- ---------
Caribbean Wireless
REVENUE:
Service revenue $74,973 $73,614 $71,560
Equipment sales 2,853 2,420 2,544
------------- --------- ---------
77,826 76,034 74,104
------------- --------- ---------
COSTS AND EXPENSES:
Cost of services 11,233 11,004 12,144
Cost of equipment sold 11,710 9,872 8,391
Sales and marketing 9,231 9,081 9,372
General and administrative 16,693 15,335 13,202
Depreciation and amortization 12,987 13,007 14,016
(Gain) loss on disposition of
assets - (20) 73
------------- --------- ---------
61,854 58,279 57,198
------------- --------- ---------
OPERATING INCOME $15,972 $17,755 $16,906
------------- --------- ---------
Caribbean Broadband
REVENUE:
Switched revenue $9,524 $9,409 $8,799
Dedicated revenue 11,945 12,070 11,842
Cable television revenue 12,319 12,204 12,017
Other revenue 7,864 5,818 5,514
------------- --------- ---------
41,652 39,501 38,172
------------- --------- ---------
COSTS AND EXPENSES:
Cost of services 16,312 15,627 15,747
Cost of equipment sold 115 102 121
Sales and marketing 2,333 2,404 2,032
General and administrative 7,767 7,770 8,165
Depreciation and amortization 12,475 12,887 12,676
Loss (gain) on disposition of
assets 311 - (190)
------------- --------- ---------
39,313 38,790 38,551
------------- --------- ---------
OPERATING INCOME (LOSS) $2,339 $711 $(379)
------------- --------- ---------