SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 or 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
Report on Form 6-K dated January 27, 2003
CELLCO FINANCE N.V.
Caracasbaaiweg 199
Curacao
Netherlands Antilles
(Address of Principal Executive Offices)
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Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F:
Form 20-F: |X| Form 40-F: |_|
Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(1):
Yes: |_| No: |X|
Indicate by check mark if the registrant is submitting the Form 6-K
in paper as permitted by Regulation S-T Rule 101(b)(7):
Yes: |_| No: |X|
Indicate by check mark whether the registrant by furnishing
the information contained in this form is also thereby
furnishing the information to the Commission pursuant to
Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes: |_| No: |X|
Enclosure: Report: "Operating and financial review and prospects for the
three month and nine month periods ended September 30, 2002."
OPERATING AND FINANCIAL REVIEW AND PROSPECTS FOR THE THREE MONTH AND NINE MONTH
PERIODS ENDED SEPTEMBER 30, 2002
Overview
This is the report for the three month and nine month periods ended
September 30, 2002 of Cellco Finance N.V. ("Cellco Finance"), a Netherlands
Antilles limited liability company ("naamloze vennootschap"). Cellco Finance's
sole business is to issue debt securities and lend the proceeds of those debt
securities to Turkcell Iletisim Hizmetleri A.S. ("Turkcell"), a joint stock
company organized and existing under the laws of the Republic of Turkey.
On July 23, 1998, Cellco Finance issued $300,000,000 of 15% Senior
Subordinated Notes due 2005 pursuant to an Indenture dated as of July 23, 1998
between Cellco Finance and HSBC Bank USA (then known as Marine Midland Bank)
(the "1998 Restricted Notes"). On December 22, 1999 Cellco Finance issued
$400,000,000 of 12 3/4% Senior Notes due 2005 pursuant to an Indenture dated as
of December 22, 1999 between Cellco Finance and HSBC Bank USA (the "1999
Restricted Notes"). Each of the 1998 Restricted Notes and 1999 Restricted Notes
were offered and sold in private placements to a small number of institutions,
which resold those Notes pursuant to exemptions from registration under the
Securities Act of 1933, as amended (the "Securities Act") in transactions
outside the United States in reliance on Regulation S under the Securities Act
and to "qualified institutional buyers" under Rule 144A under the Securities
Act.
Cellco Finance loaned the proceeds of the 1998 Restricted Notes and the
1999 Restricted Notes to Turkcell pursuant to a Subordinated Credit Agreement
dated July 23, 1998 and a Credit Agreement dated December 22, 1999, respectively
(such Credit Agreements being collectively herein called the "Credit
Agreements").
Pursuant to a Registration Statement filed with the Securities and the
Exchange Commission (the "SEC") and declared effective on October 13, 1999,
Cellco Finance offered to exchange notes that had been registered with the SEC
for the 1998 Restricted Notes. Pursuant to the exchange offer completed November
22, 1999, $285,036,000 in principal amount of Senior Subordinated Exchange Notes
were issued in exchange for a like principal amount of 1998 Restricted Notes
(such Senior Subordinated Exchange Notes being herein called the "1998 Exchange
Notes"). Pursuant to a Registration Statement filed with the SEC and declared
effective on July 10, 2000, Cellco Finance offered to exchange notes that had
been registered with the SEC for the 1999 Restricted Notes. Pursuant to the
exchange offer completed August 18, 2000, $385,038,000 in principal amount of
Senior Exchange Notes were issued in exchange for a like principal amount of
1999 Restricted Notes (such Senior Exchange Notes being herein called the "1999
Exchange Notes" and, together with the 1998 Exchange Notes, "Exchange Notes";
the Exchange Notes, the 1998 Restricted Notes and the 1999 Restricted Notes are
collectively referred to as the "Notes"). The 1998 Restricted Notes and the 1998
Exchange Notes are collectively called the "1998 Notes" and the 1999 Restricted
Notes and the 1999 Exchange Notes are collectively called the "1999 Notes".
The terms "we," "us," "our" and similar terms refer to Cellco Finance and
do not include or refer to Turkcell. We do not control Turkcell. However,
because our sole business is to issue debt securities and lend the proceeds of
those debt securities to Turkcell and our only significant assets are claims
against Turkcell under the Credit Agreements, the success of our business is
dependent entirely on the success of Turkcell's business, and our business is
subject to all risks and uncertainties to which Turkcell's business is subject.
Accordingly, we refer to our Annual Report on Form 20-F as filed with the
Securities and Exchange Commission on June 5, 2002 (the "Cellco Annual Report")
and Turkcell's Annual Report on Form 20-F as filed with the Securities and
Exchange Commission on May 21, 2002 (the "Turkcell Annual
-1-
Report"), both of which are hereby incorporated by reference in this quarterly
report, for a detailed description of Cellco's and Turkcell's business and the
risks and uncertainties Cellco and Turkcell face. Turkcell's Report on Form 6-K
as filed with the Securities and Exchange Commission on December 2, 2002 SEC
file number 1-15092 (the "Turkcell Report"), is also hereby incorporated by
reference.
Since our sole business is to issue debt securities and lend the proceeds
of those securities to Turkcell, you should read our operating and financial
review and prospects in conjunction with "Item 5. Operating and Financial Review
and Prospects" in the Turkcell's Annual Report.
The financial information contained in the following discussion and
analysis has been prepared and is presented in accordance with U.S. GAAP in U.S.
dollars. The following discussion and analysis should be read in conjunction
with the financial statements and related notes as of December 31, 2000 and 2001
and for each of the years in the three year period ended December 31, 2001
included in the Cellco Annual Report for the year ended December 31, 2001, and
the financial statements and related notes as of December 31, 2001 and September
30, 2002, and for each of the three month and nine month periods ended September
30, 2001 and 2002 included herein. The information as of and for each of the
three month and nine month periods ended September 30, 2001 and 2002 is not
audited.
Certain statements contained below, including information with respect to
our plans and strategy for our business, are forward looking statements. The
statements contained in this discussion of operating results, which are not
historical facts, are forward looking statements with respect to our plans,
projections or future performance, the occurrence of which involves certain
risks and uncertainties.
Operating Results
Revenues. Our revenue consists primarily of interest and financing fees
from Turkcell paid pursuant to the Credit Agreements. Revenue for the three
months ended September 30, 2002 of $24,856,000 is equal to revenue for the three
months ended September 30, 2001. Revenue for the nine months ended September 30,
2002 of $74,568,000 is equal to revenue for the nine months ended September 30,
2001.
Expenses. Expenses consist primarily of interest paid on the Notes.
Expenses for the three months ended September 30, 2002 of $24,856,000 is equal
to expenses for the three months ended September 30, 2001. Expenses for the nine
months ended September 30, 2002 of $74,568,000 is equal to expenses for the nine
months ended September 30, 2001.
Critical Accounting Policies
We have prepared our financial statements assuming we will continue as a
going concern; accordingly we have recorded the loans receivable and the related
interest income at the full amount receivable from Turkcell. As noted in the
basis of presentation of our financial statements (Note 2) Turkcell's current
liabilities at September 30, 2002 exceeded current assets and the Turkish
economy has suffered from significant devaluation during 2001. Should Turkcell's
operating results or the Turkish economy suffer further significant declines it
could result in Turkcell lacking the financial resources to repay the loans. If
Turkcell were unable to repay the loans then an impairment charge would need to
be recorded.
Liquidity and Capital Resources
-2-
We are a special purpose finance vehicle formed to issue debt instruments
and lend the proceeds to Turkcell. All of our existing obligations are matched
by claims on Turkcell. We do not expect to incur additional indebtedness other
than to fund Turkcell's operations, and any such additional indebtedness will be
matched by claims on Turkcell.
Our cash flows and ability to continue as a going concern depend largely on
the ability of Turkcell to service its debt owed us. At September 30, 2002,
substantially all of our assets represent amounts receivable from Turkcell. Our
results of operations and financial position are largely dependent upon the
results of operations and financial position of Turkcell, whose operations are
substantially all inside Turkey. The Turkish economy has been adversely affected
by the significant economic difficulties that occurred in Turkey at the end of
2000 and in February 2001 and Turkey continues to experience difficulties
following such economic crises. Consequently, Turkey's currency continued to
devalue, there is a continued volatility in the debt and equity markets and
hyperinflation persists while economic growth was negative 9.4% by the end of
December 2001. However, the rate of devaluation of Turkish Lira stabilized
during last nine months after the announcement of a new loan facility amounting
to $10 billion from the International Monetary Fund (the "IMF"). The significant
economic difficulties in Turkey include, but are not limited to, a steep decline
in prices of domestic debt and equity securities and increasing rates on
government and corporate borrowings. In an attempt to overcome the liquidity
crisis in the banking system, on February 21, 2001, the Turkish government
allowed the Turkish Lira to float freely. This caused a 28% devaluation of the
Turkish Lira against the U.S. Dollar during the first day of flotation. The US
dollar/Turkish Lira exchange rate at December 31, 2000 was TL 671,765 whereas at
September 30, 2002 it was TL 1,648,669. Confidence in the banking sector has yet
to be fully restored and there continues to be a general lack of liquidity in
the economy. Turkey's return to economic stability is dependent to a large
extent of the effectiveness of the measures taken by the government, decisions
of international lending organizations, and other factors, including regulatory
and political developments.
The financial condition of Turkcell and its future operations and cash
flows could be adversely affected by continued economic difficulty. Accordingly,
our financial condition and our future operations and cash flows could be
adversely affected by such continued economic difficulty in Turkey. At September
30, 2002, Turkcell's current liabilities exceeded current assets by US$252.6
million. As noted in Turkcell's financial statements these matters may raise
doubt about Turkcell's ability to continue as a going concern. Our cash flows
and ability to continue as a going concern depend largely on the ability of
Turkcell to service its debt towards us. Our financial statements have been
prepared assuming that Turkcell will continue as a going concern, and that
therefore we will continue as a going concern. Turkcell advised us that its
management believes that Turkcell will generate sufficient operating cash flows
to continue as a going concern. In addition, in March 2002, Turkcell also
received a commitment letter from Yapi Kredi Bankasi A.S., a shareholder of
Turkcell and one of the largest Turkish banks, for a loan of $200 million over
the next twelve months. Also, in March 2002, Vakiflar Bankasi TAO and Turkiye
Garanti Bankasi A.S. provided letters of intent to Turkcell to extend 2002
principal repayments of existing borrowings amounting to approximately $120
million for the twelve months subsequent to their initial maturities. Turkcell
will continue to pay interest during the extension period. During the first nine
months of 2002, Turkcell did not use the option of these extensions and paid a
total amount of approximately $66.1 million principal for these two loans.
Turkcell advises us that its management will consider making such extensions for
the remaining principal repayments if necessary. Further, on May 9, 2002,
Turkcell agreed with Akbank to extend two principal repayments of existing
borrowings totaling $62.5 million, which were due in May and June 2002, for
twelve months subsequent to their initial maturities. Turkcell's management has
stated that it believes that Turkcell's cash from operations, the proceeds from
the Yapi Kredi Bankasi loan, the extension of its debt obligations to Vakifbank,
Garanti Bankasi and Akbank will be sufficient to fully fund its business plan
through December 31, 2002, which includes the repayment of approximately $116.7
million in principal on debt obligations.
-3-
We have continued to receive timely payments from Turkcell on our
receivable due from Turkcell and we believe that Turkcell will continue to be
able to service its debt on a timely basis. Accordingly, our financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Research and Development, Patents and Licenses
We have not had any research and development activities for the last three
years. We own no patents.
Trend Information
At September 30, 2002, substantially all of our assets represent amounts
receivable from Turkcell. Our results of operations and financial position are
largely dependent upon the results of operations and financial position of
Turkcell, whose operations are substantially all inside Turkey. The Turkish
economy has been adversely affected by the significant economic difficulties
that occurred in Turkey at the end of 2000 and in February 2001 and Turkey
continues to experience difficulties following such economic crises.
Consequently, Turkey's currency continued to devalue, there is a continued
volatility in the debt and equity markets and hyperinflation persists while
economic growth was negative 9.4% by the end of December 2001. However, the rate
of devaluation of Turkish Lira stabilized during last nine months after the
announcement of a new loan facility amounting to $10 billion from the IMF. The
significant economic difficulties in Turkey include, but are not limited to, a
steep decline in prices of domestic debt and equity securities and increasing
rates on government and corporate borrowings. In an attempt to overcome the
liquidity crisis in the banking system, on February 21, 2001, the Turkish
government allowed the Turkish Lira to float freely. This caused a 28%
devaluation of the Turkish Lira against the U.S. Dollar during the first day of
flotation. The US dollar/Turkish Lira exchange rate at December 31, 2000 was TL
671,765 whereas at September 30, 2002 it is TL 1,648,669. Confidence in the
banking sector has yet to be fully restored and there continues to be a general
lack of liquidity in the economy. Turkey's return to economic stability is
dependent to a large extent of the effectiveness of the measures taken by the
government, decisions of international lending organizations, and other factors,
including regulatory and political developments.
The financial condition of Turkcell and its future operations and cash
flows could be adversely affected by continued economic difficulty. Accordingly,
our financial condition and our future operations and cash flows could be
adversely affected by such continued economic difficulty in Turkey.
Since our sole business is to issue debt securities and lend the proceeds
of the debt securities to Turkcell, you should read "Item 5D. Trend Information"
of the Turkcell Annual Report and Turkcell Quarterly Report.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Foreign Exchange Risk Management
The fair value of the 1998 Notes increased from $270.0 million at December
31, 2001 to $291.0 million at September 30, 2002; the fair value of the 1999
Notes increased from $348.0 million at December 31, 2001 to $372.0 million at
September 30, 2002.
-4-
The following table sets forth as at December 31, 2001 and September 30,
2002 the principal and maturities of our indebtedness that are sensitive to
foreign currency exchange rate fluctuations:
December 31, 2001 September 30, 2002
----------------- ------------------
Carrying amount Fair value Carrying amount Fair value
$ $ $ $
- - - -
(in millions) (in millions) (in millions) (in millions)
Financial instrument
Financial instrument
1998 Notes 300.0 270.0 300.0 291.0
1999 Notes 400.0 348.0 400.0 372.0
Expected future maturities as of December 31, for each of the next four years
and thereafter are set forth in the following table:
2002 2003 2004 2005 Total
---- ---- ---- ---- -----
(in millions of US Dollars)
1998 Notes -- -- -- 300.0 300.0
1999 Notes -- -- -- 400.0 400.0
-- -- -- ----- -----
-- -- -- 700.0 700.0
== == == ===== =====
Interest Rate Risk Management
The following table sets forth as at December 31, 2001 and September 30,
2002 the principal and maturities of our indebtedness that are sensitive to
interest rate fluctuations:
December 31, 2001 September 30, 2002
----------------- ------------------
Carrying amount Fair value Carrying amount Fair value
$ $ $ $
- - - -
(in millions) (in millions) (in millions) (in millions)
Financial instrument
1998 Notes 300.0 270.0 300.0 291.0
1999 Notes 400.0 348.0 400.0 372.0
Expected future maturities as of December 31, for each of the next four years
and thereafter are set forth in the following table:
2002 2003 2004 2005 Total
---- ---- ---- ---- -----
(in millions of US Dollars)
1998 Notes -- -- -- 300.0 300.0
1999 Notes -- -- -- 400.0 400.0
-- -- -- ----- -----
-- -- -- 700.0 700.0
== == == ===== =====