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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-Q/A
___________________
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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 1-333-36253
___________
___________________
PRICE COMMUNICATIONS WIRELESS, INC.
(Exact Name of Registrant as specified in its charter)
Delaware 13-3956941
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
45 Rockefeller Plaza 10020
New York, New York (Zip Code)
(Address of principal executive offices)
Registrant's telephone number (212) 757-5600
____________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of the issuer's common stock as of February
12, 1998 was 100.
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PRICE COMMUNICATIONS WIRELESS, INC.
INDEX
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
<S> <C>
Balance Sheets- September 30, 1997.................................................................. 1
Consolidated Balance Sheet Palmer Wireless, Inc. December 31, 1996................................ 2
Statement of Operations For the Period since Inception (May 22, 1997)
Through September 30, 1997 ........................................................................ 3
Consolidated Statement of Operations Palmer Wireless, Inc. Three Months ended
September 30, 1996 and 1997 and Nine Months ended September 30, 1996 and 1997....................... 4
Statement of Cash Flows - For the Period since Inception (May 22, 1997)
Through September 30, 1997.......................................................................... 5
Notes to Financial
Statements.......................................................................................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................................... 8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings............................................................................... 15
ITEM 2. Changes in Securities........................................................................... 15
ITEM 3. Defaults Upon Senior Securities................................................................. 15
ITEM 4. Submission of Matters to a Vote of Security Holders............................................. 15
ITEM 5. Other Information............................................................................... 15
ITEM 6. Exhibits and Reports on Form 8-K................................................................ 15
SIGNATURES................................................................................................. 16
</TABLE>
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PRICE COMMUNICATIONS WIRELESS, INC.
BALANCE SHEET
SEPTEMBER 30, 1997
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 188,675
-----------
Total current assets 188,675
Deferred financing, at cost less accumulated amortization of $148 5,132
-----------
Total assets $ 193,807
===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Accrued interest $ 4,627
-----------
Total current liabilities 4,627
Long-term debt 175,000
Due to Price Communications Corporation 16,767
-----------
Total liabilities 196,394
-----------
Shareholder's Equity:
Common stock, par value $.01 per share; authorized 3,000
shares; outstanding 100 shares
Additional paid-in-capital
Deficit (2,587)
-----------
Total shareholder's equity (2,587)
-----------
Total liabilities and shareholder's equity $ 193,807
===========
See accompanying notes to financial statements
1
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PALMER WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
(Unaudited)
DECEMBER 31,
1996
------------
Current Assets
Cash and cash equivalents $ 1,698
Trade accounts receivables, net of
allowance for doubtful accounts 18,784
Receivables from other cellular carriers 1,706
Other receivables -
Deferred income taxes 830
Prepaid expenses 2,313
Inventory 5,106
------------
Total Current Assets 30,437
Net property, plant and equipment 132,438
Licenses, net of amortization 375,808
Other intangible assets and other assets,
at cost less accumulated amortization 11,259
------------
Total Assets $ 549,942
============
Current Liabilities
Notes payable $ 1,366
Current installment of long-term debt 5,296
Accounts payable 10,394
Accrued acquisition costs -
Purchase price payable -
Income taxes payable -
Accrued expenses 8,399
Other liabilities 4,686
------------
Total current liabilities 30,141
Long-term debt 337,000
Deferred income taxes 11,500
Minority interests 6,371
------------
Total liabilities 385,012
Stockholders' equity 164,930
------------
Total liabilities and stockholders' equity $ 549,942
============
See accompanying notes to financial statements
2
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PRICE COMMUNICATIONS WIRELESS, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD SINCE INCEPTION (MAY 22, 1997)THROUGH SEPTEMBER 30,1997
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
Interest income $ 2,158
Interest expense (4,627)
Amortization (118)
-------------
Net loss $ (2,587)
=============
See accompanying notes to financial statements
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PALMER WIRELESS, INC. AND SUBSIDIARIES
CONSOLIDATED STAEMENTS OF OPERATIONS
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------------------- ---------------------------------
1997 1996 1997 1996
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Revenue:
Service $ 45,983 $ 37,459 $ 134,123 $ 107,664
Equipment sales and installation 2,525 2,110 7,613 6,349
------------- ------------ ------------- -------------
Total revenue 48,508 39,569 141,736 114,013
------------- ------------ ------------- -------------
Operating expenses:
Engineering, technical and
other direct 7,745 5,558 23,301 17,961
Cost of equipment 5,055 3,874 16,111 12,271
Selling, general and administrative 13,811 11,865 41,014 33,842
Depreciation and amortization 8,184 6,295 23,313 18,167
------------- ------------ ------------- -------------
Total operating expenses 34,795 27,592 103,739 82,241
Operating Income (loss) 13,713 11,977 37,997 31,772
------------- ------------ ------------- -------------
Other income (expense):
Interest expense, net (8,354) (7,649) (24,468) (23,654)
Other (expense) income, net 46 (183) 208 (242)
------------- ------------ ------------- -------------
Total other expense (8,308) (7,832) (24,260) (23,896)
Income before minority interest & taxes 5,405 4,145 13,737 7,876
Minority interest (528) (539) (1,310) (1,562)
------------- ------------ ------------- -------------
Income before taxes 4,877 3,606 12,427 6,314
Income taxes - (630) - (1,578)
------------- ------------ ------------- -------------
Net income $ 4,877 $ 2,976 $ 12,427 $ 4,736
============= ============ ============= =============
Net income per share of common stock $ 0.17 $ 0.10 $ 0.45 $ 0.19
============= ============ ============= =============
Average shares outstanding 27,957,519 28,580,278 27,826,080 25,492,054
============= ============ ============= =============
</TABLE>
See accompanying notes to financial statements
4
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PRICE COMMUNICATIONS WIRELESS, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD SINCE INCEPTION (MAY 22, 1997) THROUGH SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,587)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization of deferred financing costs (118)
Increase in accrued interest 4,627
---------------
Net cash provided by operating activities 1,922
---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
---------------
Net cash provided by investing activities -
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 169,986
Advances from affiliate 16,767
---------------
Net cash provided by financing activities 186,753
---------------
Net increase in cash and cash equivalents 188,675
CASH AND CASH EQUIVALENTS, beginning of period -
---------------
CASH AND CASH EQUIVALENTS, end of period $ 188,675
===============
</TABLE>
See accompanying notes to financial statements
5
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PRICE COMMUNICATIONS WIRELESS, INC.
Notes to Financial Statements
(Unaudited)
Operations
Price Communications Wireless, Inc. ("PCW" or "Company"), a wholly-owned
subsidiary of Price Communications Cellular Holdings, Inc. ("PCCH"), which is an
indirect subsidiary of Price Communications Corporation ("PCC"), was
incorporated on May 22, 1997 to effect the acquisition (the "Acquisition") of
Palmer Wireless, Inc. ("Palmer"). In July 1997, to fund a portion of
the Acquisition, PCW issued $175 million aggregate principal amount of 11.75%
Senior Subordinated Notes due 2007 (the "Notes"). PCW had no assets, liabilities
or operations, other than those associated with the issuance of the Notes, prior
to the Acquisition and accordingly financial statements have been presented for
Palmer.
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed financial statements have been prepared by the
Company without audit, in accordance with the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the
statements reflect all adjustments necessary for a fair presentation of the
results for the interim periods. All such adjustments are of a normal,
recurring nature. The results of operations for any interim period are not
necessarily indicative of the results for the year.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amount reported in its consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with
maturities of three months or less at the time of purchase to be cash
equivalents.
DEFERRED FINANCING COSTS
Deferred financing costs are being amortized by the straight-line method over
ten years, the life of the related debt.
LONG-TERM DEBT
In July 1997, the Company issued $175 million of 11.75% Senior Subordinated
Notes ("Notes") due July 15, 2007 with interest payable semi-annually commencing
January 15, 1998. The Notes contain covenants that restrict the payment of
dividends, incurrence of debt and sale of assets. The carrying value of the
Notes approximates fair value as of September 30, 1997.
SUBSEQUENT EVENT
On October 6, 1997, PCW acquired all the outstanding shares of Palmer, including
all outstanding options and rights under Palmer's employee and director stock
purchase plans, for an aggregate purchase price of $486 million. In addition,
PCW agreed to repay the outstanding indebtedness of Palmer of approximately $378
million. In connection with this transaction, PCW entered into an agreement to
sell, at the effective time of the Acquisition, Palmer's Fort Myers, Florida MSA
for $168 million (the "Fort Myers Sale") and planned to sell its Georgia-1 RSA
for $25 million (the "GA-1 Sale"). The proceeds of the Fort Myers Sale and the
GA-1 Sale were used to finance a portion of the Acquisition.
In August 1997, PCCH issued 153,400 units, consisting of Notes and Warrants, in
exchange for $80 million. The Notes accrete at a rate of 13.5%, compounded
semi-annually, to an aggregate principal amount of approximately $153.4 million
by August 1, 2002. Cash interest will not commence to accrue on the Notes prior
to August 2, 2002. Commencing on February 1, 2003, cash interest on the Notes
will be payable, at a rate of 13.5% per annum, payable semi-annually. The Notes
will be redeemable at the option of the PCCH, in whole or in part, at any time
after August 1, 1998 in cash at the redemption price set forth in the offering
memorandum, plus accrued and unpaid interest, if any, thereon to the redemption
date; provided that the trading price of the common stock, par value $0.01 per
share of PCC shall equal or exceed certain levels. The Notes mature on August
1, 2007 and contain covenants that restrict payments of dividends, incurrence of
debt and sale of assets. The Warrants have been assigned a value of $4.288
million, which amount is accounted for as original issue discount, resulting in
an effective interest rate of approximately 14.13% per annum. The fair value of
the Notes was estimated as $77.327 million as of September 30, 1997.
In October 1997, PCW entered into a credit agreement ("Credit Agreement") with a
syndicate of banks, financial institutions and other "accredited investors"
providing for loans of up to $525 million. The Credit Agreement includes a $325
million term loan facility and a $200 million revolving credit facility. The
term loan facility is comprised of tranche A term loans of up to $100 million,
which have a maturity of eight years, and tranche B terms loans of up to $225
million, which have a maturity of nine years. The revolving credit facility
will terminate eight years after the closing date of the Credit Agreement. The
Credit Agreement bears interest at the alternate base rate, as defined in the
Credit Agreement, or the reserve adjusted Euro-Dollar rate plus, in each case,
applicable margins of (i) in the case of trancHe A term loans and revolving
loans (x) 2.5% for Euro-Dollar rate loans and (y) 1.5% for base rate loans and
(ii) in the case of tranche B term loans (x) 2.75 for Euro-Dollar rate loans and
(y) 1.75% for base rate loans. The Credit Agreement contains restrictions on the
Company's ability to engage in certain activities, including limitations on
incurring additional indebtedness, liens and investments, payment of dividends
and the sale of assets. Price Communications Cellular, Inc., a wholly-owned
subsidiary of PCC and the parent company of PCCH is a guarantor of the Credit
Agreement.
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The acquisition was accounted for using the purchase method of accounting.
Accordingly, the purchase price has been allocated to net assets acquired and
the liabilities assumed based on their estimated fair market values on the date
of acquisition. The excess of purchase price over assets acquired has been
allocated to FCC licenses and will be amortized on a straight-line basis over 40
years.
Credit Facility
On September 30, 1997 the Company entered into a credit facility (the "Credit
Facility") provided by a syndicate of banks, financial institutions and other
accredited investors (as defined by Regulation D of the Securities Act). The
Credit Facility includes a $325 million term loan facility and a $200 million
revolving credit facility. On October 6, 1997, the Company borrowed $325
million under the term loan facility and $120 million under the revolving credit
facility.
The Credit Facility bears interest at a floating rate between .25% and 1.75%
above the lenders' prime borrowing rate or between 1.25% and 2.75% above the
lenders' Euro-dollar base rate, depending on the ratio of the consolidated total
debt to consolidated total earnings before interest, taxes, depreciation and
amortization of the Company and its subsidiaries. The Credit Facility is
secured by liens on substantially all of the real and personal property of the
Company and its subsidiaries and contains limitations on, among other things,
the ability of the Company to pay dividends or incur additional indebtedness and
requires the Company to maintain compliance with certain financial ratios.
Other Receivables
Other receivables includes the proceeds to be received from the sale of Palmer's
Fort Myers MSA and Georgia - 1 RSA and the equity contribution of Price
Communications Cellular Holdings, Inc. and Price Communications Corporation.
Accrued Acquisition Costs
Accrued acquisition costs represent all the cost directly associated with the
Acquisition, including professional fees, registration fees and severance
payments.
Purchase Price Payable
The purchase price payable represents the cost to acquire all the outstanding
shares of Palmer, including all outstanding options and rights under Palmer's
employee and director stock purchase plans. The purchase price was paid, in its
entirety, on October 6, 1997.
8. Income Taxes Payable
Income taxes payable represents the current taxes payable attributable to the
sale of the Fort Myers MSA and Georgia 1 RSA. The Company has a tax planning
strategy which it believes will avoid the payment of these taxes.
Long Term Debt
On July 10, 1997 the Company issued $175 million aggregate principal amount of
11 3/4% Senior Subordinated Notes due 2007 (the "Notes"). Interest on the
Notes is payable semi-annually commencing on January 15, 1998. The Notes are
unsecured obligations of the Company and are subordinate in right of payment to
senior indebtedness of the Company, including indebtedness under the Credit
Facility. The indenture under which the Notes were issued imposes certain
limitations on, among other things, the ability of the Company and its
subsidiaries to incur indebtedness and to pay dividends to Price Communications
Corporation.
-7-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
Price Communications Wireless, Inc. ("PCW" or "Company"), a wholly-
owned subsidiary of Price Communications Cellular Holdings, Inc. ("PCCH"), which
is an indirect subsidiary of Price Communications Corporation ("PCC"), was
incorporated on May 22, 1997 to effect the acquisition on October 6, 1997 (the
"Acquisition") of Palmer Wireless, Inc. ("Palmer"). In July 1997, to fund a
portion of the Acquisition, PCW issued $175 million aggregate principal amount
of 11.75% Senior Subordinated Notes due 2007 (the "Notes"). PCW had no
assets, liabilities or operations, other than those associated with the issuance
of the Notes, prior to the Acquisition. For the period since inception through
September 30, 1997 PCW's operations consisted of interest income, interest
expense and amortization expense; accordingly, the following discussion and
analysis of market ownership and results of operations have been presented for
Palmer.
Palmer is engaged in the construction, development, management and
operation of cellular telephone systems in the southeastern United States. As of
September 30, 1997, Palmer provided cellular telephone service to 337,345
subscribers in Alabama, Florida, Georgia, and South Carolina in a total of 18
licensed service areas, composed of nine Metropolitan Service Areas ("MSAs") and
nine Rural Service Areas ("RSAs"), with an aggregate estimated population of
3.9 million. Palmer sells its cellular telephone service as well as a full line
of cellular products and accessories principally through its network of retail
stores. Palmer markets all of its products and services under the nationally
recognized service mark CELLULAR ONE.
MARKET OWNERSHIP
The following is a summary of Palmer's ownership interest in the
cellular telephone system in each licensed service area to which the Company
provided service at December 31, 1996 and September 30, 1997.
Cellular Service Area December 31, September 30,
--------------------- 1996 1997
Albany, Georgia..................... 82.7% 82.7%
Augusta, Georgia.................... 100.0 100.0
Columbus, Georgia................... 84.9 85.2
Macon, Georgia...................... 99.1 99.2
Savannah, Georgia................... 98.5 98.5
Dothan, Alabama..................... 92.3 92.5
Montgomery, Alabama................. 91.9 92.8
Georgia 1 - RSA..................... 100.0 100.0
Georgia 6 - RSA..................... 94.8 95.1
Georgia 7 - RSA..................... 100.0 100.0
Georgia 8 - RSA..................... 100.0 100.0
Georgia 9 - RSA..................... 100.0 100.0
Georgia 10 - RSA.................... l00.0 100.0
Georgia 12 - RSA.................... 100.0 100.0
Georgia 13 - RSS.................... N/A 82.7
Alabama 8 - RSA.................... 100.0 100.0
Fort Myers, 99.0 99.0
Florida..........................
Panama City, 77.9 78.4
Florida.....................
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On February 1, 1997, one of Palmer's majority-owned subsidiaries acquired
the assets of and the license to operate the non-wireline cellular telephone
system serving Georgia Rural Service Area Market No. 383, otherwise known as
Georgia-13 RSA, for a total purchase price of $31.5 million, subject to certain
adjustments.
In connection with the acquisition of Palmer by the Company, the Fort Myers
property was sold on October 6, 1997 and the Georgia-1 RSA was sold in December,
1997.
RESULTS OF OPERATIONS
The following table sets forth for the Palmer, for the periods indicated,
the percentage, which certain amounts bear to total revenue.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1997 1996 1997
Revenue:
Service........................ 94.9% 94.8% 94.6% 94.6%
Equipment sales and installation 5.1 5.2 5.4 5.4
Total revenue............. 100.0 100.0 100.0 100.0
Operating expenses:
Engineering, technical and
other direct:
Engineering and technical
(1)...................... 7.6 7.8 8.0 8.0
Other direct costs of
services (2)............. 9.8 8.1 10.7 8.4
Cost of equipment (3).......... 9.4 10.4 10.3 11.4
Selling, general and
administrative:
Sales and marketing (4)... 7.5 8.2 8.0 8.4
Customer service (5)...... 6.1 6.0 5.7 6.3
General and
administrative (6)....... 15.2 14.3 15.0 14.2
Depreciation and amortization.. 15.3 16.9 15.4 16.5
Total operating expenses.. 70.9 71.7 73.1 73.2
Operating income............... 29.1% 28.3% 26.9% 26.8%
Operating income before
depreciation
and amortization (7)...... 44.4% 45.2% 42.3% 43.3%
- -----------------
(1) Consists of costs of cellular telephone network, including inter-trunk
costs, span-line costs, cell site repairs and maintenance, cell site
utilities, cell site rent, engineers' salaries and benefits and other
operational costs.
(2) Consists of net costs of roaming, costs of long distance, costs of
interconnection with wireline telephone companies and other costs of
services.
(3) Consists primarily of the costs of the cellular telephones and accessories
sold.
(4) Consists primarily of salaries and benefits of sales and marketing
personnel, employee and agent commissions and advertising and promotional
expenses.
(5) Consists primarily of salaries and benefits of customer service personnel
and costs of printing and mailing billings generated in-house.
(6) Includes salaries and benefits of general and administrative personnel and
other overhead expenses.
(7) Operating income before depreciation and amortization should not be
considered in isolation or as an alternative to net income, operating
income or any other measure of performance under generally accepted
accounting principles. The Company believes that operating income before
depreciation and amortization is viewed as a relevant supplemental measure
of performance in the cellular telephone industry.
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Three Months Ended September 30, 1997 Compared to Three Months Ended September
30, 1996
Revenue. Service revenues totaled $46.0 million for the third quarter of
1997, an increase of 17.7% over $39.0 million for the third quarter of 1996.
This increase was primarily due to a 31.2% increase in the average number of
subscribers to 329,556 for the third quarter of 1997 versus 251,117 for the
third quarter of 1996. The increase in subscribers is the result of internal
growth, which Palmer attributes primarily to its strong sales and marketing
efforts, and the recent acquisitions.
Average monthly revenue per subscriber decreased 6.4% to $46.51 for the
third quarter of 1997 from $49.70 for the third quarter of 1996. This is due to
a common trend in the cellular telephone industry, where, on average, new
customers use less airtime than existing subscribers. Therefore, service
revenues generally do not increase proportionately with the increase in
subscribers. In addition, the decline reflects more competitive rate plans
introduced into Palmer's markets.
Equipment sales and installation revenue, which consists primarily of
cellular subscriber equipment sales, increased to $2.5 million for the third
quarter of 1997 from $2.1 million for the third quarter of 1996. As a
percentage of total cellular revenue, equipment sales and installation revenue
increased to 5.2% for 1997 from 5.1% for 1996, reflecting the increased
recurring revenue base as well as lower cellular equipment prices charged to
customers.
Operating Expenses. Engineering and technical expenses increased by 20.9%
to $3.8 million for the third quarter of 1997 from $3.1 million in the third
quarter of 1996, due primarily to the increase in subscribers and the recent
acquisitions. As a percentage of revenue, engineering and technical expenses
increased to 7.8% from 7.6% for the third quarter of 1997 and 1996,
respectively. The increase from 1996 to 1997 relates to the fixed costs
associated with additional cell sites constructed and obtained in recent
acquisitions. Palmer expects engineering and technical expenses to decrease as
a percentage of revenue due to its large component of fixed costs. There can be
no assurance, however, that this forward-looking statement will not differ
materially from actual results due to unforeseen engineering and technical
expenses.
Other direct costs of services remained consistent at $4.0 million for the
third quarter of 1997 and 1996. As a percentage of revenue, other direct costs
of service decreased to 8.1% from 9.8%, reflecting the decrease in
interconnection costs as a result of Palmer's renegotiations of interconnection
agreements with the local exchange carriers ("LECs") in most of their markets.
The cost of equipment increased 30.5% to $5.1million for the third quarter
of 1997 from $3.9 million for the third quarter of 1996, due primarily to the
increase in gross subscriber activations for the same period. The equipment
sales margin increased to (100.0%) for the third quarter of 1997 from (83.6%)
for the third quarter of 1996. This increase in margin is a result of efforts to
address market competition and improve market share. Palmer sold more telephones
below cost in the third quarter of 1997 than in the same period of 1996.
Sales and marketing costs increased 28.0% to $4.0 million for the third
quarter of 1997 from $3.1 million for the same period in 1996. This increase is
primarily due to the 6.7% increase in gross subscriber activations and the
resulting increase in commissions and higher advertising costs. As a percentage
of total revenue, sales and marketing costs increased to 8.2% from 7.5% for the
third quarter of 1997 and 1996, respectively. The increase was due to increased
advertising costs in response to market competition. Palmer's cost to add a net
subscriber, including loss on telephone sales, increased to $597 for the third
quarter of 1997 from
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<PAGE>
$416 for the third quarter of 1996. This increase in cost to add a net
subscriber was caused primarily by increased losses from Palmer's sales of
cellular telephones and an increase in commissions
Customer service costs increased 15.8% to $2.9 million for the third
quarter of 1997 from $2.5 million for the third quarter of 1996. As a percentage
of revenue, customer service costs decreased to 6.0% from 6.1% for the third
quarter of 1997 and 1996, respectively. The decrease was due primarily to higher
revenue in the third quarter of 1997 than the same period in 1996, while costs
remained relatively the same.
General and administrative expenditures increased 10.8% to $6.9 million for
the third quarter of 1997 from $6.3 million for the third quarter of 1996, due
primarily to the increase cost associated with supporting recent acquisitions.
General and administrative expenses decreased as a percentage of total revenue
to 14.3% in the third quarter of 1997 from 15.2% in the third quarter of 1996.
As Palmer continues to add more subscribers, and generates associated revenue,
general and administrative expenses should decrease as a percentage of total
revenues. There can be no assurance, however, that this forward-looking
statement will not differ materially from actual results due to unforeseen
general and administrative expenses and other factors.
Depreciation and amortization increased 30.0% to $8.2 million for the third
quarter of 1997 from $6.3 million for the third quarter of 1996. This increase
was primarily due to the depreciation and amortization associated with recent
acquisitions and additional capital expenditures. As a percentage of revenue,
depreciation and amortization increased to 16.9% from 15.3% for the third
quarter of 1997 compared to the third quarter of 1996.
Operating income increased 14.5% to $13.7 million in the third quarter of
1997, from $12.0 million for the third quarter of 1996. This improvement in
operating results is attributable primarily to increases in revenue which
exceeded increases in operating expenses.
Net Interest Expense, Income Taxes and Net Income. Net interest expense
increased 9.2% to $8.4 million for the third quarter of 1997 versus $7.6 million
for the third quarter of 1996.
Income tax expense was $2.5 million in the third quarter of 1997 and $0.6
million in the third quarter of 1996 due to the increase in income before income
taxes in 1997 and the fact that all remaining net operating loss carry forwards
were recognized for financial statement purposes in 1996.
Net income for the third quarter of 1997 was $2.4 million, or $0.09 per
share, compared to net income of $3.0 million, or $0.10 per share, for the third
quarter of 1996. The decrease in net income is primarily attributable to
increases in income tax expense.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30,
1996
Revenue. Service revenues totaled $134.1 million for the nine months ended
September 30, 1997, an increase of 20.0% over $111.8 million for the nine months
ended September 30, 1996. This increase was primarily due to a 34.4% increase in
the average number of subscribers to 313,611 as of September 30, 1997 versus
233,261 as of September 30, 1996. The increase in subscribers is the result of
internal growth, which Palmer attributes primarily to its strong sales and
marketing efforts, and recent acquisitions.
Average monthly revenue per subscriber decreased 7.3% to $47.52 for the
nine months ended September 30, 1997 from $51.28 for the same period in 1996.
This is in part due to the trend, common in the cellular telephone industry,
where, on average, new subscribers are using less airtime than existing
subscribers are. Therefore, service revenues generally do not increase
proportionately with the increase in subscribers. In addition, the decline
reflects more competitive rate plans introduced into Palmer's markets.
Equipment sales and installation revenue, which consists primarily of
cellular subscriber equipment sales, increased by 19.9% to $7.6 million for the
nine months ended September 30, 1997 compared to $6.3 million for the same
period in 1996. The increase is due to the 18.6% increase in gross subscriber
activations in the nine
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months ended September 30, 1997 compared to the same period in 1996. As a
percentage of revenue, equipment sales and installation revenue remained at 5.4%
for the nine month ended September 30, 1997 and for the same period in 1996.
Operating Expenses. Engineering and technical expenses increased by 21.2%
to $11.5 million for the nine month ended September 30, 1997 from $9.5 million
in the same period 1996, due primarily to the increase in subscribers and recent
acquisitions. As a percentage of revenue, engineering and technical expenses
remained constant at 8.0% for the nine-month ended September 30, 1997 and 1996,
respectively. Palmer expects engineering and technical expenses to decrease as
a percentage of revenue due to its large component of fixed costs. There can be
no assurance, however, that this forward-looking statement will not differ
materially from actual results due to unforeseen engineering and technical
expenses.
Other direct costs of services decreased 6.3% to $11.8 million for nine
months ended September 30, 1997 from $12.6 million for the same period in 1996
reflecting the decrease in interconnection costs as a result of Palmer's
renegotiations of interconnection agreements with the local exchange carriers
("LECs") in most of their markets. As a percentage of revenue, these costs of
service decreased to 8.4% from 10.7%, reflecting improved interconnection
agreements with LECs, as well as efficiencies gained from the growing subscriber
base.
The cost of equipment increased 31.3% to $16.1 million for the nine months
ended September 30, 1997 from $12.3 million for the same period in 1996, due
primarily to the increase in gross subscriber activations for the same period.
The equipment sales margin decreased to (111.6%) for the nine months ended
September 30, 1997 from (93.3%) for the same period in 1996. In an effort to
address market competition and improve market share, Palmer sold more telephones
below cost in the first half of 1997, on average, than in the same period of
1996.
Sales and marketing costs increased 26.9% to $11.9 million for the nine
months ended September 30, 1997 from $9.4 million for the same period in 1996.
This increase is primarily due to the 18.6% increase in gross subscriber
activations and the resulting increase in commissions. As a percentage of total
revenue, sales and marketing costs increased to 8.4% from 8.0% for the nine
months ended September 30, 1997 and 1996, respectively. Palmer's cost to add a
net subscriber, including loss on telephone sales, increased to $510 for the
nine months ended September 30, 1997 from $389 for the same period in 1996.
This increase in cost to add a net subscriber was caused primarily by increased
losses from Palmer's sales of cellular telephones and an increase in commissions
and advertising costs.
Customer service costs increased 31.9% to $8.9 million for the nine months
ended September 30, 1997 from $6.8 million for the same period in 1996. As a
percentage of revenue, customer service costs increased to 6.3% from 5.7% for
the nine months ended September 30, 1997 and 1996, respectively. The increase
was due primarily to higher costs for billing support services.
General and administrative expenditures increased 14.1% to $20.2 million
for the nine months ended September 30, 1997 from $17.7 million for the same
period in 1996, due primarily to the increase in the costs associated with
supporting recent acquisitions. General and administrative expenses decreased as
a percentage of revenue to 14.2% in the nine months ended September 30, 1997
from 15.0% for the same period in 1996. As Palmer continues to add more
subscribers, and generates associated revenue, general and administrative
expenses should decrease as a percentage of total revenues. There can be no
assurance, however, that this forward-looking statement will not differ
materially from actual results due to unforeseen general and administrative
expenses and other factors.
Depreciation and amortization increased 28.3% to $23.3 million for the nine
months ended September 30, 1997 from $18.2 million for the same period in 1996.
This increase was primarily due to the depreciation and amortization associated
with recent acquisitions and additional capital expenditures. As a percentage
of revenue, depreciation and amortization increased to 16.5% from 15.4% for the
nine months ended September 30, 1997 and 1996, respectively.
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Operating income increased 19.6% to $38.0 million in the nine months ended
September 30, 1997, from $31.8 million for the same period in 1996. This
improvement in operating results is attributable primarily to increases in
revenue which exceeded increases in operating expenses.
Net Interest Expense, Income Taxes and Net Income. Net interest expense
increased 3.4% to $24.5 million from $23.7 million for the nine months ended
September 30, 1997 and 1996.
Income tax expense was not provided for the three and nine months ended
September 30, 1997 as Palmer expects to recognize sufficient interest expense as
a result of the acquisition to eliminate all income taxes. Palmer recognized
$0.6 million and $1.6 million for the same periods in 1996.
Net income for the nine months ended September 30, 1997 was $12.4 million,
or $0.45 per share, compared to net income of $4.7 million, or $0.19 per share,
for the same period in 1996. The increase in net income is primarily
attributable to increases in revenue which exceeded increases in operating
expenses and to the elimination of income tax expense.
LIQUIDITY AND CAPITAL RESOURCES OF PCW
On May 23, 1997, Price Communications Wireless, Inc. ("PCW" or
the"Company"), a wholly-owned indirect subsidiary of Price Communications
Corporation ("PCC"), and Palmer Wireless, Inc. ("Palmer") entered into an
Agreement and Plan of Merger (the "Palmer Merger Agreement") which provides,
among other things, for the merger of PCW with and into Palmer, with Palmer as
the surviving corporation (the "Palmer Merger"). Pursuant to the Palmer Merger
Agreement, PCC has agreed to acquire each issued and outstanding share of common
stock of Palmer for a purchase price of $17.50 per share in cash and to purchase
outstanding options and rights under Palmer's employee and director stock
purchase plans for an aggregate purchase price of $486 million. In addition PCC
has agreed to repay the outstanding indebtedness of Palmer of approximately $378
million. In connection with this transaction, PCW agreed to sell at the
effective time of the Palmer Merger, Palmer's Fort Myers, Florida MSA for $168
million (which generated proceeds to the Company of approximately $166 million)
(the "Fort Myers Sale") and plans to sell its Georgia 1 RSA for approximately
$25 million (the GA-1 Sale"). The Fort Myers Sale and the GA-1 Sale, together
with the Palmer Merger collectively shall be the "Acquisition". The proceeds of
the Fort Myers Sale and the GA-1 Sale will be used to finance a portion of the
acquisition.
In order to fund the Acquisition and pay related fees and expenses, PCW
issued (the "PCW Offering") $175 million aggregate principal amount of 11 3/4%
Senior Subordinated Notes due 2007 (the "PCW Notes") and entered into a
syndicated senior loan facility providing for term loan borrowings in the
aggregate principal amount of approximately $325 million and revolving loan
borrowings of $200 million (the "New Credit Facility"). Interest on the PCW
Notes is payable semi-annually commencing on January 15, 1998. The PCW Notes are
unsecured obligations of PCW and are subordinate in right of payment to senior
indebtedness of PCW, including indebtedness under the New Credit Facility. The
indenture under which the PCW notes were issued imposes certain limitations on,
among other things, the ability of PCW and its subsidiaries to incur
indebtedness and to pay dividends to PCC. Upon certain Acquisitions of more than
50% of the ownership of PCC's equity and upon change in the majority of PCC's
Board of Director's over any 12 month period that was not approved by a majority
of the directors at the beginning of such 12 month period, the holders of the
PCW Notes will have the right to cause PCW Notes to be repurchased at 101% of
the principal amount thereof, plus accrued interest and unpaid interest thereon.
PCW has granted certain registration rights with respect to the PCW Notes.
At the effective time of the Palmer Merger, PCW borrowed all term loans
available under the New Credit Facility and approximately $120 million of the
revolving loans. The remaining revolving loans will, subject to a borrowing
base and certain other conditions, be available to fund the working capital
requirements of PCW. On October 6, 1997, the Company executed the New Credit
Facility. The New Credit Facility bears interest at a floating rate between
.25% and 1.75% above the lenders' prime borrowing rate or between 1.25% and
2.75% above the lenders' Euro-dollar base rate, depending on the ratio of the
consolidated total debt to consolidated total
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earnings before interest, taxes, depreciation and amortization of the Company
and its subsidiaries. The New Credit Facility is secured by liens on
substantially all of the real and personal property of the Company and its
subsidiaries and contains limitations on, among other things, the ability of the
Company to pay dividends or incur additional indebtedness and requires the
Company to maintain compliance with certain financial ratios.
In order to provide financing for the Acquisition and the redemption of the
PIK Preferred Stock and PIK Warrants, held by NatWest Capital Markets Limited,
Price Communications Cellular Holdings, Inc., a wholly-owned subsidiary of PCC
and the direct parent of PCW ("Cellular Holding") has issued (the"Cellular
Holdings Offering") units consisting of $153.4 million in aggregate principal
amount of its 13 1/2% Senior Secured Discount Notes due 2007 (the "Cellular
Holdings Notes") together with warrants to purchase 527,696 shares of Common
Stock at an exercise price of $0.01 per share. The issue price of the Cellular
Holdings Notes (approximately $80 million in the aggregate) represents yield to
maturity of 13 1/2%; cash interest will not begin to accrue on the Cellular
Holdings Notes prior to August 2, 2002 and will first be payable on February 1,
2003. Approximately $47.5 million of the proceeds of the Cellular Holdings
Offering was used to fund the Acquisition , while the remainder was used to
redeem the PIK Preferred Stock and PIK Warrants. The Cellular Holdings Notes are
guaranteed by a subsidiary of PCC (which in itself does not have any assets or
operations) and are secured by a pledge of the Stock of Cellular Holdings to
repurchase such notes at 101% of the accrued value thereof upon certain changes
of control events parallel to those applicable to the PCW Notes. The indenture
under which the Cellular Holdings Notes were issued, contains restrictions on,
among other things, the payment of dividends and the incurrance of indebtedness.
The holders of the Cellular Holdings Notes have certain registration rights.
INFLATION
The Company believes that inflation affects its business no more than it
generally affects other similar businesses.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Pro Forma Financial Information -- previously reported by Price
Communications Corporation.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------- -----------
10.1 Fort Myers Sale Agreement. Incorporated by reference to
Form 4 filed on November 7, 1997.
10.2 Asset Purchase Agreement dated October 21, 1997 by and
between MJ Cellular Company, L.L.C., PCC and the Company.
Incorporated by reference to Form S-4 filed on November
7, 1997.
10.3 Employment Agreement with William J. Ryan. Incorporated
by reference to Form S-4 filed on November 7, 1997.
10.4 Employment Agreement with M. Wayne Wisehart. Incorporated
by reference to Form S-4 filed on November 7, 1997.
10.5 Employment Agreement with K. Patrick Meehan.Incorporated
by reference to Form S-4.
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has fully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRICE COMMUNICATIONS WIRELESS, INC.
Date: February 13, 1998 By: /s/ Robert Price
------------------------
Robert Price
Chairman of the Board
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