<PAGE>
_______________________________________________________________________________
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 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. AND SUBSIDIARIES
(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 November 7,
1997 was 100.
_______________________________________________________________________________
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets- December 31, 1996 and September 30, 1997.... 1
Condensed Consolidated Statements of Operations - Three Months ended
September 30, 1996 and 1997 and nine months ended September 30, 1996 and 1997..... 2
Condensed Consolidated Statements of Cash Flows - Nine months ended September 30,
1996 and 1997...................................................................... 3
Notes to Condensed Consolidated Financial Statements............................... 4
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... 6
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.................................................................. 13
ITEM 2. Changes in Securities.............................................................. 13
ITEM 3. Defaults Upon Senior Securities.................................................... 13
ITEM 4. Submission of Matters to a Vote of Security Holders................................ 13
ITEM 5. Other Information.................................................................. 13
ITEM 6. Exhibits and Reports on Form 8-K................................................... 13
SIGNATURES.................................................................................... 14
</TABLE>
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
($ in thousands)
(Unaudited)
December 31, September 30,
1996 1997
------------ -------------
(Predecessor) (Successor)
Current Assets
Cash and cash equivalents $ 1,698 $ 175,213
Trade accounts receivables, net of
allowance for doubtful accounts 18,784 15,956
Receivables from other cellular carriers 1,706 3,102
Other receivables -- 319,183
Deferred income taxes 830 930
Prepaid expenses 2,313 2,344
Inventory 5,106 1,811
---------- ----------
Total Current Assets 30,437 518,539
Net property, plant and equipment 132,438 145,441
Licenses, net of amortization 375,808 799,081
Other intangible assets and other assets,
at cost less accumulated amortization 11,259 6,054
========== ==========
Total Assets $ 549,942 $1,469,115
========== ==========
Current Liabilities
Notes payable $ 1,366 $ --
Current installment of long-term debt 5,296 --
Accounts payable 10,394 9,298
Accrued acquisition costs -- 13,741
Purchase price payable -- 486,446
Income taxes payable -- 50,900
Accrued expenses 8,399 14,323
Other liabilities 4,686 4,360
---------- ----------
Total current liabilities 30,141 579,068
Long-term debt 337,000 560,160
Deferred income taxes 11,500 190,851
Minority interests 6,371 7,445
---------- ----------
Total liabilities 385,012 1,337,524
Stockholders' equity 164,930 131,591
---------- ----------
$ 549,942 $1,469,115
========== ==========
See accompanying notes to condensed consolidated financial statements
-1-
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months
ended September 30,
-------------------------------------------------------------------
------------------- -------------------- --------------------
1997 1997 1996
------------------- -------------------- --------------------
(Successor) (Predecessor)
<S> <C> <C> <C>
Revenue:
Service -- $ 45,983 $ 37,459
Equipment sales and installation -- 2,525 2,110
------------ ------------ ------------
Total revenue -- 48,508 39,569
------------ ------------ ------------
Operating expenses:
Engineering, technical and other direct -- 7,745 5,558
Cost of equipment -- 5,055 3,874
Selling, general and administrative -- 13,811 11,865
Depreciation and amortization 118 8,184 6,295
------------ ------------ ------------
Total operating expenses 118 34,795 27,592
------------ ------------ ------------
Operating Income (loss) (118) 13,713 11,977
------------ ------------ ------------
Other income (expense):
Interest expense, net (2,684) (8,354) (7,649)
Other (expense) income, net -- 46 (183)
------------ ------------ ------------
Total other expense (2,684) (8,308) (7,832)
Income before minority interest& taxes (2,802) 5,405 4,145
Minority interest -- (528) (539)
------------ ------------ ------------
Income before taxes (2,802) 4,877 3,606
Income taxes -- -- (630)
------------ ------------ ------------
Net income (2,802) $ 4,877 $ 2,976
============ ============ ============
Net income per share of common stock $ (28,020.00) $ 0.17 $ 0.10
============ ============ ============
Average shares outstanding 100 27,957,519 28,580,278
============ ============ ============
<CAPTION>
For the nine months
ended September 30,
--------------------------------------------------------------------
-------------------- -------------------- --------------------
1997 1997 1996
-------------------- -------------------- --------------------
(Successor) (Predecessor)
<S> <C> <C> <C>
Revenue:
Service $ -- $ 134,123 $ 107,664
Equipment sales and installation -- 7,613 6,349
------------ ------------ ------------
Total revenue -- 141,736 114,013
------------ ------------ ------------
Operating expenses:
Engineering, technical and other direct -- 23,301 17,961
Cost of equipment -- 16,111 12,271
Selling, general and administrative -- 41,014 33,842
Depreciation and amortization 118 23,313 18,167
------------ ------------ ------------
Total operating expenses 118 103,739 82,241
Operating Income (loss) (118) 37,997 31,772
------------ ------------ ------------
Other income (expense):
Interest expense, net (2,684) (24,468) (23,654)
Other (expense) income, net -- 208 (242)
------------ ------------ ------------
Total other expense (2,684) (24,260) (23,896)
Income before minority interest& taxes (2,802) 13,737 7,876
Minority interest -- (1,310) (1,562)
------------ ------------ ------------
Income before taxes (2,802) 12,427 6,314
Income taxes -- -- (1,578)
========= ============ ============
Net income $ (2,802) $ 12,427 $ 4,736
========= ============ ============
Net income per share of common stock $ (28,020.00) $ 0.45 $ 0.19
========= ============ ============
Average shares outstanding 100 27,826,080 25,492,054
========= ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements
-2-
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
-------------------------------------
1997 1997 1996
--------- --------- ---------
(Sucessor) (Predecessor)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ (2,802) $ 12,427 $ 4,736
--------- --------- ---------
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 118 23,313 18,167
Minority interest share of income -- 1,310 1,562
Deferred income taxes -- -- 809
Loss (gain) on disposal of property -- 7 59
Interest deferred and added to long-term debt -- -- 355
Payment of deferred interest -- (1,514) (1,080)
Decrease (increase) in trade accounts receivble -- 473 (337)
Decrease (increase) in inventory -- 2,800 (553)
Increase (decrease) in accounts payable and accrued expenses 4,626 326 (3,789)
(Increase) decrease in deferred financing costs (5,250) -- --
Change in other accounts -- (351) 1,991
--------- --------- ---------
Total adjustments (506) 26,364 17,184
--------- --------- ---------
Net cash provoded by operating activities (3,308) 38,791 21,920
--------- --------- ---------
Cash flow from investing activities:
Capital expenditures -- (40,757) (30,174)
Proceeds from sale of property and equipment -- 201 4
Purchase of cellular systems -- (31,469) (67,580)
Collection of purchase price adjustment -- -- 2,452
Purchase of minority interests -- (956) (1,854)
Deposits for PCS auction -- -- (5,132)
Increase in other intangibles assets and other assets -- (778) (522)
--------- --------- ---------
Net cash used in investing activities -- (73,759) (102,806)
--------- --------- ---------
Cash flows from financing activities:
Increase in short-term notes payable -- (1,366) 2,964
Repayment of long-term debt -- (3,782) (108,319)
Proceeds from long term debt 175,000 41,000 91,000
Public offering proceeds, net -- -- 94,200
Employee and non-employee director stock option purchase plan -- -- 290
Exercise of stock options -- 999 95
--------- --------- ---------
Net cash provided in financing activities 175,000 36,851 80,230
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 171,692 1,883 (656)
Cash and cash equivalents at the beginning of the period -- 1,698 3,436
========= ========= =========
Cash and cash equivalents at the end of the period $ 171,692 $ 3,581 $ 2,780
========= ========= =========
See accompanying notes to condensed consolidated financial statements
</TABLE>
-3-
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
(UNAUDITED)
1. OPERATIONS
Price Communications Wireless, Inc. ("PCW" or "Company"), a wholly-
owned indirect subsidiary of Price Communications Corporation ("PCC"), was
incorporated on May 22, 1997 to effect the acquisition (the "Acquisition")
of Palmer Wireless, Inc. ("Palmer" or "Predecessor Company") at September
30, 1997. In July 1997, in order to fund a portion of the Acquisition, PCW
issued $175 million aggregate principal amount of 11 3/4% 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 the Predecessor Company.
2. 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.
These statements should be read in conjunction with the Palmer
Wireless, Inc. Form 10-K, as the Predecessor's financial statements
represent the historical results of Palmer.
The computation of net income per share for the Predecessor and
Successor Company are based on the weighted average number of common shares
and, as appropriate, dilutive common equivalent shares outstanding during
the periods presented.
3. THE ACQUISITION
On September 30, 1997 the Company effectively acquired all of 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, PCC agreed to repay the
outstanding indebtedness of Palmer of approximately $378 million. In
connection with this transaction, PCW agreed to enter into an agreement 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 $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. Interest on the PCW Notes is payable semi-
annually commencing on January 15, 1998.
-4-
<PAGE>
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.
4. 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.
5. 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.
6. ACCRUED ACQUISITION COSTS
Accrued acquisition costs represent all the cost directly associated
with the Acquisition, including professional fees, registration fees and
severance payments.
7. 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.
9. 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.
-5-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Price Communications Wireless, Inc. ("Successor Company") is the successor
company to Palmer Wireless, Inc. ("Company" or "Predecessor Company"). The
Company is engaged in the construction, development, management and operation of
cellular telephone systems in the southeastern United States. As of September
30, 1997, the Company 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. The Company sells its cellular telephone service as well as a full
line of cellular products and accessories principally through its network of
retail stores. The Company markets all of its products and services under the
nationally recognized service mark CELLULAR ONE.
MARKET OWNERSHIP
The following is a summary of the Company'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.
<TABLE>
<CAPTION>
<S> <C> <C>
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.......................................... 100.0 100.0
Georgia 12 - RSA.......................................... 100.0 100.0
Georgia 13 - RSA.......................................... 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...................................................
</TABLE>
On February 1, 1997, one of the Company'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 the Company by Price Communications
Wireless, Inc., the Fort Myers property was sold on October 6, 1997 and the
Georgia-1 RSA is to be sold shortly.
-6-
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the Predecessor Company, for the periods
indicated, the percentage, which certain amounts bear to total revenue.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------- -----------
1996 1997 1996 1997
--------- --------- -------------- -----------
<S> <C> <C> <C> <C>
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%
- -----------------
</TABLE>
(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.
-7-
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996 OF PREDECESSOR COMPANY
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 the Company 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 the Company'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. The Company 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 the Company's renegotiation of
interconnection agreements with the local exchange carriers ("LECs") in most of
the Company's 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, the Company 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. The Company's cost to add
a net subscriber, including loss on telephone sales, increased to $597 for the
third quarter of 1997 from $416 for the third quarter of 1996. This increase in
cost to add a net subscriber was caused primarily by increased losses from the
Company'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.
-8-
<PAGE>
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 the Company 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 OF PREDECESSOR COMPANY
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 the Company 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 the Company'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 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.
-9-
<PAGE>
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. The Company 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 the Company's
renegotiation of interconnection agreements with the local exchange carriers
("LECs") in most of the Company's 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, the Company 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. The Company'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 the Company'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 the Company 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.
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.
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<PAGE>
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 the Company expects to recognize sufficient interest
expense as a result of the acquisition to eliminate all income taxes. The
Company 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
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 September 30, 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 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
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<PAGE>
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.
OTHER
Pursuant to an Agreement and Plan of Merger dated May 23, 1997 by and among
Price Communications Corporation ("Price"), Price Communications Wireless, Inc.
and the Company, on October 6, 1997 Price acquired all issued and outstanding
shares of common stock of the Company and outstanding options and rights under
employee and director stock purchase plans for a purchase price of $17.50 per
share in cash.
Following this merger, the common stock of the Company ceased to be
authorized to be quoted on the NASDAQ Stock Market and became eligible for
termination of registration pursuant to Section 12(g)(4) of the Securities
Exchange Act of 1934.
INFLATION
The Company believes that inflation affects its business no more than it
generally affects other similar businesses.
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<PAGE>
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
None.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) Exhibits
Exhibit
Number Description
------ ------------
<S> <C>
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 filed on
November 7, 1997.
(b) Reports on Form 8-K
None.
</TABLE>
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<PAGE>
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: November 14, 1997 By: /s/ Robert Price
----------------------
Robert Price
Chairman of the Board
Date: November 14, 1997 By: /s/ M. Wayne Wisehart
--------------------------
M. Wayne Wisehart
Vice President, Treasurer
and Chief Financial Officer
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