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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q/A
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number
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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
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Securities registered pursuant to Section 12(b) or Section 12(g) of the Act:
None
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 August 10,
1998 was 100.
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<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets- December 31, 1997 and June
30, 1998............................................................. I-1
Condensed Consolidated Statements of Operations - Three months ended
June 30, 1997 and 1998 and six months ended June 30, 1997 and 1998.. I-2
Condensed Consolidated Statements of Stockholder's Equity.............. I-3
Condensed Consolidated Statements of Cash Flows - Six months ended
June 30, 1997 and 1998............................................... I-4
Notes to Condensed Consolidated Financial Statements................... I-5
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................. I-8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings................................................ II-1
ITEM 2. Changes in Securities............................................ II-1
ITEM 3. Defaults Upon Senior Securities.................................. II-1
ITEM 4. Submission of Matters to a Vote of Security Holders.............. II-1
ITEM 5. Other Information................................................ II-1
ITEM 6. Exhibits and Reports on Form 8-K................................. II-1
SIGNATURES................................................................. II-2
<PAGE>
Item 1. Financial Statements
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- ----------
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 92,681 $ 27,926
Trade accounts receivable, net of
allowance for doubtful accounts 18,682 15,940
Receivable from other cellular carriers 2,231 3,902
Deferred income taxes 3,257 5,402
Prepaid expenses and deposits 8,054 902
Inventory 2,607 1,280
---------- ----------
Total current assets $ 127,512 $ 55,352
Net property and equipment 145,455 151,141
Licenses, net of amortization 905,912 918,488
Other intangible assets and other assets,
at cost less accumulated amortization 22,175 19,498
---------- ----------
$1,201,054 $1,144,479
========== ==========
Liabilities and Equity
----------------------
Current liabilities:
Current installments of long-term debt $ -- $ 2,812
Payable to Price Communications Corporation 1,400 2,328
Accounts payable 7,912 13,059
Accrued interest payable 13,001 11,361
Accrued salaries and employee benefits 2,760 2,324
Other accrued liabilities 12,193 16,031
Deferred revenue 4,094 3,755
Customer deposits 810 602
---------- ----------
Total current liabilities $ 42,170 $ 52,272
Long-term debt, excluding current installments 700,000 610,188
Obligation of Parent Company 85,989 80,112
Accrued income taxes - long term 43,219 50,491
Deferred income taxes 303,539 308,901
Minority interests 8,355 7,352
Total liabilities $1,183,272 $1,109,316
---------- ----------
Commitments and contingencies -- --
Stockholder's equity 17,782 35,163
---------- ----------
$1,201,054 $1,144,479
========== ==========
</TABLE>
Note: The balance sheet at December 31, 1997 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
See accompanying notes to condensed consolidated financial statements.
I-1
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Company Predecessor Company Predecessor
------- ----------- ------- -----------
For the three months For the six months
ended June 30, ended June 30,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Service $ 45,737 $ 45,920 $ 86,421 $ 88,140
Equipment sales and installation 3,181 2,625 5,772 5,088
-------- -------- -------- --------
Total revenue $ 48,918 $ 48,545 $ 92,193 $ 93,228
-------- -------- -------- --------
Operating expenses:
Engineering, technical and other direct 7,111 8,124 13,862 15,554
Cost of equipment 6,019 5,250 11,515 11,057
Selling, general and administrative 13,588 13,844 25,305 27,204
Depreciation and amortization 11,165 8,305 22,553 16,586
-------- -------- -------- --------
Total operating expenses $ 37,883 $ 35,523 $ 73,235 $ 70,401
-------- -------- -------- --------
Operating income $ 11,035 $ 13,022 $ 18,958 $ 22,827
-------- -------- -------- --------
Other income (expense):
Interest expense, net $(18,082) $ (8,241) $(35,907) $(16,113)
Other income (expense), net (6) 91 (43) 162
-------- -------- -------- --------
Total other expense $(18,088) $ (8,150) $(35,950) $(15,951)
-------- -------- -------- --------
Income (loss) before minority interest
share of income, income taxes
and extraordinary item $ (7,053) $ 4,872 $(16,992) $ 6,876
Minority interest share of income (542) (451) (1,002) (782)
-------- -------- -------- --------
Income (loss) before income taxes
and extraordinary item $ (7,595) $ 4,421 $(17,994) $ 6,094
Income tax (expense) benefit 2,687 (1,898) 6,515 (2,394)
-------- -------- -------- --------
Income (loss) before extraordinary item $ (4,908) $ 2,523 $(11,479) $ 3,700
Extraordinary item - write-off of deferred
finance costs, net of income tax benefit
of $3,935 (5,902) -- (5,902) --
-------- -------- -------- --------
Net income (loss) $(10,810) $ 2,523 $(17,381) $ 3,700
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-2
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholder's Equity
($ in thousands)
<TABLE>
<CAPTION>
Common Stock
Class A Additional Total
----------------- paid-in Retained stockholder's
Shares Amount capital earnings equity
-------- ------ -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balances at May 29, 1997 -- $ -- $ -- $ -- $ --
Capital contribution 100 -- 44,015 -- 44,015
Net loss -- -- -- (8,852) (8,852)
-------- ---- -------- -------- --------
Balances at December 31, 1997 100 $ -- $ 44,015 $ (8,852) $ 35,163
Net loss -- -- -- (17,381) (17,381)
-------- ---- -------- -------- --------
Balances at June 30, 1998 100 $ -- $ 44,015 $(26,233) $ 17,782
======== ==== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-3
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Company Predecessor
------- -----------
For the six months
ended June 30,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (17,381) $ 3,700
--------- ---------
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 22,553 16,586
Minority interest share of income 1,003 782
Deferred income taxes (3,217) 2,219
(Gain) loss on disposal of property 37 (9)
Interest deferred and added to obligation of Parent Company 5,876 --
Payment of deferred interest -- (1,514)
Decrease (increase) in trade accounts receivable (2,742) 500
Decrease (increase) in inventory (1,327) 2,085
Increase (decrease) in accounts payable and accrued expenses (8,549) 1,799
Decrease in accrued income taxes - long term (7,272) --
Increase in accrued interest payable 1,640 --
Write-off of deferred finance costs 9,837 --
Change in other accounts 2,893 (576)
--------- ---------
Total adjustments $ 20,732 $ 21,872
--------- ---------
Net cash provided by operating activities $ 3,351 $ 25,572
--------- ---------
Cash flows from investing activities:
Capital expenditures (4,171) (31,700)
Proceeds from sales of property and equipment -- 201
Purchase of cellular systems -- (31,260)
Purchases of minority interests -- (794)
Increase in other intangible assets and other assets -- (150)
--------- ---------
Net cash used in investing activities $ (4,171) $ (63,703)
--------- ---------
Cash flows from financing activities:
Increase in short-term notes payable -- 955
Repayment of long-term debt (437,999) (3,782)
Repayment of advances from Price Communications Corporation (928)
Proceeds from long-term debt 525,000 41,000
Cash pledged for outstanding interest rate swap contracts (6,738)
Payment of debt issuance costs (13,760)
--------- ---------
Net cash provided by financing activities $ 65,575 $ 38,173
--------- ---------
Net increase in cash and cash equivalents $ 64,755 $ 42
Cash and cash equivalents at the beginning of period 27,926 1,698
--------- ---------
Cash and cash equivalents at the end of period $ 92,681 $ 1,740
========= =========
Supplemental disclosure of cash flow information:
Income taxes (received) paid, net $ 134 $ (617)
========= =========
Interest paid $ 29,177 $ 16,328
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
I-4
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
($ in thousands)
(Unaudited)
(1) Summary of Significant Accounting Policies
Organization and Acquisition
Price Communications Wireless, Inc. ("PCW" or the "Company"), a
wholly-owned subsidiary of Price Communications Cellular Holdings, Inc.
("Holdings"), a wholly-owned subsidiary of Price Communications Cellular, Inc.,
a wholly owned subsidiary of Price Communications Corporation ("PCC"), was
incorporated on May 29, 1997 in connection with the purchase of Palmer Wireless,
Inc. and subsidiaries ("Palmer" or the "Predecessor").
In May, 1997, PCC, PCW and Palmer entered into an Agreement and Plan of
Merger (the "Merger Agreement"). The Merger Agreement provided, among other
things, for the merger of PCW with and into Palmer with Palmer as the surviving
corporation (the "Merger"). In October, 1997, the Merger was consummated and
Palmer changed its name to "Price Communications Wireless, Inc."
In June, 1997, PCW entered into an agreement to sell Palmer's Fort Myers,
Florida MSA as part of the financing of the merger (the "Fort Myers Sale"). In
October, 1997, the Fort Myers Sale was consummated, and generated proceeds to
the Company of approximately $166,000. The proceeds of the Fort Myers Sale were
used to fund a portion of the acquisition of Palmer. Accordingly, no gain or
loss was recognized on the Fort Myers Sale.
Also in connection with the merger, on October 21, 1997, PCC and PCW
entered into an Asset Purchase Agreement with MJ Cellular Company, L.L.C. (the
"Georgia Sale Agreement") which provided for the sale by PCW of substantially
all of the assets used in the operation of the non-wireline cellular telephone
system serving the Georgia-1-Whitfield Rural Service Area ("Georgia-1"),
including the FCC licenses to operate Georgia-1 (the "Georgia Sale"). The sale
of the assets of Georgia-1 was consummated on December 30, 1997 for $24,200. In
January, 1998 the proceeds from the Georgia Sale were used to retire a portion
of the debt used to fund the Palmer acquisition. Accordingly, no gain or loss
was recognized on the Georgia Sale.
I-5
<PAGE>
PRICE COMMUNICATIONS WIRELESS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements - (Continued)
($ in thousands)
(Unaudited)
(1) Summary of Significant Accounting Policies - (Continued)
Basis of Presentation
The accompanying condensed consolidated financial statements of Price
Communications Wireless, Inc. and subsidiaries (the "Company") have been
prepared without audit pursuant to Rule 10-01 of Regulation S-X of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financials. In the opinion of management, all adjustments (none of
which were other than normal recurring items) considered necessary for a fair
presentation have been included. The results of operations for the interim
periods reported are not necessarily indicative of results to be expected for
the year.
For financial reporting purposes, PCW revalued its assets and liabilities
as of October 1, 1997 to reflect the price paid by PCC to acquire 100% of its
Common Stock, a process generally referred to as "push down" accounting.
The Company's condensed consolidated Statement of Operations for the
second quarter of 1997 and for the six months ended June 30, 1997 and Statement
of Cash Flows for the six months ended June 30, 1997 reflect its historical
results of operations and cash flows and are referred to as the "Predecessor"
condensed consolidated financial statements. Accordingly, the accompanying
financial statements of the Predecessor and the Company are not comparable in
all material respects since those financial statements report results of
operations and cash flows of these two separate entities
Reclassifications
Certain reclassifications have been made to the 1997 Statement of
Operations and Statement of Cash Flows to conform to the 1998 presentation.
(2) The company's condensed consolidated Balance Sheets includes $85,989 at June
30, 1998 and $80,112 at December 31, 1997 of 13 1/2% Holdings Notes which are
obligations of Holdings but are included in the Balance Sheets solely pursuant
to "push down" accounting rules.
(3) Long-Term Debt
In June 1998, PCW issued $525 million of 9.125% Senior Secured Notes
("9.125% Notes") due June 15, 2002 with interest payable semi-annually
commencing December 15, 1998. The 9.125% Notes contain covenants that restrict
the payment of dividends, incurrence of debt and sale of assets. The net
proceeds from the issuance of the 9.125% Notes were used to retire outstanding
indebtedness under the Credit Facility, including interest.
I-6
<PAGE>
(4) Subsequent Event
In July 1998, the Company called for redemption all of its
outstanding 13 1/2% Senior Secured Discount Notes due 2007. The notes were
redeemed in August 1998 at the redemption price per $1000 aggregate
principal amount of $711.61. The accreted value of the notes approximated
$91.0 million. In addition, the Company was required to pay a premium of
approximately 20% of the outstanding balance or approximately $18.2
million. The Company financed the redemption out of the net proceeds of a
new offering of 11 1/4% Senior Exchangeable Payable-in-Kind notes due
2008.
I-7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion is intended to facilitate an understanding and
assessment of significant changes and trends related to the financial condition
and results of operations of the Company. This discussion should be read in
conjunction with the Company's Condensed Consolidated Financial Statements and
related notes thereto. References to the Company also include its predecessor,
Palmer Wireless, Inc.
Results for the Predecessor for the three months ended June 30, 1997 and
for the six months ended June 30, 1997 are based solely on the historical
operations of the Predecessor prior to the merger. The discussions for the three
months ended June 30, 1998 and for the six months ended June 30, 1998 are based
upon the results of the Company.
OVERVIEW
Price Communications Wireless, Inc. ("PCW" or the "Company"), a
wholly-owned subsidiary of Price Communications Cellular Holdings, Inc.
("Holdings"), a wholly-owned subsidiary of Price Communications Corporation
Cellular, Inc., a wholly owned subsidiary of Price Communications Corporation
("PCC"), was incorporated on May 29, 1997 in connection with the purchase of
Palmer Wireless, Inc. ("Palmer).
In May, 1997, PCC, PCW and Palmer entered into an Agreement and Plan of
Merger (the "Merger Agreement"). The Merger Agreement provided, among other
things, for the merger of PCW with and into Palmer with Palmer as the surviving
corporation (the "Merger"). In October, 1997, the Merger was consummated and
Palmer changed its name to "Price Communications Wireless, Inc."
The Company is engaged in the construction, development, management and
operation of cellular telephone systems in the southeastern United States. As of
June 30, 1998, the Company provided cellular telephone service to 347,150
subscribers in Alabama, Florida, Georgia, and South Carolina in a total of 16
licensed service areas, composed of eight Metropolitan Service Areas ("MSAs")
and eight Rural Service Areas ("RSAs"), with an aggregate estimated population
of 3.3 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.
I-8
<PAGE>
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, 1997 and June 30, 1998.
June 30, December 31,
Cellular Service Area 1998 1997
--------------------- ---- ----
Dothan, Alabama................................... 94.6% 94.6%
Montgomery, Alabama............................... 92.8 92.8
Albany, Georgia................................... 86.5 86.5
Augusta, Georgia.................................. 100.0 100.0
Columbus, Georgia................................. 85.2 85.2
Macon, Georgia.................................... 99.2 99.2
Savannah, Georgia................................. 98.5 98.5
Panama City, Florida.............................. 78.4 78.4
Alabama 8 - RSA................................... 100.0 100.0
Georgia 6 - RSA................................... 96.3 96.3
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.................................. 86.5 86.5
I-9
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the Company and its predecessor, for
the periods indicated, the percentage which certain amounts bear to total
revenue.
<TABLE>
<CAPTION>
Predecessor Company Predecessor Company
----------- ------- ----------- -------
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Service ................................... 93.5% 94.6% 93.8% 94.5%
Equipment sales and installation .......... 6.5 5.4 6.2 5.5
----- ----- ----- -----
Total revenue ............................. 100.0 100.0 100.0 100.0
Operating expenses:
Engineering, technical and other direct:
Engineering and technical(1) ............ 7.2 8.5 7.7 8.2
Other direct costs of services(2) ....... 7.3 8.2 7.3 8.5
Cost of equipment(3) ..................... 12.3 10.8 12.4 11.8
Selling, general and administrative:
Sales and marketing(4) .................. 11.1 8.6 10.5 8.5
Customer service(5) ..................... 6.3 6.3 6.5 6.5
General and administrative(6) ........... 10.4 13.7 10.5 14.2
Depreciation and amortization ............ 22.8 17.1 24.5 17.8
----- ----- ----- -----
Total operating expenses ................ 77.4 73.2 79.4 75.5
Operating income ......................... 22.6% 26.8% 20.6% 24.5%
Operating income before depreciation
and amortization(7) ..................... 45.4% 43.9% 45.1% 42.3%
</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.
(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.
I-10
<PAGE>
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
Revenue. Service revenues totaled $45.7 million for the second quarter of
1998, a decrease of 0.4% from $45.9 million for the second quarter of 1997. The
decrease is primarily attributable to service revenues of the cellular telephone
systems sold in the Ft. Myers Sale and the Georgia Sale which totaled $7.3
million in the second quarter of 1997. This was substantially offset by an
increase in the average number of subscribers to 336,936 in the second quarter
of 1998 from 318,238 in 1997.
Average monthly revenue per subscriber decreased 6.5% to $45.25 for the
second quarter of 1998 from $48.41 for the second quarter of 1997. 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.
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 $3.2 million for the second
quarter of 1998 compared to $2.6 million for the second quarter of 1997. The
increase is primarily due to a 28.4% increase in gross subscriber activations in
the second quarter of 1998 compared to 1997. As a percentage of revenue,
equipment sales and installation revenue increased to 6.5% in the second quarter
of 1998 from 5.4% in the second quarter of 1997.
Operating Expenses. Engineering and technical expenses decreased by 15.2%
to $3.5 million for the second quarter of 1998 from $4.1 million in the second
quarter of 1997. As a percentage of revenue, engineering and technical expenses
decreased to 7.2% from 8.5% for the second quarter of 1998 and 1997,
respectively. Engineering and technical expenses attributable to the cellular
telephone systems sold in the Ft. Myers Sale and Georgia Sale totaled $.5
million for the second quarter of 1997.
Other direct costs of service decreased to $3.6 million for the second
quarter of 1998 from $4.0 million for the second quarter of 1997 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
declined to 7.3% from 8.2%, reflecting improved interconnection agreements with
LECs, as well as efficiencies gained from the growing subscriber base. Other
direct costs of service attributable to the cellular telephone systems sold in
the Ft. Myers Sale and Georgia Sale totaled $1.0 million for the second quarter
of 1997.
The cost of equipment increased 14.6% to $6.0 million for the second
quarter of 1998 from $5.3 million for the second quarter of 1997, primarily as a
result of an increase in gross subscriber activations for the same period.
Equipment sales resulted in losses of $2.8 million in 1998 versus $2.6 million
in 1997. The Company sells equipment below its costs in an effort to address
market competition and improve market share. Cost of equipment attributable to
the cellular telephone systems sold in the Ft. Myers Sale and Georgia Sale
totaled $.9 million for the second quarter of 1997.
Selling, general and administrative expenses decreased 1.8% to $13.6
million in the second quarter of 1998 from $13.8 million in the second quarter
of 1997. These expenses are comprised of (i) sales and marketing costs, (ii)
customer service costs and (iii) general and administrative expenses.
Sales and marketing costs increased 31.8% to $5.4 million for the second
quarter of 1998 from $4.1 million for the same period in 1997. This increase is
primarily due to the 28.4% increase in gross
I-11
<PAGE>
subscriber activations and the costs to acquire them, including advertising and
commissions. As a percentage of total revenue, sales and marketing costs
increased to 11.1% for the second quarter of 1998 compared to 8.6% for the
second quarter of 1997. The Company's cost to add a net subscriber, including
loss on telephone sales, decreased to $220 for the second quarter of 1998 from
$233 for the second quarter of 1997. This decrease in cost to add a net
subscriber was caused primarily by decreased losses from the Company's sales of
cellular telephones. Sales and marketing expenses attributable to the cellular
telephone systems sold in the Ft. Myers Sale and Georgia Sale totaled $.5
million for the second quarter of 1997.
Customer service costs remained flat at $3.1 million for the second
quarter of 1998 and the second quarter of 1997. As a percentage of revenue,
customer service costs remained at 6.3% for the second quarter of both 1998 and
1997. Customer service expenses attributable to the cellular telephone systems
sold in the Ft. Myers Sale and Georgia Sale totaled $.4 million for the second
quarter of 1997.
General and administrative expenditures decreased 23.4% to $5.1 million
for the second quarter of 1998 from $6.7 million for the second quarter of 1997,
due primarily to expense savings and reorganization efforts. General and
administrative expenses decreased as a percentage of revenue to 10.4% in the
second quarter of 1998 from 13.7% in the second quarter of 1997. 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. General and administrative expenses
attributable to the cellular telephone systems sold in the Ft. Myers Sale and
Georgia Sale totaled $.5 million for the second quarter of 1997.
Depreciation and amortization increased 34.4% to $11.2 million for the
second quarter of 1998 from $8.3 million for the second quarter of 1997. This
increase was primarily due to the depreciation and amortization associated with
the new carrying value of assets as a result of the "push down" of the purchase
price to the Company. As a percentage of revenue, depreciation and amortization
increased to 22.8% for the second quarter of 1998 compared to 17.1% for the
second quarter of 1997. Depreciation and amortization attributable to the
cellular telephone systems sold in the Ft. Myers Sale and Georgia Sale totaled
$.8 million for the second quarter of 1997.
Operating income decreased 15.3% to $11.0 million in the second quarter of
1998, from $13.0 million for the second quarter of 1997. This decrease in
operating results is attributable primarily to the increase in depreciation and
amortization expense.
Net Interest Expense, Income Taxes and Net Income. Net interest expense
increased 120.7% to $18.1 million for the second quarter of 1998 from $8.2
million in the second quarter of 1997 primarily due to rate increases and
additional borrowings incurred as a result of the recent merger.
Income tax benefit was $2.7 million in the second quarter of 1998
representing utilization of the net operating losses carried back against
previous earnings. Income tax expense was $1.9 million in the second quarter of
1997 based on earnings.
Net loss for the second quarter of 1998 was $10.8 million compared to net
income of $2.5 million for the second quarter of 1997. The decrease in net
income is primarily attributable to increases in interest expense, depreciation
and amortization expense and the $5.9 million net write-off of deferred finance
costs recorded as an extraordinary item.
I-12
<PAGE>
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Revenue. Service revenues totaled $86.4 million for the first half of
1998, a decrease of 2.0% from $88.1 million for the first half of 1997. The
decrease is primarily attributable to service revenues of the cellular telephone
systems sold in the Ft. Myers Sale and the Georgia Sale which totaled $14.9
million in the first half of 1997. This was substantially offset by an increase
in the average number of subscribers to 328,378 in the first half 1998 from
302,734 in 1997.
Average monthly revenue per subscriber decreased 8.7% to $43.86 for the
first half of 1998 from $48.06 for the first half of 1997. 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. 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 $5.8 million for the first
half of 1998 compared to $5.1 million for the first half of 1997. The increase
is primarily due to a 15.6% increase in gross subscriber activations in the
first half of 1998 compared to 1997. As a percentage of revenue, equipment sales
and installation revenue increased to 6.2% in the first half of 1998 from 5.5%
in the first half of 1997.
Operating Expenses. Engineering and technical expenses decreased by 6.8%
to $7.1 million for the first half of 1998 from $7.7 million in the first half
of 1997. As a percentage of revenue, engineering and technical expenses
decreased to 7.7% from 8.2% for the first half of 1998 and 1997, respectively.
Engineering and technical expenses attributable to the cellular telephone
systems sold in the Ft. Myers Sale and Georgia Sale totaled $.9 million for the
first half of 1997.
Other direct costs of service decreased to $6.7 million for the first half
of 1998 from $7.9 million for the first half of 1997. 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
declined to 7.3% from 8.5%, reflecting improved interconnection agreements with
LECs, as well as efficiencies gained from the growing subscriber base. Other
direct costs of service attributable to the cellular telephone systems sold in
the Ft. Myers Sale and Georgia Sale totaled $2.2 million for the first half of
1997.
The cost of equipment increased 4.1% to $11.5 million for the first half
of 1998 from $11.1 million for the first half of 1997, primarily as a result of
gross subscriber activations for the same period. Equipment sales resulted in
losses of $5.7 million in 1998 versus $6.0 million in 1997. The Company sells
equipment below its costs in an effort to address market competition and improve
market share. Cost of equipment attributable to the cellular telephone systems
sold in the Ft. Myers Sale and Georgia Sale totaled $1.8 million for the first
half of 1997.
Selling, general and administrative expenses decreased 6.9% to $25.3
million in the first half of 1998 from $27.2 million in the first half of 1997.
These expenses are comprised of (i) sales and marketing costs, (ii) customer
service costs and (iii) general and administrative expenses.
Sales and marketing costs increased 21.5% to $9.7 million for the first
half of 1998 from $8.0 million for the same period in 1997. This increase is
primarily due to the 15.6% increase in gross subscriber activations and the
costs to acquire them, including advertising and commissions. As a
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percentage of total revenue, sales and marketing costs increased to 10.5% for
the first half of 1998 compared to 8.5% for the first half of 1997. The
Company's cost to add a net subscriber, including loss on telephone sales,
decreased to $221 for the first half of 1998 from $234 for the first half of
1997. This decrease in cost to add a net subscriber was caused primarily by
decreased losses from the Company's sales of cellular telephones. Sales and
marketing expenses attributable to the cellular telephone systems sold in the
Ft. Myers Sale and Georgia Sale totaled $.9 million for the first half of 1997.
Customer service costs remained flat at $6.0 million for the first half of
1998 and the first half of 1997. As a percentage of revenue, customer service
costs remained at 6.5% for the first half of both 1998 and 1997. Customer
service expenses attributable to the cellular telephone systems sold in the Ft.
Myers Sale and Georgia Sale totaled $.7 million for the first half of 1997.
General and administrative expenditures decreased 26.8% to $9.7 million
for the first half of 1998 from $13.2 million for the first half of 1997, due
primarily to expense savings and reorganization efforts. General and
administrative expenses decreased as a percentage of revenue to 10.5% in the
first half of 1998 from 14.2% in the first half of 1997. 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. General and administrative expenses
attributable to the cellular telephone systems sold in the Ft. Myers Sale and
Georgia Sale totaled $1.2 million for the first half of 1997.
Depreciation and amortization increased 35.9% to $22.6 million for the
first half of 1998 from $16.6 million for the first half of 1997. This increase
was primarily due to the depreciation and amortization associated with the new
carrying value of assets as a result of the "push down" of the purchase price to
the Company. As a percentage of revenue, depreciation and amortization increased
to 24.5% for the first half of 1998 compared to 17.8% for the first half of
1997. Depreciation and amortization attributable to the cellular telephone
systems sold in the Ft. Myers Sale and Georgia Sale totaled $1.5 million for the
first half of 1997.
Operating income decreased 16.9% to $19.0 million in the first half of
1998, from $22.8 million for the first half of 1997. This decrease in operating
results is attributable primarily to the increase in depreciation and
amortization expense.
Net Interest Expense, Income Taxes and Net Income. Net interest expense
increased 123.0% to $35.9 million for the first half of 1998 from $16.1 million
in the first half of 1997 primarily due to rate increases and additional
borrowings incurred as a result of the recent merger.
Income tax benefit was $6.5 million in the first half of 1998 representing
utilization of the net operating losses carried back against previous earnings.
Income tax expense was $2.4 million in the first half of 1997 based on earnings.
Net loss for the first half of 1998 was $17.4 million compared to net
income of $3.7 million for the first half of 1997. The decrease in net income is
primarily attributable to increases in interest expense, depreciation and
amortization expense and the $5.9 million net write-off of deferred finance
costs recorded as an extraordinary item.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's long-term capital requirements consist of funds for capital
expenditures, acquisitions and debt service. Historically, the Company has met
its capital requirements primarily through equity contributions, bank debt, and,
to a lesser extent, operating cash flow.
In June 1998, PCW issued $525 million of 9.125% Senior Secured Notes
("9.125% Notes") due June 15, 2002 with interest payable semi-annually
commencing December 15, 1998. The 9.125% Notes contain covenants that restrict
the payment of dividends, incurrence of debt and sale of assets. These Notes
replaced
In July 1997, PCW issued $175 million of 11.75% Senior Subordinated Notes
("11.75% Notes") due July 15, 2007 with interest payable semi-annually
commencing January 15, 1998. The 11.75% Notes contain covenants that restrict
the payment of dividends, incurrence of debt and sale of assets.
In August 1997 Holdings 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.
In July 1998, the Company called for redemption all of its outstanding 13
1/2% Senior Secured Discount Notes due 2007. The notes were redeemed in August
1998 at the redemption price per $1000 aggregate principal amount of $711.61.
The accreted value of the notes approximated $91.0 million. In addition, the
Company was required to pay a premium of approximately 20% of the outstanding
balance or approximately $18.2 million. The Company financed the redemption out
of the net proceeds of a new offering of 11 1/4% Senior Exchangeable
Payable-in-Kind notes due 2008.
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
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
27 Financial Data Schedule
(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 CELLULAR HOLDINGS, INC.
Date: August 28, 1998 By: /s/ Robert Price
-------------------------------
Robert Price
Director, President and Treasurer
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INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
27 Financial Data Schedule*
* Previously Filed
